Michelangelo Alfredo Mascarello & Anor v Registrar-General of New South Wales

The proceedings

1. These proceedings arise out of a claim made by Mr Michelangelo Alfredo Mascarello and Mrs Maria Luisa Mascarello (Plaintiffs) for compensation from the NSW Torrens Assurance Fund from the Registrar-General of NSW (RG) (First Cross-Defendant). This claim was first made on 30 March 2014, as noted in the affidavit of Mr Mascarello of 1 March 2016 (Aff MAM1) at page 14 and the affidavit of Mrs Mascarello of 1 March 2016 (Aff MLM1) at page 14.
2. The parties to these proceedings and the Court were informed in the course of the proceedings that the Plaintiffs had settled their claims against the RG as of 7 February 2018 for $3,000,050.00 (the Settlement).
3. These proceedings concern a subrogated cross-claim by the RG against K R Lawyers and Consultants Pty Limited (K R Lawyers) (Second Cross-Defendant) pursuant to sections 133(2) and (4) of the Real Property Act 1900 (NSW) (RPA).
4. The RG's claim against K R Lawyers is in negligence. K R Lawyers, particularly the sole director and sole solicitor of this company Mrs Anne Kazas-Rogaris (AKR), has been alleged by the RG of negligently contributing to the loss of the Mascarellos, who were victims of fraud committed by their eldest son.
5. These proceedings also concern a subrogated cross-claim by the RG against NWC Finance (No 5) Pty Limited (NWC) (Third Cross-Defendant) pursuant against sections 133(2) and (4) of the RPA. The RG claims that it is entitled to recover from NWC the amount settled with the Plaintiffs, on the basis that the obligation giving rise to the payment was void as a penalty.

The Mascarello properties

1. The Plaintiffs were registered proprietors of the following three properties: 1. 102 Brenan Street, Lilyfield, folio identifier 1/14250 (Lilyfield Property) 2. 7/39 Norton Street, Leichhardt, folio identifiers 20/SP20276 and 16/SP20276 (Leichhardt Property); and 3. 11 Shipley Avenue, North Strathfield, folio identifier 9/B/5360 (Strathfield Property).
2. They had purchased these three properties between the dates 24 June 1974 and 5 June 1991 with the assistance of loans from the then Commercial Banking Company of Sydney and Commonwealth Bank of Australia, as asserted in the affidavit of Michelangelo Alfredo Mascarello (or Micky Mascarello) of 1 March 2016 (Aff MAM1) at pages 3-6. This is corroborated by the affidavit of Maria Luisa Mascarello of 1 March 2016 (Aff MLM1) at pages 3-5. It is uncontroversial between the parties that, prior to the Plaintiffs being the victims of fraud, the Mascarellos had repaid in full any loans obtained in relation to these three properties.

Conduct of Dennis Mascarello

1. The Mascarellos were the victims of fraud in which their eldest son, Dennis Mascarello (Dennis), fraudulently procured multiple loans using the Plaintiff's three properties as security.
2. This fraud it is alleged involved a number of steps: 1. On 28 November 2012, Dennis registered the company Mascarello Holdings Pty Limited (Mascarello Holdings), with both his parents unknowingly listed as directors and the registered office 104A Great North Road Five Dock NSW 2046 (Five Dock address) (Exhibit MM1 44-46); 2. The Five Dock address was that of a hair salon operated by Dennis' wife Maria Solari, and not any of the addresses where his parents either lived or worked (Aff MAM1 6; Aff MLM1 12); 3. Dennis procured the genuine identification documents of his parents, the Plaintiffs. This at least included their original passports that were stored in their bedroom drawers, their drivers' licenses that were stored in each of their wallets, the expired Heavy Vehicle Driver's Licence of Mr Mascarello and their expired joint Medicare card stored in their bedroom drawers (Aff MAM1 12-13; Aff MLM1 11-13); 4. Dennis enlisted the services of a mortgage broker Giulia Penna (Ms Penna) to assist procuring loans for Mascarello Holdings, who is described by AKR in her affidavit of 25 November 2016 (Aff KR1) at pages 4-6; 5. Dennis enlisted the services of two imposters to masquerade as the Plaintiffs and attend the offices of AKR on a number of occasions, assumedly enlisting these imposters for their similarity in appearance to the Plaintiffs (AKR1 6-20); 6. AKR was retained to witness the fraudulent signatures of, and act for, the imposters (through the company Mascarello Holdings) as they pretended to be the Plaintiffs in relation to a number of loans from approximately October 2011 to October 2013 (Aff KR1 6-20); 7. Of particular relevance to this case, in one instance Dennis and the imposters used this charade to enter into a third tier loan agreement with NWC on 30 September 2013 for the principal of $1,540,000.00, with a variable lower rate of 36% p.a. and higher rate of 72% p.a. (Exhibit DM1 11-12), using the imposters' fraudulent signatures witnessed before AKR to put forward the Plaintiff's three properties as security (the Loan).
3. As a result of these steps, a mortgage was registered in favour of NWC over the Lilyfield Property on 14 October 2013 (Exhibit DM1 5-6), a caveat was lodged in favour of NWC over the Leichhardt Property on 14 October 2013 (Exhibit DM1 7-8) and a mortgage was registered in favour of NWC over the Strathfield Property on 21 November 2013 (Exhibit DM1 9-10).
4. It appears Dennis used the monies received from the Loan for his own purposes, and did not inform the Mascarellos of any of these fraudulent steps.
5. Dennis has pleaded guilty to criminal charges in respect of this fraud and is awaiting sentence at the time of writing this judgment.

Conduct of Mascarellos

1. The Plaintiffs first became aware of this fraud when they received a letter from NWC at their home (the Strathfield Property) on 17 February 2014. This letter was addressed to them as tenants of the property and instructed them to pay their rent to NWC directly as NWC had a mortgage over the property. The Plaintiffs were not tenants of the Strathfield Property and were unaware of any mortgages held by NWC (Aff MAM1 6; Aff MLM1 6).
2. When Dennis arrived at the Strathfield Property on 17 February 2014, the Mascarellos questioned him about the tenant letter, wherein they report he replied words to the effect (Aff MAM1 16; Aff MLM1 16): Everything is under control! Don't worry about it.
3. On 26 February 2014, the Mascarellos engaged a solicitor for legal advice, who informed them shortly afterwards that a number of previously unknown caveats and mortgages had been registered over their properties (Aff MAM1 6; Aff MLM1 6).
4. On 30 March 2014, the Mascarellos made a joint claim for compensation from the NSW Torrens Assurance Fund (Aff MAM1 14; MLM1 14; Exhibit MM1 190-224).
5. The Mascarellos then proceeded to sell their three properties and apply the proceeds of the sales to the Loan owed to NWC by Mascarello Holdings: 1. On 3 July 2014, the Mascarellos sold the Lilyfield Property for $872,000.00, using the proceeds of this sale to pay a sum of $780,302.21 to NWC (Aff MAM1 15; Aff MLM1 15); 2. On 15 September 2014, the Mascarellos entered into a Deed with NWC (the Deed) to pay a further sum of $700,000.00 pursuant to the Loan, where they subsequently sold the Leichhardt Property for $581,000.00 and used the proceeds of this sale to pay a sum of $516,471.32 to NWC (Aff MAM1 14; Aff MLM1 14); 3. On 28 November 2014, the Mascarellos sold their Strathfield Property for $1,200,000.00, using the proceeds of this sale to pay a sum of $700,000.00 to NWC (Aff MAM1 15-16; Aff MLM1 15).
6. There are no suggestions by any parties that the Mascarellos did anything other than attempt, in good faith, to repay the Loan held by NWC over Mascarello Holdings by selling their three properties and entering into the Deed with NWC.
7. It is also uncontroversial that the Mascarellos knew nothing about Dennis' fraudulent conduct, or the involvement of the imposters, or the role of Ms Penna in the procuring of the Loan, until after the fraud was committed (see for example RG's Outline of Submissions at [6]-[15]).

Conduct of K R Lawyers and AKR

1. K R Lawyers and AKR became involved in the circumstances leading to these proceedings via the mortgage broker Ms Penna, who referred clients, including but not limited to Dennis and the imposters, to K R Lawyers.
2. AKR states that she first met Ms Penna in approximately the middle of 2010. Ms Penna then began to refer work to her from approximately the middle of 2011. This work is reported to initially involve AKR witnessing signatures for various clients, and progressed to referred conveyancing work and legal advice for borrowers about documents relating to private loans (Aff KR1 4).
3. AKR states that referrals from Ms Penna were not particularly frequent, estimating Ms Penna would have referred approximately eight clients to K R Lawyers in any given six month period (Aff KR1 5).
4. According to the affidavit of AKR, K R Lawyers began to act for Dennis and the imposters through the referral of Ms Penna (Aff KR1 5-21): 1. In October 2011, Ms Penna spoke to AKR and said words to the effect: I'm sending Danny and Maria Mascarello round to see you. Danny is Maria's son and she's looking at buying his house. 1. At some point prior to or during the dealings with Dennis and the imposters, Ms Penna is reported to have said words to the effect: Micky and Maria are my uncle and aunt. 1. In October 2011, AKR met with Dennis and a woman introduced as 'Maria Mascarello' who is now acknowledged to have been an imposter. This meeting was in relation to a proposed purchase which did not go through and AKR does not claim to have witnessed any documents or signatures. This engagement was recorded in the first file of AKR (First File) (Exhibit AKR1 20-45); 2. In December 2012, AKR was referred again by Ms Penna in relation to a short term loan with DLF 102 Pty Ltd (DLF Loan) for the purported 'Mascarellos'. AKR met Dennis, the imposter already introduced as 'Maria Mascarello' and another imposter who was introduced as 'Micky Mascarello'. They produced the original identification of the Plaintiffs, although AKR is not certain what identification the female imposter provided, as noted in AKR's affidavit of 24 November 2017 (Aff KR2) at page 2. AKR maintains she did not notice the address in the identification documents was different to the address on the loan documents, but that the imposters resembled the photographs on the identification documents and that she believed the imposters were the persons depicted on the photographic identification documents (Aff KR2 3). No copies of the loan documents or identification produced are in the second file of AKR (Second File) (Exhibit AKR1 46-99). AKR claims from then onwards (Aff KR2 2): On every occasion on which I witnessed the Signatories' signatures on documents associated with any of the Loans, each of them produced at least one form of identification which included a photograph (being a driver's license and/or passport). 1. On 13 June 2013, Ms Penna referred work to AKR in relation to Dennis and the imposters involving a further loan with Kazzi Family Holdings Pty Ltd (Kazzi Loan). AKR states she believed she witnessed signatures and took the identification documents of Dennis and the imposters in relation to this loan on 3 June 2013. Copies of both the Plaintiffs drivers' licenses, their joint Medicare card and Mrs Mascarello's Italian passport can be found in Exhibit AKR1 295-296. See also Fourth File (Exhibit AKR1 279-421); 2. On 17 June 2013, AKR received a phone call from someone who introduced themselves as 'Micky Mascarello' in relation to the DLF Loan. AKR then proceeded to purport to act for who she thought were the Plaintiffs, but were in fact Dennis and the imposters, negotiating a settlement in relation to the DLF Loan (Third File) (Exhibit AKR1 100-278); 3. On 20 June 2013, AKR met Dennis and the imposters in relation to another loan with Francesco Pascuzzo (First Pascuzzo Loan) where she states the imposters produced identification of some sort, although no copies of the identification are present in her files for this loan (Fifth File) (Exhibit AKR1 422-602). AKR relates she displayed concern for why they were entering into another loan, wherein the imposter posing as Mr Mascarello replied: This is how Giulia [by which I understood Micky to mean Ms Penna] has told us to do it. We've known her for years. Whatever she says is fine. 1. Following this AKR provided the parties with advice in relation to the loan and again witnessed their signatures on relevant loan documents; 2. On 4 July 2013, AKR met Dennis and the imposters in relation to another loan with Francesco Pascuzzo (Second Pascuzzo Loan), wherein she states she reviewed their photographic identification and witnessed their signatures, allowing the loan to be successfully processed. Again no copies of identification documents are in her Fifth File for this loan; 3. On 27 September 2013, AKR was contacted by Ms Penna who referred Dennis and the imposters to her for the purposes of the final NWC Loan (Sixth File) (Exhibit AKR1 606-1131). On 10 October 2013 AKR, as directed by the solicitor acting for NWC, completed a written 100-Point Identification Check of the imposters for the purposes of the loan (Aff KR2 5 and Annexure A). AKR, on 10 October 2013, witnessed the signatures of the imposters and made certified copies of Mr Mascarello's Italian passport and driver's license, as well as certified copies of Mrs Mascarello's Italian passport and driver's license (Exhibit AKR1 770-772). The Sixth File also contains a certified copy of Mr Mascarello's driver's license (Exhibit AKR1 913). It appears from the affidavit of Lawrence Adrian White of 19 October 2017 that he never certified this copy, and that on the balance of probabilities, his Justice of the Peace Registration Number was fraudulently used and signature forged by Dennis and/or imposters.
5. With respect to the role of Ms Penna in referring Dennis and the imposters to K R Lawyers, in the affidavit of AKR of 12 February 2018 (Aff KR3), AKR asserts Ms Penna, on or about December 2013, came to the conference room of K R Lawyers whilst Dennis and the imposters were in the same conference room. Ms Penna is reported to have greeted Dennis and the imposters, and not to have said words to the effect "those are not the Mascarellos" or "those are not my aunt and uncle" (Aff KR3 3).
6. AKR states she was not aware of any ASIC Order or conviction for fraud relating to Ms Penna during the period in which she dealt with Ms Penna between October 2011 and October 2013 (Aff KR3 4). AKR also states as far as she is aware all the other persons referred to K R Lawyers by Ms Penna, with the exception of Dennis and the imposters, were genuine (Aff KR3 4).
7. In the affidavit of AKR of 13 February 2018 (Aff KR4), AKR asserts she was unaware during the period in which she dealt with Ms Penna between about October 2011 and October 2013 that Ms Penna was an undischarged bankrupt (Aff KR4 4).
8. The dealings of AKR set out in detail in her four affidavits are referred to by the then secretary for K R Lawyers, Lena Pace, in her affidavit of 10 November 2017. Particularly, on 13 October 2017, Lena Pace asserts she photocopied the Plaintiffs drivers' licenses and Italian passports wherein she observes (Affidavit of Lena Pace as of 10 November 2017): The photographs appearing on the identification described in paragraph 19, above, [the drivers' licenses and Italian passports] appear to me to be the same persons referred to above as the Mascarellos. If they were not the same persons, they greatly resembled them.

Conduct of NWC

1. As noted, NWC entered into the loan with Mascarello Holdings on 30 September 2013 for principal of $1,540,000.00, with a variable lower rate of 36% p.a. and higher rate of 72% p.a. (Exhibit DM1 11-12).
2. In relation to this loan, Bransgroves Lawyers Pty Limited acting for NWC produced the mortgage memorandum AF166417J (Exhibit DM1 19-80). It provided in clauses 249-251 (the Lender being NWC and the Debtor being Mascarello Holdings): 249 The Lender must be paid interest on the Debt. 250 The Debtor is required as a primary obligation to ensure the interest is paid to the Lender. 251 Interest must be paid at the Higher Rate. However if: (a) the Lender, on every day on which interest is payable under the Agreements, is paid the interest owing; and (b) the Debtor and Co-Surety duly observe and perform all the terms, covenants and conditions contained in and implied by the Agreements; and (c) no Event of Default has occurred. then the Lender will accept payment of interest at the Lower Rate for the payment in question only.
3. There is no suggestion NWC acted other than as a bona fide mortgagee for value without notice, and there is no allegation of improper conduct on behalf of NWC.
4. As noted, the Mascarellos subsequently entered into the Deed of release with NWC on 15 September 2014 in respect of the loan agreement entered into by Dennis and the imposters (via Mascarello Holdings) on 11 October 2013 (see Exhibit DM1 99-107). There is no dispute between the parties that the Mascarellos entered into the Deed.
5. The Deed recites, inter alia: [D] It was a term of the Agreement that the Borrower would pay interest at a rate of 72% per on a monthly basis. NWC Finance agreed to accept an interest rate of 36% per annum payable on a monthly basis if the loan was not in default. … [M] Pursuant to the terms set out in this Deed, the Guarantor has agreed to pay the Settlement Sum in full and final satisfaction of the debt owing to NWC Finance. … 6. Bar 6.1 Bar to Proceedings NWC Finance may plead this document as a complete defence and/or bar to any action, suit or proceedings commenced, continued or taken, or steps in any such action, suit or proceedings taken by the Borrower and/or Guarantor in contravention of clause 4 of this Deed against NWC Finance. However, this clause shall not affect any right of a party to this Deed to bring any action, suit or proceeding for a breach of this Deed. 7. Release 7.1 Borrower and Guarantor Release On the Borrower paying the Settlement Sum, NWC Finance releases and forever discharges and releases the Borrower and Guarantor from any liability past, present or future from all claims, suits, demands, actions or proceedings arising out of or in connection with the Agreement. 7.2 NWC Finance Release The Borrower and Guarantor releases and forever discharges and releases NWC Finance from any liability past, present or future from all claims, suits, demands, actions or proceedings arising out of or in connection with the Agreement.

Procedural history

1. The Plaintiffs originally made a claim against the RG on or around 30 March 2014. A copy of this claim is found at Exhibit MM1 at pages 190-224.
2. The Mascarellos entered into the Deed with NWC on 15 September 2014. Pursuant to the Deed they agreed, inter alia, to pay a sum of $700,000.00 to NWC. This was paid on 19 September 2014. A copy of the Deed is found at Exhibit DM1 at pages 99-107.
3. The Plaintiffs commenced proceedings against the RG filed on 17 August 2015. In these proceedings they claimed they were entitled to payment of compensation from the Torrens Assurance Fund pursuant to section 129(1) of the RPA.
4. The Plaintiffs also claimed against K R Lawyers on 5 September 2017. In an Amended Statement of Claim filed on 5 September 2017, the Plaintiffs claimed in negligence that K R Lawyers owed a duty of care to the Plaintiffs and breached said duty of care that caused the Plaintiffs' loss or damage arising from NWC obtaining an indefeasible interest in their three properties. The particulars of this claim can be found in the Plaintiffs' Amended Statement of Claim dated 5 September 2017 at pages 11-17.
5. The Plaintiffs have since abandoned their claim against K R Lawyers following the settlement of their case against the RG.
6. In response to the Plaintiff's claims against the RG and K R Lawyers, the RG cross-claimed against Dennis, K R Lawyers and NWC, as detailed in Further Amended Statement of Cross Claim filed 12 October 2017.
7. As against Dennis, K R Lawyers and NWC, the RG sought damages in the amount of any amount of compensation that the Court orders the RG to pay the Plaintiffs from the Torrens Assurance Fund, costs and such further or other orders as the Court thinks fit (see Further Amended Statement of Cross Claim filed 12 October 2017 9-12).
8. The Plaintiffs settled their claim with the RG as of 7 February 2018 for $3,000,050.00.
9. NWC did originally cross-claim against K R Lawyers in negligence as of 27 July 2016, although NWC has abandoned this claim as of its formal Opening Submissions dated 9 February 2018.
10. As a result, these proceedings involve the remaining claim of the RG against Dennis, K R Lawyers and NWC. This involves the RG's right of subrogation under sections 133(2) and (4) of the RPA. The RG seeks to stand in the position of the Plaintiffs in any rights and remedies they may have against Dennis, K R Lawyers and NWC, notwithstanding the Plaintiffs themselves no longer pursue any further claims against any parties.

Duty of care

1. In Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 (Chandra), Bryson AJ examined the duty of care owed by a solicitor, Mr Miller, to registered proprietors of land. The solicitor never met the registered proprietors of land, but instead dealt with an imposter who defrauded the registered proprietors from their land. His Honour observed at paragraph [100]: [100] Duty to the plaintiffs. Where a solicitor acts for the registered proprietor of land under a contractual retainer, as Mr Miller thought he was acting, implied contractual duties deprive the question of whether there is a concurrent duty to the registered proprietors under tort law of some of its importance. There can, in my opinion, be no doubt about the existence of a duty of care under tort law where a solicitor conducts legal business on behalf of or in the interests of a person who is unable to enter into a contract of retainer because of some disability or incapacity. Mr Miller thought he had a contract of retainer but did not; and he thought that the legal business he did was done in the interest of the plaintiffs. In all respects, except that they did not know what Mr Miller was doing, the plaintiffs and their interests stood to be affected by negligence of Mr Miller as much as and perhaps even more than they would have been affected had Mr Miller actually had a retainer from the plaintiffs.
2. The decision of Bryson J in Chandra was distinguished by Nettle JA in St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245, who stated in paragraphs [86]-[88] (references omitted): [86] Finally, on this aspect of the matter, counsel for Quinerts referred to a decision of Bryson AJ, sitting as a judge of the Equity Division, in Chandra v Perpetual Trustees Victoria Ltd, in which a solicitor's negligent breach of duty resulted in a fraudster obtaining a new duplicate certificate of title and the lender advancing funds on the faith of a fraudulent mortgage. The fraudster was held to be a concurrent wrongdoer in relation to the lender's claim against the solicitor. [87] In my view, there is nothing in Bryson AJ's reasoning or conclusion which is inconsistent with the conclusion to which I have come in this case. The facts in Chandra were that, but for the solicitor's negligence, the fraudster would not have got his hands on the duplicate certificate of title and so would not have been able to deceive the lender. But for that, there would not have been any loan. Consequently, the damage which the solicitor caused was the damage which resulted from bank making a loan which it would not otherwise have made. Similarly, but for the fraud, the bank would not have made the loan. In the result, the damage caused by the fraudster was the same damage as resulted from the bank making a loan which it otherwise would not have made. It followed that the damage caused by the fraudster was the same damage as was the subject of the lender's claim against the solicitor and, therefore, the fraudster was a concurrent wrongdoer in relation to the lender's claim against the solicitor. [88] That stands in contrast to the facts of this case, where the damage caused by the Borrower and the guarantor by their failure to repay the loan was different to the damage caused by Quinerts' negligence in the valuation of the property. Here, the Borrower and the guarantor are not liable in respect of the loss which is the subject of the Bank's claim against Quinerts and so in my view are not concurrent wrongdoers.
3. Sections 5B and 5C of the Civil Liability Act 2002 (NSW) (CLA) also provide: 5B GENERAL PRINCIPLES (1) A person is not negligent in failing to take precautions against a risk of harm unless: (a) the risk was foreseeable (that is, it is a risk of which the person knew or ought to have known), and (b) the risk was not insignificant, and (c) in the circumstances, a reasonable person in the person's position would have taken those precautions. (2) In determining whether a reasonable person would have taken precautions against a risk of harm, the court is to consider the following (amongst other relevant things): (a) the probability that the harm would occur if care were not taken, (b) the likely seriousness of the harm, (c) the burden of taking precautions to avoid the risk of harm, (d) the social utility of the activity that creates the risk of harm. 5C OTHER PRINCIPLES In proceedings relating to liability for negligence: (a) the burden of taking precautions to avoid a risk of harm includes the burden of taking precautions to avoid similar risks of harm for which the person may be responsible, and (b) the fact that a risk of harm could have been avoided by doing something in a different way does not of itself give rise to or affect liability for the way in which the thing was done, and (c) the subsequent taking of action that would (had the action been taken earlier) have avoided a risk of harm does not of itself give rise to or affect liability in respect of the risk and does not of itself constitute an admission of liability in connection with the risk.
4. Also of relevance to this case is section 5O of the CLA: 5O STANDARD OF CARE FOR PROFESSIONALS (1) A person practising a profession ("a professional") does not incur a liability in negligence arising from the provision of a professional service if it is established that the professional acted in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice. (2) However, peer professional opinion cannot be relied on for the purposes of this section if the court considers that the opinion is irrational. (3) The fact that there are differing peer professional opinions widely accepted in Australia concerning a matter does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section. (4) Peer professional opinion does not have to be universally accepted to be considered widely accepted.
5. K R Lawyers concede that they owed a duty of care to the Plaintiffs, specifically at paragraph [3] of the Short Submissions in Response to the RG's Submissions.
6. K R Lawyers nevertheless submit that the circumstances in Chandra should be distinguished from the facts at hand. At paragraphs [7] of the Short Submissions in Response to the RG's Submissions dated 15 February 2018, K R Lawyers suggest Chandra is far removed from the specific circumstances before this Court. They suggest this is because AKR was simply verifying identification (using genuine identity documents) and believed that she had met with the real clients.

Standard of care

1. Barristers and solicitors owe a duty of care to those whom they advise and for whom they act, with the duty being to exercise reasonable care and skill in the provision of professional advice. The standard of care and skill is that which may be reasonable expected of practitioners, and in the case of specialised practitioners, that which may be expected of the ordinary skilled person exercising and professing to have that special skill: Heydon v NRMA Ltd [2000] NSWCA 374 at [146] per Malcolm AJA.
2. Gageler J, agreeing with the orders proposed by the majority in Badenach v Calvert [2016] HCA 18 (Badenach v Calvert), but publishing separate reasons, noted at [57] (references omitted): [57] Subject to statutory or contractual exclusion, modification or expansion, the duty of care which a solicitor owes to a client is a comprehensive duty which arises in contract by force of the retainer and in tort by virtue of entering into the performance of the retainer. The duty is to exercise that degree of care and skill to be expected of a member of the profession having expertise appropriate to the undertaking of the function specified in the retainer. Performance of that duty might well require the solicitor not only to undertake the precise function specified in the retainer but to provide the client with advice on appurtenant legal risks. Whether or not performance of that duty might require the solicitor to take some further action for the protection of the client's interests beyond the function specified in the retainer is a question on which differences of view have emerged. That question was not addressed in argument, and need not be determined in this appeal.
3. This is not to say, however, that a solicitor or barrister will be bound by such a standard of care only in instances of a retainer. This was noted by the majority of French CJ, Kiefel and Keane JJ in Badenach v Calvert at [23]. In this paragraph, French CJ, Kiefel and Keane JJ highlighted how there are myriad examples across a variety of contractual relationships that may give rise to a duty of care owed to a contracting party or (importantly) to a third party. This is to be determined by the application of general principles to the particular circumstances of the case.

Causation

1. K R Lawyers, in their Outline of Submissions at paragraph [26], draw attention to standard formulations of causation in March v Stramare (E & MH) [1991] HCA 12 (March v Stramare) and Hunt & Hunt Lawyers (a firm) v Mitchell Morgan Nominees [2013] HCA 10 (Hunt & Hunt). At paragraphs [43]-[45] in Hunt & Hunt, French CJ and Hayne and Kiefel JJ observed (references omitted): [43] The proper identification of damage should usually point the way to the acts or omissions which were its cause. Causation is largely a question of fact, to be approached by applying common sense to the facts of the particular case. This is not to deny that value judgments and policy have a part to play in causation analysis at common law and, as has been observed, both factual causation and scope of liability elements are referred to in s 5D(1) of the Civil Liability Act. [44] In March v Stramare (E & MH) Pty Ltd, it was observed that courts are no longer as constrained as they once were to find a single cause for a consequence and to adopt an "effective cause" formula. Courts today usually recognise that there may be wrongdoers whose acts or omissions occur successively, rather than simultaneously, and who may be liable for the same damage, even though one may be liable for only part of the damage for which the other is liable. [45] The law's recognition that concurrent and successive tortious acts may each be a cause of a plaintiff's loss or damage is reflected in the proposition that a plaintiff must establish that his or her loss or damage is "caused or materially contributed to" by a defendant's wrongful conduct. It is enough for liability that a wrongdoer's conduct be one cause. The relevant enquiry is whether the particular contravention was a cause, in the sense that it materially contributed to the loss. Material contribution has been said to require only that the act or omission of a wrongdoer play some part in contributing to the loss.
2. The RG, in the Final Submissions dated 15 February 2018 at paragraphs [30]-[31], points to the decision of Bryson J in Chandra at [102]: The control which Mr Miller had over the risk that the plaintiffs would incur economic loss in the way which they did was not complete, because if Mr Miller had refused to act, Mr Pan could have gone elsewhere. Although Mr Miller's control was not complete it was real and it was effective inasmuch as he did not exercise it.
3. It should be noted, however, that this quotation is concerned predominantly with an issue other than causation.
4. Section 5D of the CLA provides: 5D GENERAL PRINCIPLES (1) A determination that negligence caused particular harm comprises the following elements: (a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and (b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused (scope of liability). (2) In determining in an 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. (3) 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: (a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b), and (b) 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. (4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.

Proportionate liability

1. K R Lawyers submits, and the RG acknowledges, that the Plaintiffs' claim against AKR is an apportionable claim within the meaning of section 34(1) of the CLA.
2. Sections 34(1)-(3) and 35 of the CLA provide as follows: 34 APPLICATION OF PART (1) 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, (b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1987 for a contravention of section 42 of that Act (as in force before its repeal by the Fair Trading Amendment (Australian Consumer Law) Act 2010) or under the Australian Consumer Law (NSW) for a contravention of section 18 of that Law. (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). (2) 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). … 35 PROPORTIONATE LIABILITY FOR APPORTIONABLE CLAIMS (1) In any proceedings involving an apportionable claim: (a) 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 (b) the court may give judgment against the defendant for not more than that amount. (2) If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim: (a) liability for the apportionable claim is to be determined in accordance with the provisions of this Part, and (b) liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant. (3) In apportioning responsibility between defendants in the proceedings: (a) 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 (b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings. (4) This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings. (5) 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.
3. In Kayteal Pty Ltd v John Joseph Dingnan [2011] NSWSC 197, Brereton J observed at [71]: [71] In determining the relative responsibility of concurrent wrongdoers for a loss, it is necessary to compare the blameworthiness and causative potency of the conduct of each of them (Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187, [50]-[53]). Relevant factors include, but are not limited to, which of the wrongdoers was more actively engaged in the activity causing loss, and which was more able effectively to prevent the loss (Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463, [93]-[97]). Although allowance should be made for the circumstance that the responsibility of one wrongdoer may be relatively increased if it was engaged by the plaintiff specifically for the purpose of guarding against the potential wrongdoing of another (such as a fraudster), there must nonetheless still be a reduction in the liability of the first, as the fraudster is on any view a concurrent wrongdoer, and the fraudster's responsibility may well exceed that of the solicitor. Thus in Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60, Hoeben J apportioned liability 90% to the fraudster and 10% to the solicitor. An almost identical result was reached by Bryson AJ in Chandra v Perpetual Trustees Victoria Ltd (2007) 13 BPR 25, 259. And in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505, [571]-[600], Young CJ in Eq (as his Honour then was) apportioned responsibility 72.5% to the principal fraudster (Caradonna), 15% to a solicitor who had falsely witnessed a signature (Flammia), and 12.5% to the negligent solicitors - even though a purpose of engaging solicitors was to guard against the conduct of the fraudster.

Limitation of liability

1. K R Lawyers, in their Outline of Submissions dated 9 February 2018 at paragraphs [36]-[38], seek to rely on a limitation of liability defence pursuant to the Professional Standards Act 1994 (NSW) in which any award of damages (including interest and costs) may not exceed $1,500,000.00 by reason of K R Lawyers' membership of the Solicitors Scheme.
2. The RG, in the Outline of Submissions dated 8 February 2018 at paragraph [51], seeks to rely on section 5(2) of the Professional Standards Act 1994 (NSW) to prevent K R Lawyers to rely on a limitation of liability. Section 5 generally provides: 5 OCCUPATIONAL LIABILITY TO WHICH ACT DOES NOT APPLY (1) This Act does not apply to liability for damages arising from any of the following: (a) the death of or personal injury to a person, (c) a breach of trust, (d) fraud or dishonesty. (2) This Act does not apply to liability which may be the subject of proceedings under Part 13 or 14 of the Real Property Act 1900. (3) Subsection (1) (a) does not operate to exclude from the operation of this Act liability for damages arising out of any negligence or other fault of an Australian legal practitioner in acting for a client in a personal injury claim.

Subrogation

1. Subrogation is the equitable doctrine that involves a process by which a party is deemed to have been substituted for another, so that this party acquires and enforces the other's rights against a third party: Charles Mitchell and Stephen Watterson, Subrogation: Law and Practice (Oxford University Press, 2007) at 3. See also Bofinger v Kingsway Group Ltd [2009] HCA 44 and Boscawen v Bajwa [1996] 1 WLR 328.
2. In addition to the general law principles of subrogation, a statutory right of subrogation is afforded to the RG in the RPA in certain circumstances where the RG has compensated persons from the Torrens Assurance Fund.
3. Section 129 of the RPA sets out the specific circumstances in which any person who suffers loss or damage as a result of the operation of the RPA in respect of any land may claim compensation for their "compensable loss", which is defined in section 128(1) as loss or damage of the kinds referred to in section 129(1), from the Torrens Assurance Fund.
4. Of particular relevance is section 129(1)(e), where compensation may be claimed where the loss or damage arises from "the person having been deprived of the land, or of any estate or interest in the land, as a consequence of fraud".
5. Section 129A sets out limits on the amount recoverable generally and section 129B sets out limits on the amount recoverable in respect of mortgages obtained by fraud.
6. Sections 131 and 132 set out the requirements for administrative proceedings and court proceedings for recovery of compensation respectively. Section 135 gives the RG the power to settle any claim for payment of compensation from the Torrens Assurance Fund, whether in the course of litigation to enforce the claim or otherwise.
7. Importantly with respect to subrogation, section 133 of the RPA provides as follows: 133 SUBROGATION OF RIGHTS TO CLAIM COMPENSATION (1) An insurer cannot be subrogated to any other person in respect of that other person's right to claim compensation from the Torrens Assurance Fund in relation to compensable loss. (2) If administrative proceedings or court proceedings are commenced in relation to a claimant's compensable loss, the RG is subrogated to the claimant in respect of the claimant's rights and remedies against any person in relation to that loss. (3) In the case of a deceased person, the compensation may be recovered from the deceased person's estate by proceedings taken against the deceased person's personal representative. (4) The RG may join any person in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate. (5) This section has effect despite any provision of the Legal Profession Uniform Law (NSW) or any other Act, law or agreement.
8. As already noted, the RG seeks to rely on this statutory formulation of subrogation of rights in sections 133(2) and (4) of the RPA.
9. An analysis of the RPA statutory formulation of the right of subrogation is provided in the judgment of Pembroke J in Teresa Nadia Pedulla v Fernando Rene Panetta [2011] NSWSC 1386 (Pedulla v Panetta). See also Bryson AJ in Chandra.
10. Pembroke J noted in Pedulla v Panetta at paragraph [37]: [37] Section 133(2) provides that the RG "is subrogated to the claimant in respect of the claimant's rights and remedies against any person in relation to that loss". The subrogation contemplated by Section 133(2) is a hybrid containing some features that differ from subrogation under the general law. I explain those features in paragraphs [40]-[44] below. However I do not think there is any basis, as a matter of construction, for concluding that the underlying rationale of the statutory remedy is different to that which applies to subrogation under the general law.
11. Pembroke J's analysis in Pedulla v Panetta was discussed by Bathurst CJ and Basten and Meagher JJA in Registrar-General of New South Wales v LawCover Insurance Pty Ltd [2014] NSWCA 241 (RG v LawCover).
12. For an analysis of the history of proceedings leading to the judgment in RG v LawCover, see Basten JA at paragraphs [2]-[13] of that case.
13. Whilst RG v LawCover was not an appeal from Pedulla v Panetta, the judgment of Meagher JA in particular sought to clarify the analysis of Pembroke J of sections 133(2) and (4) of the RPA.
14. In RG v LawCover, Meagher JA highlighted how the statutory right of subrogation under section 133 of the RPA is not a "hybrid" right that affords the RG its own, distinct cause of action separate to that of the claimant: RG v LawCover at [55]-[58]. Rather, consistent with the general law notion of subrogation as a "stepping into the shoes", section 133 allows the RG only to subrogate itself to any causes of action accruing to the claimant. The RG therefore cannot claim to have any distinct, separate cause of action against third parties by operation of sections 133(2) and (4): [55] The Registrar-General submits that the right it acquired by subrogation under s 133(2) is "a statutory right of action entitling [it] to pursue a party for negligence so as to recover the 'compensable loss' paid to a claimant". It contends that its cause of action against Mr Yee pursuant to that subsection "is not Mrs Pedulla's cause of action against Mr Yee, but rather the Registrar-General's own cause of action for Mrs Pedulla's compensable loss". [56] These submissions must be rejected. The rights and remedies which the Registrar-General is entitled to enforce by subrogation include Ms Pedulla's cause of action against Mr Yee which is subject to all of the defences available to him. The loss or damage which may be recovered by the enforcement of that right is the loss or damage suffered by Ms Pedulla. The right of subrogation is "in relation to" the claimant's "compensable loss" (s 133(2)). It passes to the Registrar-General the benefit of the exercise of the claimant's rights against third parties that are available to diminish that loss and the right to have them exercised for that purpose. If their exercise results in the claimant receiving or recovering amounts on account of the compensable loss (including in that calculation the amount received from the Fund) which exceed the amount of that loss, the Registrar-General is entitled, as against the claimant, to retain or recover (under s 133A) the excess up to the amount received from the Fund. [57] Except in circumstances where the Registrar-General enforces those rights in the compensation proceedings brought by the claimant, it must do so in separate proceedings brought in the claimant's name or in which the claimant has been joined as a party. The two propositions upon which the Registrar-General's arguments proceed - that it acquired an independent cause of action against Mr Yee in its own right and that its subrogated action is to recover the amount for which it is liable to Ms Pedulla - find no support in the language of the statute and do not accord with what is meant by being "subrogated" to another person's rights and remedies.
15. His Honour also clarified the operation of sections 133(2) and (4) of the RPA by reference to the Second Reading Speech, wherein section 133(2) was amended, and also the Explanatory Note to the amendment of section 133(4): RG v Lawcover at [50]-[52]. This is consistent when confirming the meaning of a provision is the ordinary meaning conveyed by its text: Interpretation Act 1987 (NSW) section 34.
16. Reference was made by His Honour to the Second Reading Speech by the Parliamentary Secretary Mr Collier regarding section 133(2) (New South Wales, Parliamentary Debates, Legislative Assembly, 25 March 2009, 13773 (Barry Collier)): [T]he Registrar-General may also claim against any person against whom the compensated person would have a claim in relation to the loss and not just persons who caused or contributed to the fraud. This includes, for example, claims in negligence, claims pursuant to any contractual indemnity and claims on insurance. The Bill will amend the Act to allow the Registrar-General to recover any payment of compensation from a claimant who has received a further payment on account of the compensable loss from another source. This provision ensures that a person who has suffered loss does not double-dip and receives only what he or she is entitled to.
17. Section 133A of the RPA also relevantly provides: 133A REPAYMENT OF CERTAIN AMOUNTS (1) If a claimant: (a) receives a payment from the Torrens Assurance Fund in respect of the claim, and (b) receives or recovers from another source or sources a payment on account of the compensable loss, and (c) there is a surplus after deducting the amount of the compensable loss from the total amount received or recovered by the claimant from both or all sources, the amount of the surplus is a debt payable by the claimant to the Torrens Assurance Fund. (2) However, the amount payable by the claimant cannot exceed the amount the claimant received from the Torrens Assurance Fund in respect of the claim.
18. Reference was also made by His Honour to the Explanatory Note to the amendment altering subsection 133(4) by removing the words "as defendant" (Statue Law (Miscellaneous Provisions) Act 2002 (NSW) sch 1.24): Joining of parties Court proceedings for compensation in respect of a compensable loss under Part 14 of the Act are taken against the Registrar-General as nominal defendant. The Registrar-General is subrogated to the claimant in respect of the claimant's rights against any person against whom the claimant has a cause of action in respect of the loss. Section 133(4) of the Act provides that the Registrar-General "may join any person as co-defendant in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensable loss to which the proceedings relate". However, it may be more appropriate for the Registrar-General (standing in the shoes of the claimant) to file a cross-claim against the party to be joined. To permit this, Item [5] of the proposed amendments removes the words 'as defendant' from s 133(4).
19. These secondary materials confirm Meagher JA's analysis in RG v LawCover as the correct approach to section 133 of the RPA.
20. Under the general law insurer's right of subrogation to an insured, the insurer cannot recover under the doctrine of subrogation anything more than they have paid to the insured. Note Dennis S K Ong, Ong on Subrogation (The Federation Press, 2014) at 103, quoting Diplock J in Yorkshire Insurance Company Ltd v Nisbet Shipping Company Ltd [1962] 2 QB 330 at 346: The simple principle which I apply is that the insurer cannot recover under the doctrine of subrogation … anything more than he has paid.
21. This means if an insurer has paid an insured a certain amount, and then goes on to succeed in a subrogated claim against a third party to more than that amount, hence making a profit or windfall, the insurer would have to remit any surplus gained back to the insured. For a useful formulation of this principle, see Charles Mitchell and Stephen Watterson, Subrogation: Law and Practice (Oxford University Press, 2007) at 314-5, 351. See also St Paul Travelers Insurance Company Ltd v Dargan [2006] EWHC 3189 (Cth); Glen Line v Attorney General (1930) 36 Com Cas 1; Travel Compensation Fund v John Harvey Blair [2003] NSWSC 720 at [55] per Einstein J.
22. Noting the terms of section 133 of the RPA, and the general law principles of subrogation, it follows that the RG can only claim the amount settled with the Plaintiffs on 7 February 2018, that being the "compensable loss" to which the proceedings relate. Any amount, less costs and expenses, gained by the RG in a subrogated claim against third parties to more than the settled amount, hence making a profit or windfall, would need to be remitted back to the Plaintiffs. This again follows the principle that the RG merely "stands in the shoes" of the Plaintiffs and cannot recover under the doctrine of subrogation anything more than previously settled with the Plaintiffs.
23. It is also appropriate to consider the Second Reading Speech for the Real Property Amendment Bill 2000 (NSW) by the then Minister for Information Technology, Minister for Energy, Minister for Forestry and Minister for Western Sydney, Mr Yeadon (New South Wales, Parliamentary Debates, Legislative Assembly, 3 May 2000, 5191 (Kimberley Yeadon)): When persons take court proceedings to claim compensation from the Torrens Assurance Fund they are to be taken against the Registrar-General. Such proceedings cannot be commenced before an administrative claim has been made and determined, and cannot be made more than 12 months after the administrative claim has been determined, except by leave of the court or with the consent of the Registrar-General. In any such proceedings, the Registrar-General is not bound by any prejudicial act or omission by any party to the proceedings. Therefore, should a claimant enter into a compromise with another person who is responsible for a loss that is the subject of a claim against the Torrens Assurance Fund, or waive his or her rights against that person, the Registrar-General is not affected by the compromise or waiver and is still able to take action to recover from the person responsible. For example, if a claim is made as a result of a person committing fraud by forging his or her parents' signatures on a mortgage of the parents' property, the Registrar-General would be able to sue the son or daughter even though the parents may waive their rights against that person. The Registrar-General is presently subrogated to a claimant's rights and remedies against any person against whom the claimant has a claim. This means that the Registrar-General can claim against any other person that the claimant is able to sue. In this way, the Registrar-General can seek either reimbursement of any damages paid to the claimant or a contribution towards the damages. This provision is reproduced in the bill with some modification.

Penalty

1. The position of NWC is that notwithstanding any issue of penalty, the Plaintiffs are foremost released of any claims and remedies against NWC by virtue of the Deed entered into on 15 September 2014.
2. With respect to penalty, the obligation accrued to NWC resulting from the loan agreement entered into by Dennis and the imposters 30 September had a variable lower rate of 36% p.a. and higher rate of 72% p.a. (Exhibit DM1 11-12). There is the issue whether the RG is entitled to recover from NWC the sum of interest accrued to NWC as a result of this loan, being in the amount of $319,143.64 (see RG's Outline of Submissions at [80]).
3. The common law has recognised that a clause establishing a concessional interest rate for prompt payment, with a higher rate without prompt payment, may not give rise to a penalty. This is because a Court may choose to find no penalty where it is agreed to charge a certain rate of interest, and on the condition that if payment is made punctually, the rate will reduce: O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 367 per Gibbs CJ; Acron Pacific Pty Ltd v Offshore Oil NL (1985) 157 CLR 514 at 518 per Mason ACJ, Wilson, Brennan and Dawson JJ; Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 at [162]-[163] per Campbell JA.
4. Following the High Court's decision in Andrews v Australia and New Zealand Banking Group Pty Ltd [2012] HCA 30, the Queensland Court of Appeal in Kellas-Sharpe v PSAL Pty Ltd [2012] QCA 371 decided to uphold the distinction between increases in the rate of interest (which attract the doctrine of penalty) and covenants offering an incentive lower interest rate for prompt payment (which does not attract the doctrine of penalty). Gotterson JA, with McMurdo P and Fryberg J agreeing, stated at paragraphs [41]-[43]: [41] I am of the view that it is not open to this Court to accept the invitation made on behalf of the appellants. Although the correctness of the rule appears never to have been affirmed after a deliberate examination of it by the High Court, it has been acknowledged more than once by members of that Court. [42] Further, the rule has also been recognised by intermediate courts of appeal in Australia. The clear direction given by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 153-4 is that in relation to non-statutory law, intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in other jurisdictions within Australia unless they are convinced that the law as expounded in those decisions is plainly wrong. [43] Despite the criticism that has been made of the rule, I am not convinced that it is plainly wrong. That criticism has tended to focus upon the distinction that the rule makes. The objection to the distinction underlying the criticism is centred upon its dependence upon form rather than upon substance. The provisions are differently expressed in form, yet in substance the same interest rate outcome results from them where payment is not punctual - the higher interest rate is charged.
5. In King Investment Solutions v Hussain [2005] NSWSC 1076 (King Investments), Campbell J observed at [136]-[138]: [136] The interest rate under the present mortgage was 118.8% pa, reducible to 60% pa if paid within 7 days of the due date. There is no doubt that both the higher rate and the lower rate are very high rates of interest. However, no attack is made on the mortgage as being unconscionable, or in any other way able to be set aside. Nor was it alleged that the mortgage was one to which the Consumer Credit (New South Wales) Code applies. [137] Rather, the attack which is made is that the margin between 60% and 118.8% is such that it could not possibly be a genuine pre-estimate of the loss arising from late payment, and hence is a penalty. [138] That argument fails. One requirement for a provision in a contract being a penalty is that it states a consequence which is agreed to follow from breach of one of the provisions of the contract. The structure of the interest clause in the present case is not like that. Rather, the interest clause in the contract involves a promise by the mortgagors to pay interest at 118.8%, and a promise by the mortgagee that, if the mortgagors pay the interest on time, or no more than 7 days late, the mortgage will accept interest at 60%. A clause structured in that way is not regarded as a penalty: Wallingford v Mutual Society (1880) 5 App Cas 685 at 702; CJ Belmore Pty Ltd v AGC (General Finance) Ltd [1976] 1 NSWLR 507. There is a lot to be said for the view that a clause which gives a benefit to a contracting party who performs the contract is no different in substance to a clause which imposes a detriment, equal in amount to that benefit, on a contracting party for breach. There is also a lot to be said for the view that equity ought look to substance not form. However, the law in this respect has been settled for too long for a first-instance judge to give effect to those views.
6. The RG also seeks to rely on Re Mango Credit Pty Ltd [2016] NSWSC 199 (Mango Credit) per Lindsay J at [90]-[94]: [90] The contract documentation in the present proceedings pays lip service to this conventional rule in so far as it speaks of "lower" and "higher" rates of interest, and suggests that the higher rate is "reducible" to the lower rate in the absence of any default by the first respondent in the performance of his obligations as mortgagor. [91] A central problem with this is, however, that, upon a construction of the contractual documentation as a whole, the higher rate of interest may be characterised merely as a secondary, "default" rate so as to be struck down, not saved, by the conventional rule governing differential rates of interest. [92] That is because: (a) the lower rate of interest is presented in the documentation, not merely as a concessional rate but as the contract rate of interest, reserving the higher rate for operation only in the event of a default in the mortgagor's obligations; (b) the lower rate is not available merely as a concession for prompt payment of instalments of interest, but is applied in the calculation of interest payable, for the whole term of the loan, up-front; (c) as the mortgagor was contractually obliged to pay, and the mortgagee was contractually entitled to receive, at the outset a lump sum payment of interest for the whole term of the loan, the parties' contract made no provision for interest to be paid at the higher rate except in the event of a default, including (but not limited to) a failure to repay the principal sum at the end of the loan term; and (d) the higher "default" rate of interest was payable on the happening of any one of a large range of "the events of default", not limited to default in repayment of the principal sum. [93] Expressed in the language of Andrews v ANZ Banking Group Ltd: In so far as the contract documentation purported to require the first respondent to pay interest calculated at the higher rate upon his failure to repay the principal sum at the end of the loan term or earlier breach, it could be said to have imposed on him, to the benefit of the applicant, an additional detriment in the nature of a security for, and in terrorem of, the first defendant's primary obligation to repay the principal sum. Given that compensation could be made to the applicant for any prejudice suffered by a failure of the primary obligation of the first respondent, the collateral stipulation that the first respondent pay interest at the higher rate (if not also associated obligations to pay "enforcement costs") was in force only to the extent of that compensation, and the first respondent was relieved to that degree from liability to satisfy the collateral stipulation. [94] The differential between the higher and lower rates of interest for which the mortgage provided is of such a dimension that it could be characterised as having been out of all proportion to any legitimate interest of the applicant in enforcement of the first respondent's obligation to repay the principal sum in a timely manner: cf Bay Bon Investments Selvarajah [2008] NSWSC 1251 at [54] and [56].

Registrar-General

1. The RG submits that AKR owed the Plaintiffs a duty of care, with the standard of care required being that which may be reasonably expected of legal practitioners practising in the relevant area of practice (RG's Outline of Submissions at [21]-[26]).
2. The RG submits that AKR breached the duty of care she owed to the Plaintiffs, positing two alternative explanations for her conduct (RG's Closing Submissions at [22]-[29]). 1. First Scenario: the imposters used by Dennis strongly resembled the real Mr Mascarello and Mrs Mascarello. The RG submits that this is a highly unlikely scenario, pointing to alleged differences in appearances between the imposters and the Plaintiffs and the supposed crudity of Dennis' fraud. 2. Second Scenario: AKR either lacked care or was cavalier in the manner in which she conducted her practice. The RG submits this is the far more likely explanation, attributing this to such possible reasons as her being too busy, or being eager to appease the mortgage broker Ms Penna.
3. The RG alleges AKR was not a careful solicitor (RG's Closing Submissions at [27]), pointing to alleged differences between hairstyles of the Mascarellos on their genuine photo identification and the hairstyles of the imposters remembered by AKR (RG's Closing Submissions at [16]-[21]).
4. The RG also alleges Dennis "was no genius". The RG alludes to the audio recording of 30 November 2012 (marked Exhibit P2) in which Dennis Mascarello, and a woman of unknown identity, speak over the phone to a representative of the lender in relation to the DLF Loan entered into by Mascarello Holdings and pretend to be Mr and Mrs Mascarello respectively (RG's Closing Submissions at [22]). The RG states at this paragraph [22]: [22] What is telling about that audio recording is that Dennis commences the conversation feigning an Italian accent, but shortly thereafter seemingly forgets to maintain the accent. This is not indicative of a genius who was able to execute subterfuge and train others to do so to such a degree to have been able to trick a prudent solicitor acting carefully.
5. In the RG's Closing Submissions at paragraph [30], the RG submits that "there can be no question that the negligence of the solicitor was causative of the loss suffered by the Mascarellos. A solicitor was required to sign off on the relevant transactions".
6. The RG submits that the correct valuation of the Plaintiffs' properties would make their total loss to be between $4,275,000.00 and $4,450,000.00 (RG's Opening Submissions at [52]-[60]).
7. The RG admits that the Plaintiffs' claim against AKR is an apportionable claim (RG's Opening Submissions at [28]).
8. The RG originally submitted that the circumstances of this case are such that an apportionment of at least 50% of the loss of the Plaintiffs should be attributed to AKR to reflect her blameworthiness and role in causing the loss (RG's Opening Submissions at [32]). However, the RG has since acknowledged that for the purposes of proportionate liability this apportionment is too high. The RG now submits that the circumstances of the case suggests an apportionment of between 15-25% of the Plaintiff's loss to AKR (RG's Closing Submissions at [32]-[38]).
9. However, the RG suggests that the apportionment calculation should be based on the Plaintiffs' loss, not on the amount of $3,000,050.00 paid in settlement between the Plaintiffs and the RG (RG's Closing Submissions at [58]-[62]). The RG submits that there is a cap of $3,000,050.00 on the amount it can obtain from this Court in judgment. However, it also submits for the purposes of apportionment, that the percentage calculation should be calculated by reference to the Plaintiffs' loss, and not by reference to the cap amount of $3,000,050.00 (RG's Closing Submissions at [60]-[62]).
10. The RG rejects K R Lawyers' submission that the RG was a concurrent wrongdoer as defined in section 34 of the CLA (RG's Opening Submissions at [37]). The RG contends that it owes no duty of care to the Plaintiffs (RG's Opening Submissions at [37]-[50].
11. The RG rejects the submissions of K R Lawyers that AKR is able to rely on the Professional Standards Act 1996 (NSW) to limit her liability to $1,500,000.00 (RG's Opening Submissions at [51]). The RG submits this is because section 5(2) of the Act provides the Act "does not apply to a liability which may be the subject of proceedings under part 14 of the Real Property Act 1900".
12. The RG also submits that it is not barred by the Deed entered into between the Plaintiffs and NWC, suggesting that the right of subrogation under sections 133(2) and (4) differ subrogation at general law (RG's Opening Submissions at [62]-[72]). It also submits the interest provisions of the NWC mortgages are void as a penalty (see Further Amended Statement of Cross Claim filed 12 October 2017 at [6]).
13. The RG finally submits it is entitled to an order for any difference between any amount ordered to be paid by AKR and the Settlement as against Dennis (RG's Closing Submissions at [64]).
14. The RG rejects any basis upon which the Court could find it failed to mitigate the Plaintiffs' loss (RG's Short Submissions in Response at [3]).

K R Lawyers

1. K R Lawyers accepts the existence of a duty of care to the Plaintiffs (K R Lawyers' Short Submissions in Response to the RG's Submissions at [3]).
2. K R Lawyers rejects the RG's claim in negligence, fundamentally claiming that the RG seeks to impose on K R Lawyers a standard of perfection that is inconsistent with the role she performed (K R Lawyers' Opening Submissions at [15]).
3. K R Lawyers rejects the RG's submission that AKR was not a careful solicitor (K R Lawyers' Short Submissions in Response to the RG's Submissions at [6]).
4. K R Lawyers submits its function was not to scrutinise the borrowers, or act as an investigator or fraud detector. K R Lawyers submits that the standard of care simply required it to take reasonable steps and to act reasonably in identifying those held out to be the "Plaintiffs" and witnessing their signatures on the various loan and security documents (K R Lawyers' Short Submissions in Response to the RG's Submissions at [3]).
5. In this narrow function, K R Lawyers submits AKR acted in accordance with widely accepted competent professional practice in Australia and does not amount to negligence (K R Lawyers' Opening Submissions at [25]). K R Lawyers also submits AKR took reasonable steps and acted appropriately in identifying who she thought were Mr Mascarello and Mrs Mascarello (K R Lawyers' Closing Submissions at [4]).
6. K R Lawyers further submits even if found to have owed a duty of care to the Plaintiffs and to have breached that duty of care, there is no evidence to support a finding that K R Lawyers' conduct caused the loss suffered by the Plaintiffs (K R Lawyers' Opening Submissions at [26]-[28]).
7. K R Lawyers further submits that any loss accrued to the Plaintiffs should be held at $2,116,954.53, being the amount the Plaintiffs paid to NWC (K R Lawyers' Closing Submissions at [31], [33]-[38]).
8. K R Lawyers submits that the RG's own conduct and failure to mitigate by accepting the Plaintiff's claim at a much earlier time has meant that the RG alone is responsible for the substantial increase in the Plaintiffs' loss (K R Lawyers' Opening Submissions at [29]-[32]).
9. As to the question of proportionate liability, K R Lawyers points to Dennis, Ms Penna, the two imposters, Alan's Off the Shelf (or Richard John Muir) and the RG all as concurrent wrongdoers within the meaning of section 34 of the CLA. K R Lawyers therefore submits, when weighed against the conduct of these numerous concurrent wrongdoers, K R Lawyers played little to no part in the causation of the Plaintiffs' loss (K R Lawyers' Opening Submissions at [33]-[35]; K R Lawyers' Closing Submissions at [23]-[26]).
10. K R Lawyers accordingly rejects the RG's apportionment of 15-25%, suggesting that K R Lawyers' responsibility could be nothing other than at the lowest end of the spectrum, if liable at all, to the Plaintiffs' loss (K R Lawyers' Short Submissions in Response to the RG's Submissions at [9]).
11. K R Lawyers seeks to limit its liability of any award of damages to no more than $1,500,000.00 pursuant to the Professional Standards Act (K R Lawyers' Opening Submissions at [36]-[38]).

NWC

1. NWC submits that the Deed between itself and the Plaintiffs has released NWC from all claims the Plaintiffs might have had against it (NWC's Opening Submissions at [12]-[15]).
2. NWC accordingly submits if the Plaintiffs have no claims against NWC, then the RG's cross-claim against NWC must fail, as the right of subrogation under section 133 RPA offers the RG no rights independent of the Plaintiffs' own rights and remedies (NWC's Opening Submissions at [12]-[15]; NWC's Final Submissions at [23]-[56]).
3. NWC further rejects any suggestions that the interest provisions of the NWC mortgages, resulting in interest paid to NWC of $319,143.64, are void as a penalty (NWC's Opening Submissions at [23]).

The Evidence of Michelangelo Mascarello

1. Last year application was made for the trial to be expedited. The principal reason advanced was his ill health. I ordered that his evidence be taken on commission, which was done on 25 October 2017.
2. Mr Mascarello swore two affidavits. One on 1 March 2016 (as noted Aff MAM1) and the second on 23 October 2017 (Aff MAM2).
3. Mr Mascarello was born in Molvena, Italy in 1935 and migrated to Australia in 1954. He married his wife on 8 May 1971.
4. In or around 1956 he obtained a Heavy Duty Driving Licence and began driving trucks. However, on 8 May 1987 he purchased a taxi plate and commenced working as a taxi driver.
5. Mr Mascarello and his wife Maria had three children. Dennis, born on 2 October 1973, Anna born on 8 May 1978 and Timothy born on 7 January 1983. Mr Mascarello then sets out in Aff MAM1 the various details of he and his wife's purchase of the Lilyfield Property (24 June 1974), the Leichhardt Property (8 August 1983) and the Strathfield Property (5 June 1991).
6. Since 1975, there was no mortgage on the Lilyfield Property. However, in 2006, Mr Mascarello and his wife assisted their son Dennis to buy a house at Casula. For that purpose, Mrs Mascarello provided her son Dennis with the title deeds to the Lilyfield Property.
7. Since 1987, the Leichhardt Property had no mortgage on it. In that year, Mr Mascarello and his wife sold two blocks of land in Lake Macquarie so that he could purchase a taxi plate.
8. Since 1999, the Strathfield Property was also mortgage free.
9. On 17 February 2014, Mr Mascarello and his wife received a letter from Bransgroves Lawyers signed by Mr Reese addressed to the 'Tenants' of the Strathfield Property demanding a payment of rent to NWC. The letter stated that NWC had a mortgage over the Strathfield Property.
10. As a result on 26 February 2014, Mr Mascarello, his son Timothy and his wife Daniella, along with Mr Mascarello's daughter Anna and her husband James Willis, attended a meeting with Mr Ford (the solicitor) to discuss the letter.
11. As a result of Mr Ford making enquiries, Mr and Mrs Mascarello's worst nightmare unfolded.
12. Not only did Mr Mascarello and his wife discover the existence of numerous loans and mortgages but they also discovered the existence of Mascarello Holdings Pty Limited.
13. Mr and Mrs Mascarello were confronted with numerous documents concerning their various properties which purported to have their signatures on them. Mr and Mrs Mascarello deny any knowledge of any such documents and deny ever having agreed to and/or signed any such documents in connection with the various transactions concerning their properties, each of which was as a result of fraudulent conduct on the part of their son Dennis.
14. In particular, Mr Mascarello denied any knowledge of the NWC loan documentation and/or transaction. Further, he denied ever having provided identity documents to AKR.
15. On 30 March 2014, Mr and Mrs Mascarello made a joint claim for compensation from the New South Wales Torrens Assurance Fund (Exhibit MM1 190-224).
16. In the meantime, Mr and Mrs Mascarello set about selling their various properties in order to discharge the NWC liabilities. In total, Mr Mascarello asserts he has paid $2,116,954.53 to NWC which includes principal, interest and costs under the various mortgages taken out against the various properties by Dennis. Mr Mascarello has not spoken to his son since 17 February 2014, but became aware in about August 2014 that his son had been charged with various offences.
17. Not only was Mr Mascarello not aware of any of the transactions undertaken by his son Dennis, but he received no benefit whatsoever from any of the monies which were in relation to the fraudulent transactions.
18. Mr Mascarello denies ever having met Ms Penna and further denies that she is his niece and/or his wife's niece.
19. Mr Mascarello denies at any time relevantly speaking to anyone about a short term loan.
20. Further, Mr Mascarello describes himself as being approximately 169 centimetres and of a stocky or solid build. He does have some grey hair, but has been bald or near bald for more than 15 years. He has never had wavy hair. He does not own, nor has he ever worn, glasses. Occasionally he wears his wife's reading glasses.
21. He has neither met nor had any conversation with AKR. Nor did he provide any identification documents to her, or to anyone else, for the purposes of providing them to her.
22. Mr Mascarello was examined before Deputy Registrar Bellach on 25 October 2017. In his evidence, Mr Mascarello confirmed that he had sworn the two affidavits Aff MAM1 and Aff MAM2, and that his occupation was that of a taxi driver.
23. In cross examination, Mr Mascarello accepted that he first became aware in February 2014 that there were registered mortgages in favour of NWC over his Lilyfield and Strathfield properties (T8/15-20).
24. Mr Mascarello agreed that the Lilyfield and Leichhardt properties were his investment properties and the Strathfield Property was his family home (T8/35-40).
25. Mr Mascarello agreed that he sold his Strathfield Property to his son Timothy and his wife Daniella so that he could continue to live in the family home (T9/15-25).
26. Mr Mascarello said that, prior to discovering the mortgages in February 2014, he had a good relationship with his son Dennis (T10/20-25).
27. Apart from providing the title deeds to the Lilyfield Property to Dennis, Mr Mascarello denied ever signing any other documents such as mortgages and the like in respect of his other properties (T11/15-35).
28. Mr Mascarello said that he believes that his son had pleaded guilty to some criminal charge (T12/10-20).
29. Mr Mascarello said he was shocked when he discovered his son had engaged in the conduct alleged. He was also unaware who might have impersonated him and his wife (T13/30-45).
30. Mr Mascarello knew nothing of Dennis' financial affairs (T15/25-40).

Evidence of Maria Mascarello

1. Mrs Mascarello has sworn two affidavits. On 1 March 2016 (as noted Aff MLM1) and on 30 November 2017 (Aff MLM2).
2. In her first affidavit, Mrs Mascarello indicates that she was born on 30 March 1949 in Marostica, Italy. She married her husband Michelangelo on 8 May 1971 and migrated to Australia in August 1972.
3. Between 1974 and 1988, she worked in a factory and ceased work after she and her husband commenced their family.
4. She gave similar, if not identical, details about the various properties in Lilyfield, Leichhardt and Strathfield. She also agreed that in 2006 she and her husband assisted their son Dennis to buy a home in Casula by acting as guarantors. In the course of that transaction, she provided the title deeds of the Lilyfield Property to her son Dennis.
5. On 26 February 2014, she discovered for the first time that there were a number of caveats and mortgages registered over the Lilyfield, Leichhardt and Strathfield properties. She also discovered the existence of Mascarello Holdings Pty Limited.
6. She denied any knowledge of any of the transactions which had been undertaken in respect of the various properties and denied she had signed any documents in relation to them.
7. Further, Mrs Mascarello denied ever having met AKR or having provided identity documents to her, nor had she had any dealings with any of the various persons associated with the loans that had been taken out.
8. She gave similar evidence to her husband about the sale of the various properties and the repayment of the debt to NWC.
9. In her second affidavit (Aff MLM2) she denied in some detail ever attending the offices of AKR and further asserted that she had no knowledge of any of the matters adverted to in AKR's affidavits.
10. She is 158 centimetres tall and she believes herself to be short and slim. She does not have dark hair which is tied back in a bun and she has had her hair cut short for at least 20 years. Her hair has been light brown for at least 20 years. She accepts she does have a noticeable Italian accent.
11. In cross examination, although she could not recall the amount, she agreed that she and her husband have been paid money by the RG by way of a settlement of their claim (T24/30-45).
12. Her best recollection is that she and her husband have paid somewhere between $300,000 and $350,000 in legal fees (T25/35-45).
13. Mrs Mascarello denies ever having attended any meetings with her son or signing any documents in relation to mortgages over any of the relevant properties (T27/5-20).
14. She never gave her drivers' licence or passport to anybody (T27/35-50).
15. She had no idea her son Dennis was capable of fraudulently obtaining loans using she and her husband's various properties (T28/20-30).

Evidence of Timothy Mascarello

1. Mr Mascarello swore one affidavit of 1 March 2016.
2. He said he was the son of Mr and Mrs Mascarello and was born in Sydney on 7 January 1983.
3. By agreement with NWC, and with the support of his parents, he and his wife Daniella agreed to purchase the Strathfield Property. They purchased the property on 29 August 2014 for $1,200,000.00.
4. In cross examination, Mr Mascarello said that he was aware that his brother was facing criminal charges to which he had pleaded guilty and was awaiting sentencing (T30/40-50).
5. Mr Mascarello had no knowledge of what his brother may have done to have people impersonate his parents (T31/20-25).
6. Mr Mascarello knew nothing of the establishment of Mascarello Holdings nor has he any knowledge about how his brother got access to title deeds (T31/25-45).
7. Mr Mascarello had no inkling or suspicion that his brother had engaged in the conduct alleged (T32/15-20).

Evidence of Lawrence White

1. Mr White has sworn one statement on 19 October 2017. He is a Justice of the Peace. Mr White has never met Mr Mascarello, denied that he had ever provided certification as to Mr Mascarello's licence and denied that his signature was on the page he was shown as Annexure 8 of his statement.
2. Mr White was not required for cross examination.

Evidence of Grant Lee

1. Mr Lee swore one affidavit of 20 October 2017.
2. Mr Lee is a hairdresser who has from time to time worked with a Ms Maria Solari.
3. At some point, Mr Lee became aware that his signature and name had been used for a New South Wales standard form residential tenancy agreement for a unit in Leichhardt.
4. Mr Lee denies he was ever a tenant of Mr Mascarello, nor has he ever rented a property from any of Dennis Mascarello's relatives. He has never paid any rent to Mr Mascarello.
5. On a number of documents he denies that he placed his signature on them and he never signed any document. Mr Lee was not required for cross examination.

Evidence of Peter Rosier

1. Mr Rosier was called as an expert. A number of objections were taken to his statement. However, subject to admitting a number of paragraphs with restrictions pursuant to section 136 of the Evidence Act 1995 (NSW), the bulk of his evidence was admitted without objection.
2. Mr Rosier was admitted to practice as a solicitor on 9 March 1973. He practised as a solicitor until 1979 when he was admitted as a barrister. He resumed practice as a solicitor in 1983 and has done so since that date.
3. He has a Bachelor of Law from the University of Canterbury in New Zealand and a Master of Laws from the same university.
4. He is an accredited specialist in Property Law and has been so since 1994. He examines candidates who seek specialist accreditation in property law.
5. He has frequently acted for parties involved in conveyancing transactions, including sales purchases and mortgages of all kinds.
6. He has also undertaken civil litigation on behalf of clients in various jurisdictions both in the Supreme, District, Federal and Local Courts.
7. He was asked three questions as follows: 1. In 2013 what was the usual practice (that is, the practice of a reasonably competent solicitor) in the identification of clients and/or signatories of mortgage documentation including, if relevant, by reference to published articles, standards and the like? 2. After consideration of the AKR affidavit as sworn in these proceedings, does AKR's evidence, if accepted as truthful, demonstrate a material departure from the usual procedure identified in (1) above? 3. Kindly express a view as to the role that the "usual practice" identified in (1) above has in the prevention of fraud with specific reference to section 56C of the Real Property Act 1900 (NSW).
8. After setting out some legislative background, Mr Rosier expressed a number of opinions. First, that by at least 2010 the usual or common professional practice for reasonably competent solicitors in New South Wales in relation to the identification of clients was that a solicitor identify formally and thoroughly a client for whom they were about to act, where they had not previously acted for the client or acted for the client in the two years before.
9. Further, Mr Rosier's evidence was that in 2013 the usual or common practice of solicitors advising a mortgagor was to take reasonable steps to verify the identity of the client. Mr Rosier expressed the view that reasonable steps would differ from client to client. Little may be required of a solicitor acting for a close relative or a friend, whereas a person "off the street" would need to be identified by reference to clearly genuine photographic evidence, such as an unexpired drivers' licence or unexpired passport. The safest path for proper verification of identity, in his opinion, indeed the only path for a solicitor identifying a client for whom he had never previously acted, was to undertake what might be described as the '100 Point Test' or '100 Point Check'.
10. According to Mr Rosier, a solicitor therefore in 2012 or 2013 meeting someone for the first time in relation to a borrowing transaction should ask for at least two documents. One should include an original photograph bearing a likeness of the person who was being identified and at least one which bore the person's usual and/or current residential address.
11. Mr Rosier was supplied with certain materials. These involved the pleadings, a statement of Mr and Mrs Mascarello both dated 1 March 2016, a handwriting expert report and the affidavit of AKR of 25 November 2016. He was also provided (and described as Schedule A) with a series of comments based upon observations of AKR's files and evidence. The document is not only a summary of the evidence; it is in part argumentative. Indeed, it makes commentary adverse to AKR in a number of respects and draws a number of negative inferences from the various files produced by AKR. It is relatively plain that these complaints were drafted by the solicitor instructed by Mr Rosier to provide his report.
12. Whilst the questions posed of Mr Rosier were quite limited, the commentary contained in Schedule A goes considerably beyond matters of identification. I should say this is a totally inappropriate fashion to brief an expert. Schedule A was inappropriate, in my view, because it suggests the answers the expert is expected to give.
13. In answering question 2 as posed above, Mr Rosier considered in turn each of the files and each of the various transactions and comments accordingly. In a number of respects, Mr Rosier expressed the opinion that AKR's conduct departed from the common or usual practice of a reasonably competent and careful solicitor. In particular, Mr Rosier asserted that in relation to the proposed purchase comprised in the First File that AKR took no steps to identify Mrs Mascarello. In relation to the Second File (the DLF Loan transaction), Mr Rosier asserts she failed to keep a copy of identification documentation, she had failed to consider and keep the information required and that she paid insufficient attention to the task of proper identification. This was because she failed to pick up that the addressees shown in the mortgage documents, the addressees shown in the statement of claim and those in the identification documents were different.
14. Again, so far as the Kazzi Loan transactions, it was unclear to Mr Rosier if the solicitor had produced originals or copies of the various identification documents. Mr Rosier expressed the view that the solicitor should always obtain original identification documents. Mr Rosier asserted he was unable to determine any of the features of the individuals in the photographs at the pages provided, such that he would be unable to discern whether the person before him bore a likeness or not. However, he accepted in fairness that this may well be a function of the number of times the various documents had been reproduced by photocopying.
15. In any event, he expressed the view that as far as this transaction was concerned the solicitor had paid insufficient attention to the proper task of identification, did not again notice the discrepancies in addresses and appeared to rely on an expired document (namely a Medicare card).
16. So far as the first and second Pascuzzo loans were concerned, Mr Rosier's focus in relation to the First Pascuzzo Loan focused on two items in particular. First, an email response from the solicitor of 21 June 2013 in which she had said that she had known Mr Mascarello for more than twelve months and second, her witnessing of a mortgage which he thought was a departure from section 117 of the RPA. In both cases, he thought taken together they would have misled the lender's solicitor.
17. In particular again, Mr Rosier expressed the view that AKR had paid insufficient attention to the task of proper identification, again did not notice the discrepancy in the addresses and had misled the lenders' solicitor by asserting that she had known the person purporting to be Mr Mascarello for more than twelve months.
18. So far as the NWC Loan was concerned, Mr Rosier accepted that the solicitor asserted that she had seen the originals of various documents. He also noted the concern expressed by Mr Reese of Bransgroves Lawyers about the possibility that the Mascarellos' appeared to be mortgaging their own home in which they lived. Mr Rosier, both on this occasion and otherwise, expressed the view that relatively short term high interest rate loans with little financial evidence should always be regarded as very high risk. He expressed the view that this therefore called for extraordinary caution on the part of any solicitor called into advise such clients, or if I understand his evidence, even witness signatures. Again the discrepancy in residential address was a matter of concern.
19. Again in relation to the NWC transaction, Mr Rosier expressed the view that the solicitor had paid insufficient attention to the proper identification by not observing the discrepancy in addresses and relied upon a Medicare card which was expired for the 100 Point Check.
20. In cross examination, Mr Rosier accepted that the common practice of a reasonably competent solicitor did not require a standard of perfection (T41/35-45).
21. He also accepted that whilst the relevant legislation may only require one identification document, his preferred course would be for two to be obtained because of the problem of mortgage fraud, especially in the context of a short-term high interest rate loan which almost inevitably leads to default (T46/35-51).
22. Mr Rosier accepted that not everyone who was deceived or tricked by a fraudster could be regarded as negligent (T49/5-10).
23. Based on a number of assumptions, which included the obtaining of identification documents, and an assumption that the client who presents at the meeting resembles identification documents, it would be appropriate for a solicitor performing 100 Point Check to base that on the drivers' licence and passport. Mr Rosier agreed that it would be appropriate (T49/35-T50/20).
24. Mr Rosier qualified his answer by suggesting that it would be appropriate if there was no discrepancy between the drivers' licence and the passport and the documents which persons were signing, a possible discrepancy being different addresses (T50/20-35).
25. Mr Rosier, however, agreed that the discrepancy in an address may not matter if the solicitor honestly believed that the photograph of the persons on the legitimate documentation resembled those who the solicitor had seen (T50/40-45).
26. Mr Rosier agreed it was often possible, with the benefit of hindsight, to analyse the work of a solicitor and identify superior or improved ways in which the work may have been conducted (T51/35-40). Mr Rosier agreed that he had been supplied with copies of the pleading and he simply answered the questions he was posed (T53/30-40).
27. Mr Rosier agreed that he had criticised the solicitor by reason of the failure to keep a copy of the identification produced. He was not sure whether that was the subject of any criticism in the pleadings (T54/5-15).
28. Again he was not certain whether an absence of an acknowledgement in the file that legal advice had been provided was appropriately a matter for criticism in the pleading (T55/40-50).
29. Again communications between the solicitor and the solicitor for the lender was not an issue in the pleadings, but he was unsure (T56/10-20).
30. Mr Rosier agreed that he had asserted that there had been a breach of section 117(4) of the RPA and that the solicitor was liable to a fine of ten penalty points. He had to agree, however, that the particular provision concerned the lodgement of dealings with the RG (T58/20-35).
31. Again if the question of the adequacy of the solicitor's advice about the responsibility and liabilities under the loan was inadequate, Mr Rosier was unsure or again whether this was or was not a matter on the pleading (T62/5-20).
32. Mr Rosier said in effect that any discrepancy should be the subject of questions (T64/35-45).
33. Mr Rosier had to agree that many documents bore the address 11 Shipley Avenue, North Strathfield (T65/15-20).
34. Mr Rosier agreed that one of the documents with the address of Great North Road, Five Dock had been prepared by the lender's solicitor (T65/35-45).
35. Mr Rosier agreed that he had acted for clients on a loan for a business who used their business address for the service of documents relating to the loan and that there would be nothing incompetent or unreasonable about doing that (T67/15-25).
36. Mr Rosier accepted that the expired Medicare card did not appear to have been relied upon by the solicitor (T69/5-15). In that event, Mr Rosier accepted that his report was wrong (T69/20-25).
37. In re-examination, Mr Rosier said that at the relevant time section 117 did require a certification to the effect that the person was an eligible witness and an eligible witness was a person who had known the person executing the document for a period of twelve months or had otherwise taken reasonable steps to identify them (T70/30-40).
38. Mr Rosier was taken to page 476 of Exhibit AKR1 and expressed the view that the certification gave rise to a suggestion that AKR had known Mr Mascarello for at least twelve months because she had not indicated some alternative means of identification expressly (T71/5-30).

Evidence of Lena Pace

1. Ms Pace swore only one statement, dated 10 November 2017.
2. Although retired she had previously worked in office administration and as a paralegal. Between 2007 and 2017 she was employed by K R Lawyers and Consultants as a paralegal and from 2012 to 2017 she worked on a casual basis.
3. She states that in or about 2011 she was in the reception of K R Lawyers at 30 Cowper Street, Parramatta when two people, one she describes as an elderly female and the other a younger male entered the office. She says that the male introduced himself as Danny Mascarello and introduced the woman as his mother 'Maria'.
4. Ms Pace indicated that the female appeared to her to be a lady in her 70s with short dark brown hair. She was of average build and about 5'2" inches tall. Dennis was of average height but taller than 'Maria'.
5. Ms Pace escorted Dennis and 'Maria' into the reception area where AKR was waiting. Ms Pace did hear Dennis speak to 'Maria' in what she assumed was Italian.
6. In or about June 2013, two people who were or appeared to her to be the same people attended the offices of K R Lawyers again at Parramatta. On this occasion they were accompanied by an elderly man. Ms Pace describes the elderly man as taller than 'Maria' but not as tall as Dennis and of normal build. He appeared to be older than 'Maria'. She does not remember him having a full head of hair, but she is not sure whether he was completely bald. He may have had some grey hair.
7. Again, Dennis introduced himself and the persons with him as his parents. He said they were there to sign some documents. Again, she escorted them into the meeting room.
8. Ms Pace was asked to go back into the meeting room at some point and AKR handed her what looked to be identification documents in the form of drivers' licences and passports and she was asked to make a copy. She left the meeting room and made copies of the documents.
9. In 2017 Ms Pace said she was shown photographs appearing on identification documents which included drivers' licences and passports. Having looked at those documents Ms Pace expressed the view that they appeared to her to be the same persons referred to and who she had met in 2011 and 2013.
10. In cross examination, Ms Pace accepted that over the years she had seen many clients coming in to see AKR who she said was very busy (T75/40-45).
11. Ms Pace agreed that over the time she worked for AKR she would have met many clients (T76/5-15).
12. Ms Pace said that even when shown the photographs in 2017 she had a clear memory of them coming in and that had helped her remember what they looked like (T77/10-25).

Evidence of Anne Kazas-Rogaris

1. AKR swore four affidavits, 25 November 2016, 24 November 2017, 12 February and 13 February 2018. A great deal of material was annexed to her 2016 affidavit comprising the remnants of a number of her files in connection with the relevant transactions.
2. In her first and principal affidavit of 25 November 2016 (Aff KR1), AKR indicates that she has Bachelor of Arts degrees from both Sydney University and University of Western Sydney. She has a Bachelor of Legal Studies from Macquarie University and a Master of Social Administration from the University of Western Sydney, together with a Diploma in Technical Education from the University of Technology and a Diploma in Legal Practice from the College of Law. She was admitted to practice as a solicitor in New South Wales on 19 December 1997.
3. She established her business K R Lawyers in 2001 and has practised since then as principal solicitor. She first met Ms Penna in mid-2010 when she was introduced to her by a Mr Rhys Ming, a property developer who had referred conveyancing work to her from time to time. AKR discovered that Ms Penna was working as a mortgage broker in about mid-2011. Ms Penna referred persons to AKR in order to witness signatures. Sometimes she referred conveyancing work to AKR and asked her to advise customers about documents relating to their loans.
4. At some point prior to or during her dealings with the persons posing as the Mascarellos, Ms Penna rang her and informed her that "Micky and Maria are my uncle and aunt".
5. In October 2011 Ms Penna rang and said that she was sending "Danny and Maria Mascarello" to see AKR. The also informed AKR that Danny was Maria's son and that she was looking to buy his house.
6. AKR believes the meeting took place in October 2011, but she has been unable to locate any diary entry. The two persons introduced themselves as Danny Mascarello and Mrs Mascarello. She described Mrs Mascarello as a person of medium height, slightly larger than medium build, appeared to be in her 60s and had dark hair which was tied back in a bun, although it appeared that her hair had been dyed.
7. Nothing eventuated from this conference as the transaction did not proceed.
8. In late December 2012, however, she had a further conversation with Ms Penna who asked whether she could meet Mrs Mascarello and her husband 'Micky'.
9. Subsequently AKR met with persons she was told were 'Micky' and 'Maria' Mascarello and again their son Dennis. Maria appeared to be the same person she had previously met. She describes Micky as being of approximately 5'10" or 5'11" in height, medium build with greyish wavy hair and a receding hairline and he wore glasses. He had a noticeable Italian accent but he appeared to have a very good understanding of English.
10. At the meeting, Dennis showed AKR some documents and she was asked whether she would go through some documents and witness Mr and Mrs Mascarello's signatures. AKR indicated that she needed some identification and asked them whether they had any with them. She recalls that Micky produced one form of identification for each of Micky and Maria which comprised a drivers' licence and a Medicare card. Her file does not contain a copy of the identification which was produced on this occasion but Micky explained that his name was Michele. AKR said that she made a comparison between Micky and the photograph on the drivers' licence and also that of Maria and that each resembled the photograph on the drivers' licence.
11. She thereafter provided some advice and witnessed their signatures on various loan documents. She did not notice at the meeting or at any other time that the address nominated for the Mascarellos on documentation was not the address disclosed on Micky and Maria's drivers' licence. She did not notice this until much later when contacted by police.
12. After she had witnessed the signatures, Ms Penna arrived at her offices to collect the identification documents and promised to return copies later. However she never did.
13. In the middle of June 2013, she received a telephone call from the person who said he was Micky. She was told that there was some litigation in relation to the first transaction (namely the DLF Loan) and she was asked whether she could assist. She thereafter negotiated the settlement of the litigation which involved obtaining some additional time to repay the loan.
14. In the meantime, she had received on or about 13 June a telephone call from Ms Penna indicating that they were seeking to refinance their loan and again Ms Penna asked whether she could see them. On this occasion when the Mascarellos came to her office she discovered they had already signed documents they had wanted her to witness. She indicated to them that she could not witness their signatures without seeing them sign the documents. She told them that they would need to come back with unsigned copies.
15. The Mascarellos then attended upon her with their son Dennis in relation to a loan of $800,000.00 from the Kazzi Family. AKR was told by Dennis that his parents needed to refinance the loan. She indicated that she needed to see his parents' identification again and she also needed to see them sign so that she could witness the signature. On this occasion the persons produced a drivers' licence for each of Micky and Maria, a passport for each of them and a Medicare card (which had expired and which AKR had not noticed had expired).
16. She provided certain advice to them and witnessed their signatures.
17. Shortly after she had met in relation to this facility, she received a telephone call from Ms Penna asking whether AKR could telephone a solicitor called Yen Tsai. Ms Penna told AKR that the Mascarellos needed to borrow some more money. This time the lender was a Francesco Pascuzzo for an amount of $300,000.00. AKR discovered that the Mascarellos had already signed a letter of offer. She could not quite understand why they were borrowing more money and that the meeting she had with them on 20 June 2013 when she asked why it was they were doing it and she was told that Ms Penna had advised accordingly. AKR indicated that she needed to see all of the identification again. The file does not contain a copy of the identification however. Having viewed the identification she gave some advice and witnessed their signatures.
18. AKR identified a number of documents in the file relating to this transaction including an email from her to Mr Tsai dated 21 June 2013. She accepts that she inaccurately indicated in that email that she had known a person she believed was Mr Mascarello for less than twelve months. She had forgotten this fact when she wrote the email because she had met Maria more than twelve months previously. However she witnessed the signatures again on the production of further identification.
19. On 4 July 2013 she met the Mascarellos again in relation to another loan from Mr Pascuzzo for $100,000.00 for a term of two months. She reviewed their identification again and witnessed their signatures.
20. On Friday 27 September 2013, she received a telephone call from Ms Penna asking her to contact a Mr Paul Reese of Bransgroves Lawyers in relation to a new loan for the Mascarellos. The lender was NWC Finance (No 5) Pty Limited. The advance was for $1,540,000.00 for a period of three calendar months. She completed some documentation in relation to the loan which had been requested by Mr Reese, namely the 100 Point Check. Before she witnessed the Mascarellos signatures, she asked that they produce identification and again they produced a passport and drivers' licence.
21. AKR became aware that the Mascarellos needed to provide a certificate to say that they had obtained financial advice about the new loan. Ms Penna asked whether she could do that, to which AKR said she could not as she was not an accountant.
22. She was, however, given on this occasion a copy of Micky's drivers' licence certified by a Mr Lawrence White JP and other documentation. In her further affidavit of 23 November 2017, she said that on every occasion she witnessed Mr and Mrs Mascarellos signatures she had them produce at least one form of identification which included a photograph. She further recalled asking Mrs Mascarello about her maiden name which appeared in Maria's passport. She was told that that was the maiden name of Mrs Mascarello.
23. When photographic evidence was produced at various meetings she compared the photographs with the physical appearance of the people who were sitting at the table with her. As a result, she believed that the persons in the room were those depicted in the identification documents.
24. The last time she saw Mr and Mrs Mascarello was in about October 2013. So far as the Mascarellos were concerned, she provided no advice about the signing of documents prior to December 2012 or after October 2013.
25. When she saw the real Mascarellos at a mediation in March 2017, the people who attended and who were identified as the real Mr and Mrs Mascarello appeared to her to strongly resemble the persons she had seen in conference some years before. She however accepted that both Maria and Micky looked somewhat different to the description she had previously provided of each in her earlier affidavit. Nevertheless, the persons she saw at the mediation bore a strong resemblance to the persons she saw in conference rendering her earlier description in her first affidavit Aff KR1 to an extent incorrect. However, she reiterated that the people that she met in conference were the people depicted in the identification documents provided during those meetings.
26. In her third affidavit of 12 February 2018, AKR says that at her meeting in December 2012, when Ms Penna arrived in order to retrieve the identification documents, AKR was sitting in the conference room with the persons posing as Mr and Mrs Mascarello and Ms Penna came into the room and said hello to them and to Dennis. She did not indicate that the persons in the room were not her uncle and aunt.
27. Later in 2013, in connection with the NWC loan, she recalls seeing Ms Penna with the person posing as Mr Mascarello at a meeting at which Dennis, Ms Penna and ultimately AKR attended for the purposes of having a document resigned by Mr Mascarello.
28. In addition Ms Penna referred other clients to AKR for the purposes of witnessing their signatures (approximately 15 in number).
29. As far as she is aware, all of the persons otherwise referred were genuine.
30. In her fourth affidavit of 14 February 2018, amongst other things, she identifies documents which were discovered pursuant to a subpoena issued to the Commissioner of Police. Some of those documents included certificates which had been signed by AKR in relation to the DLF transaction.
31. In cross examination AKR accepted that the description she gave to the persons she believed were Mr and Mrs Mascarello looked somewhat different to the real Mascarellos (T80/30-35).
32. She agrees that the original documents that she viewed for identification purposes would have been much clearer than the photocopies and would have been in colour (T81/25-35).
33. It was put to AKR that the persons in the photographs look very much like the real people (T82/10-45).
34. AKR said that the person she saw had a receding hair line at the back and that his hair was wavy but that he strongly resembled the identification documents she was handed (T83/25-35).
35. AKR did not recall precisely what identification had been produced in the December 2012 conference (T84/10-40).
36. It was put to AKR that had she noticed the discrepancy in the addresses she would have asked a question about it which may have led her to make further enquiries (T86/5-20).
37. She agreed that at no point did she receive any identification documents from the people purporting to be Mr and Mrs Mascarello which had the Five Dock address on it (T86/30-40).
38. However, AKR asserted that in the course of acting for the Mascarellos in the litigation she did discover that the address for Mascarello Holdings was Great North Road, Five Dock (T88/10-25).
39. It was put to her that a prudent solicitor who was identifying people for the purpose of witnessing their signatures on the loan documents, especially for the first time, would have checked to ensure that the address on the loan documentation matched that on the identification documentation. AKR would not agree with that proposition (T88/45-50-T89/1-2).
40. She further would not agree that if there were a discrepancy a prudent solicitor would make an enquiry to ensure there was some satisfactory explanation (T89/3-6).
41. She denied that because Ms Penna had referred work for her she let her guard down (T89/30-35).
42. AKR said she appreciated the importance of taking care to identify people who were signing loan and mortgage documents, especially in relation to short term high interest loans with two elderly people (T90/5-20).
43. It was put to AKR that when identifying a woman who presented with black hair that was long enough to be put into a bun and who turned up with photo ID showing a lady with short brown hair or light brown hair, a prudent solicitor would have looked with more scrutiny at the photos to ensure that the photos were one in the same. She responded saying that according to her they did appear to be one in the same, the facial features seemed to be very very similar and whether she had short hair or long hair was of very little relevance because the facial features bore a resemblance (T90/25-35).
44. It was put to her that the person who called herself Mrs Mascarello did not resemble the photos. AKR rejected that, as indeed she rejected a suggestion that she had been careless or cavalier (T90/35-50).
45. The same proposition was put to her in relation to the identification of the male person concerned. AKR said that she did the best that she could with the material she had in front of her. Again, she rejected she was careless in making a comparison between the photo identification and the person who presented himself as Micky (T91/10-20).
46. She rejected the proposition that her identification was flawed on each occasion (T91/25-30).
47. When the Mascarellos told her that they wanted to borrow more money on the advice of Ms Penna, AKR suggested that there was very little she could do (T93/10-30).
48. When AKR looked at the copies of the IDs for the purposes of certification, her observation was that they looked virtually the same as the ID. There was not much difference in relation to the signatures on the ID. They were very very similar (T94/25-35). She rejected that she was careless or cavalier in saying that she knew Mr and Mrs Mascarello for more than twelve months, but she agrees that it was erroneous in relation to Mr Mascarello (T95/20-40).
49. It was put to AKR that when all the circumstances of the various loans are put together and one had two elderly people borrowing a substantial amount of money, mortgaging more than one of their properties to secure short loans at high interest rate, together with their photo identification, a prudent solicitor should have been on the alert to subject the transaction and the people concerned to greater scrutiny. She rejected that proposition and said simply that she did what was required of her (T96/35-50).
50. She denied that she was prepared to do whatever it took to get the loans through (T97/1-10). She also denied doing anything that was necessary to appease Ms Penna (T97/20-25).

Consideration

1. The legal and factual matters which consumed most time at the trial were those which concerned K R Lawyers.
2. The questions which unsurprisingly arose given the allegations in the Amended Statement of Claim centred around whether, and if so to what extent, K R Lawyers owed a duty of care to Mr and Mrs Mascarello. The questions also addressed what the relevant standard of care was, whether there had been any breach of that duty, if so whether any breach or breaches had caused any loss, and further, how that loss should be calculated.
3. In addition and importantly, the question of proportionate liability arose given the fact that on any view of it a very substantial cause of the losses occasioned to Mr and Mrs Mascarello were brought about by their son Dennis in company with others. Apportioning what if any component of that loss should legitimately be placed at the feet of K R Lawyers was a matter of some debate during the trial. Initially, the RG took the view that a contribution of at least 50% was appropriate, but in final submissions reduced the claim to somewhere between 15%-25%.
4. A number of additional consequential issues arose, including whether or not there was a failure to mitigate on the part of the RG, and whether in any event there was a limitation of liability defence pursuant to the Professional Standard Act 1994 (NSW) and the calculation of quantum. I will return to each of these matters separately.
5. Prior to dealing with the various legal issues as outlined above, it is necessary that I record my findings of fact which are at the heart of the case.
6. There is no doubt in my mind that the case involved deliberate, highly organised and fraudulent conduct on the part of Mr and Mrs Mascarello's eldest son Dennis. It is clear that he was very largely, if not entirely, responsible for devising the strategy and plan by which multiple loans using Mr and Mrs Mascarello's unencumbered properties as security were raised which permitted him to use the proceeds for his own purposes. He has pleaded guilty to a number of charges and is awaiting sentence. Again, there is no doubt in my mind he was not only the principal architect of the fraudulent scheme but he was the principal player in it.
7. The Scheme it seems to me involved a number of features or components as follows: 1. The registration of a company called Mascarello Holdings using the services of Allan's Off the Shelf and Richard John Muir. There is little doubt that the person most likely to have given instructions for the creation of Mascarello Holdings was Dennis. The company was registered on the basis of a number of falsehoods, namely that the real Mascarellos as directors and shareholders of the company had provided the necessary consents. They of course knew nothing about the company nor did they ever consent to its registration. The registered office of that company and principal place of business was 104A Great North Road, Five Dock which was the location of a hair salon operated by Dennis's wife, Maria Solari. This step was important because Mascarello Holdings was the borrower for the NWC and other loans. 2. As part of his planning, Dennis clearly appreciated that he needed to have possession and hence control of important documentation, not only relating to the properties themselves but the identity of his parents. This included him obtaining without his parents' knowledge or consent their passports and drivers' licenses which bore photographs of each of his parents. He no doubt appreciated such documentation would be required to be produced from time to time in the loan approval process. 3. It is clear that he decided to enlist the aid of imposters to impersonate his parents. I can infer that he set out to identify and co-opt people who closely resembled his parents by reference to the photographs which appeared on their passports and drivers' licenses. I can also therefore infer that he went to some trouble to select people by reason of their appearance, age and ethnicity who could indeed credibly be passed off as such. It would be no use trying to execute such a fraud with the benefit of the original identification documents unless the persons chosen bore a striking resemblance to his parents. I am also able, I consider, to infer that he would have appreciated the need for the imposters to sign various documents in connection with the loans and in the presence of persons who were not party to the fraud. This could involve lenders and/or their staff and/or their solicitors, but also any solicitor retained on behalf of "his parents" as may be required for the purposes of witnessing their signatures. It follows, and again I consider I am able to infer, that some period of tuition was undertaken to ensure that the imposters, when called upon to do so, could provide a credible version of the signatures of the real Mr and Mrs Mascarello. There is of course no way of knowing who the imposters really are, and only a very small group of people have perhaps ever seen them. It does not appear, at least as far as the evidence goes, that they have been identified by the police and/or do not appear to have been the subject of any criminal charges. 4. The choice of a mortgage broker in this case of Ms Penna was clearly no accident. I consider I am able to infer that she was in all probability part of the fraudulent scheme. So much can be inferred by reason of her having initially introduced the imposters to K R Lawyers as her "uncle and aunt". It is clear that Ms Penna intended K R Lawyers to believe that fact, further that she was either their niece or alternatively perhaps old family friends. The inference I draw as to her involvement I consider is reinforced by reason of her having attended at K R Lawyers offices in December 2012 and entering a conference room in which a meeting was taking place between AKR, Dennis and the imposters. Ms Penna on the uncontested evidence of AKR gave no indication whatsoever that the persons in the room were anyone other than Mr and Mrs Mascarello. At a later date in November 2013, she attended again at K R Lawyers offices when Dennis was there in a meeting in company with the imposter who played his father. Again Ms Penna made no comment to indicate that the person present was other than Mr Mascarello senior. One remote possibility of course is that she was also duped, as was K R Lawyers, but I regard that as highly unlikely.
8. The lenders from whom various loans were obtained retained their own solicitors but each required the loan and security documentation to be executed and witnessed by the borrower/mortgagor's solicitor. Earlier loans were refinanced by later loans, the final loan being the one advanced by NWC in the sum of $1,540,000.00.
9. The fraudulent scheme was not detected by Mr and Mrs Mascarello or other members of their family while it was being undertaken. It was not detected by any of the lenders or lenders' solicitors. If it had been, the loans would clearly not have been advanced. It goes without saying that it was not detected by AKR or K R Lawyers and it is not suggested by the RG, or anyone for that matter, that AKR has in any respect acted dishonestly.
10. Mr and Mrs Mascarello only learned of the fraud or frauds when default notices were issued by NWC in February 2014. It was then that they confronted their son. A police investigation followed resulting in their son's criminal conviction. He is awaiting sentencing.
11. In broad terms, K R Lawyers was retained to explain the documentation and to witness the signatures of Mr and Mrs Mascarello. It was not the role of K R Lawyers or of AKR to advise the lenders or indeed to perform some form of credit function for the lenders by scrutinising the borrowers or the information provided in support of the loan applications, or indeed to seek to identify any risks or problems for the lenders. Further, I do not consider it was any part of K R Lawyers role to provide advice to the lenders, or for that matter the borrowers, as to the prudence or otherwise of the transactions they were undertaking. They were engaged, it seems to me, merely to assist the borrowers in properly executing loan documents for the provision to the lender who were separately and at all times independently represented by their own lawyers. The loan documentation in all cases was pre-prepared by the lender and/or their lawyers. AKR, in my view, rigorously adhered to her limited retainer, explaining documents and witnessing signatures of the persons who she thought were the real Mascarellos.
12. I will now deal with the various issues identified earlier.

Duty of care

1. There is no issue in this case but that K R Lawyers owed a duty of care to Mr and Mrs Mascarello. So much is conceded (T100/5-10; K R Lawyers' Short Submissions in Response to the RG's Submissions at [3]).

Standard of care

1. In relation to the standard of care in their Amended Statement of Claim at paragraph [56], Mr and Mrs Mascarello allege that K R Lawyers was obliged to act in a manner that was widely accepted in Australia by peer professional opinion as competent professional practice. It is further alleged in paragraph [59] that K R Lawyers through AKR should have taken adequate precautions again to ensure in effect that the persons who presented were in fact the real Mascarellos. Section 117 of the RPA and Regulations 11B, 11C and 16A of the Real Property Regulations 2008 (NSW) (Real Property Regulations) (as in operation until 2014) and Rule 45 of the Solicitors Conduct Rules are relied upon. Further, it is alleged that procedures should have been undertaken to ensure no discrepancy in addresses or at least to seek reasonable explanations for any inconsistencies and take heed of concerns raised by third parties.
2. In paragraph [27] of the Amended Statement of Claim, further attempt is made to articulate the standard of care by reference to a similar statutory and/or regulatory background. In my view in neither case does the pleader capture the essence of the standard of care applicable in this case. In both cases, the pleading is a mixture of allegations which I consider conflate duty with the standard.
3. In my view the standard of care here is that K R Lawyers was required to take reasonable steps and to act reasonably in identifying Mr and Mrs Mascarello and witnessing their signatures on the various loan and security documents. The various statutory and regulatory pronouncements provide a backdrop as to what is or what is not required by way of particular steps to be taken by a solicitor in particular circumstances.
4. In addition the RG relied as had Mr and Mrs Mascarello on the expert evidence of Mr Peter Rosier, solicitor. I shall come back to Mr Rosier's evidence shortly.
5. The RG relied upon and sought to invoke as part of the statutory or regulatory backdrop section 56C of the RPA and Regulations 11A and 11B of the Real Property Regulations. Those provisions of course regulate the conduct of mortgagees, and are of no relevance. I shall return to these provisions again when I deal with Mr Rosier's evidence.
6. Rule 45.5 of the Solicitors Conduct Rules 1997 and Rule 58.4 of the Solicitors Conduct Rules 2013 require that a solicitor advising on loan or security documents must identify the proposed signatory as the person described by reference to one of a number of forces which included a passport or a drivers' licence amongst other things Regulation 16A of the Real Property Regulations provides that a witness is taken to be considered as having taken reasonable steps to ensure the identity of a person executing an application, dealing or caveat if the witness has sighted an original of a primary photo identification document in respect of the other person or an original of a primary non photo identification document in respect of the other person and an original of a secondary identification document in respect of the other person.

Was there a breach of duty of care

1. K R Lawyers and AKR in particular submit they took reasonable steps and acted appropriately in identifying the "Plaintiffs", including by the receipt of original and genuine photographic identification with photos that resemble the imposters who presented at K R Lawyers' offices on numerous occasions. AKR believed at all relevant times that the people she met with were in fact Mr and Mrs Mascarello and they told her that they were. She met the same people on multiple occasions and inspected their genuine identification documents and witnessed their signatures on multiple occasions. Her evidence to some extent is corroborated by that of her assistant Ms Lena Pace, who also met with the "Plaintiffs" and photocopied their identification documents and also formed the view (on one view much later) that the imposters greatly resembled the Plaintiffs as they appeared in their photo identification documents.
2. The RG used a number of epithets to describe AKR. She was described as 'cavalier' and 'careless' (T90/35-50) and she was accused of being 'beholden' (T109/45-46) to Ms Penna. As to the latter allegation it is true that AKR and Ms Penna had a professional association which involved the referral by Ms Penna to K R Lawyers of about 15 clients in total over a period of about 3 years. It is to be observed, however, none of those clients nor any of those transactions have been examined in this case nor is it suggested they were anything other than genuine referrals. There is nothing to suggest that any issue ever arose in relation to those clients and in particular in relation to their identity. What was meant by the use of the term 'beholden' I expect was to suggest that somehow or other AKR disregarded her professional responsibilities out of some sense of obligation to Ms Penna or in some way did her a favour. I do not regard such a suggestion to have any rational foundation whatsoever in the evidence. For example, in the various files there are some fee notes to suggest she was charging on a professional basis for the time she spent. It was not suggested otherwise (RG Closing Submissions at [24]; T90/40-50; T106/30).
3. Having observed AKR in the witness box and having read her materials it seems to me that she behaved on all occasions in a thoroughly professional manner and her particular conduct in relation to the imposters in regularly asking them to reproduce her identity documents yet again in and of itself is sufficient to dismiss the assertion. So far as the suggestion that she acted in a 'careless' and 'cavalier' manner in my view likewise has no rational foundation in the evidence. The evidence discloses that AKR followed her usual, indeed proper practice, by requiring the production of photographic identification and confirming such identification before the signing and witnessing of documents. Insofar as on one occasion copies of identification documents were not taken I regard her explanations as entirely reasonable and I accept them. In the circumstances I do not regard what occurred as unreasonable given her explanation that her offices were serviced and used pin-activated printers not easily accessible after hours (T87/1-4).
4. The criticism, as I best understand the way in which the RG presented the case at least on the photo identification, is that some of the physical attributes which AKR attributed to persons she believed were Mr and Mrs Mascarello in fact were erroneous. For example, Mr Mascarello says he never had wavy hair but at all relevant times was bald. In addition and by way of example, Mrs Mascarello says she never had her hair back in a bun but for some years had short hair of the sort which is portrayed by her photograph on her drivers' licence.
5. At the time AKR saw the identification documents, namely the passports and licenses, she saw the originals which were in colour. They would clearly have provided a more graphic representation of the real Mr and Mrs Mascarello and were the items of identification she took into account in deciding whether the persons sitting in front of her were the people in those documents. She of course says she did form that view and belief and as I have said there has been no suggestion that she acted dishonestly in making these assertions. She believed the people in front of her were the people shown in the photographs. I accept her evidence. I should say in passing those original colour documents are not in evidence. What has been tendered are photocopies of not particularly good quality (see for example Annexure A to Lena Pace's affidavit of 10 November 2017).
6. However, AKR also conceded she thought the real Mr and Mrs Mascarello when she saw them looked somewhat different to her description of the imposters however she maintained that the real Mr and Mrs Mascarello looked like the persons depicted in the relevant identification documents. I consider this however does not detract from her evidence that she believed the imposters looked like the real Mr and Mrs Mascarello when she met them. Indeed as I have already said I am entitled to infer that is precisely why Dennis chose them.
7. AKR described the male imposter as a man with greyish wavy hair and a receding hairline. Mr Mascarello says he has been bald for many years. Likewise AKR described Mrs Mascarello as having her hair back in a bun. As far as her photographs are concerned, however, there is upon inspection of the photocopies at least in my view a significant difference between a hairstyle in the passport as opposed to her drivers' licence. The passport in my view would not necessarily exclude hair back in a bun. The drivers' licence on the other hand clearly shows her hair as being short and unlikely to be able to be tied in a bun.
8. More importantly, however, it is clear that AKR must have believed the facial features of the imposters, as distinct from their hair or hairstyles, strongly resembled the people in the photographs and it was not put to her that she could not reasonably have formed that view. Nor was it put to her that the apparent age and ethnicity of the imposters did not align with the apparent age, and ethnicity of Mr and Mrs Mascarello. Indeed it may be thought that facial features are much more defining in terms of identification than hairstyles or length of hair. AKR had Dennis, the real son, sitting in front of her actively representing that the imposters were his parents, with Dennis also doing much of the talking.
9. I should also say in passing that I have watched the evidence of Mr Mascarello which was recorded before the Registrar in October 2017. For my own part I would not describe Mr Mascarello as bald but rather balding. He is not entirely bald at all. Whilst he is balding on top of his head, he has clearly white hair at the sides protruding over both ears, I presume at the back of his head as well. It would be quite false to describe him as having an entirely bald head. This is in stark contrast to the photograph of him in the identification documents. I also observed that during the course of his examination he resorted to using reading glasses in order to read a paragraph of his affidavit. This observation fortifies my view that AKR in describing the person she saw in her room could reasonably have formed the view that the photograph of Mr Mascarello was indeed the imposter sitting before her.
10. The various criticisms levelled at AKR in this regard in my view are misplaced for any number of reasons. None of the identification documents give any hint as to build or height. Whilst it is true the original documents would have been in colour, these photographs are simply snapshots taken at a particular moment in time some years apart. Indeed I observe that there is, or at least there appears to my mind, to be a discrepancy in the appearance of Mrs Mascarello between a comparison of the photograph on her passport and the photograph on her drivers' licence. It may be that the reason for this is that the passport photograph has been cropped. Nonetheless, discrepancy does on its face emerge. So far as Mr Mascarello is concerned, the photographs in both cases are face-on and there is no way of knowing whether his apparent baldness is as a result of a haircut or perhaps shaving his head. In addition there is no way of knowing what the back of his head looked like (Exhibit AKR1 768-775; Annexure A of affidavit of Lena Pace of 10 November 2017).
11. The signatures each imposter placed on documents in AKR's presence to my observation closely resembled the signatures of the real Mr and Mrs Mascarello.
12. As I have already remarked, I infer Dennis made the choice of the imposters because he was of the view that they would credibly be passed off as his parents. He was obviously intimately familiar with his parents' appearance. Counsel for the RG was unable to grapple, in my view, with the reality that it was near to impossible to suggest given all of the other factors referred to that AKR had acted unreasonably in some way in believing that the people she saw in conference were indeed those portrayed in the various photo identification documents.
13. Regulation 11B(3)(c) of the Real Property Regulations uses the expression "true likeness". As is pointed out by K R Lawyers a true likeness or true resemblance is all that is required and it is by no means an uncommon experience that the appearance of people changes over time. Length and colour of hair are but two examples. In my view on all of the facts here I consider it is impossible to say AKR could not have considered the imposters bore a true likeness, even if that was the test.
14. AKR having seen the real Mr and Mrs Mascarello continued to assert that the imposters bore a strong resemblance to them (Aff KR1 [26]). Ms Pace, as I have said, to some extent corroborates AKR in this respect.
15. Of those persons who gave evidence before the court only AKR and Ms Pace are in a position to give evidence about the closeness in appearance between Mr and Mrs Mascarello and the imposters. Neither made any concession in cross examination in my view sufficient to give rise to any disquiet to their ability to draw such a conclusion. I accept their evidence.
16. The RG submits by reason of some evidence of a telephone call (Exhibit P2) that Dennis would not be the kind of person who could organise a sophisticated fraud. The telephone call referred to is a recording of Dennis pretending to be his father and an unknown and unidentified woman pretending to be his mother. The call took place with a Mr Barbone apparently of DLF on 30 November 2012. It was recorded as part of a lending protocol adopted by DLF prior to approving any loan facility. The purpose of the call was to ensure that the putative borrowers understood the detail of the amount they were borrowing, that they had clear purpose in mind and a clear exit strategy. It is submitted that as a result of this telephone call I should conclude that Dennis was no "genius". Presumably, I am asked to infer that it would have been beyond him to organise a sophisticated plan of the sort outlined above.
17. An example of his so-called amateurish attempt is said to be that he commences the phone call using an Italian accent which he then rapidly drops. I confess to not having detected this subtlety. Indeed the bulk of the conversation conducted by Dennis has him using an obvious Australian accent. However, the woman who pretends to be Mrs Mascarello speaks with an accent which could clearly be Italian.
18. There are a number of comments that can be made against the submission made in respect of the recording. According to Mr Mascarello, he clearly identified the male voice of that of his son Dennis. He is unable however to identify the female (Aff MAM2 [17]). I consider I am able to infer that it is unlikely that the female was Dennis' wife and Mr Mascarello's daughter in law, otherwise I would have expected Mr Mascarello to identify her voice. Who it is, is unclear, but it very well may be Ms Penna. In any event both persons pretending to be Mr and Mrs Mascarello are asked over many minutes a series of questions concerning their understanding of the loan, the nature of the loan, and an exit strategy and importantly asked, for example to give their full names, their addresses and licence numbers.
19. Importantly, Mr Barbone clearly accepted the authenticity of the persons he believed he was speaking with by reason of the fact that the loan was approved on 19 December 2012 and funded on or about that date. The phone call as I say went for many minutes and it is tolerably clear that Mr Barbone picked up no discrepancies, or anything suspicious. At one point Dennis could not instantly recall whether his first language was English or Italian. Clearly Mr Barbone did not find that suspicious either.
20. The RG relied upon the evidence of Peter Rosier, which had been procured by Mr and Mrs Mascarello prior to them resolving their proceedings. Mr Rosier purported to expose and hence demonstrate areas of insufficiency and inadequacy on the part of AKR in order to support the claim of negligence. For a number of reasons I do not accept that Mr Rosier's report does so. His report, albeit in one sense driven by the precise questions he was asked in his letter of instructions, certainly did not wittingly or unwittingly confine itself to the pleaded case. It is true he was not asked to, but as a very experienced and senior lawyer who admittedly was asked in one sense some very general questions, should in my view have been careful not to stray beyond the case that was actually pleaded against K R Lawyers and AKR in particular. This disconnect which occurred both blatantly and obviously in this case between on one view the questions posed, on the other the case actually pleaded, is in some measure the responsibility of the solicitor who briefs the expert. He or she should be in control quite directly of the issue or issues the expert is asked to express opinions upon. It is incumbent upon any solicitor briefing an expert to state quite precisely the assumptions the expert is asked to assume for the purposes of the opinion. In this case I have already made mention of Schedule A to the letter of instructions. It was argumentative. It was unnecessarily pejorative of AKR. What the court requires because of the paramount duty owed by the expert to it in an entirely independent objective opinion or opinions based upon material which is clearly exposed so that the reasoning process can readily be understood. Opinions which may be seen as the product of inappropriate instructions are of little use.
21. Mr Rosier highlighted through numerous aspects of his report the failure on the part of AKR to make enquiries as to the address at North Strathfield which appeared on the identification documents for example and the Five Dock address which appeared on loan documents. It is a report which, if I may say so with great respect to him along with his answers, had an air of unreality about them. In fairness to him, he readily conceded that he was not asked to nor did he profess to express any opinions about the issue of causation.
22. He accepted that a necessary component of a fraudulent scheme which involved imposters as here necessarily involved deceiving people into believing that they were dealing with the true registered proprietor as opposed to imposters. If the deceit worked then unsurprisingly he conceded that it would not necessarily give rise to a suggestion of negligence (T49/3-12).
23. He also agreed that in the case of the sophisticated or well organised fraud it may be very difficult on the part of honest people to detect the fraud (T49/14-17).
24. He also accepted again unsurprisingly that the relevant standard to be applied in considering the question of competent or common professional practice was not one of perfection.
25. It seemed to me that the criticism made of him in this regard by K R Lawyers that he did seek to impose an unreasonably high standard is made out by reason of the fact that Rule 48 of the Solicitors Conduct Rules and in particular clauses 11B and 11D require only one form of identification to be produced. Mr Rosier maintained that a practitioner acting reasonably as it were should ask for at least two (T44/30-47). In my view that would impose an unreasonable and unnecessary burden. However, to some extent it is quite irrelevant because AKR did on a number of occasions require and have produced two current forms of identification namely a passport and a drivers' licence. His reference to further enquiries being called for a taxi plate registration some 25 years earlier contained a different address to the identification document in my view shows an element of desperation. In my view again that was plainly unreasonable to impose on a solicitor in the circumstances confronting AKR here.
26. Erroneously here in my view he sought to rely initially on clause 11C of the Real Property Regulations which when pointed out to him he accepted only applied to body corporate mortgagors in the mistaken belief that Mascarello Holdings was in fact a mortgagor when in fact it was not.
27. Mr Rosier's primary criticism of K R Lawyers was the alleged failure to enquire into the fact that the identification documents bore an address in North Strathfield whereas the various loan documents bore an address of Five Dock. The problem with this criticism is that as a matter of public record albeit procured by false statements the Five Dock address was the registered office and primary place of business of Mascarello Holdings where it was the borrower. Mr Rosier unsurprisingly again had to agree that there was nothing unusual about loan documents having the address of the borrower on them and indeed it would be more usual to have the address of a guarantor on such documents rather than the borrower (T66/49-67-5). Nor did he consider anything remarkable about clients having documents relating to a loan for the business sent to the business address. In his report, Mr Rosier was critical of the acceptance by AKR of an expired drivers' licence and Medicare card but soon had to accept in cross examination that there was no basis for the criticism and he had to accept that original and current passports and drivers' licences when provided would not have given rise to any concern nor required further enquiry.
28. Again in my view he wrongly criticised AKR for allegedly relying on an unexpired Medicare card and conducting a 100 Point Identity Check for the Plaintiffs. But it was plain when he was taken to the relevant documentation either he had not examined it at all or had been misled in making an assumption such that it was clear that reliance had only been placed upon the passport and drivers' license. In those circumstances, he had to accept that his criticism was misplaced.
29. Further in his report had had sought to criticise AKR in respect of matters which had nothing to do with the question of identification which AKR had been asked to focus upon and were not matters raised in the pleadings. These matters included whether there was on the file an acknowledgement that legal advice had been given, and the nature and advice provided by AKR to the imposters with further communications which were necessary between AKR and the solicitors for the lender. For example, whether or not there were certificates of financial advice, whether residential tenancy agreements had been carefully scrutinised or not. Mr Rosier accepted upon the basis of a number of assumptions that there would be nothing inappropriate with a solicitor performing a 100 Point Identity Check based on a drivers' licence and passport (T50/22-26).
30. The assumptions which are set out in some detail at (T49/37-T50/20) include a new client approaching a solicitor for the purposes of signing loan documents, a mortgage where a broker had referred the clients to the solicitor in circumstances where other clients had been referred, and if the client or clients presented at the meeting handed over original identification documents and resembled the person in the identification documents. On that basis, Mr Rosier's evidence in my view fairly understood could not reasonably support any claim in negligence against AKR, in my view because that is precisely what she did. When the real son Dennis arrived with genuine identification documents, and with imposters who resembled the persons in the identification documents, not only did they appear to be the same people but they appeared to have knowledge of the transaction and were willing and happy to take out the loan and proceed with it. One may ask rhetorically why would a competent solicitor acting reasonably not suspect anything untoward.
31. The so called disparity in the addresses was easily explicable because the Five Dock address was the address of the borrower, Mascarello Holdings. Although I will come to causation separately, had a question been asked an obvious and indeed truthful response would be that so far as the regulator was concerned that was in fact the registered office of Mascarello Holdings.
32. Mr Rosier expressed an opinion at paragraph [36.5] of his report that AKR had contravened section 117(4) of the RPA. He accepted that it was a serious matter to suggest that a solicitor had breached a statutory provision and was liable to a fine of ten penalty units. He seemed to rely initially upon an email dated 21 June 2013. However, during cross examination he appeared to be relying upon a mortgage being a document Exhibit AKR1 at page 520. At least during cross examination he fairly accepted that neither the email nor the mortgage could support his contention that there had been a breach of section 117(4). At the conclusion of cross examination, Counsel for the RG made an application to confer with Mr Rosier before re-examination. I granted him leave to do that on the basis that should anything new arise, Counsel for AKR could ask further questions (T70/10-34).
33. In re-examination, Mr Rosier purported to retract his concession that he may have been wrong in alleging a breach of section 117 of the RPA. In re-attempting to assert a breach of section 117, he sought to rely upon a document being a "statutory declaration by borrower regarding the introduction of the loan" (Exhibit AKR1 at 476). This, however, is not a document which would ordinarily be lodged with the RG. It is submitted on behalf of AKR that section 117 of the RPA as it applied between 1 January 2013 and 4 July of that year has no application to such a document. In any event, I do not think it can be a certification for the purposes of that section because it does not deal with any "application, dealing, caveat or notice".
34. In my view, the case pleaded and sought to be made against AKR in negligence is not made out. I do not think at any turn AKR acted unreasonably nor do I think she was in breach of any statutory or regulatory enactment.

Causation

1. If, however, I am wrong and for some reason it is found that AKR did act negligently, in my view there is nothing she or likely anyone else could have done to have prevented the fraud being perpetrated by Dennis and his accomplices. It must be remembered that when AKR saw Dennis he was either accompanied by his "mother" or his "mother and father". Everyone in the room except AKR was involved in the fraud. The imposters were no doubt schooled such that they could spontaneously falsify Mr and Mrs Mascarello's signatures. I infer that Dennis did most of the talking to AKR and when he spoke to the imposters it seems it was mostly in Italian (Aff KR2 4).
2. These persons attended upon AKR for the express purpose of deceiving her in order to have documents signed and witnessed. Any query posed by AKR, I am able to infer, either would have been answered with a truthful response, namely if it were directed to the Five Dock address issue (that is the registered office of Mascarello Holdings) or with a lie designed to appease or explain any questions posed. For example, if a solicitor thought it remotely relevant to ask about an address of 25 years ago on the old taxi documentation, Dennis certainly would have been able to answer that it was a previous property owned by his parents. It must also be recalled that the fraudsters via Ms Penna were able to make multiple applications for loans in circumstances where their true identity was never discovered. They were able to obtain accountant's certificates, property valuations and of course presented with valid and original identification documents. There is no suggestion in my view that it was any part of AKR's obligations to point out the peril of high interest rates or the short term nature of the facility. She was entitled reasonably to assume that it was no part of her retainer to discuss such matters and that it was highly likely that it had been discussed between Ms Penna and them.
3. The fraudsters were also quite capable of procuring other false documents such as the document witnessed by Mr White a Justice of the Peace, whose JP number they somehow acquired and placed on the document along with his forged signature. They falsified residential tenancy agreements between Mr Lee (an employee of Dennis' wife) and Mr Mascarello. There were apparently no lengths to which they would not go to provide seemingly relevant corroboration. In addition the audio recording (Exhibit P2) demonstrates Dennis' ability and willingness along with a female accomplice imposter falsely to engage in telephone checks for the purposes of getting loan approval.
4. The fraudsters were therefore organised, dedicated and determined. They had covered as they saw it correctly in my view all contingencies. They acted in concert and were prepared to lie and if need be manufacture what appeared to be authentic documentation at the drop of a hat. In my view, AKR had no reason at all to suspect or suppose that the people who ended up sitting in front of her on multiple occasions were imposters especially given the fact that she genuinely believed they resembled the people in the authentic identification documents. What AKR did in my view was both reasonable but more importantly unexceptional. In my view, a great number of solicitors would have done exactly as she did and for the same reason shown no reluctance to witness the relevant signatures. In my view, even if there were a breach of any sort alleged I just cannot see it being causative of any loss ultimately.
5. For the reasons stated above, either because there was no negligence or if there was any breach of duty the unlikelihood of any loss accruing, the case in my view fails at the causation stage. That theoretically makes any of the remaining questions posed concerning AKR unnecessary to address. I will however say something about each of the remaining questions in the event I am otherwise wrong.

Proportionate liability of K R Lawyers

1. On the question of proportionate liability there is no doubt that the claim against K R Lawyers is an apportionable claim pursuant to section 44(1) of the Civil Liability Act 2002 (NSW).
2. However, there are a number of other persons whose role is both obvious and much more substantial. The most obvious is Dennis who is the principal fraudster. He liaised with the mortgage broker and the lenders, he found the imposters, he stole the Plaintiffs' original documents. It is also likely he arranged for the incorporation of Mascarello Holdings. He received the funds he fraudulently extracted from the transactions and has pleaded guilty. He clearly bears the greatest share of the responsibility for any loss and damage.
3. The two imposters without whom the fraud could not have been pulled off must also bear a very substantial share of the responsibility for the loss.
4. Allan's Off the Shelf's Richard John Muir clearly facilitated the dishonest incorporation of Mascarello Holdings. It is fairly clear that the application for registration was false as was the statement at the end of the form apparently signed (or lodged electronically) by Mr Muir. Mascarello Holdings was an important element in the fraudulent scheme. This justified the use of the address at Five Dock which was otherwise the business address of Dennis' wife.
5. Ms Penna was also a significant player in the scheme orchestrated by Dennis. She told AKR that the Plaintiffs were her "uncle and aunt". She knew the imposters clearly because as she entered the conference room at K R Lawyers offices in December 2012 she did not suggest that they were not the true Plaintiffs.
6. She was heavily involved in applying for the loans it may be inferred, completing loan application documents. Her statements to AKR that the Plaintiffs were her uncle and aunt were clearly false unless she too was deceived. As I have already said I regard that as highly unlikely. She must be seen as clearly very significant in the facilitation process involved in procuring the fraudulent loans.
7. In its outline the RG suggested a proper apportionment would be a 50% attribution to K R Lawyers. As I have already observed that claim has now been reduced to a suggested 15%-25%.
8. In the event that I am wrong and there is some negligent conduct on the part of K R Lawyers which caused some loss I frankly cannot see in the scheme of things that K R Lawyers contribution to it could be any greater than 5%. That would be in my mind a fair contribution in all of the circumstances.

Professional standards defence

1. In any event K R Lawyers relies upon limitation of liability defence pursuant to the Professional Standards Act 1994 (NSW) in which any award of damages (including interest and costs) may not exceed $1,500,000.00 by reason of K R Lawyers membership of the Solicitors Scheme.
2. The RG seeks to rely upon section 5(2) of the Act to avoid the operation of that limitation of liability. It is submitted that the claim brought by the RG is a subrogated claim pursuant to section 133 of the RPA and that the Professional Standards Act 1994 (NSW) pursuant to section 5(2) of that Act does not apply to liability which may be the subject of proceedings under Part 14 of the RPA.
3. In my view the RG's submission is without merit. Its claim is not in my view a claim in respect of liability which may be subject to proceedings under Parts 13 or 14 of the RPA. The claim is indeed a subrogated claim pursuant to section 133(2), namely in respect of the Plaintiffs' rights and remedies against K R Lawyers. Those rights and remedies relate to a common law claim in negligence that has nothing to do in my view with either Parts 13 or 14 of the RPA.
4. In my view therefore the Plaintiffs' claims were subject to the limitation of liability under the Professional Standards Act 1994 (NSW). It follows that that limitation cannot be abrogated and the quantum of an available claim enlarged because the RG becomes subrogated to their claim.

Failure to mitigate and associated claims

1. K R Lawyers also submits that there has been a failure to mitigate on the part of the RG.
2. This was the case of a highly sophisticated and orchestrated fraud. The claim against the RG was first notified on or about 30 March 2014. The Plaintiffs commenced proceedings on 17 August 2015. It is submitted by K R Lawyers that there would not be a clearer case of fraud, especially where Dennis pleaded guilty. Further it is submitted that instead of promptly resolving the claim it was not resolved until 7 February 2018 virtually on the eve of the hearing before the Court.
3. K R Lawyers submit that the RG, instead of promptly approving and paying the Plaintiffs claim, caused the Plaintiffs to be involved in litigation for years and that that conduct on the part of the RG has single-handedly resulted in the Plaintiffs' claims against it under the Real Property Act 1900 (NSW) doubling. It is true that such evidence as is before the court shows that the Plaintiffs' solicitors from 28 March 2014 not all that long after they discovered the fraud made a claim for compensation upon the Fund. A claim form was completed together with statutory declarations which were forwarded to the solicitors for the Fund, on 30 March 2014.
4. K R Lawyers further submit that ample material including statutory declaration details of the police complaint and the investigation by the fraud squad was provided promptly to the RG. It was also submitted that the first time that the RG made any contact or enquiry of K R Lawyers, prior to the filing of the first cross claim which joined K R Lawyers, was on 28 April 2016. K R Lawyers submit that there are four bases upon which the quantum should be calculated at no more than $2,116,954.53. In addition, it is submitted that the usual time of processing damages in a negligence claim is at the time the cause of action accrues, but it is acknowledged the court has a discretion to apply a later date when required to most fairly compensate the plaintiff for the wrong suffered. In this case it is submitted that the plaintiffs first agitated their claims against the RG in March 2014 and only sued K R Lawyers three and a half years later on 5 September 2017. It is submitted therefore it would not be fair to expose K R Lawyers to the significant increase in the value of the claim during a period of time that the claim was only made against the RG.
5. K R Lawyers submit that there has been no explanation proffered by the RG explaining the delay in arriving at a settlement with the Plaintiffs. Further the submission is that as this was a subrogated claim the Plaintiffs and hence the RG had a duty to mitigate.
6. The materials initially supplied to the solicitor for the RG included effectively two letters of demand. One to the Plaintiffs' son Dennis inviting him to make a full admission as to his criminal conduct, the other to AKR which suggested at least by implication some potential involvement by her because of her failure to pick up what was said to be an apparent difference in the signatures which AKR witnessed on 30 September 2013 and in what was said to be the original signatures of Mr and Mrs Mascarello. Failure on the part of AKR to respond became a threat of possible referral to the Law Society of New South Wales Professional Standards Committee and the Fraud Squad.
7. Thereafter correspondence continued with the solicitor for the RG requesting among other things expedition of the calculation of Mr and Mrs Mascarello's claim for compensation and payment thereof. However it was not until 22 September 2014 that the Plaintiffs' solicitor quantified the precise amount claimed that the Fund should pay namely $2,169,184.09 which excluded selling costs, legal costs and disbursements and CGT Liability.
8. On 5 December 2014 however the solicitor for the RG wrote enquiring about certain aspects of the matter and asking in particular whether the Mascarellos had any knowledge of the loans other than the NWC loan and in particular that fraud was being alleged while they had elected to permit NWC to exercise a power of sale in relation to certain of the properties.
9. In February 2015 the solicitor for Mr and Mrs Mascarello informed the solicitor for the RG that the police investigation amongst other things had been delayed and the charges were yet to be referred against Dennis. It was also said that the New South Wales Law Society had 'recently' appointed an investigating officer to look into presumably the conduct of AKR.
10. On 17 April 2015 it was noted in a letter from Mr and Mrs Mascarellos' solicitors that the RG had refused the claim and that unless a change in attitude came about proceedings would be commenced within 7 days.
11. On 23 April the solicitor for the RG responded by making the obvious point that the investigation undertaken had exposed a number of concurrent wrongdoers which made it impossible for RG to make a proper determination of its liability.
12. There is no evidence before the court from the RG or if I may add from Mr and/or Mrs Mascarello as to exchanges between them (other than those already mentioned) nor is there any information as to the precise progress of the police investigation. Any person who suffers loss or damage as a result of a fraud may claim compensation, but any claimant must co-operate fully with the RG for the purposes of ensuring the RG has sufficient information and undertakes a significant process in that regard: sections 131(6)-(8) RPA.
13. There is little doubt that this was a complex case to investigate. Dennis did not immediately admit his guilt. In addition, the solicitor for Mr and Mrs Mascarello was alleging negligence at least on her part, but may well have suspected more. Proceedings against K R Lawyers were brought on 5 September 2017 having commenced proceedings against the RG on 17 August 2015.
14. On 5 September 2017, the Mascarellos filed an amended statement of claim in which they sought to have their loss assessed on the basis of the current values of the Lilyfield, Strathfield and Leichhardt properties.
15. The RG of course settled the claim on 7 February 2018 $3,050,000.00.
16. Leaving aside the suggested delay on the part of the RG, the submission is made that AKR changed her position over time as to the identity of the elderly couple she saw. As pointed out at paragraph [7] of the RG's Opening Submissions of 8 February 2018, having witnessed their signatures on at least 6 separate occasions it may be assumed that AKR believed that the elderly couple who presented at her offices were the real Mascarellos. It is then submitted that the position disclosed in her defence and in her affidavit sworn 24 November 2017 is that she did not know one way or the other. It is further pointed out by her not challenging Mr Mascarello's evidence in cross examination it may be taken that the elderly people who came to see her were not the real Mr and Mrs Mascarello.
17. Here, whilst the RG has provided no explanation for the delay in reaching a settlement with Mr and Mrs Mascarello, they likewise have not produced any material post early 2015 to indicate the manner in which negotiations continued or not as the case may be with the RG. Nor is it plain on the evidence what additional information or material either they supplied or the RG acquired prior to the ultimate settlement in February this year.
18. Because of my view on negligence, and because of my view on the limitation of liability, the determination of this question is somewhat academic. However, I am not satisfied that the conduct of the RG can properly be characterised as unreasonable such as to support the submission that it has failed to mitigate. In a complex factual case such as this, with many potential concurrent wrongdoers, there was some considerable justification in delay in my view in finally resolving the Mascarello's claim against the RG. From K R Lawyers point of view only belatedly did they decide to identify Ms Penna as a likely culprit in the fraudulent scheme. That is not to be critical but simply to say that the factual situation was somewhat complex.
19. In my view, if it were simply a question of a discount for failure to mitigate I am not satisfied such a proposition is made out. In other words I do not consider it has been shown that in all the circumstances the RG has failed to mitigate.

The Registrar-General a concurrent wrongdoer

1. On the question of proportionate liability, as I have already said, there is little doubt that the claim against K R Lawyers is an apportionable claim pursuant to section 34(1) of the Civil Liability Act 2002 (NSW). As is also clear from what I have already said, there are a number of other concurrent wrongdoers.
2. It is submitted that the RG can in law be a concurrent wrongdoer because it owed the Plaintiffs a duty of care and because it was reasonably foreseeable that the Plaintiffs would suffer additional loss and damage by the RG failing to exercise its statutory powers to consider and approve their claim and do so more quickly. The Plaintiffs were vulnerable in the sense that their losses continue to escalate and they had no financial ability to safeguard themselves whilst the RG delayed or refused to accept their claim.
3. This point strictly does not arise. However there is authority for the proposition that in such circumstances a duty of care would not arise over and above such claim as may be made on the fund. In particular Bryson J in Challenger Managed Investments Ltd v Direct Money Corp Pty Ltd [2003] NSWSC 1072 at [79] and Pembroke J in Pedulla v Panetta at [64]. In my view the views expressed by their Honours accord not only with general principle but I think would fit comfortably within the legislative scheme. That said comity suggests that I should not express any contrary views to those articulated by Bryson and Pembroke JJ unless I consider them clearly wrong, which I do not. I am also of course mindful of Bryson J's qualification in paragraph [79] when read in full.

Calculation of loss

1. On the question of calculation and loss and damage K R Lawyers submits that the usual means of calculating damages in tort are that they are to be determined as at the date on which the cause of action arose and the amount should be in monetary terms, a sum as if the tort had not been committed. K R Lawyers however accepts that the court has discretion in this regard. It follows in K R Lawyers' submission that the loss and damage had crystallised and the cause of action was complete by about 28 November 2014 when the properties were sold and NWC was paid the sum of $2,116.954.53. That is it submitted the appropriate figure for the calculation of loss in this case. The RG submits the date of judgment is the appropriate date.
2. In any event several points are made as to the quality of the evidence put forward by the RG in support of what might be described as current values or values at the date of judgment. It is contended that each of the valuations are in the order of 3 to 4 months old, each has certain qualifications which makes reliance upon them problematical. For example in relation to the Strathfield Property a proper valuation of that property even if taken at the date of judgment is questionable because the precise arrangement between the various parties to what is described as a vague and undocumented event or finance arrangement faces a question mark over its valuation.
3. On this aspect K R Lawyers relies upon the mitigation argument which I have already dealt with.
4. K R Lawyers also submits that the RG cannot profit from the litigation. It submits that the RG only reluctantly disclosed the terms of settlement reached with the plaintiff which led to the RG agreeing to pay the Plaintiffs $3,050,000.00 inclusive of costs and expenses. Accordingly, the principal payment which ought to be made by the RG to the Plaintiffs is about $2,700,000.00 to $2,750,000.00 (once legal costs of $300,000.00 to $350,000.00 are deducted. It is further submitted that as the claim made by the RG is subrogated it is restricted to make a claim in the order of $2,700,000.00 to $2,750,000.00.
5. It is submitted that no objection was taken to the valuation reports and they support calculations of somewhere between $4,275,000.00 and $4,450,000.00 for the relevant properties. Further it is correct to observe the valuers were not cross examined.
6. A submission is also made by the RG that apportionment must be based on the loss suffered by the Mascarellos not on an amount paid in settlement to them. Again these arguments are theoretical only.
7. The right of subrogation provided by section 133 of the RPA is in my view entirely akin to the right of subrogation under the general law. In other words there is nothing in principle in my view preventing the RG as indeed if it were an insurer and even having settled with the insured to making a claim against any wrongdoer or wrongdoers which can be legally justified and which is greater than the amount paid to the insured. In other words any sum that the RG may have paid Mr and Mrs Mascarello does not in principle or by reason of statute in my view limit the amount which it can claim as a loss by reason of subrogation. However if some figure in excess of the sum paid to the Plaintiffs in full settlement was achieved by reason of any subsequent litigation then in my view consistent with the general law of subrogation and indemnity the RG would be obliged to account to Mr and Mrs Mascarello for any additional monies it might receive less costs and expenses. After all, the losses occasioned are those of Mr and Mrs Mascarello not those of the RG. Insofar as the RG relies upon Meagher JA in RG v Lawcover to support the proposition that there is a 'cap' on the amount the RG can recover, I do not read His Honour's judgment in that light. There is little doubt that the RG is not entitled to profit. But in my view that would not prevent a court awarding the appropriate damages to a claimant (in this case the Mascarellos), which may or may not be the amount the RG settled for.

The Claim against NWC

1. I first should note that NWC formally abandoned its second cross claim against K R Lawyers so the only issue remaining with NWC is the claim made against it by the RG.
2. The RG makes a number of submissions about the agreement reached between NWC and the Mascarellos. As I understand it there is no disagreement as to the construction of the Deed they signed. I shall return to some of these questions shortly.
3. In any event the RG submits that by operation of section 132 of the Act it is not bound by any agreement entered into or release granted by the Mascarellos which might otherwise bind the Mascarellos.
4. In short the charging of 72% interest rate it is submitted should be held to be a penalty. In that regard the RG relies upon Lindsay J in Mango Credit.
5. Part of the resolution of the dispute between NWC and the RG is to be informed by the fact that on 15 September 2014 Mr and Mrs Mascarello and NWC entered a deed by which the Mascarellos purported to release their claims and remedies against NWC.
6. Whichever argument is advanced by the RG, NWC asserts any or all claims upon whatever basis or bases are barred by the terms of the Deed entered into by the Mascarellos.
7. In particular the recitals are relied upon, especially recital [M]. Clause 4.2 of the Deed also provides a warranty that the borrower and guarantor had sought and received independent legal and financial advice and had determined to enter into the Deed solely in reliance upon that deed.
8. Clause 6.1 provides that NWC can plead the document as a complete defence or bar to any proceedings. Clauses 7.1 and 7.2 which provide for general releases are also relied upon. In particular clause 7.2 which provides that the borrower and guarantor releases NWC from any "liability past, present or future from all claims, suits, demands, actions or proceedings arising out of or in connection with the Agreement".
9. It is submitted that the Mascarellos did not make, nor do they make a claim for unconscionability and clearly were not ignorant of the frauds that had been perpetrated by their son. Further it is submitted that it must be taken that the Mascarellos at the time they signed the Deed to have been fully aware of the causes of action available to them as a consequence of the fraud in particular that the Leichhardt Mortgage not having been registered would be a nullity if the fraud had been made out. Clearly it is submitted they must have been aware of the high rate of interest payable under the mortgages when the Deed was signed.
10. It follows it is submitted by NWC that if the Mascarellos had no claims against NWC then the RG's first cross claim pursuant to section 133 of the RPA must fail. This is because the section gives the RG no rights independent of the Mascarellos rights and remedies.
11. The Mascarellos have clearly and expressly released their claims and remedies against NWC and therefore no cause of action is disclosed against NWC.
12. Notwithstanding the allegation by the RG that the agreement amounts to a penalty it is submitted by NWC that the Deed in any event releases it from any liability in that regard. In addition, however, it is submitted that properly characterised the 72% interest provision is not a default interest position but the primary obligation under the mortgage which may be reduced by prompt payment. It is further submitted that any term that interest will be reduced on prompt payment is not a penalty. In particular NWC relies upon the decision of Campbell J (as he then was) in King Investments.
13. It is further submitted that the Leichhardt Mortgage secured no monies and accordingly NWC was not entitled to the proceeds of the sale of the Leichhardt Property. NWC submits however that the Leichhardt Mortgage should be construed as being collateral to the Lilyfield and Strathfield Mortgages notwithstanding the Leichhardt Mortgage may be a nullity the Leichhardt and Strathfield Mortgages created indefeasible obligations including a debt owed by the Mascarellos to NWC under the guarantee. In any event again the Deed is relied upon by NWC as releasing it from any liability in respect of the Leichhardt Mortgage.
14. The RG calls in aid section 132(4) of the RPA and submits that the result of that provision is not bound by the Deed entered into by the Mascarellos.
15. It is submitted that so far as the penalty interest claim is concerned indefeasibility provisions of the RPA do not have the effect of securing enforcement of the performance by a mortgagee of every covenant in a mortgage and that in particular covenants in a mortgage which are illegal or void will not be improved by registration with the result that if 72% interest is charged sell to be a penalty then it will be void.
16. The RG submits that rather than Campbell J in King Investments a more relevant authority is Lindsay J in Mango Credit. The effect of the RG's submission is that to construe the agreement as providing a 72% primary rate but reducible for prompt payment is to look at the form rather than the substance of the agreement. In any event the RG submits that here unlike King Investments, the Mascarellos never signed any documents agreeing to such interest rates.
17. In addition, the RG relies upon Justice Darke's interlocutory decision of 28 October 2016 dismissing NWC's application for summary dismissal of the cross claim against it. With the very greatest respect to Darke J, the decision was just that. Unsurprisingly His Honour was at pains to address the arguability of the respective propositions importantly that of the RGs. All his Honour determined was that the RG's argument could not be described as untenable or fanciful so far as its prospects of success were concerned. He applied unsurprisingly the conventional test when considering matters of summary disposal. It is equally plain that as a matter of common courtesy his Honour's views should not lightly be ignored. However, here I have had the benefit of detailed submissions both on the law and the facts from all parties concerned.
18. Notwithstanding Lindsay J's remark earlier referred to I am of the view that the 72% interest provision should properly be characterised as a primary obligation under the mortgage reducible upon payment. Further a clause establishing a concessional interest rate for prompt payment has long been established as not amounting to a penalty. Gibbs CJ said as much in O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at [27].
19. In my view in the circumstances the relevant clause absent any claim for unconscionability or other vitiating factor does not in my view take the case outside the general rule as discussed in King Investments. Therefore I do not consider the higher "rate" so described in context is any more than the primary obligation under the mortgage.
20. In my view the decision of the High Court in Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30 also is not apposite. It says nothing at all about the accepted distinction between a clause providing an incentive for prompt payment and a penalty clause where the rate of interest is increased for failing to make timely payment. That distinction was recently reaffirmed by the Queensland Court of Appeal in Kellas-Sharpe v PSAL Pty Ltd [2012] QCA 371. Of particular relevance are the comments of Gotterson J at [41] and [42] with whom McMurdo and Fryberg JJ agreed. I note in passing application for special leave from the Court of Appeal was refused.
21. For the sake of completeness, I am of the view that the Deed and its provisions of which I have already adverted to is a complete answer to the cross claim against NWC (absent any claim for unconscionability, duress, or the like). As the New South Wales Court of Appeal made it clear in RG v Lawcover, the RG has no independent claim against any persons such circumstances. The rights and remedies which the RG is entitled to enforce by subrogation would include any rights Mr and Mrs Mascarello might have against NWC and the qualification that NWC has all of the defences available to it (per Meagher JA at [56]). That would include in my view a deed such as the one here executed by them which bars such a proceedings.
22. Likewise, in my view section 132(4) of the RPA is of no assistance to the RG. That provision states that the RG is not bound by a prejudicial act of omission by a party to the proceedings. It is clear that the provision is intended to preserve the RG's ability to recoup funds paid out from the Torrens Assurance Fund against a party who in part or in whole is responsible for the compensable loss. In other words, as was made clear by the Minister during the Second Reading Speech to the Real Property Amendment Bill 2000 (NSW) quoted above at paragraph [83] of this judgment, if a claim was made as the result of a person committing fraud by forging his or her parents' signature on a mortgage, the RG would still be able to proceed against that family member, even though the parents may have waived their rights against that person. That indeed adds content to the notion of "prejudicial". NWC in no way would be said to be responsible for any part of the compensable loss.

Summary of Findings

1. It is convenient if I now summarise my findings: 1. It is accepted by the parties that K R Lawyers that it did owe a duty of care to the Plaintiffs. 2. The case pleaded by the RG in negligence for breach of duty of care against K R Lawyers is not made out. AKR did not act unreasonably, nor was she in breach of any statutory or regulatory enactment to that effect. 3. In any event, if breach were to be found, the conduct AKR and K R Lawyers was not ultimately causative of the Plaintiffs' loss. 4. For the purposes of proportionate liability, if breach were to be found, in the circumstances the contribution of K R Lawyers to the harm of the Plaintiffs could not be greater than 5%. 5. Any potential claim by the Plaintiffs against K R Lawyers is subject to the limitation of liability under the Professional Standards Act 1994 (NSW). It follows that the limitation cannot be abrogated, and the quantum of the RG's claim enlarged, by way of subrogation to the Plaintiffs' claim. 6. The claim by K R Lawyers that the RG failed to mitigate the Plaintiffs' loss is not made out. 7. Should it have arisen, the better view is that the RG did not have a duty of care so as to be a concurrent wrongdoer. 8. The RG can make a claim based on 'current' values and should not be limited to losses accruing at an earlier time. In other words, it can seek to recover not only more than it paid but values, in my view, at the date of the trial, especially where there is no evidence of a failure to mitigate. However, any extra were it to be achieved (less costs and expenses) should be remitted to the Mascarellos.
2. I invite the parties to prepare short minutes of order which reflect my reasons and findings.
3. If parties cannot agree on questions of costs, the matter should be listed for that purpose.

Costs/claims against Dennis

1. At the very conclusion of the RG's submissions (RG's Closing Submissions at [64]), it is submitted that the RG is entitled to an order for any difference between any amount ordered to be paid by AKR and the settlement sum as against Dennis.
2. This claim was not developed in the parties' submissions or in argument. However, I would entertain further submissions in this respect if the need arises.

Amendments 23 March 2018 - NWC Finance (No 5) Pty Ltd (third cross defendant) Solicitors: Summer Lawyers (third cross defendant) 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: 23 March 2018