to which Mr Carkagis gave the answer "No".
517 At T430 he answered the question "Yes" and Mr Stevenson then sat down. However, earlier on in T430 he said that there was arguably no problem in the circumstances put to him why an all monies mortgage should not be signed, but a competent solicitor would still have to evaluate the risks shown up in Tsai and other cases.
518 Mr Martin's evidence went mainly to the section 5 O point.
519 Mr Coles put that Mr Gabelich simply drafted a mortgage that was not fit for the purposes Mitchell Morgan sought it for. It was an all monies mortgage where there was no commercial utility in the drafting of a document in those terms. He put that one drafts an all monies mortgage for portability of borrowing and cross collateralisation and these factors had no relevance at all to Mitchell Morgan. The use of an all monies mortgage gave rise to difficulties which drafting of an ordinary mortgage with a fixed sum owing completely avoided. The fact that the majority of solicitors may have used all monies mortgages widely was not a factor at common law which gave a conclusive answer to whether a solicitor had been negligent.
520 He pointed out that even Mr Martin agreed that where there is a one-off transaction and there are no "all monies" as such, there is no need to use an all monies mortgage: see T435. Mr Martin also noted that the presence or prospect of fraud can never be entirely excluded in a mortgage transaction (T436) a proposition that one would have thought was self evident.
521 It seems to me that Mr Carkagis' evidence went no further than to say that whilst the solicitor must consider each transaction, it would commonly be expected that he or she would use the new form of mortgage, namely, the all monies form of mortgage.
522 Mr Coles puts that there is no question that on the proper construction of the mortgage it is an all monies mortgage. Hunt & Hunt therefore drafted a mortgage in circumstances where: (a) Mitchell Morgan was undertaking short term funding for two months at a relatively high interest rate with no other loan facilities or financial accommodation to Mr Vella; (b) Mr Vella was not a known or regular customer of Mitchell Morgan; (c) Hunt & Hunt knew that Mitchell Morgan had never sighted Mr Vella and were taking no steps personally to identify him; (d) Hunt & Hunt knew that they were to assume the obligation of identification of Mr Vella so as to ensure to the fullest extent possible Mitchell Morgan was not the victim of fraud; and (e) there was no commercial likelihood of the facility being rolled or there being any refinance with Mitchell Morgan given the nature of it being short term funding and the relatively high interest rate being charged.
523 All of those factors, Mr Coles said, irresistibly pointed in favour of the old fashioned type mortgage in the circumstances of this case.
524 Prior to s 5 O, the question of negligence was primarily a question of fact to be determined by the court.
525 In Bolam v Friern Barnet Hospital Management Committee [1957] 1 WLR 582, a medical negligence case, McNair J summed up to the jury at 587-8, using these words:
"He is not guilty of negligence if he has acted in accordance with a practice accepted as proper by a responsible body of medical men skilled in that particular art. ... Putting it the other way round, a man is not negligent, if he is acting in accordance with such a practice, merely because there is a body of opinion who would take a contrary view. ...
It is not essential for you to decide which of two practices is the better practice, as long as you accept that what the defendants did was in accordance with a practice accepted by responsible persons ... ."
526 In Rogers v Whitaker (1992) 175 CLR 479, the High Court declined to follow the Bolam approach. Five justices said at 487:
"In Australia, it has been accepted that the standard of care to be observed by a person with some special skill or competence is that of the ordinary skilled person exercising and professing to have that special skill. But, that standard is not determined solely or even primarily by reference to the practice followed or supported by a responsible body of opinion in the relevant professional trade. ... particularly in the field of non-disclosure of risk and the provision of advice and information, the Bolam principle has been discarded and instead, the courts have adopted the principle that, while evidence of acceptable medical practice is a useful guide for the courts, it is for the courts to adjudicate on what is the appropriate standard of care ... ".
527 It may be that the enactment of s 5 O has neutralised what the High Court said in Rogers v Whitaker. However, if one puts that aside and puts s 5 O to one side, I must ask myself whether a skilled solicitor would have known about, at least the potential problems, highlighted in Tsai and in a situation where there was a short term loan of a fixed sum would have directed his or her mind to whether a traditional form of mortgage naming an amount borrowed was preferable to an all monies mortgage and having had that thought, elected to use an all monies mortgage.
