Medium Neutral Citation [2001] VCAT 1615

For the Applicant: Mr M. Clarke of Counsel, instructed by Mulcahy Mendelson and Round

1. This proceeding has an exceedingly complex background which is set out at paragraphs 1 to 26 of reasons which I published on 16 February of this year. Those paragraphs are incorporated by reference.

2. On 16 February 2001 I set aside the respondent's determination and remitted these matters to him with a direction that compensation be paid to the applicants in accordance with my reasons. I ordered the respondent to pay the applicants' costs and reserved liberty to apply.

3. I took that course because whilst there was very extensive evidence before me as to whether or not a defalcation had occurred and whether or not the other elements of a claim under Section 79 of the Estate Agents Act 1980 had been made out with respect to the conduct of an estate agent, the issues of the quantum of compensation which would be payable to the claimants were they successful in reversing the Secretary's refusal of their claim had been only partially explored. It was not possible for me at that stage to quantify the compensation.

4. In pursuance of the liberty to apply reserved, the applicants through their Counsel Mr Clarke have sought to amplify and re-visit the issue of the quantum of compensation with a view to establishing the ground rules on the basis of which they would submit further material to the Secretary to have the compensation assessed.

5. The claim made by the Whites was that two cheques totalling $160,000 had been paid to the estate agent and had been misappropriated to the extent of $104,000. The result was that the Whites were deprived of clear title to two allotments of land on a subdivision which they were purchasing and in relation to which the estate agent was acting as vendor's agent. Litigation subsequently ensued which was settled on the basis that the Whites obtain clear title to the allotments subject to paying the bank which held a mortgage over the allotments in the sum of $60,000. Section 80(3) of the Estate Agents Act provided for the payment to claimants in these circumstances of their "actual pecuniary loss ... less the amount or value of all moneys or other benefits received or receivable by [them] from a source other than the fund in reduction of the loss". I have said "if by skilful negotiation a defalcation victim is able to recover his position such as by clearing an encumbrance on title for a lessor amount than the face value of the subject defalcation, only the lessor amount would be recoverable from the fund; either because of the operation of the word `actual' as restricting the pecuniary loss to the one which was negotiated down to or else because the fruits of the negotiated settlement in so far as they limited the outlays which the claimant had to make, could be regarded as forming part of the value of benefits received or receivable by the victims for the source other than the fund. Accordingly if as Mr Clarke's submission suggests the outlay was only the sum of $60,000 to clear the title to both allotments, it is difficult to see how the actual pecuniary loss suffered by these applicants exceeds that sum of money."

6. Mr Clarke submits despite the tentative conclusion that I reached that the quantum of the actual pecuniary loss suffered by these applicants was $60,000, since I did not make a final determination so fixing the compensation and reserved liberty to apply so as to prevent the Tribunal being functus officio, it was open to me to re-visit my tentative conclusion. His submission was that the actual pecuniary loss should be seen as the $104,000 which was initially claimed. He relied upon the decision of Anderson J. in Dobcol Pty Ltd v Law Institute of Victoria [1979] VicRp 42; [1979] VR 393 and the decision of the Full Court of the Supreme Court of Victoria in Eumeralla Finance Co Pty Ltd v Law Institute of Victoria [1973] VicRp 8; [1973] VR 98.

7. In Dobcol's case Anderson J. was considering a claim by clients of a solicitor for compensation for their pecuniary loss as a result of a solicitor's defalcation. The clients were a husband and wife in their family trustee company. The company entered into a contract to purchase land and was left embarrassed when the moneys from a sale which should have been available to it to complete the purchase were misappropriated by the solicitor. An urgent loan had to be obtained from a bank and the land was ultimately sold at a loss. There were legal costs and agent's commission. The total amount of these sums were $7,377.80. His Honour held that these amounts did not form part of the "actual pecuniary loss" incurred by the solicitor's clients. Mr Clarke placed particular reliance on the following passage from His Honour's judgement where he said:

