NOTARAS v SLY & WEIGALL NOTARAS v NEWMAN PSALTIS

Judgment of Sperling J 26 The appellants failed comprehensively at first instance. As indicated, there was an award of indemnity costs. 27 The verdict and judgment in favour of each set of defendants stood on a number of independent bases. 28 Sperling J approached the matter on the basis that the appellants were claiming damages for loss of a chance in the form of a commercial opportunity to bargain with the Bank and/or to refinance. That window of opportunity was in July-August 1992, in the period that would have elapsed before the Bank could have issued fresh s57 Notices if it had been restrained from relying on those served in 1991. His Honour applied the principles in Sellars v Adelaide Petroleum NL (1992) 179 CLR 332 at 350 and held that the appellants needed only to prove the loss of a commercial opportunity which had some value (not being a negligible value) (J43). (This is challenged by the respondents in a notice of contention.) 29 It was found that Newman Psaltis & Co were never instructed to institute proceedings to stop the auction fixed for 15 July (J97, 106, 252). That firm was also acquitted of negligence in relation to the advice Mr Newman had provided (J249-250). It was further held that nothing of value would have been gained by seeking an injunction during the period of the Newman Psaltis retainer (J39). There would have been no point in seeking to restrain a sale in order to buy time to negotiate until any auction had been advertised; and, after it had been advertised, the appellants never informed their solicitor that they had the finance to meet the undisputed part of the debt or were otherwise prepared to go to court seeking an injunction. 30 Sperling J found that Mr Mathas had been instructed by Ms Notaras to institute proceedings notwithstanding his advice that an application would be hopeless (J128, 252). His Honour also found that there was an arguable ground for impugning the s57(2)(b) Notices, ie the prematurity point referred to below. The claim in negligence against Sly & Weigall nevertheless failed for several reasons. It was found that the Bank could have and would have successfully invoked s58A of the Real Property Act that permits a mortgagee to exercise a power of sale based on non-monetary defaults in certain circumstances. It was also held that Mr Mathas' advice that there was no prospect of success in the injunction proceedings was reasonable (J251). 31 The claim against each firm also failed because nothing of value was found to have been lost by reason of the failure to stop the first auction since there was never more than a negligible chance of getting an interlocutory injunction; and because there was no more than a negligible prospect that the appellants could have refinanced the debt or serviced a new loan (J253). 32 Sperling J summarised his reasons for dismissing the proceedings (J254):

(a) that an injunction would have been granted on the ground of no effective power of sale, nor (b) that an injunction would have been granted notwithstanding an effective power of sale, nor (c) that the plaintiffs would have obtained a benefit from the grant of such an injunction.

(2) The defendants were not guilty of breach of duty in advising against proceedings for an injunction as they did or (in Mr Mathas' case) in refusing to institute such proceedings.

(3) No damage was suffered by the plaintiffs in consequence of any breach of duty. The issues fought at trial and on appeal 33 The appellants pleaded against both sets of defendants that they had negligently failed to exercise due care in a number of respects. Many claims were abandoned very late in the proceedings at first instance (J32). The pleaded particulars of negligence ultimately pressed were that each firm of solicitors:

Failed to commence proceedings in the Supreme Court to set aside the said notices and / or to obtain injunctive relief or other relief so as to prevent the Bank selling the Bourke Street and Oxford Street Properties on the grounds: (a) that the notices themselves were defective in incorrectly stating that there had been default in the payment of interest and other Bank charges and that the sum of $4,444,932.36 was outstanding; (b) that the Bank by reason of its continuing negotiations with the plaintiffs following the service of the notices was estopped from alleging that the demand in the notices had been made; Particulars The Plaintiffs relied upon an assumption induced by the Bank representing by writings and words found in the following written communications and oral statements recorded in file notes that it would not enforce the section 57(2)(b) notices dated 10 May 1991. The Plaintiffs suffered detriment in not taking steps to set aside the said notices or restrain the operation of the same at an earlier time. 34 Although not particularised, the appellants also advanced a further ground on which it was said that proceedings for an interlocutory injunction should have been maintained, namely, that a short postponement of the auction of Oxford Street should have been sought in the exercise of the court's discretion, even if the mortgagee's power of sale could not be impugned (see J34). 35 The gist of the appellants' case as to damages and causation was summarised by the learned trial Judge (J 35-41):

35. Consequential damage is pleaded as follows against both sets of defendants (so far as is material): By reason of the breaches of duty and retainer and negligence … the Plaintiffs were unaware … of their right to have the Notices set aside … For several days before 15 July 1992 the plaintiffs and the Bank were negotiating with a view to agreeing a sum to discharge the said mortgages. On that day, shortly before the auction of Oxford Street, the Bank offered to accept payment of $3.3m provided the plaintiffs could show an unconditional approval of funds. A conditional approval had been obtained at the time of the auction. Had the said properties not been sold the plaintiffs would have taken the opportunity to borrow the funds which the Bank had indicated it would accept, which opportunity was of value and was lost by reason of the defendants' failure to prevent the sales from proceeding under the notices. 36. As against Newman Psaltis & Co, the following additional matter is pleaded in relation to the causation of damage: By reason of the Defendants' said failures, the Plaintiffs were obliged to instruct other solicitors, Messrs Sly and Weigall in or about late June/early July 1992. This action by the Plaintiffs was too late to prevent the Bank selling the Oxford Street property on 15 July 1992 and the Bourke Street property on 12 August 1992. 37. The gist of the plaintiffs' case against both sets of defendants is as follows. An application should have been made for an injunction against the sales or at least against the first sale, Oxford Street. A settlement with the Bank was available at $3.3m, for which finance would have had to be obtained within a period of a month or so from an order restraining the sales. The defendants' failure to prevent the sales as and when they occurred - or at least the sale of Oxford Street - deprived the plaintiffs of the opportunity of settling with the Bank on the foregoing basis. A settlement with the Bank, it is said, would have avoided sale of the properties altogether, and the properties have since substantially increased in value. 38. The limited time the plaintiffs would have had to arrange alternative finance arises from the plaintiffs' concession (properly made) that, if an injunction had been granted on the ground that the notices were defective, the Bank would have issued fresh notices curing the alleged defects and would have reprogrammed the auction sales immediately. Any deferral of the auction sales on discretionary grounds could also only have been for a short period. There was also evidence that a settlement with the Bank at $3.3m would have required payment of that amount within three weeks. 39. Mr Newman was retained in relation to Ms Notaras' dealings with the Bank early in March 1992. The first auction was not until mid-July 1992. An injunction obtained prior to mid-June 1992 was unnecessary to secure an opportunity to settle on the foregoing basis. Breach of duty prior to mid-June 1992 does not, therefore, sound in damages. The plaintiffs' case is, however, that the solicitors were under a continuing duty, so that failure to do later what should have been done earlier is actionable (it is said), notwithstanding that failure to do it when it should first have been done is not. 40. The claim is then for the present day value of the two properties, with credit for $3.3m; for the net income which would have been derived from the properties to date, with credit for the cost of servicing a loan of $3.3m; for the $1.5m paid in settlement (which extinguished the Bank's claim for the unpaid balance of the debt); for legal costs which would not otherwise have been incurred; and for interest on past losses. 41. The plaintiffs' claim, being for loss of opportunity, involves assessment of the chance that an application for an injunction would have been successful and assessment of the chance that the plaintiffs would then have been able to conclude a settlement along the foregoing lines. Any damages would be assessed according to the value of the lost opportunity having regard to those considerations. 36 No claim was pressed in relation to action that should have been taken by the solicitors after the respective auction sales. In other words, it was not suggested that anything should have been done to restrain completion of the sales. For this reason, and because of the nature of the commercial advantage said to have been lost, the critical focus is upon the events leading up to the first auction on 14 July 1992. 37 The allegations of negligence underwent refinement throughout the proceedings, including in this Court. 38 The relevant particulars of negligence averred that the solicitors had been negligent in failing to commence proceedings for an injunction. It is however very unclear whether either firm received unqualified instructions to that effect, although there is a finding along these lines against Mr Mathas (J252) that is not subject to a notice of contention. This matter was explored at some length in this Court because it seemed that the case being pressed might be outside the particulars. What emerges is that the case was fought below on the basis that Ms Notaras told each solicitor that she wanted to stop the sale, by injunction if necessary, but that each solicitor gave firm advice that proceedings would fail in the circumstances when the respective advices were provided. This advice was reluctantly accepted and was the reason why categorical instructions to sue, regardless of the solicitors' views, were never given. On this basis, the gist of the negligence alleged related to the advice not to sue rather than some failure to commence proceedings in the teeth of instructions from the client. 39 It would be unjust to both sides for the appeal to be determined in a different framework. I content myself with observing that the way the case was thus fought tended to mask the true complexities of the causation problems confronting the appellants. It is not suggested that solicitors are duty-bound to comply with their client's instructions to go to court. They are not, because the "cab rank rule" is confined to barristers (see Arthur J S Hall & Co v Simons [2002] 1 AC 615 at 677, 678, 696, 714). Furthermore, solicitors' overarching duty to the Court as officers of the Court prevents them from being knowingly party to any abuse of process (see generally D A Ipp, "Lawyers' Duties to the Court" (1998) 114 LQR 63 at 85-6). 40 Leaving these matters to one side, the nub of the continuing complaint is that reasonably careful advice would have led to instructions (that the solicitors in turn would have accepted) to commence proceedings in the Equity Division for an injunction to restrain the auction of the Oxford Street property. That sale was the critical event that deprived the appellants of a valuable commercial opportunity of negotiating from a position of comparative strength and rescuing the situation. The appellants submit that, had the first auction been temporarily stopped by injunction, the Bank would have been forced back to the bargaining table for at least a month in a context where it might have accepted the overtures that the appellants would then have been willing and able to make. The chance thus lost was a real and valuable one. 41 As indicated, the claim that the appellants lost something of value in consequence of the want of an injunction was itself rejected comprehensively by the primary judge. But to understand the negligence issues it is necessary to focus upon the advice that the appellants contend should have been given; advice that (when accepted) would have been the basis of the putative injunction application. 42 It was alleged that the Bank was not entitled to exercise its power of sale as at 14 July 1992 because the Notices that were served on the two mortgagors on 13 May 1991, purportedly in accordance with s57(2)(b) of the Real Property Act, did not satisfy that section's requirements. Section 57 of the Real Property Act, set out below, precluded the sale of mortgaged property on the ground of default, unless the mortgagor had been given the opportunity of remedying the default by notice specifying the default and specifying not less than one month after service for rectification. Section 58A of that Act lifted that preclusion in certain events in relation to defaults other than payment defaults. 43 A number of defects were relied upon at trial. All but one were found to offer no prospect of impugning the Notices (J197). 44 The one point that Sperling J found to have been arguable was that the Notices were served prematurely in that the Enijar debt to which they related had not fallen due and payable by 10 May 1991, the date on the Notices served on 13 May 1991. The Notices were said to have misrepresented the true position in asserting otherwise and requiring such default to be remedied. The respondents contend that the trial judge was in error. This prematurity point will be addressed in detail below. 45 To displace the verdicts at trial the appellants also need to overcome the several grounds independent of the prematurity point on which the verdicts were based. The respondents supported the primary judge and sought, by notice of contention, to advance yet further grounds for rejecting the claims. 46 With this background, it is convenient to isolate the clusters of issues raised at trial and pressed on appeal. 47 First, there is a group of arguments and counter-arguments touching the validity of the s57(2)(b) Notices. These include a submission by the respondents that Sperling J erred in finding that the mortgagors were not in default under the payment arrangements secured by the mortgage, because no demand for repayment of the overdraft had become effective prior to 10 May 1991 (cf J186). There is also an argument by the appellants that the Notices were invalid because they claimed a sum higher than that which was in fact due at the relevant time (cf J184). 48 A second and related group of issues concern the appellants' attack on the findings that there were only ever negligible prospects of getting an injunction based on breach of s57 or in the event that there was an effective power of sale. These explore the discretionary grounds that Mr Mathas believed would spell doom to the application: delay, futility and incapacity to offer payment of the undisputed part of the mortgage debt. The respondents have countered with a contention point to the effect that the judge applied a test too favourable to the appellants in that he should have considered whether on the balance of probabilities they lost the opportunity to refinance and prevent the sales. 49 Thirdly, there are issues concerning the mortgagee's capacity to have invoked s58A of the Real Property Act as a means of bypassing the s57 issues and the likelihood of it having done so had it been faced with an application for an interlocutory injunction shortly before the scheduled auction. 50 Fourthly, there are the appellants' challenges to the findings that acquitted the solicitors of negligence. These necessarily engage some of the matters that have to be addressed with respect to the first three matters, but not exclusively so. 51 A fifth cluster of issues relates to whether any damage ensued and the quantum of damages. 52 Sixthly, there is a challenge to the order for indemnity costs.