528 Mr Gabelich in his evidence at no stage mentions that he ever directed his attention to whether he should use an all monies mortgage or not. The inference that I draw is that he merely proceeded on the basis that the mortgage would be in his usual form and never considered the problems there may be.
529 Although he was justified in accepting what Mr Flammia said, he was not justified in thereby considering that there was no possibility of fraud. His duty was to protect his client or to warn against possibilities. He had two possible methods of proceeding, one which was safe and the other was subject to some risk and he chose the second, or at least he proceeded along the second path without directing his mind one way or the other as to what he should be doing.
530 Section 5B of the Civil Liability Act 2002 which seems to embrace substantially what was once called the "Shirt Calculus" (see Wyong Shire Council v Shirt (1980) 146 CLR 40, 47-8), says that a person is not negligent in failing to take precautions against the risk of harm unless in the circumstances a reasonable person in that person's position would have taken precautions and that the court must consider the probability that harm would occur if care were not taken, the likely seriousness of the harm and the burden of taking precautions to avoid the risk of harm plus other things that are not relevant to the present case.
531 In the present case, the probability that harm would occur if care were not taken, was fairly low. The enquiries made of Mr Flammia would have gone a long way to satisfying a reasonable person that Mr Vella was the person who had signed the mortgage. Although fraud was not excluded, its presence was improbable.
532 However, counterbalancing that was that the seriousness of the harm to the client was that a very large sum of money would be completely lost. The risk, to my mind, was foreseeable, but could it be said that it was "not insignificant"? I have worried about this point. However, it seems to me that the risk was not insignificant.
533 I say this because the whole reason that a mortgagee, even a professional mortgagee such as the client in the present case, goes to a solicitor is because, unless the documentation is properly drawn, there is a very real risk of loss. I do not consider it is correct merely to focus on the possibility of fraud. Rather, the thing to look at is the whole mortgage transaction and that if the solicitor is careless in and about appreciating the risks or failing to warn or failing to draft properly, then in all events the client will suffer loss and that risk of the transaction being a disaster is not insignificant.
534 The burden of taking precautions to avoid the risk of harm was not very great. The solicitor could have either used the old fashioned form or advised the client, who was an experienced short term money lender of the risk. It seems to me that in the circumstances a reasonable person in the solicitor's position would have taken more precautions in selecting the right form than Hunt & Hunt did in this case.
535 In their submissions, Hunt & Hunt put forward the following propositions (the number in parenthesis refers to the paragraph of their written submissions).
536 (83) The evidence of both experts is that it would be consistent with competent professional practice to use an all monies type mortgage if steps taken by Mr Gabelich were taken to identify the borrower and hence address the risk posed by fraud.
537 (84) Section 5C(b) of the Civil Liability Act 2002 provides that:
"(b) the fact that a risk of harm could have been avoided by doing something in a different way does not of itself give rise to or affect liability for the way in which the thing was done."
538 Thus it is put, that the risk of fraud may also have been addressed by drafting the mortgage in a way which expressly incorporated an obligation to repay a specific sum is not crucial.
539 However, it must be noted that s 5C(b) uses the words "not of itself". The section does not stop this factor being taken into account when making its overall assessment as to whether, on the facts in any particular case, there was negligence.
540 Again, one must construe s 5C(b) rationally. If there is a right way of doing things and a wrong way of doing them, the section cannot be utilised. It is there to deal with the situation where there were two or more apparently equally viable alternatives and a choice was made which turned out not to be the best.
541 As Villa notes in his Annotated Civil Liability Act at p 40, the section reminds judges that:
"The fact that the one alternative has failed to prevent the harm that has eventuated and the other alternative would have so prevented the harm does not logically require a finding that the defendant ought to have chosen the other alternative. Section 5C(b) makes it clear that such reasoning is impermissible."
542 Apart from s 5 O, in my view the evidence shows that on the balance of probabilities Hunt & Hunt may well have breached their duty of care to their client. The transaction was not a very complicated one. It could have been processed in two ways: (a) by using a traditional form of mortgage with a fixed loan; and (b) by using the new form being an all monies mortgage. The first had no risk; the second did have risk. However, the solicitor did not turn his mind to the risk.
