Plaintiff v Defendants

Supreme Court of Victoria|2015-04-30|Before: Lansdowne AsJ

NEGLIGENCE - Solicitor found liable in earlier trial for failing to inform his client on her entering into guarantees that a promised security had not been provided - Assessment of damages referred to an associate judge - Client claims the subsequent loss of her security properties - Whether causation established in the earlier trial - Whether that loss was caused by the solicitor's negligence - Application of the Wrongs Act 1958 (Vic) - Factual causation - Negligent omission - No transaction counterfactual - Plaintiff must show that not entering the transaction would have prevented the loss, not just that it may have - Factual causation not proved - Scope of liability - Not proved that it would be appropriate to extend the solicitor's liability to the loss claimed.

ASSESSMENT OF DAMAGES FOR NEGLIGENCE - Deduction of pre-existing liability from quantum - Nominal damages for breach of retainer - Wrongs Act 1958 (Vic), s 51.

1 The trial concerns the assessment of damages suffered by the plaintiff, Mrs Polyxeni Kambouris (also known as Jenny Kambouris), arising from three breaches of duty by the second defendant, Mr Con Kiatos, her solicitor. A liability trial was conducted on an undefended basis before Judd J in March and May 2013. On my analysis of his judgment, His Honour found that the second defendant 'breached his duty of care' to the plaintiff on three occasions, by failing to advise her in October 2006, November 2006 and May 2007 that she was not protected, as she had believed, by an indemnity agreement executed by that solicitor's wife, Ms Anna Papakostas, and a mortgage granted by Ms Papakostas over a property at Loch Sport.[1] On 24 May 2013, his Honour gave judgment for the plaintiff against the second defendant with damages to be assessed, and referred the assessment of damages to an associate judge pursuant to r 77.05 of the Supreme Court (General Civil Procedure) Rules 2005. The trial of the assessment of damages was subsequently listed to proceed on two occasions, 14 March 2014 and 22 September 2014. The trial was vacated on the first occasion because the plaintiff was not ready. The trial was vacated on the second occasion due to the unavailability of an associate judge.

2 It was, until closing submissions in this trial, common ground that causation had not been determined by Judd J and fell to be determined in this trial. In other words, I would be required to determine first whether the loss the plaintiff claimed was caused by the breaches of duty as found by Judd J, and then, if causation was proved, the quantum of that loss. In closing submissions, lead counsel for the plaintiff submitted that Judd J had already determined causation. For the reasons that I will elaborate shortly, I do not consider that correct. I consider that it was necessary for me to determine in this trial whether there was the necessary causal connection between the losses claimed by the plaintiff and the breaches of duty found by Judd J. I have concluded that the plaintiff has failed to prove that factual causation, as required by s 51(1)(a) of the Wrongs Act (Vic) 1958 ('Wrongs Act' or 'the Act') in respect of any of the claimed loss.

3 If I am wrong in that regard, I also consider that the plaintiff has failed to prove that, pursuant to s 51(1)(b) of the Act, it is appropriate for the scope of the second defendant's liability to extend to the harm he caused, again in respect of any of the categories of claimed loss.

4 For these reasons, with the exception of a proposed award for nominal damages for the breaches of retainer by Mr Kiatos, I will give judgment for the second defendant. I will make some brief findings in relation to quantum should I be held to be in error in respect of both s 51(1)(a) and s 51 (1)(b) of the Act.

5 This trial was factually dense, but much of the factual background is established by uncontroverted documentary evidence or the second defendant's Notice to Admit, which was largely undisputed. Other facts were determined by the judgment of Judd J. The only witnesses who gave evidence of the facts were the plaintiff and her husband, Mr Theodoros Kambouris (also known as Theo Kambouris). Mr Kiatos was not called, and there were no witnesses as to the background facts called in his case. Expert evidence was tendered by consent without cross examination. I set out below an outline of these facts, and some elements of the evidence. I will discuss the significance of these matters later in the judgment.

6 The plaintiff is the wife of Mr Kambouris, who is a builder now of over forty years' experience. Until 2000 he engaged in that work either as an individual or through family owned corporate entities. In about 2001[2] he commenced a property development joint venture with two other individuals, Mr Bill Floros and Mr Con Kiatos, the second defendant. Judd J found that, broadly speaking, it was agreed between them that Mr Kambouris would provide construction services, Mr Kiatos, who was a solicitor, legal and bookkeeping services, and Mr Floros finance. The joint venture was undertaken through two corporate entities, BTC Developments Pty Ltd (so called because of the first initials of each of the joint venturer's first names) ('BTC') and Betac Investments Pty Ltd ('Betac'). BTC had a business cheque account with the National Australia Bank ('NAB') from at least July 2002, which became active in September 2002 [3], and a mortgage account from at least May 2004.[4]

7 Mr Kambouris and his wife, the plaintiff, had a pre-existing relationship with the NAB. A corporate entity of which they were directors and shareholders, T & P Kambouris Nominees Pty Ltd as trustee for the T & P Kambouris Family Trust ('Kambouris Nominees'), had a loan account with the NAB. The plaintiff and her husband jointly and severally guaranteed the obligations of Kambouris Nominees to the NAB in May 2001.[5] The NAB also held from 1998 mortgages over three properties, 103 The Boulevard, Loch Sport ('The Boulevard'), and Units 1 and 2, 70 Gove St, Springvale ('Gove St units'). Initially The Boulevard was owned by Kambouris Nominees. In 2003, the property was transferred to the plaintiff, but remained subject to a registered mortgage to the NAB. The registered proprietors of the Gove St units were at all times the plaintiff and Mr Kambouris, although they contend that Mr Kambouris transferred his interests in both units to the plaintiff in 1997 by a transfer which states it is made pursuant to a Deed of Gift dated 21 April 1997.[6] That transfer was never registered.

8 It is agreed that the NAB mortgages over these properties were all monies mortgages. Accordingly, they secured monies owed to the NAB by the registered proprietors, ultimately the plaintiff and Mr Kambouris, arising from any source.

9 Initially the joint venture continued the sort of residential development in which Mr Kambouris had previously been engaged. In either late 2004 or early 2005 the joint venturers decided to undertake commercial work, for which they required more funds.[7] BTC obtained funds from the NAB in April 2005 with a basic facility limit of up to $684,000 by way of mortgage account and business cheque account.[8] The plaintiff (together with her husband, Mr Floros and Betac) (together 'the BTC guarantors') jointly and severally guaranteed the obligations of BTC to the NAB, including those arising from the mortgage account and business cheque account, to a basic liability of $684,000, by a guarantee and indemnity dated 20 April 2005 ('first BTC guarantee').[9]

10 In June 2005, BTC obtained further lines of credit from the NAB, being an overdraft with a limit of $400,000, a bank guarantee facility with a limit of $260,000 and a mortgage facility of $234,000.[10] The BTC guarantors signed a further guarantee and indemnity in respect of the liabilities of BTC to the NAB in the increased sum of $894,000 ('second BTC guarantee').[11] The plaintiff gave evidence in the liability trial before Judd J that she first met Mr Kiatos in 2005, although she did not give a date in that year.

11 Mr Floros signed an agreement dated 4 July 2005 between himself, the plaintiff and BTC which recorded that the plaintiff required comfort from Mr Floros in consideration of allowing her properties to be security for the activities of BTC and Mr Floros. The agreement obliged Mr Floros to charge his property in East Bentleigh in favour of the plaintiff.[12]

12 A similar agreement was prepared around the same time for signature by Ms Papakostas, who as earlier noted was the wife of Mr Kiatos, in respect of her property at Loch Sport, but was never signed by Ms Papakostas.[13] Notwithstanding that he knew that his wife had not signed the agreement, Mr Kiatos instructed another solicitor, Ms Ella Gorenstein, to lodge a caveat over the Papakostas Loch Sport property, and she did so.[14]

13 Mr Kambouris says that he first learnt that the Papakostas agreement had not been signed and no mortgage had been given by her in August 2007.[15] The plaintiff could not recall when she first learnt of this fact, but the implication from her evidence in chief is that it was not before she first learnt that 'there were problems with the bank' which was in late 2007.[16] Together with Mr Floros and Betac, Mr Kambouris and the plaintiff signed further guarantees and indemnities for the liabilities of BTC to the NAB in increased sums on 6 October 2005 (up to $930,000)[17] ('third BTC guarantee') 11 October 2005 (up to $947,000)[18] ('fourth BTC guarantee') and 7 May 2006 (also $947,000)[19] ('fifth BTC guarantee').

14 In the meantime, from late 2005 BTC began to experience financial difficulties.[20] By mid-2006, Mr Kambouris formed the view that unless something was done to save the business, BTC would most probably go into liquidation.[21] A historical company search for BTC shows that an application was made to wind up BTC on 5 May 2006, which was subsequently dismissed on 28 June 2006. A further application to wind up BTC was made on 17 October 2006. An administrator was appointed to BTC effective on 13 December 2006.[22]

15 Mr Kambouris' evidence is that he, Mr Floros and Mr Kiatos agreed that existing BTC contracts and properties owned by BTC would be transferred to Betac, and funding for Betac be sought from the NAB. In other proceedings, he has contended on oath that Betac was then to conduct business solely on account of him and his family.[23] By contrast, Mr Kambouris' evidence in this trial is that the intention of the joint venturers was that Betac was to appear to the outside world, including creditors of BTC and the liquidator of BTC, as a different entity to BTC,[24] but, in reality, the joint venture business was to continue through Betac.[25] He now says on oath that when he gave evidence on oath to the contrary earlier, he was 'maintaining a lie'.[26]

16 For the refinancing to proceed, the NAB would require the plaintiff to guarantee the monies advanced to Betac. The guarantee would in turn be supported by the existing mortgages over The Boulevard, and the Gove St units. The plaintiff gave evidence before Judd J that she expressed concern to her husband as to how the changeover from one entity to another would affect the security that she had been given by the mortgages (from Mr Floros, and she assumed, Ms Papakostas). She said that she was telephoned by her husband in October 2006, who was then at the offices of an accountant, with Mr Kiatos and Mr Floros, and he put Mr Kiatos on the telephone. She said she asked Mr Kiatos 'how this new arrangement they were planning to put in place would affect me' and he said that 'I would still be totally legally protected as, you know, with the agreement and the two mortgages'.[27]

17 She gave evidence before Judd J that she met Mr Kiatos on two further occasions, one on 22 November 2006 and the second on 22 May 2007, when Mr Kiatos signed solicitor's certificates in respect of advice given to her as her solicitor in conjunction with advances to Betac. She did not recall specifically what he said to her on those occasions, but it was to the effect that she remained protected by the Floros and Papakostas mortgages.[28]

18 On 22 November 2006 Betac obtained a funding facility with the NAB to the extent of $852,500.[29] The plaintiff, her husband and their son, Mr Jonathan Kambouris ('Jonathan'), gave guarantees and indemnities to the NAB in respect of the advances to Betac each in the amount of $852,500, on the same date, 22 November 2006 ('first Betac guarantee').[30] Mr Kiatos certified on that document that as the solicitor for the plaintiff he had explained the effect of the guarantee and indemnity to her.

19 A portion of the funds advanced to Betac was used to pay out the BTC accounts with the NAB, which were closed on 30 November 2006. The amount required to pay them out was $651,846.12.[31] This indebtedness had of course been secured by the earlier guarantees given by the plaintiff and her husband, and so by the mortgages over The Boulevard and the Gove St units. Those mortgages also secured the indebtedness of Kambouris Nominees, which was in the order of $199,000 in November 2006.[32] Thus, when she signed the first guarantee in respect of Betac, the potential liability that the plaintiff undertook was in the same order as her existing actual total liabilities to the NAB, and about $200,000 more than her pre-existing actual liability in respect of the joint venture.

