ARTISTIC BUILDERS PTY LIMITED & ANOR v NASH & ORS

In these proceedings, the plaintiffs, Artistic Builders Pty Limited ( “Artistic” ) and ABC Plumbing Services Pty Limited (“ABC” ) claim damages from the first to fourth defendants, the partners of a firm of solicitors, Nash O’Neill Tomco ( “NOT Lawyers” ).

The plaintiffs were represented by Mr C R Newlinds SC and Ms P A Horvath, of counsel. NOT Lawyers were represented by Mr J W J Stevenson SC and Mr Nick Kabilafkas, of counsel.

ABC also claim damages from Harris & Company (the 11th to 17th defendants), solicitors who formerly acted on behalf of Artistic and ABC. Harris & Company were retained for the proceedings between 21 July 2000 and 8 June 2007. ABC’s claim proceeds upon the basis that, if the limitation defence relied upon by NOT Lawyers is made out, then it claims an entitlement to damages from Harris & Company for alleged breach of duty of care in failing to bring proceedings on behalf of ABC against NOT Lawyers within the six year limitation period.

Harris & Company were represented by Mr D J Fagan SC and Mr M White of counsel.

Mr S White SC is the 18th defendant to the proceedings. He was retained by Harris & Company in June 2001 to act on behalf of ABC and Artistic. The proceedings between ABC and Mr White have been resolved. (2) The plaintiffs’ claim

Artistic and ABC claim damages from NOT Lawyers in relation to work undertaken by one of the partners of the firm, Mr Greg Nash, in respect of the sale of a property, Lot 1 at 228 South Terrace, Bankstown ( “the Bankstown property” ).

Mr Albert Chahine, the sole director of ABC, the registered proprietor of the Bankstown property agreed to sell to a group of purchasers including, in particular, a Mr Gregory Huxley and a Mr David Hall ( “the Huxley Group” ) and subsequently to their nominee. Ultimately, the purchasing entity was Nordoc Pty Limited ( “Nordoc” ), a trustee company. The transaction was negotiated over a period in October and November 1999 and was completed on 12 November 1999.

NOT Lawyers were initially retained by Mr Chahine on behalf of ABC on behalf of ABC on about 18 October 1999. At a later point in time, NOT Lawyers also acted for Artistic (see “Pleadings” below).

The property was sold to Nordoc on the following bases. On settlement, ABC was to be paid $3.5 million and an additional amount of $300,000 was to be paid to Gardenview Apartments Pty Limited ( “Gardenview”) (the proposed joint venture entity) to purchase the rights under Development and Building Applications and plans approved by Bankstown City Council in respect of the Bankstown property.

In addition to the two abovementioned amounts, the Huxley Group agreed to pay, on a staged development basis a further amount of $3.7 million as a deferred payment (or, alternatively, specified product or units in the proposed development of the property).

The amount of $3.7 million (together with interest) has been referred to in these proceedings as the “Delayed Payment” or the “Deferred Payment” due to Artistic. This amount was to be paid in three stages over the period of 30 months following settlement. It was to be secured by the following securities:- (1) A second mortgage over the Bankstown property. (2) A third mortgage over a property owned by a company, Golf Links Estate Blackheath Pty Limited ACN 071 101 187 ( “Golf Links Estate” ) at Blackheath in New South Wales ( “the Blackheath property” ). (3) A fourth mortgage over a property owned by a company, Laguna Beach Housing and Land Pty Limited ( “Laguna” ), being 352 acres of vacant land near Proserpine in Queensland ( “the Queensland property” ).

As indicated above, it was agreed that Artistic would have as an alternative to the Deferred Payment the right to elect to take title to units in the completed proposed development. Originally, this was to be by way of a “Put and Call Option” . Ultimately it was agreed to be by way of “a Call Option” . On or about 28 October 1999, Mr Chahine nominated Artistic as the company to hold units in the Unit Trust and to have the benefit of the Call Option and the securities in question.

The monies owing by the Huxley interests were also to be the subject of corporate and personal guarantees by the directors of the purchasing entity.

In October 1999, Mr Chahine, as sole director of both Artistic and ABC, approached a company ICA Mortgage & Finance Pty Limited (“ICA” ) for the purpose of refinancing a loan to ABC of $1.5 million by Endeavour Credit Union Limited ( “ECU” ) initially made on 28 April 1999 for a period of three months.

In a letter of 13 December 1998, the Olympic Authority stated that it was prepared to enter into negotiations with ABC with a view to executing a delivery agreement conditional upon certain responses to questions raised.

Mr Chahine had hoped that the proposal would involve the whole of the residential component of the building being leased out to the Authority for 99 days in August and September 2000. The agreement, however, was never concluded. Mr Chahine said “we could not deliver the finished product” (t.115) as the building had not been built. (3) The pleadings

These proceedings were instituted by Artistic by Statement of Claim filed on 11 July 2001. NOT Lawyers assert that the claim is statute-barred. ABC was not joined as a party to the proceedings until 26 March 2007. ABC sues Harris & Company, as noted, above, on the basis that that firm failed to advise ABC to commence proceedings against ABC prior to the expiry of the limitation period.

The plaintiffs at hearing proceeded by way of the Fourth Further Amended Statement of Claim filed pursuant to an order made on 5 June 2009.

The first to fourth defendants, NOT Lawyers, rely upon the Defence to the Fourth Further Amended Statement of Claim filed on 12 April 2010.

On 23 April 2010, a reply was filed on behalf of the plaintiffs pursuant to leave granted on 22 April 2010.

In the Defence, NOT Lawyers admit that a retainer was entered into between the first, second and third defendants only (and deny that the fourth defendant, Mr Korotnay, was ever a party to the contract of retainer either with Mr Chahine or the plaintiffs (paragraph 4 of the Defence)).

The defendants, in their Defence, stated that the retainer was entered into on or about 18 October 1999 and not, as alleged, on or about 14 October 1999 and further pleaded that they did not admit that the retainer was entered into with ABC or with Mr Chahine.

However, as NOT Lawyer’s closing submissions indicate at [1] and [2], it was accepted that the firm’s retainer was with ABC and once it became clear that units in a trust, the South Terrace Unit Trust, were to be held by Artistic, the firm acted for that company as well.

The retainer, as pleaded in paragraph 10 of the Fourth Further Amended Statement of Claim asserted that the terms of it included:- “(a) NOT would exercise all due care, skill and diligence in doing all work necessary to effect the sale of the Bankstown property ( the transaction ); (b) NOT would advise as to the appropriate legal structure for the implementation of the Transaction; (c) NOT would also act for any entities controlled by Chahine that may ultimately be used to effect the Transaction, as and from the time that such entities were identified; (d) NOT would act in accordance with instructions provided from time to time by Chahine, on behalf of ABC and such other entities controlled by Chahine that may ultimately be used to effect the Transaction, as and from the time that such entities were identified; (e) NOT would advise as to the risks involved with entering into the Transaction in accordance with any particular structure that was recommended by NOT; and (f) NOT would advise as to legal and commercial risks involved in the Transaction.”

In their Defence, NOT Lawyers pleaded, inter alia:- “4 … (b) do not admit that the retainer was entered into with ABC and further say that NOT were retained by Chahine; (c) admit that it was a term of the retainer that NOT would do work necessary to effect the sale of the Bankstown property but otherwise do not admit 10(a); (d) admit that NOT would advise as to the legal structure proposed by Chahine and the purchaser for the implementation of the sale of the Bankstown property but otherwise do not admit 10(b); (e) do not admit 10(c); (f) admit that NOT would act in accordance with instructions provided from time to time by Chahine but otherwise do not admit 10(d); (g) admit that NOT would advise as to the relevant legal risks involved with entering into the sale of the Bankstown property in accordance with the structure proposed by Chahine and the purchaser but otherwise do not admit 10(e); (h) admit that NOT would advise as to the relevant legal risks involved in the sale of the Bankstown property but otherwise deny 10(f); (i) otherwise do not admit paragraph 10.”

In the final submissions on behalf of the plaintiffs, it was noted that there were differences between the plaintiffs and Mr Nash on the ambit of NOT Lawyers’ retainer. It was contended for the plaintiffs that NOT Lawyer’s retainer was to “do the work necessary to effect the sale of (ABC’s) property at Bankstown” and this included a requirement that Mr Nash would:- “(a) Satisfy himself that the plaintiffs had adequate security to ensure receipt of the Delayed Payment ( 2 ); (b) Check the valuation of the Queensland Property and, at a minimum, obtain an assignment of that valuation to the plaintiffs prior to settlement of the Transaction ( 3 ); (c) Confirm the solvency status of all guarantors ( 4 ); and (d) Confirm the quantum of any mortgages sitting ahead of (what became) Artistic’s mortgages over each of the security properties, together with negotiate [sic] capping and priority agreements with each of the mortgages ahead of Artistic ( 5 ); (e) At the very (least) to carry out a bankruptcy search in relation to Mr Hall and advise Mr Chahine as to the result of that search ( 6 ).” (The numbers above are footnote references: Plaintiffs’ Final Written Submissions , paragraph 3)

Mr Newlinds SC submitted for the plaintiffs that, in determining the ambit of NOT Lawyers’ retainer, the Court ought give primacy to the contemporaneous documents (which are identified in paragraph 3 of the Plaintiffs’ Final Submissions ) and not by reference to the affidavit or oral evidence.

It was contended that NOT Lawyers’ retainer included the obligation to either carry out the steps set out in paragraph 3 of the Plaintiffs’ Final Submissions or, at least, “… to warn the plaintiffs if the steps had not been carried out (to NOT’s satisfaction) prior to settlement of the Transaction” (paragraph 13).

Additionally, it was argued that Mr Nash had an obligation to advise his clients to defer settlement in order that Mr Chahine and Mr Nash could “take stock” of the position as at that time. It was argued that if Mr Chahine had proceeded with the transaction notwithstanding advice on what was said to be the deficiencies then existing, he could have elected to do so on a fully informed basis and following mature reflection: paragraph 14.

Accordingly, the case for the plaintiff has been argued upon the basis that the pleaded obligations of NOT Lawyers required Mr Nash to exercise reasonable care and diligence, in particular, in relation to the securities for the transaction and to provide appropriate warnings and advice in relation to them. (4) The claims against NOT Lawyers

In essence, the plaintiffs’ case against NOT Lawyers was that Mr Nash breached his duty to the plaintiffs in two respects.

Firstly, it was contended that he failed to properly advise ABC and Artistic during the course of the above transaction. In particular, it is alleged that he should have warned them that the securities being offered by the purchasers were valueless. It was also contended that Mr Nash should have undertaken proper inquiries into the securities offered by the purchasers, but that he failed to do so.

Secondly, it was contended that Mr Nash failed to undertake certain post-settlement steps with appropriate care and diligence. In this respect, it was alleged that certain mortgages over the Bankstown property and the Blackheath property were registered in a way which affected the priority of the mortgages under the Real Property Act .

It is central to ABC’s case that, but for NOT Lawyers’ alleged negligence, it would not have proceeded with the sale transaction to the Huxley interests (the “no transaction case” ). In other words, it is claimed that, had Mr Nash provided appropriate advice as to the lack of evidence of security that had been proposed by the Huxley interests to secure the Deferred Payment, ABC would not have proceeded with the transaction. ABC claimed that, in those circumstances, Mr Chahine would have elected to accept the alternative of a sale of the property by ECU as mortgagee in possession.

In respect of the alleged breach of contractual duty and negligence, the losses claimed were:- (1) The amount ABC claims it lost by reason of it entering into the transaction. That loss is claimed as $4.130 million together with interest. (2) The costs incurred by Artistic in its attempt to enforce securities provided by the purchasers, being the amount of $390,000 together with interest. (5) The claim by ABC against Harris & Company

As noted above, ABC also brings a separate claim against Harris & Company, solicitors, (the 11th to 17th defendants). In 2000, ABC and Artistic retained Harris & Company to act and advise in relation to the recovery of damages from NOT Lawyers as a result of the sale of the Bankstown property.

The present proceedings had, as also noted above, been instituted by Artistic as the sole plaintiff on 11 July 2001 against NOT Lawyers. The proceedings progressed slowly as Artistic took steps to realise its securities over the Bankstown property, the Blackheath property and the Queensland property. It was Artistic’s case that ultimately each of these properties were sold but that Artistic was not paid any of the $3.7 million owing to it.

ABC was not joined as a plaintiff to the present proceedings until 2007. NOT Lawyers contend that any action by ABC in tort against them expired on 12 November 2005 and that equally any action by it in contract is also statute-barred

ABC alleges that Harris & Company failed to advise it to commence proceedings against NOT Lawyers prior to the expiration of the limitation period.

In 2009, ABC joined Mr White SC, who was retained by Harris & Company in 2001. It alleged in those proceedings that Mr White was a concurrent wrongdoer in relation to ABC’s claim.

The claims by ABC and Artistic were defended by NOT Lawyers and Harris & Company on a number of grounds. Firstly, by disputing any breach of duty as alleged. Secondly, if breach of duty was established on the basis that there was no causal connection between any breach and the losses claimed.

Harris & Company, like NOT Lawyers, contended that it had not been established that Mr Chahine would have proceeded even if additional advice and warnings had been given and recommendations made for the appropriate investigation of the landed securities offered by the purchaser group. In this respect it was argued:- (1) Mr Chahine was, at all material times, intent to do all things possible to avoid a mortgagee sale of the Bankstown property by ECU. (2) He was under pressure of a s.57(2)(b) Real Property Act notice (the second notice issued by ECU) which was to expire on 10 November 1999. (3) He was highly motivated to sell the Bankstown property as he considered the sale to be an extremely attractive commercial proposition.

In summary, Harris & Company, firstly, dispute the basis for the “no transaction” case the plaintiffs bring against NOT Lawyers and, secondly, say that ABC did not suffer any loss as a result of entering into the sale before 5 June 2002 and certainly not before 26 March 2001. As a consequence of the second point, the contention was that ABC’s claim against NOT Lawyers is not statute-barred.

Harris & Company also plead the defence of immunity that applies to legal representatives where the breach involves work done in court or work that is done out of court which affects the conduct of a case in court.

Harris & Company also plead the provisions of s.35 of the Civil Liability Act 2002 in the event of liability being established.

An issue of central importance in the present case is whether or not, given the pressures and the otherwise strong incentive to sell, Mr Chahine would have decided against proceeding with the sale had he been properly advised in relation to the securities.

The defendants submitted that Mr Chahine’s concern and fear was that, in the event that ECU entered into possession, it would not seek to obtain the best price in a mortgagee sale and that any price realised would disregard his own interests. This was argued to be an important factor and provides an insight into Mr Chahine’s state of mind. It was contended that he had the added concern that ECU would retain from the proceeds of a mortgagee sale an amount of $622,000 in respect of ECU’s claim as to a 62% share of losses that the joint venture between it and ABC had incurred and the cost of which had been paid for by ECU.

The defendants also relied upon the background to the transactions. This included the fact that Mr Chahine had spent a great deal of time, effort and money in preparing the Bankstown property for development. He was strongly motivated by a desire to achieve a commercial outcome in its redevelopment. PART B - OVERVIEW

As at December 1998, ABC held a Development Approval in respect of the Bankstown property to erect three 10 storey residential towers comprising a mix of residential and commercial units.

Mr Chahine entered into negotiations with the Olympic Co-ordination Authority. A letter dated 13 December 1998 was written by the Authority to Mr Chahine in relation to “expression of interest for the provision of Olympic Media Accommodation by way of serviced apartments and residential developments on behalf of ABC Plumbing Services Pty Limited” .

The proposal with the Authority involved Mr Chahine’s companies entering into a lease with it to provide accommodation for media representatives expected to attend the 2000 Olympics.

Earlier, in April 1998, Mr Chahine had been advised by ECU that the Board of ECU had approved a financial contribution to the project of $3.65 million.

Following a dispute between Mr Chahine and ECU in August 1999, ECU contended that, by virtue of the joint venture arrangements, ABC was liable to contribute 62.81% of expenses and losses suffered by the joint venture that had been met by advances made by ECU to the joint venture vehicle, Gardenview. In due course, ECU advised Mr Chahine that it would retain from the proceeds of any sale of the Bankstown property, firstly, the amount of $1.5 million that had been advanced by it in 1998 and, secondly, an amount of $622,000 representing what ECU had contended was ABC’s share of the joint venture expenses and losses.

It was against that background that events unfolded leading to negotiations for and eventually completion of a sale transaction of the Bankstown property on 12 November 1999.

On 28 April 1998, ECU had agreed to lend ABC $1.5 million for three months secured over the Bankstown property. This was pursuant to a loan approval letter dated 24 April 1998 (Exhibit 19, p.21).

At about that time, ABC was negotiating with ECU in relation to a proposed joint venture to develop the Bankstown property in accordance with the existing Development and Building Approvals which it held at that time. The $1.5 million loan was to be repaid from the proceeds of the joint venture agreement but if that agreement was not finalised at the end of the term of the loan, then ABC was to seek to refinance the amount advanced by ECU. In the event that ABC did not or could not refinance the loan, then it undertook to place the Bankstown property on the market at a realistic price and once sold to repay the $1.5 million loan advance.

The loan advance was not repaid by ABC at the expiry of the three month term. In addition, the joint venture with ECU did not proceed and in August 1999, the abovementioned dispute emerged between Mr Chahine and ECU.

The transaction in relation to the Bankstown property as finally implemented was complex. It was in a short period of time (one month) agreed to in principle, developed in negotiations and settled. It was proposed and, in due course, agreed that the exchange of contract and the settlement of the transaction would both occur on the same day. It was not, in other words, a transaction that was conceived, developed and or completed in calm and ordered circumstances. Indeed, a number of the essential elements of the transaction were negotiated and renegotiated in the few days immediately preceding settlement as well as on the day of settlement itself.

In the assessment of the plaintiffs’ “no transaction” case, Mr Chahine’s relationship with ECU is a matter of importance. As stated above, the pressure, in part, came from the threat and later the commencement of possession proceedings by the existing mortgagee (ECU) in respect of the Bankstown property and the proceedings claiming joint venture losses. Those proceedings were commenced by ECU on 25 October 1999. On 26 October 1999, this Court (Bergin J, as her Honour then was) made an order for the appointment of a provisional liquidator to Gardenview and a freezing order was made which effectively imposed on ABC an obligation to retain from the proceeds of any sale of the Bankstown property in an amount of $622,000.

In the weeks and days leading up to the settlement on 12 November 1999, Mr Chahine was also under pressure to make significant decisions on several matters, including in particular, securities offered and to provide necessary instructions to Mr Nash.

In the circumstances that existed as at October 1999, there was neither time nor the opportunity (by reason of the pressure of time) for Mr Chahine to seek out other potential purchasers. The purchasing group, the Huxley Group, added to that pressure insisting upon completion of the sale within an extremely tight timetable.

A further circumstance concerning Mr Chahine was the fact that his financial position was such that he did not have the necessary cash flow to meet ongoing commitments.

From a vendor’s perspective, it was essential that the Huxley Group provide proper and adequate security for the Delayed Payment that it would be paid to Artistic. As events later revealed, the securities and guarantees provided were effectively valueless. How and why such a fundamental failure occurred with the securities and the reasons as to why they were not perceived until after settlement is a matter of central importance in the proceedings.

The evolving nature of the negotiations and the changes that were made to critical components of the transaction added to the pressure operating on both Mr Chahine and Mr Nash. This, in turn, brought about a limited opportunity for either of them to investigate and verify proposals being put forward by the Huxley Group. It also meant that without due and proper inquiry Mr Nash’s ability to properly explain and advise Mr Chahine in relation to the proposals made was, at the very least, limited.

At least in retrospect, it is apparent that the completion of such a complex commercial property transaction under pressure is one that is apt to result in risk unless appropriate precautions are taken to ensure the risk does not materialise. In the events that occurred, hurried and important decisions were made.

The nature and the extent of the risks associated with the securities that were offered by the purchasing group in this case could only have been properly evaluated by the taking of appropriate steps that would assist in exposing the risks. The evidence in this case demonstrated a marked absence of appropriate inquiry into certain of the securities that were offered.

The issue of causation in this case concerns the question whether, had appropriate advice been given to Mr Chahine, he/ABC would have called off the proposed sale thereby electing to accept the outcome of a mortgagee sale.

Whilst the sale to the Huxley Group presented as an attractive option, Mr Chahine had concerns about security and the people he was dealing with. Mr Chahine initially met Mr Ray J Bannon and Mr Huxley in October 1999. He had never previously dealt with them. He knew nothing about them and he had no idea of their financial status. Mr Bannon had, in fact, been bankrupted many years before. Concerns were expressed to Mr Nash (which the latter passed on to Mr Chahine) as to the reliability of Mr Huxley and Mr Hall.

Information received about the Huxley Group led Mr Chahine to write to Mr Nash and state:- “Please take all necessary precautions to protect my interest.”

Mr Nash was himself concerned about the Huxley Group. He conveyed his concern to Mr Chahine. He warned Mr Chahine that he was suspicious that either the transaction would not proceed to a favourable settlement or the purchasers would not keep their promises after settlement. This drew Mr Chahine’s further response:- “Please be careful; please take care; and please ensure we have all security and protection.”

An essential and conventional means of providing the necessary “protection” for the interests of Artistic and ABC was that of ensuring that their respective interests following settlement were protected by satisfactory landed securities. This obviously requires appropriate inquiries be undertaken and expert valuation advice obtained. In this context, the nature and the current market value of two of the three properties offered as securities needed to be established as were the nature and extent of any existing encumbrances on the properties.

The Queensland property was first proposed as additional security for the transaction approximately 18 days before settlement (ie, at or about 25 October 1999).

A central complaint made by the plaintiffs is that Mr Nash failed to obtain an up-to-date valuation in respect of that property. Instead, he pursued a course of asking for confirmation from the valuer who had undertaken a valuation of the property for Queensland solicitors some 18 months before. This proved not to be a worthwhile course of action. The plaintiffs complain that Mr Nash failed to advise Mr Chahine (and Artistic/ABC) to obtain their own valuation to establish current market value.

A day or so before settlement (on 11 November 1999), Mr Nash was informed that the purchaser was offering Artistic a third mortgage over the Blackheath property. The offer having been made so late, little time existed to consider the implications of the offer.

Against these matters, NOT Lawyers argued that Mr Chahine would have settled at all costs to avoid a mortgagee sale at the hands of ECU. Mr Chahine’s concerns were said to have centred upon the price that would be achieved in a mortgagee sale and the possible adverse impact on Mr Chahine’s credit-rating.

NOT Lawyers argued that Mr Chahine’s state of mind was such that he was “desperate” to settle the sale to the Huxley interests. It is said in this regard that, whilst he initially wanted a “straight sale” , it was not long before he relinquished that position and accepted a “staged sale” .

Further, although he wanted the Delayed Payments to be secured by first mortgage security over the Bankstown property, he was soon prepared to give ground on that matter as well and accept a second mortgage, appreciating that the lender in respect of the construction costs to the Huxley interests (estimate at about $30 million) would require a first mortgage security.

NOT Lawyers also relied upon the fact that, notwithstanding a warning given to Mr Chahine that Mr Huxley was said to be “very slimy” and that “suspicions” had been expressed about him, Mr Chahine was nonetheless still prepared to go ahead and do business with him.

In the evidence, there was reference to the Huxley interest being “the only game in town” , meaning that there was only one entity which was, at the time, a realistic prospective purchaser of the Bankstown property. PART C – THE DISPUTE WITH ECU (1) The Bankstown property

ABC purchased the property known as 228 South Terrace, Bankstown in 1993. At all relevant times, ABC was controlled by Mr Albert Chahine.

On 26 March 1997, Bankstown City Council approved a subdivision of the land into two separate lots. The approval permitted the construction of three 10 storey residential towers comprising 169, two and three bedroom units and a ground floor commercial area, car park and commercial facilities and a 14 storey office tower and car park on the second of the two subdivided lots.

On 28 April 1998, ABC took a loan on a first registered mortgage security in favour of ECU on the Bankstown land in the amount of $1.5 million. The loan was for three months secured over the Bankstown property. The finance approval letter from ECU dated 24 April 1998 recorded the loan purpose as being:- “Refinance Suncorp Facility $1,000,000 Payment of sundry costs incurred with the development of the security property $500,000”

The interest rate specified was 0.50% with a Default Interest Rate of 7.19% said to be “applicable three months after the date of funding. Payable monthly in arrears and capitalised to the principal loan amount” .

ECU’s approval letter dated 24 April 1998 recorded “Repayments Options” in the following terms:- “1. The amount financed will either be repaid from proceeds of a Joint Venture Agreement which is presently being negotiated between the Borrower and the Mortgagee or; 2. In the event that this Joint Venture Agreement is not finalised, then the Borrower undertakes to refinance the then total debt under commercial interest rates and terms & conditions. 3. In the event that refinance is not available, the Borrower undertakes to place the security property on the market at a realistic sale price and, once sold, repay in full the then total debt.” (2) A proposed joint venture

At about the same time as the loan agreement, ABC was negotiating with ECU for a proposed joint venture to develop the Bankstown property in accordance with existing Development and Building Approvals for the construction of the three 10 storey residential towers

The overall plan was to develop and deliver the new building to the Olympic Co-ordination Authority on time and the Authority would lease the whole of the building for the three months during the Olympics for a total rental of approximately $6.5 million. Mr Chahine agreed in cross-examination that the conditions precedent set out in the draft Unit Holders’ Agreement were not met and, accordingly, units in the Trust were not allocated.

Gardenview was incorporated with a view to it being a vehicle for the proposed joint venture as the trustee of the unit trust to develop the Bankstown property as a joint venture project. There were two issued shares in the company, one of which was owned by ABC and the other by Mr David Havyatt on behalf of ECU.

In the period 1998/1999, ECU, apart from advancing the loan monies of $1.5 million to ABC also advanced monies to or on behalf of Gardenview in respect of project development costs. Gardenview hired professionals and incurred costs in relation to the joint venture project. Ultimately, the relationship between ECU and ABC broke down in August 1999. As noted earlier, a dispute arose between ABC and ECU as to ABC’s liability to contribute towards the monies paid by ECU to or on behalf of Gardenview. It was that dispute which led Mr Chahine to initially retain Mr Nash.

Mr Lachlan Paterson of Solomon Garland Partners prepared a document entitled “terms sheet” in respect of “Bankstown Centrepoint Apartments, South Terrace, Bankstown” . At this point, Mr Paterson was the solicitor for the proposed joint venturer, Gardenview. Mr Chahine said that he had had “good experience with him and I trusted him” , ie, Mr Paterson (t.127).

Mr Chahine said that Mr Paterson had been his solicitor for about 10 years before 1998.

The draft “terms sheet” included the following provision:- “ECU agrees to pay a total of $3.65 million (calculated as a cost of their equity into a specific purpose development Trust at 37.82% as follows:- (1) … $1.5 million to be paid into the Joint Venture trust account and (2) … $1.5 million to ABC immediately … (3) … (the payment of which is more fully described in clause 7(1)).”

ABC was to repay outstanding costs as well as the mortgage on the Bankstown property so as to leave it unencumbered. The parties agreed that the land and the work in progress completed was valued at $7.5 million.

The “terms sheet” document also recorded a number of “proposals” including the following:- “1. The parties agree that the land is to be transferred into a Trust for Gardenview Apartments Unit Trust, the Trustee of which will be Gardenview Apartments Pty Limited (unitholding and shareholding to be covered in this Term Sheet and to reflect the ownership). The parties agree that, for the purposes of that Transfer, the land will be valued at $1.5 million with a subsequent re-evaluation of the land within the Trust post 1 July 1998.”

The fourth proposal set out in the document specified:- “4. The unitholding in the Trust shall be ABC 62.18% and ECU shall be 37.82% , which is intended to reflect the parties’ costs going into the Joint Venture.”

Neither ECU nor Mr Chahine/ABC ever signed any documents recording a joint venture.

However, in 1998, a draft “Unit Holders Agreement” was drawn up between an ECU related entity, Endeavour Financial Services Pty Limited (EFMS), ABC and Gardenview.

Clause 4 of the draft agreement recorded that the units in the Trust between ABC and EFM would be:- “(a) As to 6,218 units to ABC for a consideration of $6 million (being the agreed value of land of $7,500,000 less $1,500,000) (payable on the execution of the agreement). (b) As to 3,782 units to EFM for a consideration of $3,650,000 which will be credited as to $1,500,000 on the execution of the agreement with the balance of $2,150,000 payable progressively towards project costs.”

The proposed allotment of units, accordingly, reflected the percentages of Mr Chahine’s proposed interest in the joint venture and that of ECU (approximately 62% to approximately 37% to ECU).

The draft Unit Holders Agreement recorded a proposed condition that the loan by the joint venture company for construction costs and related interest expenses for the development would not exceed the sum of $30 million.

One of the proposed conditions precedent to the Unit Holders Agreement (the fourth condition) was that Gardenview had to enter into an agreement with the Olympic Authority for the lease of the whole residential component of the project for 90 days, the whole of the rental for that period being about $6.5 million.

No agreement, in fact, was ever executed with the Olympic Authority.

A proposal was discussed that the $1.5 million loan from ECU was to be re-paid from the proceeds of the joint venture. In the event that the proposal was not finalised by the end of the term of the loan, ABC was to seek to re-finance the total amount advanced. If re-finance was not available, the proposal was that ABC would undertake to place the Bankstown property on the market at a realistic price and from the proceeds of sale the amount of $1.5 million that had been advanced by ECU to ABC would be repaid.

Under a proposed clause of the Unit Holders Agreement, ECU would have been entitled to terminate by 30 November 1998. In fact, it purported to terminate the joint venture in September 1999. This occurred at a time soon after Mr Chahine first met Mr Nash (t.125).

Clause 13(b) of the draft Unit Holders’ Agreement made provision in the event of termination:- “13(b)(ii) An account shall be taken of all costs and expenses paid, committed or incurred by the JV Company pursuant to this Agreement up to such termination in respect of the development and subject to clause 12, ABC and EFM must bear and pay their proportion of such costs and expenses in the same proportion that they hold units in the said Unit Trust referred to in clause 4 …” (3) Disputes between ECU and Mr Chahine

In the three and a half months from 1 August 1999 to 12 November 1999, there were ongoing disputes between Mr Chahine and ECU representatives concerning the ECU loan to ABC and liability for so-called joint venture losses.

The history of the disputes with ECU over repayment of the loan of $1.5 million and the contribution sought in respect of joint venture losses is outlined in the paragraphs that follow. That history is relevant in the sense that it provides context and background to the position of Mr Chahine/ABC in relation to the sale of the Bankstown property in the period August to November 1999.

As noted above, in the “overview” discussion, NOT Lawyers relied upon evidence which established that, in the months prior to 12 November 1999, Mr Chahine was under pressure to pay a contribution towards the “joint venture losses” , to refinance and to repay the ECU loan monies it had advanced to ABC.

In a letter of 3 August 1999 (Exhibit 4) addressed to Alex Sala of ECU (t.190), Mr Chahine said “I deny any responsibility for any monies funded to the credit of Gardenview. These were funds advanced by Endeavour Credit Union at their own risk” .

This letter was written about a month before Mr Chahine first consulted Mr Nash. Mr Chahine suggested in evidence that he wrote it on the advice of Mr Robertson who had earlier been employed by ECU. Mr Robertson, it appears, left ECU on or about 3 August 1999 and established a business conducted by a company, Balanced Solutions Pty Limited (t.191).

Mr Chahine accepted that ECU had said to him that if he could not refinance the loan then he would have to put the Bankstown property up for sale. He agreed that he told Mr Patrick O’Brien that he had no cash flow and that he could not refinance the loan (t.146).

When put to him in cross-examination, he agreed that in August 1999, he was in a “losing position” .

On 5 August 1999, Mr Chahine had written two letters to Mr Sala of ECU. In the first letter (Exhibit 2), he required ECU’s position in respect of the joint venture to be put in writing. In the event that ECU no longer was proceeding with the joint venture, then he required approval to “… institute compensation claims against third parties associated with the project …” .

Mr Chahine concluded the letter stating:- “I wish to record my disappointment over the manner in which the meeting was conducted. The use of intimidating tactics and the threats to restrict my ability to fairly trade out of the current position, in respect of the mortgage to ECU, is not appreciated.”

In the second letter of 5 August 1999, Mr Chahine wrote:- “I require a letter from ECU determining their position with regard to the Joint Venture Agreement. If ECU wish to terminate the Joint Venture and may now require repayment of the mortgage provided to ABC Plumbing Service Pty Limited then I request I be allowed sufficient time, as was originally and verbally agreed by ECU, to either refinance the debt or to sell, in whole or in part, the property (IES). Either course of action will result in the full repayment of the principal debt and interest to ECU (to date I have received no formal notice from ECU).”

A meeting also took place in August 1999 between Mr Chahine and officers of ECU concerning ABC’s default under the mortgage with ECU and the resolution of what were termed “joint venture losses” of about $1 million.

ECU contended that, by virtue of the arrangements associated with the proposed joint venture, ABC was liable to pay 62.8% of the loss sustained by the “joint venture” , this amount arising from advances made by ECU to the joint venture vehicle, Gardenview.

In due course, ECU threatened to retain from the proceeds of sale of the Bankstown property both the amount of $1.5 million advanced in 1998 and, additionally, the amount of $622,000 which ECU contended to be ABC’s share of the joint venture losses.

NOT Lawyers relied upon correspondence (of 23 August 1999) to establish that as early as 4 August 1999, Mr Chahine was denying liability for a 62.18% share of the losses and his denial was not based upon the legal advice of Mr Nash as claimed by him in evidence, he not having consulted with Mr Nash until September 1999.

In cross-examination, it was put to Mr Chahine that he refused to agree that the losses were to be split in the proportions stated in Mr Sala’s letter. He maintained that that position was based “on the advice of my lawyer at the time I – he asked me not to admit it and I believe it was wrong” (t.151). He confirmed that the advice was given by Mr Nash. NOT Lawyers strongly contested Mr Chahine’s evidence on the matter contending that Mr Chahine had disputed from the outset that he owed any contribution to be losses claimed.

Whilst Mr Chahine maintained on a number of occasions that he rejected the demands of ECU to share the losses on the basis of the abovementioned percentages on the advice given of Mr Nash, there was evidence that he had, in fact, taken that position before he retained Mr Nash and had done so as early as 4 August 1999.

Mr Nash, in a letter dated 27 August 1999, thanked Mr Paterson for referring Mr Chahine. Mr Chahine first consulted Mr Nash on 7 September 1999. He said he asked Mr Nash at the first meeting whether ECU were “going to sell me up or not” (t.168).

Mr Chahine said that he was aware at this time that ECU could enforce the claim for $1.5 million (t.170). He knew that the mortgage had been for a term of three months and that the loan agreement provided that, if it was not paid within three months, that he had to refinance.

Mr Chahine agreed that ECU had made a “threat” that if he did not agree to its settlement conditions that ECU could sell the land by taking mortgagee in possession proceedings and then hold the balance of the money in a trust account until it was sorted out by the courts (t.171).

He agreed that he thought ECU’s “threat” to sell and put the sale monies in trust meant that he would have no money then to fight ECU (t.172).

Mr Chahine also agreed that, at his first meeting with Mr Nash on 7 September 1999, he was very unhappy with the way he had been treated by ECU and that he said to Mr Nash, “we must not let them sell the land to recover the mortgage because they won’t care about me and they’ll sell the land cheaply” (t.173). He agreed he also said something like, “I’ve spent years putting this block of land together and I don’t want to lose it now” (t.173).

In a letter from ECU to ABC dated 8 September 1999, Mr Sala said that, if conditions precedent had not been achieved to EFM’s reasonable satisfaction before 30 November 1999 “… to the extent that it has not already been terminated, EFM gives you notice of termination of the joint venture and the Unitholders Agreement” .

Mr Chahine met Mr Nash on 8 September 1999 at the offices of ECU for the purposes of negotiating a resolution to the claim by ECU that, by reason of its outlay of monies for the purposes of the proposed joint venture (paid to Gardenview) it was entitled to recover from ABC a proportion of the monies it had expended.

Mr Nash advised Mr Chahine that his preliminary view was that “some obligation will arise in your joint venture entity … ABC … to pay its share of the loss with the other joint venture party, ECU …” .

The letter went on to refer to Mr Chahine’s proposition that ABC should not be responsible for the losses as they had been incurred due to the negligence of ECU and/or of external experts (t.181).

Mr Nash, however, observed in his letter of advice that Mr Chahine’s assertion of negligence against its joint venture partner or professionals engaged by the joint venture was “the more difficult” at 58, t.182.

On 15 September 1999, Kemp Strang, solicitors, served a notice on ABC pursuant to s.57(2)(b) of the Real Property Act . The notice alleged default under a mortgage of 28 April 1998 in the amount of $1.5 million plus interest of $129,115.26.

In a letter dated 24 September 1999, Mr David Havyatt of ECU claimed that there had been an agreement between Gardenview, ABC and Endeavour Financial Services Pty Limited (EFMS) that if the joint venture project did not proceed, the cost of the project would be borne by ABC and EFMS in the proportion of 62.18% (ABC) and 37.82% (EFMS).

It is clear that by this time, the following circumstances existed and brought pressure to bear upon Mr Chahine:- (1) The joint venture timetable had been delayed and pre-conditions had not been met. (2) The three month mortgage for $1.5 million was overdue. (3) ECU had written to terminate the agreement. (4) ECU had made “threats” to exercise its right to possession. (5) Gardenview (ECU) were pressing for ABC’s contribution to the expenditure on improvements on the property estimated at $1 million. On 10 September 1999, Gardenview was seeking advice from Mr Paterson as to whether they could lodge a caveat in respect of joint venture losses. (6) ECU was threatening to retain from proceeds of a mortgagee sale monies to pay ABC’s share of the joint venture losses. (7) Mr Chahine was experiencing cash flow problems. Retention of monies from the sale would deprive him of funds to embark on the litigation.