543 It should have been self evident to any professional lawyer that one can never avoid completely the risk of fraud because fraudsters can be very convincing. Although it was reasonable for Hunt & Hunt to rely on what Mr Flammia said, that assurance should not have completely ruled out the possibility of fraud. That possibility could have been ruled out, however, by getting an indefeasibly registered mortgage for a fixed sum. Hunt & Hunt do not seem to have taken into account that that would be the better way of doing what they were retained to do; they merely used the ordinary form.
544 (b)(ii) I now turn to consider the impact of s 5 O of the Civil Liability Act 2002. That section is as follows:
"5 O Standard of care for professionals
(1) A person practising a profession ('a professional') does not incur a liability in negligence arising from the provision of a professional service if it is established that the professional acted in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice.
(2) However, peer professional opinion cannot be relied on for the purposes of this section if the court considers that the opinion is irrational.
(3) The fact that there are differing peer professional opinions widely accepted in Australia concerning a matter does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section.
(4) Peer professional opinion does not have to be universally accepted to be considered widely accepted."
545 Section 5 O was considered by the Court of Appeal in Dobler v Halverson [2007] NSWCA 335. In that case Giles JA, with whom Ipp and Basten JJA agreed, referred to the Bolam case and to Rogers v Whitaker and then said at [59]-[61]:
"[59] Section 5 O was amongst the tort law reforms consequent on the Review of Law of Negligence Final Report , September 2002 ('the Review'). It was intended to introduce a modified Bolam principle. Its importance does not lie so much in questions of onus of proof as in who determines the standard of care. ... Apart from s 5 O the Court would determine the standard of care, guided by the evidence of acceptable professional practice. It would not be obliged to hold against the plaintiff if the defendant's conduct accorded with professional practice regarded as acceptable by some although not by others. Section 5 O has the effect that, if the defendant's conduct accorded with professional practice regarded as acceptable by some (more fully, if he 'acted in a manner that ... was widely accepted ... by peer professional opinion as competent professional practice'), then subject to rationality that professional practice sets the standard of care.
[60] In this sense, s 5 O provides a defence. ... The defendant has the interest in calling expert evidence to establish that he acted according to professional practice widely accepted by peer professional opinion, which if accepted will (subject to rationality) mean that he escapes liability.
[61] It follows that I do not accept the appellant's submission that s 5 O did not provide a defence but defined the content of the duty of care owed by the appellant ... with the onus on the respondents to prove that the manner in which he acted was not widely accepted by peer professional opinion as competent professional practice. Section 5 O may end up operating so as to determine the defendant's standard of care, but the standard of care will be that determined by the court with guidance from evidence of acceptable professional practice unless it is established (in practice, by the defendant) that the defendant acted according to professional practice widely accepted by (rational) peer professional opinion."
546 In D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 at 62 [189] McHugh J said:
"The Bolam test of professional liability, which has now been adopted in most Australian jurisdictions by statute (he referred in the footnote inter alia to sections 5 O and 5P of the Civil Liability Act 2002), is intended to preclude judges and legal practitioners imposing their own views as to what is negligent practice in many professions."
547 Mr Stevenson submits (94):
"Hitherto the courts have taken the view that the standard of care to be applied to legal practitioners is a question for the court. However, the Parliament had now enacted that the standard of care is, in the circumstances to which s 5 O applies, a matter for the profession, unless the particular practice is 'irrational'."
548 With respect, I do not consider that states the law with complete accuracy. The plaintiff still may present his or her case in exactly the same way as prior to s 5 O. If there is no evidence called as to peer professional practice, then the court decides the matter in the same way as it always has decided the matter. However, if evidence is called, as the Court of Appeal notes usually by the defendant as to what is peer professional practice in Australia, then it may be that it is the profession that sets the standard.
549 In the instant case, Mr Stevenson points out that the defendant has called evidence of peer professional practice in Australia. That evidence is that all monies mortgages are commonly used throughout Australia and are accepted by the profession.
550 Mr Coles objects to this submission. He says that there is no evidence as to what the Australia-wide professional practice is. All that we have is evidence as to what NSW solicitors would do in the circumstances and this is not necessarily the same as what would happen in Australia generally.
551 It certainly is true that the Torrens system whilst containing certain basic principles throughout Australia, is contained in a series of state and territorial statutes which differ from each other in a number of respects, and that it is sometimes unwise to read an interstate decision as being directly applicable to one's own state; see eg Caleo Bros Pty Ltd v Lyons Bros (Aust) Pty Ltd (1980) 1 BPR 9496, 9498 (though the Court of Appeal did not share those doubts in Lyons Bros (Australia) Pty Ltd v Caleo Bros Pty Ltd (1981) 2 BPR 9334, 9339).
