Todd Hadley Pty Limited v Lake Maintenance

Court of Appeal (NSW)|2019-07-24|Before: Bell P, McCallum JA

61 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25 LM Investment Management Ltd v BMT & Associates Pty Ltd (No 2) [2016] NSWSC 317 NZI Capital Corp Pty Ltd v Child (1991) 23 NSWLR 481 Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 Ross v Cook [2009] NSWSC 671 Southwell v Bennett [2010] NSWSC 1372 Stewart v Ronalds [2009] NSWSC 455 Street v Luna Park Sydney Pty Limited [2007] NSWSC 697 Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 Tepko Pty Limited v Water Board (2001) 206 CLR 1; [2001] HCA 19 TVW Enterprises Limited v Duffy [1985] FCA 109 Wardley Australia Limited v Western Australia (1992) 175 CLR 514; [1992] HCA 55 Warragamba Winery Pty Ltd v State of New South Wales [2010] NSWSC 66 Category: Principal judgment Parties: Todd Hadley Pty Limited (First Appellant) Sean McGill Pty Ltd (Second Appellant) Todd Hadley (Third Appellant) Lake Maintenance (NSW) Pty Limited (Respondent) Representation: Counsel: MT McCulloch SC (Appellants) C Birch SC, P Thew (Respondent)

Solicitors: Wotton+Kearney Lawyers (Appellants) Peter Kilmurray Lawyers (Respondent) File Number(s): 2019/119541 Publication restriction: N/A Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Common Law Citation: [2019] NSWSC 297 Date of Decision: 22 March 2019 Before: Wilson J File Number(s): 2018/00184796

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

[This headnote is not to be read as part of the judgment] In proceedings brought in the Supreme Court of New South Wales by a mortgage lender (the Lender) against a valuer (the Valuer), claiming damages for professional negligence and statutory breaches in connection with the provision of a valuation for mortgage lending purposes, the Valuer sought that a separate question be stated to determine when the Lender's causes of action accrued, it being contended by the Valuer that the Lender's claims were statute barred. The Valuer contended that they accrued when it became clear that the Lender could not recoup the amount advanced under a mortgage from the sale of the mortgaged property, and that the recoverability of the moneys advanced from the borrower pursuant to a personal covenant in the mortgage was irrelevant to this question. This contention was said to be supported by dicta of Gaudron J in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25. The primary judge dismissed the application but in doing so wrongly attributed to the Lender an estimate that the hearing of the proposed separate questions would take at least two weeks. In fact, the Lender had estimated that a separate hearing would take between one to two days, and the Valuer had estimated that such a hearing would take half a day. The Valuer sought leave to appeal from that decision and the re-exercise by the Court of Appeal of the discretion in relation to the application for a hearing of separate questions. The Court held (Bell P, Simpson AJA agreeing, McCallum JA dissenting), granting leave to appeal and allowing the appeal: Per Bell P (Simpson AJA agreeing):

Leave to appeal should be granted as the primary judge's exercise of discretion as to whether or not to order the decision of a separate question was vitiated by an erroneous understanding of a highly material matter, namely the likely length of hearing of the separate questions relative to the estimated length of the full trial: [17] (Bell P); [105] (Simpson AJA).
On the basis of assurances from counsel for the Valuer that it would not contend that claims made against it were statute barred for any reason other than that loss or damage was first sustained on the failure to recoup the moneys advanced from the sale of the mortgaged property, it was appropriate to order a single separate question as that would result in a very significant saving of cost and time in the event that it was answered in favour of the Valuer and would not significantly add to the overall cost of proceedings if it was answered in favour of the Lender: [44], [46] (Bell P); [105] (Simpson AJA). Per McCallum JA (dissenting):
Leave to appeal should be refused as the primary judge's factual error as to the time estimate was not material. The error did not wholly undermine the fact that the parties had starkly differing views as to the factual scope of the issues required to be determined for the purpose of the separate question(s): [95]-[96] (McCallum JA).

Judgment

BELL P: The underlying proceedings to which this application for leave to appeal relates involve the written valuation of a property at Wallalong, New South Wales (the Property) by Todd Hadley Pty Limited (the Valuer) on 12 February 2010 (the Valuation Report). The Property was valued for mortgage lending purposes at $7,450,000.
On 23 June 2010, Lake Maintenance (NSW) Pty Limited (the Lender) lent the sum of $3,073,000 to Mr David James Bone (the Borrower) who had procured the valuation and provided it to the Lender. The loan was secured by a mortgage over the Property executed on 21 June 2010 by the Borrower as mortgagor in favour of the Lender as mortgagee. The mortgage contained, in cl 3.1, a personal covenant by the Borrower to repay the principal sum and interest to the Lender. The loan was repayable together with interest on 23 December 2011.
On 25 January 2012, the loan not having been repaid, the Lender appointed receivers to sell the Property. Following the receipt of two offers in the sum of $910,000 and $1,005,000, the latter offer later being increased to $1,105,000, the receivers obtained an independent valuation of the Property at $900,000. On 23 May 2012, a contract was entered into for the sale of the Property for the sum of $1,250,000. Completion took place on 15 June 2012.
The underlying proceedings were commenced on 14 June 2018. In those proceedings, the Lender sues the Valuer for damages for professional negligence as well as for relief under the Competition and Consumer Act 2010 (Cth), Sch 2 − Australian Consumer Law, the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) in relation to the Valuation Report.
Various defences have been filed, including limitation defences, pleading that the Lender's causes of action accrued: (a) on or about 1 May 2012; (b) in the alternative, on or about 23 May 2012 (the date of exchange of the contract for the sale of the Property); or (c) in the further alternative, in the period 21 March 2012 - 23 May 2012.
By Notice of Motion filed on 20 November 2018, the Valuer sought that the Court determine, pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), the following as separate questions in the proceedings: "1. Did the plaintiff suffer loss and damage on or before 1 May 2012? 2. Did the plaintiff suffer loss and damage on or before 23 May 2012? 3. Did the plaintiff suffer loss and damage on or before 13 June 2012? 4. Are the proceedings against the defendants not maintainable by reason of: (a) section 14 of the Limitation Act 1969 (NSW); (b) section 262 of the Australian Consumer Law; (c) section 82 of the Trade Practices Act 1974 (Cth); or (d) section 68 of the Fair Trading Act 1987 (NSW)?"
It was made plain in the course of the hearing of the application for leave to appeal that the reference to s 262 of the Australian Consumer Law should have been a reference to s 236. It is also apparent that the reference to s 68 of the Fair Trading Act is a reference to s 68 of that Act as it was prior to the commencement of the Fair Trading Amendment (Australian Consumer Law) Act 2010 (NSW), reflecting the Lender's reliance in para 52 of the Statement of Claim on s 42 of the Fair Trading Act as in force at the time of the Valuation Report and/or 31 December 2010.
As is customary, the Notice of Motion also sought "[s]uch other orders as this Honourable Court thinks fit".

