Richtoll Pty Ltd v WW Lawyers (in Liquidation) Pty Ltd

HIS HONOUR:

The claim arises from two transactions. The first in point of time was a loan of $3 million, the security for which was Unit 2, 18 Carlisle Street, Tamarama (the “Tamarama property”). The second in point of time was a loan of $4.5 million to Sanctuary Developments (Australia) Pty Ltd (Sanctuary) which was secured by a second mortgage over partially developed parcels of land at Airlie Beach in Queensland.

Unless otherwise indicated, I find the facts to be as follows.

OFS was incorporated in May 2007 for investment purposes. It had available to it a sum of $14 million which it intended to use for loans secured by real estate which would produce high rates of return. The position of Richtoll, and why it is a plaintiff in the proceedings, was never explained. No point was taken by the defendant in relation to it. Accordingly, I have treated it as simply an alter ego of OFS. It was accepted by the parties that should OFS be successful, Richtoll would share in that success.

The principals of OFS were Mr Christopher Richards (Richards) and Mr James Toland (Toland). They had extensive experience in property development, particularly the renovation of property. It was as a result of their success in this area that OFS had a substantial sum available to it for investment. In the course of this activity, they acquired some general exposure to lending for property redevelopments. This exposure was in the capacity of borrowers and only in respect of mainstream commercial loans. Through OFS they were looking to invest via mortgage lending. At all material times Richards and Toland were directors and shareholders in OFS and Richtoll.

Mr Mark Williams, solicitor, (Williams) had set up WWL in 2005, trading under the name of ‘Worthington Willliams Lawyers’. He was the only principal lawyer, although the firm employed solicitors from time to time. From the firm’s inception an acquaintance of Williams, Cumali Arslan (Arslan) commonly known as “Jimmy”, was a director of WWL. Arslan was not himself a lawyer.

Williams was admitted to practise as a solicitor in NSW in 1983. He worked as an employed solicitor for White Barnes and Maguire until 1988 when he joined Keast Hussein Williams as a partner. Between 1983 and when he set up WWL his work as a solicitor involved litigation including personal injury, commercial and family law. He developed a knowledge of property and commercial legal practice. He deposed that WWL engaged in commercial law, family law and property law. It performed some work for clients who loaned money secured against property and other assets. WWL ceased to trade and went into administration in November 2009.

Since that time Williams has resided in the United Kingdom and has primarily worked as a community worker and cricket coach. He does not hold a practising certificate as a lawyer in either Australia or the United Kingdom. He deposed that he did not hold any records of the files of WWL in relation to the services which it performed for the plaintiffs. His assumption was that the liquidator had taken possession of all files when WWL went into liquidation. He said that he had not kept any computer which contained information relating to the work of WWL and had no access to emails sent and received while WWL was operating.

In his affidavit of 25 March 2015 Williams described the relationship between WWL and Arslan as follows:

Arslan did not swear an affidavit in these proceedings but provided what was described as an “outline of evidence”, the accuracy of which he confirmed when giving evidence. In that outline, Arslan described his position with WWL as follows:

What was said at the initial meetings between Richards and Tolland on the one hand and Williams on the other is in issue. The terms of the retainer/retainers under which WWL performed services for OFS and Richtoll are also in issue.

On or about 2 August 2007 Williams met Richards for the first time at a lunch arranged in Sydney. The two were introduced by a mutual contact, Ms Ivy Lee, who was present at the lunch.

Richards says that his intention in attending the lunch was to secure the services of WWL to assist in the fledgling mortgage lending business of OFS. He said that he had discussed this possibility with Ivy Lee and that she had suggested that WWL was experienced in the area and was suitable to provide a full suite of services to clients. At par (11) in his affidavit of 27 October 2014 Richards deposed that Williams said:

In response to a statement from Richards that he was looking for a law firm that would “check out” the borrower, examine their financials, approve the loan and do all the legals, Richards deposed that Williams said:

The only other attendees at that lunch who have provided affidavits in these proceedings are Ivy Lee and Williams. In her affidavit of September 2014, Ms Lee gave evidence of a conversation supportive of Richards’ version. In cross-examination, however, it became clear that she was only recalling the general tenor of the discussion. I find that she has no detailed recollection of what was said and in particular, the use of such words as “vetting loans” and “due diligence”. Ms Lee was first asked to recall the meeting in which she had no business interest herself, shortly before preparing her affidavit seven years after the event (September 2014). In cross-examination she conceded that she could not recall what was said at the meeting just the intention of the meeting and her perception of it:

In his affidavit Williams denied that he said that WWL specialised in mortgage management or placement of funds, denied saying that WWL could manage the whole process, denied saying that WWL would be able to vet borrowers and denied saying that WWL would perform “due diligence”. Williams denied saying that WWL was a “one stop shop” and that it would handle matters from “womb to the tomb” and denied that it would collect interest payments. He agreed that he may have said that WWL did have some sources for finding potential borrowers and that it could do the documentation for loans and any enforcement that became necessary.

It was Richards’ evidence that because of his inexperience as a lender, he was looking for a law firm which was capable of providing a wide range of services, which would include the identification of investment opportunities, and would perform “due diligence” by which he meant ascertaining the prospective borrower’s servicing capacity and valuing the property that would be the security for the loan. On behalf of OFS he was also seeking that such a law firm would perform associated legal services, which would include the drafting of loan and security documents, as well as the provision of such legal advice as was appropriate to protect its interests. He said that as a result of his discussions with Williams, he believed that WWL would provide such services.

It is the plaintiffs’ case that not long after the lunch meeting, Richards sent an email to Williams, dated 8 August 2007. Part of that email is missing due to how it was photocopied. The email purported to be sent by Mr Richards and was addressed to “Mark Williams (Vincenza.Barbaro@wwlawyers.com.au). Vincenza Barbaro was a secretary/paralegal in WWL at that time. The content of the email, allowing for the missing parts, was as follows:

(exhibit E(1), p25)

Williams denied having seen that email before these proceedings. There are some difficulties with this email which I will discuss in due course.

It is common ground that not long after the lunch meeting, there was a meeting at WWL’s offices. This was attended by Richards, Toland, Williams and Arslan. Williams introduced Arslan to the others at this meeting. There is no issue that Arslan was introduced as the “Business Development Manager” of WWL. What was said at the meeting, however, is in issue.

Richards in his affidavit of 27 October 2014 says that at that meeting Williams said:

Williams denied saying that “we are both qualified”. He denied saying that Arslan had any qualifications. He denied saying that “we were qualified to introduce investment opportunities”. He denied saying that “we could package and manage loans” and denied saying that “we would vet loans”. He deposed that at most he “would only have said we might be able to introduce borrowers”. He agreed that he said that “we could do the work and make sure the security was properly documented”. He made similar denials in relation to the words attributed to him by Toland.

Arslan in his outline of evidence said that he did not recall Williams saying that he, or they, would source or vet loans. He recalled little of the meeting in his oral evidence. He did, however, give other evidence as to where responsibilities lay which effectively contradicted the statements of Richards and Toland.

In the Third Further Amended Statement of Claim (3rd FASC), the plaintiffs plead that there was a retainer agreement, presumably of a general nature, arising from these events which governed the relationship between the parties thereafter. This is denied by Williams who contends that regardless of the content of these early discussions, WWL was retained on a matter by matter basis only.

There are aspects of the pleaded retainer agreement which are significant. It is alleged that “Mr Arslan and Mr Williams (on behalf of the defendant) and Mr Richards (on behalf of OFS), agreed that … Mr Arslan, OFS and the defendant could and would act on behalf of Mr Richards, NSW Historic of their nominee” to provide various services. As pleaded, these assertions create some uncertainty, i.e. that the retainer agreement apparently involved both Arslan and Williams acting in a manner that gave rise to a retainer and that somehow the retainer agreement involved not only that WWL would act on behalf of Richards and OFS but that Arslan, separately, would act on their behalf as well. As pleaded, it is not certain who the client is said to be. Because of the way in which the case was run, however, I have proceeded on the basis that the client was OFS (which includes Richtoll).

The services that are said to have been agreed upon as part of the retainer agreement included identifying loan proposals and “good potential borrowers”, included conducting financial and legal due diligence on the borrowers and a number of other services that included drafting documentation, monitoring loans and providing legal and commercial advice. This sets out one of the fundamental areas of dispute in the proceedings. Firstly, there is the dispute as to whether there was any representation or commitment made that WWL would conduct due diligence, vet borrowers and vet any relevant security. Secondly, there is a dispute as to whether and to what extent any representation about Arslan’s relationship to WWL was made. There is also a dispute as to the extent to which, if at all, any conduct or omissions on the part of Arslan might either be attributable to WWL or in some manner constitute a breach of duty or retainer by WWL.

I have concluded that the evidence is not capable of establishing any general retainer, let alone the terms of such a retainer. In reaching that conclusion, I have had regard to my assessment of the reliability of the witnesses and my finding that generally speaking Williams and Arslan were more reliable witnesses than Richards and Toland, the reasons for which I will set out in due course.

I have also taken into account the following matters. Having regard to the passage of time, and the absence of documentation (except for the disputed email), I have considerable doubts as to the reliability of evidence as to detail from the witnesses who attended those meetings. The result is that there is insufficient evidence to confidently make positive findings as to any such retainer. Moreover, even taking the plaintiffs’ evidence at its highest, no agreement was reached and no terms were settled upon. This is important because normally a general or overarching retainer is a questionable proposition as a matter of law and requires some precision in the evidence if it is to be open as a finding (Midland Bank Trust Co Ltd v Hett Stubbs & Kemp (A Firm) [1979] 1 Ch 384 at 402).

Importantly, however, a general retainer in the terms proposed by the plaintiffs is contradicted by events which occurred shortly after the retainer is said to have been entered into. A retainer in the terms proposed by the plaintiffs is contradicted by subsequent correspondence by WWL to the plaintiffs (exhibit 6) and is not supported by any other documents created by either side. In that regard, I refer specifically to the letter from WWL to OFS of 13 August 2007. That letter (which I find was received by Mr Richards on behalf of OFS) is inconsistent with such a general retainer and had there been such a general retainer in place, its receipt by Mr Richards would almost certainly have produced a complaint or some other remonstrance on his part to Williams. There was no such complaint or even a comment in relation to that letter.

I have concluded that at these meetings no more was proposed by Williams than that WWL could provide various legal services relating to loans and could assist clients in arranging for third parties (such as Arslan or associated businesses) to source loans. Although Richards denied that Arslan was discussed at the lunch meeting, Ms Lee recalled that he was. Notwithstanding my earlier finding about the reliability of her recollection, it is unlikely that she would have recalled or made reference to that name if it had not been raised during the lunch meeting. It seems likely that Arslan was mentioned as someone who could provide certain services separate from WWL.

It follows from the above that I view the email of 8 August 2007 with some suspicion. Its contents are simply too convenient for the plaintiffs’ case. Like the oral assertions of Messrs Richards and Toland, its content is not consistent with correspondence subsequently sent by WWL to OFS and Richards. Oddly it suggests that Arslan was discussed at the lunch meeting, a proposition which Richards denies. The fact that the email was sent to Ms Barbaro at such an early point in the relationship between WWL and OFS is also odd. I am not satisfied the email was sent to WWL. I am also not satisfied that it was received by Williams. Judging from subsequent correspondence, had such an email been received by Williams I am satisfied that he would have responded to it in a way which traversed some of its assertions.

In any event, over the following months OFS engaged WWL to provide services with respect to several loans which it made to third party borrowers totalling several millions of dollars, usually for short terms at high interest rates, secured by real property. The plaintiffs sue WWL with respect to two of these loans. I find in accordance with Williams’ evidence that a separate retainer was entered into between WWL and the plaintiffs for each loan transaction.

Arslan purchased the Tamarama property in 2003. In 2006 Williams provided legal services in connection with Arslan’s refinancing of his loan with his lender, La Trobe Capital Mortgage Corporation Limited (La Trobe). The Tamarama property was security for a loan from La Trobe in the amount of $1.8 million. Documentation from La Trobe indicated that in August 2007 Arslan was in arrears and had been subject to two late payment fees. At that time the balance of the loan owing was $2 million and La Trobe was taking steps to gain possession of the property as mortgagee (exhibit E1, p427).

In May 2007 Arslan procured for himself a valuation of the Tamarama property. The valuation indicated that the property was worth between $2.5 - $2.9 million with the upper figure reflecting a value upon completion of certain improvements. Although the valuation was ordered on behalf of WWL, it is clear from the signature on the requisition for the valuation that it was signed by Arslan. Williams denied having ordered the valuation and denied having seen it before the loan transaction in relation to the Tamarama property was finalised. I accept Williams’ evidence on this issue and am satisfied that he neither ordered the valuation nor saw it before the finalisation of the loan. There was no reason or occasion for him to have seen the valuation and it was not put to him that he had.

