Vertzayias v King & Ors

Dion Vertzayias - Appellant Charles Stuart King - First Respondent Paul David King - Second Respondent Permanent Custodians Ltd - Third Respondent Representation: J C Kelly - Appellant P Morris SC & R Francois - First Respondent D J Burke - Third Respondent Colin Biggers & Paisley - Appellant Legal Aid Commission of NSW - First Respondent Norton Rose - Third Respondent File Number(s): CA 2006/265811 Decision under appeal Citation: Permanent Custodians Ltd & Anor v King [2009] NSWSC 600, [2010] NSWSC 95, [2010] NSWSC 554 Date of Decision: 2010-05-25 00:00:00 Before: Schmidt J File Number(s): SC 15433/06

Judgment 1GILES JA : Mr Dion Vertzayias, a solicitor, was found liable to Mr Charles King, his client, for negligence in acting in relation to two successive loan transactions. The second loan was used in part to repay the first loan. Mr King obtained judgment for $750,840.92, being the outstanding balance of the second loan for which he was liable to the lender. 2Mr Vertzayias contended on appeal that Mr King's loss caused by his negligence should have been assessed in a much smaller amount; first, because account had not been taken of the benefit Mr King received by repayment from the first loan of existing loans which he had guaranteed or of a substantial repayment of the second loan; and secondly, because an order held to have the effect of reducing Mr King's liability to the lender was wrongly varied so that it no longer had that effect. He further contended that he should have been permitted by late amendment to have the damages reduced by apportionment of his responsibility for Mr King's loss with that of a concurrent wrong-doer, Mr Paul King. 3For the reasons which follow, in my opinion the amount at which Mr King's damages were assessed was correct and the late amendment was correctly refused. The appeal should be dismissed with costs.

Identification of Mr Vertzayias 4Mr King's claim against Mr Vertzayias was brought as a cross-claim. He initially named as cross-defendant "Dion Vertzayas, Vertsayas Lawyers Pty Ltd", and later "Dion Vertzayas, McDonnell Vertzayas Solicitors Mascot". The defence to the cross-claim was in the name of "Dion Vertzayias, McDonell Vertzayias Solicitors". Court documents variously named the cross-defendant in this way, or with "Mascot" as well, or as "Dion Vertzayas trading as McDonnell Vertzayas". 5Apart from discrepancies in spelling, this was not correct. Mr Vertsayias, at the time a sole practitioner, should have been sued and should have defended in his unadorned name. 6Mr Vertzayias's appeal was brought in the name of "Dion Vertzayias, McDonell Vertzayias Solicitors". It should be directed that the notice of appeal and other documents be amended to "Dion Vertzayias".

Prior to the two loan transactions 7Mr Charles King owned and lived in a house at Blakehurst. He was a retired pensioner. Mr Paul King is his son. He conducted travel and associated businesses through King Surfaris Pty Ltd and The Surf Travel Company Pty Ltd ("Surf Travel"). Since there will be frequent reference to them, without intending disrespect I will refer to the Messrs King as Charles and Paul respectively. 8From about 1990 Charles assisted Paul by guaranteeing loans made by National Australia Bank Ltd ("the NAB") to Paul and his companies. Charles' guarantee was secured by a mortgage of the Blakehurst property. As at early 2002 the loans guaranteed by Charles totalled approximately $212,000.

The first loan transaction 9Paul had to obtain additional working capital for his businesses. He approached Charles, who agreed to assist him again. In January 2002 Paul arranged a loan of $353,500 from Pepper Homeloans Pty Ltd ("Pepper"), with a stated purpose of repaying the NAB, as a loan to himself and Charles secured by a mortgage of the Blakehurst property. 10Mr Vertzayias acted for both Paul and Charles on the loan transaction. Paul did not tell Charles that the NAB had written to him saying that it had "major concerns in relation to the trading position of" Surf Travel. Mr Vertzayias had a copy of the letter, but did not tell Charles of the NAB's expressed concern. Charles thought that he was again a guarantor, and did not understand that he was a joint borrower. 11It is unnecessary to detail Mr Vertzayias's failures to provide proper advice to Charles, or to see to independent advice when Charles was entering into a transaction with such risk of loss of his home. The trial judge found that, but for Mr Vertzayias's breach of his duty towards Charles, Charles would not have entered into the first loan transaction. On appeal, neither the negligence nor the last-mentioned finding was challenged. 12The loan from and mortgage to Pepper was settled in March 2002. For the purposes of the transaction, a 2/100th interest in the Blakehurst property was transferred to Paul. $217,735 was paid to the NAB in repayment of its loans, and Charles' mortgage to the NAB was discharged. $129,335 was paid to Surf Travel. The balance of the loan was retained or disbursed for expenses. 13The loan from Pepper was for 30 years duration, with payment of interest alone for the first five years and then payment of principal and interest. Paul made the interest payments until the loan was repaid from the second loan transaction a year later, although from the figure mentioned at [16] below it may be that there was some default.

The second loan transaction 14In February 2003 Paul told Charles that he needed more money for his businesses, and that he could get a new loan of $450,000 with approximately the same repayments. Charles agreed to continue his assistance: on his understanding, he was again to be guarantor. Paul arranged a loan of $450,000 from Permanent Custodians Limited ("Permanent"), again as a loan to himself and Charles secured by a mortgage of the Blakehurst property. The stated purpose was "to refinance owner occupied property and the balance to assist with home improvements". This was false, save that the Pepper loan was to be repaid. 15Mr Vertzayias again acted for both Paul and Charles on the loan transaction. Paul had not told Charles that Surf Travel had failed. It had been put into administration in November 2002 and had been wound up on 30 December 2002. Although it seems that Mr Vertzayias did not know of this, Mr Vertzayias once more failed to provide proper advice to Charles or to see to independent advice. The trial judge found that but for Mr Vertzayias's breach of his duty towards Charles, Charles would not have entered into the second loan transaction. Neither the negligence nor that finding was challenged on appeal. 16The loan from and mortgage to Permanent was settled in March 2003. $364,201 was paid for the benefit of Pepper in repayment of its loan, and Charles' mortgage to Pepper was discharged. $75,324 was paid to Paul. The balance was presumably retained or disbursed for expenses.

Default under the Permanent loan 17The Permanent loan was also for 30 years, with payment of interest alone for 5 years and thereafter payment of principal and interest. Initially Paul paid the interest. 18In late 2003 Paul was arrested for smuggling cocaine and was incarcerated. He asked Charles and his (Paul's) brother, Mr Tony King ("Tony"), to make the payments until he (Paul) received a share from the sale of his former matrimonial home under an anticipated property settlement with his ex wife. Charles did not have the capacity to pay, but Tony made interest payments until March 2005. 19In March 2005 Charles' lawyers advised that the interest payments should cease. It is not clear why the advice was given, but they did cease. There was default under the Permanent loan.