"If the defalcation be the larceny of money, then the actual pecuniary loss is the pecuniary value of the money stolen. If the money so stolen was entrusted to a solicitor for a particular purpose and was then stolen, an action might lie against the solicitor for damages for breach of duty should the client suffer economic loss occasioned by the solicitor's failure to put the money to the intended use, but that loss, though quantifiable in terms of pecuniary loss, would to my mind be distinct from the loss actually incurred by reason of the defalcation, ie. the stealing. The distinction would be the more striking if the solicitor, having received the money on trust, failed to use it as required so that economic loss thereby resulted, and, after his failure to use it at the appropriate time, then stole it. The economic loss occasioned by his negligent inaction would be of a different order from the loss arising out of the stealing of the money. What I have called economic loss, though it may also be described as pecuniary, could not in my opinion, in either circumstance, be fairly described as pecuniary loss "from any defalcation", as defined in s.51." [1979] VicRp 42; [1979] VR 393, 396

8. His Honour was also influenced by the fact that Section 64(6) of the Legal Profession Practice Act 1958 the amount of the "actual pecuniary loss" bore interest from "the day on which the defalcation was committed until the day upon which the claim is satisfied". This consideration would tell against the equity of including in the "actual pecuniary loss" amounts which had neither been extended nor where even in contemplation at the date of the defalcation.

9. In Eumeralla Finance Co Pty Ltd v Law Institute of Victoria [1973] VicRp 8; [1973] VR 98 the Full Court of the Supreme Court (Smith and Gowans JJ and Dunn AJ) held that the payment from the Solicitors Guarantee Fund to the victim of a solicitor's defalcation should not be reduced by the amount of a number of sums of money paid to the client as interest under a number of admittedly existing and valid unregistered mortgages. These amounts were, in the view of the Court, not received "in reduction of the loss" and therefore should not be deducted from the face value of the client's actual pecuniary loss.

10. Mr Clarke submitted that these authorities should lead me to re-visit the tentative conclusion that I have reached as to the quantum of his client's actual pecuniary loss.

11. I note first that Section 80(3) of the Estate Agents Act 1980 provides for payment to a claimant of "the actual pecuniary loss suffered by him (including the reasonable costs of and disbursements incidental to the making and proof of his claim) less the amount or value of all moneys or other benefits received or receivable by him from a source other than the fund in reduction of the loss". Section 80(5) provides that "in addition" to the compensation payable under Section 80(3) "there shall be payable out of the fund to any claimant entitled to compensation the reasonable costs of and disbursements incidental to the making and proof of his claim". It seems therefore that these "reasonable costs" are mentioned twice, once as being a component of the actual pecuniary loss and once as an additional item in effect of "costs". Mr Clarke did not seek to draw any distinction between the classes of "reasonable costs". He was content to regard sub-section (5) as in effect a repetition of what was already to be found in sub-section (3). The issue of these "reasonable costs" will be dealt with hereafter, for present purposes I will deal solely with the actual pecuniary loss only in so far as it is not constituted by the "reasonable costs of and incidental to the making and proof of [the applicants'] claim".

12. I reject Mr Clarke's submission. I note first that according to Section 79(1) that the Estate Agents Guarantee Fund is to be "applied for the purpose of compensating persons who have suffered pecuniary loss by reason of a defalcation committed by an estate agent ...". The very concept of compensation carries with it a limitation that no claimant may in effect make a profit. The claimant is restricted to being compensated for his loss. If the misappropriation and defalcation of cheques has led these applicants to be deprived of a clear title to their land, which clear title can be obtained for the payment of $60,000 to award them $104,000 would be to grant them a profit of $44,000 on the transaction. This would not be a process of compensation or to put it another way, it would be an over-compensation. As to Dobcol's case, first, the hypothetical situation considered by Anderson J where he concluded that a defalcation by larceny created an actual pecuniary loss in the value of the money stolen, is not on all fours with the situation here. I found that there were two defalcations constituted by obtaining property by deception. The equivalent under the present law of the felony of larceny referred to by Anderson J. is theft. The consequences of obtaining property by deception are more subtle and complex than are the consequences of a simple theft. I do not regard His Honour's dictum as dealing with this situation as distinct from one of simple theft. Moreover, the statutory context in the Estate Agents Act is significantly different from the one which His Honour considered in the Legal Profession Practice Act. The obligation to pay interest under that statute accrued from the date of the defalcation and this was a significant consideration leading His Honour to his conclusion. Interest payable on awards from the Estate Agents Guarantee Fund under Section 80(4) of the Estate Agents Act is payable "from and including the day on which the pecuniary loss was suffered ..." which is not necessarily the same day as the defalcation. Finally, what I take His Honour to have been driving at in the relevant passage was that the actual pecuniary loss in the case of a simple theft cannot be more than the face value of that which is stolen. The facts before him did not require him to consider whether in circumstances of a more elaborate offence of dishonestly such as obtaining by deception, the face value of the pecuniary loss may be less than the face value of the defalcation.