Richards deposes to a conversation in which Arslan represented that he had conducted his own research into the value of the Tamarama property. In his affidavit of 27 October 2014 Richards said:

The plaintiffs allege that in August 2007 at some time after the earlier meetings at the restaurant and the offices of WWL, Arslan contacted Richards with a proposal for a loan of $3 million by OFS to the owner of the Tamarama property. There is a dispute whether Arslan made it clear to Richards that he was the owner or represented that the owner (and proposed borrower) was merely a relative of his. Richards says that at this time he knew Arslan as “Jimmy” while the subsequently executed loan documentation named Arslan by his proper first name, Cumali.

There were three units in the block at Tamarama. Arslan owned the middle unit. It was that unit which secured the loan with OFS. The payment of $57,500 to OFS on settlement represented a pre-payment of interest. The interest rate provided for under the loan agreement was high, being 23% per annum standard rate and a default rate of 28%.

There is an issue as to the capacity in which Arslan was acting in his dealings with Richards. Richards asserts that he understood that he was dealing with Arslan in these matters as a part of WWL and not as somebody independent of the firm. In cross-examination the following evidence was given:

In the course of that cross-examination Richards was shown an earlier affidavit which he had sworn in these proceedings on 20 April 2010. His attention was drawn to the following paragraphs in that affidavit:

Having been taken to those paragraphs, the following cross-examination of Richards took place:

Apart from that material placing doubt on Richards’ “understanding” of the position of Arslan, Toland’s evidence as to his understanding supported Arslan’s activities being independent of WWL.

Later in his evidence Toland said:

It was evident that OFS understood that Global Consultants Pty Ltd (Global) had been incorporated to provide services in relation to loans, separate from the law firm. Global was incorporated on 24 August 2007 with Arslan as a 50% shareholder and as its director. There was a 50% shareholding by a company controlled by Williams and his wife but the control of Global clearly lay with Arslan. Even though Global was providing services separate from the law firm, there was no change to the arrangements between WWL and OFS as a result of its incorporation.

Richards was reluctant to concede any obvious distinction between Arslan’s role and that of WWL. He initially attempted to rely upon the fact that Global was not incorporated at the time of the Tamarama loan, but when it was pointed out to him that no change in WWL’s responsibilities apparently arose from this (i.e. Arslan must have been providing these services, whatever they were, as an individual separate from the law firm from the beginning) he resorted to the proposition that Arslan and Global were operating under “the umbrella” of WWL. There is no support for that proposition in any of the documents and it is contradicted by the letters of limitation of retainer sent by WWL in respect of every loan (exhibit 6).

The prevarication of Richards on this issue can be seen in the transcript when he was cross-examined about the contents of paragraph 23 in his affidavit of 20 April 2010, which is set out at [39] - [40] hereof. The cross-examination of Richards on this issue continued as follows:

While both Richards and Toland used the expression “umbrella” and Richards initially testified that the term had definitely been used in discussions with Williams and Arslan, both conceded that it may not have been an expression that was ever used at the relevant time (Richards T.97.45, Toland T.169.25). Arslan firmly denied it (T.284.49) and it was not put to Williams. There is no basis in the evidence for a conclusion that Williams had anything to do with the activities of Global. Although a company controlled by him was a shareholder in Global, Williams received nothing from it (T.216.49) and there was no suggestion that he did any work in it or for it.

As already indicated, the differentiation between the functions performed by Global and WWL was made clear in the letters from WWL to OFS in the case of each loan (exhibit 6). WWL was providing services in relation to the preparation and execution of loan documents whereas Global was providing other services which included sourcing clients who required loans and providing commercial advice in relation to those loans. This is evident when one compares the fees charged by WWL in relation to each loan (which were modest) with those charged by Global which were $10,000 in relation to the Tamarama loan, $39,450 in a matter of Schneller Family Trust Pty Ltd, $10,891 in a matter of Tollan Real Estate Pty Ltd and $230,625 in relation to the Sanctuary Loan (exhibit 1). I find that there was no misapprehension on the part of Richards as to the role of WWL and that of Global. I find that Richards was well aware that when providing commercial advice to him, Arslan was acting either on his own behalf or on behalf of Global or one of his other companies and not on behalf of WWL. I find that Global was not operating “under the umbrella” of WWL. I find that the activities of Global were quite separate to those of WWL.

An important document when considering the Tamarama loan is the letter from Williams to OFS of 13 August 2007 to which reference has already been made (exhibit E(1), p 379). It is necessary to set out the letter in full. It is addressed to OFS and to Mr Richards as a director. Mr Richards initially said that he did not receive the letter (Affidavit, 27 October 2014, par 19). In par 3 of his affidavit of 1 September 2015 Richards said that he had no recollection of having received the letter and confirmed that under cross-examination (T.64 - 65).

The letter is as follows:

The letter sets out in clear terms the understanding of WWL as to its retainer in relation to the Tamarama loan, i.e. “We further confirm your instructions for this firm to act on the company’s behalf in respect of the preparation of the loan transaction documentation and upon settlement thereof”. It specifically excluded the carrying out of any due diligence. As already indicated, there was no subsequent complaint or comment by Richards as to that articulation of WWL’s retainer in respect of the Tamarama loan. I find that WWL’s retainer in respect of the Tamarama loan was as set out in that letter.

The contents of that letter are to be contrasted with the evidence of Richards in cross-examination that he did not think that he was actually provided with a draft agreement and that he did not recall receiving it:

As claimed in the 3rd FASC and as is clear from the above cross-examination, one of the complaints by OFS is that a clause (clause 9) was inserted into the Tamarama loan agreement without the knowledge and consent of Richards and Toland. Richards’ evidence is that he did not receive a draft of the loan agreement but that he and Toland were invited to sign a document which they had not previously seen and which they did not read at the time they signed it. Toland’s evidence is that he did not sign the loan agreement and that no-one explained it to him, nor was he told about the insertion of clause 9 in it. Implicit in that evidence is that neither Richards nor Toland had any discussions with anyone (including Arslan) concerning the content of the Tamarama loan agreement. Despite his earlier evidence about Williams “going through” the loan/mortgage document, the final position adopted by Richards was that there was no explanation of the loan agreement and that they were simply asked to sign it. This he did without reading it.

That last assertion was conceded by Williams who agreed that there was no oral or written advice to OFS, Richards or Toland about the terms or effect of the loan agreement. Whereas in some circumstances that might be an issue, it does not matter greatly in this case since the only clause of which the plaintiffs complain is clause 9.

I am satisfied that the letter from WWL to OFS of 13 August 2007 (exhibit E(1), p379-80) was not only sent by WWL but was received by Richards on behalf of OFS. On that issue, I prefer the evidence of Williams to that of Richards. The evidence of Williams is supported by the contents of exhibit 6, which consists of similar “retainer” letters sent by Williams to OFS (Richards) in relation to other loans. The letters follow a generally similar format. It was never put to Williams that he did not send the letter. No reason was put forward as to why, if Williams sent the letter, it would not have been received by Richards.

The letter is important in a number of other respects. One of those is the credit of Richards. It places considerable doubt on his evidence as to the content of the conversations with Williams at the lunch meeting and the initial meeting at the offices of WWL. It places in doubt the email of 8 August 2007. It places in doubt his evidence that no draft agreement or mortgage document were sent to him. The fact that there was no response to the letter, nor to the other letters to similar effect in exhibit 6, is consistent with the contents of this letter and those letters being in accordance with Richards’ understanding of the retainers between OFS and WWL.

The plaintiffs allege that the whole of clause 9 of the loan agreement was included without any consultation with Richards or Toland. It is common ground, as Williams conceded, that no advice was given by WWL to the plaintiffs, or anyone on their behalf, as to the terms or effect of clause 9. Clause 9 was in the following terms:

Williams and Arslan say that the insertion of clause 9 in the loan agreement occurred at the request of Richards. Arslan says that the request for its insertion was made to him by Richards and that he passed that request onto Williams (exhibit 7, par 16). Williams says that both Richards and Arslan specifically requested that clause 9 be inserted in the loan agreement (exhibit 10, p11, par 35). In cross-examination Williams said that after he had been told by Arslan to insert clause 9, he confirmed that instruction by speaking to Richards (T.254.1). Williams said that Richards made it clear to him in discussions at the time that he understood the meaning of clause 9 (T.254.47).

Clause 9 is straightforward in its terms and would be readily understood by a literate non lawyer. Richards conceded that he understood the effect of the clause when he read it.

The effect of clause 9 is fairly simple in mechanical terms. It provided that if the borrower fell into default in respect of repayments for four consecutive months then the lender held a unilateral option to take title to the security property by means of requiring its transfer by the owner/borrower. Such a term had the effect of circumventing the ordinary requirement for a mortgagee lender to follow the process of mortgagee sale to discharge the outstanding debt. It had thereby the potential to save time, effort and cost to the lender in the case of default by the borrower. It also had the obvious potential for financial gain to the lender if at the time of the exercise of the option, the security property was of a market value greater than the outstanding debt.

There was, as the experts noted, a notional risk for the lender in sub-clause 9.2 which provided that if such a transfer were effected, it would be in full and final discharge of the borrower’s obligations under the agreement. If the lender exercised the option at a time when the value of the property was less than the outstanding debt, then the lender would ostensibly suffer loss. It was never suggested by Richards that he did not understand this aspect of clause 9. Even then it was only OFS which could exercise the option.

In order to understand the events which transpired between the parties relevant to clause 9, it is necessary to say a little more about the Tamarama loan. The transaction settled on 22 August 2007 when the loan monies of $3 million were advanced. On settlement the cheques were drawn as follows:

I find that Richards requested that a clause in the form of clause 9 be inserted in the loan agreement. It was agreed by the experts that this was an unusual clause. It is a surprising, if not an extraordinary, proposition that any solicitor in a loan transaction would insert an unusual clause in the loan agreement without the consent of the client particularly if he or she did so without explaining the clause. This is particularly so when dealing with a new client. Richards’ evidence of signing the loan agreement without reading it in total reliance upon WWL, is also surprising.

The absence of any complaint or even comment by Richards subsequent to the completion of the Tamarama loan transaction tends very much against an acceptance of Richards’ evidence on this issue. On the contrary, subsequent events suggest strongly that not only was Richards well aware of the presence of clause 9, but sought to exploit it in due course.

As the experts agreed and as is apparent from the terms of the clause, it favoured OFS. There was only a limited circumstance in which it would favour the borrower, which would have been obvious to Richards. Moreover, the initiative for activating clause 9 was solely in the control of OFS.

Finally, there was evidence of Richards requesting the insertion of a similar clause in a later loan agreement. While that later document speaks for itself, the evidence of Richards in relation to it is of importance. It supports the evidence of Arslan and Williams in relation to clause 9 and it provides another indication of Richards’ unreliability as a witness.

The events which transpired between the parties in relation to clause 9 were not uncomplicated, but support the proposition that Richards requested the insertion of clause 9 and in due course sought to activate it until dissuaded by Mr Kendall (Kendall), an accountant retained as a consultant by OFS in late 2007.

After the initial drawdown of the $3 million loan, Arslan made no further repayments of principal or interest beyond the pre-payment of $57,500. This failure was perhaps predictable since it was never Arslan’s intention to continue to hold the property and make loan repayments for any significant period of time. When the default occurred, there is no evidence of Richards or OFS taking any action against Arslan immediately, other than engaging Kendall to investigate the position.

In about February 2008 Arslan advised OFS that he had located a purchaser for the Tamarama unit. The purchase price was $3 million. Contracts for Sale of the unit at that price were exchanged with this purchaser.

Because of Arslan’s default and the existence of clause 9, OFS acquired certain rights. At some point before settlement of the purchase, Richards communicated to Williams and Arslan that as in effect the equitable owner of the unit, OFS did not wish for the sale to proceed. Just why Richards adopted that position is contentious. According to both Williams and Arslan, Richards intervened and requested that the sale contract be rescinded because Richards had decided to attempt to acquire all three units in the block and develop them further, thereby maximising the capital gain.

In his affidavit in reply on this subject (1 September 2015) Richards says that the purchaser was in default under the Contract for Sale in not having paid the requisite deposit bond by the required date (which would seem to be true). Richards says that this was of particular concern because Arslan had advised him that the purchaser did not have finance and was looking for vendor finance from the equitable owner, OFS. Richards considered this to be no more than an attempt by Arslan to shift the exposure for his debt onto OFS. In correspondence with OFS, Williams and Arslan note that the failure to pay the deposit bond in time should not have been fatal to the sale proceeding, rather it was the change of heart on Richards’ part only.

Richards denied that he had an intention to develop the whole block at the time of rescission but it is clear that he did from the contemporaneous correspondence (exhibit E(3), pp884 and 886). It is also clear from correspondence that despite his oral evidence (T.105), the purchasers were in a position to pay the deposit having earlier handed over cheques which they suggested be banked (exhibit 8, exhibit E(3), pp862 and 869). Both Williams (T.257.37) and Arslan (T.306.12) recalled that this was the case.