Mr Nash observed in a letter dated 15 September 1999 that he did not believe ABC had a cause of action against ECU on account of any alleged wrongdoing of the architects/consultants (t.195). Accordingly, as at 15 September 1999, Mr Nash’s advice on this aspect was that he was unlikely to succeed on that aspect (t.195).

Mr Chahine acknowledged in cross-examination that it may have been difficult to prove negligence against the architects (t.196).

He, accordingly, accepted, when it was put to him in cross-examination, that ECU had been claiming that ABC should bear almost 70% of the losses of the joint venture (which he was disputing) and at the same time Mr Nash was telling him that it would be difficult to succeed on the claim against him (t.196).

When it was put to him that he had recognised that he would have great difficulty in resisting ECU’s claim, Mr Chahine replied “I always and still believe I was liable for part of the loss” (t.196).

He said, however, that his position in September 1999 was that he wanted to argue that he should not have to bear any part of the losses because ECU had engaged the architects and the architects had been negligent (t.196). PART D – EVENTS LEADING TO THE SALE OF THE BANKSTOWN PROPERTY (1) Arrangements to refinance the debt on the Bankstown property

In September 1999, initial inquiry was made by Mr Chahine directed to a possible refinancing of the ECU debt. This was followed shortly afterwards by negotiations to sell the Bankstown property.

In a letter of 17 September 1999, Mr Bannon, General Manager of ICA wrote to Mr Chahine thanking him for the opportunity to “… discuss your requirements to refinance … (the property)” . The letter also stated “You have asked me to obtain sufficient funds to refinance the existing debt on the land …” . Mr Bannon added that he had submitted an application to “my Lender who at present is considering the application for a loan” . The letter went on to state “it is understood that, in the event that you are unable to obtain the loan funds soon, then you will have to put the property for sale” .

The evidence supports the proposition that, before Mr Chahine retained Mr Nash, he had been exploring options for refinancing the ECU loans. This was contrary to the suggestion made in his affidavit that inquiries into refinancing were undertaken on advice from Mr Nash in order that evidence would be generated for use in legal proceedings. It was pointed out to Mr Chahine in cross-examination that advice of that kind was only first given by Mr Nash by letter dated 6 October 1999.

Mr Chahine received a letter on the subject of refinancing the loan from Mr Bannon of ICA dated 17 September 1999. He agreed that he had been wrong in suggesting in his evidence that that letter had been written on Mr Nash’s advice (t.242) (see Mr Chahine’s affidavit sworn on 30 October 2003 – Exhibit B, Tab 2, paragraph 9).

He was shown a document from Balanced Solutions Pty Limited signed by Mr Robertson. The letter was addressed to “Across Australia Finance” (t.243). He agreed that he gave Mr Robertson instructions to send the letter and that he asked Mr Robertson to seek finance, in this case, from Across Australia Finance (t.244), to refinance the first mortgage. He also agreed that, as early as 20 July 1999, he was looking around for a refinancing solution (the letter from Balanced Solutions dated 29 July 1999 is Exhibit 7).

In these proceedings, there are a large number of disputes as to the facts on a range of matters. Many of these were the subject of conflicting evidence given by Mr Chahine and Mr Nash. The resolution of competing versions as to relevant facts on some of those matters are not essential in the determination of ultimate issues concerning liability although carry some significance in the sense that they reflect on the credibility of one or other of the participants who gave evidence. (2) Arrangements to sell the Bankstown property

According to Mr Chahine, on 18 September 1999, ABC retained Peter A Simon Real Estate Pty Limited of Bankstown for the purpose of selling the Bankstown property. He said it was to be offered for sale at $8 million. A letter from the above agency dated 18 October 1999 confirmed that on 18 September 1999 it was appointed as agents for the sale of the property. The Sales Inspection Report noted the agreement of 18 September 1999 and recorded the price at which the property was to be offered for sale was $8 million.

Mr Chahine agreed that whilst he had approached ICA to see if it could refinance the $1.5 million loan, subsequently, a representative of that entity had undertaken to find a buyer for the property. He said in oral evidence that, at that stage, he realised that ECU would seek to enforce its rights under its mortgage.

At a meeting with Mr Bannon and Mr Huxley in mid-September 1999, Mr Chahine said that he told Mr Huxley “I’ll sell South Terrace to you for $7.5 million” . Mr Huxley replied, “what about a joint venture agreement?” . Mr Chahine said he said “No. I’m not interested in that. I’ve already tried a joint venture with ECU” . Mr Huxley or Mr Bannon then said, “what about re-financing?” . Mr Chahine said that he said, “No. I want a straight sale” .

According to Mr Chahine’s account, Mr Huxley asked him how much he wanted for the property. Mr Chahine responded that some 12 months earlier, ECU had agreed to pay him $7.5 million and that he would accept that amount for the property even though he had spent a million dollars on the Building Application and tender documentation.

Mr Chahine claimed that Mr Huxley and Mr Bannon indicated that they would pay that amount. Mr Chahine asked them to confirm their position in writing.

In evidence, Mr Chahine confirmed that he had wanted “a straight sale” . He said that he did not want another joint venture (t.203). In particular, he agreed that he did not want a transaction where he only got “part of [his] money on completion of the conveyancing transaction” (t.203).

Mr Chahine subsequently received a letter dated 22 September 1999. The second paragraph of the letter of 22 September 1999 had referred to the fact that the developer committed to $7.5 million on a “staged basis” (t.205.5).

He agreed in cross-examination that ICA had never, in fact, offered a “straight” sale. He also agreed that every proposal that was put to him in writing was on a staged sale basis and never a straight sale (t.207).

It was put to Mr Chahine in cross-examination that he was in a hurry and that he was desperate to sell the property in September 1999. Whilst he agreed that he had become more focussed on selling the property he would not agree that he was “desperate” .

He was reminded of his evidence to the effect that at the 4 August 1999 meeting ECU had threatened to sell the property and keep from the proceeds of sale not only an amount representing the $1.5 million in loan monies, but also an amount in respect of the joint venture losses.

He agreed that, at that time, his “preference” was that the Bankstown property not be sold by ECU exercising its power of sale. When it was then put to him that, in fact, a mortgagee sale was the last thing that he wanted to happen, Mr Chahine responded saying that he would not agree that it was “the last thing” he wanted.

It was also put to him that at this stage (September 1999) his relationship with ECU was “poisonous” (t.208). In evidence the previous day he had said that, as at the end of August 1999, his relationship with ECU was poisonous (t.208) and, accordingly, agreed with that as an appropriate description.

On 24 September 1999, David Havyatt wrote to Mr Chahine regarding Gardenview. Reference was made in it to a meeting of the Board of Gardenview that had taken place on 20 September 1999 and concern expressed at the inability of the parties to agree on fundamental matters concerning the future management of Gardenview and its affairs: Witness Bundle 79.

Mr Chahine accepted that the meetings of the Board of Gardenview in September 1999 were deadlocked on relevant issues including the issue of ECU lodging a caveat on the title to the Bankstown property and that the meetings had become very tense in that month. Mr Chahine also agreed that difficulties had arisen due to his failure to agree on anything (t.211).

NOT Lawyers contended that the dispute as to the liability of both ABC and ECU for joint venture losses effectively arose from Mr Chahine’s refusal to accept what the parties had agreed to in that respect.

When it was put to Mr Chahine that it had always been agreed that if the joint venture did not proceed, associated costs would be borne according to stated percentages between ABC and ECU, Mr Chahine replied “I believe this is correct and I have no question mark on there” (t.212).

Mr Chahine acceptance in the course of his evidence of ABC’s liability to contribute to the costs or losses was inconsistent with the position he had adopted in his discussions and correspondence on the matter.

I was not impressed with Mr Chahine’s evidence on the issue of ABC’s liability to contribute to joint venture losses. As I have earlier stated, the contemporaneous records reveal a continuing refusal by him to acknowledge any liability in ABC in contrast to the position he agreed to in cross-examination. In addition, at one point he, in my opinion wrongly, attributed his refusal to accept any liability by ABC to contribute on the basis of advice given on the matter by Mr Nash.

Mr Chahine’s lack of credibility on this issue though not directly relevant to allegations made against NOT Lawyers, is nonetheless to be borne in mind when assessing other issues. These include the instructions he said he provided to Mr Nash concerning matters associated with the sale transaction, relevant state of mind issues concerning the sale and his likely response to advice on particular issues, if such advice was provided by Mr Nash. I will return to such matters below. PART E – ACTIONS BY ECU AS MORTGAGEE

The events in September/October 1999 brought increasing pressure on Mr Chahine who wished to retain control of the Bankstown property.

In September 1999, Mr Chahine held concerns that ECU would take steps to sell the property to recover the $1.5 million loan and that ECU (or EFMS) would also commence proceedings to recover monies by way of contribution to joint venture losses. Accordingly, he wished to secure the position whereby he could sell the property on his own terms rather than have ECU stepping in and selling as mortgagee in possession.

Mr Chahine acknowledged that, whilst in negotiations with ICA he was negotiating for the possible purchase of the Bankstown property by 228 South Terrace Pty Limited or some other person or entity he also considered the possibility of ICA refinancing the existing loan before 15 September 1999 (t.219).

Mr Chahine agreed that he was anxious to get a firm position on the issue of refinancing by the week commencing 11 October 1999 as he understood ECU’s s.57(2)(b) notice expired at about that time (t.219).

In handwritten notes made by him on 4 October 1999 (t.220), Mr Chahine recorded his negotiating position with Messrs Huxley and Bannon and his desire for an exchange of contracts “within 10 days” which he acknowledged represented the period for the expiration of the s.57(2)(b) notice on 14 October 1999. He wanted $4 million on exchange of contracts. As earlier noted, the negotiations concluded on the basis of a payment of $3.5 million on exchange of contracts, with the balance being accepted on a deferred basis in cash or by way of strata commercial and residential units (t.225).

On 6 October 1999, Mr Nash wrote a detailed letter of advice to Mr Chahine. In it, he told him that ECU had made it clear that they saw Gardenview as the appropriate plaintiff in proceedings against ABC to recover monies which it asserted were expended on behalf of both ABC and ECU (or more accurately, EFMS). Mr Nash also noted:- • That, once Gardenview was put into any sort of insolvency administration, he had no doubt that ECU would offer to fund proceedings by the provisional liquidator appointed in order to recovery the monies it claimed was due to it. • The most immediate way for ECU to take defacto control of Gardenview was by the appointment of a voluntary administrator. • The only other way that would be adopted “in light of your recalcitrance” would be the service of a statutory demand on Gardenview by EFMS for the $1 million that it asserted was owed to it by Gardenview. That would require proceedings pursuant to s.459G of the Corporations Law to be filed seeking an order setting aside the Statutory Demand.

In the letter of 6 October 1999, Mr Nash also advised that if injunction proceedings were commenced by ABC and were successful, then Mr Chahine would have to make meaningful attempts to obtain finance. When such attempts failed, he would need to make attempts to sell the property. His advice was to make applications to financiers one at a time and not altogether and in this way “buy time” .

Mr Chahine agreed that he was on notice that ECU were going to take possession and sell if they could at the expiry of the time specified in a s.57(2)(b) Notice. In a letter from Kemp Strang dated 8 October 1999, Mr Chahine was given notice that:- “Should you client maintain that it is entitled to an injunction precluding ECU from exercising its power of sale under the mortgage upon expiration of that Notice, your client should apply for such relief as it considers appropriate forthwith, so that its application can be dealt with in an orderly fashion by the Court during the period prior to the expiration of this Notice. In the event that your client fails to immediately apply to the Court and later seeks urgent relief, we are instructed that ECU will tender this letter on the question of urgency.”

On 11 October 1999, Kemp Strang served a second notice pursuant to s.57(2)(b) of the Real Property Act under which it was specified that, if there was no compliance with the requirements of the notice within 31 days after service of it, the mortgagee proposed to exercise its power of sale over the property. The 31 day period expired on 11 November 1999. In cross-examination, Mr Chahine conceded that, following the service of the notice:- • He appreciated that he had to take action to either refinance or sell the property as he did not want ECU to sell it. • That, in his mind from this point, he had faced a deadline at or about 11 November 1999, being the date for the expiry of time under the notice. • That by that time, he had to effect a final solution.

Mr Chahine acknowledged in cross-examination that he was under pressure to find an alternative solution to a mortgagee sale and that he had to find it quickly (transcript, p.250):- “Q. So you had a limited amount of time, didn’t you, to get going yourself and find -- A. Sell or refinance, yes. Q. Because the last thing you wanted was that Endeavour sell the property? A. Yes, I don’t want Endeavour to sell that property. Q. So do you agree that as at 11 October when this second notice was served there was in your mind a deadline of around 11 November? A. Yes. Q. Being the time when the notice expired? A. Yes. Q. You had to get cracking and get a solution before then? A. Yes.”

In a letter dated 13 October 1999, ICA advised Mr Chahine that the lender (Elliot Tuthill) and the developer (228 South Terrace Pty Limited) confirmed their position as set out in that letter.

NOT Lawyers relied upon the following statements which Mr Nash, in his affidavit affirmed on 27 June 2003, attributed to Mr Chahine in support of the contention made on behalf of NOT Lawyers that, by this time, Mr Chahine was “paranoid” about ECU:- (1) Paragraph 15, p.3 of his affidavit “Greg, under no circumstances” – did he want to see a mortgage sale. (2) Paragraph 16 “Greg they are ganging up on me, they are treating me terribly. I need you to protect me. Without you there, they will destroy me” . (3) Paragraph 410, p.7 “Greg, we cannot wait 8 weeks. If we wait 8 weeks, ECU will take the land off me and I will have nothing. This is our only chance. We must meet the time limit” (t.525). (4) At the same reference, “I don’t care. This is my only chance. Do what is necessary, please” (paragraph 95, p.16). (5) Paragraph 135 “At this stage, this is my only hope. If we don’t through with this, ECU is going to take my property away from me and sell it for nothing and I’m going to lose anything that I put into it. We need to go ahead with this” . (6) Paragraph 128 “Greg, we are so close now, we must go ahead” . (7) Paragraph 135, top of p.22 “We need to get this done to fix the ECU problem” (t.526).

It was put to Mr Nash in cross-examination:- “Q. But at line 5 on p.514, you said this to his Honour: ‘Mr Chahine’s constant refrain was ‘under no circumstances was he going to allow ECU to get their hands on his property’.’. What I am asking you to consider is the proposition that, with the exception of par 15, you do not at any point in any of your affidavits attribute the phrase ‘under no circumstances’ to Mr Chahine. A. Not those precise words, no.”

It was put to Mr Nash in cross-examination that there was a “gulf of difference” between someone saying to him “Under no circumstances” would they do something and on the other “I don’t want something to happen” . Mr Nash replied “It’s bit subtle for me” (t.526).

He accepted that although sometimes people make statements such as, “under no circumstances will they allow something to happen” he accepted that things can always come up which changes their mind (t.527.4).

Mr Nash conceded that he had no independent recollection of the precise words used but that he believed that Mr Chahine had constantly said that under no circumstances was he going to allow ECU to sell his property (t.528.8).

Later at t.529.3, he suggested that he did have a recollection of Mr Chahine expressing himself in terms “under no circumstances” .

Mr Nash was asked about Mr Chahine’s fear of being sold up (t.513 to t.514):- “Q. There is somewhat of nuance to someone saying: ‘Under no circumstances will I allow something to happen’ on the one hand and on the other hand: ‘I don't want someone to sell me up’ on the other. Do you accept that whichever set of words are used convey vastly different? A. Slightly different. He was irrational about ECU. Not only did he think - and he said this to me. He said: ‘Greg they don't care about me. They will just get their own money back. They won't care about me and on top of that they hate me so much that they may well do something positive to disadvantage me’. Q. Did you say to him if he said such things to you: ‘As a matter of law they are not entitled to positively disadvantage you’? A. Yes. Q. Where is this in your affidavit? A. I gave him that. Q. But, it is not in your affidavits? A. No.”

He was asked why several matters that he had given evidence about on 14 April 2010 were not referred to in his affidavits. He responded (t.514):- “A. Because I answered the questions I was asked by my solicitors. I told them that, what was happening. That Mr Chahine was incredibly paranoid about ECU. The atmosphere between ECU and Mr Chahine was absolutely poisonous and Mr Chahine's constant refrain was: Under no circumstances was he going allow ECU to get their hands on his property.”

It was put to him that the only reference in his affidavit to the expression “under no circumstances” phrase was in paragraph [15] and that nowhere in his affidavit, did he suggest that it was a constant refrain. Mr Nash rejected the suggestion (t.514) although he was in error in doing so. PART F – THE SALE OF THE BANKSTOWN PROPERTY (1) Early negotiations

On 14 October 1999, ICA wrote to Mr Chahine and referred to the fact that it had had a number of meetings with “the approved Lender” , the developer and the project manager for the Bankstown project. ICA confirmed that the proposed purchaser was in a position to commit to the acquisition of the project on terms set out in the letter with settlement before 31 October 1999.

The terms that were set out in the letter of 14 October 1999 from ICA, however, did not represent the final position reached. One element of the final transaction, however, that was by then agreed was the commitment to pay an amount of $3.5 million on exchange of contracts in part settlement of the transaction.

The offer made in the letter from Mr Bannon involved three elements:- (1) A payment on settlement of the conveyance of $3.5 million “for the Land and the DA” . (2) A “profit participation” whereby Mr Chahine/his company was to “… keep all of the commercial area of this Project of 1170 Square Metres of the Development and 4 x 3 Bedroom Apartments on the top floors of the Buildings of your choice” . (3) Mr Chahine to be paid “… an amount equivalent to 10% of the net profit of the Project on completion and sale of the three Stages …” as “a bonus/profit share” .

On 14 October 1999, Mr Chahine advised Mr Nash that he had been negotiating with Messrs Bannon and Huxley.

Mr Chahine was informed that the purchaser was 238 South Terrace Pty Limited. The letter from ICA dated 14 October 1999 also stated:- “… The Purchaser group has existing facilities with this Lender of in excess of $7 m. They will provide the funds to repay the existing debt on the property.”

In cross-examination, Mr Chahine was asked whether or not he was concerned to read in the letter of 14 October 1999 that the purchaser had existing facilities with its “Lender” of in excess of $7 million and whether, in particular, he was concerned that the existing lenders might seek his agreement to have the existing facilities secured over the properties that had been offered as security in respect of the Bankstown transaction. He indicated that, at that time, it was not his concern “… my concern was do we have a deal or not …” (transcript, p.254).

The negotiations between ABC (Mr Chahine) and ICA/Mr Huxley continued over the period 22 September 1999 and the date of settlement, 12 November 1999. It is clear that the Huxley Group did not have available the cash resources to enter into a “straight sale” at $7.5 million.

On 22 September 1999, Mr Bannon put an offer on behalf of “the development company” (namely, 228 South Terrace Pty Limited) to pay $3 million on settlement. The balance of the purchase monies were to be paid on a pro rata basis from stock or cash from the sale of units in each of the three tower blocks once completed, sold and settled.

On 8 October 2009, Kemp Strang on behalf of ECU wrote to Mr Nash. In that letter, the author stated:- “It was clear to the parties by, at the latest, the end of March 1999, that the joint venture would not proceed. Even if this point was required to be reached prior to your client being obliged to refinance the secured debt, your client has had since the end of March 1999 to refinance the debt. It has failed to do so. Furthermore, it has failed to put the property on the market for sale.”

It was put to Mr Chahine (t.247):- “Q. Mr Harrison, who wrote this letter from Kemp Strang, says that it was clear to the parties by the end of March 1999 that the joint venture would not proceed, do you agree with that? A. Agree with this word in here? Yes, I agree. Q. You agree it was clear to you? A. No, it wasn't. Q. Do you agree that it was clear to you and Endeavour at the end of March 1999 that the joint venture would not proceed? A. I can't speak on behalf of-- Q. What about-- A. I speak on my behalf. Q. Was it clear to you? A. It was not. I was for several months pushing for solution. …”

Mr Harrison, in the letter of 8 October 1999, further stated that Mr Nash’s assertion that his client was entitled to further time to seek to refinance and then to place the property on the market for sale prior to ECU being entitled to issue a Notice pursuant to s.57(2)(b) of the Real Property Act was refuted. The letter recorded that both Mr Sala and Mr Havyatt denied the conversations in terms of Mr Nash’s letter of 29 September 1999.

On 13 October 1999, the offer to purchase was increased on the basis that $3.5 million would be payable on settlement of the conveyance followed by an amount of $1.5 million payable on completion of Stage 1 with two further payments of $1.25 million each paid on completion of Stages 2 and 3.

When Mr Chahine advised Mr Nash that he was negotiating with Messrs Bannon and Huxley, he told him they would buy the property for $7.5 million. He also told him that Mr Huxley said the deal had to be completed by the end of October. This was said to be by reason of the position with their finance and due to the imminent enactment of some new legislation.

Mr Chahine said that he provided Mr Nash with the letter from ICA dated 14 October 1999. It was at this meeting, according to Mr Chahine, that Mr Nash inquired as to who would be doing the legal work. Mr Chahine responded that it would be done by Mr Lachlan Paterson. Mr Chahine said that Mr Nash indicated that he himself would like to do the necessary legal work for the transaction.

It appears on the evidence that Mr Chahine first introduced Mr Nash to Mr Huxley and/or Mr Bannon on 16 October 1999, although Mr Chahine said that he was unsure as to the precise date (t.227). He said that he told Mr Nash (he believed on 14 October) that he did not know anything about Messrs Bannon’s or Huxley’s background.

On 14 October 1999, Mr Bannon wrote to the secretary of Gardenview offering to purchase the company for $300,000 together with the Building Approval from Bankstown Council and all documents connected with the application. The offer was subject to completion of the purchase of the Bankstown property.

On 18 October 1999, at the request of Mr Huxley, a meeting took place at the office of NOT Lawyers between Mr Chahine, Mr Nash and the purchaser’s representatives, Mr Huxley and Mr Bannon.

According to Mr Chahine, he said to Mr Nash:- “Mr Huxley has agreed to purchase the property for $7.5 million cash. However, Mr Huxley and Mr Bannon had requested a two-stage settlement. Stage 1, they pay $3.5 million on settlement and $300,000 to Gardenview Apartments for the BA. At the Stage 2 settlement, they pay a further $3.7 million plus interest plus profit to ABC and Mr Huxley has agreed to provide sufficient securities by mortgages on properties including Bankstown to satisfy you and me. If you are happy and satisfied with the security, then we proceed. But if the security is not 100%, we won’t proceed.”

According to Mr Chahine’s account of this last-mentioned meeting, Mr Huxley said “Rather than buying the property outright because we don’t have enough cash, I’ve got a proposal for you. It will involve the creation of a unit trust and the grant of a mortgage back to ABC” . According to Mr Chahine, he said to Mr Nash, “What’s this all about? I don’t understand” . Mr Nash is said to have replied, “Don’t worry. I’ll sort it all out for you” . According to Mr Chahine, he said, “I want good security for the balance of the payment” . Mr Nash is said to have replied, “The main security will be a mortgage over the property. A unit trust will then be set up to give you extra security and also a chance to make some profit from the sale of units in the new development. We’ll need to set up a company” .

Mr Chahine stated that he interrupted the meeting and spoke to Mr Nash alone and said, “I don’t understand what’s happening. How do you know about this? I want a straight sale” . According to Mr Chahine, Mr Nash told him not to worry and that he would talk to Mr Huxley. Mr Nash is said to have observed that the letter from ICA indicated that the purchaser could not pay $7.5 million in cash but Mr Nash said, “but there’s another way. Leave it to me” . Mr Chahine, again, said he said that he did not understand what a unit trust was or how he would get his money. He said Mr Nash said, “I’ll sort it out” .

It was put to him in cross-examination that he did not ask Mr Nash “What is a unit trust?” (t.292.6) and (at t.293.3) that he did not make the statement to Mr Nash that he did not understand unit trusts.

Mr Chahine was also challenged (at t.291.10) about his statement in paragraph [17] of his affidavit in which he said “I’m worried about the security. I don’t know anything about trusts” . It was put to him that he knew what a unit trust was in October 1999 (t.292.1). This was on the basis that he had participated in negotiations of a unit trust deed with ECU the year before. Mr Chahine replied that he did not know it “100%” (t.292.2).

After Mr Chahine and Mr Nash rejoined the meeting with Mr Huxley and Mr Bannon, Mr Huxley, according to Mr Chahine, said to him “Will you take a second mortgage over Bankstown to secure the payment of the balance of the $7.5 million to you?” . Mr Chahine said, “I will only consider it if I have the first mortgage to protect my balance” . Mr Huxley responded, “That’s not possible. We need the first mortgage for the financier who will provide funds for the construction of the project. You will get a second mortgage” . Mr Chahine said that he was not happy about that - he wanted a first mortgage. Mr Huxley then responded that he would get an “additional security” and to leave it to him to arrange.

There was then, according to Mr Chahine, reference to obtaining mortgages over other properties and to company charges. The relevant information, it was said, would be provided to Mr Nash. Mr Chahine asked that he put his proposal in writing and stated:- “Unless I have good securities, I will not proceed with this proposal. What about capital gains tax? If I am selling the property for $7.5 million, there is capital gains tax on the $7.5 million and if I am receiving the first stage payment of only $3.5 million and defer payment of the second stage, I will not have enough funds to pay capital gains tax …”

There was then discussion about the delay that would be involved in obtaining a ruling from the tax office on the question of capital gains tax and that there was not time to obtain a ruling. At this point, Mr Nash is said to have stated:- “We can get advice from my accountant, Jason Murray. I’ll look after that.”

Mr Chahine was cross-examined on his alleged statement that he wanted a first mortgage over the Bankstown property. It was put to him that Mr Huxley made it clear that his group’s mortgagee would want a first mortgage to fund the construction costs of $30 million and he knew that. He agreed that he did (t.294.4). He also appreciated that he had been told to defer what, in due course, became his third mortgage to a second mortgage that would be granted in favour of the builder and that there would be times when his security was not worth the money it was designed to secure. He knew, he conceded, unimproved, the Bankstown property was not worth $30 million (t.294.6) thereby displaying an understanding of what the mortgages ranking ahead of ABC’s mortgage would be intended to secure.

It was put to him (t.294.8):- “Q. Is this right though, that you could see if on Bankstown you are sitting behind the first mortgage securing $30 million, your second mortgage may well be worth nothing? A. No. They will be, I thought there is a way legally prepare, so I have some, some always think after the turn key builder or financing and all that stuff.”

In summary, Mr Chahine, in cross-examination, accepted that, as at 18 October 1999, he knew he would not have a first mortgage on the Bankstown property, that he knew the Huxley Group financier would have first mortgage in respect of the construction project and he knew that the construction costs were likely to be the yield of $30 million. Accordingly, Mr Chahine acknowledged that, if he had a second mortgage behind the financier, he would be sitting behind a mortgage securing $30 million. He did not, however, accept that there was talk of a builder having a mortgage over Bankstown ahead of ABC.

According to Mr Chahine, after the meeting he asked Mr Nash what he thought of the proposals for the transaction and that Mr Nash indicated that everything sounded “good” to him. Mr Chahine, in his affidavit of 12 December 2002, said that he stated “I’m worried about the security. I don’t know anything about trusts” . Mr Nash is said to have responded, “I’ll look after it. I’ll make sure that the security’s right. I’ll check all the valuations” . Mr Chahine said that he responded “Do everything to protect my interest” .

Mr Chahine exhibited handwritten notes to his last-mentioned affidavit which he said he prepared shortly after the meeting (Exhibit “ABC5” ). These constitute Exhibit ABC5 and are in the following terms:- “To pay mortgage ($1.7 m) on exchange the contract or commitment within 10 days? If this is not possible, then temporary refinance, if you can do this then I will give you further discount? Cash required minimum 4m, this amount including the cost of BA & DA. Balance of agreed price will accept as Product. I need commitment, how many days? Otherwise they may force their hand to accept their client which is unacceptable. Architectural work completed to tender document stage & BA. Structure engineering work completed to tender document stage & BA. Other consultants including hydraulic and electric completed. Council approved DA & BA & all the fees paid except section 94 payable on completion.”

The notes then record separately the following three points:- “1. Price for this development site 7.5m plus BA cost says $ … 2. 3.5m – 4.m cash required plus BA & DA cost. 3. Balance will be accepted in cash or strata commercial & residential units.”

On 19 October 1999, Mr Nash wrote to Messrs Kemp Strang with respect to an offer on Mr Chahine’s behalf of the sum of $300,000 for the transfer by Gardenview of all right, title and interest in and to all documents which related to the Building Approval granted by Bankstown Council in respect of the Bankstown property.

On 20 October 1999, Mr Huxley wrote to Mr Nash advising that Kenneth David Hall (director of what was referred to as the purchaser company) was a property investor whose major asset was the ownership of a major share of the Newcastle Breakers Soccer Club. (2) Warnings sounded about Mr Huxley

On the same date, a Ms Ault, who was an employee of NOT Lawyers, sent an email to Mr Nash, the subject of which was noted to be “client alert!!” . The email read:- “Greg, Just for your information, I heard through the boardroom grapeview [sic] that a you [sic] may have a client or is a potential new client by the name of GREG HUXLEY. BEWARE OF THIS MAN!!!! We used [sic] to act for him at my old office and he runs up lots and lots of $$$$$ and never pays. Very slimy ….. and is married to someone 3 times his junior and has a child (not that you needed that last piece of information) but anyway just be careful. Tanya”

On 20 October 1999, Mr Nash wrote to Mr Chahine and forwarded to him a Retainer Agreement in respect of work “… to do work necessary to effect the sale of your company’s property in Bankstown” .

The penultimate paragraph of Mr Nash’s letter of 20 October 1999 letter indicated that the parties had yet to finalise the terms of the sale. It read:- “I enclose a Retainer Agreement understanding that you are not able to comply with it until you receive funds from re-finance or sale of your properties and I would like you to sign it and give it back to me at our meeting this afternoon.”

In the letter, Mr Nash also enclosed a copy of the abovementioned email (Ms Ault’s email) concerning Mr Huxley which he noted was “for your immediate attention” . Mr Chahine wrote on the letter against this paragraph “not very encouraging” . He wrote on a copy of the above email:- “REPLY Dear Greg, Not very encouraging news, Thanks for letting me know. Please take all necessary precautions to protect my interest.”

On 21 October 1999, Turnbull & Turnbull Pty Limited, certified practicing accountants, wrote to Mr Nash indicating that they had been asked by Mr Huxley to provide him with in-confidence material. The letter, inter alia, indicated:- (1) That Mr Huxley, through his family trust, had a substantial interest in the holding company (238 South Terrace Pty Limited). (2) That Mr David Hall, through his company, had an interest in the holding company and a substantial interest in subsidiary companies. (3) That North Queensland Properties Pty Limited had recently been incorporated to act as a consolidated parent company for a number of real estate projects. (4) Laguna was a company that owned a 360 hectare site for a hotel, residential and golf course development. The property had been valued “on globo” for $21 million and the aggregate mortgage(s) were $4.33 million.

On 21 October 1999, Mr Nash wrote to Mr Chahine. In the letter he stated:- “In relation to the subject sale, I confirm my advice to you that 2 out of the 3 people that we have had mentioned to us are not favourably known to the writer and, therefore, I am suspicious: 1. of their bond [sic] fides in the [sic] having this matter proceed to a favourable settlement; and 2. to them keeping their promises after settlement.” (3) Mr Chahine’s concern about securities

On Mr Nash’s last-mentioned letter, following the phrase, “I am suspicious” , Mr Chahine wrote, “Please be careful” . He also wrote after the reference in paragraph (1) set out above a note, “Please take care, it is your department” .

At the end of paragraph (2) above, Mr Chahine wrote, “Please ensure we have all security & protection” .

Mr Chahine acknowledged in cross-examination that, having been informed of the limited security that a mortgage over the Bankstown property would represent and that he had been told by Mr Nash that he could be vulnerable to a conspiracy between the Huxley Group, first mortgagee and the builder, the Queensland property represented “a very important security” . He said it was for that reason that he asked Mr Nash to check the Queensland valuation.

In his letter of 21 October 1999, Mr Nash outlined the structure for the proposed sale. He noted that a unit trust was to be settled with Nordoc being the trustee of the Trust and that the nominees would hold units in the trust. Mr Nash explained that ABC would sell the land to Nordoc for $3.5 million which meant that “Huxley’s side” would have to pay $3.5 million to Nordoc to enable it, in turn, to pay that amount to ABC. The letter also noted:- (1) The price for the Building Approval owned by Gardenview was said to be worth $300,000. Mr Huxley referred to the possibility that there could be a direct agreement made between Gardenview and Nordoc for payment in respect of the Building Approval. Alternatively, he indicated that if that was not possible, then he would deal directly with Gardenview about the matter. Mr Nash observed that there was a “downside” for Mr Chahine in Mr Huxley dealing directly with Gardenview in that he may succeed in negotiating a lower price with Gardenview. Mr Nash observed that “he [Mr Huxley] is the only game in town” . This referred to the fact that, as matters then stood, the “Huxley interests” were the only prospective purchasers of the Bankstown property. (2) In respect of the sale transaction, it was noted “… you are entitled to receive the further figures $3,500,000 which, in effect, is part of the sale price of the land and which is to be paid by transfer to you of certain parts of the developed property when it is actually built …” . The letter also observed that there was a problem, in that this would not occur for some 30 months and yet CGT obligations would arise as soon as the settlement had been completed.

Mr Nash set out in his letter of 21 October a proposal to “overcome these problems” . In the course of doing so, he observed:- “8.7 You are asked to defer your second mortgage in favour of the builder and so, without analysing the arrangement fully, there will be times when your security will not be worth the money that is owed to you under it. 8.8. You will also be vulnerable, in my view, to a conspiracy between the Huxley Group and the first mortgagee and the builder/second mortgagee who, if allowed to sell the property under Power of Sale, can basically ignore your third mortgage leaving you to rely on the Guarantees whatever they may be worth (or not worth).”

In his affidavit sworn 12 December 2002, Mr Chahine referred to a conversation with Mr Nash concerning his letter of 21 October 1999:- “22. On about 22 October 1999, I telephoned Mr Nash. I said: ‘On page 1 of your letter, you refer to people who are “not favourably known to the writer”’. Please be careful. He said: ‘Yeah. Don’t worry. It is my job to ensure they’re bona fides and that everything is done properly’. I said: ‘Yes. Please take care. It is your department. Please ensure that we have all security and protection’. He said: I’ll look after it’. I said: ‘In paragraph 8.5 of your letter, does that mean we get a second mortgage on South Terrace and a secure mortgage on the other property?’. He said ‘Yes’.”

Mr Nash denied having had a telephone conversation in the terms set out in the preceding paragraph.

On a copy of a letter written by Mr Nash to Mr Chahine dated 21 October 1999, Mr Chahine made various comments in a document described as a “reply” . Paragraph 8.7 of Mr Nash’s letter stated:- “8.7 You are asked to defer your second mortgage in favour of the builder and so, without analysing the arrangement fully, there will be times when you security will not be worth the money that is owed to you under it.”

In his handwritten “reply” document, Mr Chahine responded to paragraph 8.7 as follows:- “8.7 Further security mortgage required & personal guarantee.”

On 22 October 1999, Mr Nash wrote and had hand delivered a letter to Kemp Strang stating, inter alia, that his client offered to pay $300,000 in relation to the Building or Development Approval of the Bankstown property subject to the conditions specified in the letter.

On 22 October 1999, Kemp Strang wrote to NOT Lawyers noting that their instructions had been that the total costs and expenses incurred by Gardenview were in the order of $1 million. The letter noted:- “… In these circumstances, the sum of Gardenview’s claim is likely to be in the order of $622,000. (We note that our client has previously asserted that a greater sum was owing. Our client has since found an error in his previous calculations.)”

The letter from Kemp Strang also noted references in correspondence with Mr Havyatt to the fact of a proposed sale of the Bankstown property. The letter also referred to the fact that Mr Havyatt and EFMS understood that ABC could be disposing of its interest in the property. Concern was expressed by Kemp Strang that if that occurred ABC would disperse the proceeds of sale which could have the effect of defeating the ability of Gardenview to enforce any judgment that it may obtain against ABC.

An undertaking was, accordingly, sought from Mr Chahine and ABC that, in the event of ABC disposing of the property prior to the determination of any claim by Gardenview against ABC, ABC would retain from the proceeds of the sale of the property the amount of $622,000 which would be deposited into a separate interest-bearing account to be held pending the determination of the claim. The undertaking was sought by 10.00 am on 25 October 1999. It was indicated Kemp Strang’s clients would otherwise move for an injunction.

On 25 October 1999, Mr Nash wrote to Mr Chahine by way facsimile stating that he had received that day an offer or proposal from Mr Huxley on behalf of the purchaser entity of a mortgage to be given by Laguna over a property in the Whitsundays in Queensland “… which he asserts is valued at $21 million and upon which there are mortgages of less than five” .

On a copy of that facsimile, Mr Chahine wrote in handwriting:- “Reply 2. Please check the valuation, only solid security required. 3. I have no problem to pay tax on money received but we must find a way to defer paying tax until I have received the balance. 4. Sale contract subject to advice as I stated mortgage, satisfy yourself if it is valuable for security.”

On 25 October 1999, Mr Huxley sent a memorandum to Mr Nash concerning the purchase of the Bankstown property. In it he stated that there was “a relatively easy way to achieve your client’s requirements without the complexity of multiple mortgages as we discussed” . The memorandum referred to a floating charge being given by a company, North Queensland Properties Pty Limited, and a mortgage to be given by Laguna, which was said to own a 350 hectare site which had been approved for re-zoning and gazettal. The memorandum stated:- “The property has several valuations – the most recent was carried out by the Suncorp- Metway valuer, B Conroy. It has been appraised at $21M. I enclose a copy of that valuation.”

The memorandum went on to state that there were three mortgages on the property, one for $3 million, a second mortgage for $1 million and the third mortgage in the amount of $350,000. A copy of Mr Bevan Conroy’s valuation was, in fact, sent with that memorandum.

