Mitchell v Cullingral Pty Ltd

Court of Appeal (NSW)|2012-10-02|Before: Allsop P, McColl JA, Campbell JA

Judgment 1ALLSOP P: I have read the reasons of Campbell JA to be delivered. I agree with the orders that his Honour proposes and with his analysis of the facts and of the inadequacies of the primary judge's approach and reasons. 2There are ample statements of this Court and of the High Court to express the duty upon judicial officers as to the giving of reasons. Many of those expressions state the matter by reference to general principle, rather than by reference to the facts of the particular case. The cases referred to by Campbell JA at [116] are examples of the former. I do not intend to express any doubt or qualification about them. In many cases, however, a judge may, in dealing with large bodies of evidence, be forced to economise in expression and approach in order to be coherent in resolving the overall controversy. The need for coherent and tolerably workable reasons sometimes requires truncation of reference and expression. Judgment writing should not become a process that is oppressive and that produces unnecessary prolixity. Not every piece of evidence must be referred to. That said, central controversies put up for resolution by the parties must be dealt with. The competing evidence directed or relevant to such controversies must be analysed and resolved. Here, critical factual enquiries were not embarked upon by the primary judge. Unfortunately, for the reasons given by Campbell JA these deficiencies mean that there must be a new trial. 3McCOLL JA: I agree with Campbell JA's reasons and the orders his Honour proposes. I also agree with Allsop P's observations. 4CAMPBELL JA:

Dramatis Personae 9The First Appellant, Mr Ian Mitchell, is a solicitor who at all relevant times has practiced as a consultant solicitor at the offices of Websters, solicitors, in the Sydney CBD. The Second Appellant, Mr Stephen Webster, has at all relevant times been the principal of Websters. 10At all relevant times the Second Respondent, Mr Wallace Ashton, was a grazier who lived in the Southern Tablelands area of New South Wales. He was the sole director of the First Respondent. It was the entity through which Mr Ashton operated a self-managed superannuation fund. By December 2007 both Mr Ashton and the superannuation fund had been in the business of lending money for some years, twenty years so far as Mr Ashton was concerned, and seven years so far as the superannuation fund was concerned. In this judgment, I will refer to both Respondents as "Mr Ashton". 11Mr Ashton's practice was to make decisions about whether to lend money on mortgage by reference to the loan to valuation ratio ("LVR"), rather than by trying to assess peoples' capacity to pay. His practice was to make loans on the basis that the borrowings secured against the property were eighty percent of the valuation, or less. He traded in shares and derivative financial products, and on one occasion had carried out a property development. He accepted that in December 2007 he was a sophisticated investor. 12Mr Stuart Murray was a mortgage broker, who worked as a consultant with Wentworth Chalmers Pty Ltd. From about 2000, Wentworth Chalmers provided office management and finance broking services to Griffiths, Forrest and Greer ("GFG"), a firm of chartered accountants. Both Mr Murray and GFG had their office in the Sydney CBD. 13Mr Greg Huxley, of the ICA Group of companies, approached Mr Murray seeking mortgage finance. The property offered as security was an office building in North Sydney, the registered proprietor of which was Fynder Pty Ltd. It was subject to a registered mortgage to CKM (Mortgages) Limited ("CKM"), and a registered second mortgage to Equity Stocks and Sales Pty Ltd ("ESS"). The title also disclosed four caveats by other lenders. Both Fynder and ESS were part of the ICA Group of companies. 14At the trial, the Appellants were represented by Mr S Bell, while the Respondents were represented by Mr B J Shields. On the appeal, the Appellants were represented by Mr M L Einfeld QC and Mr A C Harding, while the Respondents were represented by Mr Shields and Mr R J Ranken.

The Pleading 15The Amended Statement of Claim pleaded that in or about early December 2007: "Ashton and Cullingral agreed to provide a loan to Fynder of an amount to be determined but so the total indebtedness under all securities and charges on the Land did not exceed $2,000,000 inclusive of an amount of $100,000 then outstanding for Land Tax ("the Loan")." 16It pleaded that in or about December 2007 Mr Mitchell: "... informed Ashton and Cullingral that the Loan would be secured by the transfer of the Second Mortgage to Ashton and Cullingral ("the Transfer of Mortgage")." 17It contended that the plaintiffs retained Mr Mitchell to act as their solicitor in relation to the Loan and Transfer of Mortgage, and that it was an implied term of that retainer that Mr Mitchell would (or alternatively, Mr Mitchell owed them a duty of care to): "a. Fully and adequately explain to Ashton and Cullingral the Loan and the Transfer of Mortgage, including the risks associated with the Loan and the Transfer of Mortgage; b. Exercise due professional care and skill in: i. Advising Ashton and Cullingral concerning the Loan and the Transfer of Mortgage; ii. Acting on behalf of Ashton and Cullingral when effecting the Loan and the Transfer of Mortgage; and iii. Advising Ashton and Cullingral to advance monies pursuant to the Loan and the Transfer of the Mortgage." 18It also contended that there was a term, or alternatively a duty, requiring Mr Mitchell to: "a. Ensure that Fynder paid the Arrears under the CKM Mortgage prior to the advance of any monies by Ashton and Cullingral pursuant to the Loan and the Transfer of Mortgage; b. Not advise Ashton and Cullingral to the advance [sic] of any monies pursuant to the Loan and the Transfer of Mortgage until Fynder had paid the Arrears under the CKM Mortgage. 19It pleaded that each of the duties identified at [17] above was breached, and particularised those breaches as: "i. Failed to fully and adequately explain to Ashton and Cullingral that the monies advanced to Fynder pursuant to the Loan and the Transfer of Mortgage were at risk if Fynder had not repaid the Arrears under the CKM Mortgage; ii. Failed to advise Ashton and Cullingral of the risks associated [with] advancing the monies pursuant to the Loan and the Transfer of Mortgage before Fynder had paid the Arrears under the CKM Mortgage; iii. Failed to inform Ashton and Cullingral prior to 20 December 2007, or to the advance of the monies pursuant to [the] Loan, that Fynder had not paid the Arrears under the CKM Mortgage; iv. Advised Ashton and Cullingral to advance the monies pursuant to [the] Loan, when he knew or ought have known that Fynder had not paid the Arrears under the CKM Mortgage." 20It also pleaded that in breach of the duty identified at [18] above, Mr Mitchell: "a. Did not ensure that Fynder paid the Arrears under the CKM Mortgage prior to the advance of any monies by Ashton and Cullingral pursuant to the Loan and the Transfer of Mortgage; b. Advised Ashton and Cullingral to the advance [sic] of the monies pursuant to the Loan and the Transfer of Mortgage when Fynder had not paid the Arrears under the CKM Mortgage." 21It pleaded that the manner in which damage was suffered by the plaintiffs in consequence of those breaches was: "If the First Defendant, had informed Ashton and Cullingral at any time prior to 20 December 2007, or the advance of the monies pursuant to [the] Loan, that Fynder had not paid the Arrears under the CKM Mortgage, Ashton and Cullingral would not have: a. Advanced to Fynder the monies pursuant to [the] Loan; or b. Have accepted the Transfer of the Mortgage." 22Mr Mitchell's defence says, concerning the retainer, that: "... he was engaged by Stuart Murray on behalf of the Plaintiffs to prepare documentation to transfer a mortgage from Equity Stocks and Sales Pty Limited to the plaintiffs and otherwise denies the paragraph." 23The defence admits a duty to exercise due professional care and skill in effecting a transfer of mortgage, but otherwise denies the duties alleged. Any breach of duty whatsoever was denied.

The Evidence 24As there are disputes about the findings that should be made on the basis of the evidence, and about the manner in which the primary judge dealt with the evidence, it is necessary to recount in some detail the evidence that was given. The evidence in chief of each witness took the form of a written statement or affidavit, that had been served prior to the trial. All the communications that Mr Ashton had with both Mr Murray and Mr Mitchell were by telephone or email. Early Communications Between Mr Murray and Mr Ashton 25By the time of the trial, GFG no longer existed, and Mr Murray had access to only some of his documents relating to the transaction, which he had kept on a backup disc. He swore an affidavit that annexed some emails that he had retained, and gave such recollections as he had of the matter, without the opportunity to refresh his memory from all the documents he had once had. 26In early December 2007, Mr Murray telephoned Mr Ashton. Mr Murray's evidence was that, after obtaining Mr Ashton's telephone number from an acquaintance, he phoned him and introduced himself. Mr Murray continued: "I do not recall the whole of the conversation but I do recall words that I said words like 'the borrower is in arrears', 'they want $600,000 for three months by way of an assignment of a mortgage', 'they will pay 5% interest per month'. I recall Mr Ashton said words such as 'I am interested, that's my business, I specialise in getting mortgages at a discount' and 'If they can't pay I can buy the property at the mortgagee's auction and wait until it goes up in value' and 'Get me a current valuation'." 27According to Mr Ashton at [4] of his statement, Mr Murray said: "I am a broker with Griffiths Forrest Greer. I want to borrow against a valuation of $2,900,000. The first mortgage is in arrears. I need the money before Christmas. They're under pressure from the first mortgagee." 28Throughout the transaction it was frequently spoken of as though it was a loan on the security of a second mortgage, rather than the purchase of an existing second mortgage. That might possibly be explained by ESS and Fynder both being part of the ICA Group of companies, and by ESS intending to make the purchase price of the mortgage available where it was needed within the ICA Group, in the same way as Fynder would have done if it were borrowing and granting a mortgage over its property. 29On 7 December 2007, Mr Murray emailed to Mr Ashton 109 pages of documents. Amongst them was a letter applying for finance that an officer of the ICA Group had written to Mr Murray on 29 November 2007. The finance sought was "somewhere in the range of $200,000 to $500,000". Amongst the information contained in that application was: "There was a second mortgage with Fast Fix Loans/Credit Corp Finance. It was agreed that Challenger loans would refinance both the first and second mortgage on 2nd November 2007. On 1st November 2007 Credit Corp/Fast Fix Loans (in order to accelerate penalties and other costs to their advantage) appointed a Receiver. On 2nd November 2007, a company associated with Greg and Vanessa Huxley (Equity Stocks & Sales Pty Ltd) purchased the second mortgage from Fast Fix Loans/Credit Corp by way of transfer/assignment, including assignment of Charge." 30Also amongst the 109 pages was a valuation of the property by CB Richard Ellis. It was dated 28 May 2007, and valued the property at $2.8m. It annexed a title search that disclosed the caveats, and copies of the caveats themselves. The 109 pages also included the second mortgage to Credit Corp Finance, and a transfer of that mortgage to ESS for a little over $865,000. They included a letter, apparently from the first mortgagee's solicitor, stating that the payout amount for that mortgage as at 16 November 2007 was (in round figures) $1.774m. The Opinions that the Valuation was $2.5M 31Mr Ashton said first in cross-examination that he did not read any of the annexures to that email, though he said later he skimmed through the valuation. 32Mr Ashton's statement at [7] gave evidence that he spoke to the valuer who had prepared the valuation that Mr Murray had sent to him: "I recall that the valuation had been done in mid 2007 and in my opinion it, therefore, did not take into account the economic situation which was emerging in December 2007. I do not recall the name of the valuer. I recall that I discussed my estimate of value of $2,500,000 for the property at [address of the North Sydney property] with the valuer and that he agreed with me that the property was worth $2,500,000 in December 2007." The part of that paragraph shown as struck out was objected to, and not pressed. 33Mr Ashton said in cross-examination that his statement had been incorrect in saying that he had had a conversation with the valuer who prepared the first valuation that he saw. He said that, rather, his conversation with a valuer was with the valuer from Abbotts (see [53] below). 34When Mr Ashton was cross-examined about his statement that he had not read the CB Richard Ellis valuation his evidence was: "Q. Weren't you interested in the basis of any valuation you had been given? A. I was interested in the valuation that was sent to me by the person mentioned previously and I rang that firm and discussed with the valuer, whose name I don't remember, the property, and I relied on the valuation which was 2.9 million, and then as a result of the conversation with the person, because you will recall that things got rather difficult in the world during that next five months, and we had a discussion and we came up with the figure which has been mentioned previously of 2.5 million." 35Mr Ashton's cross-examination also included: "Q. Are you now telling the Court that the valuer really considered the property to be only worth 2.5 million after you spoke to him? A. Yes. Q. Mr Ashton, that is just simply not correct, is it? A. It is correct because when I discussed with the valuer, I indicated that it was alone [sic - ? a loan]. It was quite skinny and we discussed the capacity to - should we have to sell, what we thought we could get with a reasonably quick sale and I had no trouble at all in he agreeing to the fact that maybe 2.5 was closer to the money. Q. Did you confirm this in writing at all? A. No. Q. Why not? A. Because I was making a judgment of my own on an asset and I was prepared to lend the money based on the criteria I placed. HIS HONOUR Q. Why did you think it was only worth 2.5? A. All the stock markets were blowing up. Lehman Brothers. Q. 2008 they went bad, didn't they? A. Well, it was - it was getting-- Q. Wasn't' the GFC in August 2008, or thereabouts? A. Yeah but it was already beginning to blow through. Things were iffy. Q. I thought the property market was pretty hot in those days, anyway. A. Well, I can absolutely assure you that I was jumpy about real estate at that stage." 36Mr Ashton also said, in cross-examination, that he had spoken to Mr Murray, and told him: "I've spoken to the valuer and given everything I think 2.5 is probably more the money." 37The topic of whether Mr Ashton had had the opinion, in December 2007, that the property was worth $2.5m was returned to at a later stage in the cross-examination: "Q. If the property had been sold for $2.8 million, as per the Abbots valuation, there would have been plenty of money to pay you out. A. Well, there would have but we made the loan at a time when things were beginning to look very bad or quite bad. I - I didn't know how bad they were going to get and on the discussion, as I've said, I agreed 2.5 million Q. Mr Ashton, wasn't the global financial crisis in 2008? A. Yes. SHIELDS: I object to that, your Honour. HIS HONOUR: I've already said that - August 2008. BELL: Thank you, your Honour. SHIELDS: Well, there's two levels to that. There - there was a period of uncertainty in the run up to it. There was a - there was a ruction in the stock market on a particular date. HIS HONOUR: There was but the property market in Sydney, I think I can take judicial notice, was simply bubbling at that time, in 2007. There may have been weak spots but by gee, it was pretty - I mean, auction rates were at 70% clearance and plus 80% clearance. Nevertheless, he's an investor, investing in different sorts of property, perhaps. BELL: Thank you. HIS HONOUR: And nevertheless, if he says things were uncertain, things were uncertain. BELL: Q. I suggest to you that, from your experience at that time is that things weren't very uncertain, were they? A. I would suggest they were uncertain. In fact, I kick myself for doing the loan because I could see it coming." 38There is no contemporaneous documentation that confirms that Mr Ashton was of the view that the property was worth $2.5 million. The Second Valuation Requested 39On 12 December 2007, Mr Murray emailed Mr Ashton, telling him that the insurance of the valuer did not cover second mortgages. 40By a further email on 12 December 2007, Mr Murray told Mr Ashton that the outstanding principal on the (first mortgage) loan was $1.6m. 41Mr Ashton gave evidence at [10] of his statement that, in a conversation with Mr Murray that he did not date precisely, Mr Ashton said: "You can bet that land tax has not been paid. That would probably be another $100,000 and we couldn't get a clearance before Christmas." 42He says that in that conversation Mr Murray also told him that the arrears of interest were "about $170,000". 43Mr Ashton gave further written evidence at [10] of his statement, not objected to, concerning that conversation with Mr Murray: "I believe that we then discussed the amount of the loan requested by Stuart Murray. I do not now recall the content of that discussion. During this part of the conversation I was mentally calculating my exposure compared to my assessment of the valuation at a value of $2.5M. I recall that I had in my mind the sum of $1.7 million ahead of me (that is in priority to me) made up of $1.6 million for the mortgage and $100,000 for land tax. I recall that I said: ... 'I am not going to let my exposure be more than $2 million.' " 44He also gave evidence at [11] that he told Mr Murray, in a conversation he did not date precisely, "I want a valuation. If things blow up, I have to have a valuation to claim against." 45Amongst the documents that Mr Murray had retained was a collection of emails, all dated 13 December 2007, that show Mr Murray and Mr Huxley taking steps to obtain an urgent valuation of the property. Mr Mitchell Becomes Involved 46It was common ground between Mr Ashton and Mr Murray that Mr Ashton said that his solicitor in Goulburn could not attend to the loan before Christmas, and that he asked if Mr Murray had a solicitor. 47Mr Murray's initial contact with Websters occurred, probably on Friday, 14 December 2007, when he contacted Mr Webster. Mr Webster has no recollection of that conversation. Mr Mitchell's evidence was that on about 17 December, Mr Webster said to him: " 'Stuart Murray wants someone to prepare and attend to registration of some mortgage documents, but it must be done this week. Can you do it?' I said 'Yes'." 48Mr Murray gave evidence: "I recall asking if Ian could do the documentation for a mortgage transfer in a week. I recall that I was told it should be possible." 49On Monday, 17 December 2007, Mr Murray emailed Mr Ashton at 9:31am: "I have a lawyer. Ian Mitchell of Websters Phone [Mr Mitchell's phone number]. I spoke to him briefly on Friday and will be seeing him this morning. I have planned settlement for Wednesday. [Mr Mitchell's fax and address] Just to recap Amount $600,000 Fynder Pty Ltd Interest 5% per month 3 monthly in advance default rate 10%pm 2nd Mortgage over [address] North Sydney Guarantee by Director and ICA Group Pty Ltd 1 months notice of early payout." 50Mr Ashton replied at 10:29am on 17 December: "That is good. We will just have to press ahead." 51Mr Murray emailed Mr Ashton at 10:31am on 17 December 2007: "I will have the update valuation by lunchtime today." 52On 17 December 2007 at 1:29pm, Mr Murray emailed Mr Ashton: "I enclose copy of valuation. Please confirm advance may proceed subject to documents so I may instruct solicitor." 53A valuation report dated 17 December 2007 from Abbotts, Valuers, was enclosed, that valued the property at $2.8m. 54There was no specific email from Mr Ashton in response. 55Mr Ashton's statement at [12] included: "I recall that I reached the position where I did not want to discuss the loan any further with Stuart Murray. I recall a conversation with Stuart Murray to the following effect: I said: 'Will you talk to Ian Mitchell about the loan.' Stuart Murray: 'Yes.'" The statement did not attribute a date to that conversation. 56On 18 December 2007, Mr Mitchell received a letter from ESS that stated that ESS had agreed to assign the second mortgage and the registered charge associated with it to Mr Ashton. It enclosed certain documents, and gave a direction as to the way in which the gross loan amount of $600,000 was to be disbursed. The direction included a payment of a little over $180,000 to CKM, and $90,000 to "your client" as interest in advance for three months. 57Also on 18 December, Mr Mitchell's office received a copy of a facsimile that CKM had sent to an officer of ESS. It confirmed that the amount of a little over $180,000 was the amount of arrears of interest and legal costs as at that day, and that if that amount was received on 19 December 2007 the amount owing under the first mortgage to CKM would be $1,600,000. 58Mr Mitchell says that after receiving that letter from ESS, he telephoned Mr Murray and the following conversation ensured: "I said 'I have a letter from Equity Stocks & Sales dated 17 December 2007 in relation to an assignment of mortgage. Is this the one you wanted prepared and lodged urgently?' Murray said 'Yes. I can't get any solicitor who is prepared to get this done urgently before Christmas. Wal Ashton is buying a second mortgage from Equity Stocks and Sales for $600,000 I need you to prepare transfer of mortgage and variation of interest rate for him and lodge all documents with Land Titles Office by Friday. Can you do it? What will your costs be?' I said 'Yes. Who is acting for the transferor? The costs and disbursements will be $3,280'. Murray replied 'Warner Meredith, he is a solicitor.' I was aware from my practice what the costs and disbursements of preparing the documentation would be. I said 'What are the terms of the variation of mortgage?' Murray said 'The transferred mortgage is for three months at 60% interest with a default rate of 120% and interest for 3 months will be withheld from the advance'. I said 'What about the first mortgagee's priority?' Murray said 'I don't think there is a Deed'." Mr Mitchell made a file note of the salient points of that conversation. 59Mr Mitchell says that after that conversation "I was of the belief that Mr Murray was acting for Mr Ashton and giving instructions on his behalf". 60Mr Mitchell agreed in cross-examination that he had never previously had any dealings with either Mr Ashton or Cullingral. He was cross-examined about the basis for his belief that Mr Murray was acting for Mr Ashton: "Q. What steps did you take to ascertain that Mr Murray had authority to instruct you on behalf of Mr Ashton? A. He indicated that to me and I had in the past acted for clients of Griffiths Forrest & Greer for whom he was an employee or consultant. Q. Just answer my question, sir. What steps did you take to confirm that Mr Murray had authority from Mr Ashton to give instructions to you in relation to this transaction? A. Mr Murray indicated to me that he had. Q. So you functioned solely on the basis of what Mr Murray said to you? A. Correct. Q. You had no way of knowing whether what Mr Murray said to you in relation to that matter was correct or not, do you? A. I assumed from what had happened in the past for similar clients at Griffiths Forrest & Greer that those instructions were correct. Q. Are you saying that you knew Mr Ashton to be a former client or a client of Griffiths Forrest Greer? A. I was advised that he was, yes. Q. Did you do anything to check that assertion by Mr Murray? A. No, I did not." 61In cross-examination, Mr Murray said that he did not tell Mr Mitchell that Mr Ashton and Cullingral were existing clients of GFG. He denied telling Mr Mitchell that he had authority to act on behalf of Mr Ashton or Cullingral. He denied that he had authority to act on behalf of Mr Ashton and Cullingral. According to Mr Murray, his expectation was that Mr Ashton would give instructions to Mr Mitchell concerning the transaction. 62The evidence did not include any contemporaneous documentation, such as a fee disclosure letter or other document that might give rise to a contract for the provision of legal services, which might assist in ascertaining by whom Mr Mitchell was instructed, or the scope of his retainer. Mr Ashton's Evidence about Instructions to Mr Mitchell 63In [14] of his statement, Mr Ashton said that he had a conversation with Mr Mitchell on the telephone, on a day that he did not identify. However, Mr Ashton's statement proceeds, at least approximately, in a chronological fashion. For that reason, I have included in this judgment the paragraph numbers of his statement. The conversation deposed to in [14] of his statement appears after the conversations I have referred to in [27], [32], [41]-[43], [44] and [55] above. The conversation at [14] of Mr Ashton's statement was: "I said: 'I'm Wallace Ashton. I've been put in touch with you by Stuart Murray. He wants me to do a loan. He said he would be in touch with you and speak about the loan he wants me to do. Would you be happy to represent me?' Ian Mitchell: 'Yes'. I said: 'Are you representing my interests?' Ian Mitchell: 'Yes'. I said: 'Before you do any work on this loan get our money up front. This is risky lending and what seems on first flush as a sound loan often turns out to have problems and the loan does not go ahead. I am not paying for your work if the loan does not go ahead.' Ian Mitchell: 'Yes I will do that' I said: 'He tells me that there has been an upgrade of the valuation to $2,900,000. Things aren't going too well at the moment. Let's presume it's about $2.5 million. He's under pressure from the first mortgagee and they want the money before Christmas. Make sure the first mortgage is put into order and I will punt the land tax.' Ian Mitchell: 'You won't get a land tax clearance before Christmas'. I said: 'I understand that the first mortgage is in arrears and when he is brought up to date I only want $1.7 million in front of me. If this thing goes bad, I want to keep my total exposure under $2 million which is an 80% LVR.' Ian Mitchell: 'Yes, I can see what you wish to achieve'. Ian Mitchell continued the conversation: Ian Mitchell: 'Well it's not actually a second mortgage. You are buying someone else's second mortgage.' I said: 'I'm not familiar with this. Is this the same as having a normal second mortgage?' I then said to Ian Mitchell: I said: 'You're the lawyer and I'm the lender. I want no more exposure than $2, million. I want 2% to do the business and 15% at call, no penalty for early pay out. The loan is to be until March. The security on this loan is skinny and should I not be paid out, I will have to move quickly or I could lose. Make sure that I can move quickly if problems arise.' Ian Mitchell: 'All of those matters can be overcome. This is exactly the same as having a second mortgage.'" 64Both in his affidavit evidence, and when pressed in cross-examination, Mr Mitchell denied that any such conversation had occurred. Indeed, Mr Mitchell said that he had not spoken to Mr Ashton at all until on or about 10 January 2008. 65Mr Ashton's statement said that he had a number of other conversations with Mr Mitchell on days he does not precisely identify but says were before the loan was made on 21 December 2007. He deposed at [16] and [17]: "I recall a telephone conversation with Ian Mitchell to the following effect: I said: 'How's it working out? Can we do it under the terms that I have given you.' Ian Mitchell: 'Yes I'm working on it and I'm expecting this to be done before Christmas' I recall a telephone conversation with Ian Mitchell to the following effect: I said: 'How's it going?' Ian Mitchell: 'Everything is going fine. In actual fact, instead of getting 15% and 2% you'll get $350,000 in 3 months time.' I said: 'That's a lot better than 15%.' Ian Mitchell: 'That's the way the loan works out' I said: 'I am happy with that' It was in my mind, but I did not say to Ian Mitchell in this conversation, that I was only lending $300,000. I believed that Ian Mitchell understood that the loan was for $300,000 because my total exposure was less than $2 million comprising the $1.7 million for the principal sum of $1.6 million and my estimate of land tax of $100,000. I believed that Ian Mitchell had this understanding because Ian Mitchell said to me that I was getting $350,000 which I knew was more than a principal sum of $300,000, interest on that amount for 3 months at 15% at call and a payment of 2% of the loan amount." The Reduction of the Loan Amount to $350,000 66On inspecting the original mortgage, Mr Mitchell says he noted that it had been stamped only for a loan advance of $350,000. Mr Mitchell telephoned Mr Murray to tell him of the stamping to $350,000, and said: "You will need to discuss this with Mr Ashton as a transfer of the mortgage for $600,000 without a Deed of Priority may put some of his advance at risk". Enquiry with ESS later confirmed that there was no deed of priority with any of the subsequent mortgagees. 67On 19 December 2007, Mr Mitchell received a copy of a payment authority from ESS relating to an advance of $600,000. Like the earlier payment direction ([56] above), it proved for an amount of a little over $180,000 to be paid to the first mortgagee, and $90,000 to be paid to "your client" for interest in advance. 68Mr Murray's affidavit evidence included: "22 I recall that the advance was initially to be $600,000.00. I recall that it was reduced to $350,000 as Mr Mitchell had said something about stamp duty and caveats. I do not recall the exact conversation. 23 I remember later telling Wal Ashton the advance was to be reduced to $350,000. I remember an email and a telephone conversation with Wal Ashton I remember Wal Ashton saying words to the effect of 'That is Okay - they haven't paid the arrears yet.' 24 I recall speaking with Greg Huxley and saying the advance was to be reduced to $350,000 due to a problem with stamp duty and that we can look at the balance later. 69On Thursday, 20 December 2007 at 9:15am, Mr Murray emailed Mr Ashton: Following an investigation of title by Ian Mitchell we have limited the initial advance to $350,000. We can increase the amount if one of the caveators on title gives us a priority which the clients will arrange over the next week. Accordingly the first advance will be only $350,000. How do u want it done? W Ashton so much Super fund so much or just super fund. If we settle today is it possible to arrange EFT of funds if we request it." 70Mr Ashton sent Mr Murray a confirmation that he had read that email at 4:43pm on 20 December 2007. The Telstra phone records concerning Mr Ashton's landline show that at 4:45pm that day he telephoned Mr Mitchell's telephone number, and had a conversation lasting six minutes and four seconds. Mr Mitchell's evidence was that the telephone number that Mr Ashton rang was one that in the ordinary course of events would be answered by a receptionist. It was not a direct number. However, the evidence provides no basis for either belief or suspicion that Mr Ashton might have been telephoning anyone other than Mr Mitchell. 71Mr Ashton says in [19] of his statement, that after receiving the email of 20 December 2007 at 9:15am, that he read at 4:43pm that day, he telephoned Mr Mitchell: "I said: 'I've got an email and they want me to pay $350,000 into their trust account. Firstly why am I paying to their trust account and not your trust account? Secondly the total indebtedness goes over $2 million and that's over the 80% LVR' Ian Mitchell: 'Yes. Pay as Murray instructs' I said: 'But my total exposure is more than $2 million' Ian Mitchell: 'This is because you are purchasing the mortgage' I said: 'I'm not lending $350,000. I'm only lending $300,000 because that keeps me to an 80% LVR' Ian Mitchell: 'OK'." 72As mentioned earlier, Mr Mitchell denied any such conversation had occurred. 73On 20 December 2007, Mr Mitchell received a different payment authority from ESS, relating to an advance of $350,000. It showed no part of that advance going to the first mortgagee. It provided for Mr Ashton and Cullingral to retain $54,500 as interest in advance. Other amounts were to be paid to Wentworth Chalmers, GFG Services, Websters, and North Sydney Council for rates. An amount of $270,830.70 was to be paid to ICA Group Holdings Pty Ltd. 74Mr Mitchell deposes that after receiving that document: "I telephoned Stuart Murray and said 'What's happening now? The consideration for the transfer of mortgage seems to have been reduced to $350,000'. Stuart Murray replied 'Yes, the arrears have not been paid under the first mortgage. $350,000 is all Wal Ashton is prepared to advance until it is. The Cullingral portion of the loan advance will now be $250,000. Please amend the Variation of Mortgage accordingly'." (emphasis added) The Day the Transaction Settles 75Friday, 21 December 2007 was the day the transaction settled. At 9:42am that day, Mr Murray emailed Mr Ashton: "Could you please make the following payments by urgent EFT or TT if possible (12.00 o'clock or before settlement). 1. Griffiths Forrest and Greer Trust account. ANZ Bathurst and Castlereagh Sts BSB XXX Acc# XXX Amount $350,000 Of these funds $52,500 shall be credited to your superannuation fund account representing interest. Would you please advise the BSB and account No. Alternatively you may retain these funds and credit only $297,500 to the trust account. Please confirm that payments have been made by either e mail or telephone to either [Mr Murray's two phone numbers]." 76On 21 December 2007 at 10:42am Mr Murray emailed Mr Ashton: "In view of the late hour can you do the following: TT (by urgent TT) $270,830.70 to Acc: ICA Holdings Pty Ltd CBA [BSB] Account No XXX to reach by 12.00pm The Balance $79,169.30 TT to Griffiths Forrest and Greer Trust Account ANZ Bathurst & Castlereagh Sts [BSB] XXX Please disregard previous email unless you have acted upon it. Ian has checked resigned documents and cleared these payments." 77Concerning the allegations in that email, Mr Mitchell says: "At that time I believe I had checked the new documents. I did not clear payment. I was not asked and did not say any payments should or should not have been made." 78On 21 December 2007, at 11:22am Mr Murray emailed Mr Ashton: "the amount to GFGTst can be reduced to $26,669.30 and you retain interest of $52,500.00 if you wish. We were only going to send $52,500 back to you." 79After referring to the emails of 21 December 2007, Mr Ashton's statement at [24] says: "I did not believe that interest of $52,500.00 was being paid in advance. I believed that the effect of directions set out in the emails was that to reduce the actual loan below $300,000 to limit my exposure to $2 million as I had discussed with Ian Mitchell, and that I should pay $297,500.00 as the loan and receive 15% at call when the loan was repaid in March 2008 and 2% to do the business on the sum of $297,500.00." 80The statement does not say what had led him to believe that his return would be the 15% + 2% that he then referred to, rather than the return that he said Mr Mitchell had told him in the conversation set out at [65] above. The rate of return to which he refers in conversation set out at [65] above, $50,000 interest in three months on in advance of $300,000, equates to 66 2/3% per annum. 81The bank statement of Cullingral shows that on 21 December 2007, $26,669.30 was transferred electronically to the GFG trust account, and $270,830.70 was transferred electronically to the ICA Holdings account. 82On 21 December 2007, Mr Mitchell received from Mr Murray another copy of the payment authority dated 20 December 2007, which had added to it in handwriting: "APPROVED FOR PAYMENT ..................................... Solicitor" The copy of that document in evidence does not show a signature. Nor does the evidence in any other way disclose whether Mr Mitchell ever signed that document. However, Mr Mitchell says that the consideration for the transfer of the mortgage and costs and fees associated therewith were paid by Mr Ashton "before the transfer was completed without any consultation with Websters or myself or any direction as to the application thereof." 83Mr Murray's affidavit included: "I recall the day the advance was made. It was a Friday. I had spoken with Wal Ashton and spoken with Ian Mitchell. Greg Huxley had spoken to me a number of times that day seeking the loan funds. I tried several times to call Wal Ashton. I recall he spoke to me after lunch. He said 'I am trying to get in contact with Ian Mitchell'. I spoke with Wal Ashton later in the day. He said 'I can't get onto Mitchell - I will pay the funds anyway'. I recall Mr Ashton paid the funds less interest." 84In cross-examination Mr Murray adhered to his evidence that Mr Ashton, on the day of settlement, had said to him "I can't get on to Mitchell but I will pay the funds anyway." 85In his evidence in chief Mr Ashton had said that he had had telephone conversations (plural) with Mr Murray on 21 December 2007, but that he did not recall the content of those conversations. 86Mr Ashton was cross-examined about Mr Murray's version of the conversation between Mr Ashton and Mr Murray on 21 December ([83] above). After accepting that he "could have" been called by Mr Murray after lunch on Friday, 21 December, his evidence was: "Q. Mr Ashton, you said to Mr Murray, 'I'm trying to get in contact with Ian Mitchell' and later that day he spoke with you again and you said, 'I can't get onto Mitchell, but I will pay the funds anyway'. That's what you said to Mr Murray, wasn't it? A. After I had a discussion on - and I think it was the 20th with Mr Mitchell and at that time we discussed the fact that no, it had to be under $300,000 and also I was concerned that I was not paying the money into his trust account and he said, 'It's all right. Pay it directly or as instructed by Stuart Murray' and that is what I did-" 87After being reminded that it was on 21 December that he had transferred the money, Mr Ashton stated that it was on the 20th that he had these conversations with Mr Mitchell. The cross-examination continued: "Q. I suggest to you is that you did not have that conversation with Mr Mitchell on 20 December or at any other time? A. Well, I will tell you absolutely I did." Q. Did you question Mr Mitchell about not paying money to his trust account? A. Yes. Q. What do you say that he said? A. I say that he said, 'No, pay as directed by Stuart Murray'." 88After that last answer was challenged, and the challenge rejected, the cross-examination moved on to other topics. Thus, Mr Ashton never responded to the question about whether he had had the "I will pay the funds anyway" conversation. That is hardly surprising in the light of his evidence in chief that he could not recall the content of the conversation, but at least the cross-examination confirms that being pressed about a specific aspect of the conversation did not bring it back to him. 89In cross-examination Mr Ashton denied that he knew that the mortgage was in arrears at the time the loan was made. In his statement he had said nothing about whether he knew that the mortgage was in arrears at the time the advance was made. Mr Ashton accepted that in the course of 2008 he had not complained to Mr Mitchell about Mr Mitchell failing to follow his instructions. His explanation for that was "I wanted Mr Mitchell on my side". Indeed, Mr Ashton instructed Mr Mitchell to act in proceedings against Fynder in May 2008, seeking possession of the mortgaged property. The Telephone Records 90The evidence before the judge included an affidavit by Mr Ashton's solicitor that had exhibited to it the call records of the two telephone landlines and one mobile telephone to which Mr Ashton was a subscriber in December 2007. The affidavit annexed a table, said to be extracted from those call records, that identified the dates and times of each call that Mr Ashton made to Mr Murray, the valuer at CB Richard Ellis, and Mr Mitchell. The calls listed in that table over the period from 17 December 2007 to 21 December 2007 were: Date Time Person Called Duration of Call 17-Dec 5:03pm Stuart Murray 1:31 18-Dec 3:04pm Ian Mitchell 0:50 18-Dec 4:45pm Ian Mitchell 1:00 20-Dec 12:19pm Stuart Murray 0:16 20-Dec 12:32pm Stuart Murray 0:47 20-Dec 12:59pm Stuart Murray 0:25 20-Dec 1:51pm Ian Mitchell 1:04 20-Dec 5:05pm Stuart Murray 1:23 20-Dec 4:45pm Ian Mitchell 6:04 21-Dec 12:09pm Stuart Murray 1:18 21-Dec 1:25pm Stuart Murray 0:44 21-Dec 2:24pm Stuart Murray 0:27

91That summary also showed that Mr Ashton had called a Mr Coleman, of CB Richard Ellis, on two occasions on 12 December. One of those calls lasted fifty four seconds, the other lasted fifty seven seconds. In cross-examination, the solicitor who had prepared the table said that he had not included in the table any conversations between Mr Ashton and anyone from Abbotts valuers, because he had never heard Mr Ashton say he had called Abbotts valuers prior to the day of that cross-examination. Post-Settlement Events 92Mr Ashton's statement said that after Christmas 2007, he had a telephone conversation with Mr Murray in which Mr Murray suggested lending more money, and that continued: "I said: 'I'm exposed to $2 million. That's all I want to be in for' Stuart Murray: 'The exposure is more than $2 million but there are additional assets and the mortgage can be altered' I said: 'Currently the total owed is $2 million and that's all I want to be in for'." 93He says that as a result of that conversation "I became concerned to find out if the arrears under the first mortgage had been brought [up] to date". 94Mr Ashton's statement said he had a telephone conversation with Mr Mitchell in early January 2008: "I said: "I'm being harassed by Murray for more money. Has the first mortgage been brought up to date?' Ian Mitchell: 'No' I said: 'What are we going to do about that?' Ian Mitchell: 'We'll address that later on' I said: 'Jesus Christ what the **** am I going to do. I'm really in the shit if this thing doesn't come through. I am going to be pushing to get my money back. What are we going to do?' Ian Mitchell: 'Don't lend any more money to them'." 95On 15 December 2008, Mr Ashton sent an email to Mr Mitchell's secretary: "I would like to speak with Ian as if the penalty rate of interest is excessive then I am getting pushed out the back even to get principal. There must be an indication as to what the Market Price is in this climate. The quality of the Lease is central to the value. It may sell on an 8% yield if the Lease is quality. That is 2.33 million. Distribution of lent funds is an issue as my recall was that the 1st Mortgage was 170k in arrears when I made my loan." 96Mr Ashton was cross-examined about the last sentence I have just quoted: "Q. You knew that the first mortgage was 170K in arrears when you made your loan in December 2007, didn't you? A. That is semantics. I knew at that stage that the mortgage was $170,000 in arrears because in December I gleaned through conversation with Mr Murray that in actual fact the first mortgage had not been brought into order. Yes, absolutely, at that stage I knew that the first mortgage hadn't been brought up to date, but when the loan was made, no, of course I thought the mortgage had been brought up to date, and it was through a conversation with Murray when he was trying to extract more money that he became somewhat evasive-"

Mr Moses' Evidence 97Mr Neville Moses, a solicitor with extensive experience of the law and practice relating to conveyancing, gave expert evidence. That evidence was given on the basis that Mr Ashton's statement was correct, and that the following statements were also correct: "Mr Ashton instructed Mr Ian Mitchell in December 2007 that the plaintiffs would lend on the security of a second mortgage of [address] North Sydney if the arrears of the first mortgage were made good." ... Mr Ashton instructed Mr Mitchell that the loan was an amount be determined so that the total amount owing under the first mortgage (principal $1.6M), land tax (estimated by Mr Ashton to be $100,000) and the second mortgage did not exceed $2M on an assumed valuation of $2.5M. The term was to be three months." ... Mr Mitchell advised Mr Ashton on 20 December 2007 to pay the loan as Mr Murray directed." 98Mr Moses' opinion was given without him having had the opportunity to consider any evidence from the defendants. 99One of his conclusions was: "The question of what instructions were given to the Solicitor and what advice the Solicitor gave the Client is of course a matter to be determined by the Court after hearing all of the evidence. However in my opinion as a matter of standard practice the Solicitor should have recognised the danger of leaving the First Mortgagee in a position where it could exercise its power of sale at any time (subject to giving the necessary notices - assuming these had not already been given) and ensured that either the arrears were paid upon settlement of the purchase of the Second Mortgage or (provided the Client agreed) that at least a firm agreement was reached with the First Mortgagee ensuring that it would not exercise any power of sale for a specified period. In fact accepting the accuracy of the Client's statement he would not have agreed as he makes clear in paragraph 14." 100In his opinion, Mr Moses used the expression "standard practice" to refer to "the practice which competent conveyancing practitioners and their professional peers would regard as appropriate practice in the circumstances which have arisen." 101He summarised his opinion as being that, as a matter of standard practice, Mr Mitchell should have: "53... (a) searched the title to the Property to ascertain the existing mortgages charges caveats and encumbrances on the Register; (b) confirmed the amount owing under the First Mortgage and ascertained whether there was a priority agreement in existence between the First and the original Second Mortgagee and if so investigated the terms of that agreement; (c) ensured that the arrears of interest under the First Mortgage were paid from the settlement moneys for the transfer of the Second Mortgage (unless the Client agreed that they could stay outstanding with appropriate safeguards which would not have been agreed to in this case); (d) established the amount of the initial advance and the terms of the deed of loan between Credit Corp and Fynder at the time the Second Mortgage was entered into and whether any repayments off the principal of the original loan had been made; (e) ascertained whether any priority agreement existed between Credit Corp and any of the Subsequent Chargees and if so investigated the terms of that agreement; (f) carried out searches to find the amount of any statutory charges levied against the Property and any outstanding notices as well as ensuring that the plaintiffs were noted as second mortgagees on an appropriate all risks insurance policy covering the Property; (g) satisfied himself as to the amount of the 'loan' which would have priority over the Subsequent Charges having regard in particular to the matters set out in paragraphs 48-50 (incl) above. (h) advised the Client of the results of the above searches and enquiries and as to the risks and complexities associated with making a loan to Fynder secured by way of transfer of the Second Mortgage; (i) if the Client nevertheless decided to proceed with the transaction, prepared and had executed prior to the settlement of the matter an appropriate deed between Fynder and the plaintiffs (in their capacity as second mortgagee consequent upon the transfer of mortgage) as set out in paragraph 36 above; and (j) proceed to settle the matter in accordance with the Client's instructions and register the transfer of mortgage. 54. In my opinion and based on the assumptions set out ... above, I believe that the Solicitor has certainly failed to meet the requirements of standard practice in relation to paragraphs (c) (h) and (i) above and is likely to have done so in relation to a number of the other matters enumerated in paragraph 53 depending on matters which may be revealed in the Solicitor's file and the other evidence to be given by him or on his behalf." 102Unsurprisingly, Mr Moses agreed in cross-examination that if Mr Ashton's statement was not correct, his opinion might well change. He also said that if Mr Ashton understood "both the fact that the first mortgage was in arrears and that ... those arrears were not going to be paid, and the implications of that, then my opinion would change ...".

The Judgment Below 103The judgment below was 43 paragraphs long. It occupied somewhat less than 12 pages. After setting out some background facts, the judge referred, at 7, to Mr Ashton's evidence about telephoning Mr Mitchell and having the conversation I have set out at [63] above, and Mr Mitchell's denial that any such telephone call took place. He goes on, at [8], to record some matters that tended against Mr Ashton's account of that conversation being correct. They included the absence of a file note of Mr Mitchell of Mr Ashton's instructions, that the content of the phone call "was such that a solicitor could be expected to note it", and such that "it would be expected that the plaintiff would mention it to Mr Murray in the emails exchanged between the two of them". He noted that the telephone records tendered revealed no call from Mr Ashton to the first defendant on 17 December, and only a fifty second phone call on 18 December. 104I should mention here that the trial was conducted on the basis that the summary of telephone calls prepared by Mr Ashton's solicitor ([90] above) was correct. In the course of preparing for this appeal, legal representatives realised that there was an error in that summary: in fact the telephone records (which were exhibited to Mr Ashton's solicitor's affidavit, but not analysed in the course of the trial) showed a call from Mr Ashton to Mr Mitchell's telephone number on 17 December 2007, lasting six minutes and thirty five seconds. Neither side in this appeal submits that this Court is not entitled to take into account the record of the telephone call on 17 December. 105After referring at [9] to the four telephone calls that passed between Mr Ashton and Mr Mitchell's telephone number, that were recorded in the solicitor's summary, the judge noted at [10] that Mr Mitchell had no explanation for those calls. He goes on at [11] to say: "The evidence reveals that on 18 December 2007 the First Defendant telephoned Mr Murray, was retained by him, and Mr Murray instructed him to prepare and lodge for registration a transfer of mortgage on behalf of the Plaintiffs. The First Defendant's file note of his instructions are Annexure A2 to Exhibit 2. The First Defendant was of the belief that Mr Murray was acting for the Plaintiff and 'giving instructions on his behalf' [Exhibit 2, para 13]." 106At [12] he refers to the email that Mr Murray sent to Mr Mitchell's office on 18 December ([57] above) that discloses arrears of a little more than $180,000. 107The judge sets out at [13], twelve paragraphs from Mr Mitchell's affidavit, including the portion I have quoted at [73] above, that attributes to Mr Murray the statement "Yes, the arrears have not been paid under the first mortgage. $350,000 is all Wal Ashton is prepared to advance until it is." At [14]-[18] he sets out uncontroversial facts about the settlement, and some other items of evidence. 108The judge then stated, at [19]: "It seems to me that whilst the First Defendant received instructions to prepare and lodge the mortgage documents, those instructions came via Mr Murray. Nevertheless the First Defendant was acting for the Plaintiffs to affect [sic] the transfer of the second mortgage [from] ESS to the Plaintiffs." 109At [22], he states the case of the plaintiffs as being that Mr Mitchell and Mr Webster owed a duty at law to: "i. Ensure that Fynder paid the arrears under the first mortgage to CKM prior to the advance of any monies by the Plaintiffs and the transfer of the second mortgage; and ii. Not to advise the Plaintiffs to advance the monies until Fynder had paid the arrears under the first mortgage." 110He stated at [25]: "The whole tenor of the evidence suggests clearly to me that the Defendants were acting for the Plaintiffs. The Plaintiffs were going to meet their legal costs. The fact that instructions came via Mr Murray does not alter the solicitor-client relationship between the Plaintiffs and the Defendants. The Plaintiffs were to be the ultimate and direct beneficiaries of the legal work done by the Defendants." 111He recorded that Mr Moses' evidence was that Mr Mitchell had failed to do the following matters which were required by the practice of competent conveyancing solicitors: "i. Did not inquire as to the disposition of the advance [Transcript page 101, lines 1-5]; ii. Made no inquiries of the first mortgagee [Transcript p108, lines 33-40] regarding any Deed of Priority between it and ESS but relied on advice from Mr Murray that there was no such Deed [Transcript p107, line 43 to Transcript p108, line 7]; iii. Did not agree that a Deed of Priority between Fynder and ESS was required to give proper priority and security [Transcript p102, lines 11-16]; iv. Did not draft any priority agreement [Transcript [107, lines 23-26] in relation to the Variation of Mortgage but he says that he advised Mr Murray that such a Deed of Priority was desirable [Transcript p107, lines 28-36]; v. Made no enquiry as to the existence of any Deeds of Variation or of loan between Fynder and ESS [Transcript p102, lines 30-33]; vi. Made no enquiry about the caveats on the title to the property and gave no one any advice about these caveats [Transcript p103, lines 7-12]; vii. Was unable to obtain registration of the Variation of Mortgage because he did not obtain the consent of one of the caveators [Exhibit B, Tab 48NN, page 153P]." 112He set out Mr Moses' conclusion at 53 (that I have quoted at [101] above), then found, at [30]: On the basis of the expert evidence of Mr Moses as to what the First Defendant should have done and failed to do, I find that the First Defendant breached his duty of care in acting for the Plaintiffs on the transfer of the second mortgage." 113The judge found that Mr Webster was also liable. He said, at [38], that Mr Webster was "jointly and severally liable and guilty of negligence". I do not read that as meaning anything other than that Mr Webster's liability was a vicarious liability arising by reason of Mr Webster being a principal of the firm in which Mr Mitchell practiced. If it were a finding that Mr Webster had personally acted negligently, it would have no basis whatsoever in the evidence, in light of Mr Webster having had only the most fleeting contact with the transaction at its outset. The Appellants on this appeal accept that if Mr Mitchell has a liability to the Respondents, Mr Webster also has a vicarious liability to them. 114At [40] the judge made a finding concerning causation of damages: "If the Defendants had not breached their retainer and duties owed to the Plaintiffs, no monies would have been advanced and the second mortgage not transferred until the arrears had been paid under the first mortgage." 115He awarded the damages in a sum quantified as the sum advanced with interest from 21 December 2007 to the date of trial, and the legal costs that the plaintiffs had paid in connection with the mortgage transaction together with interest on that amount.

Requirements for Proper Reasons for Judgment 116A trial judge has a duty to refer to material evidence and make findings about material issues in the case: Waterways Authority v Fitzgibbon [2005] HCA 57; (2005) 79 ALJR 1816 at [130] (Hayne J). The absence of such findings and the absence of reference to such evidence can properly be taken as showing that the trial judge has erroneously overlooked or discarded it: ibid; Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430 at 443-444 (Meagher JA); Whalan v Kogarah Municipal Council [2007] NSWCA 5 at [40] (Mason P, Ipp JA and Tobias JA); Najdovski v Crnojlovic [2008] NSWCA 175; (2008) 72 NSWLR 728 at [21] (Basten JA, Allsop P agreeing); Sangha v Baxter [2007] NSWCA 264 at [22] (Ipp JA, Campbell JA agreeing); Nominal Defendant v Kostic [2007] NSWCA 14 at [59] (Ipp JA, Hodgson JA and Campbell JA agreeing). Another way in which this has been put is that the judge must engage with, or grapple or wrestle with, the cases presented by each party: Whalan at [40]; Kostic at [2]. This is not adequately done by setting out the evidence adduced by one side, setting out the evidence on the other side, and saying that the judge prefers one body of evidence to another: Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187; (2006) 66 NSWLR 186 at [28] (Ipp JA, Mason P and Tobias JA agreeing); Kostic at [58]. 117The reasoning process in the judgment below is seriously deficient. 118As the written submissions that Mr Shields made to the primary judge said, "there is a contest in the evidence concerning by whom and on what terms Mr Mitchell was retained to act for the plaintiffs in relation to the transfer of the second mortgage the property of ESS". Those written submissions also identified issues concerning the scope of Mr Mitchell's retainer, and continued: "The resolution of those issues involves factual disputes between: a. Mr Ashton and Mr Mitchell concerning the conversations to which Mr Ashton has deposed in paragraphs [14], [16], [17] and [19] of his statement (Exhibit A); b. Mr Mitchell and Mr Murray concerning what if anything Mr Murray said to him concerning the relationship between Mr Ashton and Griffiths Forrest Greer and any authority he held to instruct Mr Mitchell as agent for the Plaintiffs." 119The defendants' outline of submissions at the trial contained several specific challenges to the credibility of Mr Ashton's evidence. It pointed out the inconsistency between his evidence that it was Abbotts, not the valuer from CB Richard Ellis, who he spoke to and the listing of his telephone calls. The submissions also said: "11. Clearly Mr Ashton did more than skim the proposal. He must have read at least the valuation to get the phone numbers. 12. Mr Ashton must have known of the arrears and the proposal to pay 5% interest per month. It defies belief he did not read the proposal or at least the first few pages." ... 15. Mr Ashton's evidence that he rang Abbotts Valuers and that the valuer agreed the value was really $2.5 million is nonsense. There is no evidenced he even attempted to call and any valuer would surely, if they had changed their mind on the day or the day after, would have provided a note of the changed valuation. 16. Mr Ashton is clearly making up stories for his own benefit." 120The submissions also specifically contended that "Mr Ashton knew that arrears were outstanding at the time he provided the funds." 121The submissions included: "At para 19 of his affidavit, Mr Ashton said that Mr Mitchell told him to pay money as directed by Mr Murray as opposed to paying into Mr Mitchell's trust account. Quite frankly this defies belief and the Court should not accept it. No experienced solicitor would act in that manner and Mr Mitchell did not." 122There was a clear raising of an issue concerning causation of damages. The written submissions of the plaintiff included: "The monies advanced by the Plaintiffs were lost when the Property was sold and the proceeds paid to CKM pursuant to the First Mortgage. The relevant cause of the sale was the continuing default of Fynder under the First Mortgage. If the Defendants had not breached the terms of the retainer and the duties owed to the Plaintiff, no monies would have been advanced and the Second Mortgage not transferred until Fynder paid the arrears under the First Mortgage." 123The submissions were at issue concerning causation of damages. The written submissions of the defendants included: "No damages were caused from any alleged breach of retainer or of any duty. Any damages suffered were caused by the property not being sold at or near its December 2007 valuation." 124The judgment either did not attempt to resolve those issues that were specifically identified, or made pronouncements concerning them that do not mention significant pieces of evidence. 125Concerning the live issues at the trial about whether the conversations that Mr Ashton says he had had with Mr Mitchell actually occurred, it was common ground that, as the judge found at [25], Mr Mitchell was acting for Mr Ashton. It was also common ground that, in one sense of the expression, Mr Mitchell's instructions had come "via Mr Murray", because even on Mr Ashton's case Mr Murray had been instrumental in Mr Mitchell receiving instructions at all. It was common ground that Mr Mitchell's instructions were to prepare and lodge the mortgage documents. However there was total disagreement about whether his instructions went any further than that, and the judge made no finding concerning that. The judge made no finding about whether the conversations with Mr Mitchell to which Mr Ashton deposed had occurred. Whether those conversations occurred is of central importance to deciding the scope of Mr Mitchell's retainer, whether Mr Mitchell gave any advice to Mr Ashton before the settlement, and to whether any action or inaction of Mr Mitchell was a cause of the capital loss that Mr Ashton has undoubtedly sustained. 126There was an issue about whether Mr Murray was Mr Ashton's agent for the purpose of giving instructions to Mr Mitchell, or otherwise in connection with the purchase of the mortgage. On 17 December, Mr Murray told Mr Ashton that he would be seeing Mr Mitchell that morning, and Mr Ashton replied in a way that could be assent ([49] and [50] above). However, when later on 17 December Mr Murray requested confirmation that "advance may proceed subject to documents so I may instruct solicitor" ([52] above), Mr Ashton did not provide any written response, and there is no evidence of any verbal response. Notwithstanding that, it is Mr Ashton's own evidence that he asked Mr Murray to talk to Mr Mitchell about the loan ([55] above). As well as for the purposes I have identified in the previous paragraph, whether any of the conversations that Mr Ashton states occurred between Mr Mitchell and Mr Ashton actually occurred is also of great importance for whether Mr Murray had authority from Mr Ashton to instruct Mr Mitchell. There can be no doubt that Mr Mitchell was acting in the transaction for Mr Ashton, and that Mr Ashton knew it, but if there were no conversations between Mr Ashton and Mr Mitchell prior to the settlement the only possible way in which Mr Mitchell could have been instructed was by Mr Murray. Even though Mr Mitchell was of the belief that Mr Murray was acting for Mr Ashton and giving instructions on his behalf, that belief is not enough to establish that Mr Murray actually had any authority. The belief was founded on Mr Murray's own statements, and some previous occasions on which Mr Mitchell had acted for clients of GFG ([60] above). 127It is elementary that either actual or ostensible authority must be proved by means other than evidence about what the putative agent said or did: Armagas Ltd v Mundogas SA (the Ocean Frost) [1985] 3 All ER 795 (affirmed Armagas Ltd v Mundogas SA (the Ocean Frost) [1986] AC 717); Essington Investments Pty Ltd v Regency Property Pty Ltd [2004] NSWCA 375; Gardiner v Agricultural & Rural Finance [2007] NSWCA 235 at [391]. As well, there was evidence that Mr Murray denied some of the basis on which Mr Mitchell asserted that Mr Murray had authority to give instructions on behalf of Mr Ashton ([61] above). The judge made no attempt to grapple with this evidence. He made no clear findings about the nature or extent of Mr Murray's authority. 128There was a significant challenge to Mr Ashton's evidence that he made his lending decision on the basis that the value of the property was $2.5m, rather than $2.8m. Which of those values was the one he adopted has a significant mathematical effect for the amount that he would be prepared to lend on an 80% LVR. If the value was truly $2.5m, an 80% LVR would permit total borrowings against the property of $2m. If there were to be $100,000 in unpaid statutory charges, in addition to the $1.6m principal of the first mortgage, and no arrears of the first mortgage, that would allow borrowings of a further $300,000. Yet the transaction proceeded on the basis that $350,000 was being advanced. The amount that Mr Ashton paid across was just less than $300,000, and Mr Ashton said he regarded that as the amount of the advance. Yet if that were so, Mr Ashton would be dependent upon receiving interest in arrears. It is questionable whether an experienced lender would be prepared to advance money on that basis to a company that was obviously encountering financial difficulties. 129Alternatively, if the valuation was $2.8m, an 80% LVR would permit total borrowings against the property of $2.24m. The principal of $1.6m, arrears of $180,000, and land tax of $100,000 total $1.88m. Not exceeding the 80% LVR would permit a further $360,000 to be advanced. That is fairly close to the $350,000 actually advanced. 130If, as Mr Murray had originally (and inaccurately) told Mr Ashton, the valuation was $2.9m, an 80% LVR would permit total advances of $2.32m. If the arrears were $170,000 (as Mr Murray inaccurately told Mr Ashton), the total of first mortgage principal, arrears and the assumed land tax would be $1.87m. That would permit an advance of $450,000. On that basis, the $600,000 that Mr Murray was originally seeking could not be accommodated within the LVR. It would make sense for Mr Ashton, contemplating making an advance of $600,000, to require the arrears to be repaid, as he said he did in his first conversation with Mr Mitchell ([63] above). 131However, even if that were so, there remains a question about whether that continued to be Mr Ashton's attitude once the amount to be advanced had been reduced to $350,000. There was evidence from Mr Murray in [23] of his affidavit, set out at [68] above, that could be taken as Mr Ashton approving an advance of $350,000 in the circumstances where the arrears had not been paid. There is the evidence from Mr Mitchell about Mr Murray telling him "yes the arrears have not been paid under the first mortgage. $350,000 is all while Ashton is prepared to advance until it is." ([74] above). The judge made no attempt to deal with the written submission that Mr Ashton knew that the arrears were outstanding at the time he provided the funds. 132There is no reasoning leading to the conclusion of the judge at [40] about causation of damages ([114] above): it is a bald assertion. If it were the case that Mr Ashton knew that the arrears were outstanding at the time he provided the funds, it might be difficult for that conclusion to stand. 133There is a significant illogicality in the judgment. It is that the judge applies Mr Moses' opinion, but without having made any finding about the correctness of the basis upon which that opinion was expressed (namely, that Mr Ashton's statement was correct and that the other matters I have identified that [97] above were correct). 134There is a further reason why the judge's reasoning process is defective. It is that the judge proceeded on what is now known to be the incorrect basis of there having been no telephone call on 17 December 2007 between Mr Ashton and Mr Mitchell's office. When that is the basis on which both parties presented the case to him, the judge is hardly to be blamed for proceeding on that basis. 135If that had been the only defect in the decision below it may well not have led to an order for a new trial. Uniform Civil Procedure Rule 51.53(1) forbids this court from ordering a new trial on the basis of any error in the proceedings below unless it appears to the Court that some substantial wrong or miscarriage has been thereby occasioned. The fact that there was a telephone call on 17 December 2007 is evidence that could only help the Respondents, and the judgment below is one whereby the Respondents have succeeded, for the full extent of their claim, notwithstanding the absence of that evidence. Thus, the mistaken failure to refer to the telephone call of 17 December 2007 has not, taken by itself, lead to any wrong or miscarriage of justice occurring. However, the other deficiencies in the reasoning are by themselves sufficient to make it inevitable that the judge's reasoning process cannot stand.

Impossible for Mr Ashton to Succeed? 136On an appeal a party who was a defendant in the court below is entitled to argue that the evidence in the court below was insufficient to prove the cause of action that had been sued on, and thus that on the appeal the appellant is entitled to have judgment in the court below: Jovic v Lamont [2007] NSWCA 47 at [66]-[73] and cases there cited; Ashrafi Persian Trading Co Pty Ltd t/as Roslyn Gardens Motor Inn & Anor v Ashrafinia [2001] NSWCA 243; (2002) Aust Torts Reports ¶81-636 at [51]. Mr Einfeld submits that, notwithstanding any difficulties that there might be with the judge's reasons, the evidence in the case is such that it would be impossible for Mr Ashton to succeed. He submits that therefore this Court would be justified in setting aside the verdict below, and entering a judgment for the defendants. He says that that is so even if it were correct that Mr Ashton and Mr Mitchell had the conversation contained in [14] of Mr Ashton's statement. Unilateral Decision to Advance Money with Knowledge of Arrears Being Unpaid? 137Mr Einfeld submits that the evidence about the events of 20 and 21 December shows that Mr Ashton knew at the time he paid across the money that the arrears had not been paid, and that he made a unilateral decision to advance the money with that knowledge. Mr Einfeld submits that that had the effect of removing any duty that Mr Mitchell might otherwise have been under concerning payment of arrears. He submits that Mr Ashton's unilateral action in effecting the payment denied Mr Mitchell the opportunity to perform any duty he might have been under concerning the payment of the arrears (because Mr Mitchell would have had up to the last moment before settlement in which to perform that duty), and severed the chain of causation between any breach of duty on Mr Mitchell's part and any damage suffered by Mr Ashton. He submits that this Court is in a position to make those findings. 138The evidence upon which Mr Einfeld relies for the conclusion that Mr Ashton was aware at the time of settlement that the arrears were still outstanding is:

evidence that, from the outset of his dealings with Mr Murray, Mr Ashton was aware that there were arrears (which is undoubtedly so);
that Mr Ashton was aware on about 12 December 2007 that the arrears on the mortgage were between $170,000 and $180,000 (a proposition Mr Ashton accepted in cross-examination);
the evidence of Mr Murray that when Mr Ashton was told that the advance was reduced to $350,000, he said "that is OK - they haven't paid the arrears yet" ([68] above). (Mr Ashton was not specifically cross-examined about that statement, but Mr Murray's affidavit was sworn in May 2011, well before the trial began, and Mr Ashton was cross-examined on the general topic of his knowledge that arrears were outstanding at the time the advance was made);
Mr Mitchell's evidence that on 20 December, Mr Murray told him that "the arrears have not been paid under the first mortgage. $350,000 is all Wal Ashton is prepared to advance until it is" ([73] above);
the conversation between Mr Ashton and Mr Mitchell in early January 2008 ([94] above) showing that Mr Ashton was then enquiring about whether the first mortgage had been brought up to date, and
what Mr Einfeld submits is a clear admission in Mr Ashton's email of 15 December 2008 ([95] above) that he knew that the mortgage was in arrears when he made his loan. 139I do not accept that this Court is in a position to make a decision about whether Mr Ashton knew that there were arrears at the time that he advanced the money. Whether there is a basis for inferring, from Mr Ashton's knowledge of the exists of arrears on 12 December 2007 that he knew that they still existed at the time the advance was made could be influenced by whether we accept that Mr Ashton had the conversations that he says he had with Mr Mitchell. Mr Aston's email of 15 December 2008 is a clear admission that, at 15 December 2008, he knew that the mortgage had been in arrears when he made his loan. It is not an admission that he had that knowledge at the time he made his loan in 2007. It would be necessary for a trial judge to decide whether he accepted Mr Ashton's explanations for his statements in the January telephone conversation and the December email ([92] and [96] above). That is dependent upon matters of credibility that only a trial judge who sees the witnesses is in a position to assess. 140As well, Mr Ashton gave specific evidence in cross-examination: "Q. In December 2007, you knew that the mortgage was 170K in arrears when you made the loan? A. No." This Court is not in a position to decide, on the basis of the transcript and exhibits, whether that evidence should be accepted. Impossible to Prove Causation of Damage? 141Mr Einfeld also argues that the evidence was incapable of making out that any loss flowed from any of the breaches that had been pleaded. So far as the breach that I have set out at 19 above is concerned, I would accept that Mr Ashton was well aware of the risk that there was in advancing the money if the arrears were not repaid, and thus, even if Mr Mitchell had failed to give such an explanation to Mr Ashton, that could not be causative of his loss. For the same reason Mr Einfeld submits that the particular set out at 19 above could not be causative of any loss. I would also accept that argument. 142Mr Einfeld submits that the particular at 19 above could not result in a judgment because Mr Ashton knew at the time of the advance that the arrears had not been paid. There is no suggestion that Mr Mitchell did tell Mr Ashton, before the payment was made, that the arrears had not been paid. I have some doubt about whether, even accepting Mr Ashton's evidence about the conversations with Mr Mitchell, there would be a duty on Mr Mitchell to tell him that the arrears had not been paid, independently of a duty not to settle without the arrears being cleared - on Mr Ashton's account, Mr Mitchell's task was to carry out a transaction within certain parameters, not to provide information. However, in light of my conclusions concerning other matters, it is not necessary to pursue that any further. 143So far as the breach particularised in 19 above is concerned, it appears clear that Mr Mitchell was aware that the arrears had not been paid. Whether he advised Mr Ashton to make the advance will depend upon whether a judge accepts that the conversation to which Mr Ashton deposes in [19] of his statement ([71] above) occurred, and if so whether the judge accepts that it amounts to advice to advance the money. 144Mr Einfeld submits, correctly, that many of the matters that Mr Moses listed in [53] of his opinion ([101] above) as being tasks that Mr Mitchell should have carried out were not the subject of pleading or investigation. All those tasks, other than (c), (h) and (i), do not bear upon the outcome of the case, as it is only concerning (c), (h) and (i) that Mr Moses expressed the view that Mr Mitchell's performance was defective. Mr Einfeld submits that, to the extent that Mr Moses expressed an opinion that paragraphs (h) and (i) identify failures on Mr Mitchell's part, they relate to matters that were not pleaded. I accept that that is so. 145Mr Einfeld submits that, when all the other paragraphs in [53] of Mr Moses' opinion apart from (c) are inapplicable, it would be impossible for the plaintiffs to succeed by virtue of . He points out that the pleaded duty, set out in [18] above, and the pleaded breach of it set out in [20] above both related to Fynder paying the arrears under the CKM mortgage, and paying them prior to the advance of any monies by Mr Ashton. The requirement of "standard practice" that Mr Moses identified in para was ensuring that arrears of interest were paid from the settlement monies. That differs from the pleaded duty, and the pleaded breach both as to the entity paying the money (either Mr Ashton, or ESS making the payment by direction), and also as to the time of payment. 146I do not accept that this argument should succeed. The case was not conducted before the primary judge with the close conformity to the pleadings that the argument requires. The statement of claim had pleaded that the transaction was a loan to Fynder secured by a transfer of the second mortgage, and yet the case proceeded on the factually correct basis that the transaction was a purchase of the second mortgage from ESS. Mr Ashton's statement was made on 27 January 2011, and was served prior to the trial. The trial began on 23 August 2011. Though objection was taken to part of [7] of Mr Ashton's statement ([32] above), no objection was taken to any other portion of it. The conversation between Mr Ashton and Mr Mitchell, deposed to in [14] of the statement ([63] above) contained two presently relevant instructions - "make sure the first mortgage is put into order" and "I understand that the first mortgage is in arrears and when he is brought up to date I only want $1.7m in front of me." Those instructions are to achieve particular commercial results. There are various ways in which those results could be achieved. One might be to make it a condition of the loan that Fynder have paid the arrears prior to settlement. Another might be to make it a condition of the loan that upon settlement Mr Mitchell receive from ESS a direction to pay the amount of the arrears to CKM. That is what was envisaged by the settlement sheets that Mr Mitchell received during the period when it was proposed that the amount advanced by $600,000 ([56] and [67] above). 147Mr Shields opened the case to the primary judge in a way that was less precise than the pleading: "At issue here at the core is this proposition. Mr Ashton says that he told Mr Mitchell that the money that he was advancing was not to be advanced unless the first mortgage was put in order." 148There was no objection that this involved any departure from the pleadings. The closing submissions of Mr Bell included: 'This case is about what instructions were given to Mr Mitchell, whether he carried out those instructions and if he did not, what loss, if any, flow from the failure to carry out those instruction." 149In addresses Mr Shields likewise put the matter broadly: "... you would expect someone to put to say there is a risk there in relation to the existing default on the face of that mortgage and I can if I am to lend this money put the position that those arrears are to be fixed as a condition of the payment of this money. ...given the terms of Mr Ashton's evidence to your Honour I mean in truth this is a no transaction case in the sense that if that express requirement that Mr Ashton says he placed upon the retainer which is to see these arrears dealt with, if that had not been satisfied then the transaction wouldn't have occurred and so in that respect we would say that the damages flow because what you have is exposure to that risk and realisation of that risk because the transaction proceeded in circumstances where had Mr Mitchell done what Mr Ashton says he asked him to do and fixed up those arrears, that would not have happened." No Causation of Damage? 150The trial was conducted without any attention being paid to the Civil Liability Act 2002. However, on the appeal, counsel on both sides accepted that any decisions about causation must be made consistently with that Act. Section 5D Civil Liability Act provides: "(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." Causation of Loss from Failure to Ensure Arrears Paid On or By Settlement? 151Mr Einfeld submits that even if Mr Mitchell had and breached a duty to ensure that Fynder paid the arrears prior to, or from, the advance of any monies, no loss is shown to arise from that breach. He submits that Mr Ashton has not discharged his onus of proving that, even if the arrears had all been discharged before the advance was made or contemporaneously with it being made, there would have been anything other than a total loss. He submitted that the interest rate under the first mortgage was 9.92%, and thus the arrears of $180,000 would have accumulated over more than a year. The length of time is derived from the known fact that the arrears and principal of the first mortgage were $1,780,000 at the time the loan was made, then calculating how long it would take for $180,000 to accumulate at 9.92%. I do not accept that calculation, because the figure of 9.92% was derived from a letter of loan approval from Global Capital Corporation, not from the mortgage to CKM. 152Mr Einfeld also submits that the amount owing under the first mortgage had increased to of the order of $1.945m by March 2009. That figure is derived from the letter of instructions from Mr Ashton's solicitor to Mr Moses, so I would accept it as accurate. Mr Einfeld submits that, thus, approximately an additional $165,000 of arrears had accumulated by that time. The property was sold for $1,950,000 on 15 July 2009. By that time, a further four months of arrears, approximately $50,000, would have accumulated. Mr Einfeld reaches that conclusion on the basis of the rate of interest he puts forward, and because Mr Ashton received no surplus from the sale. Thus, he submits that the total arrears that accrued between settlement of the loan and sale of the property were not less than $215,000. 153As well, he submits that Mr Ashton has not established the situation concerning payment of land tax, either at the date on which Mr Ashton advanced the money, or the date on which the security property was sold. He submits that Mr Ashton's own estimate of $100,000 land tax being owing in December 2007 has not been shown to be wrong. Land tax is, of course, a statutory first charge on land: s 47 Land Tax Management Act 1956. Thus, he submits that even if the arrears had been brought up to date at the time the advance was made, at the least, the amounts that would have priority to the second mortgage by the time of sale would be: First mortgage principal 1,600,000 Arrears accumulated since December 2007 215,000 Land tax 100,000 TOTAL $1,915,000

154Further, land tax is assessed by reference to the holdings of a taxpayer at 31 December in each year (relevantly, s 3AK and s 3AL Land Tax Act 1956), and thus there were occasions for extra land tax to accrue due before the land was sold, because of Fynder still holding the land on 31 December 2007 and 31 December 2008. 155Mr Einfeld's calculation of $50,000 for the further four months of arrears is based upon accepting the interest rate of 9.92%. That interest rate is not accurate. I will assume, favourably to Mr Ashton, that interest is calculated on a simple interest basis, on a principal $1.6 million, rather than that interest becomes capitalised when unpaid, as commonly happens, and that no payment of interest was made in the fifteen months from December 2007 to March 2009. On that basis, if $165,000 of arrears had accumulated in those fifteen months, the interest rate under the first mortgage would be approximately 8.25%. That would give rise to additional arrears during the four-month period of a little less than $44,000. Treating the rate as 8.25%, for the purpose of this calculation, is proceeding conservatively and does not place weight on Mr Ashton's evidence, concerning the interest rate on the first mortgage, that "I think I was told and I think I recall it was in the order of 9, 10%.". Bearing in mind the potential for ongoing accrual of a land tax liability, I would accept that there is no basis in the evidence for concluding that if the advance had been made, and all arrears had been paid at the time of making the advance, there would have been any net proceeds for Mr Ashton to receive. 156However, that is not sufficient for it to be established that even if Mr Mitchell were in breach of the duties contended there could not be any causation of damage. One way in which Mr Ashton put his case below, and in this Court, is that if the arrears had not been paid the advance would not have been made. 157In applying s 5D(1) Civil Liability Act to that way of putting the present case the relevant "negligence" is Mr Mitchell's failure to require the arrears to be paid either before the loan was made or at the time of its settlement, and the relevant "particular harm" is Mr Ashton's loss of the money he advanced. Thus, to apply s 5D one must enquire whether the failure of Mr Mitchell to require the arrears to be paid is a necessary condition of Mr Ashton's capital being lost. 158One can test whether that is so by enquiring whether Mr Ashton's capital would not have been lost if Mr Mitchell had required the arrears to be paid. Clearly, if Mr Mitchell had insisted on the arrears being paid as a condition of the advance proceeding, and either ESS or Fynder were either unable or unwilling to comply with that requirement, the advance would not have proceeded, and the capital would not have been lost. But if ESS or Fynder would have complied with such a demand, the advance would have proceeded, and the capital would have been lost. 159Section 5E Civil Liability Act provides: "In proceedings relating to liability for negligence, the plaintiff always bears the onus of proving, on the balance of probabilities, any fact relevance to the issue of causation." 160Mr Einfeld submits that Mr Ashton has not shown that it is more likely than not that, if Mr Mitchell had required the arrears to be paid either prior to settlement or from the settlement proceeds, then Fynder, or ESS, either could not, or would not, comply with that requirement. When Mr Murray told Mr Ashton "The first mortgage is in arrears. I need the money before Christmas. They're under pressure from the first mortgagee" ([27] above) it is a possibility, that has not been shown to be more likely than not will not arise, that monies raised would be used to relieve that pressure. 161The first two settlement sheets that Mr Mitchell received, when ESS believed it would be receiving $600,000, made provision for the arrears to be paid from the proceeds. While the settlement sheet that Mr Mitchell received when the advance had shrunk to $350,000 made no such provision, there is no evidentiary basis for concluding that it is more likely than not that a payment by direction would not have been inserted if Mr Mitchell had insisted on it. That settlement sheet made provision for a little over $270,000 of the proceeds to be paid to ICA Group Holdings Pty Ltd. The letter of application that was written to Mr Murray on 29 November 2007 ([29] above) nominated that company as a guarantor of the proposed bridging facility. That letter had identified the purpose for the proposed advance as being to provide bridging working capital. It listed some twenty-two items, with amounts alongside them ranging in size from $124,000 to $1,500, totalling $523,397. The letter did not say whether those items were debts then due, debts expected to become due, or partly one and partly the other. However, there does not appear to have been a fixed intention to expend the money for the payment of those items. That is because the list of payees in the settlement directions that ESS gave to Mr Mitchell provided for payment to entities on that list only as to the sum of $31,200 so far as the settlement direction for a $600,000 advance was concerned, and only as to a little over $21,000 so far as the settlement direction for an advance of $350,000 was concerned. In those circumstances, it is not established that it is more likely than not that, had Mr Mitchell required that the arrears be paid either prior to settlement or from the settlement proceeds, that request either could not, or would not, have been complied with. Causation of Loss from Other Alleged Breaches? 162But Mr Ashton relies on more than one alleged breach. He also submits that there was a breach in failing to inform him that the arrears had not been paid. If that is indeed a breach (see [142] above), whether it is causative of loss will depend upon whether Mr Ashton knew that the arrears had not been repaid at the time of the advance. As mentioned earlier, that is a matter that this court cannot decide. 163Another breach relied upon is advising Mr Ashton to advance the monies when he knew or ought to have known that the arrears had not been paid. I have earlier held that this court is in no position to decide that that breach did not occur. If it occurred, whether it has been causative of damage will depend upon whether Mr Ashton knew, at the time of the advance, that the arrears remained unpaid. That is also a matter that this court is not in a position to decide. 164For these reasons, I do not accept Mr Einfeld's submission that this court is in a position to decide that Mr Ashton's case cannot succeed.

The "Cross Appeal" 165By his "notice of cross appeal" Mr Ashton contends that the judge should have made various findings that he did not make. The notice does not contend that the judge should have made any order that differs from the orders he actually made. Thus, it is in substance a Notice of Contention: Uniform Civil Procedure Rule 51.40. 166The Notice contends that the judge should have found that the retainer required Mr Mitchell not to advise the Respondents to advance monies until the arrears of the first mortgage were paid, and that he breached that obligation by advising them to advance money before the arrears of the first mortgage were paid. 167The only evidentiary basis for Mr Mitchell having given any such advice is the conversation recounted in [19] of Mr Ashton's statement ([71] above). The primary judge made no finding about whether that conversation took place. On reflection, it can be seen to be a conversation that would make sense only if both Mr Ashton was proceeding on the basis that the value of the property was $2.5m, and that the arrears of the first mortgage either had been, or would be, discharged. However, nowhere does Mr Ashton say that he took it to be a statement that the arrears either had been, or would be, discharged. His evidence concerning that conversation in cross-examination ([86], [87] above) creates the impression that his principal concern related to whose trust account he should be sending the money to, not whether the arrears either had been paid, or would be paid. This Court is not in a position to decide whether the conversation took place, nor (if it did) whether Mr Ashton understood it to be advice to advance the money. 168The notice of cross-appeal also submits that the judge should not have found that Mr Mitchell received instructions to act for Mr Ashton from Mr Murray, should have found that Mr Ashton retained Mr Mitchell during a conversation on or about 17 December 2007, and should have found that Mr Ashton instructed Mr Mitchell to ensure that Fynder paid the arrears under the first mortgage prior to the transfer of the second mortgage. Those are likewise matters that this Court cannot decide. 169Regretfully, there is no alternative but to set aside the judgment below, and order a new trial.

Orders 170I propose the following orders: (1) Appeal allowed. (2) Set aside orders (i) and (ii) of the District Court made on 30 October 2011. (3) Respondents to pay costs of the appeal, but to have a certificate under the Suitors Fund Act 1951 if qualified. (4) Costs of the first trial to follow the event of the second trial, subject to any contrary view of the judge hearing the retrial.

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: 30 November 2012

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Judgment (14 paragraphs)

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Cases Cited (14)