Despite Richards’ denial, it is apparent that on or about March 2008 Richards requested Arslan to sign a transfer of the Tamarama unit naming OFS as the transferee and the sale price as $3 million. Williams and Arslan were both definite that this occurred in early 2008. Neither had any ongoing reason to lie about this. A contemporaneous email from Arslan to Richards of 25 March 2008 confirms this request and action (exhibit E(3), p886). This was not contradicted by Richards (T.114.12 - .43). The transfer was given to Richards and no copy survives. These actions of Richards are not consistent with those of a person who had clause 9 inserted into the loan agreement without his knowledge and consent.

The following extracts from correspondence provide a snapshot of what was happening in relation to the Tamarama property after Arslan had defaulted in his interest repayments and contracts for its sale had been exchanged:

Kirath Ramrakha (Ramrakha), an employed solicitor with WWL, gave evidence that Richards again sought a transfer from Arslan in mid 2009. Richards denies this but there is little reason to doubt the independent witness. It was not put to Ramrakha that he was lying or mistaken (T.315). The evidence revealed that Ramrakha swore an affidavit and provided a letter statement (exhibit 9) to the same effect in 2010. It is clear that the transfer was discussed between them from an email of 24 July 2009 (exhibit 2) yet Richards would not admit that this was so (T.122.30).

The context in which this evidence is important is that OFS alleges that as a result of the inclusion of clause 9 in the Tamarama loan agreement, it suffered loss in the form of the unpaid loan principal and legal costs in the dispute with Arslan. Evidently no steps had been taken to register the transfer provided in early 2008. In this regard, the 3rd FASC pleads:

There is an issue concerning whether a representation as to the value of the Tamarama property was made by another employed solicitor of WWL. Richards gave evidence that before the execution of the loan documentation, he spoke to John Warda (Warda), a solicitor then in the employ of WWL. He says that Warda said to him:

Warda was employed at WWL from December 2005 until February 2009. During that time he conducted work on a number of the OFS loan files within the WWL office. He died in May 2011. No allegation that Warda had made any representation about the value of any security property was made until affidavits were filed on behalf of the plaintiffs in October 2014.

In his affidavit (par (13)) Toland made a similar allegation against Warda. At around the same time, Warda is supposed to have said to Tolland words to the general effect:

In response to these allegations against Warda, Williams in his affidavit set out his experience with Warda as an employed solicitor over the relevant period. Ramrakha also provided an affidavit making similar observations about Warda’s character and general practice as a solicitor.

Williams says that although Warda was in his late 30’s, he was inexperienced and that he (Williams) firmly instructed him that if a client sought his advice he should check with Williams first and so far as he was aware, Warda followed that instruction. Williams says that at no time did he ask Warda to consider or provide any services or advice as to the value of a security property and that he was not aware that Warda had been asked to provide such advice. Williams says that in his experience it would be particularly out of character for Warda to have expressed any view about financial rather than legal matters to a client. Williams said:

Ramrakha in his affidavit (25 May 2015) says that he never became aware of Warda providing advice in any matter concerning the valuation of real property, including the valuation of real property used as a security. He was unaware of Warda having conducted any financial investigation or providing advice in respect of either the Tamarama loan or the Sanctuary loan.

I have concluded that these allegations against Warda are not true:

There is an issue as to whether Arslan disclosed to Richards and Toland that he was the owner of the Tamarama property and therefore the borrower. Richards and Toland say that they were not aware of this and that they had been positively misled by Arslan when he told them that the property was owned by a relative of his. Arslan was definite in his affidavit (exhibit 13), “outline of evidence” (exhibit 7) and in his oral evidence that he made it clear that he was the owner.

Richards was cross-examined by reference to email correspondence between him and “Jimmy” Arslan which also bore the email stamp “Cumali Arslan”. Richards’ explanation was that he had not and would not have seen that email stamp because he relied upon his secretary to both read and reply to emails on his behalf after he had dictated the content.

Williams in his affidavit said:

His evidence at trial was:

It seems somewhat farfetched that neither Richards nor Toland associated Cumali Arslan with “Jimmy Arslan”. On that issue, it is not clear from the evidence of Williams that he had in mind a specific occasion when he told Richards or Toland that Cumali Arslan and Jimmy Arslan were the same person. Rather the effect of his answers is that his recollection at trial was that this must have been so because of the discussions which took place. The more likely scenario is that set out in Williams’ affidavit, i.e. that in his dealings with Richards nothing was said which alerted him to the fact that Richards might have had a misunderstanding as to who the owner of the Tamarama property was. As a result there was no occasion for him to specifically raise that issue.

In any event, the real issue is not whether Arslan in fact sought to mislead Richards and Toland as to the ownership of the Tamarama property, but whether Williams knew that this had taken place and that Richards and Toland misunderstood who the owner was.

There is no evidence that Williams knew (if such were the case) that Arslan had misled Richards and Toland as to the identity of the owner of the Tamarama property. There is no evidence that Williams knew that Richards and Toland were acting under a misunderstanding as to who the owner of the Tamarama property was. Williams’ evidence is to the contrary. There was no occasion identified in the evidence when that information or misunderstanding would have been conveyed by either Richards or Toland to Williams. Nothing was put to Williams to suggest or identify a particular occasion when he should have clarified the question of ownership of the Tamarama property.

On that state of the evidence, there was no obligation on the part of Williams to bring to the attention of Richards and Toland that the owner of the Tamarama property and Jimmy Arslan were the same person. In the absence of any evidence that Richards and Toland were unaware of that fact, Williams was entitled to assume that they were so aware and conduct himself accordingly. There is nothing in the letter of 13 August 2007 which is factually incorrect, or that was misleading on this issue. It is a formal letter. The registered owner of the property was Cumali Arslan and that is the person to whom reference is made.

Taking those matters into account and also the adverse view which I have formed as to the reliability of the evidence of Messrs Richards and Toland, I find that there was no obligation on the part of Williams to specifically point out to Richards and Toland that the owner of the Tamarama property was the person they knew as Jimmy Arslan. Moreover, the absence of evidence of any complaint by Richards or Toland to Arslan or Williams that they had been misled as to the ownership of the Tamarama property tells against them being so misled.

There was an issue at trial as to whether Williams acted for Arslan as well as for OFS in relation to the Tamarama loan.

In the letter of 13 August 2007 Williams asserted that the borrower in respect of the Tamarama land was a client of WWL but that he had advised the borrower that in this transaction WWL was acting for OFS and was unable to provide the borrower with any advice in relation to the transaction. That is in accord with the evidence of Williams at trial. The plaintiffs submit that the documentation makes it clear that WWL was acting on behalf of the borrower and that this evidence of Williams is false. The documentation to which reference is made comprises the letter from Hansons (the solicitors for La Trobe) of 15 August 2007 (exhibit E(1), p 427) and the filing of the discharge of the La Trobe mortgage and the registration of the OFS mortgage.

These documents do not establish that WWL was acting for Arslan in relation to the Tamarama loan. The letter from Hansons of 15 August 2007 is readily explainable by the fact that WWL had acted for Arslan in 2006 in the loan by La Trobe. Hansons may have assumed that this was still the case. The registration of the discharge of the La Trobe mortgage and of the OFS mortgage were steps which WWL would have to have taken in any event to protect the position of OFS in relation to the loan. It is likely that Arslan acted for himself in this transaction.

Because Arslan was in regular contact with Williams and was from time to time passing on instructions which he received from Richards, he would have told Williams, how apart from the discharge of the La Trobe loan, he wished the cheques to be drawn. It is also clear from the WWL letter of 22 August 2007 (exhibit E(1), p240) to Richards that OFS also had a say in how the cheques were to be drawn in that $57,500 was to be paid to OFS as the first interest instalment, $8,000 was to be paid to the Office of State Revenue for stamp duty and $150,000 was to be held in trust in respect of construction costs (I assume for the extra work to be carried out on the Tamarama property). In those circumstances, I am not satisfied that WWL was acting for Arslan in relation to the Tamarama loan. I accept the evidence of Williams on that issue and the assertion to that effect in the letter to OFS and Richards of 13 August 2007.

At this stage, I should say something further about my assessment of the reliability of the principal witnesses in this matter.

I found Richards to be an unconvincing and unsatisfactory witness. Richards was evasive in his responses and regularly took refuge in non-committal answers, i.e. “It’s possible”. His responses to whether or not he had received the letter from WWL of 13 August 2007 and the other letters comprising exhibit 6, were particularly unconvincing. These letters were clearly sent by Williams and the contrary was never put to him. They were clearly received by Richards. His answers ranged from “possible” to “highly possible”, but never “yes” or “no”. These responses were not candid. Similarly, in relation to the invoices issued by Arslan on behalf of Global (exhibit 1), Richards refused to say whether or not he had received them (T.103.15). Other areas where his responses were inconsistent with unchallenged or incontrovertible evidence have been referred to earlier in this judgment. I found Richards to be an unreliable witness.

That unreliability carries over to Richards’ evidence that he was inexperienced as a lender and relied entirely upon Williams or Arslan (said by Richards to be acting on behalf of WWL or under its umbrella) for advice as to what transactions and loans should be entered into by OFS. My assessment of Richards as he gave evidence is that he is an astute businessman who was well aware of the need to obtain valuations which showed that loans to be made by OFS were adequately secured. That conclusion is consistent with the documentary evidence. I accept the evidence of Arslan that the sort of loans that OFS through Richards was intending to make were those where the money advanced was adequately secured, i.e. asset lending (exhibit 13, par (8), T.284.20). Whether or not the borrower had the capacity to make the high interest payments which those loans imposed was of less importance to Richards than the value of the property which could be sold in the case of default. Richards’ conduct in relation to the Tamarama loan and his reluctance to take action against Arslan as the defaulting borrower, provides support for that conclusion.

Toland was not an addressee of the 13 August 2007 letter, nor most of the other letters in exhibit 6. He was unable to assist on whether they were received, other than to suggest (on no apparent basis) that they had all been concocted after the event (T.191.35). Although he said that he would have been very concerned if he had read them and would have taken action (T.191.10 - .20), he accepted that he may, in fact, have read one or more of them (T.193.15).

I found Toland to be an unconvincing and unsatisfactory witness, although in a different way to Richards. He chose to avoid directly answering questions which he perceived might be dangerous to the plaintiffs’ case. He made long-winded, non-responsive answers calculated to support his case on the topic on which he was being questioned. His responses were often patently partisan. I gained the clear impression that he had little direct knowledge of these transactions and had generally left the arrangement of loans to Richards. His affidavit was particularly lacking in detail. This is not surprising when he was purporting to remember events which had happened seven years before and in relation to which he had taken no notes nor made any other record and where he was not directly involved in most of the transactions.

The following evidence when Toland was being cross-examined about whether he had seen and discussed the letters in exhibit 6 gives the flavour of the answers which he was providing to the cross-examiner:

In contrast, I found Williams to be an honest and forthright witness. He was prepared to concede matters where appropriate, even when this was against his interest. He was prepared to concede (despite the equivocal nature of Richards’ evidence on the subject) that he had not explained the loan agreement for the Tamarama loan to Richards. This was a potentially damaging admission the effect of which he would have been well aware. Williams answered questions directly without obfuscation. He gave no impression of seeking to tailor his evidence to affect the outcome.

There was an issue in the trial as to whether Williams had seen the 15 August 2007 letter from Hansons Lawyers (the solicitors acting for La Trobe, the outgoing mortgagee for the Tamarama property). That letter indicated that Arslan was in default in relation to that mortgage and by way of both principal and interest his indebtedness to La Trobe was in the order of $2,024,756.80. In evidence Williams could not recall being personally aware of the matters raised in that letter. He denied that he was aware of any financial difficulty of Arslan at that time (T.248.49). Arslan himself did not accept that he was in financial difficulty in the general sense, but accepted that he was in default in relation to the La Trobe mortgage. The reason for him being in default, he explained, was because an anticipated sale of the property had not proceeded. Arslan did not accept that he had spoken about his financial circumstances to Williams at any time (T.289.30, T.293.16).

I am satisfied that not only was the letter received by WWL but that it was brought to the attention of Williams. In making that finding, I do not conclude that Williams was deliberately seeking to mislead the Court. The better explanation is that with the passage of time he had simply forgotten the contents of that letter. Even allowing for that discrepancy in his evidence, I found Williams to be a reliable witness.

I did not find Arslan to be as forthright and reliable as Williams. On some matters his recollection appeared to be selective. Nevertheless, when pressed he answered questions directly and became somewhat indignant in relation to certain of the propositions put to him. In a number of important respects, however, his evidence was corroborated by that of Williams. For example, Arslan had no recollection of the detail of what was said at the first meeting in the offices of WWL attended by Richards and Toland, but was adamant that at no time did he ever assert to Richards that either he or Global was operating as part of or under WWL (T.284.46 – 285.21).