On 25 October 1999, Mr Nash sent a facsimile to Mr Chahine in which, inter alia, he stated:- “Here is a letter that I received this morning from Greg Huxley offering you a mortgage by Laguna Beach Housing & Land Pty Limited over property in the Whitsundays in Queensland which he asserts is valued at $21 million and upon which there are mortgages of less than five.”

The letter went on to record Mr Nash’s “grave concerns” as to Mr Chahine’s capital gains tax position concerning the deferred payment. Mr Nash also stated:- “I need your urgent instructions to authorise me to commence drawing the documentation, to have the mortgage over the Whitsunday property prepared and sent to Sydney and to get proper advice about the taxation consequences of this transaction. I note your reluctance to spend monies when the matter is still not certain but I have to give you my firm advice that the commercial risk that you are taking far exceeds the commercial downside of you expending what is, in all of the circumstances, a relatively small amount of money to put yourself in a position to take advantage of this proposal and without suffering any untoward consequences if you do.”

On 25 October 1999, Mr Nash again wrote to Mr Chahine “Re: sale” in which he referred to advice he had received on the question of the potential taxation liability pursuant to the sale transaction, stating that there would be a liability for capital gains tax on the wholesale price, namely, $7.5 million. Mr Nash expressed his regret that it was not possible to defer the liability in order that it would only arise upon payment of the deferred amount.

On 25 October 1999, Mr Nash composed a letter headed “draft” to Mr Chahine. In it he stated that Mr Huxley was “proceeding full speed ahead to settle this matter” and he required his authorisation to commence drawing documents. The letter referred to the fact that Mr Huxley saw Mr Chahine (or ABC’s) position as:- “4.1 Base sale price $7,500,000 4.2 10% profit share $1,700,000 _________ 4.3 Total $9,200,000 Is that what you think? 5. I need your instructions about the mortgage that he has offered.”

On a copy of the last-mentioned letter from Mr Nash to Mr Chahine, Mr Chahine wrote a number of comments. It is not necessary to reproduce all of them here other than to note that, in relation to paragraph 4 which set out Mr Huxley’s understanding as to a base sale price of $7.5 million and a 10% profit share of $1.7 million, totalling $9.2 million, Mr Chahine wrote against that point the words “I hope so” .

In relation to paragraph 5 of the letter which read, “I need your instructions about the mortgage that he has offered” , Mr Chahine’s handwritten comment was “5. Please make sure we have good secure protection check the valuation if good, and if you can add any other security” .

In a facsimile from Mr Chahine to Mr Nash dated 30 October 1999, Mr Chahine commented upon the fact that Mr Huxley and Mr Bannon were blaming him and Mr Nash for the delay. Mr Chahine wrote “Please, Greg, be careful with our documents, I don’t trust they will do the right thing” .

In a further facsimile to Mr Nash, Mr Chahine wrote:- “Hi, me again. I repeat, please be extra cautious with all the sale documents and related agreements, because Huxley’s team are mysterious and secretive and maybe dishonest. I don’t need any trouble with this deal. On top of the security you prepared, also please consider an option, I feel better if we have one.”

On 5 November 1999, Mr Nash wrote to Mr Chahine concerning the sale. The letter, in part, stated:- “This is a quick note about your 10% profit share situation. My understanding is that you are to receive a base payment of $3,500,000 together with an amount predicated towards the building plans of $300,000. You are then to receive a deferred payment of $3,700,000 worth of property, the value of which will increase hopefully by the time the transfer is actually made. We now come to the 10% profit share. You have put the proposition to me that you are entitled to the 10% profit share even if there is no profit, because you are entitled to elect to take it in two 3 bedroom units. That is to say, you have asserted to me that, even if the project makes no profit, you get the two units in any event. You have sent me the letter that you sent me this morning in support of that assertion. When I read the letter it clearly sets out that you are only to get a 10% share of the ‘net profit of the project upon completion and sale of the three stages’. That is to say, you only get the profit share if there is a profit …”

Mr Nash had briefed Mr Michael Jones of counsel on 15 October 2009 to advise ABC. On 9 November 1999, Mr Nash sent Mr Chahine an email in the following terms:- “Albert Just a quick note to advise you that Michael Jones is, even as we speak/write working on the injunction that we may need if this sale falls over so that we are protected either way. Sleep tight. Greg.”

On 25 October 1999, Mr Nash replied to the letter from Kemp Strang dated 22 October 1999, being the letter in which an undertaking was sought from ABC. The letter stated that Mr Nash’s client refused to give the undertaking sought. (4) Litigation between ECU and ABC

On 25 October 1999, Kemp Strang served a copy of a summons filed in this Court on 22 October 1999 together with affidavits and associated documents. The summons was returnable for 26 October 1999 before her Honour Bergin J (as her Honour then was) at 10.00 am.

On 26 October 1999, Endeavour Financial Management Services ( “EFMS” ) commenced proceedings in this Court (No 4457 of 1999) in which relief was sought against ABC. ECU became a party to the proceedings on filing of a statement of claim on 22 November 1999. ABC retained NOT Lawyers to act on its behalf in the proceedings.

ECU and EFMS alleged that ABC, ECU and Gardenview had entered into a joint venture agreement to develop the Bankstown property but that it had come to an end on or before 8 September 1999 and that a financial loss had resulted from the joint venture operations. EFMS also sought an order that Gardenview be wound up. Further, ECU and EFMS sought an order that ABC account to ECU in respect of the joint venture.

Gardenview held title to the Building Approval issued by Bankstown Council in respect of the property and, as earlier noted, two shares had been issued in Gardenview, one held by ABC and the other by Mr David Havyatt (as employee of ECU on trust) for EFMS.

On 28 October 1999, Mr Huxley sent to NOT Lawyers a copy of an ASIC search on Laguna. In a facsimile dated 28 October 1999 from Mr Huxley to Mr Paul Baynes of Nicholsons, reference was made to the fact that the sole director of Laguna was Kenneth David Alistair Hall.

A title search on Laguna recorded, inter alia, the following encumbrances:- “1. … 2. … 3. Mortgage No 702433875 06/01/1998 at 12:05 Lawyers Private Mortgages Pty Limited ACN 010 556 751 4. Amendment No 703165101 11/02/1999 at 11:35 Mortgage 702433875 5. Mortgage No 702433881 06/01/1998 at 12:08 NZI Capital Corporation Limited ACN 002 895 212 6. Mortgage No 703296973 22/04/1999 at 9:45 Hiraji Tours Pty Limited ACN 078 450 996.”

At the end of October 1999, a provisional liquidator to ABC was appointed by Bergin J. Mr Chahine agreed the making of the order was “bad news” (t.238), the control of Gardenview having then been taken out of his hands.

In relation to possible proceedings by ABC to stop ECU from selling the property, Mr Nash, in his letter of advice at 87, stated:- “For your injunction proceedings to be successful, however, you have to comply strictly with your part of the agreement which you will rely upon to defend yourself. That is to say, you must make meaningful attempts to obtain finance in the first place and when those meaningful attempts have failed, you must make meaningful attempts to sell the property …”

Mr Nash also stated (at 88):- “I strongly urge you to approach some finance brokers to act on your behalf and to make some written applications for finance. I would make these applications in series, that is to say, one after the other, rather than in parallel, that is to say, all at the same time so as to soak up more time …” PART G - FINALISING THE TRANSACTION (1) The Queensland property – the principal security offered by the Huxley Group

The first reference to the Queensland property, apparently in response to Mr Chahine’s request for further security, was contained in the memorandum from Mr Huxley to Mr Nash dated 25 October 1999, a copy of which is Exhibit GDN-1 (p.129) to Mr Nash’s affidavit sworn 27 June 2003. The memorandum referred to a 350 hectare site owned by Laguna which had been approved for rezoning. The memorandum noted:- “The property has several valuations – the most recent was carried out by the Suncorp-Metway valuer, B Conroy. It has been appraised at 21M. I enclose a copy of that valuation. There are three (3) mortgages on the property – one for 3M to MDRN – interest is repaid till 24-12-98. The second mortgage is for ‘1M’ and it is also repaid until December 1999. The final mortgage is a 3rd of $350,000 – which related to certain of the planning approval costs. Peter Turnbull of Turnbull & Turnbull can confirm all of these details in an official capacity addressed to your client care of your firm. I can have our Queensland solicitors prepare a mortgage in the favour of your client - … This mortgage will be for the full amount of 4M$. … David Hall is the present sole director of the company. My family company is the substantial shareholder and I am joining the Board at the end of this month. The full valuation follows … Regards”

On 25 October 1999, Mr Nash sent Mr Chahine a facsimile in which he advised him of Mr Huxley’s offer of a mortgage over the Queensland property (Exhibit GDN-1 , p.127 to Mr Nash’s affidavit sworn 27 June 2003):- “… which he asserts is valued at $21 million and upon which there are mortgages of less then five. … I need your urgent instructions to authorise me to commence drawing the documentation, to have the mortgage over the Whitsunday property prepared and sent to Sydney and to get proper advice about the taxation consequences of this transaction. I note your reluctance to spend monies when the matter is still not certain, but I have to give you my firm advice that the commercial risk that you are taking far exceeds the commercial downside of you expending what is, in all the circumstances, a relatively small amount of money to put yourself in the position to take advantage of this proposal and without suffering any untoward consequences if you do.”

Mr Chahine replied and raised the question of valuation in terms amounting to an instruction. He noted:- “2. Please check the valuation, only solid security required” (Exhibit GDN-1, p.168)

Mr Nash, in his affidavit sworn 27 June 2003, stated:- “78. Soon after receiving the Conroy & Associates valuation report on about 25 October 1999, I provided a copy of that valuation to Mr Chahine for his separate consideration. We then had a conversation to the following effect:- I said: ‘A mortgage is no good unless there is some money left over for you after all the prior mortgages are satisfied. Here, in the event of a disaster by way of them Bankstown project not being completed, the Queensland mortgage is going to be your sole or major recourse. Let’s analyse what we have got about the value of the Queensland property. We have a bit of paper that certifies the fact that, not so long ago, someone was prepared to put their reputation on the line that this place was worth $21 million and we are told that it’s already got $5 million or $6 million worth of money lent to it. Albert, I’m no valuer and I have it pointed out to me that it’s quite an arcane science in another case I have recently done about a lease and so, frankly, I think valuing is just best left to valuers. The only thing I will say is that, if there’s already this amount of money lent on the property, then 3 other people in Queensland who are better placed and have more time than us to investigate the matter have decided that it’s at least worth the amount of money that they have lent on it. You heard my lectures to you about how selling mortgaged property works, so a dare say they think that there is a fair amount of meat left at the top for a bit of a safety valve for them. Therefore, that suggests that the property is valued at around $10 million and, if $10 million, why not $21 million and, if not $21 million, well probably $18 million or something just based on the valuation and the fact that other people have lent.’”

Mr Nash continued his account:- “We discussed getting a separate valuation and I said to Mr Chahine words to the following effect: I said: ‘At $21,000,000, even if the valuer charged a 1% valuation fee, you are looking at $210,000 and my understanding is that there is some sort of sliding scale that starts at 5% and ends at 1%, so the actual price would be higher. As well as that, the valuer is going to have to go out and re-look at the property. I don’t know how long that will take but we are desperately short of time and it may hold the settlement up.’ Mr Chahine said: ‘We can’t do anything to hold the settlement up and, not only that, I haven’t got any money like that to pay for valuations. I have already told you that I haven’t got any cash at the moment. I won’t have any cash until we’ve finished this transaction. You’ll have to find another way. Can’t the valuer simply update it for some dollars?’ I said: ‘For the valuer to undertake two sets of liability in respect of his valuation to two separate people, he would undoubtedly want to charge a large proportion of his real fee.’ Mr Chahine said: ‘ What happens if they’ve forged this valuation? Why don’t we talk to the valuer and see if we can get him to just confirm to us that he has done it and that he doesn’t know about anything that has changed.’ I said: ‘That is a very good idea, I will do that.’”

Mr Chahine denied that any such conversation took place as stated in paragraph 78 of Mr Nash’s primary affidavit: Mr Chahine’s affidavit sworn 30 October 2003, paragraph 31. In cross-examination, although maintaining that there was no conversation along the lines set out above, he was prepared to concede that such was “possible” .

Mr Nash stated that, following the above conversation, he contacted Bevan Conroy or Conroy & Associates, valuers, and had a conversation in words to the following effect:- “Following the previous conversation with Mr Chahine, I contacted Bevan Conroy of Conroy & Associates valuers and we had a conversation in words to the following effect:- I said: ‘I am looking at your valuation report dated 24 June 1988 over a property at Midgeton in Queensland owned by Laguna Beach Housing & Land Pty Limited. Do you still think your valuation is a fair valuation?’ Mr Conroy said: ‘Yes.’ I said: ‘The property is not under water, is it?’ Mr Conroy said: ‘No.” I said: ‘Has anything happened up there to change your valuation?’ Mr Conroy said: ‘No.’ I said: ‘My client is very suspicious about the people he is dealing with here and he goes as far as to suggest that they might have forged your valuation.’ Mr Conroy said: ‘The value of the property remains as I set out in my valuation.’ I said: ‘Are you I a position to confirm that to me in writing?’ Mr Conroy said: ‘I will.’ I said: ‘I will write to you to seek your confirmation.’”

Mr Nash said in his affidavit that he advised Mr Chahine of the conversation he says he had with Mr Conroy and that Mr Chahine said words to the following effect “Please proceed to get that written confirmation” (paragraph 80 of Mr Nash’s affidavit, 27 June 2003).

Mr Chahine denied the conversation set out in the latter paragraph adding “… Mr Nash did not ever tell me that he had a conversation with Mr Conroy” .

Mr Nash said that he sent a facsimile letter dated 2 November 1999 to Conroy & Associates. He said that he did not receive a direct response to his letter before settlement of the transaction. On 15 November 1999, he received a memorandum from Mr Huxley which attached a copy of a letter dated 12 November 1999 from Conroy & Associates addressed to Mr Ray Bannon of ICA Mortgage & Finance Pty Limited.

A copy of Mr Nash’s letter to Conroy & Associates dated 12 November 1999 is exhibited to Mr Nash’s above affidavit (GDN-1, p.189). The letter stated:- “2 November 1999 Messrs Conroy & Associates Valuers By facsimile: (07) 4946 6769 Dear Sirs RE: VALUATION – LOT 1, REGISTERED PLAN 748050 I have been handed your valuation dated 24 June 1998 prepared under the instructions of Bradfield, O’Brien & Co, Solicitors, in respect of Lot 1, Registered Plan 748050, Parish of Bloomsbury which is the Laguna Beach Resort, Whitsunday, Queensland. Would you please confirm to me urgently and in writing that you have prepared that report and that it ultimately disclosed a valuation of $21 million. I look forward to hearing from you. …”

It is noted that the letter did not refer to any telephone conversation between Mr Nash and Mr Conroy prior to 2 November 1999 and that the letter is not addressed to Mr Nash.

Mr Nash said in evidence that he had written to Mr Chahine pointing out that the Queensland property was very important for the purpose of someone making a decision as to whether the security overall that was being offered was adequate (t.537.8).

Mr Nash agreed in cross-examination that there were two issues he needed to investigate. Firstly, how much the Queensland property was worth and, secondly, what amounts were then secured under existing mortgages that would be registered in priority to Mr Chahine’s mortgage (t.537.9).

In relation to Mr Conroy’s valuation, he said that he would have hoped to have obtained the written confirmation before settlement (t.540.4) and that it was “preferable” for him to have obtained it before then.

As stated above, Mr Nash accepted that he did not receive a letter from Mr Conroy addressed to him concerning his valuation of the Queensland property prior to the settlement. It was put to him: (t.564.8):- “Q. So it was useless for the purpose of Mr Chahine [sic] sheeting home any liability to the valuer, wasn’t it? A. Yes, I would suspect that is the case.”

Mr Nash put forward two reasons as to why he settled (t.567):- (1) The pressure of time. (2) Because Mr Chahine told him to.

It was put to Mr Nash (t.568):- “Q. Shouldn’t you have said to him, ‘We don’t have the letter from the valuer yet’? A. Yes I should have Q. And we should wait until we get it? A. I would have said it would be a very good idea. Q. And not have said, hold on everyone, I will ring this valuer up and see what is going on? A. There was-- Q. Shouldn’t you have done this? A. If I had had the time.”

Mr Nash accepted that he could have contacted Mr Conroy and told him that the settlement was on and needed the letter sent to him before settlement (t.568). It was put to Mr Nash that he should have said:- “Q. ‘Stop, Mr Chahine, I understand that you want to complete this transaction. I want you to understand that my very clear advice to you is that it is not in your interests to settle until we get the letter from Mr Conroy’. You should have said that to him, shouldn’t you? A. It would have been appropriate.”

Mr Nash accepted that he should have, at least verbally, said to Mr Chahine something along the lines “I take this so seriously that if you are going to tell me that you want to go forward, I want it in writing” . Mr Nash replied “I should, yes” (t.569.1).

It was put to him in cross-examination (t.564 to 565):- “Q. But where it all went wrong is that you did not get that letter at all and you did not get it before settlement. Correct? A. I got the letter at all? Q. No you didn’t. It was not addressed to you was it? A. I see. Yes. Q. You never got the letter addressed to you? A. No. Q. You did not get it before settlement? A. No Q. So it was useless for the purpose of Mr Chahine sheeting home any liability to the valuer, wasn’t it? A. Yes, I would suspect that is the case. Q. And where you went hopelessly off track was failing to point out to Mr Chahine on settlement day that no matter how he meant to proceed with this transaction, he had no assurance and you were not satisfied that there was any updated real valuation that protected him over Queensland. Is that no right? A. My state of knowledge was that such a letter existed but it was not in my hands. Q. With hindsight we know your state of knowledge was wrong? A. That is right. Q. Because someone had told you a falsehood, correct? Mr Conroy had told you that he would write to you and he had not? A. That is correct. Well hadn’t yet.”

He said he did not take Mr Chahine’s request to get written confirmation as being “positive instructions to do it before settlement” (t.542.3).

However, he later said (t.541.9 and t.542.1):- “It was infinitely preferable to receive the confirmation prior to (settlement).”

He said that he “presumed” that Mr Conroy’s letter would be addressed to him although as matters turned out, it was not. He accepted that the valuer would not be liable to anyone other than the person to whom the valuation was directed (t.543.1).

He agreed that Mr Chahine’s instructions suggested that the valuation on the Queensland property might have been forged (t.543.9).

He also accepted the proposition put to him in cross-examination that, by speaking to Mr Conroy on the phone, who he did not know, for all he knew he may have been speaking to the forger or his accomplice (t.544.8).

He was asked in cross-examination where he got the figure of $210,000 as an estimate as to what it would cost Mr Chahine/ABC to get a valuation done on the Queensland property. Mr Nash replied “it was a stab” (t.544.8), a “stab in the dark” (t.545.2).

He said he did not make any inquiry of Mr Conroy as to how much a new valuation would cost (t.545.6). He did not explain why he did not ask Mr Conroy.

In cross-examination, Mr Nash ultimately conceded that his estimate of $210,000 to obtain a valuation was wrong and that that played a part in Mr Chahine’s decision on the question of a separate valuation of the Queensland property (t.552):- “Q. You said to Mr Chahine ‘It’s going to cost about $210,000’? A. Yes, and take a fair amount of time. Q. $210,000, completely wrong, a guess? A. Yes, and I accept that Mr Chahine probably made his decision not to proceed to get a separate valuation of the Queensland properties. Q. Based on your wrong advice? A. Based on that and the time period. Q. First, obviously based on your advice which was nothing more than a stab in the dark? A. Based partially on my advice which was nothing more than a stab in the dark. I don’t know which one took precedent in his mind but -- Q. But this is three weeks before 11 November – two weeks before 11 November, three weeks before 18 November. There’s plenty of time to get a valuation over the Queensland property? A. I don’t know how long valuations take. Q. And the reason you don’t know is because you didn’t make any inquiry; correct, correct? A. Yes. Q. The same as you don’t know how much they cost; correct? A. Yes.”

Mr Newlinds put to Mr Nash in cross-examination that he was “making up his evidence” about having had a conversation with Mr Conroy. Mr Nash rejected the proposition (t.544.5).

It was pointed out to Mr Nash that his letter to Mr Conroy asked him to confirm that it was his report and, secondly, that it disclosed a valuation of $21 million (t.555):- “Q. You have not asked him to confirm that his information is up-to-date with the value of the property assessment as set out in the valuation, have you? A. No I haven’t. Q. Had you had the conversation that you deposed to in your affidavit that inevitably would have found its way into the letter, wouldn’t it? A. No. Q. May I point out to you that you actually asked Mr Conroy to confirm was utterly useless because you were asking him to confirm that it was his valuation? A. Yes. Q. … It may be just another letter from the forger. Correct? A. Yes. Q. Then you are asking him to confirm what the valuer said? A. Yes. … Q. What you are asking him to do in the letter is no more than to confirm that he did a valuation four years ago which said the property was worth $21 million? A. That is right. Q. That is useless in the context of what you wanted to achieve by the phone call and the follow-up letter, isn’t it? A. No, the phone conversation and the letter were part of a dialogue.”

Mr Nash rejected, when it was put to him, that the entirety of his evidence in paragraphs [79] and [80] of his affidavit was false (t.556).

Mr Nash accepted that the records indicated that the timeframe for the conversation with Mr Conroy was between 25 October and 2 November. Mr Nash agreed (t.556.9).

He said he did not create a file note of his conversation with Mr Conroy (t.557.1). Further, the letter he wrote to Mr Conroy made no reference to the fact of any conversation that had taken place between himself and Mr Conroy (t.557.2).

Mr Nash agreed there was no entry in either time records of the conversation with Mr Conroy and that there was no other form of record of his conversation with Mr Conroy (t.557.9). He agreed that the letter written to Mr Conroy was the obvious place to find a record of the conversation but it did not refer to anything having been said by Mr Nash to him about his valuation or, in effect, be updated.

When asked, Mr Nash said he was unaware of any reason why Mr Conroy could not have been called to give evidence as to the conversation. (t.558.8).

In cross-examination, Mr Nash accepted that Mr Chahine had said to him “Check the value of the securities” (t.562). It was then put to him in cross-examination (t.563):- “Q. But in the circumstances, you really should have said to Mr Chahine right up front ‘Listen, I am a solicitor. I am not a valuer. All I can tell you is whether the legal documents we register are valid or not. If you want to find out about valuation, go and talk to a valuer’? A. Yes. Q. And you didn’t do that, did you? A. No. Q. In not doing that, in the context of Mr Chahine asking you effectively for valuation advice, you fell short of the mark, didn’t you? A. Property valuations were provided by people who had the qualifications to give them.”

Mr Nash accepted that he fell into a trap assuming that the very valuation that he was supposed to have checked was correct (t.546.5).

In relation to the Queensland property, Mr Nash said that “we’re told its already got $5 or $6 million worth of money already lent to it” (t.549). It was put:- “Q. Yes, Mr Nash, but what you didn't know was what the original principal advance on any of those loans had been; correct? A. No.”

It was then put (t.550.8):- “Q. But we're going around in circles, Mr Nash. You had been advised of the amount then outstanding under mortgages. A. Yes. Q. It doesn't follow that the amount left a sufficient gap to secure. A. I'll accept it when you put it like that, yes.”

Mr Nash accepted that he did not write to Mr Chahine after the settlement. He agreed that it would have normal conveyancing practice to do so.

A copy of the “confirmatory letter” from Conroy & Associated dated 12 November 1999 was sent by facsimile at 2.32. pm. At the top left of that document it shows that it was faxed to the ICA number at 2.32 pm on 12 November 1999, ie, the afternoon of the settlement day.

When asked about it in cross-examination, Mr Nash stated that he had a check list for settlement and that the letter from Conroy & Associates was an item on it to be checked. This, he said, supported the fact that he had turned his mind to the matter. He noted that there was a mark made against that item in the check list. The check list is identified in his affidavit at 278 of Exhibit 14 (Item 19) entitled, “letter from Queensland valuer certifying that they have made the valuation” .

In relation to the mark he made against Item 19, Mr Nash stated (t.479):- “I turned my attention to it at settlement and that I was satisfied that the requirement that I wanted to be fulfilled was in fact fulfilled … I was happy that there was written confirmation either received or to be received that the valuation had been made by Mr Conroy and was current at the date.”

He added that his “vague recall” was “I was happy with the particular requisition, the particular item on the list …” . However, he said he had no independent recollection of receiving it.

In cross-examination by Mr Newlinds in relation to the item on the settlement list and the mark made against Item 19, he said that he did not think that he had the valuation document on the day of the settlement. He then qualified that answer by saying he was not sure whether he had the confirmation letter from Conroy & Associates on the day of the settlement (t.480).

Mr Nash said that he had a recollection of speaking to Mr Bannon of ICA who he described as a “facilitator” in relation to the transaction and told him he had not received the letter from Conroy & Associates. Mr Bannon said he would “chase it up” (t.481).

In relation to Item 12 on the check list, he confirmed that he did not receive letters from the “three prior mortgagees” (t.484).

On 4 November 1999, Mr Chahine had a conference with Mr Nash in which he said he asked him how much was secured by the mortgage and that the mortgage would have to capped. His evidence was that Mr Nash told him not to worry and that he would attend to it. Mr Chahine also said that he asked the question “Are all these documents sufficient to provide adequate security?” , to which Mr Nash is said to have replied, “you’ve got nothing to be concerned about” . (2) The cross-collateralisation of securities (a) The Blackheath property

Some three days prior to settlement, a new development occurred in relation to securities and which involved the Bankstown property and a property at Blackheath. As late as the morning of the date of settlement, a significant aspect of the transaction (the cross-collateralisation of the Bankstown and Blackheath securities) was still being negotiated.

On 9 November 1999, Mr Nash wrote to Mr Chahine concerning the sale. It is evident from the terms of the letter that tension had entered into their relationship. The contents of the letter reflects the pressure under which Mr Nash had been operating and the time that had been spent on Mr Chahine’s matter. Mr Nash referred to the fact that Mr Chahine was requiring an inordinate amount of Mr Nash’s time and that he had refused to take Mr Nash’s advice on many issues.

On 10 November 1999, Mr Nash sent a proposed “check list for settlement” to Potts Latimer, Mr Huxley and Mr Chahine and invited any suggestions they cared to make about the document.

On 11 November 1999, Nicholsons, solicitors, of Queensland wrote to Mr Nash advising him, inter alia, of the amounts under the first and second mortgages secured on the “Queensland property” which was to be further mortgaged in favour of Mr Nash’s client. The letter confirmed:- “1. We were advised by the solicitors for the first mortgagee that the amount owing to Lawyers Private Mortgages Pty Limited as at 5 November 1999 was $3,231,336.46; 2. We were advised by CGU Insurance that the amount owing to NZI Capital Corporation Limited was $1 million as at 5 November 1999 but that this amount would be reduced if paid out on that date because of pre-paid interest; and 3. We were given no notice by either mortgagee that the mortgagor was in default of either mortgage.”

Mr Chahine said that, on 10 November 1999, he attended Mr Nash’s offices and brought with him Mr Ahmed Madi, who was appointed as the alternate director to ABC and Artistic in his wife’s absence. He said he was kept waiting in Mr Nash’ offices until 5.30 pm that day. Mr Nash did not show him any documents.

Mr Nash wrote to Kemp Strang on 9 November 1999 (Exhibit 14, at 237). The letter referred to a request to ECU to not exercise its power of sale until Thursday 18 November 1999.

On 11 November 1999, Mr Harrison of Kemp Strang wrote to Mr Nash and stated that their instructions were “… Endeavour Credit Union Limited will not enter into any contract for sale of the mortgaged property being Lot 1 in Deposited Plan 878763 until after 18 November 1999 …” .

The letter also stated that Kemp Strang understood that it was likely, in any event, that the sale of the property would be completed prior to 18 November 1999.

Mr Nash, in cross-examination, accepted that his client had until 18 November 1999 to complete the transaction and that meant that he had adequate time to investigate the amount owing under the mortgage and for a certificate of valuation to be obtained if he had instructions to obtain it.

Mr Newlinds put to Mr Nash (t.499):- “Q. Of course, the real position would be different if you thought you had till the 18th. A. It certainly would have made a difference. Q. You had plenty of time to make inquiries about how much money was owed on Blackheath. A. Yes. Q. And you had plenty of time to organise a valuation of Blackheath; correct? A. Yes.”

It was put to Mr Nash:- “Q. The explanation that the reason you didn't make any inquiries as to the debt owed to the second mortgagee on Bankstown to the effect that you just didn't have time is not right? A. It is because Albert told me: ‘We are so close we have to settle’.”

It was put to Mr Nash (t.502):- “… there is nothing in the par 128 [of his affidavit June 2003] that you said anything to Mr Chahine to the effect that he was being disadvantaged by the cross-collaterisation? A. Yes I implied it, when I said Bankstown would then owe Joe Jordan for both amounts of money.”

On cross-collateralisation, it was put (t.503):- “Q. To understand whether that was advantageous or disadvantageous to Mr Chahine I think we have agreed you needed to know the value of Blackheath or the debt owed on the other mortgage? A. Yes. Q. Without knowing those facts it was impossible to tell him whether he would be better off or worse off? A. Yes. Q. It was completely useless to discuss this matter by reference to imaginary figures? A. No, I was explaining to him the ability of a deliberate attempt to disadvantage Albert by a conspiracy if you like between Jordan and Huxley.”

A little later it was put (t.504):- “Q. And you didn't tell Mr Chahine: ‘By the way what I am telling you is all based on imaginary numbers. What we need to do is stop and obtain a valuation of Blackheath and find out what is owed on the other mortgage’. You didn't say that to him did you? A. No. Q. And you should have? A. No. Q. Because there was no time pressure until 18 November at all was there? A. Albert said. ‘Greg we are so close. We have to settle’. Q. I know you say he said that and let's assume that he said something like that. You should have said: ‘Listen Albert my advice is that we take stock. We are not under any time pressure. We have got until 18th. Let's get a valuation and find out how much is owed on the other mortgage’? A. I took his instructions. Q. But, that is not good enough for a solicitor. Solicitors don't just act on instructions do they? A. Well I do. Q. If you consider the instructions your client is giving you not to be in the clients' best interests, don't you accept, that it is your job to point that out to them? A. Do you mean give them commercial advice? Q. I mean give them legal advice and if that involves straying somewhere into commercial matters sometimes you do don't you? A. Yes.”

Later, it was put (t.505):- “Q. Repeatedly Mr Chahine had instructed you he wanted you to be satisfied as [to] the security, correct? A. And I told him that I was not an expert in valuations. Q. And that is fine and no-one is suggesting that you are an expert in valuations but isn't it appropriate in those circumstances to remind him, that he has plenty of time to get a valuation of Blackheath from a valuer? A. Yes, I. Q. And you should have done that shouldn't you? A. I could have yes. Q. You should have shouldn't you? A. I could have. Q. Should have? In relation to finding out how much was owed on the other mortgage you should have told him. ‘Let's take a breath and I will find out how much is owed’? A. I told him that I. That I had no way of contacting lawyers private mortgages on such short notice.”

It was put to him that he had time to obtain a valuation, ie, until 18 November 1999. Mr Nash replied, “Mr Chahine wanted it settled” (t.505.7).

Mr Nash acknowledged that before 11 November 1999, he had noted that Lawyers Private Mortgages Pty Limited ( “Lawyers Private Mortgages” ) had the first mortgage on the Queensland property (t.506.3) under which approximately $3.2 million was owing.

On 9 November 1999, Mr Chahine said that he attended Mr Nash’s offices and there found Mr Nash talking with Mr Huxley and that Mr Bannon and Mr Huxley’s son, Adam Huxley, were also present. He said that Mr Huxley turned to him and said, “extra security” . Mr Nash is then recorded as saying, “You’ll have extra security. You’re going to get a collateral mortgage over a property at Blackheath” . Mr Chahine said he looked at Mr Nash and said, “What disadvantage?” to which Mr Nash replied, “There is no disadvantage. You’ll get a mortgage over a property at Blackheath as additional security” .

Mr Chahine said that he asked “What about South Terrace?” , to which Mr Nash replied:- “You still have a second mortgage over Bankstown. In addition to that, you’ve got a fourth mortgage over the Queensland property which has been valued at $21 million. There’s ample security.”

Mr Chahine then claims that he said, “Yes, the Queensland property is very important. Please be sure that all of the security documents are in order” to which Mr Nash responded that he was not to worry and to be at his office at 8.00 am for the settlement.

Mr Nash said that he was told that the Blackheath property was offered as security late in the afternoon on the date before settlement. He said that he carried out a real property search on that property and noted that there was a mortgage registered to Elliot & Tuthill with variations (copy of search, Exhibit 14 at 264).

The search showed two mortgages, one to Elliot & Tuthill and the other to Lawyers Private Mortgages. The search document was printed out at 11.53 am on 11 November 1999.

Mr Nash agreed that he took no steps to ascertain how much was owed on the mortgage to Lawyers Private Mortgages. When asked whether he had told Mr Chahine that ordinarily a solicitor would inquire into the amount secured by existing mortgages, he responded by saying that he said to Mr Chahine on the morning of the settlement, “Albert, we’ve been offered a mortgage over this property as a quid pro quo for collateralising the amount owing to Elliot & Tuthill onto the Bankstown property. There’s another mortgage” .

Mr Nash added that he said to Mr Chahine that he did not have time to find out anything about Lawyers Private Mortgages and that Mr Huxley spoke up and said “Albert, unless you allow us to collateralise our mortgage, the deal can’t go through” (t.487).

Mr Nash said that Mr Chahine said to him “What can we do?” and Mr Nash replied “Albert, that’s what’s on the table. What are you going to do?” . Mr Chahine said “Greg, we’re so close we have to go through with it now” (t.487). See also paragraph [108] of Mr Nash’s affidavit of 27 June 2003.

Mr Nash said he could give no explanation as to why the above conversation concerning the mortgage to Lawyers Private Mortgages did not appear in paragraph [128] of his affidavit. He said he had no explanation (t.487), adding “I certainly didn’t tell my solicitors about it” (t.487.9).

Mr Nash added that he pointed out to Mr Chahine that, by having a cross-collateralisation in his favour, “… he would then move up the ladder on the Blackheath property …” (t.488.4). Having said that, however, he acknowledged that ABC would still rank behind Lawyers Private Mortgages (t.488.8).

It was put to Mr Nash (t.489.6):- “Q. It was absolutely critical to any sensible discussion about the cross-collateralisation topic for anyone discussing it to have an understanding of how much was owed on the second mortgage of Blackheath, you accept that, don’t you? A. Yes, I do.”

It was put to Mr Nash that his evidence that he spoke to Mr Chahine in relation to the mortgage held by Lawyers Private Mortgages over Blackheath was evidence that he had “made up recently” (t.493.3). Mr Nash replied in the negative. He acknowledged in somewhat qualified terms that it was not referred to in his affidavit evidence: “not so far as I recall” (t.493).

Although it had been customary for Mr Nash to report to clients on significant events concerning commercial matters, after the settlement, he did not write or report to Mr Chahine confirming what had happened on the settlement day (t.494.2). He also said it had been his habit to record important instructions and what he considered to be important advice (t.495.6). He agreed that that was “good practice” but the practice was not followed in relation to the settlement concluded on 12 November 1999.

He was asked whether Mr Chahine appeared to have a lack of understanding as to what cross-collateralisation meant (t.497). Mr Nash said it appeared to him that Mr Chahine understood the concept of cross-collateralisation, “What he did not appear to understand to me was how it could be used to purposefully disadvantage him” (t.497.9 to t.498.1).

As to the kind of information that a client require in order to understand the effect of cross-collateralisation in a particular case, Mr Nash stated (t.498.5):- “… To answer your second question, in the best of all worlds one would have valuations of both properties, certifications of all of the mortgage amounts owing …”

Mr Nash did not obtain valuations or certifications concerning the relevant properties and mortgages.

Mr Nash’s oral evidence was to the effect that he advised Mr Chahine that the cross-collateralisation of securities could operate to his “detriment” . He had not included in his affidavit evidence any reference to having given such advice. On consideration, I do not accept his oral evidence on the matter.

In cross-examination, the issue was explored with Mr Nash as follows (t.532-533):- “Q. Firstly, I want to check with you whether one of the answers recorded is correct. Can we just look at the question and answer it at about line 43. Did you say to Mr Chahine: ‘Now, what we are talking about here is the Blackheath property finding out how much is owed on the other mortgages and the valuation’. Do you remember that topic? A. Yes. Q. Did you say to Mr Chahine: ‘Listen Albert, I advise you not to do that because in order for you to work out whether this cross-collateralisation process is to your advantage or your detriment, we need to find out how much is owing on the prior mortgages?’. And, do you agree that and the transcript records that you said: ‘Yes’. I want to ask you whether, that is the answer you intended to give or whether indeed you think you gave that answer because, to be fair to you, it is not my recollection that you agreed with that proposition? A. No, I think you put to me this is my memory, that that would have been the correct thing to say. Q. So, that question should be read in that way? A. I believe so, yes. Q. But then the next question was, ‘And we need to find out what it’s worth’ – so I’m now continuing on and then your answer is – ‘I had already explained to him that it was to his detriment’? A. Yes. Q. It goes over the page. You explained to him it was to his detriment and you then say: ‘I said that to Latimer and then they offered me the cross collateralisation’ etc? A. Yes A. Then if you move down, to line 10, p.501: I say: ‘do you say you gave similar advice to Mr Chahine to that’; do you refer to the advise in the letter and you say ‘yes’ and you give an explanation. A. Yes. Q. I want to suggest to you that that conversation is to be found nowhere in either of your affidavits. Do you understand that? A. No, that is not true. Q. But you understand that that is what I am suggesting to you? A. Yes, well I understand that you are suggesting that now. I cannot find it here. Q. I am suggesting that to you now? A. Right. …”

I am of the opinion that, had Mr Nash provided advice to Mr Chahine that the cross-collateralisation of securities as proposed could operate or would operate to his disadvantage, that he would have included such a significant matter in his affidavit evidence. Mr Nash, at times, sought to introduce new matters in oral evidence which were not included in his affidavits. In those instances, he was unable to provide any satisfactory explanation as to why he had not included reference to them when the affidavits were prepared.

It was further put to him that the conversations he had referred to in evidence did not appear in his affidavit evidence (at t.533.4). He agreed that they were not contained in his affidavit and that if the cross-collateralisation conversations that he claimed had occurred, they would have been important in relation to the outcome of the case (t.533.6).

Mr Nash said that he understood that an allegation in the case was that he had failed to find out how much was secured in front of Mr Chahine in Blackheath.

Mr Newlinds also put to Mr Nash:- “Q. … One of the complaints is you didn’t tell Mr Chahine how much was secured in front of him on the Blackheath property? A. That is true, yes. Well, I explained that there was a certain amount owing to Elliot & Tuthill.”

Mr Nash said in respect of his evidence at t.505 that as best as he was able to recollect he said to Mr Chahine the following:- “There is this other mortgage, behind Elliot and Tuthills’ mortgage to Lawyers Private Mortgages and at this sort of notice, I would not have a clue how to contact them and find out the relevant things about their mortgage: The amount owing, the date due, other items of that ilk. Again, as I said, it is a long time ago.”

Nicholsons, Solicitors, acting on behalf of Mr Huxley referred in their letter of 11 November 1999 (Exhibit 14 at 268) that they had been advised by solicitors for the first mortgagee that the amount owing to Lawyers Private Mortgages as at 5 November 1999 was $3,231,336.42. The letter from Nicholsons of 11 November 1999, according to the facts notation, indicated it was received by Mr Nash on 12 November 1999 at 11.00 am, prior to the completion of settlement (t.506).

Mr Nash acknowledged that, had he read Nicholsons letter of 11 November 1999, it would have become apparent that he could have spoken to them in relation to the Blacktown property and obtain the contact person who was acting on behalf of Lawyers Private Mortgages.

He said he did not follow this line of inquiry because he did not “pick up” the reference that there was a contact with solicitors for Lawyers Private Mortgages (t.507).

It was put that he did not notice because of a great pressure of time. Mr Nash responded, “Yes, time pressure and, multitasking in terms” (t.507.3).

It was, again, put to Mr Nash that he could have put the matters on hold, given that matters were moving too quickly and make sure that mistakes were not made. Mr Nash’s response simply was “Because Mr Chahine wanted it all settled” (t.507.4).

Mr Nash also acknowledged that he could have searched the mortgage on Blackheath at the Land Titles Office and that it could have revealed what the original mortgage amount or the likely maximum amount under the mortgage was (t.507.7).

Mr Nash also acknowledged that he could have made contact with solicitors acting for Lawyers Private Mortgages by simply asking Mr Huxley or Mr Bannon (t.508).

Mr Nash agreed that, had he made the inquiry with Lawyers Private Mortgages, he would have ascertained that the amount then owing under the relevant mortgage was of the order of $1.8 million.

As to the value of the Blackheath property, Mr Nash said that he had seen a valuation which he described as “an older valuation of about a couple of years old” that valued the property at $2.1 million. He said he had seen that at the time of settlement. The value of $2.1 million, he understood, was on the basis that it was undeveloped land and the valuation was on the basis of it being an “investment prospect” , ie, an en globo valuation.

Mr Nash accepted that, if the Blackheath property was worth $2.1 million and $1.8 million was owed by Lawyers Private Mortgages, then the position was obvious (t.510):- “Q. It becomes obvious what whatever the outcome of cross collaterisation [sic] is going to be it is not going to be to his advantage? A. That's right. Q. Because at best he will end up following a 1.8 million mortgage on a property that was only worth 2.1? A. Yes. Q. So that is disastrous? A. It is yes.” (b) Security offered over the Blackheath property

In a letter dated 21 October 1999, Mr Nash advised Mr Chahine of a number of matters in relation to the proposed sale including the fact that Mr Chahine had been asked by the Huxley Group “… to defer your second mortgage in favour of the builder and so, without analysing the arrangement fully, there will be times when your security will not be worth the money that is owed to you under it” (paragraph 8.7 of the letter of 21 October 1999).

Mr Chahine provided instructions in response to Mr Nash’s letter and, in particular, in relation to paragraph 8.7 replied “Further security mortgage required & personal guarantee” . It was from this point that the issue of “further security” raised by Mr Chahine became a central issue in negotiations.

Mr Nash, in his affidavit sworn 27 June 2003, stated that he advised Mr Huxley on the evening of Friday 22 October 1999 that Mr Chahine wanted “… further security than that currently offered” (paragraph 59).

In an email to Mr Nash dated 30 October 1999, Mr Chahine wrote:- “Dear Greg, Hi, me again. I repeat be extra cautious with all the sale documents and related agreements, because Huxley’s team are mysterious and secretive and maybe dishonest. I don’t need any trouble with this deal. On top of the security you prepared also please consider an option, I feel better if we have one …” (Exhibit to Mr Chahine’s primary affidavit, ABC 17)

Mr Nash disagreed that Lawyers Private Mortgages called for a priority or capping agreement to be put in place (t.511). Mr Nash stated that lending extra money against an existing mortgage that has been put to him as valued at X was “tacking” (t.511.5). It was put to him that consent of the first mortgagee to registration was required. Mr Nash responded “knowledge is necessary” (t.511.6).

It was put to him (t.511.8):- “Q. As far as your belief, Lawyers Private Mortgages had no knowledge of Mr Chahine’s proposed mortgage at all? A. No, but they were going to. Q. Well, it would be necessary for them to found out, when? A. As soon as possible. Q. Of course, it is not possible to register a second mortgage without the consent of the first mortgagee is it? A. No, not in New South Wales.”

It was put that after settlement, there were no letters asking Lawyers Private Mortgages to consent to the registration of Mr Chahine’s mortgage. Mr Nash replied “I believe not, no” .

Mr Nash said that that he put a caveat on the title but could not recall when (t.512). He insisted that he knew of the existence of the mortgage in favour of Lawyers Private Mortgages but could not explain why he did not write to that entity and advise it on behalf of Mr Chahine that he would like to register the new mortgage (third mortgage) (t.512 to 513). The only explanation for not doing so was said to have been “pressure of this work” (t.513). Mr Nash then corrected himself and said “I have no explanation” (t.512). PART H – EVIDENCE AND FINDINGS (1) Certain matters established in evidence

The evidentiary material referred to in Parts C to E to a significant extent relates to the facts and circumstances associated with the dispute between Mr Chahine and ECU and their interconnection with the sale of the Bankstown property. It was contended for NOT Lawyers that, critical to an assessment of ABC’s “no transaction” case is Mr Chahine’s relationship with ECU: NOT’s Closing Submissions at [19].

The evidence on the negotiations for the sale of the Bankstown property establishes the following matters:- (1) Mr Chahine’s initial objective had been to achieve what he described as a “straight sale” of the Bankstown property. (2) The Huxley Group, however, did not have the necessary cash resources to pay Mr Chahine’s asking price of $7.5 million. (3) In the negotiations conducted in the period between 22 September 1999 and 18 October 1999, the Huxley Group increased the amount that was to be paid on settlement from $3 million to $3.5 million as well as a payment of $300,000 to Gardenview to purchase the rights to the DA/BA plans for the Bankstown property. In addition, it was agreed that the Deferred Payment (the amount of $3.7 (and interest)) was to be paid in three stages over the 30 months following settlement. The element of compromise by Mr Chahine was his acceptance of the Huxley Group’s staged sale proposal. (4) The amount of $3.7 million (and interest) was, as earlier noted, to be secured, inter alia, by:- (a) a second mortgage over the Bankstown property; (b) a third mortgage over a property owned by a company, Golf Links Estate (Folio identifier 2/746674); (c) a fourth mortgage over a property owned by Laguna, being 352 hectares of vacant land near Proserpine, Queensland (Lot 1 in Registered Plan 748050, County of Carlisle, Parish of Bloomsbury). (5) Mr Chahine, at least partly because of information provided by statements made by Mr Nash, became “suspicious” of those who constituted the Huxley Group. He continued negotiating with them though doubts had been sounded, in particular, as to the integrity of Mr Huxley. The fact that he did so was relied upon by NOT Lawyers as support for the proposition that Mr Chahine would have concluded the transaction even if appropriate warnings and advice had been provided. However, as against that account should also be taken the fact that the doubts and suspicions Mr Chahine held about Mr Huxley and others led him to instruct Mr Nash to proceed with caution and to protect his company’s interests. (6) Mr Chahine, at an early stage in the negotiations, became aware of the fact that the Bankstown property would not be available to ABC as first mortgage security as the financier of the proposed construction would rank as first mortgagee. (7) Accordingly, at least party on that basis, Mr Chahine made it known to Mr Nash and Mr Huxley that additional security would be required for the Deferred Payment. (8) The pressure for an early settlement was increased by Messrs Huxley and Bannon, who stated that the matter needed to be settled by the end of October 1999. Mr Chahine stated in cross-examination “… they were in rush and they make me suspicious” (transcript, p.302). He said that he thought that the reason they gave for settling by the end of October that: “… I thought it could be fabrication” and that “… I have to be careful always I thought … I wasn’t trusting them with everything” (transcript, p.302).

In the period to 12 November 1999, Mr Chahine had not received an offer or proposal from any other prospective purchaser (except for an offer on 8 November 1999 from Mr Touma of Peter A Simon Real Estate Pty Limited an offer of $5 million for the property). He therefore focussed on selling it to the Huxley Group.

Mr Chahine, in his affidavit sworn 27 December 2007, stated that, at no time prior to settlement on 12 November 1999 did Mr Nash (or the second to fourth defendants) inform him of the following:- “(i) the principal sum being lent to Nordoc to be secured by the first registered mortgage over the Bankstown property in favour of Elliot & Tuthill was $6,111,000, which was more than was necessary for Nordoc to purchase the Bankstown property; (ii) Nordoc had to be borrowing those additional funds for another purpose, whilst using the Bankstown property as security for such borrowings, which was a highly unusual arrangements which would not normally be acceptable to a vendor; (iii) it would be unusual for a purchaser to borrow additional funds for another purpose where the vendor is obtaining a mortgage from the purchaser to secure payment at a time subsequent to completion of the sale of the balance of the purchase price; (iv) Nordoc intended to grant a second mortgage over the Bankstown property in favour of Elliot & Tuthill, which was to be registered in priority to the mortgage to Artistic; (v) that once the Elliot & Tuthill mortgages were registered over the Bankstown and Blackheath properties, the secured debt against the Bankstown property ahead of the mortgage in favour of Artistic would be $8,407,000; and (vi) that the “Transaction was inherently dangerous as there was a real possibility that there was no security in the Bankstown property at all, and that any mortgage to Artistic over the Bankstown property would, in all likelihood, be worthless”

Mr Chahine said that, had he been aware of those matters he would not have proceeded with the sale transaction.

I will return to these matters in the consideration of the liability issues below.

The passage of time that has elapsed since completion of the transaction (12 November 1999) and the absence of corroborative evidence of certain conversations said to have occurred between Mr Nash and Mr Chahine and Mr Nash and valuer Conroy has made it essential to closely examine such contemporaneous documents as exists.

Accordingly, I have proceeded wherever possible upon the basis that contemporaneous documents are more likely to provide reliable evidence than unsupported recollections. (2) Expert evidence

Mr Neville Moses, a solicitor with extensive experience in conveyancing and conveyancing related matters, provided an expert report which was admitted into evidence. He was admitted as a solicitor of the Supreme Court of New South Wales on 8 March 1963, and was Challis lecturer in Conveyancing at Sydney University Law School from 1969 to 1975.

Mr Moses’ report dated 7 May 2008 (Exhibit B, pp.142-151) addresses the importance of expert valuation of real property in the business of advancing funds (or taking back a vendor’s mortgage) on the security of property.

Mr Moses stated that he has acted on numerous occasions for vendors who were accepting security for the balance of purchase money under a contract for sale of real estate instead of receiving the full purchase price in cash on completion. Relevantly to the present proceedings, he has also acted for vendors who were receiving, as part of the consideration for the sale, the right to buy back from the purchaser a unit or units in a completed development which the purchaser proposed to carry out on the property the subject of the sale.

Mr Moses stated that it is trite to say that the question of what security is acceptable to a vendor (on, in this case, the vendor’s nominee) in the circumstances which arose in this case is a matter for the instructions of the client: Report of Mr Moses: Exhibit B, Tab 9, paragraph 24. He there noted:- “… it is the solicitor’s function to ensure that those instructions are ‘informed instructions’, that is, that the client has sufficient information (and has the appropriate level of understanding) to make an informed decision.”

Mr Moses listed the steps (in paragraph 29(a) to (h) of his report) that a solicitor should take “in an ideal situation” . The first of these were stated as:- “(a) obtain an up-to-date valuation of the land addressed to the party to have the benefit of the security …” (3) Expert evidence on the Queensland property as security

Mr Moses identified two issues in relation to the Huxley Group’s proposal of the Queensland property as additional security. The first was that the copy of the Conroy valuation in relation to the property in the amount of $21 million was made available to Mr Nash along with a later facsimile apparently sent by the valuer, Mr Conroy, addressed to Mr Bannon of ICA confirming that his 1998 valuation was “subject to the assumptions and qualifications as detailed in my report” .

The later facsimile confirming the valuation, however, was addressed to a third party, not to Artistic. Accordingly, Mr Moses expressed the opinion that it could not be relied upon by Artistic in view of the fact that the valuation itself specifically stated that it could only be relied upon by the persons to whom it was addressed.

The second issue related to the fact that the copy of the facsimile addressed to Mr Bannon from Mr Conroy was not received by Mr Nash until after the settlement (on 15 November 1999).

Mr Moses referred in his report to the instructions provided by Mr Chahine which Mr Moses referred to as those “… where Mr Chahine instructed him to seek only confirmation that the valuer had made the valuation and the value shown thereon” . Mr Moses said that subject to “the context in which the instructions were given” (paragraph 35), these could be informed instructions. He then addressed the following facts:- (1) Mr Nash told Mr Chahine that the cost of obtaining an updated valuation of the Queensland property may be 1% of the value of the property, namely, $210,000. This statement was made in circumstances in which Mr Nash did not know (nor did he seek to ascertain) what charge the valuer, Mr Conroy, (or a valuer) would in fact charge. He acknowledged that he had no basis for providing the estimate to Mr Chahine. (2) On Mr Nash’s own account, it is reasonable to conclude, and I so find that the erroneous estimate of $210,000 was the matter that prompted or caused Mr Chahine to seek an alternative to obtaining his own valuation report. (3) In endorsing the approach which Mr Nash said was suggested by Mr Chahine of simply seeking a “confirmation that the valuer had made the valuation and the value shown thereon” (the valuation report made in 1998), Mr Nash embarked on a course of action that was not directed to what had to be established, namely, the actual up-to-date market value of the Queensland property. In this respect, Mr Moses observed (paragraph 37):- “… However, I note that neither his questions of the valuer nor in the letter he requested from the valuer (in the solicitor’s letter appearing at p.189 of the exhibits to his affidavit) the solicitor only sought confirmation that the valuer prepared the valuation and the value shown thereon. The solicitor, at no time, sought an up –to-date valuation of the property or even a letter addressed to Artistic indicating that it could rely on the existing valuation as being accurate at the time it was made. Nor did he ascertain the valuer’s charges for either of those things.”

The deficiencies identified by Mr Moses constitute, in my opinion, significant breaches of Mr Nash’s duty to advise Mr Chahine and to obtain informed instructions to pursue the appropriate method of establishing a proposed security as adequate security. In particular, Mr Nash failed to inform and advise Mr Chahine on the importance and the need for an up-to-date valuation of the Queensland property. His omission or failure to do so is but one aspect of the duty arising from the work under his retainer (undertaking the necessary inquiries). Mr Nash’s duty in these respects was reinforced by Mr Chahine’s specific instructions, namely, that adequate security had to be obtained.

It is clear from Mr Moses’ uncontradicted evidence that Mr Nash should have ascertained the actual cost of an up-to-date valuation and informed Mr Chahine of it and then have recommended to Mr Chahine that he obtain one. Unfortunately he took neither of those steps. In the period after writing the facsimile to Mr Conroy on 2 November 1999 and settlement on 12 November 1999, Mr Nash failed to provide any advice to Mr Chahine on the question of ascertaining the current market value of the Queensland property or as to the need for expert confirmation. After ascertaining the fee for the provision of a valuation report (estimated by Mr J D Dodds, registered valuer, as between $2,500 and $3,000: Exhibit B, p.197), he should have sought and obtained instructions from Mr Chahine as to what he wanted to do (paragraph 39 of Mr Moses’ report). He failed to do so. As Mr Moses stated, such information was required to be provided for Mr Chahine’s consideration so that he would be in a position to provide informed instructions as to whether or not he wanted an up-to-date valuation.

The evidence indicates that a solicitor with sufficient experience would have been expected to have passed on to Mr Chahine his or her views as to the Conroy valuation and the assumptions and other matters contained in it. This was not done.

By reason of the fact that Mr Nash did not receive the facsimile sent on 12 November 1999 by Mr Conroy to Mr Bannon until after settlement (and the fact that it was addressed to ICA), he was never in a position prior to or at the time of settlement to confirm to ABC/Artistic/Mr Chahine either the authorship of Mr Conroy’s valuation or the value shown on it. Without making inquiry by way of follow-up to his letter to Mr Conroy on 2 November 1999 (that is between 2 November and 12 November), Mr Nash allowed the matter to proceed towards completion without steps being taken to ensure that he received, in a timely manner, answers to the matters raised in his letter of 2 November 1999 and also to have ensured that he had received informed instructions from Mr Chahine in time to take what were necessary steps in confirming the property’s market value.

The valuation report of Mr Dodds, prepared as evidence in the present proceedings (Exhibit B, p.194 to 213), establishes that the value of the Queensland property as at 12 November 1999 was $1.4 million, not $21 million as stated in Mr Conroy’s report. Exhibit L establishes that the property was sold on 29 October 2002 by public auction by the Court appointed liquidator of Runout Mortgage Business of Lawyers Private Mortgages for a price of $1,212,000. (4) Mr Chahine’s evidence and issues as to credibility

In the Plaintiffs’ Final Submissions , it was acknowledged that, in light of the fact the relevant events are more than 10 years old, it was not suggested that Mr Chahine had a clear or reliable recollection as to most of the events in 1999 (see paragraph 27).

Further it was accepted that Mr Chahine’s insistence that, if a statement or event is to be found in his primary affidavit sworn in 2002, then it “must be correct” , obviously casts doubt as to his reliability.

However, it was submitted that his attitude in relation to his primary affidavit was understandable and ought be taken to be a statement by him to the effect that, because his memory was so much fresher when he made the affidavit, it, in his mind, was more reliable that his current memory: Plaintiffs’ Final Submissions , paragraph 28.

It was further accepted that cross-examination revealed that Mr Chahine had a limited and often inaccurate recollection of his overall dealings with ECU in the relevant period of the dispute with that entity. It was said that that simply demonstrated that his memory of events more than 10 years ago was poor and that this was to be expected (Plaintiffs’ written submissions at paragraph 29).

It was also accepted in the written submissions for the plaintiff that, at times, Mr Chahine was dogmatic and argumentative and, at times, inconsistent when dealing with questions in cross-examination. However, it was put that the question for this Court was what impact those characteristics had on his credit. It was said he should be accepted as having been very anxious as to the outcome of his case and therefore was extremely anxious to put his case forward during cross-examination. There was some cultural and language factors to be considered and his health was not good: Plaintiffs’ Final Submissions at paragraphs 31, 32 and 33.

It was also contended that Mr Chahine’s evidence was shown to be the least clear and faulty on matters that were not central to his case. What were said to be “peripheral” and “contextual issues” were set out in paragraph 34 of the Plaintiffs’ Final Submissions . It was contended that on topics that were central to his case, his evidence was “clear and consistent” : Plaintiffs’ Final Submissions at paragraph 35.

In relation to the latter issues, reliance was placed upon contemporaneous documents as confirming Mr Chahine’s recollection as consistent since at least 2000. It was also noted in oral submissions that the written notes and comments made in the relation period by Mr Chahine were made before any dispute had arisen between Mr Chahine and Mr Nash.

As I have elsewhere discussed, I have adopted the approach, in the interests of seeking a just determination in relation to factual matters, of identifying corroborative material in contemporary documents before deciding whether Mr Chahine’s evidence on disputed questions of fact should be accepted.

NOT Lawyers challenged Mr Chahine’s credibility on a matter involving the witness, Mr Madi.

Mr Madi was called in the plaintiffs’ case for the purposes of giving corroborative evidence in relation to the Elliot & Tuthill facsimile of 12 November 1999.

Mr Madi’s affidavit was affirmed on 29 April 2008.

In NOT Lawyer’s submissions, it was contended that Mr Chahine’s involvement in an attempt to have Mr Madi corroborate him, namely, that he was not shown the Elliot & Tuthill facsimile by Mr Nash, was said to be especially significant to an assessment of his credit: NOT’s Closing Submissions , at [18].

Although Mr Chahine denied Mr Nash’s account, it was claimed by NOT Lawyers that he, nonetheless, felt the need to persuade Mr Madi to corroborate his account of the matter. It was said that this was in circumstances where Mr Chahine must have known that Mr Madi had no relevant recollection.

Following a mediation that took place in March 2007, Mr Chahine wrote to Mr O’Brien on 26 March 2007 in which, inter alia, he suggested “we may need to get an affidavit from Mr A. Madi” : Exhibit 19, p.308.

On 31 March 2007, Mr Madi sent an email to Mr O’Brien advising him that he had sent him a draft of his affidavit. Attached to it was a draft affidavit. The draft contained an assertion that Mr Nash did not hand to or discuss with Mr Chahine the facsimile of 12 November 1999.

Mr Chahine denied that he asked Mr Madi to help him but only asked him to tell the truth (t.446.3). Mr Chahine claimed that he might have seen the draft affidavit, but did not recall having anything to do with it (t.446.26).

In the submissions for NOT Lawyers it was contended that Mr Chahine should not be accepted. He had given contradictory evidence, insofar as Mr Chahine said that he and Mr Madi did not see each other on a regular basis. That was contrary to Mr Madi’s account.

Mr Madi agreed in cross-examination that the position as at 2007 and at the time he was giving evidence was that he had no recollection at all as to what had happened at the 12 November 1999 settlement (t.475).

The attack on Mr Chahine in relation to this aspect of the matter was that it was said to represent an attempt by Mr Chahine to procure Mr Madi to give evidence to support his evidence that he knew nothing of Elliot & Tuthill’s 12 November 1999 facsimile. It was submitted that that reflected gravely on his credit: NOT’s Written Submissions at [187]. It was also said to point strongly to the conclusion that he recognised the significance of the letter and its importance. It was further put that it accorded with the probabilities that Mr Nash did show the letter to Mr Chahine.

When Mr Madi came to affirm his affidavit on 29 April 2008, the affidavit did not contain any reference to the Elliot & Tuthill facsimile. This, no doubt, was by reason of the fact that Mr Madi had no recollection of the events concerning the facsimile. Insofar as the evidence suggests that Mr Chahine did have a role in preparing the draft affidavit sent to Mr Madi, it would be consistent with an attempt by him to obtain corroborative evidence. It was clearly inappropriate for him to act on the basis or presume that Mr Madi did recall the circumstances of that matter and, to that extent, it does reflect adversely on Mr Chahine. However, the significance of that aspect of the matter is also to be considered in the context whereby there is no evidence or suggestion that Mr Chahine sought to bring pressure to bear upon Mr Madi to commit himself to the terms of the draft affidavit. Indeed, as previously noted, the affidavit as affirmed by Mr Madi, did not, in fact, address or include any reference to the Elliot & Tuthill facsimile. (5) Issues concerning Mr Nash’s evidence

As noted above, in the absence of file notes, Mr Nash, to a significant extent, relied upon unsupported recollection in reconstructing what are potentially important conversations which he alleges he had with both Mr Chahine and with the valuer, Mr Conroy. Some of these conversations were strongly in issue. Mr Nash was attacked as an unreliable witness and it was submitted on behalf of the plaintiffs that his evidence on a number of matters should be rejected. Some were extracted in Appendix 1 to the Plaintiffs’ Final Submissions : “Some additional points as to Mr Nash’s credit” .

The absence of notes or records to support Mr Nash’s affidavit evidence in relation to conversations he says he had on important issues with Mr Chahine can pose difficulties in finding the relevant facts. On the subject of memory-based evidence, McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 319 observed:- “… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often, what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.”

On 25 October 1999, Mr Nash sent Mr Chahine a facsimile advising, inter alia, that Mr Huxley had offered a mortgage by Laguna over a property in the Whitsunday’s, Queensland which he asserted was valued at $21 million.

In paragraph [24] of his primary affidavit, Mr Chahine said that he telephoned Mr Nash and discussed the offer.

He said on this occasion he asked Mr Nash to check the total liability under the existing mortgage over the property and said “This is very important security because if there’s any problem with South Terrace, I can sell the Queensland property” , to which Mr Nash told him not to worry, that he would check the valuation and prior mortgages.

Mr Nash responded in his primary affidavit to paragraph [24] of Mr Chahine’s affidavit. In it he stated that he “would not have committed … to check the valuation and the prior mortgages” . However, he then proceeded to speak of his “practice” which practice he said, in fact, involved making inquiries in relation to valuations and prior mortgages by conducting necessary inquiries and searches.

Mr Nash did not otherwise take issue with or in any way dispute Mr Chahine’s account set out in paragraph [24] of his affidavit.

Taking all relevant evidence into account, including Mr Chahine’s several statements to the effect that he wanted adequate security and the matters referred to in the preceding paragraphs, I consider that Mr Chahine’s account in paragraph 24 of his primary affidavit is substantially correct. Accordingly, on that basis, it is, in my opinion to be concluded that Mr Chahine understood and expressed to Mr Nash the importance of the Queensland property as security. I also accept Mr Chahine’s evidence to the effect that Mr Nash said he would undertake inquiries in order to confirm that the Queensland proposal would provide security.

Mr Chahine’s note or comment on Mr Nash’s facsimile “Please check the valuation, only solid security required” clearly amounted to a specific direction to Mr Nash. It also reflects a certain level of anxiety in Mr Chahine at that time on the issue of security as does his further notation on the facsimile, “satisfy yourself if it is valuable for security” (Exhibit ABC 10).

Similarly, on Mr Nash’s further facsimile dated 25 October 1999 (Exhibit ABC 12), Mr Chahine responded:- “5. Please make sure we have good secure protection. Check the valuation if good, and if you can add an other security.”

Mr Chahine’s continuing suspicion of the members of the Huxley Group is evident in his email of 30 October 1999 in which, inter alia, he wrote to Mr Nash, “Please, Greg, be careful with your documents. I don’t trust they will do the right thing” (Exhibit ABC 16).

Mr Nash’s evidence was that he spoke to Mr Conroy about his valuation. The alleged conversation is referred to in paragraph 79 of Mr Nash’s affidavit sworn 27 June 2003. The conversation has been extracted in paragraph [266].

The question as to whether such a telephone conversation took place at all was strongly in issue. Although, according to Mr Nash, Mr Conroy made some significant statements about his valuation, he did not make a note of the conversation or write to Mr Chahine about it. The failure by Mr Nash to do so meant that he had no means (other than unaided recollection) for reconstructing the conversation he said he had with Mr Conroy. There is no record of Mr Nash having written to advise Mr Chahine of the fact that he had spoken to Mr Conroy. His account therefore is effectively put forward as one based on a recollection of events that occurred over three years previously.

In the submissions for the plaintiffs, it was contended that I should not accept Mr Nash’s account. Apart from the matters referred to in the preceding paragraph, it was noted in submissions that there was no reference at all in Mr Nash’s letter of 2 November to Mr Conroy of him having spoken to Mr Conroy. Nor was there any reference in it to any statements having been made by Mr Conroy in any telephone conversation with Mr Nash about the property or valuation issues concerning it. It was further noted that there is no record of any telephone call in the time/costing records of any conversation between Mr Nash and Mr Conroy.

Acceptance or rejection of Mr Nash’s evidence that he spoke to Mr Conroy is not essential to the findings I have made as to Mr Nash’s breach of duty concerning the valuation issues related to the Queensland property. However, it is, of course, a matter that goes directly to his credibility. Having carefully observed Mr Nash in the course of giving evidence, he did not impress as a reliable witness. At times, he adopted an argumentative stance in cross-examination, whilst at other times he was evasive and reluctant to concede an obvious point (as, for example, his evidence on cross-collateralisation – paragraphs 332 to 334. See also at transcript, p.505 lines 11 to 23, p.539 line 5 to p.544 line 37; p.588 lines 3 to 8). On occasions he introduced by way of oral evidence versions of events that had not been referred to in any of his affidavits. Reference to Mr Nash’s evidence in this respect were set out in Schedule B to the Plaintiffs’ Final Submissions . No satisfactory explanations were or could be given for the omission of those matters in his affidavits. Paragraphs 348, 356 and 358 provide examples of the latter.

In the absence of any confirmatory evidence of the conversation Mr Nash set out in paragraph 79 of his affidavit, the lapse of time involved and the conclusions I have formed as to his reliability concerning a number of aspects, I have concluded that Mr Nash’s account in paragraph 79 is an unreliable attempt by him to reconstruct the events concerning Mr Conroy’s valuation report. I am prepared to accept that he may have phoned Mr Conroy or his office on an unknown date before 2 November 1999. However, following consideration of the matter, I am unable to accept and I do not accept his account of the specific conversation related in paragraph 79.

It was submitted for NOT Lawyers that, even though the facsimile sent by Mr Conroy after the settlement was not addressed to ABC, Mr Nash or Mr Chahine, it was not “useless” for the purpose of Mr Chahine sheeting home any liability to the valuer: NOT’s Closing Submissions at [138].

In that respect it was contended that a combination of Mr Nash’s conversation with Mr Conroy as set out in paragraph 79 of his affidavit of 27 January 2003 together with Mr Conroy’s letter of 12 November 1999 (to be read in light of Mr Nash’s letter of 2 November 1999) would (but for the expiry of the limitation period) give ABC or Artistic a cause of action against Mr Conroy, assuming it could be shown that, as Mr Dodds’ valuation report suggests, there was no basis for the opinion expressed by Mr Conroy in the valuation at [139].

The difficulty with this submission is that I do not, as I have stated above, accept Mr Nash’s evidence as set out in paragraph 79 of his affidavit. I, accordingly, do not accept the submission made that Mr Chahine would have been in a position to have sheeted home any liability to Mr Conroy.

There is no evidence from Mr Nash that he made any other inquiry (other than the disputed discussion he said he had with Mr Conroy and the letter to him of 2 November 1999) directed to establishing the market value of the Queensland property. He did not suggest in his affidavit evidence that he provided any information, warning or advice on the matter to Mr Chahine other than the statement which he set out in paragraphs 79 and 80 of his primary affidavit which Mr Chahine denied.

In the absence of clear and appropriate warning or advice to Mr Chahine, it is difficult to accept Mr Nash’s statement that Mr Chahine was “content” with the course of him seeking confirmation from Mr Conroy ( First to Fourth Defendants’ Written Submissions , paragraph [105]). I do not accept that assertion as a valid proposition. As acknowledged in the submissions for NOT Lawyers, the evidence demonstrated that Mr Chahine was relying on the Queensland property as “critical” security. Proper advice on it was correspondingly critical.

The analysis which follows seeks to address certain of the affidavit versions of discussions between Mr Chahine and Mr Nash on particular matters. Some raise matters going to Mr Nash’s credibility. They also provide evidence as to Mr Chahine’s state of mind on the subject of security. Most discussions either took place in face to face meetings between the two men or in the course of meetings with other persons present. Aside from conversations, other communications were largely by way of email or facsimile transmission. (6) The evidence relating to Mr Nash’s and Mr Chahine’s competing versions of events (a) The meeting of 18 October 1999

Mr Chahine gave evidence in paragraphs [14] to [18] of his affidavit sworn 12 December 2002 of a meeting at the offices of NOT Lawyers. Besides Mr Nash and himself, Mr Huxley and Mr Bannon were in attendance. Mr Chahine’s account is based on his recollection for his notes of the terms of the offer (ABC 5) and his facsimile of 19 October 1999 (ABC 7) do not assist on the full detail of the matters discussed during what appears to have been a lengthy meeting.

Mr Nash gave evidence of the meeting in his affidavit sworn on 27 June 2003, paragraphs [32] to [41] and in reply at paragraph [176] of the same affidavit.

In Mr Chahine gave an account of a conversation he said he had with Mr Nash on this occasion. He said that he raised the question as to the sufficiency of securities to be provided, saying:- “Mr Huxley has agreed to provide sufficient securities by mortgages on properties including Bankstown to satisfy you and me. If you are happy and satisfied with the security, then we proceed but if the security is not 100%, we won’t proceed.” (affidavit sworn 12 December 2002, paragraph 14)

Mr Chahine’s account, in this respect, (which was not disputed by Mr Nash) also included the statement “I want good security for the balance of the payment” and there was also said to have been a reference made by Mr Nash to “extra security” through a unit trust.

Mr Chahine said in paragraph 17 of his abovementioned affidavit:- “After Mr Huxley had left the meeting, I said to Mr Nash: ‘What do you think?’. He said: ‘Everything sounds good to me’. I said: ‘I’m worried about the security. I don’t know anything about trusts’. He said: ‘I’ll look after it. I’ll make sure that the security is right. I’ll check all the valuations’. I said: ‘Do everything to protect my interests’.”

Mr Nash, in his affidavit in reply (paragraph 178) did not dispute that Mr Chahine expressed his concern about security. The only issue he raised was that he “would not have” said the words “I’ll look after it. I’ll make sure that the security is right. I’ll check all the valuations” . He said that it was never his practice to commit to checking valuations for his clients.

Mr Nash’s affidavit version of the meeting does not refer to statements such as those referred to in paragraphs [433] and [434] as having been made by Mr Chahine. However, except for the matter referred to in paragraph [436], Mr Nash does not dispute or deny the statements Mr Chahine said he made at the meeting when replying to Mr Chahine’s account of the meeting of 18 October 1999 (paragraph [176] of his own affidavit). He did, in paragraph [38] of his affidavit on the subject of security, say, “At that stage, security that was being offered to Mr Chahine was” a second mortgage over the Bankstown property and a mortgage debenture charge over the purchasing entity’s holding company which was to secure “what Mr Chahine and I referred to as his ‘profit share’ and his ‘super profit’” .

I have concluded that the issue of security was discussed at the meeting. Mr Chahine purports to give a detailed account of what he said based on his recollection. His statements are consistent with notes that he made on other occasions in the relevant period when he spoke about his concern for adequate security. His evidence, to which I have referred, was not challenged by Mr Nash, save for the point referred to in paragraph [436].

Mr Chahine’s evidence, which I accept, shows a particular concern in him about the need for adequate security for the “Deferred Payment” of $3.7 million. Allowing for the possibility that his recollection is not entirely accurate as to what was said on the subject, the evidence does suggest that the question of “security” was at this early stage a first order issue of importance with him and it was a matter discussed at the initial meeting with the purchasers’ representatives. Mr Chahine’s notes concerning security (detailed below) also constitute evidence of his continuing concerns in that regard. (b) The market value of the Bankstown property – Mr Nash’s evidence

The value of the Bankstown property immediately prior to 12 November 1999 is a matter of importance on the issue of causation. It is also an issue that is relevant to Mr Nash’s reliability as a witness.

Mr Nash’s evidence was that he believed that the Bankstown property, up to settlement (12 November 1999) was worth only $3.5 million and that it was also Mr Chahine’s belief that the property was worth that amount.

Mr Nash’s understanding or belief as to the value of the Bankstown property prior to settlement was a matter taken up at some length with him in cross-examination. He was taken to a copy of his email dated 19 October 1999 (Exhibit 14, p.51) in which he stated that the property was “… worth about $7,500,000” . He was asked whether that was his belief at the time or whether his statement was a mistake. He responded, “No, it was what I thought the property was going to be worth at the conclusion of the transaction” (transcript 15 April 2010, p.602).

Mr Nash’s evidence that he believed that the property was only worth $3,500,000 is to be found at t.602. The cross-examination on the point continued between t.602 to 610.

I was not at all impressed with Mr Nash’s evidence on this aspect. His evidence, in particular as recorded at the abovementioned transcript pages, displayed obfuscation in the face of documents which provided firm support for Mr Chahine’s stated belief that the property, prior to settlement, was worth $7,500,000 and that that had accorded with Mr Nash’s own understanding. The evidence established that the value of the property prior to settlement had been accepted as being of that order. Mr Nash, however, endeavoured to explain that the value somehow increased as the sale transaction proceeded, stating in that respect (t.602):- “… as the sale proceeded and the value began to perhaps creep or gain potential energy which would turn into actual energy when the contracts were exchanged …”

A little later he said (t.608):- “… I said it would basically spring from 3.5 to 7.5 upon the exchange in purchase into the hands of people who are able to develop the property and service the loans et cetera …”

I do not accept Mr Nash’s evidence as to his stated belief that the Bankstown property was worth only $3.5 million prior to settlement.

Mr Chahine’s evidence was that he believed that the property was worth $7.5 million prior to settlement. The actual value of the property and Mr Chahine’s belief as to its value were, as I have earlier stated, important facts in the proceedings. In particular, if Mr Chahine held the belief that the property was worth about $7.5 million, that would provide an explanation for an ongoing concern about the need for satisfactory security in accordance with repeated statements made by him to Mr Nash about the security required to protect Artistic’s interest in the Deferred Payment of $3.7 million payable after settlement (the Deferred Payment).