552 It is also true that the Tsai type case has been purely an NSW phenomenon and there does not appear to be any decision that is reported on the point outside NSW.
553 However, I consider it is too restrictive a way of approaching s 5 O to say that unless there is a peer professional practice throughout the whole of Australia the section cannot apply.
554 For instance, if one was working out the duty of care of a tender of a boab tree which as far as I know only grows in the north west of Australia, it surely could not have been the legislature's intention that s 5 O would be completely inapplicable. Rather, it would accord with the intention of the legislature if one said that where one had an industry which was only practised in part of Australia that that part was the Australian peer professional practice for the purpose of s 5 O.
555 Likewise, if one has different though similar professions in different parts of Australia, it would seem to me that one does not dismissively say there is no Australian professional practice but one looks to see the professional practice that exists in the particular locality where the negligent act or omission took place. There may also be other problems where, for instance, things would be done differently on King Island in Tasmania from Thursday Island in Queensland because one is in the cold wet south and the other is in the monsoonal north.
556 Accordingly, I reject the submission that there is not in this case an Australia-wide practice.
557 However, I also do not consider that the evidence that has been presented both of Mr Carkagis and Mr Martin necessarily lead to the view that Hunt & Hunt complied with peer professional practice in the instant case.
558 It may well be that the most common form of mortgage used in Australia or NSW is the all monies form. However, that, of itself, does not excuse a solicitor from addressing the question in each transaction as whether that is the best form in the transaction with which he or she has to document.
559 The principal plank of the case of failure to act with due care and skill is the failure to realise that there were risks in employing the standard form of all monies mortgage in every case, and that the client would be better protected in a "one- off" deal with what has been described in submissions as the "old fashioned form".
560 The problem in the instant case is that the only inference that I can draw from Mr Gabelich's evidence is that he did not turn his mind to the possible problems and he just used the form as a matter of rote.
561 I do not consider that an examination of the provisions of the Civil Liability Act affects the decision in this case.
562 Accordingly, in my view, Mitchell Morgan has made out its case of negligence against Hunt & Hunt.
563 (b)(iii) I now have to direct my mind to the submissions that any breach by Hunt & Hunt did not cause Mitchell Morgan any loss. The principal reasons for this submissions are that: (1) Mitchell Morgan would not have requested that Hunt & Hunt redraft the mortgage even if it had known that there was a risk; and (2) in any event if the mortgage had been drafted so that it expressly incorporated the payment covenants in the loan agreement, it would nevertheless be liable to be set aside pursuant to 38(4) of the Consumer Credit Code and s 7 of the Contracts Review Act.
564 As to the second submission, in view of what I have said in sections 4 and 5 of these reasons, the two statutes I have mentioned would be no answer to the claim.
565 As to (1), although Mr Stevenson's submissions at para 13(c) indicate that these submissions are fleshed out in section G of his submissions, in fact they are not unless I have completely overlooked something.
566 In considering this sub-question, I accept that the onus of establishing on the balance of probabilities that the solicitor's breach of duty caused the client's loss is on the client, see Civil Liability Act 2002 s 5E.
567 As I have mentioned before, Mr Virago's affidavit says that had Hunt & Hunt given him certain advice then he would at least have requested that Hunt & Hunt draft a mortgage that overcame the problem.
568 Mr Stevenson cross-examined Mr Virago on this at T332. He acknowledged that based upon what Mr Gabelich had told Mr Virago of his conversation with Mr Flammia, he was entirely comfortable about proceeding with the transaction and recommending its approval. The cross-examination then continued:
"Q. And your state of mind was, wasn't it, that Mr Gabelich had done all that he could do consistent with Mitchell Morgan's policy to ensure that the identity of the borrower had been ascertained?
A. Yes.
Q. And I want to suggest to you that in those circumstances that had Mr Gabelich said anything to you to the effect that his Honour's decision in the Tsai case might mean if there were a forgery that Mitchell Morgan's position would be unsecure that would have made no difference at all to your decision-making processes about this transaction?
A. At that stage no.
Q. You agree with me?
A. I agree with you, yes."