When assessing the reliability of Arslan, it needs to be kept in mind that he was originally a defendant in these and other proceedings brought by OFS in 2010. In these proceedings his joinder arose from a loan to a company which for convenience can be called “High Range”. That was a loan where WWL did the legal work and Arslan introduced the borrower to OFS. At some time thereafter, the property which was the security for that loan, was transferred into Arslan’s name. Arslan’s involvement in the litigation brought by OFS ceased when a settlement was arrived at between him and the plaintiffs, which included the transfer by Arslan of that property to OFS, and his release from any further liability. It follows that apart from suffering reputational damage, Arslan had no motive not to tell the truth when giving his evidence.

In summary I found Arslan to be a generally reliable witness particularly when giving evidence as to the relationship between Global and WWL and on the issue of whether Richards asked that clause 9 be included in the loan agreement (T.297.2, T.299.36, T.300.11). He was less candid when giving evidence about the extent to which he carried out “due diligence” activities in respect of loans made by OFS (T.286.18 - .38, T.287.43).

As already indicated, there is a dispute between Arslan and Richards as to whether Arslan told him that the Tamarama property was owned by a relative and did not disclose that he was the owner. There is also a dispute between them as to whether Arslan falsely asserted to Richards that he had a valuation of the Tamarama property “up to $3.7 million and once it is renovated, it will be up to $4 million” (see [35] hereof).

In his affidavit of 4 February 2011 (exhibit 13), Arslan deposed the following conversation with Richards at par (6):

Under cross-examination when asked about the April 2007 valuation of the Tamarama property, Arslan gave the following evidence:

When Arslan was cross-examined as to the conversation with Richards at [36] hereof, he said that he could not recall such a conversation.

I do not accept that Arslan sought to mislead Richards as to the true owner of the Tamarama property. I am satisfied that Richards well knew that Arslan was the owner. That was certainly the position which Arslan maintained in his affidavit of February 2011 and it is consistent with the subsequent dealings which he had with Richards. It would have been a foolish lie because inevitably Richards would have learned that Arslan was the owner. Once the lie was discovered, it was unlikely that Richards and Arslan would have continued to deal with each other as they obviously did over the next 12 months or so. Such a lie is also inconsistent with Richards’ evidence as to how he learned that Arslan was the owner. Richards said that after the loan transaction was completed, Arslan in the course of a conversation made it clear that he was the owner. Richards did not give evidence of being surprised or upset when told.

The emails in Richards’ own system revealed that as early as 21 August 2007 Arslan was identified as Cumali Arslan and that this name was generated as the name of the recipient when emails were sent to him. A number of emails sent by Richards commencing “Hi Jimmy” have been uncovered. Richards said that sometimes emails would be printed out and given to him but he did not recall seeing these (T.47). It is unclear how the email address of the person whom Richards thought was “Jimmy” could have been entered into his system as “Cumali” unless the person entering it could see that they were the same person.

The position in relation to whether Arslan told Richards that he had a valuation of the Tamarama property in the amount of $3.7 million is less clear. Arslan cannot remember any such conversation. He does have a recollection that there was such a valuation in existence which makes it likely that he would have said something about it to Richards. No such valuation has been produced by either side. If there were no such valuation and Arslan had falsely stated that there was, his lie would have been easily detected if, when asked to do so, he had failed to produce the valuation. Again, telling such a falsehood would have made any future dealings between Arslan and Richards most unlikely. It also strains credulity that, having been told of the existence of such valuation, Richards would not have insisted on seeing it before the loan was made. This is so despite Richards’ evidence that he did not ask to see any valuation but relied entirely on Arslan. I have concluded that on balance Arslan did not mislead Richards on this issue in the way alleged.

There is, of course, no evidence that Williams said anything about a $3.7 million valuation of the Tamarama property to Richards or (if it be the fact) that he knew that Arslan had done so and that (if it be the fact) such a representation was false. I have already set out why I do not accept the evidence of Richards and Toland that Warda said anything to either of them about such a valuation.

Apart from the amount of $57,500 for the first interest instalment, Arslan made no further payments of principal or interest in relation to the Tamarama loan. By late 2007 or early 2008 Arslan was in default under the loan agreement. A further valuation of the Tamarama property was obtained in 2010. It gave the value of the property as at 27 May 2010 as $2,750,000. OFS sold the Tamarama property as mortgagee in possession in November 2011 and received $1,300,000. The amount claimed by the plaintiffs in respect of the Tamarama loan is the difference between that amount and the loan of $3 million, i.e. $1,700,000 plus interest up to the date of trial, i.e. $3,420,240.41.

In late August 2007 Arslan proposed another loan opportunity to OFS. This was a loan in the sum of $3.5 million for a six month period to a borrower, The Sanctuary Developments (Australia) Pty Ltd (Sanctuary), to be secured by a number of partially developed parcels of land at Airlie Beach in Queensland. As with the Tamarama loan there was a separate attribution to Warda of representations made in relation to the value of the security. This is now only relevant on credit issues since the case against WWL relating to the valuation of the security was abandoned by the plaintiffs at the beginning of the trial.

The letter from WWL (Williams) to Richards as director of OFS of 21 August 2007 sets out the background to this transaction.

I find that the retainer between WWL and OFS in relation to the Sanctuary loan is in accordance with that which is set out in this letter, i.e. “instructions for us to prepare the loan documentation to reflect the terms and conditions of the loan and attend settlement and all necessary registration arising therefrom” and it did not include carrying out “due diligence” in relation to the loan. Although the letter does provide advice on other matters, Williams explained that this was necessary because he wanted to obtain clear instructions from OFS and there had been some difficulties in that regard.

On 16 August and 17 August 2007 WWL caused searches to be undertaken of the proposed borrower on the ASIC register. This revealed Sanctuary to be registered and at that time fully self-administered. Shortly after this and before the loan agreement was executed, the parties agreed to increase the loan amount to $4.5 million. This occurred on or about 6 September 2007. There was an option to increase the term of the loan by three months. The interest rate was set at 35% per annum payable in advance (exhibit E(1), p245). On 6 September WWL considered that settlement or completion was imminent. However, the loan moneys were not drawn down immediately.

On 11 September 2007 external receivers and managers were appointed to Sanctuary. Subsequent correspondence revealed that this appointment related to an outstanding debt and a related company charge connected to a boat. On 21 September 2007, without having become aware of the appointment, OFS advanced the $4.5 million in loan moneys to Sanctuary. Between 17 August and 21 September 2007 no further search of Sanctuary on the ASIC register was conducted by WWL.

Under the loan agreement between OFS and Sanctuary an event of default included the appointment of a receiver to Sanctuary.

By way of further background, the borrower was a developer in the process of developing and selling various subdivided lots. It can be inferred that the borrower was probably dependent on their sale to service any loans rather than on any independent income. By early 2008 the Global Financial Crisis was developing throughout the world and was affecting property prices in Australia, particularly in holiday areas such as Airlie Beach.

On 9 October 2007 WWL became aware of the appointment of receivers to Sanctuary and began corresponding with the borrower’s solicitors. No specific action was taken with respect to the circumstances which constituted a default under the loan agreement and in February 2008 the debt in question was discharged and the receivers withdrew.

The following extracts from correspondence are instructive.

On 10 October 2007 at 11.12am the following email was sent by Hickey Lawyers to Williams.

Letter/email Williams to Hickey Lawyers 22 October 2007.

By 25 October 2007 no response from Hickey Lawyers had been received. In a further letter/email of that date Williams noted the “great concern” of his client and reiterated the threat that unless a response was received by the close of business that week, “we will, SUBJECT TO our client’s instructions and without further notice to you or your client, except as prescribed by the loan arrangement, initiate action to recover your client’s liability first thing on Monday morning.” (exhibit E(1), p261)

Various forms of consent relating to the sale of some property by Sanctuary were sent as was as the communication of a requirement that WWL be told of any further sale of assets.

On 29 October 2007 Hickey Lawyers responded:

On 30 October 2007 WWL responded to Hickey Lawyers saying:

On 8 November 2007 WWL provided Hickey Lawyers with consents to the sale of other assets of Sanctuary’s. The letter concluded:

By email dated 6 February 2008 the Receivers advised WWL that they were finalising their statutory obligations and would retire from their appointment by the end of February 2008 (exhibit E(1), p267). This in fact occurred.

The letter from Williams to the Directors, OFS of 20 March 2008 (see [73] hereof) said the following concerning the Sanctuary loan:

By letter/email from Williams to the Directors OFS of 28 March 2008 the following was said in relation to the Sanctuary loan:

Although Sanctuary was in default, in April and May negotiations to roll over the loan were proceeding. The details are set out in letters of 16 April, 28 April and 5 May 2008 from Williams to Hickeys Lawyers (exhibit 10, p 99 – 100). The result of those negotiations is set out in a letter/email from Williams to the Directors OFS dated 9 May 2008.

By a letter/email of the same date to Hickey Lawyers a copy of the “final version of the Loan Variation Agreement” was sent by WWL together with a memorandum of their fees and a memorandum of fees owing to Global. The letter concluded:

The effect of that correspondence was that Sanctuary had been in default under the original loan agreement since 6 March 2008. Such default was the non-payment of the principal. Rather than enforce the Statutory Demands which had been served on Sanctuary, a loan variation agreement was entered into on 9 May 2008 which extended the date for the payment of the principal and accrued interest to 6 July 2008. Interest was at an annual rate of 35%. Additional security was a property at 85 Gardiner Road Waterford in Queensland. (exhibit 10, p125)

Sanctuary defaulted on the payment date specified in the variation of loan agreement and in November 2008 a liquidator was appointed to the company. By September 2014 it became clear that the first mortgagee would not be fully paid. Accordingly, the plaintiffs allege that they recovered no amount of the principal or interest (other than the initial prepayment of interest of $525,000 at the time of the initial drawdown of the loan).

The start point for the plaintiffs’ calculation of their loss in respect of this transaction is the loan of $4.5 million advanced to Sanctuary on 21 September 2007. Interest in the amount of $525,000 was pre-paid until 20 March 2008. No funds were recovered from the sale of the properties by the plaintiffs. Interest from 20 March 2008 until the first date of this trial is $2,843,063.01. When added to the principal debt, the total loss in respect of the Sanctuary loan claimed by the plaintiffs is $7,343,063.01.

The plaintiffs allege breaches of duty and retainer by WWL in failing to identify and advise OFS that the Borrower had a receiver appointed before the drawdown of funds on the basis that OFS would not have proceeded with the loan had it been so aware.

The plaintiffs’ case as finally articulated in their written submissions depended upon two findings of fact, one of which I have already rejected. Those findings of fact were:

In relation to the first, I have already found that Williams had no actual or imputed knowledge of any such misunderstanding. I found that there was no factual basis for him to have foreseen or to have had in contemplation that such a misunderstanding had occurred. No specific instance was identified by either Richards or Toland in their evidence which would or should have put Williams on notice of such a misunderstanding on their part. Apart from the doubts which I have expressed as to whether or not Richards and Toland in fact had such a misunderstanding, I do not find that it was reasonably foreseeable by Williams that they had such a misunderstanding.

In relation to the financial position of Arslan, to say that he was in such a difficult predicament that it called in question his capacity to service the loan, is to put Williams’ level of knowledge too high. What Williams would have known from the receipt of the letter from Hansons of 15 August 2007 was that before the loan from OFS had been negotiated, La Trobe intended to take possession of the Tamarama property on 15 August 2007. He would also have been aware or have inferred that this action was being taken by La Trobe because of default under their mortgage, either in relation to the payment of principal or interest or both.

The plaintiffs submit that Williams should have passed that information on to them by telling Richards and Toland of it and should have advised that not only did it call into question Arslan’s capacity to service the OFS loan but that OFS should not rely upon any due diligence carried out by Arslan, but should either perform that function itself or have some independent person or agency carry it out.

The plaintiffs submit that this obligation came within the implied term in Williams’ retainer that he exercise reasonable care and skill when acting on their behalf. The plaintiffs accepted that ordinarily in a loan transaction a solicitor acting on behalf of the lender would be required to obtain a valid and enforceable security but not to advise on the value of the security. They submitted that where in the course of investigating title a solicitor acting for a lender discovers facts that would materially bear upon the value of the lender’s security, or some other ingredient in a lender’s decision to proceed with the loan, that solicitor has an obligation to point those matters out to the lender. In support of that proposition they relied upon Mortgage Express Ltd v Bowerman & Partners (a firm) [1996] 2 All ER 836 which was followed in Rexstraw v Johnson [2003] NSWCA 287 at [92] and Kayteal Pty Ltd v John Joseph Dignan [2011] NSWSC 197 at [38].