Permanent's proceedings 20In November 2006 Permanent commenced proceedings against Paul and Charles, claiming possession of the Blakehurst property. Permanent alleged an indebtedness as at 18 October 2006 of $533,344.76, but claimed only possession and did not claim judgment for a money sum. 21Charles cross-claimed against, amongst others, Pepper, Permanent and Mr Vertzayias. The cross-claims against Pepper and Permanent were for relief in relation to the respective loan transactions on the basis that they were unjust contracts within the Contracts Review Act 1980, or were the product of unconscionable conduct in contravention of the Trade Practices Act 1974 (C'th) or the Australian Securities and Investment Commission Act 2001 (C'th). The cross-claim against Mr Vertzayias was in essence for negligence. 22In February 2008 a settlement was reached between Paul, Charles, Pepper, Permanent and some others, but not with Mr Vertzayias. It was recorded in a deed. Pepper covenanted to pay $30,000 to Charles. In January 2007 the Family Court had ordered that $205,000 be paid to Charles from the sale of Paul's former matrimonial home, as the share to which Paul was entitled, and Charles covenanted to pay $235,000 to Permanent being the $30,000 and the $205,000. Paul and Charles agreed to judgment for possession of the Blakehurst property. Permanent covenanted not to enforce the judgment until Charles died or vacated the property. Charles covenanted to pay any money he received from his claim against Mr Vertzayias, other than recovered costs, first to Permanent in repayment of the Permanent loan and secondly to Pepper up to an amount of $30,000. Terms of settlement annexed to the deed provided for orders disposing of the proceedings as between the various parties. 23On 20 February 2008 orders were made in accordance with the terms of settlement as between Charles, Paul and Permanent, dismissing Charles' cross-claim against Permanent and giving judgment for Permanent for possession of the Blakehurst property. The terms of settlement which provided for these orders also provided, "6. No order as to costs", and an order in those terms was made. This was the order held to have the effect of reducing Charles' liability to Permanent, later varied, to which I referred at [2] above. 24The settlement left the Permanent loan on foot and repayable by Paul and Charles. There were releases between many parties to the deed, but there was no release by Permanent in favour of Paul or Charles. On the contrary, the deed provided - " 11. CONTINUING OBLIGATIONS OF CHARLES KING AND PAUL KING 11.1 Subject to the limitations on enforcement in this Deed and the Terms of Settlement, this Deed and the Terms of Settlement do not effect [sic] any obligations which Charles King and Paul King have pursuant to the: 11.1.1 PCL Loan Agreement 11.1.2 PCL Mortgage 12. MODIFICATION OF RIGHTS OF PCL 12.1 Subject to the limitations on enforcement in this Deed and the Terms of Settlement, this Deed and the Terms of Settlement do not effect [sic] any rights which PCL has pursuant to the 12.1.1 PCL Loan Agreement 12.1.2 PCL Mortgage" 25Charles' cross-claim against Mr Vertzayias continued, and was heard over seven days in March-May 2009 and in subsequent applications, to the result earlier indicated.

The damages claimed against Mr Vertzayias 26In the cross-claim Charles claimed as relief "damages for breach of duty or breach of retainer", alternatively if the Permanent loan and mortgage were enforceable against him "an order indemnifying [Charles] against loss arising from the enforcement of [the loan and mortgage]". 27In the body of the cross-claim Charles alleged (para 89) "loss or damage as a result of [Mr Vertzayias's] breach of duty", and gave the particulars - "(a) If the Permanent Home Loan Contract and/or the Permanent Mortgage are enforceable against him, [Charles'] home was encumbered to secure a debt of $533,344.76 claimed in the Statement of Claim filed in these proceedings and other costs of enforcement instead of the $212,000 that was outstanding under [Charles'] guarantee to the National Bank under the National Loan and/or the National Mortgage. (b) If the Peppers Loan or the Peppers Mortgage were enforceable against [Charles], [Charles] has suffered loss and damage of the difference between the amount advanced under the Peppers Loan and Peppers Mortgage and the amount secured under [Charles'] guarantee to the National Bank under the National Loan and/or the National Mortgage." 28Charles also alleged (para 90) that he was - " ... entitled to be indemnified by [Mr Vertzayias] to the extent of his loss or damage as a result of the Permanent Housing Loan or the Permanent mortgage or alternatively to the extent of his loss or damage suffered as a result of the Peppers Loan and or the Peppers mortgage".

Damages at trial 29The judgment sum of $750,840.92 was ultimately calculated by the parties. The parties' submissions on appeal made it necessary to try to understand how it was calculated. Direct information could not be provided, but it was agreed that the judgment sum was the outstanding balance of the Permanent loan as at the date of judgment, and that the components were on the debit side (i) the principal of $450,000, (ii) Permanent's enforcement expenses chargeable under the loan agreement and mortgage, and (iii) interest on the principal and the enforcement expenses; and on the credit side (i) the payments made by Paul and Tony up to March 2005 and (ii) the $235,000 paid by Charles in February 2008. 30The trial judge decided, up to a point, the basis on which the calculation should be made. It is necessary to consider the course of the trial in this respect. There were essentially three steps.

(a) The principal judgment: the NAB amount, the $235,000 and Permanent's costs of the proceedings 31The trial judge gave her principal judgment on 3 July 2009: Permanent Custodians Ltd v King [2009] NSWSC 600 ("J1"). Because of the settlement, the only remaining parties were Charles and Mr Vertzayias. 32After finding liability, her Honour dealt briefly with damages at J1 [167]-[170] - "167 I do accept the fourth cross defendant's case that Mr Vertzayas [sic, throughout] cannot be held liable for the amount originally owing to the NAB. I also accept that Mr Vertzayas cannot be held liable for the legal costs of the plaintiff, the mortgagee Permanent, in relation to these proceedings, given the terms on which they were settled as between Mr Charles King and Permanent, namely, on the basis of no order as to costs. 168 It is not in issue that Permanent had an entitlement under the contract to its reasonable enforcement expenses and that it incurred such expenses in bringing the proceedings. It may not be overlooked, however, that the enforcement proceedings were settled between Permanent and Mr Charles King on the basis that no order as to any costs of the proceedings was to be made. While there was no order that each side should bear its own costs, the effect of no order as to costs, is to leave the costs to lie where they fall. As discussed by Santow J in Wentworth v Wentworth [1999] NSWSC 638 at [29] by reference to Oshlack v Richmond River Council (1998) 193 CLR 72 at 91, there is no question that this is the consequence of the settlement reached. 169 It is unnecessary to consider why such an agreement might have been reached in relation to costs. The parties to the mortgage having resolved their contractual rights in a particular way, it follows that there are no enforcement costs to be ordered against Mr Vertzayas, as damages suffered by Mr Charles King. 170 In calculating damage, I also accept, as was argued for Mr Charles King, that account has to be taken of the recent payment by Mr Charles King of $235,000, as well as the other payments earlier made in respect of the 2003 loan. Some calculations were undertaken for Mr Vertzayas, but not agreed for Mr Charles King. It follows that they will now have to be revisited in the light of the conclusions reached in the judgment." 33Her Honour directed the parties to bring in short minutes "of orders to be made, reflecting the judgment" (J1 [171]). 34These paragraphs of J1 dealt with three matters in the assessment of Charles' damages. 35The first sentence of J1 [167] was concerned with "the amount originally owing to the NAB", that is, the $217,735 paid to the NAB from the Pepper loan. Her Honour held that that amount was not part of Charles' damages; with expansion of the elliptical sentence, so much of the money for which Charles was liable to Permanent as represented the money which went to repay so much of the Pepper loan as went to pay $217,735 to the NAB was not part of Charles' damages. I will call this the NAB amount. 36The parties' competing positions as to the NAB amount were not explained by her Honour, nor was it explained why the NAB amount was not part of the damages. The position as to interest on the NAB amount was left unclear. 37The remainder of J1 [167] and J1 [168]-[169] were concerned with Permanent's costs of the proceedings, regarded as enforcement expenses. I will call this the costs amount. The costs amount was also not part of Charles' damages. The explanation was given: it was not part of Charles' damages because Permanent was not entitled to recover it from Charles, and Permanent was not entitled to recover it from Charles because it had agreed upon order 6 made on 20 February 2008. 38Finally, J1 [170] gave to Mr Vertzayias the benefit of the $235,000 paid by Charles to Permanent, as well as the payments by Paul and Tony. I will call this, unremarkably, the $235,000 payment. Again, the parties' competing positions were not explained, nor were there explained the reason for accepting that account had to be taken of the $235,000 payment or how account was to be taken of it. It will be noted that Charles is said to have argued for that result. 39Ordinarily in the hearing of an appeal attention should be confined to the trial judge's reasons. In an endeavour to understand the first and third of these matters, regard should be had to the parties' submissions. 40Mr Vertzayias's written submissions dated 2 April 2009 said only - "177. The fourth cross defendant cannot be held liable for the amount which was originally owing to the NAB ($217,000 when paid out by the Peppers loan). Mr Charles King had a separate obligation, prior to any transaction involving the fourth cross defendant, which required the repayment of the principle and interest in accordance with the terms of the loan and mortgage. Insofar as relief is sought against the fourth cross defendant, it can only concern that part of the transaction which constitutes the amount over an above that sum. 184 [184. Wilby v St George [2000] SASR 138 per Lander J at [293]-[295] and cases cited therein.]" 41Charles' written submissions dated 6 April 2009 were to the effect that Charles could have obtained security from Paul, or could have not gone ahead with the Pepper loan "forcing Paul King to discharge" the NAB loans before his business encountered losses, or could have asked Tony to assist with the NAB loans or himself to refinance them; and (in a leap of reasoning) that Charles' loss was "the amount required to discharge the mortgage to Permanent as at the date of any judgment". The reasoning appears to have been that if Charles had been properly advised he would not have suffered loss because if he entered into the first loan transaction he would have security from Paul to which he could resort if required to pay Pepper, or if he did not enter into the first loan transaction the NAB loans would have been repaid without recourse to him as guarantor. The submissions and the end result are hard to reconcile with the particulars of loss or damage. 42Mr Vertzayias's written submissions had foreshadowed a calculation. It seems that one was provided, although it is not in the appeal papers. It was probably similar to the calculation partly described at [48]-[50] below. 43In oral submissions on 13 May 2009 counsel for Mr Vertzayias began by referring to "three reasons" why Charles' damages were not the amount owing to Permanent. He said - "The first reason is that at the date of the re-finance Mr King, at the first re-finance, Mr King was indebted - that could be agreed - to the National Australia Bank under these arrangements to $217,000. What we have done in the annexure to these written submissions is put forward mathematically it's not wonderfully precise but it serves the purpose, mathematically is precise but it serves the purpose for the submission, what is being brought to as it were account is the fact that Mr King has never paid off in full the $217,000 odd which has accrued with interest since the date of this re-finance in March 2002." 44Counsel then took the trial judge through the calculation: the other two reasons did not clearly emerge. What counsel said can not confidently be understood without the calculation. Consistently with the submission of 2 April 2009, it included that Charles "got the benefit of this refinance of that continuing to be outstanding - and we are going to get authorities about refinancing is a benefit", and that Charles' claim was incorrect because "that amount reflects partly his prior existing indebtedness". 45Further written submissions of Charles dated 13 May 2009, in the form of speaking notes, included that Mr Vertzayias's calculation of loss - " ... fails to take into account benefit of payment of Charles King of $235,000 and allocation of these monies to NAB liability. That is, the amount claimed is less what was owing to NAB at the time of the first loan in 2002." 46This submission is hard to understand. Account had been taken of the $235,000 payment in that the amount of Permanent's claim included the crediting of that amount. It appears to refer to Mr Vertzayias's arrival at the "existing NAB debt" in the calculation, see below. 47The oral submissions of counsel for Charles began that the damages were "all of the monies owing on the mortgage". The speaking notes were handed up. The thrust of the submissions included that in the "counterfactual" Charles would not have gone ahead with the loan transactions and Paul would have been able to pay out the NAB. What counsel said is also difficult to understand without the calculation to which the submissions were addressed, but it was said the calculations had not taken account of the fact that "290,000 odd was paid by Tony King and Charles King after November 2003, that that money should predominantly, we say, if not entirely, all go towards the NAB debt." This was not elaborated. 48Whatever the then calculation was, it was supplanted by an "assessment of quantum" dated 15 May 2009, provided by Mr Vertzayias by leave. The calculation of the damages to which Charles would be entitled "at best" was - "Cross Claimant's claim $590,475.71- Less existing NAB debt (including interest but deducting payments made by A King and C King $89,913.68 $500,562.03- Less Permanent's Legal Costs (including interest) $193,762.46 $306,799.57- Less the surplus portion of the 2003 Permanent loan (including interest) $136,229.24 $170,570.33 "