The evidence which establishes that the Bankstown property was valued at about $7.5 million up to the date of settlement was summarised in the plaintiffs’ final submissions at [71] which I extract and set out below. I have added a “comment” in relation to items a, b, c, e, g, and h:- “a. the ECU Terms Sheet which states that the agreed value of the Bankstown Property was $7.5m.” Comment - I note that the terms of the ECU Terms Sheet, which bore a date 22 April 1998, under the heading “Background” recorded, “… the parties agreed that the land and the work in progress completed to date is $7.5 million” . “b. the draft unitholders agreement which described the agreed land value of the Bankstown Property as $7.5m.” Comment - Clause 4 of the agreement recorded a provision for the allotment of units in the Trust to be established as “6,218 units to ABC for a consideration of $6,000,000 (being the agreed land value of $7,500,000 less $1,500,000) payable on execution of this Agreement” . “c. NOT’s 15 October 1999 brief to Michael Jones which stated that the Bankstown Property to [sic] be $5 to $10 million.” Comment - the brief recorded:- “The facts are:- (1) ABC owns a block of land at Bankstown, which my client believes is worth about $7,500,000 but which I have heard denigrated to lower figures (by ECU) …” “d. NOT’s 15 October brief to Mr Jones also states that Mr Chahine believes that (the property( is worth about $7.5m. e. Mr Nash’s email of 19 October 1999 to his staff which stated that the Bankstown Property was worth $7.5m.” Comment - Mr Nash recorded, “I have been given instructions to sell a vacant block of land with a DA and a BA in Bankstown owned by my client’s company which is worth $7,500,000” . “f. Mr Nash’s advice of 21 October 1999 on the structure of the Transaction. g. Mr Huxley note of 25 October 1999 which set out pricing based on $7.5m for the property with profit share.” Comment – The note recorded:- “5 Pricing: For our internal purposes and also for disclosure to our funders, we need to identify an effective price on Lot 101. In my view, the figure is based upon: ABC Plumbing - $7.5 m …” “h. Mr Nash’s fax of 25 October 1999 concerning the CGT to be paid on the $7.5m sale price of the Bankstown Property.” Comment – In the facsimile, Mr Nash recorded:- “… Your liability for Capital Gains Tax on the wholesale price, that is, $7,500,000 …” i. Mr Nash’s fax of 5 November 1999 which stated that Mr Chahine would receive the base payment of $3.5m, plus the deferred payment of $3.7m.”

The plaintiffs’ written submissions also pointed to further evidence that supports Mr Chahine’s belief as to the value of the property:- “a. the Laing & Simmons valuation prepared in 1999; b. the LandMark White valuation annexed to Mr Stafford’s affidavit which was prepared in June 1997; c. the Healy valuation; d. that the Bankstown Property was listed for sale at $8 million; e. that the Transaction of course provides for payment of $7.5m albeit with a deferred payment- it is ridiculous to suggest that the deferred payment amount was a payment for something not that the vendor had transferred but for some value created in the property by the fact the purchaser had purchased it.” ( Plaintiffs’ Closing Submissions, at [3])

The LandMark White valuation referred to in (b) above recorded:- “Subject to the qualifications and assumptions confined within the body of the report, I assess the value of the fee simple in possession for the property for equity investment purposes as at 4 November 1997 to be:- As is Site Value with Development Consent $7,500,000 (Proposed Lot 1)”

The valuation by Laing & Simmons (entitled Certificate of Determination) in relation to the Bankstown property determined the current market value of the property as at 15 October 1999 for mortgage purposes. The “interest to be valued” was stated as “unencumbered, fee simple in possession subject to vacant possession” (Exhibit G).

The valuation by Laing & Simmons was based upon property as described in the report with a Development Approval having been obtained on 26 March 1997 and modified on 24 February 1998, as well as a Building Permit obtained on 17 November 1998 to develop the whole of the Bankstown property with residential home units, commercial units and car parking. (c) Telephone conversation between Mr Chahine and Mr Nash on 22 October 1999

On 21 October 1999, Mr Nash wrote by facsimile to Mr Chahine about the transaction. In it, he stated that he was “suspicious” of members of the Huxley Group (Exhibit GDN1, p.117) and that he considered Mr Chahine would be “vulnerable” to a “a conspiracy” between its members and the first mortgagee and the builder/second mortgagee.

Mr Chahine, in his affidavit sworn 12 December 2002, paragraph [22], said that he then spoke to Mr Nash about this facsimile. He set out a number of statements which he attributed to Mr Nash in which assured Mr Chahine that it was his (Mr Nash’s) job to ensure “everything is done properly” , and that he, Mr Chahine, said to him, “Please ensure that we have all security and protection” to which Mr Nash is said to have replied, “I’ll look after it” .

Mr Nash, in his primary affidavit affirmed on 27 June 2003, did not make any reference to having had a telephone conversation about the subject matter of his facsimile to Mr Chahine of 21 October 1999. The facsimile, by any measure, contained startling statements about the members of the Huxley Group and their bona fides. In paragraphs [52] to [54] of his affidavit, Mr Nash gave evidence about a meeting with Mr Chahine shortly after the facsimile was sent. He made no reference to any discussion with Mr Chahine about “security” , notwithstanding the fact that, in paragraph [53], Mr Nash said he, himself, was concerned about the “conspiracy” matter which was referred to in paragraph 8.8 of his facsimile of 21 October 1999.

In his affidavit in reply to particular paragraphs of Mr Chahine’s primary affidavit, Mr Nash did not refer to or raise any issue or challenge to the terms of or the accuracy of Mr Chahine’s account of the conversation set out in paragraph [22] of his affidavit. Mr Nash again did not suggest that he made any file note or memorandum of the conversation.

The likely position I consider to be as follows. Mr Nash’s facsimile about those constituting the Huxley Group contained alarming statements which caused concern in Mr Chahine, in particular, in relation to the purchasers’ likely compliance with post-settlement obligations. The handwritten note made by Mr Chahine’s on Mr Nash’s facsimile was, “Please ensure we have all security and protection” . In context, the word “protection” appears intended to carry its dictionary meaning of defending or guarding against danger.

The terms of this note are consistent with Mr Chahine’s version of the conversation in paragraph [22] of his primary affidavit sworn 12 December 2002. His contemporaneous note and the failure of Mr Nash to refer to or challenge Mr Chahine’s account in paragraph [22] makes it likely, in my assessment, that Mr Chahine’s account is substantially correct. I, accordingly, accept his account as essentially accurate.

That conclusion supports the likelihood that, at least from 21 October 1999, Mr Chahine had a significant reason to be concerned about the Huxley Group. His subsequent comments and notations which are referred to below emphasised his position that the purchasers needed to provide adequate or satisfactory security in respect of their contractual obligations. (d) Mr Chahine’s inquiries on 4 November 1999 of Mr Nash about the unit trust and adequacy of securities

Mr Chahine, in his primary affidavit (paragraph [28]) referred to a meeting or conference with Mr Nash at NOT Lawyers’ officers held on 4 November 1999. He said he brought numerous documents which had been couriered to him (it appears by Mr Nash). He said he told Mr Nash that he did not like or understand the unit trust and asked him to tell him what “the security for this deal be” . He said, in effect, that Mr Nash made a statement which offered him some assurance. In this respect, he said that he asked Mr Nash, “Are all these documents sufficient to provide adequate security?” . He said Mr Nash replied, “You’ve got nothing to be concerned about” . His affidavit then sets out a number of other matters discussed at the meeting.

Mr Nash did not address the meeting of 4 November in his primary affidavit evidence. He made reference to it in his affidavit sworn 27 June 2003 in reply wherein, in paragraph [180], he responded to paragraph [28] of Mr Chahine’s affidavit. It is evident from his reply that he did not make a note or memorandum of the meeting and he did not suggest that he had any particular recollection of what was said. Accordingly, he stated, “I would never have said words to Mr Chahine like ‘Don’t worry, I’ll attend to it’ or ‘you’ve got nothing to be concerned about’” . He did not identify the basis for this statement.

Mr Nash did not include any reference in his affidavit to the details of any discussion at the meeting on the subject of security. It is clear and I find that the issue of security was raised by Mr Chahine at the meeting held on 4 November 1999 and that it was a matter to be attended to by Mr Nash. (7) The proposals for security (a) Initial proposals

The discussion that follows concentrates upon the Blackheath and Queensland securities. The issues concerning them and considered below include the facts known about the properties (and of the existing securities), their significance as providing satisfactory security for the Deferred Payment and whether Mr Chahine placed reliance upon them.

The relative speed and the evolving terms of the transaction between October 1999 and 12 November 1999 increased the pressure on and the need for particular care by Mr Nash in ensuring that there was adequate time to properly and effectively complete the work under his retainer and provide appropriate advice to Mr Chahine on the securities offered.

In the critical period of final negotiations (14 October 1999 to 12 November 1999), Mr Chahine and Mr Nash were also dealing with ongoing disputes with ECU and EFMS. As noted above, Kemp Strang sought an undertaking be given by 10.00 am on 25 October 1999 and on that date, ECU commenced proceedings which resulted in orders being made on 28 October 1999.

It is necessary to examine the relevant communications and the contemporaneous documents concerning the securities offered by the Huxley Group in this very busy period.

The proposals by the Huxley Group involved a degree of complexity (including the proposal for the cross-collateralisation of mortgages) and their final terms took time to crystallise. The proposals tended to subject the interests of ABC/Artistic to the interests of the Huxley Group’s financier, Elliot & Tuthill, which secured a first mortgage over the Bankstown property. Artistic obtained a mortgage over the Blackheath property to be registered in third priority which, having regard to the amount loaned by Elliot Tuthill, represented virtually no real security to it.

In this paragraph the evidence relating to Mr Nash’s and Mr Chahine’s responses to the proposals by the Huxley Group is examined. In that respect:- (1) According to Mr Chahine’s evidence, at the meeting held on 18 October 1999 with Messrs Huxley and Bannon, Mr Nash said that the purchasers would be offering securities including, in particular, a mortgage over the Bankstown property which would represent the “main security” . Mr Nash said that Mr Chahine was being offered a second mortgage over the Bankstown property. There was no suggestion in his affidavit evidence at this stage that he offered any advice to Mr Chahine as to what he should do in these circumstances in terms of protecting Artistic’s interests by way of additional securities. (2) It was argued for Mr Chahine that, on the basis of his stated belief that the Bankstown property was worth $7.5 million and that the financier’s first mortgage was limited to no more than $3.5 million, Mr Chahine believed that Artistic’s interest of $3.7 million could be reasonably secured by a second mortgage. NOT Lawyers, however, contended that Mr Chahine was aware on 12 November 1999 that Elliot & Tuthill’s interest exceeded $3.5 million. (3) In his letter of 21 October 1999, Mr Nash understood at that stage that Artistic was being asked to defer the mortgage to be given to Artistic to secure the Deferred Payment behind the mortgage in favour of the builder (which ultimately did not occur). The consequence would be as he observed to Mr Chahine “there will be times when your security will not be worth the money that is owed under it” (paragraph 8.7 of the letter dated 21 October 1999). Notwithstanding that reality, Mr Nash did not suggest or outline in his letter any proposal or solution to ensure that Artistic would have a real or worthwhile security for the Deferred Payment of $3.75 million. (4) On 25 October 1999, the next event concerning the securities for the Deferred Payment occurred. This was the offer of a mortgage over the Queensland property owned by Laguna on the title to which there were then three existing mortgages and a floating charge over the assets of North Queensland Properties Pty Limited. Mr Huxley in his memorandum of 25 October 1999 (Exhibit GDN1, p.129) described his proposals as “… a relatively easy way to achieve your client’s requirements without the complexity of multiple mortgages …” .

I will deal with the Queensland security as a separate issue in the paragraphs that follow. (b) The Queensland proposal

The evidence establishes the following matters in the period 25 October to 12 November 1999:- (1) Mr Nash faxed a copy of Mr Huxley’s memorandum of 25 October to Mr Chahine on that date and noted in his facsimile to him that Mr Huxley “… asserts (the Queensland property) was valued at $21,000,000.00 and upon which there are mortgages of less than five” . Mr Nash made no further comment on the proposed security in his facsimile of 25 October and made no suggestion as to what should be done about the proposal in terms of investigating it or evaluating it. The facsimile immediately proceeded to address the capital gains tax position. In the next paragraph, Mr Nash appeared to assume that Mr Chahine would, without more, proceed with the mortgage over the Queensland property, for he stated in the next paragraph:- “I need your urgent instructions to authorise me to commence drawing the documentation over the Whitsunday property prepared and sent to Sydney and to get proper advice about the taxation consequences of this transaction …” (2) He then referred to Mr Chahine’s reluctance to spend monies “when the matter is still not certain …” . The facsimile is surprisingly silent on the need for any inquiry into the Queensland property especially given its potential significance as security for the transaction and the “suspicion” Mr Nash had by then stated he held in respect of Mr Huxley. (3) It was Mr Chahine, not Mr Nash, who, soon after, raised the issue as to a need for inquiry in terms of a handwritten note on a copy of the facsimile “Please check the valuation, only solid security required” together with other notations to the same effect as discussed above. (4) An email (GDN1, p.182) from Mr Nash’s secretary dated 28 October 1999 to Mr Nash, recorded that she had spoken to Mr Huxley and told him, inter alia, “You hope to settle this matter tomorrow” . This email, at least on its face, conveys Mr Nash’s state of mind as being one that was intent on effecting settlement without any inquiry into the Queensland property having been undertaken. It also could be taken as indicating that Mr Nash did hold a concern or have an intention at that stage of undertaking an inquiry into the property. (5) On 28 October 1999, Mr Nash faxed Gadens Lawyers in Queensland (GDN1, p.185). It referred to Mr Nash’s secretary’s conversation with a lawyer at Gadens and sought advice as to:- “(1) The bare minimum but essential searches that I would need to carry out to satisfy ourselves as to a security property (copy title search enclosed ); (2) What would it cost to stamp and register a collateral second mortgage securing, say, $10,000,000.00? I look forward to hearing from you urgently” (6) On 28 October 1999, Gadens replied (GDN1, p.187) advised that the title search had not been received. Gadens recommended a title search be undertaken as well as follow up searches on mortgages and charges. If the property was commercial, it suggested Mr Nash should check tenancies. There was no discussion of any valuation of the property. On the same date, Mr Nash obtained a title search of the title of the property. (7) On 1 November 1999, Mr Goodman sent Mr Nash results of searches on existing mortgages on the Queensland property (8) No other steps were taken to investigate the Queensland property until 2 November 1999 (approximately seven days after Huxley first proposed the Queensland property) when Mr Nash wrote to Mr Conroy about Mr Conroy’s valuation dated 24 June 1998. This was the first written inquiry made by Mr Nash directed to the question of the value of the property. (9) On 11 November 1999, Nicholsons, solicitors, of Brisbane sent details of the amounts owing under the first and second mortgages securing the Queensland property to be mortgaged to Artistic (the amount under the first mortgage to Lawyers Private Mortgages as at 5 November 1999 was $3,231,336.42 and the amount under the other mortgage owing to NZI Capital Corporations Limited was $1 million as at the same date). (10) Between 2 November and 12 November 1999, there had been no follow-up or other inquiries made or information received by Mr Nash going to the question of the valuation of the Queensland property or the adequacy of the security. (11) Although it was clearly Mr Nash’s intention that he receive a reply to his letter of 2 November 1999 from Mr Conroy before settlement was effected, as noted above, that did not occur. As also noted earlier, it does not appear that Mr Nash made any further inquiries or institute any follow-up between 2 and 12 November 1999 concerning the request that he had made to Mr Conroy on 2 November 1999. (12) There is no evidence indicating that Mr Nash undertook in that period any other inquiry directed to confirming that the Queensland property represented suitable security for the transaction.

On another aspect of the Queensland property, the evidence of Mr Moses, establishes that Mr Nash ought to have negotiated priority agreements with existing mortgagees (three in number) in relation to that property. These were required so as to ensure that the amounts due under the prior mortgages were acknowledged. In the event that the existing mortgages allowed for further advances or to secure current accounts, the amounts due under those mortgages needed to be capped. No steps were taken by Mr Nash in this regard. Nor was any advice was given by Mr Nash to Mr Chahine on the desirability of having a priority agreement.

The evidence, accordingly, establishes:- (1) That following his letter to Mr Conroy on 2 November 1999 and settlement, Mr Nash did not provide Mr Chahine with any advice or recommendations when reporting to him on the Huxley Group’s proposal as to whether or not he should accept the Queensland property as security. (2) That prior to the date of settlement, he failed to follow up his facsimile of 2 November 1999 to Mr Conroy. (3) That he failed to advise or recommend that Mr Chahine obtain his own independent market valuation of the property. (c) The Blackheath property

The Huxley Group proposed the day before settlement a cross-collateralisation of securities on the Bankstown property and a property at Blackheath. At the end of the day, as earlier indicated, the proposal was implemented with no benefit to Artistic and if anything to its disadvantage. The details on this issue are as follows:- (1) On 11 November 1999, Potts Latimer, solicitors, wrote to Mr Nash and observed:- “At the same time, it may be necessary for our client to provide additional security by way of mortgage to your client by Golf Links Estate Blackheath Pty Limited over its property at Evans Lookout Road, Blackheath. Director of the company is Kenneth David A. Hall …” On the same date, Mr Nash obtained a title search in relation to the Blackheath property. (2) On 11 November 1999, Mr Nash wrote to Potts Latimer stating, inter alia:- “Turning now to your request to provide additional security. First of all, my client needs to know why your client would gratuitously offer this as the clear implication is that something has been lost which this is to replace …” Mr Nash then set out the documents that he considered would be required from Golf Links Estate. The letter indicated that a meeting would take place at 2.00 pm that day. (3) Mr Nash referred to this matter in paragraph [128] of his primary affidavit. There he set out the conversation he said he had with Mr Huxley, Mr Chahine being present. He stated that Mr Huxley said that his group were being asked to collateralise the Bankstown debt across to the property at Blackheath and that they appreciated that that would impact upon Artistic’s security at Bankstown. Accordingly, they were offering a third mortgage over Blackheath. (4) The request by the Huxley Group was one intended to secure an advantage for itself and to achieve this by requesting Mr Chahine’s companies to, in effect, satisfy a request by Elliot & Tuthill. A question again arose in this respect as to whether Artistic would be disadvantaged. Mr Nash’s account of the conversation records Mr Chahine resisting the proposal as put by Mr Huxley but Mr Nash then making a statement which appears intended or directed at overcoming Mr Chahine’s reluctance. Mr Nash said that he said to Mr Chahine:- “That’s right, Albert. For instance, they could take their first mortgage and the Blackheath mortgage out of Bankstown leaving you no money for your second mortgage but, if we make sure that your second mortgage is also secured by the Blackheath property, it will protect you against that.” Mr Chahine then asked for that statement to be explained to him and Mr Nash stated that he then offered an explanation. (5) The belated request from the Huxley Group via Potts Latimer concerning the Blackheath property was a matter that still had not been concluded before the date of settlement.

The lateness of the cross-collateralisation proposal is itself a remarkable aspect. The facsimile in relation to it stated, in part:- “We confirm our telephone conversation with you this afternoon that the principal lent on the Bankstown security is $6,111,000. The principal lent over land at Blackheath and a homestead at Bathurst is $2,296,000. This mortgage is cross-collateralised. We have no objection to mortgages being registered after these mortgages, to the present vendor subject to an agreement between our firms as to priority and that the Elliot & Tuthill (Mortgages) Pty Limited mortgages will taken [sic] priority against any other mortgages registered on the title. The terms of priority are to be determined by our firms in the next few days.”

Mr Moses noted in his report (paragraph 48) that this facsimile indicated that the purchaser was borrowing the whole of the purchase price which was to be paid over in cash on completion of the sale ($3.5 million) and as well an additional amount, being the difference between $3.5 million and $6,111,000.

In those circumstances, Mr Moses noted (paragraph 49) the mortgage which Artistic was to receive to secure the repayment of the instalments of the purchase price (or units in lieu), was correspondingly reduced. In this respect, he observed:- “49. … In my experience it is most unusual for the purchaser who is obtaining vendor finance to borrow by way of prior mortgage more than is necessary to pay the balance of purchaser price on the property a this prima facie involves mortgaging the property for an amount in excess of its value. In these circumstances, I would have expected the solicitor, as a matter of appropriate practice, to warn the client of the obvious pitfalls of such a transaction.”

Mr Moses further observed that no explanation was given as to what use the purchaser was to put the additional funds being borrowed on the security of the Bankstown property.

Mr Moses noted that the proposal put on behalf of the purchaser group was that existing mortgages on the Blackheath property and a “homestead at Bathurst” were to be secured over Bankstown.

He expressed the opinion that the facsimile from Elliot & Tuthill was inconclusive as to the priorities which were to apply between the mortgages which their client was to hold and the mortgage back to Artistic. He further observed:- “53. … In that regard, the consent of prior mortgagees is normally required in New South Wales when a subsequent mortgage is entered into because regularly prior mortgages contain a provision which prevents the granting of further security without consent so that the subsequent mortgage may cause the mortgagor to be in default under earlier mortgages …”

A matter identified in the course of cross-examination of Mr Nash and also in Mr Moses’ report (paragraph 54) was the absence of any evidence, prior to or on the date of settlement, as to the current value of the Blackheath property. Additionally, there was no confirmation as to the amount that had been secured over the Blackheath and the Bathurst properties referred to in the facsimile from Elliot & Tuthill. Mr Moses observed in the latter paragraph:- “… It seems that the only evidence of value as to the Blackheath property appears in the solicitor’s file as an annexure to a letter which he sent to the Queensland solicitors in December 1999. That valuation appears to have been in 1996 and shows that, at that time, an in globo value of the property at Blackheath was $2,100,000.”

A search over the Blackheath property disclosed that there was a second mortgage over the title to the property. However, the amount of it was not confirmed by the mortgagee. Accordingly, Mr Moses opined:- “… As a result, there was, in my opinion, a substantial risk that the third mortgage over the Blackheath property, which was proposed to be granted as additional security, was of little or no worth and as a matter of appropriate practice a solicitor should have formed that opinion and advised the client accordingly.”

Mr Moses observed:- “58. In my opinion, as a matter of appropriate practice, the solicitor should have pointed out to Mr Chahine not merely the above deficiencies in the arrangement from a security point of view but also the fact that, in view of the borrowing over Bankstown which was far more than was needed to complete this transaction, this was a particularly unusual arrangement which would not normally be acceptable to a vendor.”

It is clear on the evidence that the proposed arrangement for the Blackheath security was a completely unsatisfactory one from ABC/Artistic/Mr Chahine’s point of view. It was one that required specific advice from Mr Nash in relation to the matters identified by Mr Moses. Mr Nash was, in my opinion, in breach of his duty of care in failing to make the necessary inquiries and to provide advice to Mr Chahine as stated by Mr Moses.

It is clear on the evidence that steps ought to have been taken by Mr Nash to ascertain the value of the Blackheath property and the amounts that were secured by the second mortgage over the property. Advice to this effect ought to have been given to Mr Chahine and this for the purpose of negotiating a delay in settlement for a sufficient period of time for such inquiries to be made. That was not done.

Inquiry into these matters would probably have required delaying the settlement possibly for a short period, probably a matter of several days, perhaps a week or 10 days or even a little longer. If necessary, as I have stated elsewhere, the likelihood is that if necessary, on an application by ABC for an interim injunction such an order would more than likely have been granted for a period in order to permit the completion of the sale.

I have referred earlier to evidence given in relation to the Blackheath matter by both Mr Chahine and Mr Nash. Having considered that evidence, it is, in my opinion, clear that Mr Nash was in breach of his duty in not explaining the abovementioned aspects of the purchaser’s proposal involving the Blackheath property. Such explanation and appropriate advice in relation to the same was required in order that Mr Chahine would be in a position to give informed instructions.

I note Mr Moses’ report (paragraph 61) that, even if Mr Nash’s evidence to which he refers in that paragraph on these matters was accepted as to what was said to Mr Chahine at the time, it was Mr Moses’ opinion, in particular as set out in paragraphs 58 and 59 of his report, that Mr Nash failed in his duty to properly advise Mr Chahine of the deficiencies in the proposal involving the Blackheath property and in advising him not to proceed with the transaction until after the value of the Blackheath property was established. I, with respect, accept Mr Moses’ opinion on these matters as well-founded.

In the submissions for Harris & Company, it was contended that Mr Chahine did not rely upon the Bankstown or Blackheath properties as security.

In evaluating the submission, I consider that it is important to ascertain what Mr Chahine knew or appreciated about those securities. In that respect, I record the following:- (1) In relation to the Bankstown security, I consider the evidence establishes that Mr Chahine was aware of the fact that, as a result of the first mortgage to the purchaser’s financier, the Bankstown security would not, in itself, provide adequate security. References to the evidence in this respect are set out in paragraph 44 of the Submissions on behalf of Harris & Company . (2) In relation to the Blacktown security, I do not consider that Mr Chahine had sufficient knowledge or appreciation of the extent to which this property represented security for the balance of $3.7 million. In those circumstances, I do not accept the submission made on behalf of Harris & Company that Mr Chahine did not rely on the Blackheath security.

I should note in this regard that Mr Nash himself appeared to act on the basis that the Blackheath property and the proposal that it be taken as security was one worthwhile pursuing. It is clear that he was unwise in the circumstances to have done so. However, Mr Nash’s belief no the matter makes it difficult to accept the submission that, in effect, Mr Chahine did not see the Blackheath property as a providing worthwhile security and therefore did not rely upon it.

As discussed above, the cross-collateralisation proposal was first made on the eve of settlement. There is no suggestion that Mr Chahine had any previous experience with cross-collateralisation of securities. His knowledge and appreciation of the proposal involving the Blackheath property was limited by Mr Nash’s failure to provide him with appropriate explanation and advice.

In those circumstances, I do not consider that it can, on the evidence, be concluded that Mr Chahine understood, as was contended, that the Blackheath security was only a “compensatory … mortgage” in the sense that it was sufficient only to support the debt of $2.96 million owed by Golf Links.

The circumstances of some complexity that existed on 12 November 1999 were that securities were being offered over three properties - Bankstown, Blackheath and Queensland - over which several existing mortgages existed and a “last minute” cross-collateralisation proposal was put forward at a point in time which did not allow for due inquiry and consideration. Absent the necessary information, warning and advice in respect of the Blackheath security and the implications of the proposed cross-collateralisation, I do not accept the submission made to the effect that Mr Chahine did not rely upon the Blackheath security.

There was a factual dispute as to whether Mr Nash made Mr Chahine aware of the contents of the facsimile sent by Mr Jordan of Elliot & Tuthill, solicitors, a copy of which was exhibited to Mr Nash’s primary affidavit (Exhibit GDN-1, p.277). Mr Nash said that he received the facsimile at 2.40 pm on 12 November 1999 and that he showed it to Mr Chahine and then had a conversation with him to the effect set out in paragraph 135 of his primary affidavit.

The facsimile, as earlier noted, referred to the principal lent on the Bankstown security as $6,111,000 and that the principal lent over the Blackheath property and a homestead at Bathurst was $2,296,000.

Mr Chahine, as also noted above, denied that Mr Nash showed the facsimile and denied that he had the conversation with him set out in Mr Nash’s affidavit: affidavit of Mr Chahine sworn 30 October 2003, paragraph 41.

There is, however, some evidence in the instructions given by Mr Chahine to Mr O’Brien (POB-2 to Mr O’Brien’s affidavit of 21 July 2009), that Mr Chahine was aware before settlement that the amount of $6,111,000 was to be advanced as referred to in paragraph [497]. However, Mr Chahine’s knowledge of the principal lent on the Bankstown property and that lent over the Blackheath and Bathurst properties does not, in my opinion, conclude the issue as to Mr Nash’s duty to advise Mr Chahine on the implications of the Blackheath proposal particularly in regard to the particular matters raised in Mr Moses’ expert report.

Even if Mr Nash’s account in paragraph 135 of his primary affidavit is accepted as accurate, the failure by him to properly inform and advise Mr Chahine about the cross-collateralisation proposal would suggest that instructions said to have been given by Mr Chahine to “Go ahead” could hardly be regarded as informed instructions. PART I - CONSIDERATION (1) Breach of duty

In the determination of facts in proceedings for professional negligence, the approach to fact-finding is to proceed in accordance with accepted principle.

In the making findings of fact and in forming conclusions on liability in professional negligence matters, there is a danger associated with hindsight: Capital Break Service Pty Limited v Meagher [2003] NSWCA 225 at [30]. The Court of Appeal in that case emphasised the need for caution in the assessment of the conduct of a defendant (where negligent failure to warn is asserted). Reference to what the defendant reasonably knew at the relevant time (and not after the loss had been suffered) is fundamental in the approach to be taken. I have sought to ensure that that cautionary observation has remained at the forefront in the course of the analysis which follows.

In relation to the assessment of Mr Nash’s conduct in the period in which the transaction was negotiated and completed, Mr Moses, who, as later discussed, was called as an expert witness in the plaintiff’s case, observed (report of Mr Moses, 7 May 2008, at [63]):- “However, I should say that the material attached to both Mr Chahine’s and the solicitor’s affidavit certainly makes manifest the fact that the affairs of Mr Chahine and his companies were to, say the least, complex and the transactions in which the solicitor was instructed to act were complicated, time consuming and subject to considerable time pressure. This may be the explanation for the lack of detailed file notes. In my view, the complexities and difficulties of the transactions should certainly be taken into account in assessing the reasonableness of the solicitor’s action.”

This observation was emphasised in the final submissions for NOT Lawyers. Accordingly, the determination as to what should have been done by the solicitor or what advice should have been given is conditioned by the nature of the transaction in question and the circumstances of its formation and implementation.

In determining the liability issues in the present case, it is necessary, firstly, to determine the question as to the scope of the duty of care of NOT Lawyers in their capacity as the vendor’s solicitors. The issues of breach of duty will then fall for determination in light of the answer to that question.

What is required for the performance of the duty of a solicitor depends on the scope of the solicitor’s retainer, as well as the scope of any additional responsibility assumed and relied on by the client, the nature of the task entrusted to, or undertaken by, the solicitor, and the circumstances of the case: Trust Co of Australia v Perpetual Trustees WA Limited (1997) 42 NSWLR 237 at 247 to 248 per McLelland CJ in Eq. See also Carew Counsel Pty Limited v French (2002) 4 VR 172 at [29].

In Winnote Pty Limited v Page (2006) 68 NSWLR 531 at [84], Mason P (with whom Tobias JA agreed) observed:- “In a situation like the present, the contractual and tortious duties of care were both co-existent and co-terminus. The scope and duration of each depended essentially upon the task for which the solicitors were engaged and which the solicitors embarked upon. There may be cases where some duty to inform or advise outlives the duration of the contractual retainer, but that possibility need not detain us here. Questions of duty, breach and damages in professional negligence claims depend closely upon the scope of the retainer. In both contract and tort, ‘the duty is to apply the relevant degree of skill and exercise reasonable care to carrying out the task’ (citing Heydon v NRMA Limited (2000) 51 NSWLR 1 at [147]) per Malcolm AJA.”

The allegations of breach of duty in this case include but are not confined to, allegations of a failure or omission, including failures to warn and to advise Mr Chahine (as for example, a failure to warn of the risks of not establishing by expert valuation the current market value of properties offered as security).

The plaintiffs’ case is that NOT Lawyers’ retainer was to “do the work necessary to effect the sale of (ABC’s) property at Bankstown” (Exhibit 14, p.108). “The work” required, in particular, of Mr Nash was said to have included the obligation to “satisfy himself that the plaintiffs had adequate security to ensure receipt of the Delayed Payment” (Exhibit B, Tab ABC 9, ABC 16, ABC 17; Plaintiffs’ Final Submissions , paragraph 3(a). On this basis, an issue arises as to whether Mr Nash performed the work required by his retainer according to the required standard.

I have set out earlier in this judgment the alleged duty of NOT Lawyers as pleaded in the Fourth Further Amended Statement of Claim and the contentions as to the duties relied upon in the final submissions for the plaintiff as well as the contentions as to breach.

The scope of any retainer and the ambit of the implied duty to carry out the retainer with reasonable care, depends upon the facts peculiar to the relationship between the solicitor and the client in each case: Larsen v Lynch [2006] FCA 385 at [27]. Reference was made in that case to the observations of Oliver J in Midland Bank Trust Co Limited v Hett, Stubbs & Kemp (A Firm) [1979] 1 Ch 384 at 402; “there is no such thing as a general retainer in that sense. The expression ‘my solicitor’ is as meaningless as the expression ‘my tailor’ or ‘my bookmaker’ in establishing any general duty apart from that arising out of a particular matter in which his services are retained” .

It is well-accepted then that the duty of a solicitor arises from the relationship of solicitor/client and from the work undertaken by the solicitor. In Beach Petroleum NL v Kennedy & Ors (1999) 48 NSWLR 1 at [188], the Court of Appeal (Spigelman CJ, Sheller, Stein JJA) observed:- “Even in the case of a solicitor client relationship, long accepted as a status-based fiduciary relationship, the duty is not derived from the status. As in all such cases, the duty is derived from what the solicitor undertakes, or is deemed to have undertaken, to do in the particular circumstances. Not every aspect of a solicitor client relationship is fiduciary. Conduct which may fall within the fiduciary component of the relationship of solicitor and client in one case, may not fall within the fiduciary component in another.”

A solicitor’s obligations may, in the circumstances of a case, operate to require a client’s attention be drawn to a material matter that may adversely affect his or her interests. This may be of importance in a case where the client’s interests, as lender or vendor, require protection in the event of default. In David v David [2009] NSWCA 8, Allsop P, with whom Hodgson JA and Handley AJA agreed, observed that:- “76. … If, however, the solicitor during the execution of his or her retainer learns of facts which put him or her on notice that the client’s interests are endangered or are at risk unless further steps beyond the limits of the retainer are carried out, depending on the circumstances, the solicitor may be obliged to speak in order to bring to the attention of the client the aspect of concern and to advise of the need for further advice either from the solicitor or from a third party.”

Similarly, if a client provides instructions to pursue a particular course of action, which is imprudent, the solicitor may, depending on the circumstances, be required to warn and advise the client of the risks of doing so thereby ensuring that the client understands the nature of the risks which the instructions entail. The obligation to do so may be seen as one aspect of a solicitor’s duty to obtain “informed instructions” , a matter discussed below.

A solicitor’s duty of care requires the application of the relevant degree of skill and diligence and the exercise of reasonable care in carrying out the task, the subject of the retainer. There is no implied undertaking that the advice is correct. The undertaking is that the requisite degree of professional skill and care will be exercised in the giving of advice.

In Heydon v NRMA (2001) 51 NSWLR 1, Malcolm AJA at [147] observed that:- “… Of course, where there is reason for doubt or there are risks which a person possessing the relevant degree of skill and competence should perceive, it follows from the above that there may be a duty to warn of the kind recognised by their Honours in Rogers v Whittaker. Thus, in Hawkins v Clayton (at 583-585), it was held by Deane J that, in the case of a solicitor, the circumstances may give rise to a duty to do more than simply perform the task defined by his instructions, if circumstances arose giving rise to a real and foreseeable risk of economic loss by the client, or, in particular circumstances even a person who is not a client but who may be adversely effected …”

In a case such as the present, it is the combination of the factors that may constitute or give rise to a “risk” of economic loss and the fact that a solicitor exercising reasonable care and competence could perceive such a risk, that activates the duty to warn and advise the client.

The standard to be applied in tort is then that which may reasonably be expected of practitioners: Heydon (supra) at [146]. Reference was made in that case (at [144]) to the observations of the High Court in Rogers v Whittaker (1992) 175 CLR 475, a case of a medical practitioner, (at 483) wherein in the joint judgment of Mason CJ, Brennan, Dawson, Toohey and McHugh JJ, stated that the law imposed a duty to exercise reasonable care and skill in the provision of professional advice and treatment and that the standard of reasonable care and skill required is that of the ordinary skilled person exercising and professing to have that special skill. In Heydon (supra), Malcolm AJA at [146] observed that, in his opinion, the approach adopted in Rogers (supra) is applicable to the duty of care of legal practitioners and to the standard of care. In the context of that case, the duty of the barristers and solicitors was to exercise reasonable care and skill in the provision of professional advice.

On the basis of the analysis of evidence, findings and conclusions in paragraph [367] to [498], I have concluded that NOT Lawyers were in breach of their duty of care to ACT in the following respects:- (1) Failing to advise and inform the plaintiffs on the inquiries that were necessary in determining whether the Bankstown, Blackheath and Queensland securities were acceptable securities. (2) Failing to ensure that Mr Chahine was given advice and information concerning the securities in order that he would be in a position to provide Mr Nash with informed instructions. (3) Failing to properly advise Mr Chahine of the cost and arrangements that were necessary in obtaining ABC’s own valuation of the current market value of the Queensland property. (4) In providing Mr Chahine with an erroneous estimate of the cost of obtaining a valuation of the Queensland property. (5) Failing to advise Mr Chahine of the need to obtain a valuation report and the dangers of placing any reliance upon the Conroy valuation. (6) In proceeding upon the basis that writing to Mr Conroy in terms of his letter of 2 November 1999 was an appropriate course to follow in ascertaining the current market value of the Queensland property. (7) In failing to undertake proper inquiries into establishing the current market value of the Queensland property. (8) In completing the transaction on 12 November 1999 without a report on valuation of the Queensland property or written confirmation by Mr Conroy addressed to ABC/Mr Chahine. (9) Failing to advise and warn Mr Chahine/ABC of the risks associated with the Bankstown/Blackheath securities (the cross-collateralisation of those securities). (10) Failing to take steps to ascertain the current market value of the Blackheath property and verification of the amounts owing under existing mortgages on the Blackheath property. (11) Failing to explain the implication of the cross-collateralisation proposal. (12) Failing to advise Mr Chahine to defer completion of the transaction until all inquiries referred to in the preceding paragraphs were completed. (13) Failing to advise Mr Chahine of the risk in relying upon the Bankstown, Blackheath and Queensland securities. (2) Causation

The issue of causation involves consideration of matters that contributed to Mr Chahine’s state of mind. These include the factors that were motivating Mr Chahine to proceed with settlement as well as any constraining factors including any anxiety and concerns he held and which he expressed to Mr Nash in terms of the need for satisfactory or adequate security.

In the nature of many commercial transactions, tension may arise between the factors that provide an incentive for a person to enter into a transaction and those which represent risk in doing so.

It is central to the case of NOT Lawyers that the incentives for Mr Chahine were so strong that no advice or cautioning from Mr Nash on matters of risk or security (including the concerns on the matters raised by Mr Chahine) would have dissuaded him from proceeding to completion.

Mr Chahine, on the other hand, points to a number of other matters. These include the strong reservations and concerns which both he and Mr Nash held as to the bona fides of members of the Huxley Group and the possibility that they would not perform their contractual obligations. Additionally, reliance was placed on the evidence of Mr Chahine’s concern as expressed in statements and instructions given to Mr Nash as to the need to obtain adequate security.

The state of mind issues, accordingly, require close consideration of the contemporaneous documentary evidence in addition to the sworn evidence in the proceedings. In relation to the limitations that exist with the evidentiary materials, I note:- (1) The sworn testimony of both Mr Chahine and Mr Nash was given many years after the material events. (2) Whilst it is customary for a solicitor to record by note or reference in correspondence to a client important matters of discussion, instructions and advice, Mr Nash’s failure, with some exceptions, to maintain file notes in relation to discussions, including important discussions he relied upon as having had with Mr Chahine, means that his evidence is, in some instances, a reconstruction based on his unaided recollection. Ultimately, the reliability of his evidence is to be evaluated in context and in light of all relevant evidence. (3) Mr Chahine had a habit of creating notes on emails and other correspondence which he received from Mr Nash and not infrequently sending copies of such correspondence back to Mr Nash with notes of his observations or instructions. Whilst these records play an important part in the evidentiary analysis, I note that not all matters relied upon by Mr Chahine have documentary support. (4) Factual issues relevant to causation have required a close examination of particular conversations said to have taken place between Mr Chahine and Mr Nash as set out in their primary and reply affidavits. The failure by one of them to address and refute particular conversations on matters of significance given in the affidavit evidence of the other may, to a point, where no explanation is given for such failure, assist in the task of establishing relevant facts. (3) Factual matters relied upon by NOT Lawyers

NOT Lawyers relied upon a number of circumstances which they contended provide an insight into Mr Chahine’s state of mind up to the date of settlement. I have closely considered such matters in relation to the issue of causation. I refer to them in the paragraphs that follow.

The Bankstown project had been a long term one for Mr Chahine. He had invested considerable time, money and effort in acquiring the land and in endeavouring to bring about a joint venture with ECU.

He was in a vulnerable position by September 1999. The joint venture proposal with ECU had collapsed, EFMS was threatening recovery of approximately $622,000 from ABC and a little later ECU threatened possession proceedings.

The practical effect of the s.57(2)(b) notices served by ECU on ABC was to establish a timeline at the end of which, in the event of ABC failing to pay in accordance with the demand on it, ECU would be likely to commence proceedings for an order for possession.

The options facing Mr Chahine in that period were limited. In the time available, refinancing was not viable. All efforts by and on behalf of Mr Chahine were, accordingly, directed to an urgent sale of the Bankstown property in order to avoid ECU selling as mortgagee in possession.

The limited time did not permit a marketing campaign to be undertaken and, as at October 1999, the Huxley Group was the only obvious buyer.

From Mr Chahine’s perspective, there would have been a number of negative factors arising from a mortgagee sale including possible damage to his reputation including a possible adverse impact upon his creditworthiness. In addition, there was the possibility that a lower price would be achieved if sold by the mortgagee (ECU) than by ABC.

ABC had not, prior to 12 November 1999, obtained legal advice on whether there were grounds for successfully defending any possession proceedings brought by ECU commencing proceedings. To that extent, it was not in a position of strength vis a vis ECU.

Apart from the negative pressures, Mr Chahine was very much attracted to the sale to the Huxley Group given the potential significance of the return and, in the event that the transaction was competed and the first two towers were built, the possibility of Artistic obtaining “product” from the proposed construction.

NOT Lawyers also relied upon statements which Mr Nash said were made on a number of occasions by Mr Chahine to the effect that the last thing he wanted to see was a sale pursuant to the exercise by ECU of its power of sale under its mortgage on the Bankstown property. These statements were relied upon for the contention that, had appropriate advice been given by Mr Nash, such was Mr Chahine’s asserted desperation he would still have proceeded with the transaction. (4) Plaintiffs’ responses

It was submitted for the plaintiff that the statements attributed to Mr Chahine cannot be taken as establishing that Mr Chahine would have proceeded with the transaction under any circumstances: written submissions at [48]. One telling piece of evidence was said to be Mr Chahine’s written instructions concerning the tax advice, which indicated that the issue of Capital Gains Tax was a circumstance that would have stopped him from completing the transaction.

It was also contended for the plaintiffs that the submissions for NOT Lawyers impute to Mr Chahine an irrational state of mind. It was contended that, as a reasonable successful property developer, like most ordinary rational people he would, if given the choice, have acted in a way which was to his commercial benefit rather than the opposite. It was contended it would be inconceivable that if Mr Chahine, who it was said Mr Nash conceded had become obsessed by the need for security (t.599), had understood that he had a choice between:- (1) one the one hand, entering into a transaction without commercially real security at all, and therefore, with no guarantee in respect of the $3.5 million unsecured promise (or more); (2) on the other hand, having the Bankstown property sold by ECU at a figure close to $7.5 million (which it was contended after deductions would have left Mr Chahine with approximately $5 million), that he would not have opted for the latter option. (The amount of $5 million is calculated on a price of $7.5 million on a mortgagee sale less deductions of $1.6 million owed to ECU and $627,000 held pursuant to the order of Bergin J).

Reliance was placed on Mr Chahine’s evidence that he would have opted for the latter option and the fact that it may have been his “least preferred option” was not to the point. (5) Causation principles

It is trite to say that a plaintiff must prove that a breach of duty was the cause of damage. Accordingly, the plaintiffs in these proceedings must prove the breach or breaches of duty by Mr Nash caused the plaintiffs to suffer loss or damage.

In relation to breach of duty by omission, there is a distinction in what a claimant must prove in the ‘fail to advise’ cases” and those based upon “negligent advice” .

In a “fail to advise” case, it is necessary for a plaintiff to establish:- (1) What advice should reasonably have been given. (2) That, on the balance of probabilities, what would have happened if that advice had been given.

The question as to what a client would have done had he/she been competently advised is a subjective inquiry (although it has been said one that is influenced by notions of what a reasonable person might do: Professional Liability in Australia (supra) at 503. Under Australian law, the fundamental test for causation in a case such as the present is a subjective one, namely, what would the plaintiffs (in particular, Mr Chahine), himself have done if proper advice had been given? See, for example, McHugh J at 246 and Kirby J at 272 in Chappel v Hart (1998) 195 CLR 232.

In negligent advice cases, on the other hand, the claimant’s task is simpler, namely, that he or she relied upon the negligent advice: Professional Liability in Australia , 2nd ed, Warmsley, Abadee and Zipser at 3.1335.

On the question of causation, a Court may draw inferences that a causal connection has been established by having regard to objective items of evidence, including in particular, contemporaneous facts or documents. The authorities establish that it is appropriate, when applying this test, to have regard to objective pieces of evidence. Otherwise, it has been observed, on occasion, justice would not be done: Gore (trading as Clayton Utz) v Montague Mining Pty Limited [2000] FCA 1214 at [38].

Similarly, McHugh J in Chappel (supra) at footnote 64 on p.246 made observations which, though made in the context of causation in medical cases, provide, in my opinion, guidance of equal application to this case. His Honour stated:- “… In determining the reliability of the plaintiff’s evidence in jurisdictions where the subjective test operates … demeanour can play little part in accepting the plaintiff’s evidence. It may be a ground for rejecting the plaintiff’s evidence. But given that most plaintiffs will genuinely believe that they would have taken another option, if presented to them, the reliability of their evidence can only be determined by reference to objective factors, particularly the attitude and conduct of the plaintiff at or about the time when the breach of duty occurred …”

The issue of causation in a case such as the present involves proof of a hypothetical situation – what would have happened if the solicitor had given the plaintiff the advice which he or she should have been given? If advice such as the plaintiffs claim in these proceedings ought to have been given, was given, would the plaintiffs still have proceeded with the transaction or not? In other words, what, on the probabilities, would Mr Chahine’s response have been if he had been provided with appropriate information and advice?

The standard of proof on such a hypothetical or notional question is ordinarily the general civil standard of proof, namely, on the balance of probabilities: Gore (supra) at [37]. In Sellars v Adelaide Petroleum NL (1994) 179 CLR 297 at 353, Mason CJ and Dawson, Toohey and Gaudron JJ observed:- “When the issue of causation turns on what the plaintiff would have done, there is no particular reason for departing from proof on the balance of probabilities notwithstanding that the question is hypothetical.”

The determination of causation then calls for consideration of the following questions:- (1) What information and advice ought to have been given by Mr Nash to Mr Chahine, in particular, in relation to the purchasers’ proposals for providing security for the transaction? (2) Would such information and advice have, as a matter of probability, resulted in a decision by Mr Chahine to have pursued a different course, namely, a decision to accept the exercise of ECU’s power of sale under its mortgage and to have received from the proceeds of sale an amount in respect of the plaintiffs’ equity in the Bankstown property?

Without evidence, in particular evidence of some cogency, which enables these questions to be answered, any answer to the hypothetical question to which I have referred would involve nothing more than speculation.

The issue of causation, therefore, involves a consideration of what would or would not have happened in the particular circumstances of the case: Bennett v Minister of Community Welfare (1991-1992) 176 CLR 408 at 421 per Gaudron J. It was there stated (at 423):- “It might be said that, where questions of causation depend on hypothetical considerations, allowance should be made, as in the assessment of damages, for the possibility that some event would not have occurred. Possibilities, if they are not fanciful, must be taken into account, at least in a general way, whenever causation or the related issue of prevention is in issue. But questions of that kind are not answered ‘maybe’ or, even, ‘more probably than not’ . They are answered ‘yes’ or ‘no’, depending on the probabilities for or against.” (emphasis added)

In examining the question of a causal connection through failure to advise, the following dicta of Gaudron J in Bennett (supra) is instructive (at 423):- “For the purpose of considering what would or would not have happened if the Director had discharged his duty, it is necessary to have some regard to the duty itself. The duty may be likened to the duty to warn or the duty to instruct a person who might otherwise be at risk of injury. The immediate effect of the duty is to provide that person with information which he can use to protect himself. So too, Mr Bennett would have been provided with information if the Director had discharged his duty in this case. And, consistent with the existence of that duty, it must be taken that that information would have enabled him to bring proceedings within the time fixed by the Statute of Limitations.” (emphasis added)

In the present case, Mr Nash’s retainer and the duty of care to be exercised in its discharge as discussed earlier encompassed a duty to seek instructions for undertaking the necessary inquiries and to warn and/or advise Mr Chahine in relation to the adequacy of the security proposed by the Huxley Group.

Mr Nash’s duty of care was not confined to a duty to inform and advise but it extended, in relation to the work undertaken pursuant to the retainer, to taking the necessary positive steps that a solicitor acting for the vendor in a transaction of the kind here in question ought to take in order to establish the adequacy of the security being proposed.

In relation to the duty to inform and advise, Gaudron J, in Bennett (supra), observed (at 423) that ultimately it was the lack of information which put the plaintiff in that case in the position whereby he lost his right to bring action to recover damages with respect to his 1973 injuries:- “… That lack of information was clearly referrable in the first instance to the Director’s breach of duty. And it remained referrable to that breach, notwithstanding efforts on Mr Bennett’s part to obtain legal advice. That is because there would have been no occasion for him to seek further legal advice through the Legal Assistance Scheme, had he been correctly advised in the first place …”

Accordingly, an absence of information or knowledge about a matter of significance (eg, a risk) may operate as a causative factor where there is a failure by a solicitor to inform and advise his or her client. In that way, a failure or omission to perform the duty of a solicitor can give rise to circumstances that produce loss or damage.

Cases that have dealt with similar issues as to whether a person would have acted had particular legal advice been given include Norwest Refrigeration Services Pty Limited v Bain Dawes (WA) Pty Limited (1984) 157 CLR 149 at Sykes v Midland Bank Executor & Trustee Co Limited [1971] 1 QB 113. See also Hanflex Pty Limited v N S Hope & Associates (1985) 2 QR 218.

In determining the question as to whether or not a client who is not given appropriate advice would have acted differently, the following observations were made in Sykes (supra) at 12:- “In these circumstances, it seems to me impossible for a court (which cannot hope to know the plaintiff’s business as well as Mr Sykes knew it) to hold that the plaintiffs would probably not have taken the risk of entering into these underleases. Mr Sykes would not say so. It might be different if there were any facts or contemporaneous documents pointing in the plaintiff’s favour – but there are none. On the contrary, all the known facts and documents strongly suggest that the plaintiffs would have taken the risk of entering into these underleases even if they had been properly advised …” (emphasis added)

In Sykes (supra), the plaintiffs sued their former solicitors in negligence upon the basis of a failure, prior to entering into a lease of office space, to advise them upon a provision in the lease whereby the “superior lessors” of the premises could withhold their consent to an assignment or a sublease.

Breach of duty having been established, the question was whether the solicitors’ negligence made any difference to the plaintiffs’ cause of action.

The approach taken by Harman LJ was to search for a contemporary indication of the way in which the plaintiffs’ minds worked.

The conclusion in Sykes (supra) was that there was no evidence upon which the Court could properly hold that, on the balance probabilities, the plaintiffs would not have taken the risk of entering into the underleases at the rents reserved, had they been advised of the true effect of the clauses in question in that case.

The decision in Sykes (supra) is an illustration of the approach to be taken in this case in the sense of the need to examine the presence and nature of “risk” , the advice required to be given in relation to it and, in light of contemporaneous documents, the likely response if properly advised. (6) Causation and risk

It is relevant to the notional question on causation to consider the nature and the consequences of the particular risk where there exists no verification or other satisfactory material to support the market value of a property proposed as security in a substantial transaction.

In the case of loan finance, security protects a lender’s interests in recoupment of the advance in the event of a default by the borrower in repaying the loan.

Whether particular real estate is sufficient in terms of its market value to provide the required protection is a matter which is conventionally established by way of expert valuation assessment. Without appropriate verification, any substantial loan by a lender would ordinarily be regarded as carrying an unacceptable risk.

The same, of course, applies in cases of a vendor who has accepted security for the balance of purchase price under a contract for sale of real estate instead of receiving the full purchase price in cash on completion. It applies also in a case such as the present where a vendor accepts security for the balance of the purchase money by way of a right to buy-back from the purchaser a unit or units in a completed development which the purchaser proposes to construct.

The absence of verification by expert valuation in either of the last two mentioned cases means that there would exist no basis upon which a vendor could be assured that the required protection of its interest exists.

The vendor’s solicitor’s duty to protect his or her client’s interest in such a case would require the client to be informed and warned of that fact, in particular, that the client’s interests in recovering what is promised cannot be safely protected without a report on valuation. This is the duty that arises where circumstances give rise to a real and foreseeable risk of economic loss as observed in Heydon (supra).

In the subject transaction, the amount at risk upon completion of the transaction was $3.7 million or the alternative possibility of the right in Artistic to elect to take title to specified units in the completed development of the Bankstown property. Either way, the value of the promised deferred interest was substantial, a matter relevant to the issue of the magnitude of foreseeable risk.

The evidence established that Mr Chahine had, throughout the negotiations with the Huxley Group, exhibited and expressed anxiety as to whether the “securities” offered would be sufficient to support the liability for which they were to be provided. The various comments made by Mr Chahine to Mr Nash concerning his perceived need for “good” or “adequate” security in themselves required Mr Nash to take appropriate steps to satisfy his instructions.

The effect of the submissions made on behalf of NOT Lawyers, however, is that, notwithstanding repeated statements by Mr Chahine concerning the need for security, if he had been told that he may have no or no adequate or satisfactory protection for the Deferred Payment of $3.7 million without an up-to-date expert valuation report, Mr Chahine would nonetheless have proceeded with the transaction and accepted the risk. This submission relies upon the contention that the factors that were driving Mr Chahine to conclude the deal with the Huxley Group were so powerful they would have led him to abandon the caution of obtaining adequate security that he had been emphasising in his statements to Mr Nash up to the date of settlement.

It is necessary to consider the alternative Mr Chahine would have faced in not proceeding with the transaction. A sale by ECU by the exercise of its power of sale was not, of course, one that would have been disastrous in the sense of it producing a total loss for Mr Chahine or ABC. The essential principle, however it is expressed, is well accepted that a mortgagee, in exercising its right to realise a security, must exercise the power of sale vested in it in good faith and take reasonable precautions to obtain a proper price.

Although the alternative of a mortgagee sale was clearly not as attractive to Mr Chahine as the transaction involving the promise of the Deferred Payment of $3.7 million (or “product” ), if given appropriate advice by Mr Nash as discussed above, the prospective outcome of a mortgagee sale was a matter that Mr Chahine would have needed to have considered and balanced against the possibility, which was far from a theoretical one, that, without adequate security and in the event of default by the Huxley Group, the securities offered may prove to be inadequate or worse, valueless.

It is, of course, necessary to take into account the evidence which assists in determining Mr Chahine’s likely approach to dealing with business or financial risks. In this respect, it is relevant to inquire what his conduct, in particular his statements to Mr Nash, indicates as to his attitude to risk. Does the evidence reveal him in the circumstances that existed in 1999, as exhibiting a tendency of assuming a high level of risk or does it demonstrate a more cautious approach?

The evidence reveals Mr Chahine to have been closely and actively involved in negotiations, meetings and in providing instructions to Mr Nash. After, he, it would seem, reluctantly agreed to a sale on a staged basis, he was consistent if not persistent in his instructions to Mr Nash that “good” or adequate security was required. His requirement in that respect was expressed at the initial meeting with the purchasers. His later statements to the same effect occurred following a warning as to Mr Huxley’s bona fides and after he had come to distrust the Huxley Group.

Mr Chahine had experience in business matters and the evidence indicates that he possessed an ability to make judgments and decisions on matters affecting financial and property interests of himself and those of his companies.

Accordingly, whilst he was undoubtedly very keen to complete the transaction for all the reasons identified above, the evidence also indicates that he was not minded, on the question of adequate security, to throw caution to the wind and simply rely, as a matter of trust, on the integrity and capacity of the Huxley Group to meet their obligations.

In determining what Mr Chahine would have done if properly advised by Mr Nash, it is, as earlier stated, necessary to bring into account what a prudent solicitor would have said to him by way of warning and advice concerning the need for adequate security and the steps to be taken to obtain it.

The observations made in Mr Moses’ report, in my opinion, support the proposition that, in the circumstances of the case, advice that would have been given by a prudent solicitor to Mr Chahine to the effect that the Queensland property could only be considered to be “adequate security” if Mr Chahine obtained his own valuation report or confirmation was obtained from Mr Conroy addressed to him as to the property’s market value and that such value was at a level, having regard to the amounts secured by the three existing mortgages, that it would still represent adequate security.

As matters stood on the date of settlement, 12 November 1999, there was no such report or confirmation in existence and the balance of the evidence indicates that he was not informed of that fact. The advice of a reasonably prudent solicitor in those circumstances would have been that Mr Chahine ought not complete the transaction without obtaining a valuation of the property by a valuer engaged by him or receiving confirmation by Mr Conroy in a letter addressed to Mr Chahine. The advice of a prudent solicitor would have been to postpone completion until a proper valuation or confirmation was obtained and being one which established that there was adequate security in the Queensland property to secure the Deferred Payment.

Whilst it was argued for NOT Lawyers that Mr Chahine was “desperate” to complete the transaction, no submission was or, in my opinion, could have been validly made that he was a client who refused to take or act upon advice given by Mr Nash up to that time (ie completion). There existed a consistent theme to Mr Chahine’s communications with Mr Nash on the subject of the need for adequate security. No suggestion has been made to the effect that any of his statements or instructions to Mr Nash concerning the need for security were, in any way, disingenuous or contrived.

The evidence as to Mr Chahine’s anxiety and caution was noted by Mr Moses in his report (paragraph 42):- “42. Subject to the matter of the ascertainment of the cost of an up-to-date valuation and the consequences which might have followed if that cost had been passed on to Mr Chahine and assuming the solicitor’s account of events is accurate, I confirm my earlier opinion that, in the circumstances, the solicitor acted reasonably in accordance with appropriate practice in accepting instructions to proceed provided that the valuer confirmed to Artistic authorship of the valuation and the value shown thereon. This is particularly so in regard to the time pressure which existed in the matter although it must be borne in mind that Mr Chahine’s anxiety about the valuation is confirmed by a handwritten comment on a letter sent to him by the solicitor on 25 October 1999 stating ‘Please check the valuation. Only solid security required’ .” (emphasis added)

Reference has earlier been made to the observations of McHugh J in Chappel (supra) to the effect that the reliability of the evidence of a plaintiff to the effect that he or she would have taken a different option or course is one to be assessed by reference to objective factors, particularly the attitude and conduct of the plaintiff at or about the time the breach of duty occurred.

In this case, different or competing aspects of the attitude and conduct of Mr Chahine have been emphasised in the submissions of the parties. All such matters are to be evaluated, firstly, in order to determine reliability of Mr Chahine’s evidence and, secondly, in order to establish whether, as a matter of probability, if appropriate advice had been given, Mr Chahine would have decided against proceeding with the transaction.

The conduct of Mr Chahine includes, in this case, his communications with and his instructions to Mr Nash. These, as I have stated, conveyed a consistent proposition, namely, adequate security was essential.

Mr Chahine communicated with Mr Nash on the issue of security both orally and in writing. His statements effectively repeated the same message through to the date of completion. However, the various statements on the matter do not give the impression of being formulaic or mechanical in style. The variations in mode of expression rather convey, or are at least consistent with, anxiety or a real concern about the matter of security. It is within ordinary human experience that, however expressed, the repetition of a message or an instruction is often done for purposes of emphasis. It is conduct that may convey a particular caste of mind or attitude by the person speaking or giving the instructions.

It should, in my opinion, be concluded that the evidence reveals that Mr Chahine was, at all relevant times, resolute in his intention to complete the transaction only on the basis that adequate or satisfactory security was provided by the purchasers and not otherwise. His conduct, his insistence in that regard is consistent with a perception, which of course was a correct one, that an unsecured transaction of the kind in question, that is one for which there was no confirmation as to security, entailed an unacceptable risk.

The conclusion in that respect I have reached after having given particular consideration to the matters relied upon by NOT Lawyers including the statements attributed to Mr Chahine to the effect that he did not wish ECU to exercise its power of sale and that that was the last thing he wished to happen. The reality of assessing risk and choosing between options is that, notwithstanding statements of that kind, in a choice between alternatives, I consider that it is likely on the probabilities, that, given proper advice from a prudent solicitor on the question of security, Mr Chahine would not, as a rational businessman, have elected to take what would have been the unacceptable risk of proceeding with the transaction without confirmation of the security offered and simply rely upon the otherwise doubtful bona fides and capacity of the Huxley Group. PART J – LIMITATION OF ACTIONS DEFENCE (1) The limitation defence

As earlier noted, whilst the present proceedings were commenced by Artistic on 13 July 2001 ABC was only added as a co-plaintiff on 21 March 2007 by order of the Court (Bell J) made on the latter date.

In relation to the case for Artistic and ABC, namely, that neither company would have entered into the transaction but for the negligence of Mr Nash, the claims made are:- (1) In respect of Artistic, damages in respect of costs incurred by it in pursuing Elliot & Tuthill in proceedings initiated against that company. (2) In respect of ABC, damages for the loss of the Bankstown property less the amount of $3 million received from the purchaser Nordoc.

NOT Lawyers pleaded in their defence and contend that the action of ABC is statute-barred: Limitations Act , s.14. (2) The submissions for NOT Lawyers

In support of the limitation defence, it was submitted:- (1) ABC’s cause of action against NOT Lawyers in contract accrued on 12 November 1999 as loss and damage arising from the alleged breaches of retainer occurred on that date. (2) ABC’s causes of action in negligence and pursuant to s.68 of the Fair Trading Act 1987 also accrued on that date as the damage claimed was initially suffered when ABC conveyed the Bankstown property to Nordoc. (3) The relevant limitation period in respect of those causes of action is six years. (4) That limitation period expired on 12 November 2005. (5) Accordingly, ABC’s causes of action against NOT Lawyers are statute-barred.

In support of its above submission, NOT Lawyers referred to the observations of Handley JA in Argyropoulos v Layton & Ors (2002) 36 MVR 432; [2002] NSWCA 183 at [5]:- “A client who complains that his solicitor has been guilty of professional negligence has remedies in contract and tort. Any cause of action in contract accrues on breach, and time then begins to run for limitation purposes irrespective of the accrual of any damage. A cause of action in tort accrues when measurable damage is first suffered even though further damage continues to accrue.”

The principles that apply to both the tortious cause of action (negligence) and the statutory action (under to s.68 of the Fair Trading Act ), were stated in Wilson v Rigg (2001) 36 MVR 451; [2002] NSWCA 246 at [21] and [23] as follows (per Santow J, foster AJA agreeing):- “So far as the duty was tortious, the appellant’s cause of action against the respondent accrued when he first suffered damage in consequence of the breach of duty. Damage is an element of a cause of action in tort for negligence, and the cause of action is not complete until damage is sustained but is then complete even though further damage is later sustained. There must be actual damage, as distinct from the risk or prospect of damage or contingent damage, and the damage must be measurable or behind what can be regarded as negligible. Within those guides, however, whether and when damage is suffered is a matter of fact.”

NOT Lawyers observed in its submissions that as ABC was the sole registered proprietor of the Bankstown property, any cause of action belonged to it and no other entity. It was submitted that it is plain that ABC suffered loss as soon as Bankstown was conveyed to Nordoc as part of the transaction on 12 November 1999. On that date, ABC parted with a property worth $7.5 million for an amount substantially less than that.

The loss claimed, NOT Lawyers further argued, was in no sense a contingent or prospective loss or damage:- “… Whether or not the construction went ahead, whether or not Nordoc complied with notices issued by Artistic pursuant to the rights vested in it by the Unit Trust Deed and whether or not the mortgages and guarantees held by Artistic provided sufficient to secure such rights in no way diminished or qualified that fact. Those benefits would have accrued solely to Artistic.” (NOT Lawyer’s Closing Submissions, paragraph [244] )

Reliance was also placed upon the principle stated in Environmental Systems Pty Limited v Peerless Holdings Pty Limited (2008) 19 VR 358, [109] to [117] per Neetle JA (with whom Ashley and Dodds-Streeton JJA agreed):- “… As the High Court also emphasised in Commonwealth v Cornwell with causes of action for economic loss there has to be some actual damage before the cause of action accrues, and there is no actual damage before the existence of loss is ascertained or ascertainable. So, although the prospect of loss may be inherent in a transaction, it is not until the loss has been necessarily and irretrievably sustained that the cause of action accrues. Accordingly, apart from ‘transaction cases’ where property is sold or acquired at a disadvantageous price, or the opportunity of the lucrative exploitation of contractual rights or of some other commercial opportunity is lost, it is usually not unless and until a transaction generates loss that time begins to run.”

NOT Lawyers therefore referred to what was said to be the essential facts, namely, that the Bankstown property was worth $7.5 million, that the contract for sale between ABC and Nordoc was for $3.5 million and that, accordingly, the sale was clearly one effected for a “disadvantageous price” . Damage or loss therefore occurred on sale and ABC’s cause of action accrued to it at that time.

Mr Stevenson in his final oral submissions referred to what he termed “important background evidence” (t.756). This commenced with reference to the capital gains tax issue that arose prior to 12 November 1999 and the fact of expert advice on that issue having been taken by Mr Chahine. It was in consequence of decisions made following receipt of that advice that Artistic and not ABC became the owner of the B class unit. This outcome was said to have been driven by capital gains tax considerations. A legitimate structure was created in order that ABC would be spared the burden of a very large tax liability falling into one year (that is, ABC having to pay capital gains tax on the whole $7.5 million value of the property in circumstances in which it would only receive $3.5 million in that year, the tax year ended 30 June 2000). The estimate of the capital gains tax liability was $2 million.

Mr Nash provided advice to Mr Chahine on the potential problem in a facsimile dated 25 October 1999, p.1, Exhibit 19, at p.190. In a letter of the same date, Mr Nash outlined the matter to Mr Jason Murray, who is apparently an expert on capital gains tax issues.

Mr Nash outlined to Mr Chahine the structure for the transaction as proposed by him in a letter of 29 October 1999 (Exhibit 19, pp.142-143):- “I can advise you that the structure that I have in mind at the moment is as follows:- 1. Settle a unit trust of which a company I have incorporated for this particular purpose, Nordoc Pty Limited … is to be the trustee. 2. Your nominees are to hold units in the trust and you should get some advice about who they should be. 3. ABC … sells the land to Nordoc for $3,500,000.00 (not for $2,000,000.00 with a $1,500,000.00 trust distribution as previously disclosed). 4. This means that Huxley’s side will have to pay $3,500,000.00 into Nordoc to enable it to pay it to ABC. 5. At the same time as the land is transferred, but immediately prior to that, you transfer your units to the Huxley interests and your interests resign from all necessary offices and the Huxley interests take over. 6. This will give rise to a Capital Gains Tax (‘GST’) issue for ABC and there will be no stamp duty implications on this transfer of the property and the transfer of the units for the Huxley interests …”

NOT Lawyers therefore submitted that, in substance, ABC effectively gave away to Artistic, for reasons well understood the entitlement to receive the balance of the purchase price. It was Mr Chahine, not ABC, who nominated Artistic as the trustee of the Unit Trust. Artistic was not ABC’s “nominee” . Mr Stevenson in this respect submitted:- “…, what we see is that Mr Chahine allowed ABC, the company he owns, to part with its property at less than value because, ultimately, Mr Chahine thought that he, through his separate share holding in Artistic, would derive a profit, no doubt (in) Mr Chahine's mind, the benefits which were to accrue according to the plan to Artistic, represented the balance of the purchase price. … So in some sense you could understand why Mr Chahine might think over all, Mr Chahine, won't suffer loss until Artistic calls on Nordoc for money or product. That doesn't alter the fact that the loss of what ABC suffered, it was suffered immediately. …” (transcript, 23 April 2010, at p.779 to 780)

In summary, the argument for NOT Lawyers was that ABC was prepared to accept $3.5 million for the sale of the property, was content for Artistic to obtain the B class unit – a benefit ABC was prepared to forego and for Artistic to obtain the benefit as holder of the unit. Artistic, it was intended, through the Unit Trust, would be the entity to receive the benefit of the balance of the consideration agreed upon for the sale of the property.

Nordoc was appointed the Trustee of the Unit Trust established by the Unit Trust Deed. Exhibit E, Tab 2, clause 5.4.1 of that deed provided:- “5.4 Each of the Holders of each “B” class unit share be entitled:- 5.4.1. To require the Trustee by three (3) notices in writing given to the Trustee after the line set out below to pay or transfer to the said Unit Trust Holder the sum of three million seven hundred thousand dollars ($3,700,000) in cash together with interest calculated on the said sum at the rate of eight dollars per centum per annum (8%) compounding monthly from the date hereof until the date of payment of the last of the three (3) tranches set out below and the Trustee shall be bound to pay the money to the B Class Unit Holder within (7) days of the date of each notice and whether or not there are sufficient Trust funds to enable such payment to be made.”

In summary, the transaction was structured so that ABC agreed to sell the property worth $7.5 million to Nordoc for $3.5 million and Nordoc agreed to confer a benefit to Artistic which was its entitlement as a Unit Holder.

Mr Stevenson argued for NOT Lawyers that it is against that background that the limitation defence should be examined. Finally, it was observed that the fact that ABC and Artistic are different and separate entitles is a fundamental fact in the analysis. (3) The submissions for Harris & Company

The submissions for Harris & Company addressed the issue of the loss incurred by ABC from the transaction of 12 November 1999. In this respect, it was contended that ABC’s “bargain” was that on exchange and settlement it would received not only $3.5 million payable directly to itself, but it would also have issued by Nordoc to Artistic a B-class unit in the Trust. It was said that the “bargain” included the fact that Nordoc’s purchase of the Bankstown land would be made in its capacity as trustee of the Trust and that Nordoc would execute the Trust Deed.

As the terms of clause 5.4 of the Deed set out above indicate, there attached to the B-class unit the right of the holder (Artistic) to receive staged instalments totalling $3.7 million and the alternative right to call for apartments and commercial areas in the proposed building to be transferred at a value of approximately $4.9 million. It was said also that part of ABC’s bargain, upon the terms on which the contract for sale was entered into and completed was that Artistic’s rights under the B-class unit would be secured by various mortgages, company charges and guarantees.

Mr Fagan submitted that there was no immediate loss to ABC upon exchange and settlement. ABC received what it had bargained for, namely, $3.5 million to itself and the issue to Artistic of the B-class unit in the Trust, with the abovementioned rights attached, and mortgage securities, company charges and guarantees:- “On a bargain of this nature, loss could only be said to have been occasioned to ABC upon the rights attached to the units proving to be not fully enforceable” : Submissions on behalf of Harris & Company at [68].

It was further submitted that, at the point when Artistic’s rights to payment and/or transfer of property proved not to be fully enforceable, in order for ABC to achieve what it had intended by the transaction, it would have had to find from its own resources $3.7 million to transfer to Artistic:- “The measure of ABC’s loss is the amount of shortfall in Artistic’s ability to enforce the rights under the B-class unit against Nordoc and/or against securities, company charges and guarantees held. In the events which occurred, the entitlement to $3.7 million has proved wholly unenforceable by Artistic.” (Submissions on behalf of Harris & Company at [69])

It was argued that the appropriate measure of ABC’s loss is the amount of shortfall in Artistic’s ability to enforce the rights under the B-class unit against Nordoc and/or against securities, company charges and the guarantees held.

These contentions were supported by a further argument, namely, that the loss suffered by ABC upon Artistic becoming unable to recover its entitlements under the B-class unit in the Trust, is one that does not depend upon ABC having itself had any property or interest in the B-class unit or in the entitlement:- “… Inability of Artistic to recoup payment from Nordoc was loss to ABC because it was a failure of ABC to achieve that which it sought to bring about by the transaction, namely, substantial payment (or transfer of real property units in the development) to Artistic.” (Written submissions at [70])

It was upon this line of argument that the question of the point at which time commenced to run was addressed. It was noted in this respect that Artistic’s entitlement to receive payment pursuant to clause 5.4.1 of the Trust Deed was deferred until it should give notice for the first instalment of $1.235 million. Notice could only be given “after” the expiry of 15 months from settlement, namely, after 12 February 2001.

Notice was first given, according to the evidence, on 29 May 2002. The submission was that the period of seven days after 29 May 2002 was the earliest date of default by Nordoc in fulfilling its monetary obligations to Artistic, namely, 5 June 2002. On this basis, it was argued, ABC cannot have suffered loss through the transaction of 12 November 1999 on any date earlier than this:- “… At any earlier time the possibility of loss being sustained by ABC, through Artistic not being able to enforce or recoup its entitlements to the staged payments under the B-class unit, was only contingent.” (Written submissions at [71])

Accordingly, so the argument ran, the sustaining of loss at some date after 5 June 2002 completed ABC’s cause of action in negligence against Mr Nash (on the assumption that breach has been proved). This, it was said, was less than six years before the joinder of ABC as a plaintiff to the proceedings (by way of Amended Statement of Claim on 26 March 2007). Any cause of action which accrued no more than six years earlier, that is, accrued on or after 26 March 2001, was not time barred.

It follows, it was contended, that ABC’s action in tort pleaded in the Amended Statement of Claim is therefore not statute-barred.

It was acknowledged that ABC’s cause of action in contract became statute barred on 12 November 2005. However, it was also argued in this respect that the loss of the action in contract had caused no damage to ABC as the damages (if any) it could have recovered under a cause of action in contract may be recovered under the cause of action in negligence. (4) NOT Lawyer’s further submissions on limitations in reply to Harris & Company

NOT Lawyers contested the analysis put on behalf of Harris & Company. In doing so, it was argued in the Further Submissions in Reply on Limitations that fundamental to the argument of Harris & Company is reliance upon what was said to be an appropriate analogy with the situation of a mortgage lender. The analogy was said to be a flawed one.

Both NOT Lawyers and Harris & Company accepted that the first and critical step in the consideration of the limitation issue is the identification of ABC’s loss and this by reference to the nature of the interest infringed.

NOT Lawyers submitted that the mortgage authorities (referred to below) are distinguishable for a number of reasons as set out in its closing submissions of 21 April 2010, it’s reply submissions on 22 April 2010 and its further written submissions dated 23 April 2010.

It was argued that the critical factual distinction between the mortgage authorities and the present case is that in this case the entity with the actual interest in “recoupment” (Artistic) is distinct from the entity which made the so-called “advance” (ABC). In the mortgage cases, however, the relevant entity – the mortgage lender and the entity with the interest in “recoupment” – was one and the same.

Harris & Company, in response, submitted that that distinction did not alter the applicability of the analysis in the mortgage cases. This was upon the basis of the relevant loss being the “[i]nability” of Artistic to recoup payment from Nordoc, which is said to be loss to ABC because it constitutes “a failure [by] ABC to achieve that which it sought to bring about by the transaction” : NOT Lawyer’s Further Written Submissions at [8].

NOT Lawyers, on the other hand, contended that:- “It could not be plainer that if this is the true characterisation of ABC’s loss, then its loss is a pure expectation interest. That it is an expectant interest is confirmed beyond doubt by Harris & Company’s submission as to the appropriate measure of loss: paragraph [69] of its submissions (NOT’s Further Submissions, paragraph 9).”

NOT Lawyers further argued that it is true to say that in the mortgage authorities, the lender’s “interest” said to be infringed is the loss of the recoupment of the amount advanced. However, it contended:- “… On the other hand, because the entity in those cases is the entity both making the advance and seeking the recoupment, those authorities have not considered a case such as the present where those two factors have been separated.” (NOT Lawyer’s written submissions, paragraph 10)

Accordingly, the true rationale for the mortgage cases was said to be a fundamental matter and one to be taken into account when analysing the situation in the present case.