The plaintiffs submit that although a solicitor’s retainer largely circumscribed his responsibilities, if in the execution of that retainer the solicitor learns of facts which put him or her on notice that the client’s interests are endangered or at risk unless further steps beyond the limit of the retainer are taken, there may be circumstances where the solicitor is obliged to speak out in order to bring to the client’s attention that matter of concern and to advise the client of the need for further advice either from the solicitor or from a third party (David v David [2009] NSWCA 8 at [76], Provident Capital Ltd v Papa [2013] NSWCA 36; 84 NSWLR 231 at [75]). The plaintiffs also relied upon AJH Lawyers Pty Ltd v Hamo [2010] VSC 225. They submitted that Beach J held in that case that solicitors owed a duty to give “holistic” advice in and around the client’s retainer unless the retainer is specially limited to avoid the need for such advice. The Court was referred to Zakka v Elias [2013] NSWCA 119 at [68] which approved those observations by Beach J.

The plaintiffs submit that the letter of 13 August 2007 does not assist WWL on this issue. The plaintiffs submitted that the disclaimer in the letter limited the liability on the part of WWL with respect to “due diligence” but did not affect WWL’s obligations under the general law to protect the plaintiffs’ interests in the circumstances referred to.

The plaintiffs submit that because they did not know about Arslan’s default under the loan from La Trobe, and because WWL through Williams had held out Arslan as someone capable of performing due diligence for OFS, they had no reason to make any inquiries as to Arslan’s financial standing and capacity to service the loan. The plaintiffs relied upon that factor as distinguishing this case from National Home Loans Corp plc v Giffen Couch & Archer (a firm) [1997] 3 All ER 808.

To the extent that the submission relies upon the assertion that WWL held Arslan out as someone capable of performing due diligence, the submission is contrary to the factual findings which I have made and is not otherwise supported by the evidence in the trial. For the reasons already stated, I have rejected the very broad retainer asserted by the plaintiffs to have existed between WWL and themselves. I have rejected the evidence of Richards and Toland as to what was said by Williams about WWL being prepared to and actually carrying out functions in the nature of due diligence. Apart from those assertions by Richards and Toland there was no evidence which supports WWL endorsing Arslan in this way.

The plaintiffs submit that despite the disclaimer in the letter of 13 August 2007, the circumstances of this case meant that the scope of WWL’s obligations to OFS, whether under an implied term in its retainer or its common law duty of care, extended to the provision of advice and the making of disclosures in respect of matters that came to its attention during the course of its retainer. The plaintiffs submit that such disclosure would include the financial position of Arslan so far as it was known by Williams and in particular the information which he had received from Hansons in their letter of 15 August 2007.

The plaintiffs submit that under the common law there was a clearly foreseeable risk of financial harm to OFS if WWL allowed the Tamarama loan to proceed without the provision of further advice in circumstances where it knew that the borrower had provided due diligence in respect of the loan and knew, or should have appreciated, the risk that OFS was not aware of that fact. In addition, WWL had learned of Arslan’s default under the La Trobe mortgage which allowed a strong inference that he was in financial difficulty. (As indicated, part of the factual basis for that submission has already been rejected.)

By reference to s 5B of the Civil Liability Act 2002 (NSW) (CLA) the plaintiffs submit that there was a foreseeable and not insignificant risk of financial harm to OFS against which a reasonable solicitor in WWL’s position would have taken precautions. The plaintiffs submit that the precautions which a reasonable solicitor would have taken would have been to (a) confirm that OFS knew that Cumali Arslan and Jimmy Arslan were the same person and (b) to advise OFS of the inherent dangers associated with having the borrower perform its own due diligence. The plaintiffs submit that WWL should have warned OFS of the inherent dangers in having the borrower perform its own due diligence even if Williams was unaware that OFS through Richards and Toland had such a misunderstanding.

The plaintiffs submit that the reasonableness of such precautions was supported by the considerations in s 5B(2) CLA. They submit that the precautions which could have been taken were not burdensome. The probability of financial harm being suffered was high and if not high, then certainly readily foreseeable. The plaintiffs submit that Arslan’s overstating of the value of the secured property ($3.7 - $4 million as against the true valuation of $2.5 - $2.9 million) was precisely the kind of thing that might happen if WWL did not provide the advice referred to. The plaintiffs submit that the likely seriousness of the harm which OFS would suffer if such advice were not given was significant, i.e. the loss of much of the $3 million loan. In summary, the plaintiffs submit that not only did WWL owe a duty to them of the kind they rely upon but it was in breach of that duty by failing to provide information which it had concerning Arslan’s default under the La Trobe mortgage and advice/warning as to the dangers of having a borrower carry out due diligence in respect of a transaction from which he would benefit.

The plaintiffs put the issue of causation in two ways. They submit that had OFS become aware through WWL that Arslan was the borrower and had WWL advised of the dangers associated with allowing Arslan to do due diligence in relation to his own loan, events may have progressed in two ways. The first, and that for which the plaintiffs primarily contend, was that the Tamarama loan moneys would never have been advanced. The plaintiffs submit that Richards and Toland would have realised that Arslan had misled them and would, on that basis alone, have reposed no confidence in him or the loan that he was endorsing. They would have rightly been sceptical and suspicious of a person who was recommending a loan in circumstances where that person had a clear vested interest in the loan taking place.

Alternatively, the plaintiffs submit that having received advice from WWL as to the dangers of Arslan doing his own due diligence, OFS would have sought independent assessments of the servicing capacity of the borrower and the value of the security. The plaintiffs submit that those investigations would have uncovered Arslan’s financial difficulties and produced a true valuation of the secured property. They submit that once those things had occurred it was highly unlikely that OFS would have advanced any funds to Arslan.

As a further alternative, but not one which the plaintiffs particularly favour, they submit that even if OFS were an “asset lender” the full $3 million would not have been advanced to Arslan once the proper value of the Tamarama property was known. The plaintiffs submit that applying the 75-80% LVR which it was common ground Richards and Toland insisted upon, the most that might have been advanced was $2 million. On that alternative the plaintiffs accept that the amount of damages which they would recover in respect of the Tamarama loan would be reduced.

Part 1A and in particular s 5B CLA apply to determine questions of negligence and related claims in contract for failure to take reasonable care. The application of the statute must be undertaken in the context of the common law – in this case the common law relating to solicitors’ duties. Solicitors owe their clients a concurrent duty in tort and contract (Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1). In each case the duty is to apply the relevant degree of skill and exercise of reasonable care in carrying out the particular task in which the solicitor has been engaged (Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1 at [147]). The starting point in determining the scope of the duty is to ascertain what the client engaged the solicitor to do or advise upon.

In advising clients entering into commercial contracts a solicitor does not have a duty to give opinions about the financial prospects of the proposed arrangements (Citycorp Australia Ltd v O’Brien (1996) 40 NSWLR 398 at 418). Generally speaking a solicitor does not owe duties in tort to the client going beyond the duties arising from the retainer to perform the task in question. This is in some circumstances referred to as a “penumbral duty” (Kowalczuk v Accom Finance [2008] NSWCA 343; 77 NSWLR 205 at [294]; Dominic v Riz [2009] NSWCA 216 at [89]; Winnote Pty Ltd v Page [2006] NSWCA 287; 68 NSWLR 531 at [84]).

If, however, a solicitor becomes aware of facts during the execution of the retainer putting the solicitor on notice that the client’s interests are at particular risk, the solicitor may be obliged to provide further advice, or at least suggest that further advice be obtained (David v David at [76]; Dominic v Riz at [91], Keddie v Stacks/Goudkamp Pty Ltd [2012] NSWCA 254 at [104]; Provident Capital Pty Ltd v Papa at [75]). Ordinarily unless provided for by the retainer, a solicitor acting for a commercial lender will be responsible for the legal efficacy of any security for the loan, but not the value of the security, or the creditworthiness or capacity to make repayments of the borrower (Nationwide Building Society v Balmer Radmore (a firm) [1999] All ER (D) 95; Kayteal Pty Ltd v Dignan at [36] – [38]; White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164 at [128]; National Home Loans Corporation plc v Giffen Couch and Archer) nor is a lender’s solicitor necessarily obliged to disclose information acquired in confidence before the commencement of the retainer by the lender in respect of the borrower’s poor financial status (Omega Trust Co Ltd v Wright Sun & Pepper (No 2) (1998) PNLR 337; Maes Finance Ltd, Mac No 1 Ltd v Sharp & Partners (a firm) [1999] EWHC Technology 209; Kayteal Pty Ltd v Dignan at [37]).

The onus of establishing the existence in terms of a retainer rests on the party so asserting, usually the client plaintiff. Obviously a written retainer or other document purporting to outline the terms of the retainer will be weighty evidence. It has been said that solicitors who seek to limit their retainer ought to do so clearly and usually in writing as a matter of prudent practice (Minkin v Landsberg (T/A Barnet Family Law) (2015) EWCA Civ 1152 at [38] – [39]).

Expert opinion was obtained from two solicitors, Mr Carkagis on behalf of the plaintiffs, and Mr Rosier on behalf of the defendant. Both of those expert witnesses were impressive and were, in my opinion, fully conversant with the duties and obligations of a competent solicitor practising in Sydney in 2007 – 2008. Mr Carkagis was asked to make two alternative assumptions, one that the solicitors were engaged to provide a full service retainer, including due diligence, and in the alternative, that the retainer was limited to the preparation of the loan documentation. Mr Rosier was asked to provide an opinion on a similar basis.

Consideration of whether WWL was in breach of its duty and retainer first requires an assessment of the scope of the retainer and consequently the scope of the tortious duty. I have already indicated why the plaintiffs cannot rely upon the initial conversations, both at the lunch and at the offices of WWL. A major difficulty for the plaintiffs is the unfavourable opinion which I have formed of both Richards and Toland as witnesses and the very general nature of the evidence which they gave. The contents of their affidavits and their oral evidence lacked detail. It also seems likely, despite Toland’s evidence to the contrary, that he and Richards discussed the issues in the trial and their evidence before the trial commenced.

The evidence of Messrs Carkagis and Rosier was to the effect that the full mortgage service comprising services not traditionally legal in nature are not services ordinarily provided by a solicitor. It follows that as a matter of law, no duty to undertake such tasks would ordinarily be implied as falling upon a solicitor retained to provide legal services to a commercial lender in a loan and mortgage transaction. As I have already set out there is an inherent improbability in WWL representing that it, as a law firm, would provide such services.

As is clear from the correspondence, parts of which I have set out in the judgment:

Even if what was discussed in the early conversations was somewhat along the lines asserted by Richards and Toland as to what services might be provided and by whom (which I do not accept) such discussions were overtaken by the clear and unequivocal disclaimers and limitations as to the scope of the services to be provided pursuant to the statement of retainer in the letters which were sent.

The difficulty for the plaintiffs is that WWL stated in clear and unequivocal terms that it was taking no responsibility for due diligence in respect of the security property or the borrowers. This limitation was expressed in very similar terms in the letters sent and addressed to Richards during the relevant period (exhibit 6). These were commercial transactions for very significant sums of money. They were at that time the core business of the fledgling entity, OFS, and in relation to which Richards was the prime mover. The letters were not lengthy or difficult to understand. For the reasons already set out, I have concluded that Richards received and read those letters. The absence of complaint or even comment by Richards concerning these disclaimers strongly suggests that they were consistent with his and Toland’s understanding of the terms of the retainer or retainers.

There are difficulties for the plaintiffs in fixing vicarious liability to WWL for the conduct of Arslan. He was not a lawyer and was not, at least at the relevant time, an employee as confirmed by the shareholders’ agreement (exhibit 10, p172) and by Arslan in oral evidence (T.285). He clearly made his own business arrangements directly and through his companies with Richards and the plaintiffs in relation to further loans. I have found that despite holding himself out (with the authority of Williams) as a “Business Development Manager” of WWL, working from its offices, using an email address associated with it and being a director and shareholder of the incorporated legal practice, he was not a lawyer and was not providing services as an agent or employee of WWL.

Richards and Toland understood that Arslan was not a lawyer and that he was from time to time, at least, undertaking activities in a personal capacity divorced from the firm’s activities. This is clear from the invoices rendered by his company. The clear terms of the retainer letters suggest that this was the situation. I have found that Arslan’s statements were not as a matter of law conduct by or on behalf of WWL and that Richards understood or at the very least ought to have understood that fact.

I have referred to the modest charge ($2,120) made by WWL for the services it provided in relation to the Tamarama loan (exhibit E(1), pp243, 244). The memorandum of costs refers only to “preparation of loan documentation and attend on settlement”. This is consistent with the evidence of Williams as to the limited nature of WWL’s retainer and with the letter of 13 August 2007 setting out the retainer (exhibit E(1), p 379 – 380).

For the reasons set out at [52] – [75] hereof, I have concluded that clause 9 of the loan agreement was inserted at the request of Richards. It was for this reason and because the clause is straightforward in its terms that no explanation of it was provided by Williams. Richards agreed that he understood the meaning of clause 9. In those circumstances, and in accordance with the opinion of the experts, I have concluded that there was no obligation on the part of Williams to explain clause 9 to either Richards or Toland.