Statutory restrictions on exercise of a mortgagee's power of sale 53 It is appropriate to set out ss57, 58 and 58A of the Real Property Act so far as relevant: 57 Procedure on default …. (2) A registered mortgagee, chargee or covenant chargee may, subject to this Act, exercise the powers conferred by section 58 if: (a) the case of a mortgage or charge, default has been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage or charge or in the payment, in accordance with the terms of the mortgage or charge, of the principal, interest, annuity, rent-charge or other money the payment of which is secured by the mortgage or charge or of any part of that principal, interest, annuity, rent-charge or other money,

…. (b) where (i) the default relates to that payment, or (ii) in the case of a mortgage, the default does not relate to that payment and notice or lapse of time has not been dispensed with under section 58A, a written notice that complies with subsection (3) has been served on the mortgagor, charger or covenant charger in the manner authorised by section 170 of the Conveyancing Act 1919 …. (3) A notice referred to in subsection (2) complies with this subsection if: (a) it specifies that it is a notice pursuant to section 57 (2) (b) of the Real Property Act 1900 (b) it requires the mortgagor, charger or covenant charger on whom it is served: (i) to observe, except in relation to any time expressed in the covenant, agreement or condition for its observance, the covenant, agreement or condition in respect of the observance of which the mortgagor, charger or covenant charger made default, or (ii) as the case may be, to pay the principal, interest, annuity, rent-charge or other money in respect of the payment of which the mortgagor, charger or covenant charger made default, (c) if the costs and expenses of preparing and serving the notice are to be demanded, it requires payment of a reasonable amount for those costs and expenses and specifies the amount, and (d) it notifies the mortgagor, charger or covenant charger that, unless the requirements of the notice are complied with within one month after service of the notice (or, where some other period exceeding one month is limited by the mortgage, charge or judgment for remedying the default referred to in the notice, within that other period after service of the notice), it is proposed to exercise a power of sale in respect of the land mortgaged or charged. (4) Where a notice is served under subsection (2) (b) and the requirements of the notice are complied with within the time applicable to the notice under subsection (3) (d), the default to which the notice relates shall be deemed not to have occurred. (5) Without prejudice to any other manner in which it may be deprived of force or effect, a covenant, agreement or condition whereby upon a default referred to in subsection (2) (a): (a) the whole of the principal or other money of which the payment is secured by a mortgage or charge becomes payable, or (b) a part of that principal or other money (not being a part to which that default relates) becomes payable, has no force or effect until the powers conferred by section 58 become exercisable by reason of that default.

58 Power to sell (1) Where a mortgagee, chargee or covenant chargee is authorised by section 57 (2) to exercise the powers conferred by this section, the mortgagee, chargee or covenant chargee may sell the land mortgaged or charged, ….

58A Dispensing with notice or lapse of time (1) Any notice or lapse of time prescribed by section 57 (not being notice or lapse of time relating to default in the payment, in accordance with the terms of the mortgage or charge, of any principal, interest, annuity, rent-charge or other money) may, by agreement expressed in the mortgage or charge, be dispensed with, and in such case section 58 shall operate as if no notice or lapse of time were thereby required….

Were the Notices served prematurely on 13 May 1991? 54 The core negligence allegation advanced against each solicitor was that he failed to appreciate that the clients had an arguable case for impugning the s57(2)(b) Notices dated 10 May 1991 and served on 13 May 1991 on the ground that the overdraft debt was not yet due and payable. This is referred to in these reasons as the prematurity point. 55 If tenable, this point would have meant that the power of sale was not exercisable in July 1992 (subject to the s58A arguments). In addition, it would probably (but not certainly) have relieved the appellants from the need to pay into court, as the price of an interlocutory injunction, the sum of approx $4m that was admittedly outstanding in mid-1992 (see J31). It was further submitted that evidence to the effect that Ms Notaras would have first learnt of the viability of the prematurity point on 14 July could have provided the appellants with an excuse for their delay in approaching the court to challenge the Notices. 56 Mr Newman was never challenged about not having adverted to the prematurity point. It would appear that he was never briefed with information casting any doubt on the validity of the Notices. 57 The prematurity point admittedly occurred to Mr Mathas on 14 July 1992, because it was discussed that day on the telephone with the Bank's solicitor (CB 216B), who refuted it in her letter on behalf of the Bank refusing to call off the auction scheduled for the next day. 58 Sperling J held that the Notices were arguably impugnable on the ground that there was no expired demand as at the date when default was asserted as having occurred, and therefore no default as alleged in the Notices (J197). In so holding, his Honour accepted the appellant's argument summarised earlier in his reasons as follows (J186): The default specified in the notices was said to have been arguably non-existent for several reasons. One reason advanced was that a debt owing on an overdraft account is due and payable only on demand, absent agreement to the contrary: Williams and Glyn's Bank Ltd v Barnes [1981] Com LR 205; The Law Relating to Banker and Customer in Australia , G A Weaver and C R Craigie (2nd ed, 1990) at [24.50]. In the present case, the demand dated 10 April 1991 required payment within 30 days. There is documentary evidence that the demand was posted on 10 April 1991 and would, therefore, not have been received until 11 April 1991 at the earliest. That evidence would have been readily available under notice to produce with short service if Ms Notaras did not recall, in 1992, that the demand had been served by post. So the plaintiffs would have been in a position to prove that there was no expired demand as at 10 May 1991, and, therefore, no default in payment as asserted in the s57 notices. That would have established non-compliance with s57 and a prima facie case that there was no effective power of sale. 59 The respondents contend on several grounds that the judge erred in recognising this point as arguable. Alternatively, they support the judge's conclusion (J251) that it was not negligent for the solicitors to have thought the proposition to be of such little weight as to be unlikely to ground an eleventh hour interlocutory injunction. 60 As indicated, the Enijar account was in default from 24 July 1990 onwards (J8). On 30 July 1990 $3.455m was debited to the Enijar current account. Interest was thereafter debited periodically at a penalty rate. By the end of 1990 the debit balance of the account stood at over $4m. 61 Nothing had been paid by December 1990. According to Sperling J, this further confirmed that Ms Notaras did not have the financial capacity to service the acquisition of Bourke Street (J64). I agree. 62 This situation was continuing in May 1991 when the account stood in debit to the tune of $4.3m (Blue 8/1642). 63 On 10 April 1991 a notice of demand was posted to Enijar. It stated (emphasis added): WHEREAS at 28 March 1991 your company was indebted to the State Bank of New South Wales Limited in the amount of Four Million Three Hundred and Tweny Five Thousand Six Hundred and Thirteen Dollars and Forty Cents ($4,325.613.40) AND WHEREAS interest is accruing on such sum at the rate of 20% per annum NOW TAKE NOTICE that the Bank hereby demands payment within thirty (30) days from the date of service of this Demand upon your company of all monies due to the Bank on such account together with interest thereon up to and including the date of payment. DATED this 10th day of April 1991. 64 Ms Notaras and her accountant attended a meeting with bank officers on 13 May 1991, at which time Notices under s57(2)(b) of the Real Property Act, addressed to Ms Notaras and Enijar respectively and relating to the properties at Oxford Street and Bourke Street, were served. 65 The Bank had demanded payment of the overdraft within 30 days from the date of service of the demand. It had been posted on 10 April 1991 (a Wednesday) and therefore would not have been received until 11 April 1991 at the earliest. On this basis, the moneys were not due and payable before 11 May 1991. 66 The s57(2)(b) Notices served on 13 May 1991 were each dated 10 May 1991. Each recited the relevant mortgage and averred that Enijar had defaulted under its obligations to the Bank: …. the arrears due and outstanding to the Mortgagee as at 7 May 1991 being $33,634.15 in unpaid interest and other bank charges and the total sum outstanding to the Mortgagee including the said arrears is $4,444,932.36 as at the said date with interest accruing thereafter at the rate of $2,516.36 per day.

67 The Notice required payment of all outstanding moneys secured by the mortgage "being the said sum of $4,444,932.36 together with all accruing interest up until the date of such repayment" together with the mortgagee legal costs in relation to the Notice amounting to $250. 68 Importantly for present purposes, each Notice stipulated that it required payment of the calculated sum within one month from the date of service of the Notice. 69 In my view, there was no seriously arguable case that the s57(2)(b) Notices were invalid for prematurity when served on 13 May 1991. And there was certainly no negligence on the part of the solicitors for not adverting to (Newman Psaltis & Co) or for rejecting (Sly & Weigall) the prematurity point as a basis for challenging the validity of the Notices. 70 In my opinion, the s57(2)(b) Notices were crystal clear in their stated operation. They were obviously dated and signed on 10 May 1991. But it was equally obvious that their requirement for payment operated as from one month from their date of service. 71 A valid notice must be served, but not before the default to which it relates (cf s57(2)(b)). To comply with s57(2), the notice must make a particular requirement of the mortgagor on whom it is served (cf s57(3)(b)(ii)) and (with a presently irrelevant exception) notify that the mortgagor has one month after service to comply (cf s57(3)(d)). At each step, the critical point of reference is the date of service. 72 The Notices served on 13 May 1991 complied with these requirements as regards the balance of the account called up for payment under the notice of demand posted on 10 April 1991. 73 The fact that the capital sum was calculated up to 7 May 1991 had no bearing on the requirements of the s57 Notices. Nor did the fact, as later emerged, that the sum was overstated because it included capitalised interest calculated at penalty rates. As Sperling J found (J184), an overstatement in the amount asserted to be payable does not invalidate a s57 notice (Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491 at 504; Websdale v S & JD Investments Pty Ltd (1991) 24 NSWLR 573 at 578-9; Wongala Holdings Pty Ltd v Mulinglebar Pty Ltd (1994) 6 BPR 13,527 at 13,529 and 13,532-3). Aliter, if a non-existent default is specified (Websdale at 578). 74 The Bank may have been entitled to call up the overdraft on demand (Williams and Glyn's Bank Ltd v Barnes [1981] Com LR 206 at 210), but it chose to give 30 days from service of its demand. Sperling J thought the prematurity point arguable because the demand posted on 10 April 1991 would not have been received (ie served, according to the tenor of that demand) until 11 April 1991 at the earliest. "So the plaintiffs would have been in a position to prove that there was no expired demand as at 10 May 1991, and, therefore, no default in payment as asserted in the s57 notices" (J186). 75 With respect to his Honour, the fallacy in the reasoning is that if failed to recognise that the s57 Notices, though dated 10 May 1991, were not served until 13 May 1991. On this basis, they would not have been premature unless the notice of demand posted on 10 April 1991 was received by Enijar on or after 13 May 1991. This is most unlikely. Ms Notaras was never in a position to prove it and never suggested otherwise to Mr Mathas or in her evidence at trial. The Bank had the presumption of regularity in its favour (see McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835, Dawson v Westpac Banking Corporation (1991) 104 ALR 295 at 304-5). The onus would have been on the appellants in July 1992 to establish that the s57 Notices were defective because they were premature. The vital facts were always missing. 76 There is nothing in the scheme of s57 that prevents the statutory Notice from operating, if so intended, from its date of service; or that gives overriding effect to the date on which the Notice was signed. It could be argued that, by being dated 10 May 1991, the Notices asserted as existing on 10 May 1991 a default which did not exist on 10 May 1991, although it did exist on the date of service, namely 13 May 1991. In my opinion, there is no possibility that the mortgagor could have been misled or prejudiced by such an error, and such an error could not invalidate the Notices. 77 The appellants point to authorities that establish that the default notified and required to be remedied must exist in fact and be represented in substance in the Notice itself. These requirements were satisfied in the present case.

Section 58A 78 The issues as to the validity of the s57(2)(b) Notices fall away in any event if any application for an injunction to restrain the sale would have been met by invocation of s58A. There could be no negligence in failing to embark on doomed litigation, nothing of value would have been lost by reason of the solicitors' stance. 79 Sperling J held that there was no serious prospect that the Bank would have failed to answer any arguable case impugning the validity of the s57 Notices by recourse to s58A (J208-9). His reasons were:

198. The defendants say, however, that, even if there was an arguable case that the s57 notices were invalid, the Bank would have had an irrefragable counter-argument in reliance upon s58A of the statute. ... 199. On behalf of the plaintiffs, it was submitted that the Bank might not have invoked s58A. I disagree. There was no occasion for the Bank to review the efficacy of the s57 notices until Mr Mathas wrote to the Bank's solicitors, Abbott Tout, on 14 July 1992, the day before the auction for the Oxford Street property. I have to say that the objections specified in the letter were patently specious. They would have given rise to no concern. On the other hand, if the notices had been impugned on any seriously arguable ground, whether by correspondence or by application for an injunction, I do not doubt that the relevance of s58A would have been recognised by the Bank's legal advisers and that the section would have been invoked. 200. In the present case, cl 18.2 of the registered memorandum incorporated in the mortgages provided as follows: 18.2 Upon the occurrence of an Event of Default, the Mortgagee may in its absolute discretion and at any time and from time to time and without giving any notice to the Mortgagor, do all or any one or more of the following in such manner as the Mortgagee shall think fit:- 18.2.1 sell the mortgaged premises …

Clause 18.1 specified the following events of default: 18.1.4 (Insolvency) The Mortgagor and/or the Customer is Insolvent: … 18.1.8 (Diminution of value) If in the reasonable opinion of the Mortgagee the realisable value of the mortgaged premises is materially diminished for any reason…

The definition of "insolvent" in cl 1.1 of the memoranda of mortgage included: (b) in respect of a corporation, any corporation that enters into or resolves to enter into a scheme of arrangement or assignment for the benefit of its creditors; that a liquidator, provisional liquidator, official manager, Receiver or similar officer is appointed in respect thereof or its assets; that an application for an order is made to the Court for the appointment of such a person; that resolves or gives notice of its intention to wind itself up (other than for the purpose of reconstruction or amalgamation on the terms approved by the Mortgagee); that is unable to pay its debts when they fall due or is deemed to be unable to pay its debts within the meaning of the Code, or ceases to or attempts to cease to carry on business. 201. As at mid-1992, the relevant authorities included Isherwood v Butler Pollnow Pty Limited (1986) 6 NSWLR 363. In that case, the deed of charge included the following clause: F. That notwithstanding that a receiver may or may not have been appointed as aforesaid the mortgagee shall have the right at any time after the moneys hereby secured have become payable without any consent on the part of the mortgagor and without the necessity for any demand or notice to exercise all or any of the powers authorities and discretions conferred on the receiver by these presents. ...

It was held by a majority (McHugh JA with whom Glass JA agreed) that the clause effectively dispensed with the statutory requirement of notice subject to proof of a specified event or default which did not involve non-payment. In R J Wood Pty Limited v Sherlock (Davies J, Federal Court of Australia, 18 March 1988, unreported) the clause in that case did not involve non-payment but it lacked a phrase of dispensation similar to the phrase "without the necessity for any demand or notice" such as was present in Isherwood. The clause was therefore ineffective to dispense with the need for a s57 notice. In Abalcheck Pty Limited v Pullen (Hodgson J, 26 June 1990, unreported), Isherwood was applied.

202. There is no material difference between the phrase used in cl 18.2 in the present case, "without giving any notice to the Mortgagor", and the phrase used in the relevant clause in Isherwood , "without the necessity of any demand or notice" or in Abalcheck , "without giving any notice". The clause in the present case is effective to dispense with the need for notice in the event of a default not in involving non-payment. 203. The Bank's own clause came under consideration in Topfelt Pty Limited v State Bank of New South Wales (1993) 4 BPR 13,209. Sheller JA, with whom Priestley and Cripps JJA agreed, held the clause to be effective. That does not aid the defendants in the present case because the case was decided, both at first instance and on appeal, after the time when any application would have been made in the present case. However, in favour of the present plaintiffs, it should be noted that a further point emerged in Topfelt , namely, whether the phrase in cl 18.2, "in its absolute discretion", required proof that the Bank had given consideration to whether or not to rely on the particular event of default. That construction was rejected (at 13,216). I see no prospect that the point would have been held to be seriously arguable on an application for an interlocutory injunction in 1992. 204. Having regard to the state of the authorities at the relevant time, it was, in my view, as good as certain that, if the point had been taken against the Bank that cl 18.2 was not framed to dispense with notice pursuant to s57(2) upon proof of a specified event of default (not involving non-payment), that argument would have failed. 205. The Bank had a strong case available to it that there were two specified events of default (not involving non-payment) which satisfied the requirements of 58A. These were insolvency (cl 18.1.4) and diminution in value (cl 18.1.8)…. 206. As to insolvency, it was by no means certain that the appointment of Ferrier Hodgson as the Bank's agents as mortgagee in possession was the appointment of a "Receiver or similar officer" within the meaning of the definition of "insolvent" in cl 1.1. In the context, it was reasonably arguable that "Receiver or similar officer" was limited to some kind of statutory officer. However, that Enijar was insolvent in the ordinary sense of being "unable to pay its debts when they fell due" was incontrovertible on evidence readily available from the Bank's own records and from documents readily obtainable under a straightforward notice to produce. Enijar's only asset was 17 Oxford Street and its only income was rent from that property. In 1992, the only tenant was an antique dealer on the ground floor. The rent was $5k per month. The rest of the building was vacant and in need of repair and maintenance. (See Mr Marsh's valuation report dated 1 July 1992.) Enijar's rental income for the year ended 30 June 1992 was only $32,541 according to its tax return. The company had defaulted under the commercial bill facility in July 1990. It now owed over $4m to the Bank on overdraft account, on which interest was continuing to accrue. Nothing had been paid off the overdraft account out of Enijar's own resources following the default in relation to the commercial bill facility in July 1990. A closer examination of Enijar's finances would only have served to confirm that the company was insolvent. That was Mr Gower's unchallenged evidence in the present proceedings. 207. There was also a strong prima facie case to be made by the Bank that the mortgaged premises, Oxford Street and Bourke Street, had diminished in value, an event of default under cl 18.1.8. In May 1989, when the commercial bill facility was established, the Bank recorded that value at a total of $5.3m. In January-February 1992, Baillieu Knight Frank valued the properties for the Bank at a total of $3.6m. As at July 1992 (before the auction sale), Colliers valued the properties at a total of $2.65m. In view of the severe downturn in the property market since 1989, it is very likely that Mr Marsh's valuations for Ms Notaras at a total of $5.2m in early July 1992 would have been rejected as unrealistic even on an interlocutory hearing. And even Mr Marsh's July 1992 valuation of Bourke Street at $2.7m was less than the price paid for the property in 1989, $3.15m. However, I cannot say with certainty that a court would have held, on an application for interlocutory relief, that there was no serious issue about diminution in value of the mortgaged properties in view of Mr Marsh's valuations. But that would have left insolvency as an unquestionable event of default, which avoided the need for a s57 notice. 80 The appellants seek to confront these conclusions by submitting that the judge erred in finding (1) that there was no serious prospect that the Bank would have failed to answer any arguable case impugning the validity of the s57 Notices by recourse to s58A (J208); and (2) that the relevance of s58A would have been recognised by the Bank's legal advisers who would have invoked the right conferred by that section (J199). 81 Ms Notaras' Mortgage over 17 Oxford Street (Blue 9/1748) secured the Customer's (ie Enijar's) liability to the Bank. The Mortgage incorporated the covenants in a standard Memorandum (Blue 4/788). The key terms of that Memorandum are recorded in J200, set out above. 82 This Court's 1993 decision in Topfelt, cited at J203, establishes the application of s58A to the very clause in question. There is, in my view, no reason to think that this proposition was ever seriously in doubt. Clause 18.2 of the Memorandum is pellucid in its invocation of the right conferred by s58A. 83 In any event, for what it is worth, there were compelling indications to like effect in the caselaw extant as at July 1992, as Sperling J points out at J201. Having regard to the state of the authorities in 1992, his Honour held that it was "as good as certain" that if the s57(2) point had been taken, that argument would have failed because of s58A (J204). I agree. Clause 18.2 with its reference to exercise of rights "without giving notice to the Mortgagor" appears to have been drawn with s58A in direct contemplation. Clause 18.2 was not materially different from the provisions upheld by the Court of Appeal in Isherwood v Butler Pollnow Pty Ltd (1986) 6 NSWLR 363 and by Hodgson J in Abalcheck Pty Ltd v Pullen, 26 June 1990 unreported. 84 The appellants placed considerable reliance upon the reasoning of Giles J in Farrow Mortgage Services Pty Ltd v Ragata Developments Pty Ltd (1993) 32 NSWLR 333. Although the case was decided after July 1992 it was said to be a pointer to difficulties that the Bank would have encountered in 1992 if it had invoked s58A. However, the clauses in the Farrow mortgage were decidedly ambiguous as to intent to invoke the right conferred by s58A. The mortgagee was empowered to exercise its power of sale without the necessity of giving notice to the mortgagor, but there was an express saving in relation to notice "as may be required by the [Real Property Act or Conveyancing Act] or otherwise" and of notice "as is required by law". These provisions were seen by Giles J to distinguish the mortgage from that addressed by the Court of Appeal in Isherwood and by Hodgson J in Abalcheck. Giles J correctly interpreted Isherwood as establishing that it was not essential for there to be express recitation of s57 of the Real Property Act or s111 of the Conveyancing Act for the relevant provision to be displaced. What was needed was a relatively clear agreement that the protection had been bargained away. In my opinion, the instant provision did so. Sperling J was correct to hold that there was no seriously arguable ground for contending otherwise. 85 Sperling J also held that Enijar's "insolvency" (as defined) was "incontrovertible on evidence readily available from the Bank's own records and from documents readily obtainable under a straightforward notice to produce" (see J206, where further compelling reasons are stated). I agree with and adopt those findings. Additional material was identified by Mr Davies SC during the hearing (CA Tr pp114-123). See especially the letter from Ms Notaras' accountant, Mr Feros (CB 70) and Mr Mathas' letter to Ms Notaras of 8 July 1992, set out below (CB 176). 86 Senior counsel for the appellants referred the Court to Commissioner of State Revenue of Victoria v The Roy Morgan Research Centre Pty Ltd (1997) 24 ACSR 73, submitting that insolvency based on inability to pay debts may be difficult to prove at short notice in an interlocutory proceeding. This is true, but in the present case the Bank had potential evidence. After all, substantial default had continued unabated for over a year despite many efforts by Ms Notaras and her financial advisers to refloat Enijar and refinance its debt to the Bank. Enijar had no assets other than the empty Hotel that was badly in need of repairs. Enijar was also in default under the arrangement made with Ferrier Hodgson permitting continued occupation subject to payment of a small monthly occupation fee. Ms Notaras had given no indication that she was ready, willing or able to bail out her company, at least not unless the Bank yielded to her demand to write-off a significant part of the undisputed portion of the debt. 87 In any event, the appellants face this dilemma: if they contend that Mr Mathas should have approached the court five to seven days before the auction date, then they must accept that the Bank would have had a few days to mount its defence. There was a wealth of material pointing to insolvency in the Bank files, not to mention that which could have been called for under subpoena. If on the other hand, as is more likely, the putative application were made on the afternoon of 14 July, then the applicants and their legal advisers would have been duty bound to make full disclosure to the court of any relevant facts and, in circumstances where there was known to be a statutory provision that could count against the grant of relief, that statutory provision. Enijar's solvency was relevant, both as to the s58A issue and as to the issues of utility and delay that were uppermost in Mr Mathas' mind. The letter of advice of 8 July 1992 (set out below) is the clearest evidence of the fact that Ms Notaras and Mr Mathas knew that Enijar was insolvent at the relevant time. Thus Mr Mathas would have been duty bound to disclose that Enijar was at least probably insolvent, and also, if he adverted to it, the relevance of s58A. 88 The appellants' further response to the findings of the trial judge on the s58A issues is more in the nature of a plea by way of confession and avoidance. In the Amended Outline of Submissions it is contended (Orange 11): There was no evidence that the Bank had considered whether it could invoke Section 58A. On the available evidence it was most unlikely that the Bank would risk selling other than under the powers given to it by serving valid Section 57(2)(b) notices, which it had seen fit to issue. It had also issued a Section 460 notice against Enijar, suggesting it did not believe that it could establish insolvency otherwise. In any event, the determination of the issue of insolvency would not have been amenable to a summary hearing. The decision of the Court of Appeal in Topfelt Pty Limited v State Bank of NSW (1993) 4 BPR 13209, had not been decided in July 1992 and the true construction of clause 18.2 would have presented an arguable case in an interlocutory hearing. It was most unlikely that the Bank would have taken the point, which was only raised on the last full day of addresses in Sly & Weigall's submissions. Of the 5 folders of documents tendered by the Respondents as Exhibit D, largely comprised of the Bank's documents, there was nothing to indicate that the Section 58A point was considered by the Bank or its solicitors. (Exhibit D Volume 2 pages 167, 329, Volume 3 pages 54, 62 and 141). In defending subsequent proceedings brought by Enijar alleging a wrongful sale, the point was not pleaded.

89 These submissions should be rejected. 90 Most of the appellants' arguments on this matter are uncompelling speculation. 91 The Bank resisted the appellants' inadequate settlement overtures in the run-up to the auction. There was a most substantial default that had not sprung up overnight. The Bank had ready access to legal advice and its mettle is clearly displayed in the letter of 14 July refusing to stop the auction. There is no reason to think that the Bank was ignorant about its own mortgage documents or their (clear) legal effect. 92 The proposition that the Bank's issuance of a demand under s460 of the Corporations Law (Blue 11/2245) suggested that it did not believe that it could establish insolvency otherwise is, with respect, ludicrous. It ignores the well-known function of such a demand. 93 It is unnecessary to determine the respondents' contention point invoking an alternative act of default. Clause 18.1.8 of the Mortgage Memorandum included as an act of default: (Diminution of Value) if in the reasonable opinion of the Mortgagee the realisable value of the mortgaged premises is materially diminished for any reason.

Sperling J's reasoning at J207 correctly emphasises the wealth of information in the Bank's hand that documented the steady drop in value of the properties, while stopping short of finding that there was no arguable factual case on the diminution ground. There is much force in the respondents' contention that this reasoning gave no weight to the words "in the reasonable opinion of the Mortgagee" in the defined act of default. 94 I doubt that it was necessary to go the next step and consider whether the Bank would have invoked s58A had it been necessary to do so. The fact that it could have done so illustrates both that nothing of value was lost and that the appellants' solicitors were not negligent in their inaction. 95 In any event, I agree with the primary judge that the Bank would have reached for this readily available shield if it had been taken to court. There was no cause for the Bank to consider invoking s58A in the matter at hand, because its bluff was never called. No challenge to the validity of the s57(2)(b) Notices was launched. Accordingly, it was well open to infer that any application for an injunction would have been (successfully) defended on this basis.

Was Mr Mathas' negligent? 96 Mr Nunnerly was Ms Notaras' principal financial advisor in June-July 1992. He appeared to have contacts within the upper echelons of the Bank's recovery section. Throughout July he spoke on a number of occasions on Ms Notaras' behalf with Mr Dodd, Head of Recoveries, Group Asset Management. Mr Mathas was not involved in these discussions or consulted about them. Ms Notaras kept her legal and financial affairs in separate compartments except when she wanted to use the lawyer as the vehicle for an offer. More often than not she or Mr Nunnerly dealt directly with the Bank even on this front. 97 Mr Mathas first became involved on 6 July 1992 after Enijar had been served with a Notice pursuant to s460 of the Corporations Law. This exposed the company to winding up on the ground of insolvency within 3 weeks. 98 On 7 July 1992 Mr Nunnerly called Mr Mathas on Ms Notaras' behalf (CB 169). He told the solicitor that Enijar's indebtedness was in excess of $4.6m of which $500,000 was in dispute. 99 Mr Mathas met Ms Notaras and Mr Nunnerly the next day. They considered the s460 Notice and other matters, including the fact that the Bank had appointed agents as mortgagee in possession in November 1991. 100 Later on 8 July Mr Mathas provided Ms Notaras with written advice (CB 176). He proposed sending a letter to the Bank's solicitor that disputed "the amount set out in the Section 460 Notice or any other amount" and that sought particulars relating to the overdraft account. It is quite clear from the advice that this was perceived to be no more than a stalling tactic. That advice includes the following (emphasis added): As discussed with our Mr Mathas, we have some considerable doubts concerning whether it will be effectively possible for you to oppose any application by the State Bank to wind up Enijar. This is because your summary of the financial circumstances relating to Enijar disclose that Enijar is probably quite insolvent . You have advised us that Enijar's principal asset is the "Kingsgate Hotel". You have received a recent valuation of the Kingsgate Hotel which indicates that the Hotel is valued at approximately $2m. You have also indicated to us that a number of offers have been made for the purchase of the Kingsgate Hotel but that none of those offers exceeded the amount of that valuation. You have also instructed us that the principal debt of Enijar is the amount claimed by the State Bank (about $4.6m although you dispute at least $500,000 of this). Even on a valuation of $3m for the Kingsgate Hotel, the outstanding debt to the State Bank which is not disputed is $4m (a difference of 30%). It would be difficult to argue that, in these circumstances, Enijar is "… able to pay its debts as and when they fall due" . This is particularly the case since the debt to the State Bank is now due and payable (and has been for some considerable time) and the Kingsgate Hotel cannot readily be realised so as to meet that liability . In these circumstances it would be possible to suggest that Enijar could meet its obligation to the State Bank by borrowing funds based upon the security of the Kingsgate Hotel. However, you have indicated to us that your recent attempts to refinance the Kingsgate Hotel will not lead to Enijar obtaining sufficient funds to discharge the State Bank debt . In these circumstances, you wish to obtain a negotiating advantage by 'buying time' from the State Bank. Whilst this is certainly possible, it does not take away from the end result that the State Bank is likely to be successful in any application to wind up Enijar.

There was an abundance of evidence to show the accuracy of this gloomy assessment of Enijar's solvency and of the significant drop in value of the Kingsgate Hotel land since its purchase by Enijar. This passage of the advice is also significant testimony to the solicitor's genuine perception of the difficulties likely to be encountered on the issue of utility of injunctive relief and in the likely event that payment into court of the undisputed portion of the mortgage debt was required. 101 On Friday 9 July 1992, in the course of a telephone conversation, Ms Notaras raised with Mr Mathas the possibility of obtaining an injunction to stop the sale of Oxford Street. Mr Mathas told her that it was too late to apply and that there was no merit in such an application (CB 184). In this conversation Ms Notaras told Mr Mathas that she wanted to make an offer to the Bank and that she would get a figure to him. 102 Later on 10 July 1992 Mr Notaras instructed Mr Mathas to make an offer of $2.6m. She again raised the possibility of an injunction. Mr Mathas' file note of his advice was: I don't think that this will be possible. Cannot show good reason for letting the matter go so far as it has gone. Very expensive. Would need to give an undertaking as to damages.

103 Mr Mathas faxed the Bank offering $2.6m in full and final settlement of all claims, the offer being open for acceptance until 5pm on 13 July 1992 (CB 186). The Bank rejected that offer, having already notified Mr Nunnerly on 9 July that it was not bluffed by the (untenable) suggestion that Ms Notaras would not be liable on the personal covenants of her mortgage. Mr Dodd told Mr Nunnerly that a better offer would have to come forward if the sales were to be avoided (CB 197). He suggested that Ms Notaras consider making a cash contribution and offering additional security. 104 It is worth recording at this stage that Ms Notaras owned several Eastern suburbs properties in her name or held by companies under her control (J48-50). They were not all encumbered, and Ms Notaras seems to have been very reluctant to contemplate selling or losing any one of them. These observations have dual relevance. They demonstrate that any action against Ms Notaras on the personal covenant in her Mortgage or any undertaking as to damages as the price of interlocutory relief would have had real impact, a matter to be taken into account by a prudent advising solicitor. And (if one generously assumed readily realisable equity in those properties) they show Ms Notaras to have been willing to play poker with the Bank in a hard-nosed attempt to push a favourable settlement. This latter observation is not a personal criticism. But it needs to be emphasised that Ms Notaras did not involve Mr Mathas in the financial aspects of her settlement strategies and her game of poker with the Bank. 105 On Monday 13 July Mr Nunnerly rang Mr Dodd to say that the alternative settlement offer discussed between Mr Nunnerly and Mr Dodd the previous Friday was not accepted by Ms Notaras. Another offer, perhaps in the $3m range, would be submitted later that day. Mr Dodd's file note reads: We can await the next offer, but if $3.0 million is as far as Mrs Notaras is prepared to go, my present inclination is to decline, sell off our securities and pursue Mrs Notaras under the personal covenants in the third party mortgage.

A later Dodd file note of apparently 13 July reads: David Nunnerley telephoned from Sly & Weigall's offices (Mrs Notaras was there also) to seek an indication from us about what would be an acceptable compromise for the Bank to settle the dispute. I told David that under no circumstances, would I agree to that request [and] that it was up to Mrs Notaras through him, to put an offer to the Bank. For our part, we will give the offer every consideration, but for obvious reasons we are not going to establish bench marks which may or may not be close to what Mrs Notaras has in mind. In any event, Mrs Notaras has other property assets and I am not prepared to close off my options against those interests (despite David's views about the effectiveness of the personal covenants in the third party mortgage) by nominating a possible settlement figure. If Mrs Notaras does not submit an amended offer (this is her right) and in the absence of injunction action, the auction of the security premises will proceed on Wednesday.

106 Ms Notaras faxed the Bank on 13 July indicating her willingness to go to $2.9m (CB 196). The officer's handwritten note on the fax confirmed the Bank's intention to reject the proposal and observed that injunction proceedings were expected. 107 Ms Notaras again raised the question of an injunction with Mr Mathas on 13 July 1992. She sent him a fax stating (CB 189): Mitchell,

We feel we should take out an injunction order against the sale of No 17 Oxford St, Paddington vol 5570 Fol 12 listed for auction on Wed. 15th July.

We need time to negotiate with the State Bank on a settlement. We were unable to do this earlier as we have only just received confirmation of acceptance of our loan application.

We were unable to take out action before because we didn't have the funds. Even though the State Bank and Ferrier Hodgsons were well aware of the fact that acceptance was imminent.

We anticipate that the settlement can be arrived at within the next two to three weeks and we ask for an injunction for one month. We own the property and have a D.A. and H.A. on same and are anxious to settle the matter with the Bank. We are now in a position to do this and ask for the added time to do so. Shall phone you re this and caveat. (see enclosed faxes) 108 The "confirmation of acceptance of our loan application" refers to Howard Funds Management's conditional offer of finance up to $3m received by Ms Notaras on Friday 10 July. That offer was subject to valuation and not to exceed 65% of Howard's yet to be obtained valuation of Moncur Street and 60% of their yet to be obtained valuation of Bourke Street (J116). It was also subject to Ms Notaras paying an acceptance fee of $7.5k. In truth, Ms Notaras did not tender that fee until 17 July (J123) and on about 22 July Howard indicated it would not proceed in relation to Bourke Street because it did not meet their lending parameters (J144). No alternative finance was raised on Bourke Street in the months that followed. 109 The "enclosed faxes" and the reference to a caveat refer to caveats that Mr Newman had lodged on 8 May 1992, having previously advised Ms Notaras that they would serve no purpose. Mr Mathas confirmed the accuracy of this advice on 13 July (CB 200). 110 At Mr Mathas' request, Ms Notaras faxed him the s57 Notices that had been served the previous year. Later that day, Mr Mathas spoke by telephone with Mr Nunnerly, who again raised the question of an injunction. Mr Mathas told Mr Nunnerly that he could not see any way that an injunction would work and that, apart from anything else, the time taken to make the application would almost certainly be fatal to any injunction application (J126). 111 On the morning of 14 July, Ms Notaras telephoned Mr Mathas. She requested him to send a letter to the Bank complaining about the Notices (with reference to the amount claimed) and threatening to obtain an injunction. [The dispute about the amount related to the penalty interest debited by the Bank: it was always recognised by Ms Notaras and her advisers that about $4m was undoubtedly owing.] Mr Mathas told her that the chance of getting an injunction was so slim that the threat would only be a bluff. He said that the delay since the s57 Notices had been received would probably mean that any injunction application would fail. He told her that there was no time to seek an injunction before the auction set for the following day and that, if an attempt was to be made to do so, it would be necessary to come up with evidence of a good explanation for the delay (J127). Sperling J observed (J128): The advice that there was no time to seek an injunction was not correct, but there were his [Mathas'] other reasons for advising against making the application and for refusing to do so.

112 At about 11am on 14 July, Mr Mathas sent a letter to the Bank's solicitors taking various points about the validity of the Notices, calling for an undertaking to stop the auction by noon that day, and reserving the right to move for an injunction if it was not forthcoming (CB 211). Sperling J considered the objections to be patently specious (J199). None were pressed in this Court. Abbott Tout responded at about 3pm, after a telephone call intimating instructions to "take a running jump" (CB 216B). No undertaking was given. On the contrary, there was a detailed refutation of all of the arguments as to validity that had been raised by Mr Mathas (CB 214). This response only confirmed Mr Mathas' dim view of prospects. 113 The Bank's response came to Mr Mathas' attention while he was speaking to Ms Notaras on the telephone. He confirmed his previous advice, saying that she could not obtain an injunction and that she had no choice other than to keep negotiating with the Bank. 114 The claim of negligence against Mr Mathas also covers his continued inaction down to the date on which Bourke Street was sold by auction, ie 12 August 1992. In truth, nothing further happened in this period to change the situation in the appellants' favour. Things really moved in the opposite direction, because Howard Funds Management withdrew its offer of finance qua Oxford Street on 22 July and Ms Notaras did not pursue her limited capacity to borrow some of the needed funds on the security of Moncur Street. The problem of delay had been exacerbated by failure to move to prevent the first auction. 115 On 29 July Mr Mathas gave Ms Notaras a detailed letter of advice discussing three possible claims. It included (CB 228): (3) A claim that the State Bank is not entitled to exercise a power of sale of the property at 17 Oxford Street. As previously discussed, at this late stage, we do not consider that such a claim would, ultimately, succeed. The reason is the delay in challenging the validity of the Notices under section 57(2)(b) of the Real Property Act which was served in May last year until the time of the challenge (the week before the auction in July this year) will prove almost impossible to overcome unless there was some exceptional reason for the delay. It is apparent from the above that the possible claims open to you are likely to be extremely difficult to make out. Further, unless you have the finance necessary to pay the $3.3million within three weeks of the alleged agreement, it will be impossible for you to make claim (1) at all. In this case, you should instruct us to withdraw the caveat so as to avoid a claim for loss by the State Bank directly against you. However, each of the claims may provide you with some negotiating power as against the State Bank. If you wish us to commence proceedings on your behalf, we will require you to provide us with sufficient funds to enable the litigation to be commenced. Given the nature of the dispute and our work to date, we require $8,000. However, if the matter were to be fully litigated, your likely legal costs would be far greater than this amount. Even if you do not wish to commence proceedings, we cannot perform further work on your behalf until we have funds on account.

116 Mr Nunnerly rang Mr Mathas on 31 July and informed him that Ms Notaras was having trouble in finalising her finance, but she was continuing to attend to the matter and was hopeful that it would be resolved shortly (CB 230-1). 117 On the eve of the second auction Ms Notaras contacted Mr Mathas and told him that she was still unable to obtain refinance. She again raised the question of an injunction. Mr Mathas advised that the 15 months delay could not properly be answered and recommended against an injunction (J121). 118 The thrust of Mr Mathas' advice is clear enough on the face of the contemporary records. He was aware of no genuine ground for attacking the validity of the s57 Notices and he believed that a court would in its discretion withhold urgent injunctive relief where nothing had been done to challenge the Notices since they had been served in May of the previous year. He also believed that the technical points raised as to the validity of the Notices were without substance. 119 On my assessment, matters never reached the point of a categorical instruction to apply to the court regardless of prospects. It is likely that Mr Mathas would have refused to do so given his understanding that things were hopeless. After all, the cab rank rule did not apply to him, and he owed a duty to the court not to be party to an abuse of process. 120 I have not overlooked the fact that the trial judge's interpretation of the primary facts was that Mr Mathas was instructed to apply for an injunction (J251-2). The "instruction" and the advice rejecting it that the client reluctantly went along with must be viewed in context if there is to be a just examination of the true negligence issue that was fought at trial. To my mind, it is clear that Ms Notaras made it as plain as could be that she wished to get an injunction to put the Bank on the back foot if she was unable to reach an accommodation in the days leading up to the auction. It is equally clear that she received and (reluctantly) accepted Mr Mathas' strong advice that there was no point in doing so (see, eg Black 458, 467). 121 Another part of the context in which the advice was given is that Ms Notaras never involved her solicitor in the commercial aspects of the transaction. She never suggested to him that she may have had the means to pay into court or secure the Bank's demand as the price of a temporary injunction. The case was never fought on the basis that Mr Mathas knew or ought to have known of this possibility. And it was never proved that she had these means, in the form of available cash. Furthermore, Mr Mathas was never made privy to the auction-day negotiations with the Bank, or to the truth or otherwise of Ms Notaras' willingness and/or capacity to make good any of the last-minute financial proposals being considered by herself and Mr Nunnerly. This was all in the camp of Ms Notaras and Mr Nunnerly, who dealt directly with prospective financiers and negotiated directly with the Bank, save in relation to the $2.6m offer that Mr Mathas put, as instructed, on 10 July. 122 The reasonableness of Mr Mathas' advice is to be judged by reference to the scope of his retainer and the information that he had at hand. 123 There is evidence of a telephone conversation between Mr Mathas and a solicitor at Abbott Tout which either brought to his attention or shows that he was already aware of the prematurity point (see CB 216B). Abbott Tout firmly rebuffed the point in its letter of 14 July 1992 that refused to give an undertaking to stop the auction (CB 214). Relevantly, that letter stated: Demand was made in the Section 57(2)(b) Notice for the full outstanding debt as a Notice of Demand had been served on all borrowers, security providers and guarantors associated with the borrowing by mail on 10 April 1991. It is noted that you acknowledge receipt of a copy of that Notice from your client. It might be noted that the s57(2)(b) was served personally upon Mrs Notaras at a meeting at the Bank held on 13 May 1991. Upon our instructions therefore, the s57(2)(b) Notice was not served (however it may have been dated) until such time as your client had failed to meet the demand…. 124 I have already indicated my agreement with this defence of the Notices. 125 Mr Mathas was cross-examined at some length as to his reasons for giving the advice that he did. His evidence tends strongly to confirm the soundness of his advice, both as to the matters addressed in his mind and the correctness of his firm prediction as to the likely outcome of injunction proceedings. 126 Mr Mathas said that he interpreted Ms Notaras' facsimile of 13 July (CB 189) as falling short of an instruction to apply for an injunction. He read it as an expression of desire on her behalf to reconsider the injunction issue which had been briefly discussed, although not the subject of instructions, the week before. He took it that she wanted him to be more serious about his consideration of it, and for that reason he asked for copies of the s57 Notices to be made available to him (Black 1087). I agree with this reading of the facsimile. 127 Mr Mathas considered whether the Notices complied with the formalities of s57 (Black 1090). He also considered the antecedent notice of demand dated 10 April and adverted to the issue that flowered into the prematurity point. He observed that the notice required payment within 30 days of its service and he was instructed, he seemed to recall, that service had been effected by post (Black 1091). [Bank records proved this was the case.] It was established that Ms Notaras had no record or recollection in July 1992 as to the date of receipt of the notice that was both dated and posted on 10 April 1991. I have already indicated why the form of the s57 Notice spelt doom for the prematurity point in light of these facts. 128 Mr Mathas also elaborated on his concern about the delay factor. He had invited his client to explain why she had sat on her hands and done nothing to challenge the s57 Notices. Nothing was forthcoming. In particular, there was no suggestion that the Bank had said or done anything to indicate that it waived its rights in this regard (Black 1095, 1106, 1116). Ms Notaras appears not to have told Mr Mathas about Mr Newman's retainer or the advice given by Mr Strasser (Black 1096-7), not that this would have assisted her in the present context. 129 Sperling J found that there was no evidence in the present proceedings that the Bank had represented to the appellants that it would not sell the properties in reliance on the Notices or that the appellants acted to their detriment in reliance upon any such representation. There was, accordingly, no prospect of supporting a challenge to the Bank's power to sell as and when they did on the ground of estoppel (J196). For what it is worth, nothing that Ms Notaras told Mr Mathas in July 1992 suggested otherwise (see Black 1106). 130 Senior counsel for the appellants submitted that Mr Mathas had formed an early and fixed determination that there was simply no point in going to court for an injunction and that this effectively coloured any consideration of the prospects of relying on the prematurity point. It was never suggested the Mr Mathas had acted in bad faith. Furthermore, he credibly denied the closed-mind proposition in cross-examination (Black 1106, 1112, 1115). For example, he gave the following evidence (at 1112): Q. Is it fair to say that you had a mindset at that time that you wouldn't be able to get an injunction. A. I had an opinion, based upon the instructions which I had been given, that an injunction would fail because it was based on a technical construction of the document and at the same time it was brought extremely late in the piece, so late, and yet no explanation, despite the fact that I had raised the question of delay on a number of occasions with my client and she at no stage told me any reason for the delay other than a bald statement of "We've had difficulties in getting information from them". 131 This evidence neatly summarises most of his case and shows that he turned his mind to all relevant issues, reaching a conclusion that was in my view not only reasonably open but correct. 132 In my opinion, Mr Mathas' advice was sound (a fortiori reasonable) because there was never more than a negligible chance of getting an interlocutory injunction in the week preceding 15 July 1992. The prospect was even dimmer on the eve of the auction which was the time when the groundwork for an injunction had been laid through the demand and refusal of the undertaking to stop the auction. 133 There were four broad difficulties for the appellants, being difficulties that combined to render prospects of success so negligible as to border on abuse of process . These were:-

(i) the problems with the prematurity point; (ii) the availability of s58A; (iii) the massive unexplained delay; and (iv) the futility of approaching the court without a demonstrable capacity to tender or secure or at least re-finance the $4m undoubtedly due under the Mortgage. 134 The third and fourth points require brief elaboration. 135 The problem of delay was always uppermost in Mr Mathas' thinking, and with good reason. The Notices had been outstanding since May 1991 and the Bank had always been careful to ensure that its subsequent willingness to entertain proposals from the appellants did not constitute any waiver of its rights (J196. See, eg CB63). The appellants had had access to legal advice from the time when instructions for sale were first given, ie March 1992. They had chosen to continue negotiating with the Bank in the twin hopes of raising finance and driving a hard bargain. There was no available explanation for a late application (J226) and delay was a powerful reason for rejecting what was at most a thin application for interlocutory relief (cf Websdale at 581-2). 136 The only suggested answer to the delay problem raised in this Court was the submission that Ms Notaras was never told that late advice as to an arguable case about invalidity of the Notices might excuse her from not having moved earlier while she attempted to raise finance. Neither solicitor advised her that payment into court would not usually be required if there was a genuine issue as to the power of sale being exercisable at all. 137 However, this argument really leads back to the other difficulties with the appellants' putative case for an injunction in July 1992. The weaker that case, the more significant the negative impact of unexplained delay. 138 The futility issue as it presented itself to Mr Mathas' turned on the pointlessness of approaching the court, late, for an interlocutory injunction with no (arguable) ground for impugning the Notices and no capacity to secure, let alone pay into court, the undisputed portion of the mortgage debt which then stood at about $4m. Ms Notaras never instructed Mr Mathas that she was willing or able to proffer this sum as the price for delaying the auction. On the contrary, such limited information as she gave Mr Mathas before the first auction and between the two auctions, was always to the effect that finance had not been obtained. Actions spoke louder than words, and the truth of the matter was that Ms Notaras was unable to come up with even the undisputed part of the Bank debt between mid 1991 and the end of 1992, despite strenuous efforts. This went beyond the problem of satisfying the normal requirement of interlocutory relief in such matters. Indeed, it is at this stage that the appellants' clear lack of funds supports the trial judge's conclusions that nothing of value was lost even if negligence had been established. 139 On 15 July 1992 the Bank may have been willing to accept an offer of $3.3m in full settlement if Ms Notaras could establish her capacity to complete the deal within a matter of weeks. But she never had this capacity. The Bank was certainly not willing to rewrite its debt and continue with this most uncooperative customer who had exhausted its patience with her litany of broken promises. 140 The failure to this day to show that the appellants ever had the capacity to borrow enough to make an acceptable offer to the Bank in July-August 1992 means that Sperling J was correct in concluding that there was not more than a negligible prospect that, if an injunction had been obtained, the sale of the properties by the Bank would have been avoided (J244). I agree with his Honour's conclusion (at J247) that the appellants lost nothing of value for want of an injunction. 141 From Mr Mathas' perspective, these problems would have been a further nail in the coffin. He was retained to give legal advice, not false optimism. His duty to the court restricted him from being party to a time-wasting futility. If, contrary to my view, some tenable point could have been advanced to suggest an arguable case that the Bank did not have a present power of sale, then a prudent solicitor would still appreciate that an interlocutory injunction could be withheld in the discretion of the court having regard to the court's assessment as to prospects coupled with the patent difficulties stemming from delay and futility. 142 In this Court, the appellants endeavoured to demonstrate that the properties available to Ms Notaras in 1992 had a value and/or income stream that enabled her to bargain with the Bank (CA Tr pp65-8). The arguments have some attraction on paper and were, as always, attractively presented by Mr Douglas QC. But the reality is that Ms Notaras and her skilled financial advisers in 1992 were unable to persuade any lender in the market throughout 1991-1992. 143 Faced with a last-ditch application for an injunction, the Bank would have been entitled to inform the court (if the applicants' solicitor had not already done so pursuant to his duty of disclosure) of the long history of defaults, broken promises to supply information and proposals that never came to fruition for the re-financing of the debt. The Bank would also be in a strong position to demonstrate the insolvency of Enijar given its long-standing default, the absence of income-generating assets and its inability even to meet the arrangements to pay the small occupation fee. 144 In short, it was not negligent for Mr Mathas to give advice to the effect that he declined to be party to what he concluded (reasonably) to be tantamount to an abuse of process (cf Giannarelli v Wraith (1988) 165 CLR 543 at 556, 572-3).

Were Newman Psaltis & Co negligent? 145 The claim against this firm was rejected so comprehensively at trial that it should not have been persisted with on appeal. 146 Newman Psaltis can invoke the findings referable to Mr Mathas, but their position is much stronger. 147 Allegations against Newman Psaltis that the firm had been negligent in failing to gather relevant documentation, in the briefing of Mr Strasser, and in failing to block the Bourke Street sale by caveat, were not pressed or were abandoned in final addresses at first instance. The claim maintained was that Newman Psaltis (effectively Mr Newman) was negligent in failing to commence proceedings for an injunction. 148 Mr Newman was never instructed to commence proceedings. Indeed, he was not even told about the auction until after it had happened. Ms Notaras did not even have the courtesy to let him know that his retainer was at an end (Black 231-2). She certainly chose to have nothing to do with his firm in the relevant period after mid June. Instead she went to Sly & Weigall and relied on Mr Mathas exclusively during the critical period (Black 213). 149 Sperling J's findings of primary fact referable to the period of the Newman Psaltis retainer (J88-116) were not challenged on appeal. 150 Mr Newman knew that the appellants wanted to stop the Bank selling the Oxford Street and Bourke Street properties. In these circumstances, it was (as Sperling J pointed out at J88) immaterial whether or not he was handed the s57 Notices. It would have been his duty to acquaint himself with the main documents touching the Bank's present capacity to exercise its power of sale. 151 It is not so clear that Mr Newman was apprised of information that did or ought to have put him on notice of the possibility of attacking the validity of the Notices by invoking the prematurity point. This issue was not explored at trial, so far as concerned Mr Newman. I shall nevertheless assume this matter in the appellants' favour. The problem for the appellants is that, if Mr Newman had turned his mind to the prematurity point, he would (acting reasonably) have dismissed it out of hand. 152 Mr Newman met with representatives of the Bank and Ferrier Hodgson on 12 March 1992. A proposal to postpone enforcement action was rebuffed peremptorily. The Bank's response was that unless Enijar's borrowings were refinanced at $4.1m forthwith Ferrier Hodgson would be instructed to commence marketing immediately. 153 Mr Newman briefed Mr Strasser to advise as to the prospects of obtaining an injunction. Both lawyers knew of Ms Notaras' complaint as to overcharging of penalty interest (a complaint that left approximately $4m undisputed). 154 Mr Strasser's advice, adopted by Mr Newman, was that nothing should be done to seek an injunction unless the appellants were armed with an unconditional offer of finance. Absent any flaw in the s57 Notices, this was sound advice from a legal point of view in light of the authorities (see eg Harvey v McWatters (1948) 49 SR(NSW) 173, Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 164,169). 155 Ms Notaras accepted this advice and renewed her efforts to obtain alternative finance. None of those efforts came close to fruition in the period March-June 1992 (see Black 214, J102-3, 220). As with Mr Mathas, Ms Notaras did not involve Mr Newman in her hunt for finance. She sometimes informed Mr Newman of what was happening, but the news was all bad during the period of Newman Psaltis's effective retainer. 156 Ms Notaras knew that Mr Strasser stood ready to move the court for an injunction when and if finance became available and instructions to proceed were given. An affidavit was drafted in readiness. But Newman Psaltis were never instructed to apply for an injunction (J97). 157 The Strasser/Newman advice was eminently reasonable. It is certainly the case that nothing of value was lost in the circumstances. 158 The auction date of 15 July 1992 was set on about 12 May 1992 and the appellants' financial adviser was promptly notified (J102). There was a flurry of activity on the financial front between mid-June and mid-July 1992 (J105-116). The first positive, but conditional, financial proposals were received on 6 and 7 July 1992 (J221-4). None came to fruition in time to stop the auction of 15 July, but the presently significant matter is that none were even communicated to Mr Newman (Black 213). 159 By early July 1992 Ms Notaras' favoured financial adviser was Mr Nunnerly. He recommended that she retain Sly & Weigall in her dealings with the Bank in place of Newman Psaltis & Co and, on her instructions, he contacted Sly & Weigall on 7 July 1992. But Ms Notaras had ceased to regard Newman Psaltis as her solicitor by mid-June 1992. On 18 June 1992 Mr Newman wrote to Ms Notaras noting that he was still awaiting confirmation from her that a loan from Realinvestment Ptc Ltd was proceeding and enclosing a memorandum of fees (CB 138). The letter was entirely ignored despite the fact that the Realinvestment proposal had been turned down in early May (Black 207-8, 232). Ms Notaras did not even inform Mr Newman that an auction date had been set. He learnt of the auction after the sale had taken place (J117). There is no evidence that he was kept abreast of any developments during June 1992 (J106). 160 In these circumstances it is totally unreasonable to suggest that Newman Psaltis should be held accountable for anything that happened from mid-June 1992 onwards. The faint submission that there was a duty to commence proceedings in the absence of instructions, and the further submission that such duty continued from day to day during this period is quite untenable. 161 The case against Newman Psaltis was always doomed for two additional reasons. First, I agree with the primary judge who held (J249): Mr Newman adopted Ms Strasser's advice that there was no serious prospect of obtaining an injunction without an unconditional offer of finance. Mr Boyce, solicitor, who gave opinion evidence as an expert witness, said that for Mr Newman to have relied on counsel's advice in the circumstances of this case was appropriate. I agree. 162 Secondly, there was simply no point in rushing off to court with some point about the validity of the s57 Notices at a time when any problem could have been solved by the Bank issuing fresh notices. A fresh notice served on or before 14 June would have cleared away any possible legal obstacle to the auction on 15 July. 163 For these reasons, the appeal against Newman Psaltis & Co should be dismissed with indemnity costs.

Miscellaneous contention points 164 In the upshot, it has become unnecessary to address all of the contention points raised by the respondents. These included arguments that:

• The appellants were required to prove the probability that an interlocutory injunction would have been granted.

• Enijar was "insolvent" because a "Receiver" as defined in cl 1.1 of the memorandum had been appointed. This provision appears not to have been drawn to the trial judge's attention and appears to answer the judge's concern at J206 that the expression might be confined to some kind of statutory officer. However, the appellants' answer to it (that also need not be addressed) was that Ferrier Hodgson & Co were appointed as "agents" and not as receivers and/or managers.

• Demand was unnecessary in April 1991 to call up the debit balance of the overdraft account. The respondents contend that it was not required because (a) the retiring of the bill facility sum into the overdraft account did not represent any waiver of the Bank's rights, consequent upon the earlier undoubted default in that facility, and (b) the overdraft account was repayable on 31 August 1990 according to its terms (CB 50). • The Bank could have and would have claimed entitlement to sell because the realisable value of the mortgaged premises had materially diminished in the Bank's reasonable opinion.

The costs appeal 165 Indemnity costs were awarded on various grounds, some of which are challenged unsuccessfully in the substantive appeal. 166 One of the grounds on which the indemnity costs orders were based, independently of the others, was the manner in which the appellants had conducted the trial proceedings (Red 182-3). In his second judgment relating to costs Sperling J said: Parties must be allowed to supplement their case by amendment. Counsel must be free to abandon claims upon further consideration. However, where the over-all effect of the conduct of the proceedings is that substantial time is taken up and substantial expense is incurred in relation to claims which are unsustainable, the consequence may be an order for costs on an indemnity basis. In the present case, the prosecution of claims which were later abandoned by the plaintiffs because they could not be sustained caused unreasonable expense and unnecessarily protracted the proceedings to an extent that an order for costs on an indemnity basis should be made on this ground as well as on the ground of no real prospect of success. 167 The appellants have challenged the costs order in various respects (Orange 26), but their failure to grapple with this aspect of his Honour's reasoning, being reasoning clearly open to the judge, means that the challenge to the costs order should also be rejected.

Disposition 168 Accordingly, each appeal should be dismissed with costs. In the case of the appeal against Newman Psaltis & Co the appeal costs are to be paid on an indemnity basis. 169 HODGSON JA: I agree with Mason P. 170 MATHEWS AJA: I agree with Mason P.

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