20 Further lines of credit were obtained from the NAB in April 2007[33] to enable Betac to purchase further properties for development. On 10 April 2007 the plaintiff, her husband and their son entered into a further guarantee and indemnity for the obligations of Betac to the sum of $1,260,000 ('second Betac guarantee').[34] Mr Kiatos did not witness the signature of the plaintiff or give any certificate as her solicitor on this document. He did do so, however, on a guarantee and indemnity that the plaintiff signed on 22 May 2007 ('third Betac guarantee'), in which she, her husband and their son guaranteed the liabilities of Betac to the NAB in the slightly reduced sum of $1,250,000.[35]

21 Mr Kambouris collected the file relating to the Papakostas caveat from Ms Gorenstein on 3 August 2007.[36] As noted, his evidence is that this is when he first became aware that there was no mortgage signed by Ms Papakostas in favour of the plaintiff to support the caveat. Mr Kambouris said in evidence that he raised this with Mr Kiatos at that time and Mr Kiatos admitted that his wife had not signed the agreement and that there was no mortgage in place. Mr Kambouris said that Mr Kiatos asked him not to sue him and gave him assurances that he, Mr Kiatos, would 'fix it ... and provide the funds'.[37]

22 Emails sent by Mr Kambouris in late November and early December 2007 to Mr Kiatos and Mr Floros contain content that appears to assume that both mortgages exist i.e. both Floros and Papakostas mortgages are in place or registrable.[38] Notwithstanding these emails, I find on the basis of Mr Kambouris' oral evidence as to his discussion with Mr Kiatos after he obtained the file from Ms Gorenstein, that he, Mr Kambouris, was aware from early August 2007 that there was no signed agreement or mortgage from Ms Papakostas. There is no evidence as to whether, or when, he told the plaintiff of this fact.

23 On 19 and 20 September 2007 the plaintiff, her husband and their son signed a further guarantee and indemnity of the liabilities of Betac to the NAB in the increased amount of $1,677,517 ('fourth Betac guarantee').[39] Mr Kambouris and Jonathan Kambouris signed the guarantee on 19 September 2007, and the plaintiff on 20 September 2007. Mr Kiatos did not sign the guarantee as a witness for the plaintiff, or as her solicitor. Mrs Kambouris signed the guarantee before a bank officer. A peculiarity of the document, not explored in evidence, is that the plaintiff declares in it that she attended the offices of Mr Kiatos in March 2006 to obtain advice in relation to her rights and obligations under that guarantee.

24 The plaintiff, her husband and their son Jonathan signed a further guarantee and indemnity in respect of the Betac facilities in the same amount i.e. $1,677,517, on 18 and 19 February 2008[40] ('fifth Betac guarantee'), Jonathan and Mr Kambouris on 18 February 2008 and the plaintiff on 19 February 2008. The plaintiff signed the fifth Betac guarantee before a bank officer, Caroline Roberts. There is no solicitor certificate. Ms Roberts certified that the plaintiff appeared to understand the nature and effect of the guarantee and added the notation 'Has signed guarantee within last 5 years'.

25 Ultimately, Betac went into liquidation on 3 December 2008.[41] This was an event of default under the Betac facilities, and triggered demands on the Betac guarantors, including the plaintiff, in respect of the various Betac liabilities to the NAB. The NAB made demands in writing dated 6 February 2009, which sought a total sum of $1,290,522.00 in respect of Betac liabilities as at 30 January 2009.[42] The letters of demand in evidence are solely in respect of Betac liabilities. Mr Kambouris agreed in evidence that the bank also demanded repayment of the indebtedness of Kambouris Nominees, [43] at that time in the order of $190,000.[44]

26 The plaintiff commenced this proceeding on 24 December 2007, initially against Mr Floros only, seeking possession of the property mortgaged by him to her pursuant to the agreement dated 4 July 2005. Mr Floros died on 8 January 2009. Initially Mr Christos Floros was substituted for Mr Floros as his personal representative. Subsequently, by order made 25 June 2010, Mr Theo Tahmazis was substituted for Mr Floros as the personal representative of his estate. The plaintiff was given leave to join Mr Kiatos and Ms Gorenstein as defendants to the proceeding by order made 12 February 2010.

27 By that time, the NAB had commenced recovery proceedings against the plaintiff (in respect of The Boulevard) and against her and her husband (in respect of the Gove St units, they both still being the registered proprietors thereof), in both cases relying on the 1998 mortgages. Those proceedings were commenced on 19 January 2010. Neither the demands or the writs recite the source of the liability secured by the mortgages, but it is common ground that the relevant Betac liability was the fifth Betac guarantee, signed by the plaintiff and Mr Kambouris (and their son Jonathan) in February 2008.

28 In respect of the Gove St units, the NAB obtained judgment in default of appearance against Mr Kambouris on 21 April 2010 and judgment against the plaintiff on a successful application for summary judgment on 14 December 2010.[45] Mr Kambouris acknowledged in evidence that he knew that the general denial defence filed by the plaintiff on 7 May 2010[46] on his instructions was a 'weak defence' and the purpose was to gain time to negotiate with the bank.[47]

29 In respect of The Boulevard, Mrs Kambouris filed a substantive amended defence. She alleged in her amended defence filed 19 September 2011[48], amongst other things, that her signature to the February 2008 guarantee was obtained in circumstances that were oppressive and/or unconscionable, because the NAB knew that it was her husband, not she, who had knowledge of the financial affairs of Betac; and that the NAB failed to fully inform her of the nature of the debt being secured and did not inform her that the security she was providing extended to The Boulevard, as well as the Gove St units. She also alleged that the NAB and Kambouris Nominees had agreed in 1998 to release The Boulevard from the mortgage, but the NAB had failed to do so. Mrs Kambouris gave sworn evidence to the effect of these contentions in her affidavit sworn 15 November 2010[49] filed in that proceeding in opposition to an application for summary judgment. In her evidence in this trial, she conceded that she knew at the time she swore that affidavit that it was false to state, as she did, that The Boulevard property was not intended to be available as security for her husband's businesses. She said she swore the affidavit containing those false statements on the basis of legal advice.[50] Mr Kambouris also conceded in his evidence in this trial that he had the substantial conduct of that proceeding for the plaintiff, and knew that her defence was 'very weak'.[51]

30 The NAB sold the Gove St units as mortgagee in possession on 20 August 2011.[52] The NAB also sold as mortgagee in possession one of the Betac development properties, 2/650 Warrigal Rd, Oakleigh in May 2012.[53] On 18 June 2012, the plaintiff and the NAB executed terms of settlement pursuant to which the plaintiff agreed to pay the NAB $450,000 in full and final satisfaction in respect of the plaintiff's exposure to the NAB in respect of both the indebtedness of Kambouris Nominees and Betac.[54] On the same date, consent orders were made that the NAB recover possession of The Boulevard.[55] By transfer dated 14 September 2012, the plaintiff transferred all her interest in The Boulevard to Serras Holdings Pty Ltd, a company owned by her daughter Natalie Kambouris and son Jonathan, and controlled by her daughter,[56] for a stated consideration of $580,000.[57] Mr Kambouris' evidence is that he negotiated a settlement of the NAB's remaining claim against the plaintiff for $450,000 which was funded by this sale.[58] There is no evidence as to whether or not the difference of $130,000 between this and the stated consideration of $580,000 was paid to the plaintiff.

31 The plaintiff settled her claim against Ms Gorenstein by Deed of Settlement dated 29 August 2012,[59] by which the plaintiff accepted $290,000 inclusive of costs in full settlement of her claim against Ms Gorenstein.

32 The trial against Mr Tahmazis and Mr Kiatos was due to commence on 20 March 2013. By order made 18 March 2013, Judd J ordered that the trial proceed on liability alone. It is recited in Other Matters that the plaintiff had informed the Court that she was not yet in a position to provide 'full particulars of loss and damage'.

33 After the commencement of the trial, the plaintiff compromised her claim against the estate of Mr Floros. She agreed to accept $200,000 in settlement of that claim, if paid within a certain time frame.[60] The plaintiff concedes that the quantum of her claim against Mr Kiatos is to be reduced by both this sum and the amount agreed with Ms Gorenstein.

34 Mr Kiatos initially personally participated in the trial to oppose the claim against him, but shortly prior to the resumption of the trial in May 2013 he withdrew his defence and sought and obtained leave to cease to act as solicitor in his own case. The plaintiff elected to proceed on evidence i.e. as an undefended trial as against Mr Kiatos, now represented by his professional indemnity insurer, rather than seeking default judgment on the averments in the statement of claim.

The plaintiff's claim before Judd J and in this trial

35 The plaintiff prosecuted the liability trial against Mr Kiatos before Judd J in accordance with a document dated 20 March 2013 and entitled 'Third Further Amended Statement of Claim (Filed pursuant to the Order of the Hon. Justice Judd and further amended on 20 March 2013) ('20 March 2013 Third FASOC'). This document was filed in the course of the trial before Judd J to conform the plaintiff's claim and the evidence adduced in support of it. This iteration of the statement of claim is on the file, although without a filing date endorsed on it. It did not appear in the Court Book prepared for this trial, which was prepared by the second defendant, but I determined early in the trial that that it was the iteration before Judd J.[61]

36 The plaintiff's claim against Mr Kiatos commenced at paragraph 38 and ran until paragraph 64. She made five allegations of 'breach of duty' against Mr Kiatos, as her solicitor.

37 The first allegation was that instructing Ms Gorenstein to lodge a caveat over the Papakostas property, when he knew that his wife had not signed the agreement or authorised the lodgement of the caveat, was a breach of his duty of care to the plaintiff. This is the event that occurred in July 2005.[62]

38 The second allegation made was that Mr Kiatos, as solicitor for the plaintiff, represented to her in October 2006 that the Floros mortgage and agreement and the Papakostas agreement would continue to secure the full amount which Floros and Papakostas had agreed to contribute to the plaintiff if all amounts owing to the NAB under the BTC facilities were not repaid. This representation was said to have been made by Mr Kiatos on the telephone to the plaintiff in October 2006 from an accountant's offices, where Mr Kambouris, Mr Floros and the accountant Mr Nicktas were also present.[63]

39 The third allegation was that Mr Kiatos, as her solicitor, made the same representation to the plaintiff as above in respect of the Floros mortgage and agreement, and the Papakostas agreement, on 22 November 2006 at the time that he signed a solicitor's certificate for her 'in respect of the refinance leading to the repayment of the BTC facilities'.[64]

40 The fourth allegation of breach was in respect of a similar representation made by Mr Kiatos to the plaintiff as her solicitor in respect of further borrowings then being made by Betac in May 2007 at the time that he signed a solicitor's certificate for her 'in respect of such further borrowings'.[65]

41 In respect of the first allegation, duty, breach and loss was claimed. Breach of retainer was not expressly pleaded.

42 The second to fourth allegations were pleaded to arise expressly in negligence and in contract at paragraphs [50]-[51] (duty and breach in negligence), and in contract at paragraphs [52] (duty) and [53] (breach). These paragraphs related only to the representations made in October 2006, November 2006 and May 2007, and only in respect of failure to disclose that there was no proper security over the Papakostas property. Failure to disclose that there was no proper security over the Floros property was alleged only if the Court found that that security did not extend to the Betac liabilities, as the first defendant had contended.[66] No such finding was made, because the proceeding against the first defendant settled. Loss in negligence or contract in respect of these allegations was pleaded at [54].

43 The Third FASOC also contained until final submissions before Judd J a pleading in misleading or deceptive conduct in respect of the same representations that formed the basis of the negligence and breach of retainer claims made by allegations two to four. This claim was withdrawn in final submissions.[67]

44 The fifth allegation, confined to breach of retainer, was pleaded in respect of an alleged failure by Mr Kiatos in May 2007 to instruct counsel to draw certain documents to protect the position of the plaintiff and Mr Kambouris vis-a-vis the Papakostas and Floros agreements and mortgages.[68]

45 Judd J recited all these allegations in his judgment.[69] He found as a fact, in respect of the first, that the plaintiff 'gave her security to the bank in the belief that she was supported by an indemnity agreement and mortgage given by each of Mr Floros and Ms Papakostas.'[70] He did not, however, in terms make a finding of breach of duty of care in respect of this first allegation. On my analysis of his judgment, Judd J made express findings of breach in respect of the allegations relating to the representations made in October 2006, November 2006 and May 2007 only. In other words, he did not make a finding of breach in respect of either the first or the fifth allegations.