Even if that were not the case, it is difficult to see how the insertion of the clause could have caused any harm to OFS. The clause could only be activated by OFS. Since Richards understood the meaning of the clause the possibility of him exercising the right provided for by the clause in an imprudent manner was remote and would not have been reasonably foreseeable by Williams.

In the circumstances, there is no basis for the allegation that WWL breached its retainer or the duty of care which it owed to OFS in respect of clause 9 in the loan agreement.

As can be seen from the plaintiffs’ submissions, the primary claim in relation to the Tamarama loan is that WWL breached its retainer and the duty which it owed to OFS by failing to advise that Arslan was at the time of the proposed entry into the loan agreement, very recently in default of a substantial loan and mortgage agreement in relation to the same property. That claim depends upon the letter from Hansons Lawyers of 15 August 2007 (exhibit E(1), p427).

I have already found that WWL did not act for Arslan on the discharge of the La Trobe mortgage. The documents which the plaintiffs relied upon, such as the fees paid to the firm and their lodging of the discharge of mortgage, were equally consistent with WWL acting for the incoming mortgagee, OFS. (Statements to the contrary in the correspondence from Hansons Lawyers are readily explained by a reasonable assumption on their part that because WWL had acted for Arslan in June 2006 when the La Trobe loan was taken out, they were still acting for him on this occasion.)

Because I have found that the letter from Hansons Lawyers of 15 August 2007 came to the attention of Williams, the question arises as to what, if any, was the obligation of WWL to advise OFS of the contents of that letter. I have already found that the scope of the relevant retainer did not specifically include an obligation to advise as to the particular borrower’s capacity to pay. As already discussed, in some circumstances the solicitor may come under a duty to advise a client of matters of which he or she is aware that might be relevant to the decision to enter into a loan agreement subject to security. There is no expert opinion either way on this issue. Neither expert had been asked to consider the question in their reports (both the individual reports and the joint report). In those circumstances I rejected any question put to them on that issue when they gave their evidence. Nevertheless, I am required to answer that question given the importance which it now has in the plaintiffs’ case.

Williams was cross-examined on this issue. In order to better understand the cross-examination, it should be understood that Williams was being cross-examined not about the letter to OFS of 13 August 2007 relating to the Tamarama loan but the letter to OFS of 21 August 2007 relating to the Sanctuary loan:

It is also relevant that Richards and Toland were experienced and successful property developers which Williams was entitled to take into account in deciding what advice was necessary. That is not to say that they would know of Arslan’s financial history, but they might reasonably be assumed to know that borrowers for this kind of finance were often in some difficulty and in arrears under existing commitments.

It is the defendant’s position that the facts of this case have a high degree of similarity to those in National Home Loans Corporation plc v Giffen Couch & Archer (a firm). This was a decision of the Court of Appeal in England (Leggatt, Peter Gibson and Hobhouse LJJ) delivered in June 1997. It was an action by a mortgage lender suing its solicitors, who were also acting for the borrowers in a re-mortgage transaction, for failing to reveal information which the solicitors obtained relating to the borrowers.

The borrowers sought a loan of £90,000 from the lender secured by way of first mortgage over their home. In the application form they made a number of false assertions. They asserted that the value of the property was £150,000, that they had never at any time been in arrears by more than one month with any existing previous loan and that they had never had any County Court judgment recorded against them. In fact they had been in arrears for more than one month on their mortgage with another lender and their arrears were in excess of £4,000. There had also been a County Court judgment against one of the borrowers which was subsequently paid. The lender obtained its own valuation in the amount of £125,000 and discovered the County Court judgment. Despite this proof of the inaccuracy of what the borrowers had stated in their application, no further inquiries were made by the lender to check whether other statements made by the borrowers might also be inaccurate. Gibson LJ observed:

In the course of acting for both parties, the solicitors were sent a number of documents which included details of the mortgage offer and a printed form of instructions to solicitors and licensed conveyancers. Under that document the solicitors were instructed to investigate the title to the property and to advise if any condition of offer of the loan or any condition of the instructions had not been or could not be complied with. They were also instructed to report on title on the lender’s form which was also sent to them. The form required the solicitors to certify amongst other things:

In the course of their inquiries the solicitors learned that there were arrears of over £4,000 in the mortgage with the outgoing mortgagee and that the borrowers had told them that completion had to take place by a specified date in default of which the matter was to be placed in the hands of the outgoing mortgagee’s solicitors. The solicitors did not pass on the information as to the arrears, or as to any implied threat of legal proceedings, to the lender. It was common ground that it had never occurred to the solicitors that they were under a duty to pass on that information.

After the loan transaction was completed, the borrowers quickly fell into arrears and the lender as mortgagee sold the property for £70,000. The lender then sued the solicitors for the loss which it had suffered thereby. The lender said that it would not have made the loan to the borrowers had they been made aware of the arrears and the threat of legal proceedings by the outgoing mortgagee. At first instance, the trial judge found that the solicitors were under a duty to tell the lender about these matters.

In reaching his conclusion that the decision of the trial judge was wrong, Gibson LJ relied upon the following statements of principle:

Gibson LJ considered the following factors to be relevant to the court’s decision:

Gibson LJ further observed:

In conclusion, Gibson LJ said:

The National Home Loans case is very fact specific. In that regard it could not be said that OFS was an experienced lender such as the lender in that case. Certainly it did not have a specific set of directions which it passed onto WWL and which, by implication, restricted the obligations of WWL. On the other hand, it was a re-mortgage situation and it was well open to OFS to make an inquiry of La Trobe as to the state of the loan. This was particularly so when OFS was aware that Arslan was the owner of the property, as well as the promoter of the re-financing arrangement. There is also the express limitation on responsibility (which was not queried or challenged at any time by OFS) by WWL in its letter of 13 August 2007 to the effect that its instructions were:

Because of those express limitations in the only document which purports to set out the retainer and duty of WWL, I have concluded that it did not have an obligation to disclose Arslan’s financial position under the La Trobe mortgage to OFS.

I do not base that conclusion on the proposition that this information came to Williams in confidential circumstances because Arslan was a previous client of the firm. As the letter of 13 August 2007 from WWL to OFS made clear, WWL was not acting for Arslan in that transaction. Accordingly, the status of the information which was communicated by La Trobe’s solicitors to WWL in the letter of 15 August 2007 is difficult to determine. It probably came to the notice of WWL because Arslan had previously been a client. Did that circumstance govern its receipt at a time when WWL had expressly asserted that Arslan was no longer a client? If the correct characterisation of the receipt of that information is that it was received in confidential circumstances, then that is another reason why there was no obligation on the part of WWL to disclose it.

In these circumstances I am not prepared to find that WWL breached its retainer and/or duty of care which it owed to OFS in relation to the Tamarama loan by not disclosing to OFS Arslan’s financial position under the La Trobe mortgage as disclosed by the letter from La Trobe’s solicitors to WWL of 15 August 2007.

If I am wrong in that conclusion, the plaintiffs would still fail in this part of their claim against WWL in that causation has not been established.

Because these proceedings involve a claim in negligence for conduct occurring in New South Wales, s 5D of the CLA must be applied to the determination of causation. Part 1A of the CLA applies to these claims irrespective of how they are formulated (Booksan Pty Ltd, Jaymay Constructions Pty Ltd v Wehbe, Elmir; GIO General Ltd & GIO Workers Compensation (NSW) Ltd v Webhe, Elmi [2006] NSWCA 3). Under S 5D the plaintiffs must establish causation on a “but for” basis, i.e. the breach or breaches in question were necessary conditions of the asserted harm (Adeel’s Palace Pty Ltd v Moubarak; Adeel’s Palace Pty Ltd v Bou Najem [2009] HCA 48; 239 CLR 420). The plaintiffs bear the onus of proof of the relevant facts at all times (s 5E).

There is a substantial quantity of evidence to the effect that OFS had no relevant concern for the borrower’s capacity to pay. Despite repeated self-serving assertions to the effect that OFS relied upon WWL and a denial that he associated high interest rates with high risk (T.95.45) Richards’ evidence was ultimately to the effect that he was not concerned with the borrower’s capacity to make repayments, as opposed to providing adequate security.

Even the often repeated assertion that Richards believed that WWL would be “vetting loans” does not appear to have been associated by him with the capacity of the borrower to repay the loan.

In the course of his evidence, Toland suggested that a focus of OFS was on borrowers before their entry into loans. When pressed, however, he was not able to provide any substance to that suggestion (T.172.35 – .50). That suggestion was inconsistent with OFS’ case. Richards maintained that he sought and received no such information because he left it to others. Despite this Toland gave evidence of receiving such information from Richards (T.173.40) yet shortly afterwards gave contradictory evidence.

Arslan in his outline of evidence said that Richards admitted that OFS was entering into the business of “acquisition loans”. This business practice has been described in the courts as “asset lending”. In his affidavit of 4 February 2011 (exhibit 13) Arslan deposed:

In his oral evidence Arslan recalled that Richards was seeking “distressed loans”.

Williams deposed that this was his clear understanding gained from Richards. As indicated, I prefer the evidence of Williams and Arslan to that of Richards and Toland. That is particularly so in relation to this issue. There was no obvious reason for either Williams or Arslan to concoct these recollections and no real grounds for doubting their memory. The high interest rates on the various OFS loans is an important indicator of the high risk of default that was accepted by all parties to the loans. Despite this Richards denied being aware of any connection. Toland accepted that there was (T.175.7).

I have concluded that OFS made no inquiry about the borrower’s capacity to make repayments in relation to this loan and that this was not a matter of concern to it in relation to loans generally (T.85 – T.86, T.91, T.187). This was so even after taking advice after the event from Mr Kendall (T.193.16, exhibit E(3), p 808). Williams decisively rejected the proposition that Arslan’s capacity to service the loan would have been a material matter for OFS.

These matters fundamentally undermine the plaintiffs’ case on causation. I am not satisfied that knowledge of previous default by Arslan would have discouraged, let alone deterred, OFS from entering into the Tamarama loan. I base that conclusion on my preference for the evidence of Arslan and Williams and on the objective evidence in the matter, i.e. the terms of these loans, high interest rates for a short term.

I have already indicated why I do not accept that Richards and Toland were acting under any misunderstanding as to whether Jimmy Arslan and Cumali Arslan were the same person. If I am wrong in that conclusion for the reasons already given, I am not satisfied that knowledge that Jimmy and Cumali Arslan were the same person would have stopped OFS from entering into the Tamarama loan. It strains credulity to assert that OFS would not have entered into a loan with Jimmy Arslan when it was apparently content to lend such a large sum of money to some unknown family member of his about whom they knew and asked nothing in terms of creditworthiness or otherwise.

On the issue of causation, I find that even if OFS had been advised of Arslan’s existing default under the La Trobe mortgage, OFS would still have proceeded to enter into the loan. As can be seen from exhibit 6 (the retainer letters) OFS was engaging in asset lending in respect of the Tamarama property. This was a short term, high interest loan, the security for which was a property which could be developed and sold for a sum substantially greater than the loan. This was Arslan’s position which he says he made clear to Richards. Looked at objectively, it is not unusual or particularly risky that loans of that sort might be made to persons needing to refinance because of difficulties meeting existing loan commitments. Assessed objectively, I am not satisfied that any failure to advise about Arslan’s default under the La Trobe mortgage led to OFS entering into the loan and consequently any loss to the plaintiffs.

There is also a causation issue in relation to the financial loss claimed by the plaintiffs. The loss, said to flow from the alleged breaches in relation to clause 9, appears to be simply as per par (22)(i) of the 3rd FASC “Costs of proceedings against Mr Arslan”. Those costs are not particularised or quantified in the Statement of Claim and no evidence was led about them. Leaving aside my finding that clause 9 was inserted at the request of Richards, and that he well understood its meaning, it is far from clear that litigation and consequent costs would not have ensued as between the plaintiffs and Arslan regardless of the existence of that clause.

In any event I am not persuaded that clause 9 was ever activated. There is no evidence of any written requirement by OFS for a transfer by Arslan. The only such written requirement was made in October 2010 as part of a settlement of the proceedings against Arslan. That settlement did not eventuate because of a caveat on the title. Moreover the transfer was made out by Arslan to Richtoll Pty Ltd not OFS.

Ramrakha’s evidence was to the effect that Richards asked him in the middle of 2009 to get Arslan to execute a transfer of the property. There is no evidence that this request was made or confirmed by written instructions. There is no evidence of any written requirement by OFS for a transfer by Arslan and because the transfer has disappeared, it is not known to which entity the transfer was made out. The title to the Tamarama property remained vested in Arslan until 2011 when OFS exercised its mortgagee’s power of sale over the property.

No loss has been established by the plaintiffs based on the alleged insertion without instructions of clause 9 in the loan agreement in respect of the Tamarama property.