13. In so far as Mr Clarke relied upon Eumeralla's case, this seems to be a quite different situation. The loss suffered by the Whites was a failure to obtain clear title to their land. The compromise which they were able to negotiate with the Commonwealth Bank was a direct reduction of the loss which they had suffered viz. the charging of their land with a mortgage debt. The compromise was not an extraneous matter in the same way as the payments under the unregistered mortgages were in Eumeralla.

14. I should also note a submission made by Mr Clarke that if contrary to his primary contention his clients' actual pecuniary loss were to be calculated by reference to necessary outlays rather than the face value of the cheques to the extent that they were misappropriated, then allowance should be made in the sum of about $60,000 for Mr Rohan White's work and labour in constructing a house on the land which he had purported to purchase. I cannot accept that contention. Ultimately Mr White obtained title to the relevant allotment and recovered the benefit of his work and labour by selling the house. In no sense has his work and labour been "lost".

"The Reasonable Costs of and Disbursements Incidental to the Making and Proof of the Applicants' Claims"

15. Mr Clarke submitted that the following classes of costs should be allowed to his clients in accordance with Section 80(5):

1. The reasonable costs of and incidental to Supreme Court Proceeding No. 6313 of 1992 against Redmond Real Estate Pty Ltd, Menray Pty Ltd, the estate of Kevin Alan Redmond deceased and Lewis Rimington.

2. The conveyancing costs of and incidental to the applicant's repurchasing their property.

3. The "reasonable costs" of and incidental to the first application to the Estate Agents Board made on 14 February 1999.

4. The reasonable costs of and incidental to the appeal from the first application to VCAT (scil the Administrative Appeals Tribunal) made on or about 23 November, 1992.

5. The reasonable costs of the second application to the Secretary.

6. The difference between party/party costs and solicitor/client costs on the appeal to the Supreme Court from the first decision of this Tribunal.

16. Headings 3 and 4 were abandoned in the course of oral submissions.

17. I deal with the remaining heads of claim in turn.

18. The first claim to the Board was unsuccessful and the review application to the Administrative Appeals Tribunal was dismissed. See White v Estate Agents Board (1992) 6 VAR 100. The basis of the dismissal in the Administrative Appeals Tribunal was that by reason of Section 80(5A) an application for review to the Tribunal could only be brought if "the claimant has exhausted all relevant rights and other legal remedies for the recovery of the money or property in respect of which the defalcation was committed available against the estate agent". The Supreme Court Proceeding No. 6313 of 1992 was incomplete at the time the review application was made to the Administrative Appeals Tribunal. The Tribunal concluded that the applicants had not exhausted their rights.

19. It will be seen that the exhaustion of rights was made a condition precedent to the bringing of a review application to the Administrative Appeals Tribunal and now as a condition precedent to such an application to this Tribunal. It is not and was not a condition precedent to the bringing of a claim before the Board or now the Secretary (who is now but was not in 1992 the person charged with adjudicating upon claims at first instance).

20. In the present case the applicants have now brought a second claim which has succeeded. It was in the circumstances reasonably necessary for them to "clear the decks" before bringing the second claim having regard to the fate of the first. In these unusual circumstances the costs of prosecuting the Supreme Court proceedings to their present state could be regarded as costs incidental to the making of their second claim on the fund. Mr Devlin who appeared for the respondent Secretary made no submission opposing the allowance of some amount for the costs of the Supreme Court proceedings under Section 80(5).

21. A more convincing route to the conclusion that these costs should be recoverable by the Whites is that they form parts of their "actual pecuniary loss". The expenditure incurred in bringing the proceedings was as much part of the cost of getting clear title to the land as was the payment of the $60,000.

22. The next question is according to what scale should those costs be allowed? Mr Clarke's submission was that they should be allowed on a solicitor client basis. He noted that Rule 63.30 of the Supreme Court Rules which sets out the basis for a solicitor client taxation provided for the allowance of all costs "reasonably incurred and of reasonable amount". The same approach was to be found in Rule 63A.30 of the Rules of the County Court which provided for the allowance of "all costs reasonably incurred and of reasonable amount" and a solicitor client taxation. Such taxations are provided for in Rule 63.32 of the Supreme Court Rules and Rule 63.A.32 in the County Court Rules. Beyond these references Mr Clarke was unable to refer me to any authority as to what "reasonable costs" should be regarded as covering whether in this or any cognate context.