46 He set out his findings on breach in paragraphs 19-21 of his judgment as follows (emphasis added):

The evidence given by the plaintiff and her husband conforms generally with the allegation in the plaintiff's statement of claim that in around October 2006 and May 2007, Mr Kiatos represented to her that both mortgages continued to secure her position in respect of the borrowings by Betac. I am satisfied that Mr Kiatos was acting as the plaintiff's solicitor at the time he gave each of the certificates, with the knowledge that his wife had not in fact executed an agreement or given a mortgage. He was, at the very least, obliged to inform the plaintiff of that fact and alert her to the risk that she only had recourse to the property of Mr Floros. By failing to so inform the plaintiff, Mr Kiatos breached his duty of care, if only to make full disclosure of facts known to him and the associated risk.

When the bank ultimately called in the security, the plaintiff was unable to call upon the security she believed had been provided by Ms Papakostas. In my opinion, the plaintiff has suffered loss and damage by reason of the breach by Mr Kiatos, in failing to advise her in October 2006 and May 2007, when she was called upon to provide additional security to the bank, that she was not protected by an indemnity agreement executed by Ms Papakostas that would support the caveat, and a mortgage granted by Ms Papakostas over the Loch Sport property.

Accordingly, the plaintiff is entitled to judgment against the second defendant, Con Kiatos, with damages to be assessed.[71]

47 As the emphasised words show, these findings related at most to the certificates (November 2006 and May 2007) and failing to properly advise her in October 2006 (the telephone conversation). The findings were confined to failures to correctly advise in relation to the Papakostas mortgage, not the Floros mortgage.

48 At the time of the trial before Judd J there were no particulars of loss in any of the paragraphs of the 20 March 2013 Third FASOC, in particular in paragraph 54 which pleaded loss arising from breaches in negligence or retainer relating to the October 2006, November 2006 and May 2007 representations. It was accepted by both parties in this trial that causation was pleaded in respect of those representations at paragraph 49 of the 20 March 2013 Third FASOC. At the time of the trial before Judd J and until opening submissions in this trial, that paragraph read as follows:

Acting on the faith and truth of the Kiatos Representations and induced thereby the plaintiff did or refrained from doing the following things.

(i) agreed to provide the New NAB Guarantee and security over the Plaintiff's Properties as security for the Betac Facilities.

(ii) signed the New NAB Guarantee; further or in the alternative,

(b) the plaintiff would have sought and obtained from Floros a variation to the Floros Agreement and the Floros Mortgage so that they provided for Floros to indemnify the plaintiff in respect of her obligations to the NAB under the NAB Mortgages and the New NAB Guarantee in respect of the Betac Facilities and to charge the Floros Property with that liability;

(c) the plaintiff would have insisted upon due execution of the Papakostas Agreement and/or the provision of proper security over the Papakostas property. The plaintiff would then have sought and obtained from Anna Papakostas a variation to the Papakostas Agreement so that it provided for Anna Papakostas to indemnify the plaintiff in respect of her obligations to the NAB under the NAB Mortgages and the New NAB Guarantee in respect of the Betac Facilities and to charge the Papakostas Property with that liability.

49 It is apparent that paragraph 49(a) pleads a 'no transaction' case in causation i.e. that had the representations not been made, the plaintiff would not have entered into the first Betac guarantee in November 2006 or the third Betac guarantee in May 2007.[72] By contrast, paragraphs 49(b) and (c) (conceded to be collectively in the conjunctive and alternative to (a)), pleaded a 'different transaction' case. In other words, they asserted that had the plaintiff known that the Floros mortgage may not extend to Betac liabilities, she would have sought a variation to ensure that it did and had she known that the Papakostas agreement was not signed she would have insisted on execution of it or proper security for Betac liabilities.

50 Early in the trial before me, I ruled that the plaintiff must make an election in relation to these alternatives before evidence commenced. The plaintiff elected to proceed with the 'no transaction' case i.e. paragraph 49(a).

51 As noted earlier, at the time of the trial before Judd J there were no particulars of loss in the 20 March 2013 Third FASOC. After that trial, the plaintiff filed a document entitled Updated List of Damages to be Assessed dated 2 September 2013. This was amended on three further occasions. By the first amendment,[73] the plaintiff deleted (from her claim for loss) a claim for costs in this proceeding and a claim for lost revenue from properties sold by the NAB; quantified her claim for damages arising from the claimed loss of $100,000; and added claims for deposits on properties and damages for interest on that sum. By the second amendment[74], the plaintiff deleted a portion of the document[75] that I had ruled amounted to a submission. By the third amendment,[76] made in closing submissions, the plaintiff deleted the claim for deposits and interest thereon.

52 As a consequence of these amendments, and the election made in relation to causation, the plaintiff's claim for damages seeks, to 'place (herself) into the position that she would have occupied had the breach of duty or breach of retainer... not occurred'. The plaintiff asserts that 'had Kiatos not acted wrongly' (which was found by Judd J to have occurred in October 2006, November 2006 and May 2007) the Gove St units and The Boulevard properties 'would not have had to have been sold as the Floros and Papakostas mortgages would have covered any liability to (the NAB)'. The plaintiff seeks:

(a) the current value of those properties (claimed in the document to total $1,490,000;

(b) legal costs she incurred in defending the NAB recovery proceedings in the sum of $94,555.45;

(c) repayment of a sum of $100,000 that she claims she made to BTC when its liabilities were paid out in November 2006; and

(d) damages by way of interest on the sum of $100,000 quantified at $68,963.[77]

53 From these sums, the plaintiff concedes that the two settlement sums totalling $490,000 must be subtracted.

54 Although the claim for legal costs is said by the Amended Updated List of Damages to be Assessed filed 9 February 2015 to relate only to legal costs incurred in respect of the NAB recovery proceedings, the plaintiff also adduced evidence of other legal costs incurred in her name, including costs incurred in this proceeding, in respect of a proceeding commenced by Ms Papakostas against Betac,[78] and in respect of another proceeding against Mr Floros to remove caveats he had lodged over The Boulevard, 99-101 Warrigal Road, Hughesdale and 2/650 Warrigal Road Oakleigh.[79] The registered proprietor of 99-101 Warrigal Road and 2/650 Warrigal Road was Betac, and so it is unclear why the plaintiff would be liable for those legal costs in any event. There was no application made to further amend the claim for damages to encompass these costs and their relevance to the claim as made was not explained by counsel for the plaintiff. Accordingly, I disregard them.

55 The second defendant denies that his negligence, as found by Judd J, caused any loss to the plaintiff. The second defendant's case as put is confirmed in the defence filed after the conclusion of the trial on 4 March 2015 in accordance with order made by me in the trial. For completeness, I also note that the plaintiff filed a reply to this defence after the conclusion of the trial, which reply maintains the contention put in closing submissions that causation has already been determined by Judd J.

56 If the plaintiff is correct in this contention, or is able in this trial to establish causation, then the second defendant contends that the quantum of the claimed loss in respect of the Gove St units and The Boulevard should be significantly reduced, having regard to the plaintiff's pre-existing indebtedness prior to first occasion of breach in October 2006, or the indebtedness that would have remained if joint venture properties were sold first, and some other matters. In addition, in respect of the legal costs claim, the second defendant contends that the plaintiff has not proved that it was she, as opposed to her husband and children, who paid those costs. In relation to the claim for $100,000 and interest thereon, the second defendant contends that there is no evidence to show that this sum would have been repaid to her but for the negligence of Mr Kiatos.

57 In the second sentence of the penultimate paragraph of his judgment, quoted earlier in these reasons, Judd J commenced his conclusion in these words (emphasis added):

In my opinion, the plaintiff has suffered loss and damage by reason of the breach by Mr Kiatos, in failing to advise her in October 2006 and May 2007...

58 In her closing submissions, the plaintiff contended that this must be read as a finding on causation. In other words, the plaintiff was not required, in the trial before me, to show a causal link between the loss she claimed and the breaches found by Judd J. I do not consider this correct, for the following reasons.

59 First, this submission is entirely at odds with the way the plaintiff opened her case and the evidence that she called. In the written opening submissions prepared by her counsel, the plaintiff disputed the defendant's assertion that causation should be assessed as at 2006, and submitted that:

As Mrs Kambouris did not know until the end of 2007 that breach of duty/breach of retainer had occurred it is not until that date that any person would be in a position to prevent any damages which might have flowed in the interim to occur. It is at that time that one examines the events that will then occur and their causative relationship to the actions of Kiatos.[80] (emphasis added)

60 This written opening submission by the plaintiff responds to and does not dispute the assertion made by the second defendant in his written opening submission that causation had not yet been determined.[81] In addition, in discussion at the opening of the trial, there were repeated assertions by the second defendant and concessions by the plaintiff that causation was not determined in the earlier trial.[82] Further, the plaintiff made applications to call evidence from the plaintiff and further evidence from Mr Kambouris, notwithstanding that that evidence had not been foreshadowed in a witness outline. The evidence was said to be necessary in part because evidence on causation was required.[83] The plaintiff also made an election prior to the evidence to pursue paragraph 49(a) only.[84] Each of these actions of the plaintiff is entirely inconsistent with the submission made at the end of the trial that there was no need to establish causation, because it had already been found.

61 Finally, on leave being granted to do so, the plaintiff and Mr Kambouris both gave evidence to the effect that the plaintiff would not have signed the first and third Betac guarantees had she known the correct position in relation to the Papakostas mortgage. This evidence was unnecessary if it had already been found that the plaintiff would not have signed those guarantees but for the negligence of Mr Kiatos. In accordance with ordinary principles, the plaintiff should be bound by the case that she ran.

62 Lead counsel for the plaintiff submits that although that may be the usual approach, the difficulty is that a judgment has been given and must be given effect to. As loss is an element of a cause of action in negligence, a finding of liability in negligence requires a finding of loss, and so a finding of causal connection between the breach and the loss.

63 In my view, that submission fails because the judgment is equally capable of being supported by the cause of action in contract. In contract, as the second defendant correctly submits, nominal damages may be awarded for a breach which is not proved to have occasioned actual pecuniary loss.[85]

64 Secondly, to hold that Judd J determined causation at a time when no loss had been identified at all in the pleading or in the evidence before him would be a nonsense. In this regard, I accept the submission for the second defendant, that to determine causation one must, as a matter of logic, reason backward from the particular loss claimed. In other words, one cannot determine that a particular loss was occasioned, without knowing what that loss is said to be.

65 This is made manifest by the use of the words 'particular harm' in the causation provisions in the Wrongs Act, which I will shortly discuss, but as the High Court held in Wallace v Kam,[86] also applied to the determination of causation at common law. The Court there held that the first aspect of the determination of causation for the purpose of attributing legal responsibility is a 'question of historical fact as to how particular harm occurred'[87] (emphasis added). Here, the pleading did not identify even what would have occurred had the negligence been known, other than in the very broad terms of paragraph 49(a) or (b) and (c). Indeed, when submissions were put to him as to what might have occurred, but for the negligence, Judd J noted that this was speculation and queried if there was any such evidence.[88] Mr Colbran said in answer that there was evidence that the transfer to Betac would not have occurred, but scrutiny of the evidence of Mr Kambouris and the plaintiff in that trial[89] shows that there was no evidence as to what they would have done had they known that there was no Papakostas mortgage. It is plain from the discussion between then lead counsel for the plaintiff, Mr Colbran, and Judd J in closing submissions in the liability trial that both considered that causation, or least 'some causation issues' would arise in the damages trial.[90] I do not accept the plaintiff's submission[91] that this discussion related only to the withdrawal of the misleading and deceptive conduct claim.

66 Thirdly, there is an alternative interpretation of His Honour's use of the phrase 'has suffered loss and damage by reason of the breach'. That alternative interpretation is that the loss to which he there refers is the absence of the protection that would have been afforded by the indemnity agreement, as identified by him in the same paragraph. In other words, an increased exposure, the measure of which would have been at its highest the equity in the Papakostas property. As the second defendant correctly submits,[92] if this is what was found, this is a 'different transaction' case, before Judd J available to the plaintiff by virtue of paragraph 49(c), but abandoned in this trial. Accordingly, if the plaintiff is correct that causation has been determined, she has now elected not to pursue the case as found.

67 In fairness to the plaintiff, I do not consider that I should now conclude she has abandoned her case entirely by her election to pursue paragraph 49(a), as the interpretation set out above would require. I consider that now that the plaintiff has particularised the losses said to have been occasioned by the breaches by Mr Kiatos on the basis that she would not have signed the first or third Betac guarantees had she known there was no Papakostas mortgage, it falls to be determined in this trial whether the negligent omissions by Mr Kiatos in October and November 2006 and May 2007 in failing to advise her that there was no such mortgage caused those losses.

68 For completeness, I note that the plaintiff did seek at an early stage of the trial that I refer the whole of the damages issue back to Judd J, or adjourn the trial to allow certain questions (unidentified) to be put to him.[93] I refused those applications, for reasons given at the time, including that if the plaintiff considered that there was any question arising from the judgment of Judd J she had had ample opportunity to seek to raise that herself before His Honour, and had not done so. For current purposes I add only that the plaintiff did not at the time of those applications for referral or adjournment before me base them on any ambiguity as to whether or not causation had been established, and indeed, as noted above, at the time of her application for referral back to Judd J or adjournment did not cavil with the proposition advanced by the second defendant that causation fell to be determined in this trial. The questions proposed to be put to Judd J were not identified but were said to relate to whether the findings on breach extended to representations in relation to the adequacy of the security provided by Mr Floros, or were, as I had ruled, limited to the Papakostas mortgage.

Common law or the Wrongs Act?

69 The parties were not in agreement as to the legal principles to apply. The written opening submissions for the plaintiff assumed, and the written closing submissions for the plaintiff explicitly stated, that the principles to apply are those that apply to a negligence claim at common law.

70 The second defendant contends that the legal principles that are to be applied to determine the causation issue are set out in ss 51 and 52 of the Wrongs Act. Those sections provide as follows:

51 General Principles

(1) A determination that negligence caused particular harm comprises the following elements -

(a) that the negligence was a necessary condition of the occurrence of the harm (factual causation); and

(b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused (scope of liability).

(2) In determining in an appropriate case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be taken to establish factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.

(3) If it is relevant to the determination of factual causation to determine what the person who suffered harm (the injured person) would have done if the negligent person had not been negligent, the matter is to be determined subjectively in the light of all relevant circumstances.

(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.

52 Burden of proof

In determining liability for negligence, the plaintiff always bears the burden proving, on the balance of probabilities, any fact relevant to the issue of causation.

71 These provisions form part of Part X of the Act, which Part was inserted consequent on the Australia wide review of the law relating to negligence, the Ipp Report, following the collapse in 2001 of the insurer HIH Insurance Ltd. By s 44 of the Act, Part X applies 'to any claim for damages resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise'. By s 43, 'court' is defined to relevantly mean this Court in this trial, 'damages' includes any form of monetary compensation, and 'harm' includes economic loss. There are exclusions from the Part set out in s 45, but none of those apply. Parties can contract out of the application of the Part, by virtue of s 46, but that did not here occur.

72 I consider the second defendant's contention that these provisions, rather than common law principles, apply to this case, whether considered in negligence or contract, to be plainly correct. The plaintiff also accepted by the second day of oral closing submissions that it is the Wrongs Act that applies.[94] Section 47 of the Wrongs Act, also contained within Part X, provides that '(e)xcept as provided by this Part, this Part is not intended to affect the common law'. Lead counsel for the plaintiff, although ultimately accepting that it is the Act that here applies, placed some emphasis on this section to assert the continuing relevance of the common law authorities to which he took me.

73 The intention of the statutory test expressed in Victoria in s 51(1)(a) and in New South Wales in s 5D of the Civil Liability Act 2002 (NSW) and how it differs from common law principles has been considered by the High Court. In Adeels Palace Pty Ltd v Moubarak ('Adeels Palace')[95] the High Court held, in respect of the cognate provision in the New South Wales Civil Liability Act 2002, that dividing the issue of causation into factual causation and scope of liability as per s 51 of the Act:

...expresses the relevant questions in a way that may differ from what was said by Mason CJ, in March v E and MH Stramare Pty Ltd, to be the common law's approach to causation. The references in March v Stramare to causation being 'ultimately a matter of common sense' were evidently intended to disapprove the proposition that 'value judgment has, or should have, no part to play in resolving causation as an issue of fact'. By contrast, s 5D(1) (the NSW equivalent to s 51(1)) treats factual causation and scope of liability as separate and distinct issues.

It is not necessary to examine whether or to what extent the approach to causation described in March v Stramare might lead to a conclusion about factual causation different from the conclusion that should be reached by applying (the NSW cognate provision to s 51(1)(a)). It is sufficient to observe that, in cases where the Civil Liability Act or equivalent statutes are engaged, it is the applicable statutory provision that must be applied.[96]

74 In the more recent case of Wallace v Kam[97] the Court expanded on these comments. The Court explained the relationship between the common law test and the statutory test as follows (citations omitted):

The common law of negligence requires determination of causation for the purpose of attributing legal responsibility. Such a determination inevitably involves two questions: a question of historical fact as to how particular harm occurred; and a normative question as to whether legal responsibility for that particular harm occurring in that way should be attributed to a particular person. The distinct nature of those two questions has tended, by and large, to be overlooked in the articulation of the common law. In particular, the application of the first question, and the existence of the second, have been obscured by traditional expressions of causation for the purposes of the common law of negligence in the conclusory language of 'directness', 'reality', 'effectiveness' and 'proximity'.

Statute now requires that the two questions be kept distinct....

The distinction now drawn by s 5D(1) between factual causation and scope of liability should not be obscured by judicial glosses. A determination in accordance with s 5D(1)(a) that negligence was a necessary condition of the occurrence of harm is entirely factual, turning on proof by the plaintiff of relevant facts on the balance of probabilities in accordance with s 5E. A determination in accordance with s 5D(1)(b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused is entirely normative, turning in accordance with s 5D(4) on consideration by a court of (amongst other relevant things) whether or not, and if so why, responsibility for the harm should be imposed on the negligent party.

Thus, as Allsop P explained in the present case:

[T]he task involved in s 5D(1)(a) is the elucidation of the factual connection between the negligence (the relevant breach of the relevant duty) and the occurrence of the particular harm. That task should not incorporate policy or value judgments, whether referred to as 'proximate cause' or whether dictated by a rule that the factual enquiry should be limited by the relationship between the scope of the risk and what occurred. Such considerations naturally fall within the scope of liability analysis in s 5D(1)(b), if s 5D(1)(a) is satisfied, or in s 5D(2), if it is not.

75 The High Court held in Adeels Palace,[98] as followed in the subsequent cases of Strong v Woolworths Ltd[99] and Wallace v Kam, that the statutory factual causation test, which is to be applied rather than the common law approach, is a restatement of the 'but for' test. The Court stated it thus in Wallace v Kam:

The determination of factual causation in accordance with (the NSW cognate provision to s 51(1)(a)) involves nothing more or less than the application of a 'but for' test of causation. That is to say, a determination in accordance with (in Victoria s 51(1)(a)) that negligence was a necessary condition of the occurrence of harm is nothing more or less than a determination on the balance of probabilities that the harm that in fact occurred would not have occurred absent the negligence.[100]

76 In his written opening submissions for the plaintiff counsel contended, supported by reference to March v Stramare[101] and other authority that predates Part X of the Wrongs Act, that it is not appropriate to use a 'but for' test and that causation should be determined by the application of the criteria of 'common sense'.[102] Ultimately counsel for the plaintiff accepted that the statutory test in the Wrongs Act here applies, but continued to submit that, notwithstanding Wallace v Kam, the 'but for' test does not always apply, and this is an instance where it should not apply.[103] He was unable to identify any authority to support that proposition and I consider it incorrect in the light of the clear statements by the High Court. The common law may, however, be of some continuing assistance in relation to the determination of scope of liability pursuant to s 51 (1)(b).[104] I will return to this at a later point.

Factual causation in the case of a negligent omission

77 Judd J found that Mr Kiatos was negligent in that he failed to inform the plaintiff in October 2006 (in his telephone conversation with the plaintiff), in November 2006 (on giving his solicitor's certificate to support the first Betac guarantee) and in May 2007 (on giving his solicitor's certificate to support the third Betac guarantee) that his wife Ms Papakostas had not in fact executed an agreement to indemnify the plaintiff or given a mortgage. Thus the negligence so found was by way of negligent omission. How is the 'but for' test to be applied in the case of a negligent omission?

78 The second defendant relies on the Court of Appeal judgment in Wodonga Regional Health Service v Hopgood[105] in support of his proposition that in cases of negligent omission, the plaintiff must establish the causal link required by s 51(1)(a) by way of a counterfactual hypothesis. In that case, Maxwell P., with whom Buchanan and Harper JJ.A. agreed, held that '(w)hen- as here- a plaintiff alleges a negligent omission, the causal link between the breach of duty and the claimed damage can only be established by means of a counterfactual hypothesis'.[106] That case turned on common law principles, as an exception to the Act. However, it is clear from other cases of negligent omission that fell to be determined by the statutory scheme, here and in New South Wales, that the application of s 51(1)(a) and its interstate cognate provisions similarly require the consideration of a counterfactual in cases of negligent omission.[107]

79 The second defendant contends that in positing that counterfactual, the plaintiff must show that, had she taken the posited action, she would have prevented the loss of her properties. The second defendant contends that it is not sufficient for her to show merely that she may have done so. The plaintiff disputes this proposition.[108]

80 I consider the second defendant to be correct, on the basis of the High Court decision in Adeels Palace. In that case, the plaintiff had been injured in a shooting at licensed premises. The claimed negligence lay in failing to provide security staff. The High Court held that the statutory test for causation under the New South Wales equivalent of s 51(1)(a) was not satisfied if the plaintiff could show only that changing the surrounding circumstances might have made a difference.[109] What the plaintiff in that case had to show, and did not, is that it was more probable than not that, but for the absence of security personnel, the shootings would not have taken place. Unless that degree of connection was shown, on the balance of probabilities, the statutory test that the negligence was a necessary condition of the occurrence of the harm was not satisfied.[110]

81 The plaintiff says that rather than showing that her actions in the counterfactual would have prevented sale of her properties, she only has to show that it is appropriate that the scope of Mr Kiatos' negligence extend to that loss. The error in the plaintiff's reasoning on this point lies, in my view, in conflation of the scope of liability limb of s 51 with the factual causation limb, with which this portion of Adeels Palace was concerned.

82 Section 51(3) of the Act provides that the question as to what the person who suffered harm would have done if the negligent person had not been negligent 'is to be determined subjectively in the light of relevant circumstances'. At common law, courts in Australia are required to apply a subjective test in determining what a plaintiff would have done had she been properly advised. The test is not what a reasonable person in the plaintiff's position would have done, but what this particular plaintiff would have done.[111] The sub-section preserves the admissibility of subjective evidence as to what the plaintiff would have done.[112] The High Court has warned, however, of the inherent dangers in evidence given in hindsight after harm has occurred. In Rosenberg v Percival[113] a number of members of the Court addressed this issue. Gleeson CJ expressed it thus (footnotes omitted):

In the way in which litigation proceeds, the conduct of the parties is seen through the prism of hindsight. A foreseeable risk has eventuated, and harm has resulted. The particular risk becomes the focus of attention. But at the time of the allegedly tortious conduct, there may have been no reason to single it out from a number of adverse contingencies, or to attach to it the significance it later assumed. Recent judgments in this Court have drawn attention to the danger of a failure after the event, to take account of the context, before or after the time of the event, in which a contingency was to be evaluated. This danger may be of particular significance where the alleged breach of duty of care is a failure to warn about the possible risks associated with a course of action, where there were, at the time, strong reasons in favour of pursuing the course of action.[114]

83 It may be that the final phrase of s 51(3) of the Act, that directs the Court to determine what the plaintiff would have done absent the negligence subjectively in the light of all relevant circumstances is intended to incorporate into the statute the consideration of context to which the Chief Justice referred. Although I was not referred to express authority on the point, this construction and mode of application is consistent with the recent Court of Appeal decision of Odisho v Bonazzi,[115] and accordingly is the manner in which I will apply the sub-section.