Leaving aside questions of breach and legal causation, there is another difficulty confronting the plaintiffs in relation to proof of loss in respect of the Tamarama property. OFS’ loss or damage must be adjudged by reference to its interest in the recovery of moneys advanced. Its loss derives from its inability to recover the sums advanced to Arslan (Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; 247 CLR 613 at [26).

The fact that negligence may have caused the plaintiffs to enter into a contract that they otherwise would not have entered into, does not inevitably mean that they have suffered damage merely by entering into the contract. This is because it will not immediately be self evident that the value of the chose in action acquired, i.e. the right to repayment of moneys advanced, is worth less than the amount paid. In general terms in a case involving a loan of moneys, damage will be sustained and the cause of action will accrue only when recovery can be said with some certainty to be impossible (Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd at [31] – [32]).

In the circumstances, any loss should prima facie be calculated by reference to OFS’ capacity to recover the moneys from the borrower at the time of loss first accruing, i.e. either the handing over of the loan moneys, the first default under the loan agreement or at the latest, when it purported to exercise the power under clause 9, there being in any case no reduction in the value of the security property at those times. Whatever legal approach is applied, it is clear that at or shortly after the loan was advanced, OFS had the capacity to recover all or nearly all of the principal sum. OFS should have identified early in 2008 that the loan was going bad, that the security property would not fully cover the loan plus interest to date, and that Arslan may not be good for the balance in which case the cause of action was certainly complete and damages were assessable.

The evidence suggests that the plaintiffs had an opportunity to sell the unit for $3 million in February 2007. A contract for sale of land for that sum was exchanged but rescinded. There were also valuations, both before and after the Tamarama loan was extended, which suggested that the value of the property was in the range of $2.5 - $2.9 million. At about the date when loss first accrued (February 2008), the property was professionally valued at $2.9 million (exhibit E(3), p832). There was also no evidence of why the plaintiffs did not attempt to sell the property at any time before its ultimate sale in November 2011. There is, however, evidence that Richards, at least, intended to buy all of the units in the block and develop the block as a whole for maximising capital gain.

In the circumstances, the plaintiffs suffered virtually no loss in relation to the Tamarama loan. Alternatively, the loss might be valued by comparing the amount of money extended by way of loan with the asset which was effectively “acquired” on being provided as security. This would be analogous to quantification of loss where an asset is acquired as a result of a negligent misstatement or misleading and deceptive conduct. On the basis of the available valuation evidence, if the sale price of $3 million was not to be taken as a determinative figure, then a reasonable value to place on the Tamarama unit at the relevant time might be $2.75 million. This would yield a notional loss of $250,000 plus some loan interest. On the asset acquisition approach just outlined, interest would commence to run from the date of the drawdown of the loan, being 17 August 2007.

One further and final difficulty with the plaintiffs’ claim for loss with respect to the Tamarama loan was their decision not to pursue Arslan for the full amount of the loan debt including interest. Proceedings of that nature were commenced but settled as noted earlier. It is for the plaintiffs to establish that that settlement was reasonable. There is no evidence about this.

One only gets to the issue of quantification of the claim in respect of the Tamarama loan if I have erred in my findings as to no breach of retainer or duty and that causation has not been established by the plaintiffs.

For those reasons in relation to the Tamarama loan the plaintiffs have failed to make out their claim either in contract or in tort.

The plaintiffs submit that even if the letter from WWL to OFS of 21 August 2007 narrowed WWL’s retainer in relation to this loan to the preparation of “loan documentation to reflect the terms and conditions of the Loan and attend settlement and all necessary registration arising therefrom” as set out in par 3 of that letter (exhibit E(1), p237), matters such as the undertaking of an ASIC search of the borrower were not excluded.

The plaintiffs submit that this was because of the advice contained in the balance of the letter. That advice related to certain risks associated with the form of security being taken for the loan. The plaintiffs submit that in that regard WWL’s retainer was not nearly so narrow as the first sentence of par 3 of the letter might suggest. The plaintiffs submit that in the light of the expert evidence of Messrs Rosier and Carkagis as to matters undertaken by solicitors as ordinary incidents of acting for lender clients, the Court would proceed on the basis that those matters fell within the ambit of WWL’s responsibilities unless there was clear evidence of a contrary intention. The plaintiffs submit that the very fact that WWL undertook searches on 16 and 17 August 2007 is persuasive evidence that Williams considered the performance of those searches to be within his sphere of responsibility even if the activity did not obviously fall within the description of “drafting”. The plaintiffs submit that the issue was not whether Williams had the responsibility of undertaking the searches but the sufficiency of the timing of them.

The plaintiffs submit that the issue at trial had become a narrow one. It was whether in the particular circumstances of this case, reasonable care on the part of WWL required that it perform an ASIC search of the borrower at a time very shortly before the loan moneys were advanced. The plaintiffs submit that adjudication of a cause of action founded on the failure by a defendant to exercise reasonable care in respect of a plaintiff, whether arising in tort or contract, is governed by Part1A CLA. Section 5B(1) CLA provides that a defendant will have been negligent in failing to take a precaution against a risk of harm where that risk was both foreseeable and not insignificant and a reasonable person in the defendant’s position would have undertaken the precaution.

The plaintiffs submit that the identification of the relevant risk of harm in this case was relatively straightforward as is the answer to the question of whether that risk was foreseeable and not insignificant. They submit that there was plainly a foreseeable and not insignificant risk that OFS would suffer financial harm if the loan moneys it proposed to advance to Sanctuary Developments were advanced after that company had a receiver and manager appointed to it as a result of a failure to service debts it owed to existing creditors. There was a real risk of financial harm to OFS if the premise upon which it was lending the loan moneys, i.e. that the moneys were going to a liquid entity capable of servicing the loan, proved to be false.

The plaintiffs submit that the precaution that a reasonable person in WWL’s position would have taken against that risk of harm was the performance of an ASIC company search shortly before the advancing of the loan moneys. The experts jointly agreed that an ASIC search was the quickest and cheapest means of determining the status of the administration of a corporate borrower.

The plaintiffs submit that the effect of the taking of that precaution in this case would have been to detect that a receiver and manager had been appointed which would in turn have caused Williams serious concern as to the liquidity of the borrower and provided OFS with the opportunity to reconsider the advance of the loan moneys.

The plaintiffs submit that the reasonableness of the precaution proposed is confirmed by reference to the considerations in s 5B(2) CLA. The plaintiffs submit that the probability of financial harm to OFS occurring in the absence of such a search was not insubstantial. While accepting that it is not necessarily a fait accompli that the advancing of moneys to a company in receivership will cause loss, in this case the plaintiffs submit the probability of financial loss being suffered by OFS, if that were the case, was sufficiently high to warrant a search being undertaken.

The plaintiffs submit that this was all the more so when the likely seriousness of the harm to OFS and the burden of taking the precaution in question are considered. The plaintiffs submit that viewed prospectively the seriousness of the harm OFS would suffer if the sum of $4.5 million were advanced to a borrower unable to service the loan was likely to be enormous – the sum of $4.5 million was a large proportion of the plaintiffs’ capital. Further and importantly, the burden of undertaking the ASIC search was trifling – a matter of minutes and a few clicks of a mouse.

The plaintiffs submit that those submissions in relation to breach of duty were supported by an examination of particular circumstances in the case. The plaintiffs submit that this was a loan:

The plaintiffs submit that the lack of sophistication of OFS should be contrasted with the practices of more sophisticated clients discussed by Mr Carkagis in his evidence.

The plaintiffs rely upon par (19) of the Joint Experts’ Report which provided as follows:

The plaintiffs note that while Mr Rosier agreed with the proposition put to him by senior counsel for WWL that this was a borderline case Mr Carkagis was firm in his conclusion that it was not.

The plaintiffs submit that for those reasons WWL breached its retainer and the duty which it owed to OFS in failing to perform a search of the ASIC register at a time shortly before the advance of the loan moneys to Sanctuary.

The plaintiffs submit that s 5O CLA does not assist WWL on the issue of breach of retainer or duty. They note that s 5O provides a defence to negligence where a professional person can demonstrate that he or she acted in a manner “widely accepted in Australia by peer professional opinion as competent professional practice”.

The plaintiffs further note that s 5O has been interpreted to be a defence in the true sense Dobler v Kenneth Halverson; Dobler v Kurt Halverson (by his tutor) [2007] NSWCA 335; 70 NSWLR 151 at [60] per Giles JA (Ipp and Basten JJA agreeing), i.e. the particular practice relied upon by a defendant must be properly pleaded and particularised (Sydney South West Area Health Service v MD [2009] NSWCA 343 at [21] – [23] per Hodgson JA (Allsop P and Sackville AJA agreeing)). The plaintiffs submit that WWL had not properly identified in its pleading the particular practice and the material facts underpinning it upon which it seeks to rely to make good this defence.

The plaintiffs submit that s 5O requires more than merely evidence that some persons in a profession might act in a particular way in certain circumstances. The plaintiffs submit that s 5O requires positive proof of a practice “widely accepted”. This is a matter in relation to which the defendant bears the onus of proof. The plaintiffs submit that the high point of WWL’s evidence on this issue was that of Mr Rosier to the effect that there was “an arguable case” for a practice of not undertaking a further ASIC search in circumstances such as these. The plaintiffs submit that this evidence from Mr Rosier about what he would have done was the product of considered thinking whereas there was no issue that Williams did not think about it at all.

The plaintiffs submit that by Williams’ own admission his failure to undertake a further ASIC search was inadvertent rather than a deliberate exercise of professional judgment. The plaintiffs submit that the defence in s 5O does not apply to conduct of that kind. The plaintiffs submit that the use of the word “acting” in the section implies that certain actions were taken after consideration. It follows, so the plaintiffs argue, that the s 5O defence is not made out.

In relation to causation, the plaintiffs submit that the evidence of Richards and Toland made it clear that the capacity of borrowers to service loans was a matter of significance to them. In support of that submission, the plaintiffs rely upon T.91 – 94, T.152, T.172 – 173. (By way of interpolation, T.91 – T.94 does not provide any support for that submission. On the contrary the effect of Richards’ evidence in those pages was to say that he relied entirely upon WWL to make inquiries to that effect and at T.94.9 he agreed with the cross-examiner’s proposition that he was not concerned whether or not the borrower had the capacity to repay the loan. Similarly, no support for that proposition is provided by T.152. The evidence of Richards went no further than to say that when he learned that a receiver had been appointed to Sanctuary, he was concerned but could not explain why he was concerned.)

At T.172 – T.173 Toland’s evidence contradicted that of Richards, to which reference has just been made. It was his evidence that he and Richards insisted on documentation being sent to them which they then examined in order to decide whether they should make the loan.

The plaintiffs submit that whatever the failings of Richards and Toland in managing the business which they embarked upon, they were on behalf of the plaintiffs looking to enter loan transactions in which the borrower was viable in terms of repayments. The plaintiffs submit that there is no substance in the suggestion that the fact of a receiver having been appointed to Sanctuary Developments would not have been a matter of concern or consequence to them. The plaintiffs submit that the inclusion in the loan agreement with Sanctuary of a provision that the appointment of receivers constituted an event of default entitling OFS to call in the loan demonstrated the significance placed by OFS on the question of the status of the company borrower and its capacity to service its repayment obligations. (That last submission is of little weight. The provision relating to the appointment of receivers is a standard provision which appears in just about every loan agreement entered into by a company as borrower.)

The plaintiffs rely upon the evidence of the experts as to what a reasonable solicitor would have done in response to learning of the appointment of receivers before the advance of loan moneys. The plaintiffs note that both Messrs Rosier and Carkagis gave evidence that a competent solicitor would have advised OFS not to advance the moneys at that point and that the money should not be advanced until such time as inquiries had been made with the borrower’s solicitors and satisfactory explanations and assurances had been provided as to the viability of the loan. The plaintiffs submit that the negligence of Williams prevented the making of such inquiries. The plaintiffs submit that acting rationally and prudently in their own interests and on the provision of hypothetical competent advice from their solicitor but for the negligence of Williams, OFS would not have advanced the loan moneys on 21 September 2007 or at all.

The plaintiffs submit that on this issue it is not open to WWL to rely upon the explanations and self-serving statements by Sanctuary’s solicitor about its financial position on the issue of causation. The plaintiffs submit that to do so was to engage in hindsight reasoning. The plaintiffs submit that whatever the borrower did or said it could do after the advance of the moneys on 11 September 2007 was with the benefit of the additional $4.5 million which would have been enough money to, among other things, pay off the debt owing on the boat.

It should be noted that the allegations in the 3rd FACS in relation to the assessing the value of the security property in relation to the Sanctuary loan have been abandoned. The issue which remains is WWL’s failure to search the ASIC register just before the loan moneys were advanced so as to discover that Sanctuary had a receiver appointed at the time.

The plaintiffs’ expert, Mr Carkagis, originally said in his report only that a search should have been conducted “shortly before” the loan moneys were due to be drawn down. He refined this in the joint report and in his oral testimony to immediately before. Having discussed the matter with Mr Carkagis, and having thought carefully about it, Mr Rosier agreed with that approach in the joint report and in his oral evidence.