23. Mr Devlin was likewise unable to refer me to authority but submitted in the circumstances that any costs to be allowed should be on a party party basis.

24. In my view in the present context "reasonable costs" would denote solicitor client costs rather than party party costs. In Ministry of Works and Development v Cromwell Farm Machinery Limited [1986] 2 NZLR 29 the New Zealand Court of Appeal considered the appropriate costs to be given to a land owner seeking compensation under the New Zealand Public Works Act as a consequence of compulsory acquisition of its property. Section 90 of the Public Works Act provided for the payment to the expropriated party of "reasonable costs". The Court concluded that the solicitor client basis was the proper one for the assessment of costs rather than a full indemnity basis. In Re National Safety Council of Australia (Victorian Division) (No. 2) [1992] VicRp 34; [1992] 1 VR 485, 510-517 J.B. Phillips J (as he then was) conducted an exhaustive analysis of various bases of costs, taxation used over the years. He concluded that in contentious matters "reasonable legal costs" generally meant costs on a solicitor client basis and not on a full indemnity basis.

25. In Reid v FAI General Insurance Co Limited (unreported 28 May 1999) sitting in the Domestic Building List I had to consider the meaning of the expression "reasonable legal costs and expenses associated with the successful enforcement of a claim against the insurer" under a policy of insurance issued by FAI pursuant to Section 135 of the Building Act 1993 and in accordance with the terms of the Ministerial order made under that section. Relying upon New South Wales Crime Commission v Fleming (1991) 24 NSWLR 16 a decision of the New South Wales Court of Appeal and an unreported decision of Lander J in the Supreme Court of South Australia in the matter of Director of Public Prosecutions v George Petropolous authorities dealing with the ability of a person subjected to orders restraining the disposition of their property under drug trafficking legislation to be paid "reasonable legal expenses" I concluded that reasonable legal costs under the terms of the policy extended to the actual cost of obtaining those costs. I was also influenced by a statement in Sutton Insurance Law in Australia (Second Ed 1991) paragraph 15.77 under the heading "Contracts of indemnity" where the learned author stated "the assured is entitled to be fully indemnified but never more than fully indemnified; he cannot make a profit at the risk of the insurer".

26. These authorities support the submission made by Mr Clarke rather than that made by Mr Devlin. In Reid's case I reached the conclusion that I did based particularly upon the fact that I was construing a policy of indemnity insurance and to give it any meaning other than the one to which I ascribed it would lead to the beneficiary of the indemnity not being fully indemnified. I noted that the balance of authority in litigious matters is that "reasonable legal costs" mean costs fixed as between solicitor and client rather than upon a full indemnity basis. A claim made upon a statutory compensation fund is perhaps neither the one situation nor the other. In my view however it more clearly resembles litigation than the situation of a claim made under an insurance policy. It might be thought that the Cromwell Machinery decision of the New Zealand Court of Appeal constitutes the closest analogy. In any event Mr Clarke made no submission that these costs should be fixed on any basis more generous than as between solicitor and client. In my view that is the proper basis for their fixing.

27. If these costs are to be regarded as part of the Whites' actual pecuniary loss there is no reason to reduce them to a figure below the "actual" cost as would be entailed in awarding them on a party/party basis.

28. These are already particularised in an affidavit sworn by Mr Round earlier in this complex of proceedings. Mr Devlin did not seek to take any objection to the conveyancing costs. In my view they should be regarded as part of the "pecuniary loss". It was only by incurring those legal costs that the compromise with the Commonwealth Bank could be achieved which minimised the loss suffered by the Whites.

29. The costs of mounting the second application to the Secretary should likewise be allowed and costs reasonably incurred in accordance with the terms of Section 80(5). Mr Devlin did not make any contrary contention. He did submit however that those costs should be fixed on a party party rather than a solicitor client basis. In my view the reasoning given above indicates that they should be fixed on a solicitor client basis. Which scale to apply was not the subject of any significant submission by either Mr Clarke or Mr Devlin. They both seemed to accept that since I had seen fit to make a costs award based on the County Court Scale "D" for the proceedings before me, parity of reasoning suggested that the same scale be applied to fixing the reasonable costs of mounting the claim before the Secretary. Mr Clarke however said that according to his instructions the County Court Scale did not provide for the preparation of affidavits. He said that the scale did not allow for an allowance per folio for drawing and engrossing of affidavits but rather provided for a flat fee. I was not taken to the details of the scale. If County Court Scale "D" provides a remuneration for drawing and engrossing per folio of affidavits then I believe that is the scale which should be applied, if however it does not so allow, in my view the proper course is for allowance to be made on the Supreme Court Scale.