The decision at first instance

The primary judge dismissed the application.
In [55]-[57] of the primary judgment, her Honour said: "… Whilst it is tempting to conclude that it should be a straightforward exercise to ascertain when a cause of action arose, in practice it is likely that determination of that issue will depend upon the impact of complex findings of detailed facts, upon principles of law the interpretation of which is flexible or, at least, arguably so. The variables are many, and an easily determined answer to a preliminary and dispositive question is almost certainly illusory. That conclusion is reinforced to a degree by the attitude of the parties which, although not determinative, is a relevant feature. As I have already observed, the defendants argue that separate questions can be answered quickly, efficiently, and cheaply on the basis of documentary material only. The plaintiff puts quite a contrary position, arguing that any hearing of separate questions would take at least two weeks, and require it to call much of its factual case, at great expense and with likely duplication. A likely appeal by the dissatisfied party will only add to the costs needlessly incurred. With such starkly differing approaches, there can be no realistic prospect that separate questions could be answered on the basis of a statement of agreed facts, since agreement is highly unlikely. If a two week hearing with considerable oral testimony resulted, one cannot be sanguine as to the procedure ensuring or at least facilitating the quick and cheap disposition of part or all of the claim." (emphasis added).
It was common ground that her Honour was mistaken in her attribution in [56] to the plaintiff Lender of an estimate of "at least two weeks" for the hearing of the separate questions. It is also plain from the further reference to a "two week hearing" in [57] that this was not a typographical error. Senior counsel for the Lender, Dr Birch SC, accepted this, saying "[i]t's not altogether clear why her Honour said what she did in the judgment". In fact, the Lender had estimated that a separate hearing would take between one to two days and the Valuer half a day. That was to be contrasted with competing estimates of between one week (the Lender's estimate) and at least two weeks (the Valuer's estimate) if the whole matter were to run.
Dr Birch also indicated in the course of the hearing of the application for leave to appeal that the attribution in [56] of the judgment to the Lender of an argument that the hearing of the separate question would "require it to call much of its factual case, at great expense and with likely duplication" was not a submission he made.
These matters were seized upon by the Valuer, as applicant for leave to appeal, to warrant the grant of leave to appeal and the re-exercise by this Court of the discretion in relation to the application for separate questions. Reference was made in this regard to the judgment of Ward JA (as her Honour then was) in Dank v Cronulla Sutherland District Rugby League Football Club Ltd [2014] NSWCA 288 at [73]-[74] where her Honour said: "Appellate courts exercise particular caution in reviewing interlocutory rulings on matters of practice and procedure (Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170 at [9] 177; Re Will of Gilbert (1946) 46 SR (NSW) 318 at 322-3). The task of a party challenging a discretionary interlocutory ruling on such a matter is recognised as being a difficult one (Warragamba Winery Pty Ltd v State of New South Wales [2010] NSWCA 174 at [6]; Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45]). To succeed in challenging the exercise of a discretion, it is necessary to establish an error of legal principle; material error of fact; that the decision maker took into account some irrelevant consideration or failed to take into account or give sufficient weight to a relevant consideration; or arrived at a result so unreasonable or unjust as to suggest such an error (Micallef per Heydon JA, as his Honour then was, at [45])."
The two errors identified in [11] and [12] above were said by the Valuer to be "material errors of fact". In my opinion, that submission was correct.
The length of time which a separate question with the capacity to resolve the entirety of the dispute may take, relative to the likely length of a full hearing, is a very important consideration in the exercise of a discretion whether or not to order the decision of a separate question, as authorities cited by the primary judge made plain. These included: TVW Enterprises Ltd v Duffy [1985] FCA 109; Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-142; Southwell v Bennett [2010] NSWSC 1372 at [15] (Southwell); Allandale Blue Metal Pty Ltd v Roads and Maritime Services [2013] NSWCA 103 at [92] per Ward JA (Allandale), in turn citing Flore v NSW Department of Education and Training [2006] NSWSC 1227 at [32]; Street v Luna Park Sydney Pty Limited [2007] NSWSC 697 at [6]; Stewart v Ronalds [2009] NSWSC 455; Hubertus Schuetzenverein Liverpool Rifle Club Limited v Commonwealth of Australia (1994) 51 FCR 213; [1994] FCA 1161; (1994) 85 LGERA 37.
Section 56 of the Civil Procedure Act 2005 (NSW) also necessarily makes an identification of the likely length and cost of the hearing of a separate question, as opposed to the likely length and cost of a full trial, highly germane to the exercise of any discretion as to whether or not to order a separate question.
Whilst it is correct that the primary judge spoke in [56] of being "reinforced" in her conclusion by the matters she goes on to discuss in that paragraph, if, as seems to be apparent, her Honour considered the application for a separate question whilst labouring under a mistaken belief as to a highly material matter, namely the likely length of hearing of the separate question(s) vis-à-vis the estimated length of the full trial, it seems to me, with respect, impossible to conclude other than that her Honour's discretion miscarried. As was said in House v R (1936) 55 CLR 499 at 505; [1936] HCA 40: "[i]f the judge acts upon a wrong principle, if he [or she] allows extraneous or irrelevant matters to guide or affect him [or her], if he [or she] mistakes the facts, if he [or she] does not take into account some material consideration, then his [or her] determination should be reviewed and the appellate court may exercise its own discretion in substitution for his [or hers] if it has the materials for doing so." The primary judge's error meant that her Honour necessarily "[did] not take into account some material consideration", namely the parties' respective estimates of the length of time for the hearing of the separate question(s).
It follows, in my opinion, that her Honour's exercise of discretion was necessarily vitiated with the consequence that leave to appeal should be granted and the discretion exercised afresh.
It is necessary therefore to turn to the submissions advanced by the parties in support of and against the stating of separate question(s).