WWL did conduct the relevant search on 16 August 2007 and again (for a reason not explained) on 17 August 2007. At that time the register revealed no appointment of a receiver to the company. The receiver was not appointed until 11 September 2007 and 10 days later, the loan moneys of $4.5 million was advanced, i.e. the receiver was appointed 25 days after the last search and the loan moneys were advanced five weeks after the last search.

The first question is whether the failure to conduct a further search before the draw down constituted a breach of duty and of retainer.

In their oral evidence, Messrs Rosier and Carkagis justified their conclusion on the basis that this loan was for a large sum of money and because five weeks had passed between the last search and the draw down.

I found both experts to be impressive. Their expertise was unquestioned. Most particularly, they appeared to be doing their best to provide assistance to the Court in relation to their areas of expertise. Of the two experts, Mr Rosier was perhaps more prepared to consider alternative scenarios. That, however, is not to in any way discount the opinion of Mr Carkagis. I found their opinions on this issue to be compelling and persuasive. They also accorded with common sense.

Despite these matters, the defendant submits that the Court should decline to find that the failure to search just before the loan draw down constituted any breach of duty or retainer. In support of that submission, the defendant relies upon the following matters:

Subject to the s 5O CLA question, I have concluded that WWL was in breach of its duty and its retainer by the plaintiffs in not carrying out a further ASIC search just before the loan draw down. In reaching that decision, I have relied upon the expert opinion of Messrs Rosier and Carkagis. I have taken into account the basis for their conclusion, i.e. the size of the loan and the amount of time which had passed since the previous search. I have also taken into account the relative ease with which such a search can be carried out. A search of the ASIC register can be done online and would occupy only a matter of minutes.

As indicated, the defendant relies upon s 5O CLA which provides a defence to professionals if they can demonstrate that irrespective of whether the Court might be inclined to objectively consider the conduct to be negligent, it was widely accepted by peer professional opinion as competent practice among solicitors at the time.

Section 5O provides:

WWL relies upon the following evidence to make out its defence under s 5O CLA:

The defendant relies upon the following observations by Giles JA (with whom Ipp and Basten JJA agreed) in Dobler v Kenneth Halverson; Dobler v Kurt Halverson (by his tutor):

The defendant submits that both experts gave evidence which satisfied the statutory test in s 5O so that there was little scope for a contrary finding. In making that submission, the defendant accepts that the number of cases in which this defence might succeed in the face of a preliminary finding of breach of duty might be limited but that this was such a case. The defendant submits that the unchallenged expert opinion established that a significant proportion of WWL’s professional peers would have accepted at the relevant time that it was competent practice not to search the ASIC register again in the 10 days before draw down. WWL submits that while a court could apply its own judgment to matters of competent legal practice, it should be cautious in doing so in cases where there was expert opinion and a specific mode of practice was under consideration. WWL submits that there was no scope for the application of s 5O(2) whereas subsections (3) and (4) were important and should be applied.

I am of the opinion that WWL has not made out a defence under s 5O. I have reached that conclusion on the basis of my analysis of the expert evidence upon which the defendant relies. The evidence does not establish that in 2007 it was widely accepted in Australia that competent practice on the part of a solicitor was not to search the ASIC register again in the last 10 days before the draw down of a loan.

The evidence of Mr Rosier at T.334 goes no further than to say “I’m inclined to the view that there could well be many people in my profession who have a large volume of experience in this sort of work who would say “no, I just wouldn’t have done the second search” and so I accept that’s a possibility.” (emphasis added) What Mr Rosier is saying is that it is possible that there was a large group of solicitors who held that view. He is not stating it as a fact. Accordingly, Mr Carkagis’ inability to disagree with Mr Rosier on this matter was to recognise that possibility not to confirm it as fact (T.335.11). This was made clear at T.335.23 when Mr Carkagis refused to accept that this factual circumstance was a “borderline case”.

Similarly, the evidence of Mr Rosier at T.338.3 is in terms of there being an “arguable case” about it not being a departure from common practice not to have done such a search. That does not go far enough to satisfy the requirement of s 5O. Even the subsequent agreement of Mr Carkagis at T.338.37 does not go far enough. It goes no further than asserting “there are practitioners out there who fall within that category”.

It follows that the evidence relied upon by the defendant is not sufficient to establish “that it was widely accepted by peer professional opinion as competent practice” in the profession in 2007 not to carry out a second search in the ten days before the draw down of the loan. It also follows therefore that in relation to this part of their claim the plaintiffs have established breach of duty/retainer on the part of WWL.

That does not end the matter. There remains the issue of causation. I have concluded for the reasons which follow that the plaintiffs have not established causation in relation to that breach of duty in respect of the Sanctuary loan.

As soon as WWL became aware of the appointment of the receiver, they made inquiries of the solicitors for Sanctuary seeking to clarify the position. They were advised that the appointment related to a debt for a charge arising from a loan for a boat only and that the borrower would shortly rectify the position and the receiver would withdraw. This in fact happened, although not until February 2008. The reason for the delay is not fully explained, although the correspondence suggests that some of the delay was due to the various procedural steps which the receivers were required to take in order to withdraw.

The correspondence reveals that shortly after the appointment came to light, the solicitors for Sanctuary advised WWL that they held sufficient moneys in trust to discharge the relevant debt and would do shortly. This was confirmed by the liquidator in due course (exhibit E(1), p 267; E(3), p 822).

Williams’ evidence was that if he had become aware of the appointment of the receiver before draw down, he would have raised this in the first instance with Sanctuary’s solicitors and then reported to his client.

Williams was definite that what he would have told Richards would depend upon what he had been told by the solicitors for the borrower. Both the expert solicitors accepted that the advice which Williams should have given at that stage would depend on the circumstances including what the borrower said about the matter as Williams himself thought (T.269.34), T.270.15, T.274.38).

The evidence reveals relatively clearly that the borrower’s solicitors, if asked, would have said that the appointment related to a single debt which was not large relative to the impending loan. In those circumstances, the plaintiffs have not established that but for the failure to search the loan would not have gone ahead. Default did not occur until March 2008. If the draw down of the loan had been deferred pending the clearing of the debt which led to the appointment of the receiver, any default would also have occurred later.

This is particularly so if regard is had to the nature of the business being conducted by OFS, i.e. high interest, short term “mezzanine” lending, the relevance of which Mr Rosier refers to in his report at some length. As both Williams and Arslan said and which I have accepted, OFS was expressly interested in acquisition loans or distressed loans. Because OFS had already decided to enter into this loan transaction, short term difficulties such as that which led to the appointment of the receiver, would be unlikely to have discouraged OFS from continuing with the loan draw down, although it may have delayed the date on which the draw down took place.

It is not without significance that the WWL letter of 21 August 2007 (exhibit E(1), p 237, exhibit 6) specifically advised OFS that no documentation was available to assess the ability of the borrower to service the loan. The fact that that letter was received without comment by OFS is yet another indication that the borrower’s capacity to repay loans was not of particular moment to OFS. This is so even though Toland said that he would be greatly concerned if such a letter were received by OFS. The fact is that numerous such letters (exhibit 6) were sent without any reaction from OFS.

Richards was cross examined in relation to the letter of 21 August 2007 at T.148 – 149. The answers are instructive:

Despite being advised of the appointment of the receiver shortly after it came to light (exhibit E(1), p 261) OFS declined to call in the loan and avoid further risk (exhibit E(1), p 264). Indeed OFS was even prepared to roll over the loan taking further security in May 2008 (exhibit 10, p 105). By this time the receiver had withdrawn and Sanctuary had already defaulted under the loan in March 2008. Not only is it clear that OFS elected to take no action upon learning of the appointment of the receivers but far from recalling any feelings of alarm himself, Richards had trouble recalling being so advised at the time.

Having been told about the appointment of a receiver, Richards apparently did not think it was sufficiently serious to advise Toland.

The failure of Richards to react to a notice that a receiver had been appointed or to even recall any details about that occasion and the apparent failure on his part to say anything about it to Toland is inconsistent with a finding that it is likely on balance that OFS would not have proceeded with the loan had it been advised of the appointment of a receiver. It is also clear from the correspondence and the evidence, both oral and by way of affidavit of Richards and Toland, that OFS never queried WWL as to why the appointment of the receiver had not been discovered before the draw down of the loan. This only appears to have become an issue in the course of the trial after the joint experts’ report with its change of position by Mr Rosier in respect of questions 8 and 8A became available in early March 2016.

For these reasons, I have concluded that the plaintiffs have failed to establish causation under s 5D CLA.

It follows from the above findings and analysis that there should be a verdict for the defendant. If, however, I am wrong in my conclusions it is necessary to deal with the defendant’s defences of contributory negligence and proportionate liability. In each case the defendant bears the onus of proving the defence.

If it becomes necessary to consider contributory negligence in relation to each of the impugned transactions, i.e. the Tamarama loan and the Sanctuary loan, it can only be because liability has been found against the defendant. Implicit in such a finding is an acceptance of most of the plaintiffs’ evidence and the rejection of a significant part of that called on behalf of the defendant.

In relation to the Tamarama loan, the following particulars of contributory negligence have been pleaded:

It is not appropriate, given the detailed analysis (and findings to the contrary) set out above to deal with each of the particulars of negligence. I propose, therefore, to deal with this issue in general terms only.

It is the plaintiffs’ case that OFS relied entirely on WWL to make appropriate investigations and advise on the adequacy of the security for the Tamarama loan. It relied upon WWL to assess the capacity of the borrower to service the loan. On the basis that these allegations were made out, there was still on the evidence before the Court a surprising lack of engagement by the plaintiffs with these issues, in particular checking the valuation or valuations in relation to the Tamarama property and making no inquiries concerning the capacity of the borrower to service the loan. At the very least, one would have expected either Richards or Toland to have sighted any valuation evidence which supported the large loan amount.

There is also the failure to either read or respond to the WWL letter of 13 August 2007 which in terms expressly restricted the retainer and excluded due diligence. On the plaintiffs’ case this was contrary to an earlier agreement and their understanding of what WWL was retained to do.

Taking those matters into account, together with the additional matters raised in the particulars of contributory negligence which have not otherwise been canvassed, I would assess the contributory negligence of the plaintiffs at 50% in respect of the Tamarama loan.

The particulars of contributory negligence alleged by the defendant in respect of the Sanctuary loan are:

As a result of concessions made at trial, particulars 25.1, 25.2 and 25.7 have no application.

The failure to respond to the letter from WWL of 21 August 2007 is even more significant in the circumstances of the Sanctuary loan. Accepting as I must for the purposes of this exercise, that negligence has been established against WWL, one has to balance the causal potency and relative culpability of a failure to conduct a search of the ASIC register shortly before the draw down of the loan with a failure to properly investigate the value of the security offered and the capacity of Sanctuary to service the loan.

I have concluded that in relation to both those matters, the fault element is more heavily weighted against the plaintiffs than it is against the defendant. I would assess contributory negligence in the Sanctuary loan matter at 65% against the plaintiffs and 35% against WWL.

The defendant in its Defence pleads that if it is found liable to the plaintiffs, its liability must be determined pursuant to Part 4 of the CLA. In that regard, WWL asserts that Global and Arslan are concurrent wrongdoers within the meaning of s 34 CLA in relation to the plaintiffs’ claim against it. The defendant submits that its liability is limited by s 35 CLA to an amount reflecting that proportion of the damage or loss that the Court considers just, having regard to the extent of the defendant’s responsibility for the damage or loss.

The precise allegations made against Global and Arslan are that they were negligent, in breach of their retainer, or guilty of misleading and deceptive conduct. As a result they were responsible for causing loss and damage to the plaintiffs.

For this defence to be successful, findings would have had to have been made that the actions of Arslan and of Global were in no way the actions of WWL. Those findings have in fact been made. Findings have also been made that insofar as the Tamarama loan is concerned if Arslan did make false representations concerning the value of the property or as to its ownership, the fact of those misrepresentations was not known to WWL.

In relation to the Sanctuary loan there was a paucity of evidence as to the actions of Global given the confined nature of the allegations made against WWL. The only evidence emerges from the contents of WWL’s letter to OFS of 21 August 2007. That letter makes it clear that another organisation, Pinacle, had performed due diligence in respect of the property and that Global had then checked the results of that due diligence exercise on behalf of OFS. The potential deficiencies in that process were identified in the letter.

If as seems likely Global erred in its assessment of the viability of the security offered, I would assess its liability in that regard as equal to that of WWL. It follows that I would apportion liability as between Global and WWL for the Sanctuary loan loss on that basis.

It should be kept in mind that the above conclusions in respect of contributory negligence and proportionate liability are only made on a contingent basis, i.e. in the event that my primary findings as to no liability on the part of WWL are set aside.

Accordingly, the orders which I make are as follows: