Judgment
1MACFARLAN JA : Following the settlement of the issues between a number of parties to this appeal, judgment on the outstanding issues between the remaining parties (Mitchell Morgan Nominees Pty Ltd and Hunt & Hunt, solicitors) was delivered on 15 December 2011 ([2011] NSWCA 390). At the commencement of the hearing of the appeal, the Court as then constituted (Giles JA, Sackville AJA and myself) had referred certain issues relating to Hunt & Hunt's alleged liability to Mitchell Morgan to a bench of five judges comprising the three judges that I have mentioned as well as Bathurst CJ and Campbell JA. Hence those five judges were parties to the judgment delivered on 15 December 2011.
2There now remains for determination an issue between Mitchell Morgan and Hunt & Hunt as to the quantification of damages. But for the retirement of Giles JA, this issue would have been appropriate for determination by the three judges who comprised the original bench on the appeal. As Giles JA has retired and the parties have consented to Sackville AJA and myself determining this remaining issue, s 45AA of the Supreme Court Act 1970 authorises us to do so.
3Following delivery of the judgment on 15 December 2011, the parties lodged submissions concerning the orders that the Court should make. The only issue between the parties that remained after completion of the written submissions concerned the interest component of Mitchell Morgan's damages.
4This issue arose out of the following passages in the judgment of Giles JA in the principal judgment. Each of the other judges agreed with these remarks.
"91 With respect, the primary judge appears to have partly erred in his dealing with interest. Assuming no recovery from the fraudsters, Mitchell Morgan's damages are the amount it would have obtained from a sale of the Enmore property, in the absence of other information at the time of the cancelled auction, and interest thereafter. The amount it would have obtained depends on the non-negligent wording of the mortgage. No finding was made other than in terms of a fixed or specific amount; presumably a non-negligent solicitor would have drawn the mortgage with a covenant to pay $1,001,748.85 and interest on that sum at the mortgage rates. If so, the amount Mitchell Morgan would have obtained is not just the amount of the principal but also interest at the mortgage rates until the date of realisation of its security. The amount of principal plus interest depends on the date of the cancelled auction; it is possible that the Enmore property would not have sold for a price sufficient to meet the interest as well as the principal, and in that event the net sale amount will be a cap. In the exercise of the discretion under s 100 of the Civil Procedure Act 2005, the interest thereafter should not be at the exorbitant mortgage rates but at Court rates, and it should run from when the money would have been obtained and not from 19 January 2006.
92 With the settlement of all other matters, the decision of the questions can immediately be translated into orders in Mitchell Morgan's appeal. It will be necessary for the parties to agree upon the substituted judgment sum; if it is contended that the settlement means that Mitchell Morgan's damages recoverable from Hunt & Hunt are less, no doubt that will be taken into account and either agreed or dealt with in the written submissions mentioned below. Nothing was said about the trial costs, and the orders made at trial are not clear; it will also be necessary for the parties to agree on any variation to the costs orders in conformity with Mitchell Morgan's success on appeal. Hunt & Hunt should pay Mitchell Morgan's costs of the appeal as between it and Mitchell Morgan, including the decision of the questions.
93 I propose the direction that the parties provide agreed short minutes of orders no later than 30 January 2012, in default of agreement their respective short minutes and written submissions of no more than three pages in support thereof within the same time."
5The Court made a direction as proposed in paragraph 93 of that judgment.
6In its principal post-judgment written submissions, the appellant contended, in reliance on the reasoning of Giles JA, that interest should be calculated at mortgage rates until the date of the cancelled auction (5 September 2006) and at court rates thereafter. It submitted that a non-negligent solicitor would have drawn a mortgage with a covenant that would have enabled recovery of the amount, including interest at mortgage rates, due at 5 September 2006 and that the whole of that amount was accordingly recoverable from Hunt & Hunt.
7In its principal post-judgment written submissions, Hunt & Hunt submitted that the appropriate date for calculating Mitchell Morgan's loss was 19 March 2006, or alternatively 16 June 2006. It pressed for the earlier date on the basis that "[i]f there had been a genuine borrower, then the loan would have been paid on [19 March 2006]" ([7]). It sought to justify its alternative submission by contending that "the actual sale was in fact delayed because of the dispute as to the validity of the loan, a dispute which presumably would not have occurred if the loan had been drafted as an all monies mortgage ..." (ibid).
8Hunt & Hunt further submitted that even if 5 September 2006 were the appropriate date to consider when examining the requirement of "factual causation" under s 5D of the Civil Liability Act 2002, that date was not the appropriate date to consider for the purposes of the "scope of liability" requirement of that section.
9The provisions of s 5D to which Hunt & Hunt made reference were as follows:
"(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 ).
...
(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."
10Hunt & Hunt submitted that its scope of liability should be considered to have been "to protect the enforceability of the recoupment of the advance and the intended profit (the two months' interest), and not to facilitate a windfall profit solely obtained by the fact that enforcement was delayed by reason of the mortgagor being unaware of the loan and subsequently disputing its liability" (ibid [8]).
11Hunt & Hunt further contended that Mitchell Morgan had an obligation to mitigate its loss and that if that obligation had been complied with, it would have sold the property earlier and, to the advantage of Hunt & Hunt, interest at the high mortgage default rate would have ceased to accrue at that earlier date.
12Hunt & Hunt elaborated on these submissions in its reply submissions dated 13 February 2012.
13For the following reasons I do not consider that Hunt & Hunt's submissions should be accepted.
14First, in my view the date of the cancelled auction is the appropriate date to be taken in quantifying damages. It would be erroneous to use an earlier date upon the basis that, as Hunt & Hunt contended, "a genuine borrower" would have repaid the loan then. What needs to be hypothesised is what would have occurred if Hunt & Hunt had not been negligent. That requires consideration of what the actual "borrower" did, not what a hypothetical "genuine borrower" would have done.
15Secondly, Hunt & Hunt was unable to point to any evidence showing that the auction sale of the property was delayed by the existence of a dispute. Indeed, the letter raising a dispute, to which Hunt & Hunt referred in its written submissions ([9]), was in response to a letter of 31 July 2006 advising that the auction sale had been scheduled for 5 September 2006. Thus it cannot be said that but for the dispute the property would have been sold prior to 5 September 2006.
16Thirdly, I do not consider that there is any substance in Hunt & Hunt's submission based upon s 5D of the Civil Liability Act . Hunt & Hunt undertook to prepare a mortgage to protect the interests of its client lender. It was fully aware of the terms of the loan transaction, including the interest rates payable, as it drafted the relevant Loan Agreement (Affidavit of R H Gabelich of 4 April 2007 [5] - [14]). I can see no reason why its liability should not extend to a loss of interest calculated at the rates contained in that document where that loss was caused by its own negligence.
17Fourthly, Hunt & Hunt could not point to any evidence that warranted the conclusion that Mitchell Morgan unreasonably delayed in selling the property and therefore failed to mitigate its loss.
18As Hunt & Hunt's submissions fail for other reasons, it is unnecessary to deal with Mitchell Morgan's submission that Hunt & Hunt's submissions impermissibly extended beyond the ambit of the leave to make submissions that was granted on 15 December 2011.
19To give effect to these conclusions and other matters that are not in dispute between the parties, I propose that the following orders be made:
(1) Allow Mitchell Morgan's appeal in its proceedings against Hunt & Hunt.
(2) Set aside order 12 made on 3 July 2009 in the Supreme Court Equity Division proceedings numbered 4059 of 2006 and in lieu thereof enter judgment for Mitchell Morgan against Hunt & Hunt in the amount of $2,370,601.54.
(3) Set aside orders 13 and 15 made on 3 July 2009 in those Equity proceedings and in lieu thereof order Hunt & Hunt to pay Mitchell Morgan's costs of Mitchell Morgan's cross-claim against Hunt & Hunt.
(4) Order Hunt & Hunt to pay Mitchell Morgan's costs of the appeal proceedings between Mitchell Morgan and Hunt & Hunt.
20SACKVILLE AJA : I agree with Macfarlan JA.