The parties' submissions

Mr McCulloch SC, who appeared for the Valuer, accepted, consistent with well-established authority, that the Court should exercise caution when asked to order the determination of separate questions: see, for example, Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 at [436]; Tepko Pty Limited v Water Board (2001) 206 CLR 1; [2001] HCA 19 at [168]-[170]; Commonwealth Bank of Australia v Clune [2008] NSWSC 1125 at [6] (Clune); Bailey and Bailey v Director-General Department of Energy Climate Change and Water [2010] NSWSC 979 at [4]; Southwell at [15]. He contended, however, that the issue sought to be raised by the proposed separate question(s) raised a discrete question of law that, if answered in his client's favour, would resolve the proceedings.
The issue and real question, in short, was whether the Lender's causes of action against the Valuer arose at least by the time the subject Property was sold by the Lender, as mortgagee in possession, as a result of which it became clear that the Lender was unable to recover the amount advanced under the mortgage from the sale of the mortgaged Property or whether it only arose at some other later date when it could be shown to be reasonably ascertainable that the Lender was unable to recover the balance of the debt owed from the Borrower under the personal covenant contained in the mortgage.
The Valuer contended that this question was answered directly by the following passage from the judgment of Gaudron J in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 at 424-425; [1999] HCA 25 at [16] (Kenny & Good): "The interest that a mortgage lender seeks to protect by obtaining a valuation of the proposed security is not simply an interest in having a margin of security over and above the mortgage debt. Rather, it is that, in the event of default, it should be able to recoup, by sale of the property, the amount owing under the mortgage. And that is also the interest of a mortgage insurer. It is the risk that recoupment might not be possible that calls the valuer's duty of care into existence. And it is the interest in recoupment that is infringed by breach of that duty. Moreover, the time that loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible. In the case of a mortgage transaction, that will occur when it is reasonably ascertainable that sale will result in a loss. At the earliest it will be when default occurs and, at the latest, when the property is sold." (footnote omitted, emphasis added).
Gaudron J cited as authority for the penultimate sentence the decision of Brennan J in Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 537; [1992] HCA 55 (Wardley) where his Honour had said: "The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is 'worse off than if he had not entered into the transaction'." (emphasis in original).
The Valuer also placed reliance upon the following passages in the judgment of Gummow J in Kenny & Good at [85]-[89]: "Mason CJ, Dawson, Gaudron and McHugh JJ in Wardley Australia Ltd v Western Australia considered the economic loss arising from conduct which contravened s 52 of the Trade Practices Act. Their Honours said: 'The kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected.' They went on to distinguish the detriment suffered by a person when first entering into an agreement relying on the negligent misrepresentation and the legal concept of 'loss or damage' which may manifest at a later time. These propositions apply with equal force to the tort of negligence and to this case. The above characterisation of MGICA's interest accords with both MGICA's commercial expectations and the nature of the risk being met by the valuation. MGICA's risk was not fixed at the time of the valuation. Rather, it varied during the life of the mortgage insurance. … MGICA's risk of non-payment 'crystallised' at the moment of realisation, when the relationship between the market value of the property and the moneys secured became fixed in the relevant sense. MGICA sustained an economic loss arising from the fall in the property market as a result of the valuation because the value of the property had been negligently overstated in circumstances where MGICA would not have entered into the transaction but for the valuation. The 'loss' which is recoverable was sustained at the time of default and not at the time of entering into the transaction." (footnotes omitted).
Dr Birch essentially accepted in the course of argument on the application for leave to appeal that, were the question posed in [21] above answered in the Valuer's favour, the Valuer would succeed. He said: "Of course, if it falls in Mr McCulloch's favour, then there mightn't be very much to say. I won't make a formal admission right now, but I can see if he's right that it's the security alone then I've got a serious difficulty in light of the contract date."
Essentially, the question boils down to whether or not, in a mortgage transaction, loss or damage occasioned by an allegedly negligent or misleading valuation arises from the inability to recoup moneys advanced pursuant to the mortgage from the mortgaged property, or whether any cause of action will only arise when it is ascertained or reasonably ascertainable that the moneys advanced (or the balance of the moneys advanced) cannot also be recouped from the borrower under the borrower's personal covenant in or implied into the mortgage (see NZI Capital Corp Pty Ltd v Child (1991) 23 NSWLR 481 at 489) or in loan documentation associated with the mortgage.
Dr Birch submitted that the latter view for which he contended was supported by the following passages from the majority joint judgment in Wardley (at 527 and 533): "When a plaintiff is induced by a misrepresentation to enter into an agreement which is, or proves to be, to his or her disadvantage, the plaintiff sustains a detriment in a general sense on entry into the agreement. That is because the agreement subjects the plaintiff to obligations and liabilities which exceed the value or worth of the rights and benefits which it confers upon the plaintiff. But, as will appear shortly, detriment in this general sense has not universally been equated with the legal concept of 'loss or damage'. And that is just as well. In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired. To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of undercompensation or overcompensation, the risk of the former being the greater. … It is unjust and unreasonable to expect the plaintiff to commence proceedings before the contingency is fulfilled. If an action is commenced before that date, it will fail if the events so transpire that it becomes clear that no loss is, or will be, incurred. Moreover, the plaintiff will run the risk that damages will be estimated on a contingency basis, in which event the compensation awarded may not fully compensate the plaintiff for the loss ultimately suffered. These practical consequences which would follow from an adoption of the view for which the appellants contend outweigh the strength of the argument that the principle applicable to the cases in which the plaintiff acquires property (or a chose in action) should be extended to cases where an agreement subjects the plaintiff to a contingent loss. In such cases, it is fair and sensible to say that the plaintiff does not incur loss until the contingency is fulfilled."
It is interesting at this point to observe that Gaudron J was a member of the majority in Wardley and obviously saw nothing inconsistent in these passages with her subsequent observations in Kenny & Good set out at [22] above. Interestingly also, the majority in Wardley said earlier in the judgment (at 527) that: "Economic loss may take a variety of forms and, as Gaudron J. noted in Hawkins v. Clayton [(1988) 164 CLR 539 at 600-601], the answer to the question when a cause of action for negligence causing economic loss accrues may require consideration of the precise interest infringed by the negligent act or omission. The kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected." (emphasis added, footnotes omitted).
In Ross v Cook [2009] NSWSC 671, Davies J considered both Kenny & Good and Wardley together with HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54. At [31]-[32], his Honour observed: "I do not agree with these submissions. When properly analysed, the decisions in HTW Valuers on the one hand and Kenny & Good and Wardley on the other hand sit comfortably together based on the principles discussed, particularly in Wardley but also in Kenny & Good. What was emphasised in those two cases was the need to enquire what the interest was that was infringed by the negligent act. In relation to a mortgage, as Gaudron J makes clear at [16] in Kenny & Good, the interest that a mortgagee seeks to protect by obtaining a valuation is that it should be able to recoup by the sale of the property the amount owing under the mortgage, and it is the interest in recoupment that is infringed by breach of the duty. That is why the relevant enquiry is the time when recoupment is rendered impossible. That may be as early as default but it may be at a much later time because the default is merely a hiccup along the way. It is not correct to concentrate on the default by the borrower because it is not that default that the valuer is protecting against in providing his or her valuation."
Davies J returned to the question in AE Consulting Pty Ltd v Online Valuations Pty Ltd [2012] NSWSC 1300 at [16]-[17] where he observed: "In addition, the cause of action which the Plaintiffs have against the valuer is likely not to have accrued to them until about the time of the sale of the property after possession had been obtained. I refer in that regard to what was said in Wardley Australia Limited v The State of Western Australia(1992) 175 CLR 514 at 533 and by Gaudron J and Gummow J in Kenny Pty Limited and Good v MGICA (1992) Ltd (1999) 199 CLR 413 at [13]-[16] and [82]-[89]. The right of the Plaintiffs is the right to recoupment of moneys under the mortgage and it is only when recoupment becomes impossible that the cause of action accrues. On that basis it is only when there has been a resale of the property so that the amount of the loss is crystallised that the cause of action has accrued."
It might also be noted that in Artistic Builders Pty Limited v Nash [2010] NSWSC 1442, Hall J described the following "established" propositions (at 628-(5)): "…The nature of the interest, for example, of a lender who seeks to protect that interest by obtaining a valuation of a proposed security includes, in the event of default, that it should be able to recoup by sale of the property the amount owing under the mortgage: Kenny & Good v MGICA [1999] HCA 25 at [17]. It is the risk that recoupment might not be possible that calls the valuer's duty of care into existence: Kenny & Good (supra) at [16]. And it is the interest in recoupment that is infringed by breach of that duty. Moreover, the time that loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible. In the case of a mortgage transaction, that will occur when it is reasonably ascertainable that a sale will result in a loss…"
In Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 at [27], French CJ, Hayne and Kiefel JJ held: "One of the issues in Kenny & Good Pty Ltd v MGICA (1992) Ltd concerned the economic loss suffered by a lender in consequence of a negligent property valuation of the proposed security for the loan. Gaudron J pointed out that the interest of the lender which it had sought to protect by obtaining the valuation was that, in the event of default, the lender should be able to recover the amount owing under the mortgage by the sale of the property." (footnotes omitted).
If the interest of the Lender infringed by the alleged negligence and/or misleading or deceptive conduct of the Valuer is correctly identified as the Lender's interest as mortgagee, then there would be a strong argument for saying that the cause of action accrued following the exercise of rights under the mortgage, the relevant contingency (if there was in truth any contingency at all) being the default under the mortgage, loss crystallising consequent upon the mortgagee's exercise of its power of sale.
So framed, the debate between the parties can be seen as one in relatively narrow compass.
One of Dr Birch's concerns, advanced in opposition to the ordering of the separate questions as formulated by the Valuer, was an apprehension that, even if the Court were to answer the posited separate question(s) in his favour such that the causes of action did not accrue until the inability of the Lender separately to recover directly from the Borrower under the personal covenant was reasonably ascertainable, the question of when that was was a factual one, unsuited for determination in a separate hearing. He also expressed concern that, alternatively, if the questions posited were answered favourably to him, he would then be met at trial with a factual case to the effect that the Borrower's insolvency was reasonably ascertainable by the time of the sale of the Property, so that there would be no particular utility in the separate question hearing.
But for these concerns, Dr Birch's opposition to the separate question(s) was far less pronounced. Thus he said in the course of argument: "If he says today I just want to run that narrow legal question and if I lose it then I accept that I have no limitation defence left at all under any circumstances, I would be almost tempted to accept that, but that's not the position that we've understood …"
It was as a result of this that, in the course of his reply submissions, I sought to ascertain from Mr McCulloch the precise ambit of what he sought to achieve by way of the separate question(s). After identifying that his evidence would be documentary in nature (in addition to the admissions the Valuer had made on the pleadings), the following exchange occurred: "BELL P: That would mean if you [confine] your evidence to that on the questions asked and if they were answered negatively because Gaudron J's view wasn't taken as properly stating the law but personal covenants were relevant et cetera, you wouldn't have another go. McCULLOCH: No. BELL P: You wouldn't be permitted to have another go because the limitation question would have been asked and answered. Do you accept that? It must be right, mustn't it? McCULLOCH: Absolutely. I'd need leave, first of all, to amend which I'd be highly unlikely to get. I wouldn't seek it. BELL P: No, but there would be an issue estoppel on the limitation. McCULLOCH: Absolutely. McCALLUM JA: If it's a separate question that [is] determined, you wouldn't be able to get leave. McCULLOCH: We have put this in this fashion because they are the limitation defences we wish to run and no others. BELL P: So in effect the question of whether or not as a matter of fact Mr Bone was bluffing or being Micawber‑like in his optimism, et cetera, would never be able to be litigated because you would have, on this hypothesis, run and lost your limitation [period] defence. McCULLOCH: Quite so. This puts that limitation defence out in front and it's determined one way or another. And it has benefit ‑ if I may respectfully repeat the earlier submission I made, it has benefits both ways and therefore it's beneficial from the Court's perspective in the litigation as a whole because if we lose‑‑ BELL P: So Dr Birch wouldn't have any incentive to raise or any need to raise the availability of Mr Bone because it would be sufficient for him to say, no, the law is that ‑ well, I suppose he might need to say as a matter of ‑ might need to show as a matter of fact there was a covenant, but he'd say you haven't discharged your burden of saying that recoupment from the debtor was impossible because you're not going to be leading any evidence as to Mr Bone's solvency at any relevant date. Is that right? McCULLOCH: Absolutely. And a fortiori the strength of the point as we pursue it is that the relevant interest infringed is the interest relating to the mortgage and the ability to turn to it as was the fact for recovery, and nothing else relevantly matters because once it's demonstrated that there is some damage flowing from that, as we submit clearly there is, that's the end of the case because proceedings ought [not] to have been commenced."
The assurances from Mr McCulloch, in my opinion, allay the apprehensions Dr Birch articulated in argument. I take them to mean that, neither on the hearing of a separate question nor at any subsequent trial if the separate question is answered unfavourably to the Valuer, would the Valuer seek to contend that the Borrower's inability to pay on the personal covenant was ascertainable at any particular date such that the claim was statute barred for that reason. Indeed, I take Mr McCulloch's assurances to mean that the Valuer would not seek to lead any evidence about or make submissions, either at the hearing of a separate question or any subsequent hearing of the matter, in relation to the ascertainability of the Borrower's ability to meet his obligations under the personal covenant.
If a separate question is to be ordered, it would only be ordered on the basis of these assurances which would preclude the Valuer from running any limitation defence, other than that the limitation period commenced to run no later than the date of entry into the contract for the sale of the Property because, by that date, it was clear that the Lender would not be able to recoup all of the moneys advanced from the sale of the mortgaged Property out of that sale.
The clarification of these matters in the course of Mr McCulloch's reply submissions had the consequence that it was clear that any hearing of the separate question would essentially be confined to a question of law, given that no controversy attached to the chronology concerning the date of the Valuation Report, the date of the mortgage, the date of the contract for sale of the Property and the date of the commencement of proceedings. This eliminated any scope for factual controversy, and, as I have noted, the Valuer eschewed any factual case based upon the ascertainability or otherwise within the six-year limitation period of the Borrower's wherewithal to meet his obligations under the personal covenant as contained in cl 3.1 of the mortgage. Such a hearing, with the benefit of written submissions, would take no more than a day and in all likelihood considerably less. Such a hearing would be a ripe candidate for removal into the Court of Appeal for determination under r 1.21 of the UCPR.
When this is compared to the likely length of a full hearing, which would involve not only questions of expert evidence in relation to the competence of the valuation but also questions of reliance by the Lender (in relation to which lengthy cross examination could be expected and was indeed foreshadowed), the contrast is significant. As noted earlier in these reasons, the parties estimated that between one and two weeks would be involved in a full hearing of the matter. A hearing of that dimension also requires significant preparation time. A much longer hearing also means a much more expensive hearing. There is also the public interest entailed in the efficient use of scarce judicial resources.
Mr McCulloch strongly urged upon the Court the injunction contained in s 56(1) and (2) of the Civil Procedure Act, namely that: "(1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. (2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule."
In this context, as Beech-Jones J said in Crawley v Vero Insurance Ltd [2012] NSWSC 593 at [16]: "[I]t is trite to observe that the power conferred by rule 28.2 [of the UCPR] is to be exercised by reference to the overriding purpose of the Civil Procedure Act 2005 'to facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings' (s 56). One aspect of that command which my analysis below seeks to emphasise is the desirability of the proceedings being 'cheap'. I am under no illusion that these proceedings will be anything other than expensive for the parties, but that is not an excuse to let considerations of cost fall away. The system of litigation in this State expects that counsel appearing will be across all issues in the case and that the legal representatives will marshall all relevant evidence concerning those issues. Experience demonstrates that those steps in turn require a much larger body of material to be considered. All of this effort involves cost. Sometimes it is rendered futile because the focus of all this attention is rendered otiose by the Courts' determination of some other issue."
If the separate question were to be answered in favour of the Valuer, there would be a very significant saving of cost and time. Even if it were resolved against the Valuer, any additional expense involved in the hearing of the separate question would be marginal. The issue would not be revisited at trial and, in light of what Mr McCulloch made clear in the passage set out at [37] above, the question of limitation would not be revisited, nor would any factual issues be opened up in relation to it. As Ward JA said in Allandale at [92]: "… if the separate determination of particular discrete issues may achieve economies in time and expense in the resolution of the proceedings or obviate the necessity for a trial on all issues then it may be both appropriate and desirable for there to be such an order".
Furthermore, the narrow and essentially legal nature of the separate question means that no issue relating to the credibility of witnesses would arise as a result of a separate question hearing, this being a consideration which often tends powerfully against orders for separate questions: Warragamba Winery Pty Ltd v State of New South Wales [2010] NSWSC 66 at [10]−[14].
In my opinion, this is an appropriate case for a separate question, although I do not consider that it is either necessary or desirable for each of the four questions set out in [6] above to be answered. It is appropriate for the Court to have a role in the formulation of the question(s) to be asked: Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 at [6]; Clune. In my view, the issue sought to be determined by the Valuer can be resolved by formulating a question as follows: "Did the plaintiff sustain loss or damage for the purposes of its claims against the defendant by the time of entry into the contract for the sale of the Property on 23 May 2012 with the consequence that the plaintiff's claims against the defendant are statute barred?"
Given that the feasibility of hearing and ambit of the issue sought to be raised by the separate question was only clarified on appeal, costs both of the motion and of the appeal should, in my opinion, be costs in the cause.
Accordingly, I would make the following orders and notation: 1. Grant leave to appeal. 2. Allow the appeal. 3. Set aside the orders of the primary judge and, in lieu thereof, order that, pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW), the Court determine the following separate question: Did the plaintiff sustain loss or damage for the purposes of its claims against the defendant by the time of entry into the contract for the sale of the Property on 23 May 2012 with the consequence that the plaintiff's claims against the defendant are statute barred? 1. In making order 3, the Court notes that the defendant will not contend, in the course of the hearing of the separate question or subsequently, that the claims made against it are statute barred for any reason other than that loss or damage was sustained by the plaintiff by reason of entry into the sale of the Property on 23 May 2012. 2. Costs of the motion at first instance and costs of the appeal to be costs in the cause.
McCALLUM JA: Lake Maintenance (NSW) Pty Ltd made a loan of approximately $3 million to a man named David Bone. The loan was secured by a mortgage over a property valued at $7,450,000. Mr Bone was unable to repay the loan and the security property was sold for significantly less than anticipated. Lake Maintenance brought proceedings in the Supreme Court against the valuers claiming damages for professional negligence and statutory breaches in connection with the provision of the valuation. The amount claimed (including interest at the default rate under the loan agreement with Mr Bone) exceeds $22 million.
The defendants pleaded that the claims were statute-barred and sought to have that issue resolved by the determination of separate, preliminary questions. That application was refused by the primary judge (Wilson J). The defendants (referred to hereafter as the applicants) seek leave to appeal from that decision. Leave is required because the decision was interlocutory: s 101(e) of the Supreme Court Act 1970 (NSW).
The matter was listed for concurrent hearing of the application for leave and, if granted, the appeal. I am of the view that leave to appeal should be refused, for the following reasons.

Relevant facts and dates

Each of the causes of action relied upon by Lake Maintenance carries a limitation period of six years. The proceedings were commenced on 14 June 2018; the defence contends that all of the causes of action accrued more than six years before that date. In each case, the defence is pleaded by reference to dates on which the likely shortfall upon sale of the security property would have been apparent.
The valuation report provided by the applicants was prepared on the instructions of Mr Bone. It related to a property in Wallalong, a rural suburb in the Hunter Region of New South Wales. The applicants provided a report to Mr Bone dated 12 February 2010 expressing the opinion (subject to the comments and qualifications contained in the report) that the market value of the land as at the date of the report was $7,450,000. That figure was derived having regard to an assessment of the potential for future rezoning and development of the land.
Several months later, Mr Bone provided the valuation report to Lake Maintenance in support of his loan application. On 21 June 2010, he granted the mortgage and on 23 June 2010 the parties entered into a loan agreement under which Lake Maintenance agreed to advance the sum of $3,073,000 to Mr Bone on the terms set out in the agreement. The loan was for a term of 18 months and was repayable together with interest in the sum of $1,965,000 (roughly 42% per annum) on 23 December 2011. The total debt when the loan expired was accordingly $5,038,000. The loan agreement specified a default interest rate of 0.15% per day on that sum ($7,557 per day; 54.75% per annum).
Shortly before the loan was due for repayment in December 2011, Mr Bone provided a statement of his financial position to Lake Maintenance representing that he had assets available to him (mostly real property) valued at over $30 million encumbered in the sum of about $17.6 million.
On 25 January 2012, Lake Maintenance took possession of the Wallalong property and appointed receivers to sell it. On 26 April 2012, an offer was made by way of tender to purchase the property for $910,000. On 27 April 2012, an offer of $1,005,000 was made by a different party. The second offer was later increased to $1,105,000. On 1 May 2012, a valuation was obtained on the instructions of the receiver valuing the property at $900,000. On 14 May 2012, Lake Maintenance's sole director offered to purchase the property for $1,250,000. A contract for sale was entered into on 23 May 2012.
The applicants contend that the claims were all statute-barred by that point. The defence invokes s 14 of the Limitation Act 1969 (NSW), s 262 of the Australian Consumer Law (it was accepted at the hearing that the correct section is s 236), s 82 of the Trade Practices Act 1974 (Cth) and s 68 of the Fair Trading Act 1987 (NSW). The defence is pleaded in identical terms in respect of each cause of action, as follows (defence filed 21 September 2018 pars 62-66, taking the negligence pleading as an example): "(b) the Plaintiff's cause of action in negligence accrued on or about 1 May 2012, being the date upon which a valuation report prepared in respect of the Property by Mark Yazbeck of Newcastle Corporate Real estate Services Pty Limited (trading as Knight Frank Newcastle (Knight Frank), dated 3 April 2012, was provided to the plaintiff and/or its agents; (c) in the alternative, the Plaintiff's cause of action in negligence accrued on 23 May 2012, being the date upon which the Plaintiff (by its agents), as vendor, entered into a Contract of Sale with Wallalong Land Developments in respect of the Property; (d) further and in the alternative, the Plaintiff's cause of action in negligence accrued on a date during the period 21 March 2012 and 23 May 2012, being the date upon which the Plaintiff received offers on the Property from; (i) Greg and Lindy Lidbury, in the amount of $1,005,000; and (ii) Peak Land Pty Ltd in the amount of $910,000."
The sale was completed on 15 June 2012 (giving Lake Maintenance net proceeds of $1,017,561.70) but registration of the transfer was delayed until sometime later. That was a concession to Mr Bone, who had been attempting throughout the sale process to refinance the loan. He was unsuccessful and the transfer was ultimately registered on 8 November 2012.
In the meantime, Lake Maintenance had commenced proceedings against Mr Bone. Those proceedings were resolved in February 2015 by deed of settlement following a formal mediation. The deed provided for Mr Bone to pay Lake Maintenance the sum of $5 million. However, he failed to pay that amount and on 20 February 2017 Lake Maintenance entered judgment against him in that sum. It has been unable to recover any monies from Mr Bone other than the proceeds of the sale of the Wallalong land.

Proceedings before the primary judge

The applicants' notice of motion sought an order under r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) for the separate determination of the following four questions: "1. Did the plaintiff suffer loss and damage on or before 1 May 2012? 2. Did the plaintiff suffer loss and damage on or before 23 May 2012? 3. Did the plaintiff suffer loss and damage on or before 13 June 2012? 4. Are the proceedings against the defendants not maintainable by reason of: (a) section 14 of the Limitation Act 1969 (NSW); (b) section 262 of the Australian Consumer Law [scil: s 236]; (c) section 82 of the Trade Practices Act 1974 (Cth); or (d) section 68 of the Fair Trading Act 1987 (NSW)?"
The dates identified in questions (1) and (2) are, respectively, the date on which the receiver obtained a valuation of the Wallalong property at $900,000 and the date on which Lake Maintenance entered into the contract for sale of the property for $1,250,000 (being the dates specified in pars (b) and (c) of each relevant paragraph of the defence). I note that question (3) does not reflect the defence as currently pleaded and it is not clear why that date was chosen for inclusion in the separate questions. According to the material before the Court, the sale was completed on 15 June 2012.
In any event, it is uncontroversial that, on any of the dates specified in questions (1)-(3), confining attention to the security property as the only source of recoupment of the loan, Lake Maintenance must have suffered a loss at that point. However, the parties were in dispute as to whether that is the right question for the purpose of determining when the causes of action accrued. As the argument was developed, the critical issue was the significance of the personal covenant in the loan agreement.
In the proceedings before the primary judge, the applicants contended that the personal covenant could be put to one side and that the question was whether a loss had been suffered under the mortgage. The argument relied on the decision of the High Court in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 at 424-425; [1999] HCA 25 at [16], where Gaudron J said: "The interest that a mortgage lender seeks to protect by obtaining a valuation of the proposed security is not simply an interest in having a margin of security over and above the mortgage debt. Rather, it is that, in the event of default, it should be able to recoup, by sale of the property, the amount owing under the mortgage. And that is also the interest of a mortgage insurer. It is the risk that recoupment might not be possible that calls the valuer's duty of care into existence. And it is the interest in recoupment that is infringed by breach of that duty. Moreover, the time that loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible. In the case of a mortgage transaction, that will occur when it is reasonably ascertainable that sale will result in a loss. At the earliest it will be when default occurs and, at the latest, when the property is sold." (emphasis added) (footnotes omitted)
The applicants contended that the words "when recoupment is rendered impossible" mean "when recoupment utlilising the security property" is rendered impossible. Without determining whether that is actually a principle for which the decision in Kenny & Good stands, it is convenient to refer to the applicants' contention as the Kenny & Good proposition.
On that basis, the applicants contended that their application could be determined on limited documentary evidence without the need for testimonial evidence. An affidavit sworn in support of the application by Mr Chylek, the solicitor for the applicants, estimated that, with the assistance of a timetable for written submissions, the hearing of the separate question would take approximately half a day (par 34(j)). In written submissions under the name of senior counsel for the applicants, the estimate was that the hearing of the separate question with written submissions "should take no more than one day". It is clear that those estimates assumed the correctness of the Kenny & Good proposition and of the contention that the separate question could be determined on the documents.
Lake Maintenance disputed that the scope of the application could be confined in that way. It submitted that, in order to make out the limitation defences, the applicants would have to establish that, as at the material date (15 June 2012), it was reasonably ascertainable by reference to objective evidence that recoupment of the moneys advanced in reliance on the valuation was impossible having regard to the prospect of recoupment not only from the security property but also from enforcement of the personal covenant. In circumstances where Mr Bone had represented that he was a man of considerable wealth and had repeatedly stated his intention to refinance the loan, it was submitted that determining when recoupment from Mr Bone appeared impossible would be a complex factual question. Lake Maintenance noted that the onus of proof would be on the applicants on that issue.
The contention that there would be a complex factual question if the personal covenant was brought into consideration was supported by an affidavit sworn by the solicitor for Lake Maintenance, Mr McLeod, in which he set out the lengthy course of dealings between Lake Maintenance and Mr Bone after default and before settlement of the sale of the property, after settlement of the sale of the property and continuing up to the point when Mr Bone was made bankrupt on the petition of Lake Maintenance in September 2017. Based on his experience and the anticipated evidence in the proceedings, Mr McLeod expressed the opinion that the determination of the separate question would increase the costs and delay the proceedings. Specifically, he disagreed with Mr Chylek's analysis as to the possibility of determining the separate question by reference to a discrete body of documentary evidence, expressing the view that the evidence was "interrelated, extensive and complex".
Mr McLeod gave an estimate for the hearing of the separate question of "at the very least one day" and said it would be "more likely to require a two day hearing". His estimate for a single final hearing was five days. Mr Chylek's estimate was that any final hearing in the proceedings would take not less than 10 days (par 34(c)).
Lake Maintenance's written submissions expanded on the argument that the matters referred to in the applicants' submissions would be insufficient to make out the limitation defences. It was submitted that consideration of all of the matters relevant to those defences (including the personal covenant) would involve a substantial factual inquiry that "could well overlap with other issues in the proceedings" including the defence of contributory negligence.
Lake Maintenance's written submissions identified four reasons (involving some overlap) for not ordering the separation of the limitation defences. First, it was submitted that the applicants would not even establish an arguable limitation defence merely by establishing that, at the dates identified in the proposed separate questions, the value of the Wallalong property was insufficient to permit recoupment of the moneys advanced. Lake Maintenance submitted that the applicants would have to demonstrate the impossibility of recoupment also having regard to the personal covenant.
Secondly, assuming the applicants undertook that burden, it was noted that consideration of the personal covenant would introduce a raft of evidence requiring examination and analysis of Mr Bone's financial position and that of his related company over the relevant period and consideration as to what would have been reasonably ascertainable by an objective observer in the position of Lake Maintenance in June 2012.
Thirdly, Lake Maintenance noted the potential overlap between that type of inquiry at a hearing of the limitation defences and the substantive issues in the case. Again, reference was made to the defence of contributory negligence through failure to ensure that there was value in Mr Bone's personal covenant.
Fourthly, it was submitted that the applicants "may need to call further evidence, including evidence from Mr Bone". Lake Maintenance submitted that it was not possible to know until that evidence was produced whether or not it would overlap with other issues in the trial.
In summary, the position put forward by Lake Maintenance was two-fold. Assuming the applicants' case would be confined to the documents relating to the mortgage and the sale of the security property, Lake Maintenance submitted that there was a serious doubt as to whether the limitation defences could be made out. Alternatively, assuming the applicants accepted the need, in proving impossibility of recoupment, to have regard to the personal covenant, the issues of complexity and duplication of evidence would arise.
The hearing of the application saw the parties jockeying for position in the resolution of that contest. Counsel for the applicants emphasised the two-week estimate for a final hearing and suggested that it may even be an underestimate. He submitted that, on the other hand, the myriad issues identified in the affidavit of Mr McLeod could, if the separate question was ordered, be addressed by agreed facts, as contemplated by s 191 of the Evidence Act 1995 (NSW).
For his part, counsel for Lake Maintenance adhered to the estimate of only one week for a final hearing. He accepted that the limitation question might be short provided it was "pinned down" to the matters pleaded (set out above). He submitted that, if the Court were minded to make the order for separate determination of the proposed questions, the applicants should be required to give an undertaking not to expand the scope of the pleaded defence. He also made it clear that, if the applicants did seek to rely on any expanded case, there would be no agreement as to facts such as the point at which it was reasonably certain that Mr Bone would not be able to contribute to the recoupment of the loss.

The primary judge's decision

The primary judge noted the applicants' submission, relying on the Kenny & Good proposition, that the proposed separate questions could "be resolved discretely, with resolution of a discrete question of law, by agreed facts, on the basis of written submissions, in a day, at very low costs": at [47]. Her Honour said at [48]: "If all of that was clearly the case, this would be an appropriate matter in which to direct that separate questions be determined. However, I am not persuaded that the matter is as clear as the defendants contend."
After considering the authorities relied upon by Lake Maintenance, her Honour concluded that it could not necessarily be said that it was apparent recoupment was impossible at the time of default or at the time when the contract for the sale of land was exchanged: at [53].
Her Honour concluded: "[53] Here, the plaintiff had the benefit of Mr Bone's personal covenant pursuant to which it could seek to recover its losses from him. It was not confined to recovery from the sale of the land only. In those circumstances, I do not think it could necessarily be said that it was apparent recoupment was impossible at the time of default, or at the time when the Contract for the Sale of land was exchanged. [54] That fact muddies the clarity of the position asserted by the defendants as to when the plaintiff's loss was occasioned. Whilst it is tempting to conclude that it should be a straightforward exercise to ascertain when a cause of action arose, in practice it is likely that determination of that issue will depend upon the impact of complex findings of detailed facts, upon principles of law the interpretation of which is flexible or, at least, arguably so. The variables are many, and an easily determined answer to a preliminary and dispositive question is almost certainly illusory."
Her Honour then added at [55]: "That conclusion is reinforced to a degree by the attitude of the parties which, although not determinative, is a relevant feature. As I have already observed, the defendants argue that separate questions can be answered quickly, efficiently, and cheaply on the basis of documentary material only. The plaintiff puts quite a contrary position, arguing that any hearing of separate questions would take at least two weeks, and require it to call much of its factual case, at great expense and with likely duplication. A likely appeal by the dissatisfied party will only add to the costs needlessly incurred."
The applicants contend that those remarks reveal manifest error, in the reference to an estimate of "at least two weeks" for any hearing of separate questions. It was common ground at the hearing of the present application that her Honour was mistaken in that respect. The estimate of "at least two weeks" was the estimate put forward by the applicants for a final hearing, not the estimate put forward by Lake Maintenance for any hearing of the separate questions. Lake Maintenance had not at any stage suggested an estimate of two weeks. The estimate provided in Mr McLeod's affidavit was one to two days (albeit apparently on the premise that the applicants should be confined to their pleading, which rests on the correctness of the Kenny & Goode proposition). The significance of the judge's mistake is considered below.

Facts admitted by the applicants in the appeal

Before turning to consider the parties' arguments, it is necessary to explain some material placed before this Court which was not put before the primary judge.
In its submissions opposing the present application, Lake Maintenance reiterated that the parties are at odds not only as to the facts to which the Court ought to have regard in determining the limitation defences but also as to the interpretation of the legal principles to be applied and the questions to be answered. It was submitted that consideration of all the matters that would be relevant to the limitation defences would involve a substantial factual inquiry that could well overlap with other issues in the proceedings including the defence of contributory negligence.
The applicants responded by reiterating their primary position that damage is sustained at the time when recovery becomes impossible via the security. It was submitted that the other issues raised by Lake Maintenance were wholly irrelevant to that inquiry.
However, against the risk of rejection of that contention, the applicants proposed that any separate determination of their limitation defence proceed on the basis of facts that would be formally admitted by them so as to obviate the need for the "substantial factual inquiry" posited by Lake Maintenance.
The applicants noted that the following facts are already formally admitted on the pleadings: "5.1 on 29 June 2012, the Respondent commenced proceedings against Mr Bone for recovery of the debt under the 'Loan Agreement' (as defined in paragraph 5 of the Response) including interest, less the 'Net Sale Proceeds' (as defined in paragraph 7 of the Response); 5.2 on 20 February 2015, the parties to the Bone Proceedings entered into a deed of settlement, pursuant to which Mr Bone was required to pay the Respondent the sum of $5m by 20 February 2017, failing which the Respondent was entitled to enter judgment against Mr Bone; 5.3 on 20 February 2017, judgment was entered by consent in the Bone proceedings in favour of the Respondent in the sum of $5m (Bone Judgment); 5.4 on 24 August 2017, the Respondent commenced bankruptcy proceedings against Mr Bone in relation to the Bone Judgment; 5.5 on 28 September 2017, a sequestration order under the Bankruptcy Act 1966 (Cth) was made in respect of Mr Bone and the official trustee in Bankruptcy was appointed as trustee in respect of Mr Bone's estate;"
In addition to noting those facts, the applicants admitted the following further facts (invoking Part 17 Rule 2 of the UCPR): "6.1 up until about 20 August 2012, Mr Bone entered into communications with the Respondent setting out proposals to settle the debt owed on terms that Mr Bone would retain the relevant land; 6.2 by statement of assets and liabilities provided to the Respondent on Newcastle Commercial Finance letterhead, Mr Bone declared that he had assets as at about 7 December 2011 in the sum of about $30,350,000 (including the relevant land), with those assets encumbered in the sum of about $17,632,500; and 6.3 on 29 March 2018, Mr Bone's trustee in bankruptcy issued a final report to creditors which indicated, inter alia, that no dividend to creditors is expected on a final basis."
The object of making those admissions was to obviate any dispute as to the facts, paving the way for the separate determination of the limitation defences turning on a discrete legal question, namely, the proper interpretation of the authorities to be applied in determining when recoupment of the sum loaned by Lake Maintenance to Mr Bone was "rendered impossible".

Submissions on appeal

The applicants accepted that the principles in determining whether leave to appeal should be granted from an interlocutory ruling on a matter of practice and procedure are summarised in the decision of this Court in Dank v Cronulla Sutherland District Rugby League Football Club Limited [2014] NSWCA 288 at [73]-[75], as follows: "[73] Appellate courts exercise particular caution in reviewing interlocutory rulings on matters of practice and procedure (Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170 at [9] 177; Re Will of Gilbert (1946) 46 SR (NSW) 318 at 322-3). The task of a party challenging a discretionary interlocutory ruling on such a matter is recognised as being a difficult one (Warragamba Winery Pty Ltd v New South Wales [2010] NSWCA 174 at [6]; Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45]). [74] To succeed in challenging the exercise of a discretion, it is necessary to establish an error of legal principle; material error of fact; that the decision maker took into account some irrelevant consideration or failed to take into account or give sufficient weight to a relevant consideration; or arrived at a result so unreasonable or unjust as to suggest such an error (Micallef per Heydon JA, as his Honour then was, at [45]). [75] Furthermore, ordinarily it is appropriate to grant leave to appeal from such a decision only where there is an issue of principle involved, or a question of general importance, or an injustice which is reasonably clear in the sense of going beyond what is reasonably arguable (Carolan v AMF Bowling Pty Ltd (t/as Bennetts Green Bowl) [1995] NSWCA 69 at [5]; Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]; Zelden v Sewell; Henamast Pty Ltd v Sewell [2011] NSWCA 56 at [22]; Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32])."
The applicants submitted that leave should be granted because the error of the primary judge is manifest; the question raised for determination will finally resolve the proceedings and result in a significant saving in court time and cost to the parties and the proceedings are "ripe for determination".
The first two proposed grounds of appeal are based on the primary judge's statement at [56] (set out above) that Lake Maintenance had argued that any hearing of separate questions would take "at least two weeks". In the proposed grounds of appeal, the applicants contend that the primary judge erred by having regard to "an incorrect fact, namely, that it would take two weeks" to hear the separate questions. Similarly, in their summary of argument, the applicants submit that the judge erred by "erroneously finding … that it would take two weeks to determine the separate question". That is not what her Honour found. The passage in question records the submission put (albeit incorrectly). Her Honour did not find as a fact that the hearing would take two weeks.
For its part, Lake Maintenance initially sought to characterise the reference to two weeks as a "typographical error" in the judgment. However, it was acknowledged at the hearing that, more probably, her Honour mistook that aspect of the evidence. I am satisfied that her Honour confused the estimates contended for by the parties.
The mistake is understandable. The applicants had proposed an estimate for final hearing of at least two weeks. At the same time, Lake Maintenance was arguing that, contrary to the applicants' submission, the evidence required to determine the separate questions could not be confined to documents and would require exploration of all of the factual issues concerning the financial position of Mr Bone and the representations he was making at various times. In that context, conflation of the estimates to a degree reflected the logic of the competing positions. Unfortunately, however, it overlooked the shorter estimate accepted by Lake Maintenance.
One further matter should be noted as to the primary judge's remarks at [56]. Her Honour recorded that Lake Maintenance was arguing that the hearing of the separate questions would require it to call much of its factual case. I understood its position on that issue to have been slightly more qualified. Lake Maintenance argued that the applicants could not succeed unless they took on the burden of establishing, on an objective test, that recoupment was impossible by reference not only to the security property but also to the position of Mr Bone. The contention was that, if the applicants assumed that burden and lead evidence on that issue, there would be considerable overlap between the evidence the applicants would have to lead on the separate question and the evidence at trial. It was also suggested that Lake Maintenance might, in turn, also need to put on evidence that might duplicate the evidence at the trial. Part of the point was that those features of the separate hearing could not be known in advance. It was in that context that Lake Maintenance suggested that, if the separate questions were to be ordered, the primary judge should take steps to ensure that the applicants were confined to the limitation defences then pleaded.
Although the primary judge mistook the estimate contended for by Lake Maintenance, the error did not wholly undermine the point her Honour was making, which was based on "the attitude of the parties". For convenience, the full paragraph is repeated here: "That conclusion is reinforced to a degree by the attitude of the parties which, although not determinative, is a relevant feature. As I have already observed, the defendants argue that separate questions can be answered quickly, efficiently, and cheaply on the basis of documentary material only. The plaintiff puts quite a contrary position, arguing that any hearing of separate questions would take at least two weeks, and require it to call much of its factual case, at great expense and with likely duplication. A likely appeal by the dissatisfied party will only add to the costs needlessly incurred."
The point was that the very fact that the parties had starkly differing views as to the factual scope of the issues required to be determined for the purpose of the separate questions was in itself likely to complicate their determination. The applicants do not suggest that the attitude of the parties was an irrelevant consideration. Whereas the applicants contended that the separate questions raised a neat, discrete point that could be determined on the documents, Lake Maintenance maintained that the issues raised by those questions were inextricably linked with the substantive issues for trial and that the evidence would involve significant duplication.
Even on the strength of the estimates in fact propounded by the parties, the point had some force. The multitude of issues as to which the parties disagreed told against the likelihood that the hearing of the separate questions would proceed in the neat and orderly way portrayed by the applicants.
Further, as noted by Lake Maintenance, the primary judge's remarks at [56] were said by way of makeweight to the principal basis for her Honour's decision stated at [53]-[54], as indicated by the opening words of [55], "That conclusion is reinforced to a degree…".
For those reasons, I am not persuaded that the factual error as to the time estimate argued by Lake Maintenance was material. I am not persuaded that leave should be granted on that basis.
The third, fourth and fifth grounds of appeal raise the issue of the Kenny & Good proposition. In short, the burden of the argument is that the applicants' position on that issue is incontestable, or at least plainly right.
Lake Maintenance submitted that the primary judge properly applied the principles established by High Court authority including Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 533; [1992] HCA 55, Kenny & Good and Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Limited (2013) 247 CLR 613; [2013] HCA 10 to conclude that there was more than one source of the loss, namely the inability to recover against the security property as well as the inability to recover against the borrower's personal covenant. It further submitted that the Court has had regard to any implications flowing from the presence of a personal covenant in a number of decisions involving contingent liability accrual dates in Ross v Cook [2009] NSWSC 671 (Davies J) and LM Investment Management Ltd v BMT & Associates Pty Ltd (No 2) [2016] NSWSC 317 (Ball J). The most relevant decision is Ross v Cook, where Davies J (who appeared in Kenny & Good) said at [36]: "It is important to bear in mind two things when considering these submissions. The first is that the general principle remains that loss is established in a case such as the present (the loan of funds in reliance on a valuation) when recoupment becomes impossible and that involves the balancing of benefits and burdens which include matters such as rights under personal covenants, rights under guarantees and the ability to realise the sale of the land for an amount that will, when taken with the other matters, bring about the position that the lender recovers its full entitlement. Secondly, as Johnstone DCJ makes clear in Key Nominees, the issue is one of fact that involves an enquiry into when recoupment is impossible and that is when it becomes reasonably ascertainable by objective evidence that sale will result in a loss."
I am not persuaded that any arguable error has been established in the primary judge's consideration of this issue. The relevant passage at [53] of the judgment is set out above. Her Honour said "I do not think it could necessarily be said that it was apparent recoupment was impossible at the time of default or at the time when the Contract for the Sale of land was exchanged". Those remarks indicate that her Honour was satisfied that, contrary to the applicants' position, the Kenny & Good proposition was contestable, from which it followed that the prospect of a substantial factual inquiry at the hearing of the separate questions, including overlap with issues that would otherwise fall to be determined in the main proceedings, could not be ruled out.
The final proposed ground of appeal asserts (in substance) error in failing to find that the prospect of a substantial factual inquiry at the hearing of the separate questions could be overcome by the application of s 191 of the Evidence Act considered against the requirements of Part 6 of the Civil Procedure Act. I do not think there is any merit in that contention. It is very clear from Mr McLeod's affidavit that, assuming the personal covenant is in play, the scope of the factual contest is large. There is no basis to think Lake Maintenance could properly be compelled to proffer its agreement as to the critical issue (when recoupment from that source appeared impossible), nor could the applicants' admissions proffered in the present application overcome that difficulty.
Since writing this judgment I have read the President's judgment in draft. I am less sanguine as to the effect of the clarification offered by Mr McCulloch during reply submissions. In particular, it is not clear to me whether it was intended to abandon the argument based on the admitted facts so as to confine the separate question to essentially a question of law involving no factual controversy. I accept that, if that is the basis on which the matter is to proceed, the prospect of the separate question is considerably more attractive. In any event, in view of the conclusion I have reached as to the primary judge's decision, it is not necessary for me to determine that issue.
SIMPSON AJA: I have had the advantage of reading in draft the judgments of Bell P and McCallum JA. For the reasons that follow I agree with the orders proposed by the President. As the relevant facts have been fully stated in the other judgments, I can move directly to my reasons.
Each of the limitation defences pleaded by Todd Hadley invoked a statutory provision that created a limitation period of 6 years from the date on which the cause of action accrued: Limitation Act 1969 (NSW), s 14, Trade Practices Act 1974 (Cth), s 82, and Fair Trading Act 1987 (NSW), s 68 (as it then was).
That necessarily directs attention to when Lake Maintenance's cause of action first accrued. Each of the separate questions proposed on behalf of Todd Hadley states a date (on which, presumably, it is contended that the cause of action accrued). Each date was more than 6 years prior to the commencement of the proceedings. Each of the dates is referable to a specific event. The underlying assumption appears to be that, on the happening of that event, Lake Maintenance's cause of action accrued. If that were correct in respect of any of the alternative events, the cause of action was statute barred.
There was, however, no agreement on behalf of Lake Maintenance that, on the happening of any of those events, its cause of action accrued. The principal opposition raised by senior counsel for Lake Maintenance to the determination of separate questions (by which the limitation defences would be finally decided) was the potential for a far reaching factual inquiry into that question.
In my opinion, on the basis of the proposed separate questions as framed, the fears so expressed were well-founded. Ordinarily, in allegations of tortious conduct, the cause of action is complete when damage caused by the alleged breach of duty is first sustained, and the cause of action therefore first accrues: Hawkins v Clayton (1988) 164 CLR 539 at 587; [1988] HCA 15. In cases where damage is alleged to have resulted from negligent advice it is not always a simple matter to pinpoint the time at which the damage is sustained.
In Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 at 527; [1992] HCA 55 the plurality (Mason CJ, Dawson, Gaudron and McHugh JJ) adopted the proposition (from the judgment of Gaudron J in Hawkins v Clayton) that, where the interest infringed by the alleged tortious conduct is in recouping monies advanced, the cause of action accrues when recoupment becomes impossible (at p 533). In Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25 at [16] (in a passage cited by both Bell P and McCallum JA) Gaudron J said that: "… the time that loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible. In the case of a mortgage transaction, that will occur when it is reasonably ascertainable that sale will result in a loss. At the earliest it will be when default occurs and, at the latest, when the property is sold."
The proposed separate questions framed on behalf of Todd Hadley leave open what I consider to be a very large question concerning when it was reasonably ascertainable that Lake Maintenance would not be able to recoup the money advanced. One issue relevant to that question is whether it is to be assumed that possible recoupment is available only from the security property, or whether it is open to take into account personal covenants given by the borrower, from which the lender might seek recoupment. The last sentence of the passage from Kenny & Good extracted could be, and has been, taken to suggest that the existence and availability of, for example, personal covenants in addition to the security property is irrelevant to the determination of the time at which it will be reasonably ascertainable that loss will eventuate, and hence the time at which the cause of action first accrued.
In this case, if it were held that the potential for recoupment is limited to the security property, it is all but inevitable that the limitation defences would succeed and the proceedings would be brought to an end. That is a powerful consideration in determining whether a separate question or questions should be ordered, more powerful depending on the assessed strength of the argument. It is sufficient to say that I do not regard the argument that personal covenants are irrelevant, based on the observations of Gaudron J in Kenny & Good, as having particular strength. In my opinion, her Honour was not addressing a circumstance in which recoupment might have been possible from sources other than the security property, and no other member of the Court expressly adopted her Honour's observations. Nevertheless, the question is distinctly arguable, and resolution in favour of the proposition, put on behalf of Todd Hadley, that the personal covenants have no bearing on the determination of the time at which the present cause of action accrued would all but terminate the principal proceedings, with significant savings in time and cost to the parties, as well as judicial resources.
But the Kenny & Good question is not the only relevant question. If it be held, contrary to the argument advanced on behalf of Todd Hadley, that Mr Bone's personal covenant is available to be taken into account, questions would arise concerning when it was reasonably ascertainable that resort to the personal covenants would not satisfy the debt. That would involve questions concerning Mr Bone's personal financial position, and what Lake Maintenance did know, or ought to have known, of it.
Those questions have the potential to overlap with one of Todd Hadley's other defences, contributory negligence, which also in part raises a question of what (and when) Lake Maintenance knew or ought to have known of Mr Bone's precarious financial position.
The argument in this Court proceeded on the footing that the real question for determination was the Kenny & Good question, that is whether, in determining when recoupment of the debt was rendered impossible, it would be open to take into account the existence and the consequences of the personal covenants.
This gave rise to substantial discussion on the hearing of the appeal. In a passage of transcript extracted by Bell P, senior counsel for Todd Hadley agreed ("absolutely") that, if the separate questions were to be permitted to go forward, he would not propose to lead any evidence concerning Mr Bone's solvency, and therefore, I take it, Lake Maintenance's actual or constructive knowledge of his solvency (or insolvency).
The answer given by senior counsel to the President's question significantly narrows the issues involved in any separate question for determination. The principal proceedings will involve complex questions concerning the valuation of the security property. If a clean, neat answer can be given to a separate question that has the potential to bring finality to the proceedings without the need for a lengthy and complex trial, that is to everybody's advantage. That will occur if the answer is, as Todd Hadley contends, that the possibility of recoupment is limited to the security property.
If, on the other hand, the conclusion is reached that the personal covenants are able to be taken into account, nothing has been lost, but the issues for trial will have been reduced.
That being the case, and although the separate questions as proposed do not reflect the narrowing of the issues to be determined that emerged on the hearing of the appeal, I agree with Bell P that this is a suitable case for the determination of a separate question.
I agree with the reduction of the separate questions from three to one, as proposed by the President. I wish to make it perfectly clear that, without the agreement that Mr Bone's financial stability would not be raised, I would take a different view.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 November 2019

Fair Trading Amendment (Australian Consumer Law) Act 2010(NSW)

Trade Practices Act 1974(Cth)s 82

Australian Consumer Law, the Trade Practices Act 1974(Cth)

Uniform Civil Procedure Rules 2005(NSW)rr 1.21, 17.2, 28.2

Fair Trading Act 1987(NSW)ss 42, 68

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