49For present purposes only the deduction for "existing NAB debt" is material. It was explained - "3. As at February 2002, when Charles King entered into the loan with Peppers, his existing debt to the NAB was $217,734.27. For the reasons set out in the Fourth Cross Defendant's outline of written closing submissions, and oral submissions on 13 May 2009, the Fourth Cross Defendant cannot be liable for this. 4. Interest has been calculated on the amount of $217,734.27 at a rate of 9.78% as this is the average of the variable interest rates charged on the Permanent loan (which for the period March 2003 to March 2009 ranged from 7.9% to 11.4%, see annexure to Mr Coorey's Affidavit (Exhibit F). 5. Deductions were made for repayments made by: (a) Anthony King, totalling $53,257.06 (made between 7 December 2003 and 7 April 2005; see Charles King's Affidavit (Exhibit B); and (b) Charles King, in the amount of $235,000 (made on 19 February 2008). 6. These calculations are attached at Annexure A. 7. On the basis of these calculations, the amount reflective of the existing debt to the NAB, (including interest and minus payments) is $89,913.68." 50The attached calculations opened with the $217,735, debited interest and credited payments including the $235,000, and arrived at a balance of $89,913.68. 51There was some confusion in the parties' submissions which, with respect, was not cleared up by the first sentence of J1 [167] or by what was said in J1 [170]. 52Mr Vertzayias's case in the written submissions of 2 April 2009 appeared to be that because Charles was already obliged to the NAB, he had not suffered loss so far as he undertook a substituted obligation to Pepper and then to Permanent. It was not a developed submission, and paid no regard to interest. Wilby v St George Bank Ltd [2000] SASC 138 at [293]-[295] to which the written submissions referred was to the effect that equitable relief from a loan transaction would not be given to the extent that the loan was used to pay off an existing loan, because in seeking relief the plaintiff had to do equity. It seems that an analogy was invited. The appeal papers did not indicate that the promised "authorities about refinancing is a benefit" to which counsel referred were provided. 53That position may have been maintained by Mr Vertzayias on 13 May 2009, but seems to have been muddied by reference to what Charles had paid off the NAB amount. The calculation of 15 May 2009 so referring took Mr Vertzayias to a different position. The effect of the calculation was to appropriate the $235,000 payment (and the other payments) to repayment of the NAB amount. However, principles of appropriation of payments were not mentioned, and it was not for Mr Vertzayias to appropriate Charles' $235,000 payment to any particular element of Charles' indebtedness to Permanent. 54It is not clear why the calculation took this course, if Mr Vertzayias was not liable for the NAB amount. Counsel for Mr Vertzayias on appeal (who was not counsel at trial) disclaimed it; he said bluntly that it was wrong. 55On Charles' part, the fundamental submission was that the damages were the whole amount payable to Permanent. This included the NAB amount and interest thereon. On one view, counsel for Charles had accepted, indeed urged, that the $235,000 payment (and the other repayments) should "go towards the NAB debt". I do not understand her to have been exercising a right of appropriation (if there were one), although I confess to failure clearly to understand what was intended. If Charles' submissions did include a purported appropriation, it was not one directed to Permanent. A copy of Permanent's record of the loan account was in evidence: the $235,000 payment was simply credited to a running account, reducing the debit balance at the time of crediting from $709,086.41 to $480,184.23. 56No reference was made in submissions to the particulars in para 89 of the cross-claim, by which Charles' loss was the difference between the amount payable to Permanent and the amount which had been payable to the NAB. 57When the trial judge accepted Mr Vertzayias's "case", what was her Honour accepting? Her Honour referred to J1 as to taking account of the $235,000 payment in a later judgment, see [75]-[76] of the reasons set out at [81] below, but I respectfully am not assisted by what was there said. The acceptance of argument for Charles that account should be taken of the $235,000 payment and the payment by Paul and Tony, and her Honour's statement that Mr Vertzayias's calculation had to be revisited, suggest that the trial judge did not accept the "case" propounded through the calculations of 15 May 2002. The better view, although it is not one to be held with any confidence, is that her Honour accepted the original submission for which Wilby v St George Bank Ltd was cited. 58This regard to the parties' submissions at trial, albeit not fully illuminating, will also be material when considering the submissions on appeal: see [101]-[103] below.