84 In that case, the Court of Appeal upheld the dismissal of a claim against a medical practitioner for failing to warn of the risk of a particular treatment. The Court upheld the decision of the trial judge that factual causation had not been proved, because the plaintiff had failed to prove that, even if she had been warned of the risk, she would have declined the treatment concerned. The claim was also dismissed on the basis that the plaintiff had failed to prove that the treatment in fact caused the harm in question in any event. In the Court of Appeal, Beach JA and McMillan AJA, with whom Nettle JA agreed, approved the statement by Kirby J in Hoyts Pty Ltd v Burns[116] that such evidence is 'so hypothetical, self-serving and speculative as to deserve little (if any) weight, at least in most circumstances'.

85 Beach JA and McMillan AJA considered the evidence given by the plaintiff at trial as to what she would have done had she been told of the possible risk of the treatment, and held that the dangers associated with such evidence were well illustrated in the case before them. In particular, they looked to the whole of the evidence, including the evidence of treatment to which the appellant had been prepared to consent, and upheld the view of the trial judge that an appropriate warning of the risk there in question would not have made any material difference to the events that occurred.[117]

Section 51(2): here not applicable

86 Section 51(2) is directed to a situation where negligence cannot be shown to be a necessary condition of the occurrence of harm according to 'established principles'. The High Court by majority has held that this sub-section is intended to apply to two situations where causation cannot be established by the 'necessary condition' test. Those are cases where there is a cumulative operation of factors in which the contribution of each factor to the harm is unascertainable, and cases where the cause of the plaintiff's harm is impossible to prove on the current state of medical or scientific knowledge, but the negligent conduct has materially increased the risk of harm.[118] In Powney v Kerang and District Health[119] the Court of Appeal held, in the light of that interpretation, that s 51(2) 'was not intended as a fall back provision in a conventional case for a plaintiff who is unable to establish factual causation. Rather, it was designed to accommodate cases quite out of the ordinary...'.[120]

87 It was not here suggested by either party that s 51(2) applied, and that is plainly correct.

88 At common law, the March v Stramare test effectively dealt with scope of liability and factual causation as one: part of the 'common sense' approach to causation.[121] The Wrongs Act now separates out scope of liability into a distinct concept, on which the plaintiff must succeed in addition to success on factual causation. The Court of Appeal has commented that application of s 51(1)(b) requires not only that the issue be dealt with separately, but also that the Court 'makes a value judgment based on precedent and policy considerations, which may limit the liability of a person found to be responsible under the factual causation test'.[122]

89 Reference to 'precedent' may initially be puzzling, given that in Wallace v Kam, the High Court had held that the determination of the question posed by s 51(1)(b) is 'entirely normative'.[123] The Court in Wallace v Kam went on, however, to explain that where the case in question falls within an 'established class' the normative question posed by s 51(1)(b) is 'properly answered by a court through the application of precedent'.[124]

90 In a 'novel case', however, the Court held in respect of the identical provisions to s 51(4) and s 51(1)(b) in New South Wales:

s 5D(4) makes it incumbent on a court answering the normative question posed by s 5D(1)(b) explicitly to consider and to explain in terms of legal policy whether or not, and if so why, responsibility for the harm should be imposed on the negligent party. What is required in such a case is the identification and articulation of an evaluative judgment by reference to 'the purposes and policy of the relevant part of the law'. Language of 'directness', 'reality', 'effectiveness' or 'proximity' will rarely be adequate to that task. Resort to 'common sense' will ordinarily be of limited utility unless the perceptions or experience informing the sense that is common can be unpacked and explained.[125]

91 The second defendant submits that this is a 'novel case' within the meaning of that phrase in Wallace v Kam. I will discuss scope of liability in more detail later in this judgment.

92 There is a difference between the plaintiff's case as pleaded, and her case as closed.

93 As discussed earlier, the plaintiff's case is pleaded at paragraph 49(a) of the 20 March 2013 Third FASOC. On analysis, the first three sub-paragraphs relate to the October and November 2006 breaches, and the fourth to the May 2007 breach.

94 The effect of sub-paragraph (a)(i) is that had the plaintiff been correctly advised by Mr Kiatos in October 2006 or November 2006 that in fact she did not have security by way of mortgage over Ms Papakostas's property then she would not have agreed to provide the 'New NAB guarantee' (which is defined in the pleading at paragraph 23 to be the Betac guarantee she entered into after October 2006 ie. what I have called the first Betac guarantee). The effect of sub-paragraph (a) (ii) is that nor would she have signed it. The effect of sub-paragraph (a) (iii) is that, in the alternative, she would not have made the 'NAB payment'. This is defined in the pleading at paragraph 17 to be payment out by Betac of the BTC liabilities, which occurred in November 2006, and so did not in terms involve any payment by the plaintiff.

95 Sub-paragraph (a)(iv) pleads that she would not have made the 'further borrowings' referred to in paragraph 47 of the pleading. That paragraph relates to the further borrowings at the time of the May 2007 guarantee, the third Betac guarantee.

96 Applying s 51(1)(a) of the Wrongs Act to this claim as pleaded, there are three elements to the plaintiff's case:

1. If correctly advised at the respective times, she would not have agreed at those times to the refinancing or signed the first Betac guarantee; or agreed to the further borrowings and signed the third Betac guarantee;

2. The implication is that she would not have entered into these transactions at all, not just not at those times; and

3. Not entering into the transactions would have prevented the loss of her properties, and the other losses that she claims.

97 The plaintiff's case as closed is that had she known in October/November 2006 or May 2007 that there was no Papakostas mortgage as she had been promised she would not have proceeded at that time with the refinance and first Betac guarantee, or the third Betac guarantee.[126] The plaintiff submits that this is all that she need show on the 'but for' test in s 51(1)(a). This submission turns on the proposition that it is irrelevant that she may have signed the respective guarantees at some later point, after taking advice and reassessing her position.[127] On this submission, the plaintiff contends that she does not need to prove element 2, as identified by me above.

98 There is some support for this approach to factual causation in the High Court decision Wallace v Kam,[128] although counsel for the plaintiff did not take me to it. In that case, the Court identified three possible scenarios that might arise consequent on a negligent failure to warn. That case concerned the negligence of a surgeon who failed to advise of certain risks of surgery. On the facts of that case, the plaintiff would not have proceeded at all if correctly advised. The Court also considered the possible scenario in which a plaintiff would not have proceeded at the time, if correctly advised, but may have done so later. The Court expressed the view, obiter on the facts of that case, that the 'better view' is that factual causation should also be found in this scenario.[129]

99 I do not, however, accept the plaintiff's submission put in closing, because this case is not the case that the plaintiff pleaded and conducted. It is simply not consistent with the evidence of Mr Kambouris as to what would have occurred had the plaintiff been correctly advised. Further, the case as put in this way for the plaintiff is essentially a 'loss of opportunity' case or a 'different transaction' case. If it is a 'loss of opportunity' case, the plaintiff has not pleaded or proved what the relevant opportunity was, or its value. If seen as a 'different transaction' case i.e. the case that was pleaded in paragraph 49(b) and (c) of the 20 March 2013 Third FASOC, then this case was withdrawn at the commencement of the trial. Finally, had the 'different transaction' case proceeded, at its highest the damage suffered by the plaintiff would have been the value of the equity then held by Ms Papakostas in her Loch Sport property, as this would have been the security promised but not provided. This limitation is not consistent with the losses claimed by the plaintiff.

100 I accept the submission of the second defendant[130] that, in relation to factual causation, the plaintiff is required by her pleaded case to show that she would not have signed the first or third Betac guarantees at all, had she been told the truth, and that as a consequence, the ultimate loss of her properties would have been avoided, not just that that loss may have been avoided. The plaintiff bears the onus of proof on causation. Accordingly, the plaintiff is required to prove the three elements I have identified above.

101 In this section of the judgment I conclude that the plaintiff has proved element 1 identified above, but has not proved elements 2 and 3. I find that had Mr Kiatos told the plaintiff that there was no Papakostas mortgage at any of October or November 2006 or May 2007, she would not have proceeded immediately to agree to the proposal under consideration or sign the relevant guarantee. I accept her evidence that she would have taken advice. I am not persuaded, however, that she would not have entered into those transactions later, and indeed I find that, on the balance of probabilities, she would still have done so. This is because there were, to use the terminology of Gleeson CJ in Rosenberg v Percival 'at the time, strong reasons in favour of pursuing (that) course of action'.[131]

102 Even if I am wrong in my conclusion on element 2, and the plaintiff would not, after taking advice, have proceeded with the restructure to Betac, and she and her husband would have asked the bank to sell the BTC and Betac properties to meet the BTC liabilities and then sought to refinance the balance of her indebtedness, I am nevertheless not persuaded that she has proved element 3. I also consider in this section of the judgment the evidence as to the likely sale proceeds of the BTC and Betac properties, and the plaintiff's remaining indebtedness if those proceeds were applied to her BTC liabilities. I conclude that it is possible on the figures that the plaintiff may have been able to meet her liabilities arising from pre-existing BTC guarantees if the properties owned by BTC and Betac had been sold and the proceeds of those sales applied to the liabilities, and she had been able to extend the security over her own properties to cover the balance and her pre-existing liability for Kambouris Nominees. In other words, not entering the transactions may have prevented the forced sale of her properties.

103 In accordance with Adeels Palace, however, this is not enough. What the plaintiff must show is that these steps would have been taken, because otherwise she has not shown that not entering the transactions would have prevented her losses. The figures identified in the expert evidence are calculated on the basis that the NAB would have sold the BTC and Betac properties first, before considering sale of the plaintiff's properties. There is no evidence, however, to show that this is what would have occurred, and on the evidence it may not even have been likely. Accordingly, the plaintiff has not shown that the loss of her properties would have been avoided, even if she would not have proceeded with the transactions at all.

104 I turn now to detailed consideration of the evidence.

105 As noted earlier, the plaintiff gave evidence before Judd J as to a telephone conversation with Mr Kiatos in October 2006 and what was said in meetings she had with him in November 2006 and May 2007 when he signed solicitor's certificates. Findings have now been made about those events, and the parties are bound by those findings. Judd J accepted the plaintiff's evidence. He found that there had been an occasion in October 2006 when Mr Kiatos spoke to the plaintiff on the telephone and reassured her that she was protected by the two mortgages. He also found that Mr Kiatos did not inform her, as he should have done, when signing certificates for her in November 2006 and May 2007 that there was no such protection from Ms Papakostas. Given those findings, further evidence about those events was not required in this trial and, although this point was not taken by the second defendant, may even have been inadmissible.[132]

106 What is admissible and critical, however, is the plaintiff's evidence about what she would have done had she been told the truth. Her evidence as to what she would have done had she known the truth in October 2006 was as follows (omitting interjections):

MR COOK: And if you were told by Mr Kiatos at that time that Ms Papacostas (sic) had not signed a mortgage or had not secured her house like you were told, what would you have done at that stage?---

MRS KAMBOURIS: Well, I would've had to take legal advice because this is what I was told that it was now different and I would've proceeded on the basis of that.

MR COOK: Yes, and what would you have done? Who would you have taken the legal advice from?---

MRS KAMBOURIS: Well, I would've gone to someone else obviously, because the advice I was given - like previously Mr Kiatos had said something if it turned out not to be correct I would've had to go to someone else...and find out what the position was.

...

MR COOK: Yes, and if the advice confirmed what you'd been told, in other words that Mrs Papacostas (sic) hadn't provided security for you, what would you have done then?---

MRS KAMBOURIS: Well, I don't know what the advice would've been but I did know that the company - um, had three properties they were developing - um, so - and - and also at that stage I was of the belief that this - to this day I - I believed that I was entitled to Mr Floros' - um, mortgage. So I would've moved to maybe - um, satisfy the bank to a certain extent and give me a breathing space to move against that mortgage so I can repay and get my properties out of trouble.

...

MR COOK: All right, we're back at the hypothetical question. We're back at the time that you were having the telephone conversation with Mr Kiatos and you were being asked to sign a guarantee. And at the time you were told by Mr Floros that you were, 'Covered'?---

MRS KAMBOURIS: Mr Kiatos, yes.

MR COOK: Mr Kiatos told you that, I'm sorry. And I was asking you a hypothetical question and I asked you what would you have done if you had been - if you'd been told by Mr Kiatos that Mrs Papacostas (sic) wasn't providing security, hadn't signed her mortgage, and you said you'd take legal advice. And I suggested in the hypothetical question, what would've happened if the legal advice had confirmed what Mr Kiatos had said in the hypothetical case? In the case - - -?---

MRS KAMBOURIS: Well, I wouldn't have signed the document because that would've put me in a perilous position.

MR COOK: Yes. What would you have done if you hadn't signed the document?---

MRS KAMBOURIS: I would've assessed what options were open to me to - um, get my properties out. Whether that was moving against Mr Floros or - or getting the bank to move on the company or whatever assets they had I would've done what any reasonable person would've been to move to secure my position.[133]

107 In re-examination, the plaintiff said that, had she learnt the truth in October 2006 'I would have waited to ..seek further legal advice as to where I stood before I went any further'.[134]

108 In relation to May 2007, her evidence as to what she would have done if told that the Papakostas mortgage had not been signed was as follows:

Well, I wouldn't have signed. And as-if he had been told me previously I would have taken advice on how to go about it to minimise at least my exposure, if not to get out of it altogether. My primary concern was always to protect my properties, and that's the assurances I received.[135]

109 Mr Kambouris' evidence in chief is that had he known the true situation as far as security from Ms Papakostas was concerned, he would have made sure that his wife did not sign the guarantees.[136] The implication is that his wife would principally have been guided by him. For reasons that I will elaborate shortly, I consider this to be correct.

110 In cross examination, he acknowledged that BTC was in financial trouble in October/November 2006 but resisted the proposition that BTC and Betac would still have proceeded with the refinance and he and his wife would still have given the November 2006 guarantees even if they knew at that time that there was no Papakostas mortgage. He did agree that without the first Betac guarantee, Betac could not have borrowed more than the existing BTC amount.[137]

111 In re-examination, he expanded on the other options that were open at that time as follows. Without increased borrowings, Betac would have had no cash flow. Mr Kambouris says that this would not have been a concern, because he would not have been prepared to continue with the business and would have worked for someone else as he currently does. In other words, he would have allowed the business of BTC and Betac to cease. Mr Kambouris had conceded in cross examination that this would have triggered a default entitling the NAB to move on the security properties, but in re-examination he said that the bank could have sold the three properties that belonged to BTC and Betac and so recovered $450-$500,000. He acknowledged that there would have been an amount still owing to the NAB, but considered that this could have been negotiated with the bank given the amount of equity in his wife's properties, to give him and his wife time to sue Mr Floros on his mortgage. Given these options, he reiterated that he would have told his wife not to sign.[138]

112 In assessing the subjective evidence of the plaintiff and her husband as to what they would have done, I am required by s 51(3) of the Act and the authorities to consider it in the light of all relevant circumstances, with the caution in mind that the evidence is self-serving and given in hindsight, and having regard to my assessment of their credit.

113 I first consider the reliability of the evidence given by the plaintiff and Mr Kambouris in terms of its truthfulness. I will deal first with the truthfulness of the evidence of Mr Kambouris. I consider that the weight to be given to his evidence, particularly his evidence as to what he would have done had he known the truth, is critically undermined by what he admits was his failure to tell the truth in the past on oath, and the repeated demonstrations of his willingness to deceive in an endeavour to preserve his assets.

114 In the course of cross examination, Mr Kambouris conceded that he had given false evidence on oath in three earlier affidavits, one in this proceeding in response to an affidavit of Mr Floros, one in an affidavit in a proceeding commenced by Ms Papakostas, and one in an affidavit in support of his wife's opposition to summary judgment in the NAB recovery proceeding concerning The Boulevard.[139] The poor light that this casts on Mr Kambouris's truthfulness is compounded by the fact that this false evidence was not confined to one topic only. The aspect of the affidavits in response to Mr Floros and Ms Papakostas that he now says was false is the same- that is, whether Betac was to be operated on behalf of him and his family alone (as he there contended) or was, in truth, a continuation of the BTC joint venture (which is what he now says was the truth). He now says that in those earlier affidavits he was maintaining a lie, which was intended to disguise from the outside world, in particular creditors, that Betac was a continuation of BTC. Mr Kambouris volunteered this account of the restructure from BTC to Betac, including transfer of a BTC property to Betac, in chief without any apparent consciousness that there could be any discredit cast on him in seeking to deceive creditors in this way.

115 The area of his affidavit in the NAB recovery proceeding that he now says was false is entirely different. That topic is whether or not The Boulevard was to be available to the NAB by way of security for the joint venture. In the affidavit he said, as did his wife in hers, that the arrangement with the bank was that The Boulevard was not to be so available. He now says that he knew at the time he swore that affidavit that that was not true.[140] Mr Kambouris and his wife swore falsely in this regard to support what he knew at the time was a weak defence by her to the recovery proceeding, in order, on his account, to obtain time to negotiate with the bank.

116 I also rely on what was revealed of the conduct of Mr Kambouris, and that of his wife, in a proceeding they instituted against the plaintiff's mother in 1997. In that proceeding, Mr and Mrs Kambouris contended that a mortgage that they had given to the plaintiff's mother over the Gove St units was a sham to deter creditors of their building business from pursuing that property. It would appear that the plaintiff's mother did not agree with this account, as the matter came before this Court on an application to remove a caveat lodged by the plaintiff's mother, and, according to that judgment, before the County Court on the merits.[141] The judgment in the caveat removal does not make findings as to the genuineness, or otherwise, of the mortgage. Accordingly, the relevant conduct for the purpose of this proceeding is not whether or not the mortgage was in fact a sham, but the preparedness of Mr Kambouris, and his wife, to assert that it was.

117 The common theme in each of these incidents is that Mr Kambouris has been in the past prepared to tailor his actions or account of events, even on oath, to suit his purpose. On all these occasions that purpose has been to preserve his or his wife's assets, or the assets of his businesses. Recovering for the loss of those assets is of course also the intent of this proceeding. Mr Kambouris denied that he was similarly tailoring his evidence in this trial to suit that purpose. However, having regard to his past approach to the truth in relation to protection of assets, I do not consider that I should accept Mr Kambouris' evidence as to what he and his wife would have done, had he known at the relevant times that there was no Papakostas mortgage, unless that evidence is consistent with, or supported by, other evidence. There is no objective or independent evidence to support his evidence as to what they would have done, and his evidence on the point is not, in my view, consistent with his actions in relation to BTC and Betac at the time. I consider the question as to what he would have done, and asked his wife to do, is better judged by his past conduct, rather than by his present evidence.

118 I turn now to the plaintiff. Should her evidence as to what she would have done had she been correctly advised be accepted as truthful?

119 The plaintiff's credit is similarly undermined by her concession in this trial that she gave false evidence on oath in her affidavit resisting summary judgment in the NAB proceeding to recover The Boulevard.[142] The plaintiff says that she gave false evidence in that affidavit to the effect that her husband and the bank had agreed that The Boulevard was not to be available to the NAB as security for her husband's businesses and that she believed that that was the case. This contention formed part of her defence to the recovery application. She now says that she gave that false evidence on legal advice. I reject that explanation. She was unable to produce any documentary or other evidence to support the explanation. This is not surprising given that it is patently unlikely that a solicitor would advise his client to swear a false affidavit. The more likely explanation is that this is the account of events given by her and her husband to their solicitor, who then advised that it may constitute a defence.

120 I also take into account in assessing the truthfulness of the plaintiff's evidence in this trial that, on their own case in the proceeding she and her husband took against her mother, she has been prepared to engage in a sham transaction in the past to protect her properties.

121 It follows that, as in the case of her husband, the plaintiff has demonstrated a willingness to give false evidence on oath, and possibly also engage in a sham transaction, in an endeavour to protect her assets. I do not accept the submission put on her behalf that her earlier untruths on oath are irrelevant or that their significance is militated against by her volunteering them in this trial.[143] Given this past conduct, should the plaintiff now be believed when her evidence in this trial is also directed to recovering for the loss of those assets?

122 I have concluded that in some respects the plaintiff's evidence as to what she would have done, had she been correctly advised, should be accepted, notwithstanding that that evidence is self-serving and in hindsight. I make a distinction between her and her husband in this regard. The evidence I accept is that, had the plaintiff been told that there was no Papakostas mortgage in October 2006 she would not have agreed at that time to the refinance; had she been told in November 2006 she would not at that time have signed the first Betac guarantee; and had she been told in May 2007 she would not at that time have signed the third Betac guarantee. I accept the plaintiff's evidence that had she been given the correct information at any of those times, she would have sought advice other than from Mr Kiatos. I do so for two reasons.

123 First, having regard to the manner and content of her evidence, I accept that the plaintiff was, and is, greatly distressed by the loss of her properties. Distress after the event of loss is not necessarily a reliable indicator of an equal degree of concern and action to prevent that loss before the event, but I accept that she was concerned in general terms at the time to protect her properties. Her own evidence is to this effect, it is inherently probable, and the fact that Mr Kambouris asked Mr Kiatos to reassure her in this regard when the restructure from BTC to Betac was proposed also supports this conclusion. On that occasion, it was not seen as sufficient for he alone to reassure her.

124 As I will discuss further, however, I do not accept her assertions that she sought assurance that she was protected on every occasion she entered into a new transaction. I consider she has only proved three occasions on which she sought and obtained assurance from Mr Kiatos, and that on most occasions she was prepared to sign further guarantees that exposed her properties to risk on the basis of her husband's request alone. If she sought assurance, it was generally from him only. To this extent I accept the second defendant's submission that the plaintiff's evidence now as to her degree of concern is influenced by hindsight and inflates the importance to her at the time of the security to be provided by Ms Papakostas.[144]

125 The second reason for my acceptance of the plaintiff's evidence that she would have sought advice, is that it is inherently probable that a guarantor concerned about her exposure who is told that the security she believed to be in place, was not in fact in place, would take time to consider her position.

126 Further, the plaintiff's evidence does not exclude the possibility that after taking advice, she may nevertheless have proceeded. She is less adamant and specific than her husband as to what they would have done, had they known that the Papakostas mortgage had not been given. This also makes her evidence on this point more plausible than his. She says, and plausibly, that she would have had to consider what should be done on the basis of further advice.

127 Having regard to the whole context and surrounding circumstances, I do not accept that the plaintiff would not have signed the guarantees at a later point in time, after taking advice and considering her position. I consider that in all probability the plaintiff would have proceeded with the refinance and subsequent guarantees, after taking advice. I reach this conclusion having regard three matters- the plaintiff's demonstrated conduct in relation to the giving of guarantees; the external factors at the time of the restructure and further borrowings, including her husband's powerful desire to continue the business; and her habitual reliance on him and preparedness to do what he asked.

128 Before elaborating on these matters, I note one further submission put by the plaintiff in relation to acceptance of her evidence and that of Mr Kambouris. That is that their evidence should be accepted, unless clearly wrong, because Mr Kiatos gave no evidence in opposition to it, or at all.[145] In usual circumstances, the fact that their evidence was unopposed would be a powerful factor in favour of acceptance of it. However, they have both admitted giving false evidence on oath on earlier occasions and that cannot be ignored. It must raise a doubt as to whether their current evidence on oath is truthful, particularly where their current evidence directly contradicts their earlier evidence (as it does in Mr Kambouris' evidence on whether or not Betac was a continuation of the joint venture). Further, this trial is not concerned with whether or not Mr Kiatos was negligent. On that point his evidence would have been crucial, if he denied the allegations. This trial is concerned with what the plaintiff and her husband would have done had Mr Kiatos not been negligent, and the quantum of the plaintiff's loss, and it is not clear that Mr Kiatos could have given any relevant evidence on those points.

129 The plaintiff gave five guarantees for BTC liabilities in the period April 2005 to May 2006.[146] Those guarantees were in increasing amounts from $684,000 to $947,000. The first issue I consider is whether she had obtained any assurance from Mr Kiatos prior to entering into the first of these guarantees, in April 2005.

130 The plaintiff gave evidence before Judd J that she first met Mr Kiatos in 2005, at which time he promised to obtain security for her from Mr Floros and Ms Papakostas. Her evidence was that her husband had asked her to provide security over the Gove St units and The Boulevard, 'I was a bit concerned about it' and so she and her husband went to Mr Kiatos' office, and 'he explained to me how he would handle it so that I would be protected'. She said that Mr Kiatos said 'that there would be mortgages given to me by Mr Floros and a Miss Papacostas (sic), so in the event of something going wrong I wouldn't lose...I wouldn't be disadvantaged by putting my properties forward for the business venture, coz that was my concern'.[147]

131 The plaintiff did not specify in her evidence before Judd J when in 2005 that conversation took place, and Judd J made no finding in that regard. The implication from the evidence, however, is that the discussion occurred before she had given any security by way of guarantee for the joint venture. The plaintiff's evidence in this trial is also that she first learnt of security to be provided by Mr Floros and Ms Papakostas when she first 'started signing indemnities', i.e. presumably before she signed the first BTC guarantee.[148]

132 If the thrust of her evidence before Judd J and in this trial is that Mr Kiatos promised security from Mr Floros and Ms Papakostas before the first BTC guarantee, then it is inconsistent with the evidence of Mr Kambouris on that point. The evidence of Mr Kambouris has consistently been that the first discussion about security being provided to the plaintiff by Mr Floros and Ms Papakostas occurred no earlier than May 2005 i.e. after the plaintiff had already given the first BTC guarantee in April 2005.

133 Mr Kambouris gave evidence about the first discussion in relation to security to be provided by Mr Floros in an affidavit sworn by him on 15 May 2008 in this proceeding, in support of Betac's application to remove caveats lodged by Mr Floros over Betac properties.[149] He said in that affidavit that this discussion about security between him and Mr Floros occurred in late June 2005.[150] In this trial, he confirmed that his evidence to that effect in that affidavit was correct, although other aspects of the evidence he gave in the affidavit were not.[151] In the pleading that came before Judd J and was also relied upon in this trial, it is pleaded that the agreement relating to security from Ms Papakostas (the parallel agreement to that signed by Mr Floros) was proposed in early July 2005.[152] In his evidence before Judd J, however, Mr Kambouris said that the conversation with Mr Kiatos about security from Ms Papakostas took place earlier, in May 2005.[153] In this trial, by contrast, he agreed with the proposition that the conversations about security to be provided by Mr Floros and Ms Papakostas occurred in the period June-July 2005.[154] In fairness to him, he was not taken to the evidence as to the date that he had given before Judd J before being asked this question, but to an earlier portion of his evidence. Accordingly, he did not have the opportunity to explain that discrepancy.

134 Contemporaneous documents support the evidence Mr Kambouris gave in this trial in relation to the timing of the discussions about security. The agreement signed by Mr Floros is dated 4 July 2005.[155] The draft agreement to be signed by Ms Papakostas, which Mr Kambouris says he sighted and approved[156] was sent by Mr Kambouris to Mr Kiatos by email dated 5 July 2005.[157] Accordingly, I find it more likely that the draft agreement with Ms Papakostas was proposed in the period June-July 2005, than in May as Mr Kambouris said before Judd J.

135 Even if proposed in May, however, on Mr Kambouris' consistent evidence since 2008 the question of security from Ms Papakostas was not raised until after the plaintiff had already given the first BTC guarantee, which was in April 2005. Mr Kambouris agreed that this was the case in cross-examination.[158] I consider Mr Kambouris' evidence on this point to be more likely correct than that of the plaintiff for the following reasons.

136 First, Mr Kambouris' first account of this timing, at least the first account in evidence, is far more proximate in time to the events than the evidence given by the plaintiff in this trial. That in itself makes it more likely to be an accurate recollection. Secondly, the plaintiff's evidence was very general, and given in hindsight, without reference to any specific conversation with Mr Kiatos except the telephone conversation, found by Judd J to have occurred in October 2006. Further, the plaintiff's evidence in this trial does not sit entirely conformably with her evidence before Judd J. She said in her evidence in chief in this trial that she first heard about the affairs of BTC in 2006, [159] although it is plain that she had signed BTC guarantees in 2005, and gave evidence before Judd J that her meeting with Mr Kiatos was in 2005. It was only on being shown the guarantee that she signed on 20 April 2005 that she qualified her earlier answer by saying that that was when 'they originally asked me'.[160] She then said that in 2006 she was asked to give a guarantee on 'changing over company names'[161] and referred to a telephone conversation with Mr Kiatos in which he said that 'I would be protected by mortgages on Mr Floros and Ms Papacostas' (sic) properties'[162] (emphasis added). Her evidence implies that this was the first occasion on which Mr Kiatos had said this, or, at least, that the agreements to provide the security had not yet been prepared, yet her evidence before Judd J was that Mr Kiatos promised her this security in 2005, and the agreements were prepared and, in the case of Mr Floros, signed in 2005. Before Judd J her evidence was that what occurred in 2006 was reassurance by Mr Kiatos, not the original promise by him.

137 The plaintiff also had a very poor recollection of the guarantees that she had signed. When first asked about the BTC guarantees in cross examination she could not recall how many she had signed. She said there may have been two or three guarantees for BTC liabilities.[163] In fact, there were five. The plaintiff asserted that she signed the April 2005 guarantee on the condition 'that I was having security',[164] but could not recall if it was the first occasion on which she guaranteed BTC liabilities.[165] She could not recall why she was asked to sign two BTC guarantees only a short time apart in October 2005.[166] The plaintiff was taken to the third Betac guarantee, that she signed in May 2007, in chief, but when first asked about other Betac guarantees that she signed in 2007 in cross examination, she did not appear to have an independent recollection of them.[167]

138 Finally, is also apparent from the whole of the plaintiff's evidence that she had little knowledge of the day to day affairs of BTC or Betac. She conceded as much. By contrast, her husband gave detailed evidence both before Judd J and in this trial, and had also done so in the affidavit sworn 15 May 2008 in this proceeding, in respect of the financial position of BTC and thereafter Betac. It is more likely that he, rather than the plaintiff, would have an accurate recollection of the timing of events relating to that financial position.

139 The plaintiff specifically disagreed with the proposition that she signed the first BTC guarantee in April 2005 before she had received any assurance of security to be provided to her from Mr Floros and Ms Papakostas[168], but I find that she did.

140 The next issue is the degree of assurance about security that the plaintiff sought before signing the second BTC guarantee, on 19 June 2005. In her evidence before Judd J the plaintiff said that she signed a document as a result of her meeting with Mr Kiatos in 2005 at his office.[169] That document was identified earlier in the transcript as being the agreement with Mr Floros,[170] who was also, on the plaintiff's evidence before Judd J, at that meeting with Mr Kiatos. That agreement is dated 4 July 2005, which suggests that the meeting with Mr Kiatos must have taken place either on or before that date. If it took place before 4 July 2005, it is possible that the plaintiff signed the second BTC guarantee (on 19 June 2005) after the meeting i.e. only after being given assurance of security. Even if so, she was apparently prepared to sign this guarantee without execution of the agreement by Mr Floros. If the meeting took place on 4 July 2005, she was prepared to sign the three further BTC guarantees (in October 2005 and May 2006) without ever sighting a signed like agreement in relation to Ms Papakostas.

141 There is no evidence as to the particular circumstances in which these further three BTC guarantees were signed by the plaintiff. She did not independently recall them. This alone suggests that she did not consider the request to sign them as worthy of note. Whatever the circumstances leading to the guarantees, the mere fact of their execution demonstrates a preparedness by the plaintiff to continue to guarantee increasing joint venture liabilities.

142 The plaintiff asserts that every time she signed a guarantee (except those with no significant increase in exposure) 'I would have asked to be reassured that the position I was put into in the first place still existed'.[171] I do not accept this evidence for the following reasons. First, her language only assumes, in hindsight, that she would have done so- it does not give an account, on the basis of recall, that she actually did so, let alone a detailed account. Next, the only occasions on which the plaintiff sought assurance from Mr Kiatos about which she has given specific evidence, either before Judd J or in this trial, are the meeting in 2005; a question she put to him at some time she could not recall as to when she would get her properties back; the telephone conversation in October 2006;[172] and on her execution of the first and third Betac guarantees, in November 2006 and May 2007 respectively, when Mr Kiatos signed solicitor's certificates that he had explained the guarantees to her.[173] Judd J made findings in relation to the October and November 2006, and May 2007 occasions, and recited the 2005 meeting in his recital of the facts. Those occasions are proved. The plaintiff's evidence that there was another occasion on which she asked Mr Kiatos when she would get her properties back was not disputed, and so I find that proved as well. In the absence of specific evidence of any other occasion on which the plaintiff sought assurance from Mr Kiatos, I find that these occasions are the only occasions on which she did so.

143 The three proved dated occasions on which she sought reassurance from Mr Kiatos after 2005 were in relation to refinancing through Betac, or further borrowing by Betac, not in relation to further BTC guarantees. It follows that the plaintiff signed the BTC guarantees after her conversation with Mr Kiatos in 2005 and execution of the Floros agreement without seeking further assurance from him.

144 Her past preparedness to sign guarantees for joint venture liabilities is further demonstrated by her evidence that at the time she signed the first BTC guarantee in April 2005 she thought the indebtedness she was guaranteeing was already the amount of the guarantee, $684,000, when in fact the joint venture actual liabilities at that time were in the order of $460,000.[174] In other words, she was prepared to sign a guarantee for liabilities for more than $200,000 greater than the actual current liability.

145 The plaintiff's conduct shows that, notwithstanding her stated, and I have found genuine, concern that her properties be protected, she was prepared to put those properties at increasing risk. Initially she was prepared to do so without other security, and subsequently she was prepared to do so without reassurance of security from Mr Kiatos, and without knowing much of the circumstances.

146 This preparedness to put her properties at risk was also demonstrated after it became apparent that there was no Papakostas mortgage as promised. As set out earlier, I find that Mr Kambouris knew this by August 2007. Nevertheless, he, together with the plaintiff and their son signed the fourth Betac guarantee in September 2007. I am unable to determine on the evidence whether or not the plaintiff knew when she signed that guarantee that there was no Papakostas mortgage. Mr Kiatos had promised Mr Kambouris to 'fix it' and so it is possible that Mr Kambouris did not at this stage tell his wife the true situation. The plaintiff could not recall in her own evidence when she first knew that there was no Papakostas mortgage. She knew that there were 'problems with the bank' meaning that 'the company was in trouble and they'd put my properties at grave risk' by late 2007.[175] I infer that the plaintiff knew at least by late 2007, if not earlier, that there was no Papakostas mortgage. Nevertheless, in February 2008 the plaintiff signed the fifth and final Betac guarantee. This guarantee was in the sum of $1,677,517. This was the same amount as the September 2007 fourth Betac guarantee, but, significantly, the amount guaranteed was $400,000 more than the guaranteed amount in the third Betac guarantee. That was the last proved occasion on which Mr Kiatos had reassured her that she had security from Ms Papakostas. In other words, the plaintiff was prepared to sign a guarantee for $400,000 more than her existing liability, even though she knew by this stage that she did not have security from Ms Papakostas, and had been required to commence proceedings against Mr Floros to recover on the security he had provided.

147 The fifth Betac guarantee of February 2008 guarantee was the guarantee on which the NAB later sued for possession. In her affidavit opposing summary judgment in the subsequent NAB recovery proceeding in respect of The Boulevard, the plaintiff swore that she signed this guarantee at the request of her husband. She said that when she had asked her husband what the guarantee was for, he said 'don't worry about it, just sign the document. You know the company has property and can pay the borrowings.' She deposed that 'I did not think much of it at that time', and that she signed the guarantee without reading it, and without being given an explanation of its contents by the bank manager.[176] Both the plaintiff and her husband agreed in this trial that that account of the circumstances in which she signed the February 2008 guarantee, knowing by that stage that there was no Papakostas mortgage, was correct.[177]

148 In summary, I find that the plaintiff was prepared to sign multiple guarantees for BTC and Betac between April 2005 and September 2007, that she cannot now recall with any precision, and was prepared to do so without accurate knowledge of the financial circumstances leading to the request for the guarantee, or even her actual current exposure. Further, she was prepared to sign a further guarantee, for an increased exposure, in February 2008 even after she knew that there was no Papakostas mortgage, and that her security from Mr Floros was not being willingly provided. She did so on that occasion because her husband asked her to.

149 In my view, the evidence establishes that the approach both Mr Kambouris and the plaintiff agree she took in relation to the February 2008 guarantee was their habitual pattern. I reach this conclusion for the following reasons.

150 In addition to her account in her affidavit in the summary judgment application about her signing of the February 2008 guarantee, the plaintiff also gave evidence in that affidavit of the general practice. She said that 'at all times' it was her husband who dealt with the NAB in relation to business affairs and in relation to any borrowings. She deposed that she was not kept informed in relation to the borrowings by either her husband or the bank and that he always collected the mail. She said that:

I would from time to time be told by my husband to go there or here in relation to execution of documents for the Bank (the NAB) and shown where to sign when the need arose. When I did query my husband from time to time about what the documents I was signing was for, he would say to me not to worry about it, it is a business document or when I asked him what was the borrowing for this time, he would say words to the effect of don't worry about it, the company has sufficient security to pay out the liabilities.[178]

151 In cross examination in this trial both the plaintiff and her husband were asked if this paragraph correctly described the approach they took to the signature of all documents for the NAB i.e. not just the February 2008 guarantee. Mr Kambouris agreed it was correct, although he added that he would also tell her what the deal was and why he was hoping to proceed.[179]

152 The plaintiff agreed that the approach there described was correct, but disagreed with the proposition that that was the approach she and her husband took to each and every document she signed in connection with her husband's business. She added that the description was, however, correct 'as far as the NAB proceedings were concerned'.[180] It is not entirely clear what the plaintiff meant by this qualifier. Whatever the reason for, or meaning of, the qualification, I do not consider that it outweighs the other evidence tending to the conclusion that the plaintiff habitually signed business documents at her husband's request.[181]

153 In addition to her husband's evidence to this effect, the plaintiff said that it was her husband who had knowledge of the day to day affairs of the business, the implication being that she did not.[182] The thrust of Mr Kambouris' evidence is that he kept his wife informed in a general way. For example, he said in his evidence that he 'would have' told his wife about the then current liabilities of BTC at the time of the restructure 'as a matter of practice'. He said they had regular discussions about the need for extra funds, and that he told her about the dispute with the unions in 2005/2006 in 'discussions over the dinner table'.[183] When this evidence was put to Mrs Kambouris, she could not remember any such discussions and tersely noted that 'I mean men talk about their business. It doesn't necessarily mean that I would follow'.[184] In other words, even on the basis of what Mr Kambouris told her she had little knowledge of or understanding of the business, and perhaps did not see it as her concern. She could not then have signed business documents on the basis of her own knowledge and appreciation of the circumstances. I conclude that it was her habit to do so on the basis of her husband's request.

154 It is plain from the whole of his evidence that Mr Kambouris tended to take an optimistic view of the benefits of further borrowings, and did not tell his wife all the financial details, or facts that could have been considered negative. For example, at the time of the restructuring from BTC to Betac, and the associated November 2006 guarantee, he knew that BTC had outstanding debts that it could not pay, but he said in cross-examination that he did not tell his wife this 'in any detail'. He merely told her that 'we needed to...get a bit of cash flow going so we can pay the bills and continue our business and make money'.[185] This is consistent with the evidence of the plaintiff that she was not aware that BTC was in financial trouble at that time, other than needing some cash flow.[186]

155 Similarly, Mr Kambouris agreed that he knew that without that cash flow, BTC would have 'to be closed' and that the bank could then call on the securities it had, including his wife's properties. He did not, however, tell his wife that 'in that negative way...just because, as I said, I honestly believed that we can trade out of trouble'. He believed that the joint venturers had a plan, which was to transfer contracts to Betac and Betac taking out additional lines of credit to spare up some cash flow.[187] As I will shortly discuss, he demonstrated a similar view that he could trade out of their difficulties in late 2007/2008, even when he knew there was no Papakostas mortgage.

156 I find that it was the habitual practice of the plaintiff to give further guarantees when requested to do so by Mr Kambouris, although on occasion she would seek reassurance as to her position. In October 2006 she sought reassurance from Mr Kiatos, and he also provided that reassurance by the certificates he gave in November 2006 and May 2007. In February 2008, the plaintiff sought reassurance from Mr Kambouris, and she may have done so on other occasions as well. Mr Kambouris gave that reassurance in February 2008 (as set out in her affidavit in the recovery proceedings), and I find would have done so on other occasions on which it was sought, because he believed throughout that extending their exposure was the best way to proceed, with a view to trading out of their difficulties.

157 Accordingly, if Mr Kambouris had asked her to proceed, he knowing that there was no Papakostas mortgage, she would have done so. They both agree that this is precisely what occurred in February 2008 (when they both knew that there was no Papakostas mortgage). I infer that it is also what occurred in September 2007 (when Mr Kambouris at least was aware of the true situation).

158 In this section, I conclude that the plaintiff and Mr Kambouris would have taken the same approach at the critical earlier times, in October or November 2006, and in May 2007, had they known at those times that there was no Papakostas mortgage, that they in fact took in September 2007 and February 2008. In other words, had Mr Kiatos correctly advised the plaintiff at any of those times, I find that Mr Kambouris would still have wished to proceed, would have asked the plaintiff to do so, and she would ultimately have done so, even if she took other advice first. I reach this conclusion because of the combination of the objective circumstances in favour of proceeding, and what I find would have been Mr Kambouris' desire to do so. On the basis of his demonstrated approach to risk taking and his consistent belief that he would be able to trade out of their difficulties, I consider that he would have strongly urged proceeding in each instance, rather than accepting the loss of the business.

159 I first consider the objective circumstances that prevailed at the time of the refinance in October/November 2006 and the further borrowings in May 2007.

160 Had the plaintiff been told the truth in October or November 2006 and taken independent legal and/or financial advice at that time, that advice would no doubt have identified for her that she was already considerably exposed, by virtue of her existing exposure and the indebtedness of BTC. As set out earlier, the plaintiff had signed guarantees for joint venture liabilities since April 2005. In May 2006 she had signed the fifth BTC guarantee with a limit of $947,000.[188] This was in addition to her existing exposure in respect of Kambouris Nominees. By early October 2006 her actual exposure was approximately $624,000 in respect of the BTC facilities[189] and approximately $200,000 in respect of Kambouris Nominees.[190] By the time of the restructure, on 22 November 2006, her exposure in respect of the combined liabilities was in the range $843,489-$850,000.[191]

161 By 2006 the BTC liabilities were secured by the plaintiff's properties and three properties owned by BTC or Betac.[192] The uncontradicted evidence from her husband is that BTC was in financial difficulties from the end of 2005.[193] As noted, his evidence in cross examination was that by May 2006 the financial difficulties were so serious that the joint venturers began to transfer existing building contracts from BTC to Betac.[194] They also agreed to transfer properties owned by BTC to Betac to keep them away from a liquidator of BTC.[195] The property at 2/650 Warrigal Road was transferred from BTC to Betac by transfer dated 2 December 2005, which was not registered until 9 March 2007, the same date on which a mortgage to the NAB was registered.[196] In his affidavit sworn 15 May 2008 Mr Kambouris said the transfer took place in late November or early December 2005, i.e. conformably with the date on the transfer.[197] In his evidence in this trial Mr Kambouris said that he actually signed the transfer at a later point in time,[198] in other words it was backdated.

162 Applications were made to wind up BTC in May and October 2006. Mr Kambouris said he could not recall the winding up applications, or any statutory demands as opposed to outstanding bills,[199] but a search of the company record would have revealed them to external advisers. BTC eventually went into liquidation in November 2006. In short, BTC was in serious financial difficulty at the time of the refinancing, and in the absence of the refinancing, to facilitate which the plaintiff entered into the first Betac guarantee, would likely have gone into liquidation. This would have triggered a demand on its guarantors, and, in respect of the plaintiff, a demand in respect of the Kambouris Nominees liabilities as well. I find that it is more probable than not that the plaintiff would have been told by independent advisors that the bank may move on her properties in any event, given the existing indebtedness of BTC and Kambouris Nominees, if she did not agree to the refinance for which the first Betac guarantee was required.

163 The plaintiff's case, as most completely articulated in the evidence of Mr Kambouris, is that a demand from the NAB could have been met by sale of the properties owned by BTC and Betac and refinance of her remaining indebtedness, rather than by forced sale of her own properties. As set out earlier, I accept the submission of the second defendant that the plaintiff must show that this outcome was not just possible, but that it would have occurred, and would have prevented the sale of her own properties.

164 BTC and Betac owned three properties prior to the refinance- a property at 2/650 Warrigal Road, Oakleigh South; a property owned by Betac at 38 Goodlett Avenue, Loch Sport and a property owned by BTC at 19 Alfred Grove, Oakleigh East. Alfred Grove, which was vacant land, was in fact sold in 2006, and the whole of the sale proceeds were applied to the BTC liability on 30 November 2006. The evidence of Mr Kambouris is that the whole of the sale proceeds of $160,000 were required for a bank guarantee that had been called upon, and so effect could not be given to an earlier agreement he had reached with Mr Kiatos and Mr Floros that $60,000 from the proceeds would be paid to his son Jonathan in lieu of wages, and $100,000 to the plaintiff in lieu of Mr Kambouris' wages.[200]

165 The other two properties were not externally sold at this time. The plaintiff's counterfactual assumes that they would have been, and would have sufficiently reduced her liability to the NAB to avoid sale of her own properties. The second defendant obtained retrospective descriptions and valuations of these properties as at December 2006 from Sutherland Farrelly, on the assumption of sale at that time. There was no cross examination on that evidence, and no competing evidence in the plaintiff's case, and accordingly I accept the evidence of Mr Stuart Norman of Sutherland Farrelly.[201]

166 That evidence is that 2/650 Warrigal Road is the rear of a dual occupancy, effectively being the 'rear yard' of an original weatherboard dwelling. Mr Norman assumed that at December 2006 it was vacant land, because it was at the date of his retrospective valuation ( 23 April 2014) under development.[202] He values the site at that time on that basis in the range $130,000-$150,000. Mr Kambouris' evidence is BTC or Betac had commenced developing the site, had brought construction up to framing and bricking and had a buyer. After Betac went into liquidation the NAB sold the property, but as the construction had been exposed to the weather it had to be demolished.[203] As it is not clear from Mr Kambouris' evidence what the state of the land was at December 2006, and what the likely sale price was, if developed at that time, I prefer the evidence of Mr Norman on value at that time.

167 Goodlett Avenue was also vacant land as at the date of its retrospective valuation (20 April 2014) and is assumed to have been so at December 2006. Sutherland Farrelly value it in the range $150,000-$175,000 as at December 2006.

168 Although the onus is on the plaintiff to show that sale of these two properties would have so reduced the plaintiff's remaining indebtedness, after application of the sale proceeds from Alfred Grove, that she could have refinanced the balance, she has not given any evidence herself to support that proposition, or adduced detailed evidence from Mr Kambouris to that effect, or obtained any expert evidence to support the proposition. The only evidence to support it in the plaintiff's case is the evidence of Mr Kambouris that the NAB would have recovered in the order of $450,000 or $500,000 and that there was sufficient equity in his wife's properties to renegotiate the remaining indebtedness, and allow time to pursue Mr Floros. [204]

169 The second defendant did obtain expert evidence to test the contention, from Mr Meredith of Ferrier Hodgson, which was admitted without cross examination. Accordingly, I accept that evidence. Where it differs from that of Mr Kambouris, I prefer the evidence of Mr Meredith in view of his expertise and his detailed examination of the question.

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