30. I reject the contention that the difference between party party costs and solicitor client costs on the appeal to the Supreme Court from the previous decision of this Tribunal should be allowed as "reasonable costs of and disbursements incidental to the making and proof" of the claim. To my mind Section 80(5) is intended to cover only those expenses which are incurred to bring a claim to the point of determination by the Secretary. Costs incurred in this Tribunal or in the Supreme Court are determined according to the costs regimes in those forums. In the case of this Tribunal's orders based upon the Victorian Civil and Administrative Tribunal Act 1998 and in the case of the Supreme Court based upon the powers and authorities granted to the Court under the Supreme Court Act 1986. Authority to debit the fund with such costs appears from Section 75(1)(b) of the Estate Agents Act 1980. The quantum of costs awarded either in the Supreme Court or in the Tribunal is governed by the rules dealing with the award of costs as between parties in the Court or Tribunal not by the Estate Agents Act.

31. Section 80(4) provides for the payment of interest to claimants at "the rate of five percent per annum calculated from and including the day on which the pecuniary loss was suffered until the day on which the pecuniary loss was satisfied". It will be noted that this provision departs materially from the model in the Legal Profession Practice Act considered by Anderson J. in Dobcol. There the entitlement to interest dated from the date of the defalcation. The parties were disposed to agree that in the case of the two cheques, the subject of the defalcations in the present proceeding, there was no distinction to be drawn between the date upon which those cheques were paid over by the Whites and the date upon which the estate agent was regarded as having committed the defalcation but is that the date upon which the loss occurred? I have concluded that the loss suffered by the Whites, at least its "actual pecuniary" portion occurred when they had to outlay the $60,000. That being the case it is the date of that payment that provides that the date upon which the loss was incurred and from which interest should be calculated.

32. In so far as the loss includes the costs of Proceeding No. 6313 of 1992 in the Supreme Court, I was informed that no payment has as yet been made. Since according to ordinary canons of construction and the Interpretation of Legislation Act 1984 Section 37 the singular includes the plural I see no difficult in having interest running from different dates with respect to different "losses". Since no payment of costs has been made no interest has commenced to run on that "loss"

33. One complicating factor is that if the Supreme Court proceeding is discontinued, solicitors acting for Mr Rimington will have an entitlement to tax their client's costs. The bringing of the proceeding against Mr Rimington was in Mr Clarke's submission (and he was not contradicted by Mr Devlin) a necessary step for the Whites to take. They say they should be indemnified against those costs. There is no provision that I can see to require the Secretary or the Fund to offer the Whites any indemnity. The Whites are entitled to be compensated for their loss. If they discontinue and have the costs taxed as against them they should be permitted to include this as part of their pecuniary loss in the same way as the balance of what I have considered under Heading 1. If they avoid that course it may be possible for them to place such evidence before the Secretary as would satisfy him that it would be proper to make an allowance to them to cover the contingency of a costs claim by Rimington. Given that the process of proof in bankruptcy and corporate insolvency specifically contemplates the assessment of contingencies and the assignment to them of a monetary value, it would in my view be proper for the Secretary if he were given satisfactory evidence to make such an allowance.

34. If however the proceeding remains open and Rimington's costs against the Whites remain unfixed and no credible material is placed before the Secretary to enable him to assess the contingency, I cannot see how an award could be made to the Whites for this amount and that part of their loss would have to go uncompensated.

35. Mr Devlin submitted that the application under the liberty to apply reserved was premature. He submitted that the Whites' legal adviser should have forwarded assessments of their client's loss and damage and costs to the Secretary for his consideration. It would only be if the parties were at odds then that it would be proper to return to the Tribunal.

36. In my view the course taken by the Whites was reasonable. There were a number of difficult issues of principle that remained under debate. It would have been unreasonable to have them incur substantial costs on for instance preparing bills in taxable form upon bases which the Secretary ultimately reject.

37. I should add, though I hope it will not be necessary that the liberty to apply originally reserved remains open.