(b) A further judgment: the costs amount again 59The holding at J1 [167]-[169] that Mr Vertzayias could not be held liable for the costs amount sparked further applications. The holding meant that, if Charles' damages were the amount currently owing under the Permanent loan (as Charles had submitted), that amount could not include the costs amount as enforcement expenses which Permanent was entitled to debit to the loan account. This would be unwelcome to Charles, since Permanent was not bound by the decision made as between him and Mr Vertzayias and he was liable to pay to Permanent money which he could not recover from Mr Vertzayias. Although the holding did not bind Permanent, it would be unwelcome to Permanent as an intended recipient of any damages recovered by Charles from Mr Vertzayias. 60One application was by Charles. He sought "recall" of the second sentence of J1 [167] and the whole of J1 [168] and [169]; joinder of Permanent as party to the cross-claim; leave to reopen his case; and a declaration either that Permanent's entitlement to debit enforcement expenses was unaffected by order 6 made on 20 February 2008 or that it was "extinguished" by that order. It did not matter to Charles which declaration was made. The first alternative asked for reversal of the trial judge's holding, and if the declaration was made Charles' damages would include the costs amount which could be passed on to Permanent. On the second alternative, if the declaration was made Permanent would be bound by the holding. 61The other application was by Permanent. It sought an order that order 6 be set aside and - "2. In place of Order 6 of the Consent Orders the following order be made: 'No order as to costs. The Court notes that the plaintiff/cross-defendant is entitled to debit its enforcement expenses, including its legal costs, to the PCL Loan account pursuant to the terms of the PCL Loan." 62The trial judge gave judgment on the applications on 25 February 2010: Permanent Custodians Ltd v King [2010] NSWSC 95 ("J2"). Her Honour ordered that Permanent be joined as party to the cross-claim. She refused to permit Charles to reopen, considering that his course, if she had been in error in her holding, was by way of appeal. She upheld what she referred to as Permanent's "rectification application", and made orders as had been asked by Permanent. 63This was rather strange. There was left intact the order, "No order as to costs", which had been said at J1 [167]-[169] to mean that costs lay where they fell whereby Permanent was not entitled to the costs amount. In refusing leave to reopen on Charles' application, the trial judge adhered to her decision that Charles' damages did not include the costs amount. But on Permanent's application she added a note to the order which destroyed that decision, and which meant that Permanent was entitled to the costs amount and that Charles' damages now included the costs amount. 64It is necessary to explore what was being done in adding the note. 65The order, "No order as to costs" was made by consent, in accordance with the terms of settlement. The trial judge's reasoning at J1 [167]-[169] was that an order in those terms meant that costs lay where they fell, and that by their agreement on an order in those terms the Messrs King and Permanent had "resolved their contractual rights" (J1 [169]) in a way precluding Permanent from debiting the costs amount to the loan account as enforcement expenses. The two steps were not clearly distinguished. The first step was affirmed by the trial judge at J2 [39]. Her Honour's decision reversed the second step. 66At J2 [36] her Honour described the issue in J1 as whether Permanent had "compromised its contractual rights under the mortgage in relation to the costs of the proceedings, by the settlement it had entered with [Charles]", and distinguished Maher v Network Finance Ltd (1986) 4 NSWLR 694 as a case which was not concerned with the effect of a settlement on recovery of costs. At J2 [40] she said of her reasoning in J1 - "40 As a matter of construction, I thus took the view that the Deed provided that Permanent and Mr King had intended that result as a modification to Permanent's rights under the mortgage. The Deed expressly recognized that the parties had agreed that their rights and liabilities under the mortgage were modified in various ways, including by the Terms of Settlement. It was accepted by Mr King that Permanent could have agreed to compromise its rights in respect of costs. I concluded that the Terms of Settlement which contained the order which the Court was asked to make to give effect to that settlement, reflected an agreement as to the costs of the proceedings, on a basis which involved an alteration to Permanent's right to recover those costs from Mr King under the mortgage." 67This took the basis for the decision as to the costs amount to the construction of the deed, including the terms of settlement, rather than (as had been the basis in J1) the effect of an order in the terms of order 6 upon which the parties had agreed. 68The trial judge said at J2 [41]-[43] - "41 What was apparent from the arguments advanced for Mr King in support of the re-opening application, was that he wished to put a more refined and detailed argument as to the proper construction of the Deed and Terms of Settlement than had been advanced at the earlier hearing. By reference to various authorities not earlier referred to, as well as a detailed analysis of various provisions of the Deed which, for example dealt with the validity of the loan (cl 9); the validity of the mortgage (cl 10); continuing obligations under the loan and mortgage (cl 11) and modification of rights of PCL ('Permanent') (cl 12), all variously subject to the terms of the Deed and the Terms of Settlement, it was sought to establish that the conclusion as to the construction of the Deed reached in the July judgment was wrong in law. 42 I am not convinced that such an error was shown, given the terms of the consent orders made, in accordance with the agreement reflected in the Deed and Terms of Settlement. To my mind, the highest the argument climbed was that in annexure B to the Deed, Mr King had agreed with Peppers, that each party would bear their own costs. It followed, it was argued, that Permanent and Mr King must have intended something different, when they agreed that there would be no order as to costs made, as between them. 43 I am unable to accept that argument, having in mind the terms of the deed; what was otherwise agreed between Mr King and Permanent as to the variation of the rights and liabilities flowing from the mortgage; that the relationship between Mr King and Peppers was not that of mortgagor and mortgagee; that their agreement involved no variation to such a mortgage; and the effect of the costs order which was made by the Court." 69But then the trial judge acceded to Permanent's "rectification application". Her Honour said at J2 [50] - "50 In support of its application Permanent led evidence as to the course of the negotiations which had led to the Deed which the parties executed. That evidence was submitted to establish that Permanent and Mr King had not agreed to any variation to Permanent's rights under the mortgage to recover its costs of these proceedings, with the result that the rectification order sought would be made, so as to ensure that the Court's order properly reflected the common intention of the relevant parties as to the rights under the mortgage, which they had not intended to compromise so far as recovery of enforcement costs was concerned." 70In this and subsequent paragraphs I take the reference to Mr King to be to both Paul and Charles, since they were co-defendants and co-settlers with Permanent. The trial judge recorded at J2 [47] that Paul "consented to the order sought by Permanent". 71Her Honour considered the evidence, and concluded at J2 [61] - "61 Contrary to the parties' intention that there be no order inconsistent with Permanent's rights under the mortgage as to its costs, the Court was asked to make a costs order, that there be no order as to costs. Once a court makes a costs order, it has effect, namely that which I earlier outlined. The result is not the same as if no costs order is made by the court. The evidence suggested that this had not been adequately considered and in reality, involved a departure from the agreement which the parties had reached. It had not been intended that the Court would make an order the effect of which was that Mr King and Permanent would each bear their own costs. That was repeatedly sought and rejected." 72The trial judge expressed her ultimate conclusion at J2 [63] - "63 It follows, as a matter of justice that the rectification order sought by Permanent and not opposed by Mr King must be made. The mistake which here arose was as to the effect of the order which the Court was asked to make. That order plainly did not give effect to Mr King and Permanent's established intention, that its right to recover its enforcement costs under the mortgage from Mr King would not be altered by the settlement." 73The substituted order by which the note was added was not because her Honour changed her view of the effect of the original order 6, and added the note to record the changed effect. Nor was it because her Honour gave a different construction to the deed and the terms of settlement: see J2 [41]-[43]. It was because there was a change, by rectification of the deed, to the parties agreeing upon an order in different terms. The order containing the note was then accepted to have a different effect from the original order 6. 74There should have been an order rectifying the deed, or more specifically the terms of settlement as part of the deed, by adding the note to order 6 as stated in the terms of settlement. The Court should then have been asked to revoke the original order 6 and make the new order in accordance with the parties' agreement as rectified: thereupon it was accepted that the order would not have the effect which in J1, affirmed in J2, her Honour had given to the original order 6. 75Permanent's application for substitution of an order was at the least procedurally deficient. And there may have been a deficiency of substance. Despite the addition of the note, the order of the Court was "No order as to costs". From the note, the parties were agreed that Permanent was still entitled to the costs amount. However, if the order in the terms of the original order 6 had the effect given to it by the trial judge in J1, affirmed in J2, could the agreement of the Messrs King and Permanent negate that effect? In particular, could their agreement negate its effect adversely to Mr Vertzayias, who was not a party to their agreement? This particularly invites attention to whether the trial judge was correct in her reasoning that agreement on the order, "No order as to costs" meant that contractual rights had been resolved in a way precluding Permanent from debiting the costs amount to the loan account as enforcement expenses.

(c) The further judgment: the NAB amount again 76The reasons in J2 went beyond resolving the two applications. It appears that on 6 August 2009, presumably because dispute had emerged, a direction was given for submissions on any dispute in relation to the calculation of damages. The reasons dealt with a dispute. 77The trial judge recorded at J2 [65] that there was disagreement "in relation to the debt which Mr Paul King originally owed to the National Australia Bank ('NAB')". Her Honour said at J2 [66] - 66 In his damages claim, Mr King sought to recover the entirety of his liability to Permanent from Mr Vertzayas. I concluded that he could not recover what he had originally borrowed from the NAB. In issue now is a sum of some $90,000, which relates to the interest payable in respect of that loan and how it should be treated, when calculating damages. 78At J2 [67] her Honour described the disagreement - "67 On Mr King's approach, the calculations should proceed on the basis that both the principal and interest on the NAB loan would have been repaid by February 2008, when a payment of $235,000 was made in respect to the Permanent loan. Mr Vertzayas would be liable in respect of what then remained outstanding under the Permanent loan. On Mr Vertzayas' approach, both the principal and the interest on the NAB loan would be deducted from what was owing in respect of the Permanent loan. Mr Vertzayas contended that it having been held that he was not liable for the NAB loan, he was also not liable in respect of interest under that loan. The respective calculations were based on slightly different interest rates, but that was not the point of contention between the parties. The difference focussed on how repayments made by Mr Paul King in respect of the Permanent and Pepper loans were to be treated." 79At J2 [68]-[69] her Honour then further described Charles' position, which she in due course accepted - "68 It was Mr King's case that the overwhelming evidence was that the entirety of the NAB loan would have been repaid, by the payments made by Mr King with the assistance of his sons. Mr Paul King serviced the loans until he was imprisoned. The voluntary administrator's report in December 2002 was that his business then showed a healthy working capital and net shareholder funds, but that it had incurred losses of $594,000. His brother Anthony King then serviced the loans until advice was received from Legal Aid in 2005 that he should stop servicing the loan. The payments made would have more than repaid the NAB loan. 69 Some $309,556.98 in total was repaid in respect of the Pepper and Permanent loans after 2002. The NAB loan stood at some $217,734.23 when repaid in 2002. Mr King thus calculated damages by calculating the monthly interest payments due on the NAB loan ($1,774.53). By paying regard to the amounts actually paid in servicing the Pepper and Permanent loans, which were in excess of those monthly interest repayments and thus available to reduce the principal of the NAB loan, it was calculated that the principal of the loan would have been reduced by some $30,193.63, by April 2005, when repayment ceased. Mr King calculated that interest on the NAB loan, if serviced on an interest only basis after it was repaid in 2002, at the rate of 9%, for 4 and a half years, would have required additional repayments of some $91,822.75 (together with the $217,734.23 principal). On that approach, when the sum of $205,000 was paid off the Permanent loan in January 2007, after the settlement of Mr Paul King's matrimonial proceedings, the NAB loan would have stood at $187,540.64. That payment would thus have overpaid the NAB loan by some $17,459.36. This had to be taken into account when calculating the damages order. ... ". 80After describing the competing submissions, the trial judge said at J2 [74]-[78] - "74 I am satisfied that the resolution of the issue which has arisen between the parties as to the calculation of damages does not require any re-opening of the case, nor does it depend on further findings of fact or principle. The parties have already joined issue on the point and it has been dealt with. 75 It was held in the July judgment that Mr Vertzayas could not be held liable for the amount originally owing to the NAB (at [167]). I also held that it could not be concluded that the NAB loan would not have been serviced, if it had not been repaid in 2002 when the Peppers loan was taken out (at [159]). Mr Paul King had serviced the NAB loan until it was repaid. I found that Mr Paul King intended to service the Peppers and Permanent loans and did so, even after his business went into administration in 2002, until he was imprisoned in 2003 (at [151]). I rejected the submission that his business would have failed earlier, if the Peppers loan had not been taken out (at [158]). I also concluded that account had to be taken of the fact that the business continued with Mr Paul King servicing significantly increased borrowings in 2002, despite the problems the business was then facing (at [159]). When Mr Paul King ceased servicing the loan, Mr Anthony King serviced the loan until April 2005, when he was advised by Legal Aid to cease making payments, paying some $50,000. I also concluded that these payments could not be ignored (at [160]). 76 I thus concluded that in calculating damages, account had to be taken of the repayments of the Peppers and Permanent loans which were made after the NAB loan was paid out, including the repayment of $235,000 in respect of the Permanent loan (which came to Mr King out of the matrimonial proceedings between his son Mr Paul King and his wife and from the settlement with Peppers) (at [170]). In the light of these conclusions, the parties were directed to confer on the calculation of the damages order. 77 The difficulty which has arisen is not a matter of mathematics, which the parties were confident they could resolve, but whether the conclusions which have been reached encompass the way in which Mr Paul King's repayments of the Peppers and Permanent loans should be treated. 78 I am satisfied that the conclusions to which I came in the earlier judgment support the approach to the calculation of damages now urged for Mr King. It was concluded that the NAB loan would have been serviced if it had not been repaid in 2002 and that in calculating damages, account had to be taken of the payments in fact made in respect of the Pepper and Permanent loans by both Mr King, Mr Paul King and Mr Anthony King. Repayment only ceased following the advice of the Legal Aid Commission. As a matter of mathematics, that means that both the principal of the NAB loan and interest, would have been repaid with the result, as was Mr King's case, that his home would have been unencumbered by February 2008. The damages order must therefore be calculated on the basis Mr King proposed." 81Her Honour then said at J2 [79] - "79 For these reasons, the damages order should thus include Permanent's costs of the proceedings and must otherwise be approached on the basis proposed for Mr King. In the event that this conclusion was reached and his approach to the calculation of costs was accepted, the parties accepted that they could agree on the mathematics of those calculations. They should now finalise these calculations." 82In coming to her conclusion the trial judge took up what she had said at J1 [159]-[160]. What her Honour had there said, put in its context by the addition of J1 [158] and J1 [161]-[162], was - "158 It was also suggested that it would be concluded that unless the further money was advanced, that the business would have failed earlier and that Mr Charles King would then have lost his money, when the bank called on the mortgage. I am unable to accept the thrust of that submission. What must also be considered is what Mr Charles King would then have been confronting had the 2002 loan not been entered, namely repayment of the NAB debt of $212,000, not the $353,500 loan from Peppers, or the $450,000 loan from Permanent. 159 In considering this aspect of the argument, account must be taken of Mr Vertzayas' evidence, that coming to an agreement with the NAB about repayment terms, could have been explored in 2002, if Mr Charles King had not been prepared to agree to the loan with Peppers. Other means of securing his position, such as a charge over the assets of Mr Paul King, or his companies, could also have been considered. While the NAB was then concerned about the financial position of the business, it continued. Mr Paul King serviced both the significantly increased borrowings in 2002 and 2003, up until his arrest in 2003, despite the problems which the business faced. That the NAB loan would not have been serviced, had it continued, was not established. 160 Further, it may also not be overlooked that after Mr Paul King ceased making repayments in 2003, one of Mr Charles King's other sons, Mr Anthony King serviced the loan to an amount of some $50,000. On the evidence these payments ceased in April 2005, when certain advice was given by the Legal Aid Commission. While it was argued that there was no evidence led from Mr Anthony King, which established that he was willing or able to provide financial assistance to Mr Charles King in 2002 or 2003, the fact that he did provide such assistance, may not be ignored. 161 It may also not be overlooked that Mr Charles King obtained a settlement in the family law proceedings involving his son Paul and his wife, of $205,000, which he applied to partially repay the 2003 debt. 162 Having considered the evidence, I am unable to conclude that had Mr Charles King received the advice he ought to have received from Mr Vertzayas in 2002 and 2003, so that he came to know how his son had deceived him, that he would nevertheless have agreed to the increased loans, which his son duped him into agreeing to, without taking any of the other steps available to him, to protect his home. I am satisfied that the increased borrowings and the losses suffered by Mr Charles King, when the 2003 loan could not be repaid, were the result of Mr Vertzayas' failures." 83The trial judge's J2 [76] appears to indicate that the reason for taking account of the $235,000 payment, as she had held at J1 [170], was to be found in J2 [75] and the paragraphs of J1 to which it referred. With respect, it is not easy to see why the consideration of what would have happened if the Pepper loan transaction had not been entered into, or what Charles would have done had he been properly advised, bore upon taking account of the $235,000 payment in the events that happened. Further, the relevant amount for the purposes of the trial judge's reasoning in J2 [75] was not $235,000 paid by Charles, but $205,000 paid by Paul.

The NAB amount and the $235,000 payment: a puzzle 84J2 was the last of the trial judge's decisions concerning the calculation of damages. The parties then agreed on the calculation. 85On 28 May 2010 judgment was given for $737,145.63, subject to later agreed or imposed amendment to take account of enforcement expenses incurred but not yet debited by Permanent to the loan account. On 23 June 2010 the judgment sum was amended by consent to $750,840.92. 86There is a puzzle. We have no evidence of how the parties' lawyers or other advisers in fact calculated the $750,840.92. From the agreed components of that amount, as described at [29] above, it included on the debit side the NAB amount and the costs amount, and interest on both these amounts; and on the credit side, the $235,000 payment. It is clear that the trial judge held that the costs amount should be included. But her Honour held at J1 [167], and repeated at J2 [66] and J2 [75], that Mr Vertzayias could not be held liable for the amount originally owing to the NAB, that is, the NAB amount, and the dispute the subject of J2 was only concerned with interest referable to the NAB amount. The calculation seems not to have accorded with her Honour's decision. 87There is a possible explanation. It may have been thought from her Honour's reasoning in J2, in which the holding at J1 [159] that it could not be concluded that the NAB loans would not have been serviced became a holding at J2 [78] that it was concluded that they would have been serviced , that Mr Vertzayias was liable for the NAB amount. Her Honour held that had the Pepper loan transaction not occurred, the NAB loan would have been largely serviced and would ultimately have been paid out by the $235,000 amount. This undermined Mr Vertzayias's submission for which Wilby v St George Bank Ltd was cited, to the effect that Charles had an existing obligation to the NAB and his loss was only the additional obligation which he undertook. On the reasoning in J2, if Charles had not entered into the first loan transaction he would not have been called upon to pay the NAB under his guarantee, and the entirety of his liability to Permanent (subject to the question of the costs amount) was loss caused by his entering into the loan transactions. 88It is apparent from the written submissions in the appeal papers that this was not a matter directly raised by Charles after J1 had been delivered. His submissions for the hearing from which came J2 identified the issue of "whether the remaining interest which has accumulated on that part of the 2003 loan which represents the amount of the debt that was originally owing to the NAB ... should form part of [Charles'] damages". Mr Vertzayias's submissions protested that Charles was going "well beyond the mathematics of the quantum of damages", and were to the effect that if he was not liable in respect of the principal he could not be liable in respect of interest on the principal; they also proffered a calculation structured as before around an "existing NAB debt" arrived at by appropriating the $235,000 payment to repayment of the NAB amount. Charles' submissions in reply put the argument accepted by the trial judge, but did not take it to the result to which the reasoning could have led. 89One may nonetheless speculate that the advisers saw in J2 that Charles' damages did include the NAB amount, and made the calculation accordingly. 90The puzzle afflicted the appeal. Despite the agreement about the components of the $750,840.92, there was difference on appeal over whether the NAB amount was included and how the $235,000 payment had been treated. 91Mr Vertzayias's submissions on appeal, which I further describe later in these reasons, took as their starting-point that the damages included the NAB amount. Counsel for Mr Vertzayias scarcely engaged with the trial judge's reasons. He submitted in substance that the damages should not have included the NAB amount because Charles had benefited by repayment of the NAB loans. He submitted also that her Honour had erred in "treating the payment of the $235,000 not as a reduction of the loss occasioned by the breach of duty but as a repayment of the NAB loan, leaving the loss unpaid and to the account of Mr Vertzayias as damages"; this apparently referred to the finding in J2 that the payment of $235,000 by Charles (more correctly the payment of $205,000 by Paul) would have ultimately repaid the NAB loans. 92Charles' written submissions on appeal referred to "the factual finding that the damage Mr King suffered was the increased borrowings, beyond the amount owing to the NAB owing in 2002, in the loans advanced by Peppers and PCL". They included that "it is entirely uncontentious that the Appellant is not liable for that part of the debt which reflects the NAB debt as at 2002. Indeed, her Honour expressly so found". However, with implicit reference to J2, it was said that if Charles had not entered into the two loan transactions he "would have been free of the NAB debt by 2007", and - "13. Unless that finding is set aside, no credible challenge can be made to her Honour's conclusion that the damage which flowed from the Appellant's breach of duty was the outstanding balance of the 2003 Loan. But for that neglect, it is not disputed that Mr King would have been free of debt by 2007." 93When reconciliation of these submissions with each other and with the apparent constitution of the judgment sum was raised, senior counsel for Charles (who had not been counsel at trial, although his junior had) said of the "entirely uncontentious" submission that it was "the way it is expressed". He said that "[w]hat we adhere to is that it was always [Charles'] responsibility to meet the National Bank debt", and that "the only thing conceded was that at the commencement of the mortgage [Charles] had a liability for a sum of money owing to the National Bank". The more so in light of the particulars in para 89 of the cross-claim, I am unable read the submission in that way. 94Counsel for Charles then affirmed as his argument that, had the loan transactions not been entered into, the NAB loans would have been repaid without recourse to Charles, and that Charles was worse off because he was called upon to repay the NAB amount to Permanent. He also acceded to the suggestion that "the apparently incongruity in the NAB loan being included in the damages claim is accounted for by the fact that the credit [of the $235,000 payment] is there as well which offsets it", and referred to the calculation of 15 May 2009 resulting in $89,913 as the unpaid NAB debt. On the argument he affirmed, however, there was no incongruity, and the point of the credit of $235,000, more correctly, payment of $205,000 by Paul, was that as a payment by Paul it would have completed repayment of the NAB loans so that Charles would not have been called upon to pay the NAB. Some confusion in Charles' position remained.

The NAB amount and the $235,000 payment: decision 95Charles made no claim in relation to the transfer of the 2/100th interest in the Blakehurst property to Paul, and that can be put aside. We were told that Paul had transferred that interest back to Charles. His claim rested upon his liability to Permanent. 96Mr Vertzayias submitted that regard had to be had to the benefit of Charles' entry into the Pepper and Permanent loan transactions as well as the burden he undertook, citing Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 at 536-8 per Brennan J; that Charles' liability to Pepper and then Permanent in part replaced his existing liability to the NAB; and that there should have been excised from the amount outstanding on the Permanent loan the benefit of his relief from liability for the $217,735 paid to the NAB. He proffered calculations intended to take account of interest and repayments, including the $235,000 payment, from which he submitted that apart from the costs amount Charles' damages were $75,675.38. 97It is necessary to compare Charles' position having entered into the two loan transactions with the position in which he would have been had he not entered into them. That includes consideration of his liability in respect of the NAB loans had they not been repaid from the Pepper loan. But the result is not as Mr Vertzayias submitted. 98Charles was guarantor of the NAB loans. He gave the NAB a mortgage of the Blakehurst property, but the evidence did not show more than that the mortgage secured his liability as guarantor; it was not shown to be a mortgage by which he undertook a direct liability to the NAB. 99The guarantees were in common form. Charles guaranteed payment of all amounts the customer owed the NAB, and agreed to pay the amounts "up to the basic liability as at the time the Bank demands that you pay them to the Bank" (cl 6.1). The NAB could "resort to" any security held from Charles "to cover [Charles'] liability under the guarantee ... " (cl 11). Charles had a contingent liability to the NAB, but not an actual liability until demand was made upon him: Wardley Australia Ltd v The State of Western Australia at 532; Wood v Wood (1997) 149 ALR 301 at 307-8. While the mortgage encumbered the Blakehurst property, any recourse to the property was similarly contingent. 100On the findings in J2, if Charles had not entered into the first loan transaction no actual liability would have fallen upon him, nor would there have been recourse to the Blakehurst property. Those findings are not challenged on appeal. It was not suggested that, in that event, the second loan transaction would nonetheless have come about, and in any event if properly advised Charles would not have entered into it. When Charles entered into the first loan transaction, he undertook a direct liability to Pepper, and then when he entered into the second loan transaction he undertook a direct liability to Permanent. The liability has come home thorough Permanent's recourse to the property. Charles' loss is constituted by the whole of his liability to Permanent; and in arriving at that liability he has the benefit of the $235,000 payment as a credit to the loan account. 101This was part of Charles' arguments on appeal, and should be accepted subject to submissions upon whether it was open to Charles to put the argument. I return to the earlier consideration of the parties' submissions at trial. 102In the manner the trial proceeded, the particulars of para 89 of the cross-claim fell by the wayside. When counsel for Charles submitted that his damages were "the amount required to discharge the mortgage to Permanent ... " or "all of the monies owing on the mortgage", there was departure from the particulars. The response of Mr Vertzayias was not to seek to hold Charles to the particulars on the basis that they recognised an existing liability to the NAB and that the loss or damage was the additional liability. He responded in the submissions of 2 April 2009 that Charles' "separate obligation" in relation to the NAB amount meant that his damages could "only concern that part of the transaction which constitutes the amount over and above [the amount owing to the NAB]", as a submission on the merits and not as a pleading matter. Mr Vertzayias then came to a rather different position in the calculation of 15 May 2009, again as a submission on the merits. 103If it be correct that the trial judge accepted Mr Vertzayias's original submission, see [57] above, the findings in J2 then came. They were not translated by the trial judge to a different conclusion from her statement at J1 [167] that Mr Vertzayias could not be held liable for the amount originally owing to the NAB (although it may be that those who calculated the judgment amount made the translation), but in my view it is open to Charles to rely on them for his argument on appeal. I do not think there is unfairness to Mr Vertzayias when the findings were made after contest, albeit for the purposes of the dispute identified in J2, and when Mr Vertzayias had himself joined issue on the merits with Charles' submission that his damages were all the money for which he was liable to Permanent. 104As noted at [91] above, Mr Vertzayias's submissions included that the trial judge had erred in treating the $235,000 payment as a repayment of the NAB loans. As best I understand it, the submissions in this respect rested upon a submission that Charles was under a duty to mitigate his loss and should have paid the $235,000 to Permanent in reduction of the non-NAB amount part of the Permanent loan. It was acknowledged that the submission had not been made to the trial judge. 105The trial judge did not treat the $235,000 payment as a repayment of the NAB loans. The submission in this respect appears to be based on a misunderstanding of J2. The $235,000, more correctly the $205,000, was treated as a payment which would have repaid the NAB loans, not as a payment which did repay them. If Mr Vertzayias meant that the trial judge had erred in not treating the $235,000 payment as repayment of the non-NAB amount part of the Permanent loan because duty to mitigate required that it be so treated, no principle of mitigation required that Charles allocate his payment to Permanent to any part of the Permanent loan, assuming that he could, or that it be allocated to any part of the loan in arriving at Charles' damages. He had a liability for the whole which he would not have had if Mr Vertzayias had properly advised. 106There has been an unfortunate course of the proceedings. The correct result on the findings as they came to be made should be pronounced. Charles' loss includes the NAB amount and, subject to consideration of the costs amount, is the amount for which he is liable to Permanent.

The costs amount: decision 107The trial judge had initially held at J1 [167]-[169] that the damages did not include the costs amount because of order 6 made on 20 February 2008. That basis for the holding was removed when her Honour acceded to Permanent's application that the order be set aside and replaced, and it was recorded at J2 [64] that Mr Vertzayias accepted that in the event that the "rectification order" was made the damages would include the enforcement costs. The error asserted by Mr Vertzayias was thus said to lie in her Honour acceding to Permanent's application. 108Mr Vertzayias submitted that there was error in a number of respects. First, he said that it was not a question of rectifying the original order, and that the original order had been made in accordance with the terms of settlement; if anything was to be rectified it was the deed, and there had to be a proper basis for rectifying the deed. Secondly, he said that rectification should not have been granted when it would materially prejudice his rights as a third party, namely, his entitlement not to have the costs amount included in Charles' damages through being debited by Permanent to the loan account. Thirdly, he said that rectification should not have been granted when it would materially prejudice him in other ways; a particular instance given was inability to contend in the main hearing that the enforcement costs were caused by the advice of Charles' lawyers to cease paying interest. 109As I have explained, it was in truth not a case of rectifying the Court's order, and it was dealt with as a case of rectifying the deed. Mr Vertzayias did not submit that the trial judge was incorrect in finding that, in providing for order 6 with the effect as she had held, the deed and the terms of settlement did not correctly record the parties' intentions. I doubt that there was error in the other two respects. In particular, Mr Vertzayias did not have any proprietary right which would be affected by the rectification. The incorrectly recorded agreement between the Messrs King and Permanent had been held to work to his advantage, but that is a different matter and the cases on which Mr Vertzayias relied ( Permanent Trustee Co (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd (1976) 15 ACTR 43; Coolibah Pastoral Co Pty Ltd v The Commonwealth (1967) 11 FLR 173; J J Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (No 2) (1987) 13 ACLR 77) were on quite different facts. 110It is not necessary further to deal with these matters. There is the prior question, whether the trial judge had correctly held that the original order 6 to which the Messrs King and Permanent agreed in the unrectified deed and terms of settlement precluded Permanent from debiting its costs of the proceedings as part of enforcement expenses. Under notices of contention, Permanent and Charles contended that her Honour was incorrect in so holding. That contention should be upheld, with the result that the costs amount is part of Charles' damages. 111Order 6 was an order that the Court made no order as to costs. It was not an order obliging Permanent to pay its own costs, or an order that it could not pass its costs on to Paul and Charles as part of enforcement expenses. It meant that the Court did not dictate that one party should pay costs to the other, but that left in force any contractual dictate, and Permanent was free to pass the costs on if the terms of the Permanent loan and mortgage entitled it to debit the costs to the loan account. 112Oshlack v Richmond River Council (1998) 193 CLR 72, on which Charles relied, is not to the contrary. Gaudron and Gummow JJ referred at [91] to "no order as to costs" leaving the costs to lie where they fell, but that did not exclude that where the costs fell was governed by an existing contractual regime. The same may be said of the explanation of "no order as to costs" by Santow J in Wentworth v Wentworth [1999] NSWSC 638 at [29] - "That clearly means that a judicial decision has been made that there should be no costs ordered to either side and that necessarily means that costs are to lie where they fall; see Re Hodgkinson [1895] 2 Ch 190 followed by Taylor J in Trikas v Rheem (Australia) Pty Limited [1964] 81 WN 504 at 506 and more recently Oshlack v Richmond River Council [1998] 193 CLR 72 at 91 per Gaudron and Gummow JJ describing the effect of such an order in those terms." 113In Trikas v Rheem (Aust) Pty Ltd (1964) 81 WN (Pt 1) 504 it was submitted that "no order as to costs" was as if the court had said nothing, so that the plaintiff could recover the costs under a later general order for costs. The submission was rejected, and it was said that the order meant that the plaintiff was not entitled to recover the costs. That there could not be recovery of costs pursuant to a court order does not deny recovery pursuant to an agreement such as that in the Permanent loan and mortgage. 114In Re Hodgkinson, Hodgkinson v Hodgkinson (1895) 2 Ch 190 the judge said that "he did not think fit to make any order as to the costs of the action". It was held that this was a judicial decision that the trustee was not entitled to his costs and could not retain them out of the trust estate. The judge made no order as to the costs of the action because the trustee had acted unreasonably, and Lindley LJ said at 194 that that "negatives the prima facie right of the trustee to take his costs out of the estate". It was a quite different situation from the present one. 115Other cases stand against the trial judge's view of the effect of order 6. In Mansfield v Robinson (1928) 2 KB 353 an agreement between the parties to an arbitration as to payment of costs: was enforced although the arbitrator had awarded that each party should pay his own costs. That case was applied in re a Solicitor's Bill of Costs: re Shanahan (1941) 58 WN 132, where mortgagees were held entitled to costs under the mortgage although the court had been silent as to costs Street J cited it at 134, saying that had been held that "even if a Court, having full discretion in the matter of the costs of any proceedings, deals in its order with such costs, a party can still enforce an antecedent agreement in relation thereto inconsistent with the Court's order". Both cases were cited by McLelland J in Elders Trustees & Executor Co Ltd v Eagle Star Nominees Ltd (1986) 4 BPR 9205, in which the mortgagee had been ordered to pay costs to the mortgagor, for the proposition (at 9209), "A contractual stipulation as to how the costs of future litigation are to be borne between the parties is not vitiated by an inconsistent order for costs in that litigation". 116At least one of these cases goes further than a "no order as to costs" order. They indicate, at the least, that the parties' agreement remains effective when an order in those terms is made, and it is not necessary to consider the position where (for example) a costs order has been made against the party with a contractual entitlement to costs. 117See also Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) (1993) Ch 171 at 192, when it was said that the court's discretionary power as to costs "does not affect the contractual or equitable right of a mortgage to retain his costs out of the mortgaged property". Their Lordships contemplated at 194 that an order could be made depriving a mortgagee of the contractual or equitable right to add costs to the security; that could be so if the mortgagee was ordered to pay costs, but it is not this case and again I do not consider it. 118In Maher v Network Finance Ltd , s47 of the Legal Services Commission Act 1979 provided that where an order for costs was made against a legally assisted person, the Commission should pay the costs (subject to a limit) and the legally assisted person "shall not be liable for the payment of the whole or any part of those costs". A costs order was made in proceedings by a mortgagee against a legally assisted mortgagor. It was held that the mortgagee was entitled to recover the costs from the mortgagor pursuant to the terms of the mortgage. McHugh J, with whom Kirby P and Priestley JA relevantly agreed, said at 697-8 - "Mr Tamberlin submitted that s 47 operates so that the Commission is bound to pay to the successful party the whole of his costs and that a legally assisted person is not liable for any of the costs of the proceedings in which the order was made. However, by its very terms s 47 makes it plain that it is concerned only with costs which are the result of the making of an order by a court or tribunal. If the costs order made by Kearney J was the only basis of the mortgagee's claim, Mr Tamberlin's submissions would be unanswerable; but a person may be answerable for legal costs as the result of contractual or statutory obligations as well as by a curial order. A curial order imposes an independent obligation of payment upon an unsuccessful party but it does not affect any other rights of the parties in relation to the costs of the proceedings. When s 47(1)(b) says that "the legally assisted person shall not be liable for the payment of the whole or any part of these costs" it is speaking only of the costs which the legally assisted person is required to pay as the result of an order by a tribunal or court. ... " 119The trial judge considered Maher v Network Finance Ltd in connection with Mr Vertzayias's application to reopen. Her Honour regarded the case as "of no relevance to what here arose for determination" (J2 [34]), because what arose for determination was whether Permanent had "compromised its contractual rights under the mortgage in relation to the costs of the proceedings, by the settlement it had entered with [Charles]" (at J2 [35]). The case was relevant, however, to whether the order for which the settlement provided did compromise the contractual rights. The explanation given by McHugh J supports that an order that there be no order as to costs does not affect the other rights of the parties in relation to the costs of the proceedings. 120Even without rectification or setting aside and substitution of the order, the deed and terms of settlement left Permanent entitled to debit the costs amount to the loan account. Clauses 11 and 12 of the deed repetitively preserved Permanent's rights under the loan agreement, subject to "the limitations on enforcement in this Deed and the Terms of Settlement". The limitations on enforcement were the covenant not to enforce the judgment for possession until Charles died or vacated the Blakehurst property, and are not presently relevant. The terms of settlement included order 6, but the order was consistent with the costs being left to fall according to the emphatically preserved contractual regime. 121Without a ground of appeal, and only in written submissions in reply, Mr Vertzayias submitted that the costs amount was not recoverable because there would have been default under the Permanent loan in March 2005 even if it had not included the NAB amount; alternatively, that the default was caused by the advice of Charles' lawyers to cease paying interest, not by his own failure in advice; and also that the post-settlement costs "flow from the settlement". In the way these matters were raised, they should be ignored. In any event they have no substance when Charles would not have incurred liability under the Permanent loan had he been properly advised.

The result as to damages 122Subject to the issue as to apportionment, the judgment for $750,840.92 should not be disturbed.

Reduction in damages by apportionment 123Section 35 of the Civil Liability Act 2002 limits the liability of a defendant to an "apportionable claim", where there is a concurrent wrongdoer in relation to the claim, to "an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss" (s 35(1)(a)). It applies in respect of claims arising after 26 July 2004. Charles' claim against Mr Vertzayias was an apportionable claim: so far as it was a claim for breach of fiduciary duty through not taking care to see to independent advice, see s 34(1A) of the Civil Liability Act . 124By notice of motion filed on 24 March 2010, a month after J2, Mr Vertzayias applied for leave to amend his defence to claim limitation of his liability to 50 per cent of Charles' damages by apportionment of responsibility with Paul as a concurrent wrongdoer, and for limitation of his liability accordingly. 125The trial judge gave judgment on the application on 25 May 2010: Permanent Custodians Ltd v King [2010] NSWSC 509 ("J3"). Her Honour stated her conclusion, which she thereafter explained, at J3 [15] - "15 I am satisfied for the following reasons that s 35 of the Civil Liability Act does not apply to the proceedings; that even if it did, Mr Vertzayas was obliged to plead s 35 as a defence, if he wished to rely upon it; that leave to re-open the judgment would have to be obtained before the leave to amend the defence now sought could be entertained and that in the circumstances, neither leave to re-open nor to amend may be granted as a matter of justice between the parties." 126Mr Vertzayias did not challenge on appeal that he was obliged to plead s 35 as a defence, but submitted that the trial judge erred in holding that s 35 did not apply to the proceedings and in declining to give leave to reopen and to amend the defence. Because of her conclusion, the trial judge did not consider Paul's liability as a concurrent wrongdoer, or apportionment between Mr Vertzayias and Paul. Mr Vertzayias submitted that this Court should undertake those inquiries, and should come to a 50:50 apportionment and reduce the damages payable by him to Charles accordingly. 127The trial judge considered that s 35 did not apply to the proceedings because, in her Honour's view, Charles suffered damage when he gave the mortgages to Pepper and Permanent: thus his claim arose prior to 26 July 2004. I do not think it necessary to address whether or not s 35 applied to the proceedings. The trial judge was correct in refusing leave to amend. The case against permitting that to be done was overwhelming. 128The trial judge said at J3 [30] that leave to make the late amendment to the defence "could not justly be permitted for two reasons". 129The first reason was that it would be necessary to "re-open the judgment" (J3 [31]), by which her Honour appears to have meant permit Mr Vertzayias to raise a defence after judgment had been given. Her Honour said that there had been no explanation for the failure to plead reliance on s 35, and that Mr Vertzayias had had a proper opportunity to raise it; she likened the situation to that described in this Court in Multiplex Constructions Pty Ltd v Irving [2005] NSWCA 1 at [24], where it was said that the argument sought to be raised was "simply an afterthought and a contentious one at that" and that "to allow it to be raised would subvert the appeal process itself". (There was no appeal process, but the trial process can also be subverted.) Her Honour said at J3 [33] - "33 There is no question that an order limiting an order for damages against Mr Vertzayas to 50% of the damage suffered by Mr King would conflict with conclusions reached in the July 2009 judgment. Those conclusions reflected the matters over which the parties had joined issue at the trial, Mr King's case being that it was Mr Vertzayas who was responsible for that damage. That was the case established on the evidence. That is the case which Mr Vertzayas now seeks to challenge." 130The second reason was stated at J3 [35] - "35 The second reason for refusing leave to amend the defence is that to permit the course now sought to be pursued would necessitate a further hearing, as was accepted for Mr Vertzayas. Conclusions already reached would have to be revisited. That approach would not accord with what the Civil Liability Act contemplates, as I have discussed. Nor does it accord with the approach discussed by the High Court in Aon [ Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175]." 131There is some overlap between the two reasons, with considerations material to reopening as considered in cases such as Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 176 CLR 300 material to the prior step of amendment. 132Mr Vertzayias submitted that the trial judge erred in the exercise of her discretion for a collection of reasons. They came down to the submissions that -

Orders 137I propose the orders - (1) Direct that the name of the appellant in the notice of appeal and subsequent documents be amended to "Dion Vertzayias"; (2) Order that the appeal be dismissed with costs. 138MACFARLAN JA : I agree with Giles JA. 139WHEALY JA : I agree with Giles JA.

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: 02 August 2011