NOT Lawyer’s submitted that there were only two possibilities:- (1) That the interest being infringed is always defined by what the plaintiff sought to achieve in the transaction; or (2) That, as in the mortgage cases, the interest infringed is the loss of the ability to recoup the monies advanced because – and only because – the true loss to the lender is the advance paid away, less the recoupment – whether through recoupment by the borrower, or enforcement of a security.

In this respect, it was observed:- “… This is the interest infringed because the possibility of recoupment carries with it the possibility of making good the loss. The loss – the advance – is therefore contingent, because the transaction always carried with it the possibility that the initial loss is made good.” (NOT’s Lawyers Further Written Submissions, paragraph [12])

NOT Lawyers, accordingly, argued that the latter feature is not present in this case – the possibility of “recoupment” by Artistic, never had the possibility of making good the loss by ABC (NOT Lawyer’s Further Written Submissions, paragraph [13]).

NOT Lawyer’s argument was supported by dicta of Warren J (as her Honour then was) in Di Sante v Camando Nominees Pty Limited [2000] VSC 211 at [22]. There, the position was analysed by stating that two steps were involved in ascertaining the accrual date in economic loss cases. These were stated to be: first, identifying the interest that is alleged to have been infringed. Second, if the interest is an interest in recouping monies, then it is necessary to fix the time when recoupment became impossible, that is, to identify the point in time at which the situation ceased to be remedial at the hands of the plaintiff.

It was argued for NOT Lawyers that Artistic’s so-called “recoupment” never had the prospect of making good the loss of ABC – that Harris & Company has been forced to define the actual loss of ABC as an expectation interest. It was submitted that it had been forced to do so, because otherwise there is no relevant “contingency” which operates in respect of ABC’s presumptive loss on sale of the Bankstown property: NOT Lawyer’s Further Written Submissions , paragraph [15]. (5) Analysis

An essential ingredient in a claim in negligence is that the plaintiff suffered loss or damage (in this case, economic loss) by reason of a breach of duty by the defendant. The following propositions have been established by relevant case law:- (1) The kind of economic loss sustained and the time when it is first sustained depend upon the nature of the interest infringed and perhaps the nature of the interference to which it is subjected: Wardley Australia Limited & Anor v State of Western Australia (1992) 175 CLR 514 at 527 per Mason CJ, Dawson, Gaudron and McHugh JJ. (2) Where economic loss is said to have resulted from a transaction entered into in reliance upon negligent advice or information, the approach of the High Court has not been confined to looking at the immediate situation brought about by entry into the transaction. That is because “with economic loss, as with other forms of damage, there has to be some actual damage and not simply prospective loss” : Wardley (supra) at 527, 537. (3) Where a transaction involves benefits and burdens, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is “worse off than if he had not entered into the transaction” : Wardley (supra) at 357. (4) The nature of the interest, for example, of a lender who seeks to protect that interest by obtaining a valuation of a proposed security includes, in the event of default, that it should be able to recoup by sale of the property the amount owing under the mortgage: Kenny & Good v MGICA [1999] HCA 25 at [17]. (5) It is the risk that recoupment might not be possible that calls the valuer’s duty of care into existence: Kenny & Good (supra) at [16]. And it is the interest in recoupment that is infringed by breach of that duty. Moreover, the time that loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible. In the case of a mortgage transaction, that will occur when it is reasonably ascertainable that a sale will result in a loss. (6) Once the nature of the interest of a plaintiff has been identified, the duty of care and scope of that duty may be identified and also permit a determination as to whether the interest has been infringed by a breach of the duty of care. Additionally, questions as to the cause of any claimed loss from an alleged infringement of the interest may then be readily answered.

In the context of a case such as the present, the actions of a vendor’s solicitor in purported performance of his or her duty of care in the course of acting on the sale transaction may induce the client to proceed with the transaction.

The inducement may arise by express statements made by the solicitor or by a failure to identify, inform and/or warn the client of a relevant fact or matter.

In such a case, whilst entry into a transaction may be said to have resulted form the solicitor’s actions, the further issues are whether a particular loss has arisen out of the transaction and, if so, whose loss it is (or whose interest has been infringed)?

As loss or damage is the gist of an action in negligence, it is necessary for ABC to establish that it suffered loss or damage by reason of the alleged infringement of its interest. No cause of action, in other words, accrued to ABC unless and until it itself sustained loss or damage to an interest it held.

Whether ABC suffered loss or damage must be determined by identifying its interest in the transaction, that is, by examining whether and, if so, what interest it held in or in consequence of the transaction. That is a question to be answered in this case by an examination of the rights or interests and obligations of ABC by virtue of the agreements made and the legal instruments created as the constituent parts of the transaction being the means by which it is given effect.

The occurrence of loss and damage (including, in particular, economic loss) and the cause of loss are, accordingly, fundamental in determining the limitation issue in this case. The measure of loss may be the sum representing the prejudice or disadvantage [the plaintiff ABC] has suffered either in consequence of (its) altering its position under any inducement: Toteff v Antonas (1952) 87 CLR 647, 650 or the actual damage to it arising directly from the tortious conduct.

A plaintiff such as ABC in the present proceedings can then only recover compensation for actual loss or damage incurred, and not for potential or likely damage: Wardley (supra) at 9 and Swingcastle Limited v Gibson [1990] 1 WR 1223 per Sir John Megan at 1236. (6) The question of ABC’s interest and loss

In determining whether ABC had a viable cause of action in negligence for economic loss against NOT Lawyers, it is essential, as I have said, that the basis for any such loss be identified. In Hawkins v Clayton (1988) 164 CLR 539 at 600 to 601, Gaudron J observed that, in determining whether a cause of action for negligence causing economic loss accrues, it may be relevant to consider “the precise interest infringed by the negligent act or omission” . Her Honour, in the circumstances of that case, identified four possible interests:- (1) The interest infringed may be the value of the property. (2) The interest infringed may be the physical integrity of property in terms of physical damage. (3) The interest may be an interest in recouping monies advanced. In that respect, the time of the accrual of the cause of action may be when recoupment becomes impossible rather than at the time when the antecedent right to recoup should have come into existence. (4) The actual loss is sustained only when recoupment becomes impossible.

In relation to the distinction between mere economic loss and ordinary physical loss or injury, Gaudron J, in Hawkins (supra) at 601 observed:- “… It is a distinction which is equally important in determining when loss has occurred. Physical loss imports damage sustained by a physical object, whether it be property or person. Economic loss, on the other hand, imports loss sustained by a juristic entity in relation to the assets or liabilities of that entity. The various and complex economic relationships which are a feature of present day economic organisations suggest that loss may manifest itself in various forms, and it is for this reason that there may be occasions when it is necessary to identify precisely the interest which has been infringed …”

In that case, the assets of the estate had sustained damage by deterioration and had been subject to waste. However, the loss was not sustained by Mr Hawkins, but by the executor only when the assets came under his actual control. (7) Conclusions on the limitation defence

The question in the present case is whether and, if so, what interest, ABC held in respect of the Bankstown property following completion of the sale on 12 November 1999. It is necessary, as the High Court emphasised in Hawkins (supra) and in Wardley (supra), to identify the precise interest of ABC which is said to have been infringed by the negligent act or omission. The loss claimed by ABC in the present case is the loss associated with ABC’s ownership of the Bankstown property arising in the context of a “no transaction” case.

The difficulty in accepting the contentions advanced by Mr Fagan SC on behalf of Harris & Company arises in terms of the interest said to have been infringed by the pleaded negligent act or omission of NOT Lawyers.

The loss and damage sustained by ABC arose from completion of the transaction on 12 November 1995 on which date ABC’s interest as registered proprietor in the Bankstown property passed to Nordoc. There is, in my opinion no basis for the proposition that loss or impairment of any proprietary interest held by ABC occurred after that date.

So far as ABC is concerned, the relevant interest for the purpose of determining the limitation defence is not, in my opinion, to be found in or derived from the rights of Artistic which attached to the B-class unit. The loss to Artistic is not loss or damage to an interest of ABC.

The submission made on behalf of Harris & Company to the effect that the inability of Artistic to recoup payment from Nordoc was a loss to ABC because it was a failure by ABC to achieve what it sought to bring about by the transaction, cannot and does not, with respect, respond to the issue as to the relevant interest referred to in the preceding paragraphs. At most, on the facts of the case, ABC’s claimed loss was based on an expectation in respect of the transaction.

The very essence and purpose of the structure established for the transaction was to minimise the capital gains tax liability involved which required ABC to relinquish any interest previously held by it in or in respect of the Bankstown property. In those circumstances, in the absence of any evidence of an enforcement arrangement, for example, as between ABC and Artistic in the event that Artistic was unable to realise its rights attaching to the B class unit (of which there is no such evidence), it is not, in my opinion, possible to identify from the circumstances established in evidence an existing interest in or associated with the Bankstown property in ABC subsequent to12 November 1999.

In summary, the argument advanced by Harris & Company, with respect, suffers from two underlying deficiencies. Firstly, it fails to give effect to the fact, despite their common directorship, of Artistic and ABC being distinct legal entities. Secondly, it fails to properly characterise the loss forming the basis of ABC’s claim by reference to a proprietary or legal interest in ABC existing after the settlement.

Just as it would be incorrect to describe the issue of the B-class unit to Artistic as a benefit to ABC, so it would be erroneous to characterise Artistic’s inability to enforce those rights as a “loss” to ABC. The two separate entitles had distinct and separate rights, interests and expectations. It does not follow that the loss to one is, ipso facto, a loss to the other.

The loss to ABC arose from the sale of its Bankstown property at a significant under value. The loss occurred immediately upon the transfer of title to the property from ABC to Nordoc and did not depend on any future contingency.

In those circumstances, I am unable to accept as correct in law the submissions made on behalf of Harris & Company in relation to the limitation issue.

A cause of action in negligence is complete when the damage caused by the breach of duty is sustained. It is at that time that, in the ordinary case, the cause of action “first accrues” for the purposes of a provision such as s.14(1) of the Limitation Act : Hawkins (supra) per Deane J at 587.

Accordingly, it follows that any cause of action that ABC had against NOT Lawyers on the “no transaction” basis became statute barred before ABC was made a party to the proceedings. The conclusion in that respect is, as indicated above, based upon the proposition that damage in respect of the “no transaction” cause of action first accrued when damage occurred, namely, on 12 November 1999 and the limitation period expired on 12 November 2005.

The proceedings by ABC not having been commenced within the relevant six year period, NOT Lawyers has a valid defence based on the provisions of the Limitation Act .

In conclusion, in circumstances in which Harris & Company entered into a retainer to advise and act on behalf of ABC and Artistic in relation to the recovery of damages from NOT Lawyers as a result of the sale of the Bankstown property:- (1) Harris & Company were under a duty of care, inter alia, to ascertain whether ABC and/or Artistic had a viable cause or causes of action against NOT Lawyers. (2) For that purpose, Harris & Company were required to determine whether the interests of one or both companies had been detrimentally affected by the acts and/or omissions of NOT Lawyers. (3) Harris & Company were under a duty of care to ABC to properly advise it with respect to the availability of a “no transaction” case and the applicable limitation period that applied to such proceedings. (4) Harris & Company, in breach of its duty of care to ABC, failed to so advise Mr Chahine/ABC and failed to institute proceedings prior to the expiration of the limitation period. (5) By reason of Harris & Company’s breach of duty, ABC suffered loss in that it was prevented by reason of that breach from recovering damages from NOT Lawyers. (6) The measure of the damages that would apply to ABC’s loss is the damages that, but for Harris & Company’s breach, ABC would have recovered from NOT Lawyers. PART K - MR KOROKNAY (1) Defence that he was not a partner

In light of the determination on the limitation defence, the question as to whether or not Mr Koroknay was a partner of NOT Lawyers at the relevant time does not arise. However, as it was an issue raised in the course of proceedings and was the subject of submissions, it is a matter in relation to which a determination should be made.

NOT Lawyers accepted that, if Mr Nash was liable to the plaintiffs (or any one of them), then Mr O’Neill and Mr Tomco (as his partners) would also be liable: ss.9 and 10 of the Partnership Act 1892.

NOT Lawyers, however, submitted that, although Mr Koroknay was, at the relevant times, held out as a partner:- (1) He was not in fact a partner. (2) Mr Chahine, in entering into the “second retainer” with NOT Lawyers regarding the sale of Bankstown, did not rely upon that holding out such that he can fix Mr Koroknay with liability pursuant to s.14 of the Partnership Act : NOT’s Closing Submissions , at [209].

It was submitted for NOT Lawyers that the evidence of Mr Koroknay and Mr Nash disclosed that, in the period from 6 January 1998 to 31 December 2003, Mr Koroknay was a “salaried partner” of the firm Nash O’Neill Tomco. The issue of whether a “salaried partner” was or is, in truth, a partner was the subject of consideration by Megarry J (as his Lordship then was) in Stekel v Ellice [1973] 1 WLR 198 to 200 where, in part, it was observed:- “Certain aspects of a salaried partnership were not disputed. The term ‘salaried partner’ is not a term of art, and to some extent it may be said to be a contradiction in terms. However, it is a convenient expression which is widely used to denote a person who is held out to the world as being a partner, with his name appearing as partner on the notepaper of the firm and so on. At the same time, he receives a salary as remuneration, rather than a share of the profits, though he may, in addition to his salary, receive some bonus or other sum of money dependent upon the profits. Quoad the outside world, it often will matter little whether a many is a full partner or a salaried partner; for a salaried partner is held out as being a partner, and the partners will be liable for his acts accordingly. But within the partnership it may be important to know whether a salaried partner is truly to be classified as a mere employee or as a partner …”

It was contended for NOT Lawyers that the matter is to be determined by the terms of the contract of “engagement” between Mr Koroknay and NOT Lawyers and the proper construction of that contract taken as a whole: Amadio Pty Limited v Henderson (1998) 81 FCR 149 at 172; NOT’s Closing Submissions at [211].

On 9 April 2010, I delivered judgment on an application by NOT Lawyers for leave to amend its Defence in order to raise the issue that Mr Koroknay was not, at the material time, a partner of NOT Lawyers but was engaged as a salaried partner: Artistic Builders Pty Limited v & Anor v Nash & Ors (unreported, 9 April 2101).

The judgment on the application to amend the Defence set out the material facts concerning the application based upon the affidavit evidence identified in paragraph 8 of the judgment. That included the affidavit of Mr Koroknay sworn 25 March 2010.

In that judgment, the submissions on behalf of NOT Lawyers and on behalf of the plaintiffs were referred to and consideration given to two issues, namely, the issue of actual prejudice and the issue of “holding out” : partnership by estoppel in terms of s.14 of the Partnership Act .

I recorded in that judgment at [65] that the conclusions expressed therein were based upon the evidence called in support of the application to amend and were not intended as and should not be taken as an expression of a concluded or final view on the facts concerning the merits of the proposed Amended Defence in the event that leave to amend was granted.

Leave to amend was granted and, accordingly, the issue was one to be determined as an issue at the hearing of the proceedings. (2) The evidence of Mr Koroknay (affidavit sworn 25 March 2010)

Mr Koroknay in his affidavit (paragraph 7) referred to a meeting which was held between himself and the partners of NOT Lawyers, being Michael O’Neill and John Tomco. This occurred at the firm’s offices in late 1997.

In the meeting, Mr Koroknay said that he did not want to be an equity partner and did not want to share liability with the partners. Mr Nash’s recorded as saying “you can be a salaried partner” .

Mr Koroknay indicated that he wished to receive the same salary as he was then receiving to which Mr Nash indicated that that would be in order.

Mr Koroknay had no recollection as to whether what he referred to as “his employment” was reduced to writing. His recollection was that it was all done verbally.

On or about 26 January 1998, he commenced work at NOT Lawyers. He said that his name appeared on the letterhead of NOT Lawyers as a partner, but that he was not involved in the management or administration of NOT Lawyers as a partner. He said he would describe his position as a “senior employee” .

Mr Koroknay did not attend partnership meetings with the first to third defendants and was not involved in decisions regarding business strategy for NOT Lawyers. He was not involved in the general management of the firm nor in the financial management of it. Furthermore, he was not involved in budget decisions or drafting budget and cash flow forecasts. He was not involved in decisions regarding the remuneration to be paid to staff.

Decisions of the partnership, he said, were made by the first to third defendants without reference to him.

He said that he did not share in the profits of NOT Lawyers. He did not buy equity and he said he was “never an equity partner” . He said he was paid an annual salary which was negotiated from time to time, at first with Mr Nash and then later with Mr O’Neill.

On 5 November 2004, he ceased employment with NOT Lawyers.

In NOT’s Closing Submissions , it was stated:- “209. NOT submits, however, that although Mr Koroknay was, at the relevant times, held out as a partner:- (a) he was not in fact a partner; and (b) Mr Chahine, in entering into the ‘second retainer’ with NOT regarding the sale of Bankstown, did not rely upon that holding out such that he can fix Mr Koroknay with liability pursuant to section 14 of the Partnership Act.”

Reference was made in the submissions to the affidavit evidence of Mr Koroknay and reference was made to the decision in Stekel (supra).

The decision in Dollar Land (Cumbernauld) Limited v CIN Properties Limited (1996) SLT 186 at 195 was also referred to in NOT Lawyers’ submissions for the purposes of identifying the key features of incidents of a partnership relationship.

The submissions also referred to the decision of the Federal Court in Momentum Productions Pty Limited v Lewarne (2009) 174 FCR 268 at [44] at Duke Group Limited (In liq) v Pilmer (1999) 73 SASR 64 at [954] (Full Court of the Supreme Court of South Australia). The latter decision addressed the concept of determining whether a business was “being carried on in common” .

Reliance was placed upon the evidence of Mr Koroknay as well as the affidavit of Mr Nash affirmed on 30 March 2010 to support the proposition that, although he was placed on NOT Lawyers’ letterhead as a partner, Mr Koroknay was to be a “senior employee” or “senior practitioner of the firm” . The submission was that the contract of “engagement” was properly to be characterised as a contract of employment rather than a contract of partnership and hence that Mr Koroknay was working for the partners of NOT Lawyers and not “in common” with them. It was submitted that the evidence to support this proposition was “overwhelming” ( NOT’s Final Submissions at [218]).

In support, reference was made to the evidence reproduced in summary form in that paragraph.

I accept the evidence of Mr Koroknay on the matters to which I have referred, there being no challenge to the substance of his evidence on those matters.

In relation to the issue of reliance in terms of s.14(1) of the Partnership Act , the issue raised was that Mr Chahine, as the guiding will and mind of ABC, did not rely upon the fact that Mr Koroknay was named as a partner in the letterhead of the firm or on business card: NOT’s Final Submissions at [225].

Whilst it was acknowledged that Mr Chahine understood Mr Koroknay was a partner, that was merely a fact that was necessary but not sufficient to establish reliance: Nationwide Building Society v Lewis [1998] Ch 482 at 490 affirmed in Duke Group Limited (supra) at [1047] and [1048].

In conclusion, NOT Lawyers submitted that there was no evidence that Mr Chahine specifically relied upon the fact that Mr Koroknay was held out as a partner. The matters relied upon in this respect were:- (1) That Mr Chahine had originally been directed by Mr Patterson to Mr Nash personally. (2) He did not know Mr Koroknay, his abilities or reputation, though he took comfort from the fact that Mr Nash was a member of a “solid big firm” . (3) He dealt only with Mr Nash. (4) He made the decision to give Mr Nash the conveyancing work in that context and because (on his evidence) Mr Nash personally requested that he do so: NOT’s Closing Submissions at [231].

Finally, it was observed that Mr Chahine could not, himself recall whether he placed any specific reliance upon Mr Koroknay. It was submitted that ABC did not discharge the onus of establishing, as a matter of inference, that he did rely upon Mr Koroknay.

A copy of a Deed dated 10 February 1998 was attached to Mr Koroknay’s affidavit and marked “B”. The Deed was made between Messrs Nash, O’Neill and Tomco described as “Present Partners” and Mr Koroknay described as “Future Partner” . The written submissions for the plaintiff referred to the recitals to the Deed. These included:- “B The Present Partners have invited the Future Partner to joint the Partnership. C It is intended that the Future Partner will be a salaried partner only at the outset whereas the Present Partners are equity partners. D The Future Partner has agreed to accept appointment as a salaried partner of the Present Partners on the understanding that the Present Partners would indemnify the Future Partner against all liabilities he may incur in his capacity as a partner.”

I do not accept the submission made on behalf of the plaintiffs that the recitals establish that Mr Koroknay accepted and took up the position as a partner of the firm: Plaintiffs’ Final Submissions , at [108].

Reliance was also placed on clause 1 of the Deed which contained an indemnity from the Present Partners in favour of Mr Koroknay. However, that indemnity was expressed to apply “… by reason of his being held out as a Partner of the Firm or otherwise” . I do not consider that this provision is evidence of the fact that Mr Koroknay became a partner of the firm. In particular, I do not consider the phrase “or otherwise” carries a contrary conclusion. The phrase is to be construed in its context which is a provision directed towards indemnity. It is not directed to any other matter. It is also to be construed in the context of the whole Deed which, in my respectful opinion, is contrary to the submission made.

Mr Koroknay annexed to his affidavit a copy of “Heads of Agreement” dated 26 February 2002 (Annexure C to his affidavit). I do not accept, as was submitted, that the execution of the Heads of Agreement is wholly inconsistent with him having been an employee. Again, it is necessary to consider that document in its proper context which includes the terms of the Deed of 1 February 1998 and the other facts or circumstances to which I have referred.

On the issue of reliance, it was submitted that the evidence of Mr Chahine to the effect that he was looking for something more than a “backyard firm” , together with the objective fact that he took and retained the cards of all the partners and the fact that on the retainer letters themselves the names of each of the partners feature, is enough to allow the Court to infer such reliance: Plaintiffs’ Closing Submissions at [117].

There is no evidence that Mr Chahine’s intention to, in effect, to find a “big” firm could be construed as giving rise to and operating as an inducement upon which he relied. Similarly, the fact that he retained the cards of the partners and the names on the letterhead of the firm does not constitute evidence that those matters operated upon his mind, or would have operated on his mind such as to induce him, by reason of Mr Koroknay’s name, to have engaged NOT Lawyers. In other words, I do not consider that the factual matters said to constitute reliance are capable of doing so.

I have, accordingly, concluded that Mr Koroknay was not a partner of NOT Lawyers at the material time but was engaged as a salaried employee of the firm.

It follows that the defence raised disputing Mr Koroknay as a partner of the firm has been made out. PART L - THE ADVOCATE’S IMMUNITY DEFENCE (1) The pleaded defence

Harris & Company, in the Defence to the Fourth Further Amended Statement of Claim dated 15 April 2010, plead the advocate’s immunity defence in answer to the plaintiffs’ claim. In paragraph 50, the Defence is pleaded in the following terms:- “50. In further answer to the claims against them, they say that they did not owe an actionable duty in respect of the conduct pleaded by virtue of the principle of advocate’s immunity and on the grounds that the conduct was work done by them as legal practitioners in court or was work done out of court affecting the conduct of a case in court.”

In the Submissions on behalf of Harris & Company (11 – 17th Defendants) dated 21 April 2010 (paragraphs [91] to [99]), the basis for the Defence is set out. In support, Harris & Company rely upon the judgment of the majority of the High Court in D’orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 at [86] per Gleeson CJ, Gummow, Hayne and Heydon JJ in relation to the test to be applied, namely, that the immunity applies to work done in court or work done out of court which leads to a decision affecting the conduct of the case in court. It is noted in the submissions that in D’orta-Ekenaike (supra), the majority regarded this test as no different from the alternative formulation referring to “work intimately connected with” work in court (paragraph 92).

The contention is that the conduct of Harris & Company in which it is alleged negligence was exhibited, was out of court conduct that affected the conduct of the case in court. In this respect it was submitted ( Written submissions , at [99]):- “… The result of a different decision having been substituted for Harris & Company’s original pleading in the name of Artistic only is that the case has been extended by the necessity of ABC being joined, the case in court largely conducted as a claim by ABC, and further conducted quite differently than it would have been prior to the joinder of ABC. The allegedly negligent advice of Harris & Company therefore had a significant effect on the conduct of the case in court.” (2) General principles

The principles stated by the High Court in D’orta-Ekenaike (supra) have recently been summarised by Hislop J in Gattellaro v Spencer [2010] NSWSC 1122 at [109] in the following terms:- (a) An advocate is immune from suit whether for negligence or otherwise in the conduct of a case in court – Giannarelli v Wraith [1988] HCA 52; (1987-1988) 165 CLR 543; D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 at [85]. (b) The same immunity attaches to a solicitor acting as an advocate in court as attaches to a barrister – Giannarelli at p 559, D’Orta at [89]-[91]. (c) The immunity extends to work done out of court which leads to a decision affecting the conduct of the case in court. The protection extends to work so intimately connected with the conduct of the case in court that it can fairly be said to be a preliminary decision affecting the way that case is to be conducted when it comes to a hearing – Giannarelli at p 560, D’Orta at [86]. (d) The criterion adopted in Giannarelli accords with the purpose of the immunity. It describes the acts or omissions to which immunity attaches by reference to the conduct of the case. And it is the conduct of the case that generates the result which should not be impugned – D’Orta at [87]. (e) In Giannarelli at 559 Mason CJ said that to limit the immunity so that it ended at the court room door so that the protection does not extend to preparatory activities, such as the drawing and settling of pleadings and the giving of advice on evidence, would be artificial in the extreme. (f) In Keefe v Marks (1989) 16 NSWLR 713 at 718 the Court of Appeal, applying Giannarelli, held that the common law immunity of barristers from liability for negligence extended to out of court work intimately connected with or ancillary to the conduct of a case in court. Such out of court work for a barrister briefed to appear at a hearing would include: ‘…such matters as interviewing the plaintiff and any other potential witnesses, giving advice and making decisions about what witnesses to call and not to call, working up any necessary legal arguments, giving consideration to the adequacy of the pleadings and, if appropriate, causing any necessary steps to be undertaken to have the pleadings amended.’ (g) In Biggar v McLeod [1978] 2 NZLR 9 the New Zealand Court of Appeal held the settlement of an action during its progress in court can be regarded as work related to the conduct of litigation. [Subsequent authority – Lai v Chamberlains [2005] 3 NZLR 291 concluded advocates’ immunity was no longer part of the law of New Zealand.] Biggar was referred to, with apparent approval, by McHugh J in D’Orta at [154]-[156].”

It is clear from Giannarelli v Wraith [1988] HCA 52; (1987-1988) 165 CLR 543 and D’Orta-Ekenaike (supra) that the immunity attaches to omissions as well as to acts by legal practitioners; Gatterallo (supra) at [112]. It was there noted that an omission to consider or fully consider matters such as the extent of instructions, the defences to be pursued, the adequacy of pleadings, the seeking and interviewing of potential witnesses, the settling of the proceedings are within the immunity. The immunity is applicable in cases involving a failure by a solicitor to turn his or her mind to a particular matter – see Keefe v Marks (1989) 16 NSWLR 713 at 718.

It is clear from the relevant authorities that the finality principle is the principle that provides the primary justification for the immunity.

In oral submissions, Mr Newlinds submitted on behalf of the plaintiffs that wherever the line is drawn to put a boundary around matters that are said to be intimately connected with the conduct of litigation, the question as to who is the proper party to start a court case against is outside the scope of the immunity: transcript, 22 April 2010, at 719. In that respect, it was submitted that if a legal practitioner is giving advice as to whether a particular person is the appropriate plaintiff, that is not a matter intimately connected with the conduct of the litigation, because that is a matter connected with the question as to whether or not a case is to be commenced. Whilst acknowledging that it is essentially dependent on a case by case analysis, the submission was that the present case fell well outside the advocate’s immunity and, accordingly, Harris & Company are not able to take advantage of it.

The basis for and the application of the common law immunity from suit of participants in the judicial process is well established. The basis lies in public policy. In this respect, the immunity is, as noted above, based on the principle of finality. That principle, in turn, is a central and pervading tenet of the judicial system, namely, that controversies, once resolved, are not to be re-opened except in a few narrowly defined circumstances D’Orta-Ekenaike (supra) at [36] per Gleeson CJ, Gummow, Hayne and Heydon JJ.

However, the grounds for denying liability for in-court negligence have no application to work done out of court which is unconnected with work done in court: Giannarelli (supra) at 559. The public policy considerations underlying immunity from in-court negligence, accordingly, have no relevance to an advocate’s liability for negligence in relation to out of court matters.

As Mason CJ noted in Giannarelli (supra) at 559, the problem is, where does one draw the dividing line? In that respect, the Chief Justice stated (at 559 to 560):- “… Is the immunity to end at the courtroom door so that the protection does not extend to preparatory activities such as the drawing and settling of pleadings and the giving of advice on evidence? To limit the immunity in this way would be to confine it to conduct and management of the case in the courtroom, thereby protecting the advocate in respect of his tactical handling of the proceedings. However, it would be artificial in the extreme to draw the line at the courtroom door. Preparation of a case out of court cannot be divorced from presentation in court. The two are inextricably interwoven so that the immunity must extend to work done out of court which leads to a decision affecting the conduct of the case in court. But to take the immunity any further would entail a risk of taking the protection beyond the boundaries of the public policy considerations which sustain the immunity.”

The decision of the majority in Giannarelli (supra) therefore established the basis for the immunity, its operation in respect of work done in court and out of court but also determined the limits of the immunity.

The question in a case such as the present, however, is whether the conduct which involved a failure or an oversight that a particular client has a right of action and, in consequence, no proceedings are brought on behalf of that person but there are proceedings by another person who may have separate rights, is conduct that falls within the limits of the immunity that have been enunciated by the majority of the High Court in Giannarelli (supra) and D’Orta- Ekenaike (supra).

The lack of action, the failure to institute proceedings in the name of and for the purposes of advancing the rights of a former owner of property, A, can hardly, in my opinion, be said to be part of the out-of-court or preparatory activities intimately connected or associated with existing proceedings pursued in the name of B, a “non-owner” , where B, as a separate entity, has separate or different rights to A.

In other words, I do not consider in the circumstances of the present case that the failure to institute proceedings by ABC can be said to be or constitute out-of-court work that in any correct sense could be considered as “inextricably interwoven” with the proceedings brought, in this case, by Artistic. The circumstances in which the claim is brought against Harris & Company does not involve an issue of re-opening controversies that had been quelled by the decision of a court, being a controversy between Artistic and another.

It is unnecessary here to refer at any length to the decision of the Court of Appeal in Keefe (supra). That was a case involving a failure in accordance with the rules of Court to claim interest on damages. It was, in other words, a matter that would ordinarily arise either during pre-trial consideration and preparation of proceedings or perhaps at a later point of time during the course of the proceedings. Claims for interest, adequacy of pleadings and causing the necessary steps to be undertaken, if necessary, to amend pleadings are, as Gleeson CJ in that case stated at 718, the kind of matters that would ordinarily be under active consideration, not only prior to the commencement of the hearing of particular proceedings but also throughout the hearing and right up until the time of the conclusion of the proceedings.

On the basis and for the reasons stated above, however, the question of the failure by Harris & Company to commence any proceedings on behalf of and in the name of ABC in respect of any of its particular claimed rights against NOT Lawyers is, in my opinion, in a completely different category of case.

In the application of the doctrine of advocate’s immunity, in the circumstances of this case, it has been necessary to consider, by reference to accepted principle, whether the failure to advise ABC of a cause of action vested in it on a “no transaction” basis and to draft and file a statement of claim for that purpose, falls within the ambit or area of operation of the doctrine.

It is now well-established, as discussed above, that it is one that applies to both “pre-trial work” and “in court” work. The doctrine of advocate’s immunity is a rule of law that applies to both classes of work but limited to work in respect of or in the context of either particular existing litigation or with respect to a particular cause tried or to be tried in a court. “Pre-trial work” includes advising and drafting pleadings for particular litigation, that is in respect of particular proceedings . For the doctrine of advocate’s immunity to apply, it must be “so intimately connected with the conduct of the cause in Court that it can fairly be said to be a preliminary decision affecting the way the cause (was) to be conducted when it (came) to a hearing” (emphasis added): per McCarthy P in Rees v Sinclair [1974] 1 NZLR 180 at 187 and cited by Gleeson CJ in Keefe (supra) at 719, 720.

The statement of claim filed in 2001 by Artistic joined a number of parties to the proceedings (including NOT Lawyers) in respect of connected claims concerning the order and registration of mortgages and the operation of the Elliot & Tuthill first mortgage.

The question of whether ABC, as former owner of Bankstown had a cause of action against NOT Lawyers on a “no transaction” basis necessarily depended on instructions from Mr Chahine and could not, in my opinion, be said to have been a matter that was “intimately connected” or connected at all in the preliminary or preparatory work undertaken or to be undertaken in Artistic’s proceedings so that it attracted the advocate’s immunity doctrine. As noted in paragraph [699], Mason CJ in Giannarelli (supra) stated that the grounds for denying liability for in-court negligence have no application to work done out of court which is unconnected with work done in court. The Chief Justice added to that observation (at 559):- “… The public policy considerations underlying immunity from in-court negligence have no relevance to a barrister’s immunity liability for negligent advice in relation to out-of-court matters, in accordance with the principles expounded in such cases as San Sebastian Pty Limited v The Minister … Hawkins v Clayton and Hedley Byrne & Co Limited v Hellerce Partners Limited. The problem is where does one draw the dividing line? …”

In summary, the proceedings were proceedings by Artistic as a Unit Holder under the Unit Trust. The proceedings were directed to specific issues concerning the relevant mortgages. The question of a possible cause of action by ABC was one in its capacity as the former owner of the Bankstown property involving questions as to advice (or the absence of advice) before settlement of the transaction. The “work” associated with the latter is not the kind of “intimately connected” work of which McHugh J gave examples in D’Orta (supra) at 154-156.

For the reasons stated above, I am of the opinion that the defence pleaded in paragraph 50 of the Defence of Harris & Company is not maintainable as the doctrine of advocate’s immunity does not apply in the circumstances of the case. PART M – APPORTIONMENT OF LIABILITY (1) Introduction

The plaintiffs’ resolved their claims against Mr White SC, the 18th defendant.

In the event that Harris & Company was found liable to ABC, by paragraph 53 of that firm’s Defence, it was contended that any liability should be reduced proportionate to the extent of responsibility of Mr White for the loss and damage of ABC.

In that respect, in the event that it was determined that Harris & Company were liable to the plaintiffs, then the following matters were relied upon:- “53.1 ABC’s claim against them is a claim for economic loss in an action for damages arising from an alleged failure to take reasonable care. 53.2 ABC’s claim against them is an apportionable claim within the meaning of Part 4 of the Civil Liability Act 2002 (NSW). 53.3 Mr Simon White of counsel is a concurrent wrong-doer in relation to the plaintiffs’ claim against them within the meaning of Part 4 of the Civil Liability Act 2002 (NSW) and caused the loss or damage which is the subject of the claim. 53.4 In the event that the Court finds that they are liable to the plaintiffs as pleaded, which is denied, then it follows that the Court would also find that Mr White is liable to the plaintiffs. 53.5 Their liability to the plaintiffs is limited to an amount reflecting that proportion of the loss or damage claimed that the Court considers just, having regard to the extent of the 11th to 17th defendants’ responsibility for the loss or damage.”

The Defence of Harris & Company set out in paragraph 53 particulars relied upon (at pp.6 to 9).

In a letter dated 27 February 2010, Mr White advised Mr O’Brien that ABC should be joined as a plaintiff and he set out amendments to the statement of claim which were required to achieve the same. Harris & Company argued that Mr White owed a duty of care to ABC and that if ABC’s cause of action expired six years after settlement and if the partners of Harris & Company were liable as alleged, then Mr White breached his duty by failing to advise Mr O’Brien (and ABC) prior to 12 November 2005 that ABC should be joined as a plaintiff to the proceedings to prosecute its claim against NOT Lawyers. Accordingly, Harris & Company contended, as such, Mr White is a concurrent wrongdoer within the meaning of the provisions of the Civil Liability Act and the claim against Harris & Company is an apportionable claim for the purposes of that Act, the breach having occurred in the period between 26 July 2004 and 12 November 2005. (2) The statutory provisions on apportionment

In accordance with s.35(1) of the Civil Liability Act (contained within Part 4 of that Act), where proceedings involve an apportionment of all claims against a defendant, by reason of the fact that there is a concurrent wrongdoer who is also partly responsible for the alleged loss and damage, the Court may only give judgment against the defendant for an amount that it considers just, having regard to the extent of the defendants’ responsibility for the loss and damage.

Section 34 of the Civil Liability Act defines a “concurrent wrongdoer” as one of two or more persons whose acts or omissions caused, independently of each other or jointly, the damage or loss that is the subject of the claim.

A determination that Harris & Company is liable to ABC, make it necessary to then determine the defence for a reduction in liability proportionate to the extent of responsibility of Mr White for the loss and damage of ABC.

Part 4 of the Civil Liability Act commenced on 1 December 2004 and applies to causes of action arising after 26 July 2004. On behalf of Harris & Company, it was observed that Mr White was first retained to advice ABC and Artistic in relation to the claim against the first to fourth defendants in June 2001.

Section 35(3) is in the following terms:- “In apportioning responsibility between defendants in proceedings, the concept of ‘responsibility’ is a central one. It involves considerations of:- • blameworthiness; • causative potency; and • the degree of departure from the standard of care and the relative importance of the acts of the parties in causing the damage: see Reinhold v NSW Lotteries Corporation [2008] NSWSC 187 at [50], [59].” (3) Submissions and contentions of Harris & Company

Harris & Company contend that Mr White owed a continuing duty of care to the plaintiffs up until 12 November 2005 when the limitation period for the plaintiffs’ claims against the first to fourth defendants expired (and indeed up to February 2007).

Harris & Company rely upon the fact that the brief sent to Mr White by Mr O’Brien dated 21 June 2001 included an express request that he:- “… Advise on the prospects of our clients or any one of them commencing proceedings … against the partners of Nash, O’Neil, Tomco for an order that they pay damages to ABC or Artistic Builders or both of them in a sum to be determined following the accounting referred to in 1(d).”

ABC, it was observed in the submissions for Harris & Company, was identified as one of the clients. The “accounting” referred to is said to be in respect of any recovery available from Elliot & Tuthill Mortgages.

Harris & Company also relied upon the fact that Mr White was retained to “settle the relevant pleadings instituting the proceedings” . He drafted the statement of claim which named Artistic as the sole plaintiff. The draft pleading was sent to Mr O’Brien on 6 July 2001.

Mr O’Brien’s next recorded contact with Mr White appears to have been on 10 September 2002 when he wrote to him enclosing a copy of an amended statement of claim.

In November 2002, Mr White was provided with the amended draft affidavit of Mr Chahine. The draft contained paragraph 35 which was to the effect that if Mr Chahine had known about the worthlessness of the securities provided by Nordoc, ABC would not have sold the property to it.

That paragraph subsequently evolved into paragraphs 39 and 40 in Mr Chahine’s affidavit sworn 12 December 2002 as a consequence of Mr Chahine’s instructions to Mr O’Brien given in October 2002.

Over four years later, in a letter dated 27 February 2007, Mr White advised Mr O’Brien that ABC should be joined as a plaintiff and he set out amendments to the statement of claim required to achieve the same.

Harris & Company submitted that it should be concluded that Mr White breached his duty of care by failing to advise Mr O’Brien and ABC prior to 12 November 2005 that ABC should be joined as a plaintiff in the proceedings in order to prosecute its claim against the first to fourth defendants.

It was also contended that there is no reason to consider that the conduct of Harris & Company caused any different or separate loss and damage from that caused by Mr White for loss. Any damage, it was submitted, was caused by the same failure to take reasonable care (if any).

In the written submissions on behalf of Harris & Company (paragraph 110), it was observed that s.35 of the Civil Liability Act is a direction that the court undertake an evaluation and come to a discretionary conclusion about where justice of the case lies.

The submission, accordingly, was that the concept of “responsibility” includes a consideration of the issues of blameworthiness, causative potency, the degree of departure from the standard of care and the relative importance of the acts of the parties in causing the damage: Reinhold v NSW Lotteries Corporation [2008] NSWSC 187 at [50], [59].

It was also submitted that the greater proportion of responsibility should rest with counsel. In that respect, it was argued that analysis of how loss has been caused, which party has sustained it and what results would flow from a hypothetical “but for” situation is precisely the task committed to counsel in a case such as the present. Mr O’Brien, it was submitted, was entitled to expect that Mr White would make that analysis and advise accordingly ( Written Submissions , paragraph 111).

It was also argued on behalf of Harris & Company that counsel is expected to deploy a higher standard of acuity and skill in relation to the available causes of action and pleading them, which is why commercial litigation solicitors brief counsel.

The party, the subject of higher expectations, it was argued, may be recognised as more important in causing the loss: Renhold (supra) at [80] ( Written submissions , paragraph 112).

It was further contended ( Written submissions, paragraph 113):- “In determining the amount of liability of Harris & Company, it is not relevant to take into account any amount that the plaintiffs have recovered from Mr White on their claim against him. Though at law the plaintiffs must give credit for any amount they have so recovered, the Court’s determination under s.35 is not restricted or limited by the amount of that credit as it is not arrived at by any judicial process pursuant to s.35.” (4) Factual matters and findings relevant to the proportionate liability defence (a) Mr O’Brien’s affidavit evidence

Mr O’Brien relied upon affidavits sworn by him on 2 June 2009 and 21 July 2009.

He was admitted as a solicitor in New South Wales on 2 December 1983. He has practised continuously as a solicitor since that date. He became a partner of Harris & Company on 1 November 1999.

Mr O’Brien, in his first affidavit, exhibited a bundle of documents marked “Exhibit POB-1” .

As noted above, Mr O’Brien briefed Mr White, inter alia, to settle the relevant pleadings instituting any proceedings. Mr O’Brien observed that he was relying on Mr White to provide advice as to the appropriate parties to the proceedings.

The observations to the brief delivered to Mr White on 25 June 2001 ran to 12 pages and were framed in considerable detail. Reference was made, by way of background to the original purchase of the property, the subsequent negotiations with the Huxley Group and what was termed “the Nash Scheme” , the South Terrace Unit Trust and the Contract for Sale of the Bankstown property, the option agreement, mortgages and deeds of company charge. Advice was required on the clients’ prospects (or any one of them) commencing proceeding against Elliot & Tuthill Mortgages and against the partners of NOT Lawyers “… for an order that they pay damages to ABC or Artistic Builders or both of them in a sum to be determined following the accounting referred to in 1(d)” .

In his oral submissions, Mr Fagan stated that, as at July 2001, Mr Chahine’s complaint was a failure to obtain the securities registered in proper sequence or at all and the failure to obtain priority agreements. At that point it was not a complaint, later made, that the properties provided as security did not prove to be up to expected value.

The observations in the brief record some detail of the circumstances concerning the matters the subject of Mr Chahine’s complaint.

Mr Fagan observed that, in that context, what was involved was obtaining the relevant documentation, in particular, the security documents, ascertaining the state of the register, examining the charges and what had been done by Mr Nash in order to put the securities which Mr Chahine had expected to obtain in order. What was not required at that time, Mr Fagan argued, was a detailed narrative from Mr Chahine.

The Bankstown property was not sold until September 2001, that is, over 12 months after Mr White drafted the statement of claim with Artistic as plaintiff on the basis of the complaints concerning the ordering and registration of the securities. However, I note that the amount secured under the first mortgage on the Bankstown property to Elliot & Tuthill, however, would have been appreciated before the sale. Mr Fagan observed that Artistic at that time was the appropriate sole plaintiff in relation to the matter. Mr Chahine’s complaints as to negligence was not “advice pre-settlement negligence” but was “execution negligence” in failing to carry out the effects of the settlement and procure a sound position for Artistic: transcript 23 April 2010 at p.775.

Following the sale of the Bankstown property at auction in September 2001, a protracted dispute developed.

On 4 October 2002, Mr O’Brien wrote to Mr White returning his original brief. Enclosed with the letter was a draft affidavit of Mr Chahine and copies of the exhibits to the draft. Mr White was requested to settle the affidavit.

The draft affidavit (at Exhibit POB-2, p.190 to 199) did not contain any “no transaction” suggestion or account.

Mr O’Brien had a conference with Mr Chahine on 17 October 2002. Mr Chahine’s instructions raised the question as to a “no transaction” case. It was submitted that this was the first time such a question had been raised. Mr Newlinds, his submissions for ABC, however, took issue with that submission.

In October 2002, Mr Chahine wrote to Mr O’Brien sending further documentation and two pages of a “draft amendment to my affidavit” : Exhibit POB-2, p.244.

On 19 November 2002, Mr O’Brien wrote to Mr White enclosing an amended draft affidavit of Mr Chahine: Exhibit POB-1, p.67. As noted above, in paragraph 35 of the draft affidavit (at Exhibit POB-1, p.35), Mr Chahine stated, inter alia, that had he known that there was any risk in relation to the securities, ABC would not have sold the Bankstown property to Nordoc and Mr Chahine would not have pursued the transactions contemplated by Mr Nash. As also earlier noted, that paragraph was the equivalent of what later became paragraphs 39 and 40 of Mr Chahine’s affidavit of 12 December 2002.

A copy of Mr Chahine’s affidavit was sent to Mr White on 23 December 2002: Exhibit POB-1, pp.104 to 107.

In Mr O’Brien’s affidavit, he set out the communications that he had with Mr White between 10 September 2002 to 23 December 2002.

The communications in the last-mentioned period establish Mr White’s ongoing involvement as counsel in relation to the proceedings then being pursued in the name of Artistic. (b) Cross-examination of Mr O’Brien

Mr O’Brien agreed that, when Mr Chahine retained his firm in 2000, he held himself out as a senior solicitor practising in litigation matters. He agreed that his firm was retained by Mr Chahine in relation to potential claims by ABC and Artistic. One aspect identified at that time was said to be the failure by Mr Nash to advise Mr Chahine that priority agreements should have been entered into for the purpose of effecting securities.

The Statement of Claim in the present proceedings sought a number of remedial orders including relief directed towards Artistic obtaining registration of securities as well as a claim for damages against NOT Lawyers. In instituting the proceedings, Mr O’Brien accepted that he, independently of Mr White, formed the opinion that the latter claim had reasonable prospects of success.

The Statement of Claim by which these proceedings were commenced alleged that a week before settlement (4 November 1999) the Bankstown property was worth $7.5 million. The pleading raised the issue that ABC sold the property for $3.5 million.

Mr O’Brien accepted that the claim in negligence against NOT Lawyers involved the contention that Artistic’s loss was based upon the position it would have been in if proper securities had been taken over the various properties offered by the purchaser group.

Mr O’Brien said that he had appreciated that ABC may have a claim as indicated by the observations in the brief prepared in June 2001 and subsequently sent to Mr White although he could not recall what that claim may have been.

He was taken to his letter of 19 October 2001 which was a response to Mr Chahine’s letter to him of 17 October 23001 in which he asked that the claim against NOT Lawyers be extended to their “professional work” . Mr O’Brien observed that the dialogue related to a claim by Artistic and not by ABC and “… at this time the issue concerning ‘no transaction’ case hadn’t been raised” (transcript, 16 April 2010 at 643). He was asked in cross-examination, however, whether he took steps to ensure that he had taken full instructions from Mr Chahine. Mr O’Brien replied that he could not recall having done so (t.643). He said he did not take a “proof of evidence” from him. However, as at October 2001, he said he had still not obtained all of the relevant documentary evidence. Having said that, Mr O’Brien stated that he had by that time taken the view that there may have been a claim by ABC. He accepted that, as at October 2001, Mr Chahine was asking him to review what claims could be made against NOT Lawyers. He said in context he thought he was being asked to review claims that could be brought by Artistic against Mr Nash. Mr O’Brien said that Mr Chahine’s request to “make sure all bases have been covered” , in hindsight, could have involved ABC but at the time he believed the focus of the inquiry was on Artistic (t.647).

Mr O’Brien agreed that by May 2002 Mr Chahine had formed the view that the development of the Bankstown property had run into difficulties and would not proceed. He said he agreed with him (t.651).

According to Mr O’Brien, in February 2003, a decision was made, on advice, that there was no point in pursuing the case against Elliot & Tuthill (over the claim in respect of the securities). The proceedings against that company, he said, were discontinued for payment of a small amount to Artistic. Mr O’Brien said “the real focus and energy” in the case up to February 2003 from the time it was commenced was devoted to the claim against Elliot & Tuthill.

In March 2006, a joint advice was received from Mr Walton SC and Mr White (then senior counsel) which was to the effect that the claim against Elliot & Tuthill would almost certainly fail as Artistic would have difficulty proving any loss in respect of that particular claim.

Mr O’Brien accepted “in hindsight” that, at this stage, it would have been appropriate to reflect and consider whether there was any other claim available for any other entity under Mr Chahine’s control (t.655). He agreed, again from a hindsight perspective, that it is obvious that there was then a “no transaction” case available. However, he did not notice the point when he read Mr Chahine’s affidavit of 12 December 2002 (paragraph 40) as he was focussed on the Artistic claims, particularly, the claim against Elliot & Tuthill.

Mr O’Brien also agreed that, when Ms Barrett of counsel phoned him on 19 February 2007, she made the point that there was a “no transaction” case (t.658). Ms Barrett also raised a query as to whether there was a need to join ABC as a plaintiff.

Advice from Mr Walton SC and Ms Barrett in conference on 19 February 2007 confirmed Ms Barrett’s advice that ABC had a “no transaction” case but it was then pointed out that the limitation period for such a claim had expired six years after settlement, that is, on 13 November 2005. The advice, however, was that, notwithstanding, ABC should be joined as a party to the proceedings. Mr O’Brien said that he immediately advised Mr Chahine of counsels’ advice.

In cross-examination, Mr O’Brien was taken to a file note of a conference held on 21 August 2000. with Mr Chahine and Mr Hanson and a Mr Anzein. He agreed that he recorded Mr Chahine saying:- “About three months after settlement I said to Nash you should not have let the title leave without the mortgage being registered.”

Mr O’Brien agreed that this comment could be taken as indicating that Mr Chahine was saying that Mr Nash should not have allowed the settlement to proceed had he known the actual position. He agreed, again with hindsight, that this should have alerted him to the fact that there was a “no transaction” case to be considered (t.672).

Mr O’Brien further agreed that, in an account given to him by Mr Chahine in October 2002, Mr Chahine said that Mr Nash had not advised him of the contents of a facsimile sent by Elliot & Tuthill on 12 November 1999 and that, had he known of its contents, he would not have proceeded with the transaction. Mr O’Brien agreed that, in hindsight, this was also relevant to a “no transaction” basis. (5) Issues on apportionment

In determining the issue of responsibility in terms of s.35(3) of the Civil Liability Act , it is necessary to take into account:- (1) The matters upon which Mr White’s advice had initially been sought and other work undertaken by him (including drafting the Statement of Claim) in light of the material then available and instructions given. (2) The particular periods during which Mr White was involved in the case and the extent of his knowledge of Mr Chahine’s instructions. (3) The particular functions undertaken by Mr White and Mr O’Brien at relevant stages. In Mr White’s case, it is necessary to have regard to the particular aspects of the proceedings he was engaged in and the matters upon which he was asked to advise.

The evidence establishing the facts and circumstances concerning the progress of the proceedings and communications between Mr Chahine and Mr O’Brien are to be considered in terms of the considerations specified in s.35(3).

The brief dated 21 June 2001 delivered to Mr White on 25 June 2001,as earlier noted, contained observations, the majority of which recited the details of what is termed the “Nash scheme” including the South Terrace Unit Trust and details of the mortgages, the registration, deeds of company charges and registration of charges. Under the heading “Deficiencies in the Nash Scheme” , Mr O’Brien recorded:- “It is apparent that Nash O’Neill Tomco have breached their duty of care to Mr Chahine, ABC and Artistic Builders in a number of respects. Contrary to the representation made in Mr Nash’s email dated 2 February 2000 to Mr Chahine, Artistic Builders has not obtained the benefit of:- • a second mortgage over the Bankstown property; and • a third mortgage over the Blacktown property.” The action of Elliot & Tuthill in obtaining a first and second registered mortgage secured over the Bankstown property has displaced the entitlement by Artistic Builders to obtain a second mortgage.” (at pp.9-10)

The observations continued by identifying other aspects and problems associated with the registration of the mortgages and the absence of deeds of priority. Reference, in particular, was made to communications with Elliot & Tuthill and, in particular, to a request to produce the Certificates of Title for the Bankstown and Blackheath properties so as to enable Artistic to register its mortgages and that proceedings would be commenced in the event that the demand was not complied with. It was noted that the Bankstown property had been listed for a public auction on 19 June 2001.

The request made to Mr White, inter alia, to advise on the prospects of proceedings against NOT Lawyers “… for an order that they pay damages to ABC or Artistic Builders or both of them …” is to be seen in the context of the nature of the matters raised in the observations. These did not include matters or issues concerning advice given or not given or inquiries made or not made prior to settlement by Mr Nash. Accordingly, the duty of care of Mr White at this stage must be seen in context and in the light of the matters detailed in the observations to the brief and the materials provided.

The observations to the brief do not reflect any instructions or information have been given by Mr Chahine as to instructions given by him to Mr Nash concerning adequate security, the matter of the Conroy valuation or instructions and advice directed to security.

Additionally, the matters the subject of communications between Mr O’Brien and Mr White in the period from 10 September 2002 to 20 December 2002 were not directed to such matters but to those related to the issues associated with Elliot & Tuthill.

It is noted above that the first occasion on which Mr White had any explicit information or instructions suggesting the “no transaction” basis for proceedings was the letter Mr O’Brien sent to him on 23 December 2002 in which he enclosed, inter alia, the affidavit of Mr Chahine sworn 12 December 2002: Mr O’Brien’s affidavit sworn 20 June 2009, pp.104 to 107 of Exhibit POB-1.

There was no request, however, in the letter of 23 December 2002 by Mr O’Brien that Mr White advise upon Mr Chahine’s affidavit insofar as it contained material concerning a “no transaction” case. Advice was specifically sought on other aspects (in particular, a settlement offer by the fifth defendant).

By February 2003, the decision was made that the claims by Artistic against Elliot & Tuthill were not worth pursuing. That decision caused a radical change in the dynamics of the proceedings. (6) Responsibility for the failure to commence proceedings in time

The issue of “responsibility” for the failure to review and advise Mr Chahine of the “no transaction” case, in my opinion, crystallized in late 2002 with Mr Chahine’s draft and final affidavit (12 December 2002). Prior to then, subject to one matter dealt within the next paragraph, I do not consider, even with hindsight, that there was sufficient material for a conclusion that a “no transaction” case should have been commenced.

The matter to which I refer in the preceding paragraph is the failure by Mr O’Brien to have taken full instructions from Mr Chahine in the form of a narrative or proof of evidence. Had that been done, given Mr Chahine’s repeated instructions to Mr Nash to obtain adequate security, there was a reasonable possibility, even a probability, that the “no transaction” case would have emerged at an earlier point in time in an account of what might be described as “the full story” . There was enough information available to indicate that a complex transaction had been completed within a short time, that multiple lines of inquiry had been necessary to establish the adequacy of the security proposals and that there was no or little information to confirm due and proper inquiry had been undertaken.

Some account, of course, must also be taken of the fact that the extent of the inadequacy of the securities emerged after the sale of the Bankstown property in September 2001 by Elliot & Tuthill for which a price of $6.6 million was achieved. Up to that point, Artistic’s position had not been fully established and it had not served a notice of payment to be made. The question of recourse to guarantors or other methods of obtaining its monetary entitlement was not examined by Artistic until a later date.

As events developed the extent to which the properties were grossly deficient in terms of their value to support the liability became apparent. The instructions given by Mr Chahine at a later time, namely in October 2002, partly reflects those events.

The facts and matters which Mr Chahine deposed to in paragraphs 39 and 40 of his draft affidavit were clearly sufficient to constitute notice of a “no transaction” contention as the basis of a claim by ABC. There was a failure by both Mr O’Brien and Mr White at that time and thereafter to appreciate that fact and, in particular, the need for the statement of claim to be amended to join ABC as a co-plaintiff to the proceedings on that basis. That failure, in my opinion, which continued up to 12 November 2005, constituted a breach of duty of care by Mr O’Brien and Mr White to ABC. (7) Submissions on the appropriate apportionment

In the written submissions for the plaintiffs (paragraph 79 to 85), it was argued that Mr O’Brien failed to carefully examine the case that had been instituted in the name of Artistic both in terms of causes of action and parties in October 2001. It was contended that he only checked available causes of action that were available to Artistic and that this was a breach of his duty of care. However, it was also said to be a complete answer and a defence by Mr O’Brien that he discharged his duty by relying on counsel’s advice. It was argued on behalf of the plaintiffs:- “84. Any problems with Mr White’s original advice (which are not conceded) were not the cause of the loss to Mr Chahine because those instructions and Mr O’Brien’s response were a complete break in any chain of causation started as a result of Mr White’s involvement.”

Mr Fagan, in response, referred to the evidence to be found in Mr O’Brien’s two affidavits to which I have referred above in support of the contention that he had not been in breach of his duty of care in 2001 as argued on behalf of the plaintiffs. This was, in particular, by reason of the fact that, as at October 2001 no instruction had been received as to a “no transaction” case.

Mr Fagan contended that that, in effect, came into focus once it became appreciated that the real problem was associated with the fact that the properties provided as security proved not to have the equity to support the liability for which they were provided. It was when that became appreciated the “no transaction” contention emerged and it was after that stage that ABC appropriately became a plaintiff.

In the submissions for the plaintiff, it was contended that Harris & Company failed to prepare the proceedings by taking an appropriate proof of evidence. That failure to obtain relevant material, it was argued, would effectively remove or ameliorate any responsibility of Mr White. Harris & Company, it was observed, did not take full instructions or a proof of evidence until a later time. Instead, it received instructions by way of documents and limited conversations with Mr Chahine on a piecemeal basis. The draft affidavit was prepared long after Mr White had given advice.

Alternatively, it was put that, even if Mr White did act in some way deficiently in relation to the advice that he provided in late June and early July 2001, there was a complete break in the chain of causation between Mr White’s activities and the loss occasioned to ABC. In this respect, it was submitted:- “141. That break in the chain occurred when Mr Chahine expressly instructed Mr O’Brien to check his work and to ensure that all available cases were being pursued. This is the clear meaning to be drawn both from Mr Chahine’s telephone call to Mr O’Brien of 17 October 2001 and his letter to him of the same date. Mr O’Brien took on that task alone, he did not refer the matter back to Mr White for his opinion.”

It was argued that Mr O’Brien effectively conceded that when he read Mr Chahine’s letter of 17 October 2001, he erred in assuming that the original decision that Artistic was the only proper plaintiff had been correct.

Accordingly, the question was posed as to whether or not, as at 17 October 2001, Mr O’Brien should have had in mind the prospects of a case based on a “no transaction” hypothesis.

It was also argued for the plaintiff that, at the latest, by December 2002 when Mr Chahine swore his first affidavit, Mr O’Brien was aware of paragraphs 39 and 40 in that affidavit.

It was submitted in this respect on behalf of the plaintiffs ( “Plaintiffs’ final submissions , paragraph 145):- “… Any reasonable practitioner confronted with those instructions ought to have observed that a ‘no transaction case’ was in play… and immediately having noticed that it was a no transaction case, should have turned their minds to the question of who actually suffered the loss as a result of the transaction being entered into.”

Accordingly, it was contended that Mr O’Brien missed the point as to the “no transaction” hypothesis and, in doing so, he fell short of the standard expected of him. It was submitted that “… that error on no logical basis can be laid at the feet of Mr White. Another way of looking at it is that the subsequent errors of Mr O’Brien are the real cause of ABC’s loss” ( Plaintiffs’ Final Submissions , paragraph 146).

The position for the plaintiff, accordingly, was that there should be no deduction to take account of any legal negligence causing loss to the plaintiff by Mr White.

Mr Fagan, on the other hand, said that all the matters relied upon in paragraphs 144 and 145 of the “Plaintiffs’ Final Submissions against Mr O’Brien are also equally applicable to Mr White in view of the involvement that he still had in the proceedings in the latter part of 2002. Mr Fagan submitted (transcript, 23 April 2010, p.778):- “… Whilst put in the context of suggesting this was all on Mr O’Brien’s shoulders, we submit … the same thing can be said to require that there was an apportionment of responsibility to Mr White. As we put in our written submission, it is our … assertion (that) the bulk of the responsibility rests with counsel because this is [the] sort of analysis that would be in his field to determine where loss had fallen.” (8) Consideration

Mr White was retained by Harris & Company in June 2001 to advise both ABC and Artistic.

In the period between 21 June 2001 and March 2007, his advice was sought on a number of occasions in relation to specific aspects of the proceedings by Artistic. In his capacity as counsel, Mr White owed a duty of care to both ABC and Artistic.

In circumstances in which, as I have determined, Mr White was in breach of his duty to advise Mr O’Brien and ABC prior to 12 November 2005 that ABC should be joined as a plaintiff to the proceedings, Mr White, in my opinion, may be considered to be concurrently or jointly liable. On that basis, the claim by ABC against Harris & Company is an apportionable claim for the purposes of the Civil Liability Act , the breach having occurred between 26 July 2004 and 12 November 2005.

In the event of Mr O’Brien providing new information or instructions concerning the transactions capable of providing a basis for a reconsideration of the existing proceedings, the duty of care as counsel in the matter, in my opinion, would extend to requiring him to consider the possible legal significance of the information/instructions and advise accordingly.

In such circumstances and having regard to his engagement in 2001 and subsequently in the proceedings, it would, in my opinion, be incumbent on counsel to provide necessary and appropriate advice in relation to new material of legal significance sent to him/her. Failure to do so, as in this case, is a consideration in determining the extent of any apportionment and whether or not he or she had been specifically requested to advise upon it.

In making the evaluation envisaged and required under s.35 of the Act and in forming a discretionary conclusion as to where justice of the case lies in terms of apportionment, it is necessary to bring to account all pertinent factual circumstances.

If it had been the case that, following instructions from Mr Chahine in November/December 2002, Mr O’Brien had sought advice from Mr White as to the legal significance of the “no case” material in Mr Chahine’s 2002 affidavit, but that Mr White either failed to give appropriate advice within time or gave wrong advice, then it could be said in those circumstances that a major part of the responsibility would fall upon counsel.

However, the circumstances referred to in the preceding paragraph did not occur in this case. Mr Chahine’s sworn affidavit on the “no case transaction” aspect was not provided to Mr White with a request that he consider the content of Mr Chahine’s affidavit, insofar as it went to a possible issue of “no transaction” and advise. It was a matter which Mr O’Brien, quite frankly, conceded was overlooked.

Whilst it is the case, as was submitted by Harris & Company (at [111]), that analysis of how loss has been caused in a particular case, which party has sustained loss and what results would flow from a hypothetical “but for” situation, are matters for counsel in a case such as the present, it remains the fact, as I have earlier stated, that advice on the matter was not specifically sought from Mr White. That does not, of course, mean that Mr White therefore had no duty of care in relation to the matter. He clearly did, as I have stated earlier. The circumstances to which I have referred, in which he was not requested to review his earlier advice or consider the “no transaction” material, however, is, I consider, a relevant circumstance in assessing overall the issue of “responsibility” in context of the way events unfolded in this case.

As solicitor to Mr Chahine, Mr O’Brien was primarily responsible for conferring and obtaining instructions from him on all relevant aspects of the transaction. However, he did not obtain instructions relevant to a “no transaction” case from Mr Chahine by until September/October 2002. It is clear that those instructions, considered in context, ought to have alerted Mr O’Brien to the fact that, if the “no transaction” account provided by Mr Chahine were to be accepted by a court, that indicated that there existed an arguable cause of action in ABC on that basis.

Mr O’Brien failed in late 2002 to identify the significance of the instructions given by Mr Chahine in that respect and, accordingly, failed to specifically seek advice from counsel on behalf of ABC specifically on that issue. There were no specific circumstances established in evidence (other than the fact that the focus was on the pursuit of Artistic’s proceedings) which provide any particular explanation or justification for the oversight in that respect.

That is but one factor to take into account in relation to the considerations of blameworthiness, causative potency and the degree of departure from the standard of care as well as the relative importance of the acts of the parties in causing the damage.

As to the position before 2002, it is apparent from the evidence that, at the time Mr O’Brien briefed Mr White on 21 June 2001, he had not taken, in conference or otherwise with Mr Chahine, a detailed account of all relevant matters concerning the transaction. Had he done so, as I have earlier stated, I consider it is reasonably possible and even likely that Mr Chahine would have provided sufficient information relevant to a “no transaction” case by ABC in light of his many statements to MR Nash on the issue of satisfactory security.

Had Mr O’Brien taken full instructions on all such relevant facts and circumstances prior to briefing Mr White, counsel would then I consider that there was a realistic chance that there would have been material available to Mr White when he was initially briefed in the matter.

Accordingly, had detailed instructions been obtained from Mr Chahine at a relatively early stage and before the focus of advice and the proceedings subsequently commenced fell upon Artistic’s rights and interests, there was, I consider, a reasonable prospect that Mr Chahine’s instructions on the “no case” position disclosed in his draft and then his final affidavit in December 2002 would have emerged.

I have, in this respect, characterised this last-mentioned matter as a reasonable prospect because it would not, in my opinion, be appropriate to regard it as certain that, had full instructions been taken from Mr Chahine in 2001, he would have thought to disclose material relevant to the “no case” cause of action. Accordingly, in taking the matter into account for the purposes of determining the extent of apportionment, I do so on that basis.

I turn to the point raised in the plaintiffs’ submissions, namely, on 17 October 2001, Mr Chahine, in effect, gave instructions to Mr O’Brien to review his file and to advise him further in relation to any claims against NOT Lawyers.

In this respect, Mr O’Brien’s attention was drawn to his file note of 17 October 2001 recording a conversation with Mr Chahine on that date. The note, in part, records:- “Look at my file & tell me whether we have any further claims against Nash.”

On the same date, Mr Chahine wrote to Mr O’Brien (Exhibit M, p.55). In that letter, entitled “Re: Artistic Builders Pty Limited v Nash, Elliot & Tuthill & Ors” , Mr Chahine recorded in paragraph 2:- “2. From the beginning I gave you all almost of the documents related to the claims against Nash to assess. Please check and to see what else can join with the existing claims. The claim against Nash not only failure to register the mortgage South Tce. and Blackheath properties, but his professional works and the other securities on this deal.”

A little later in the letter, he recorded:- “4. I am asking you to consider joining previous claims with this one against Elliot.”

Mr O’Brien was cross-examined about these instructions (transcript, 16 April 2010, p.640 to 647). He considered Mr Chahine’s instructions given on 17 October 2001 related to a review of the file in relation to the case against Artistic. It was put to him:- “Q. But, part of making sure that all possible claims. Part of making sure whether we have any further claims against Mr Nash surely involves whether anyone – any other entity or person – has any claim available to them other than Artistic? A. With hindsight, one would accept that that may well involve ABC but at the time I repeat that I believed that the focus of that inquiry was being made on behalf of Artistic Builders.”

The narrower view of Mr Chahine’s instructions on 17 October 2001 to which Mr O’Brien referred is, to an extent, understandable. However, on the other hand, the instructions were given in broad terms. The significance of any omission by Mr O’Brien to undertake a review of the matter in terms of possible causes of action in ABC, is, I consider, likely to have been, at least in part, due to the fact that full instructions on all relevant facts and circumstances had not been obtained at an early stage, a matter to which I referred earlier.

I do not consider, as was submitted on behalf of the plaintiffs, that the fact that Mr O’Brien did not, following instructions on 17 October 2001, review the matter for the purposes of determining whether any other entity such as ABC should be added to the proceedings constituted a break in the chain of causation. It is nonetheless a circumstance to be taken into account as one of the circumstances relevant to Mr O’Brien’s role. That said, however, I do not see this is a matter, of itself, which could be said to constitute a separate breach of duty by Mr O’Brien.

Having taken into account the facts and circumstances of the present case, I have concluded, in terms of s.35(1) of the Civil Liability Act , that in relation to the claim by ABC, the apportionment of responsibility between Harris & Company and Mr White should be made on the basis of Mr White’s responsibility for the damage and loss of ABC at 40% and Harris & Company at 60% PART N - DAMAGES (1) The damages claimed by ABC

On the basis that it was determined that, but for NOT Lawyer’s negligence, Mr Chahine would not have allowed the transaction to go ahead, then the calculation of damages claimed by ABC against NOT Lawyers was put as follows:- (1) That at the time of the settlement, the Bankstown property had a market value of $7.63 million. (2) As a result of the transaction, ABC received $3.5 million in cash but nothing else. (3) Accordingly, ABC’s loss is the amount of $4,130,000. (4) This loss was incurred as at 12 November 1999. ABC claimed interest at the statutory rate. As at 6 April 2010, that amount was calculated to be $4,087,738.22: Plaintiffs’ Final Submissions at [86].

It was contended on behalf of the plaintiffs that if the transaction had not gone ahead, the Bankstown property would then have been sold by the mortgagee in possession (ECU). However, it was argued that this was wholly irrelevant in the sense that, given that there is no evidence to suggest that a mortgagee exercising a power of sale would have sold the Bankstown property other than for its market value. It was contended in this respect there could be no doubt that the property’s market value was at least $7.5 million at that time: Plaintiffs’ Final Submissions at [87].

The basis for calculation of damages as claimed against Harris & Company was that set out above, subject to the defence raised under the Professional Standards Act 1994.

It was contended for the plaintiffs that this was not a case involving a claim for damages for the loss of a chance. That was said to be the case owing to the peculiar structure of the proceedings, the Court being in a particular position to know with certainty what the prospects of success of a case against NOT Lawyers would have been but for the limitation defence. Accordingly, there is no need to resort to the notion of lost chances: Plaintiffs’ Final Submissions at [89]. (2) The claim by Artistic

In relation to the claim by Artistic, it was submitted that it had suffered damages as a result of NOT Lawyers’ negligence. In this respect, it was said that it spent considerable amount of money on legal costs in trying (unsuccessfully) to enforce its securities. Those costs were initially estimated and claimed at $390,000 being 80% of the costs incurred up until 1 May 2006. It was explained that the reason for the discount is to take into account the work undertaken in that period on aspects relating to NOT Lawyers: Plaintiffs’ Final Submissions at [90]. The amount of the claim, as discussed below, was reduced in final submissions to $158,999.92 (plus interest): Appendix 3 to Plaintiffs’ Final Submissions.

The claim by Artistic also included a claim for interest. Interest was claimed from the date that the last of the claimed expenses were paid. It was said that this was a generous approach to the defendants. It was also observed that the Court might consider it more appropriate to apply a discounted rate in respect of the whole period: Plaintiffs’ Final Submissions at [91].

It was argued for NOT Lawyers that there was no reason to restrict these principles to damages in contract and that they are of even greater import where the cause of action is in tort where damage is the gist of the action.

The plaintiffs accepted that some discount must be brought to account to reflect the fact that Mr O’Brien’s account relate not only to the Elliot & Tuthill proceedings, but also to the present proceedings. Hence, 80% of the costs was said to be appropriate. NOT Lawyers did not dispute that submission.

In final oral submissions (transcript, 22 April 2010, p.717), Mr Newlinds indicated that Artistic’s claim had been revised and differed from the way its case was opened. The claim had been reduced. The basis for any entitlement was advanced in final submissions as discussed below (3) The evidence

In support of the claim, Artistic tendered invoices of Harris & Company addressed to either Artistic or ABC (Exhibit O, described as Plaintiffs’ Tender Bundle Volume 6 ).

It also tendered and relied upon a statement of Harris & Company’s trust account in the name of Artistic dated 3 October 2002 (Exhibit P, the trust statement of Harris & Company in respect of the period 6 May 2002 to 3 October 2002 dated 3 October 2002).

Exhibit O contained documents in relation to the costs and disbursements of Harris & Company. The exhibit comprises an analysis which, in summary form, may be stated as follows:- (1) Invoices of Harris & Company : These totalled $246,826.11 of which $207,263.11 is attributed to the abovementioned proceedings on the percentage stated in the summary in Exhibit O in relation to the proceedings involving Elliot & Tuthill and the enforcement of securities. (2) Counsels’ fees : These totalled $160,812.25 of which $156,528.88 is attributed to the abovementioned proceedings on the percentage basis set out in the schedule to Exhibit O. (3) Other disbursements : These totalled $61,266.13 of which $58,429.33 was attributed to the claim by Artistic on the percentage basis set out in the schedule.

The total, on the percentage basis, is stated in the schedule to Exhibit O in respect of the costs of Harris & Company, counsels’ fees and other disbursements is the amount of $422,221.32.

Insofar as costs were incurred in respect of the exercise of the power of sale by Elliot & Tuthill, it was submitted that Mr O’Brien’s evidence supported the proposition that the proceedings were reasonable in all the circumstances. It was also submitted that proceedings in respect of the securities that had not been registered was also a reasonable step for the plaintiffs to take in order to mitigate what otherwise would be their losses. (4) Submissions for Artistic

Mr Newlinds frankly conceded in oral submissions (transcript, p.717) that it was not possible to prove that Artistic paid the amounts claimed. He noted that no claim was being made in respect of any invoice which was in fact addressed and sent to ABC.

In oral submissions, Mr Newlinds stated that Artistic’s claim was as set out in appendix 3 by way of a revised claim. This related to a series of invoices from Harris & company directed to Artistic. The invoices related to the proceedings against Elliot & Tuthill and the enforcement of the securities. The invoices, the subject of Artistic’s claim, totalled $100,311.17. Mr Newlinds, in respect to this aspect of the claim by Artistic, stated:- “… We don’t have any direct evidence that Artistic paid those invoices and the submission we make is that your Honour would infer that in circumstances where the invoices has [sic] been rendered to Artistic and paid then it has been paid by Artistic or on Artistic’s behalf in such a way that caused the loss to Artistic. This is the way we put that part of the case. It is a question to your Honour whether in the light of the very sketchy evidence that issue is open.”

In respect of the scheduled list of barristers’ invoices and the invoice of Mr Healey, valuer, these were not directed to either ABC or Artistic. They were directed to Harris & Company and totalled $58,688.75.

Mr Newlinds, in respect of these invoices, relied upon Exhibit P which was a copy of the trust statement of Harris & Company to which I have earlier referred. The trust statement was addressed to Artistic. The statement establishes the payment of invoices from the trust account maintained by Harris & Co in the name of Artistic and in that respect Mr Newlinds submitted (transcript, p.718):- “… The submission is that prima facie, the fact that monies are held by Harris & Co on trust for Artistic is sufficient evidence for your Honour to find that those monies were Artistic’s monies … That submission, it is clear when you look at Ex P, that some of the money that comes into the trust account and is credited, comes from ABC or it is at least on ABC number cheques. In my submission, it being common place for different entities in a group to pay accounts that are really due and owing by other entities in a group, and to simply deal with that by way of loan; that would take away from the very powerful inference that Harris & Co and those instructing them were obviously satisfied that the appropriate person to be the beneficiary of the trust account was Artistic. This is a separate submission we make for the disbursements in the schedule and the amounts of about 58 thousand dollars. We probably opened that part of the case a little boldly. We have cut it back and that is as high as I can put it … Obviously it is a … question of inference and whether it is available or whether what I am asking your Honour to do is mere speculation. That is what we say on that aspect of the case against Nash, O’Neill and Tomco.” (5) Submissions for NOT Lawyers

NOT Lawyers relied upon written submissions entitled “NOT’s Submissions in Reply on Artistic’s Damages Claim dated 22 April 2010.

In these submissions it was acknowledged that the plaintiffs’ claim, as loss to Artistic, was said to arise from the incurring of costs of pursuing the Elliot & Tuthill proceedings. NOT Lawyers accepted that, if liability is otherwise established, then these costs were recoverable – in principal – as reasonable costs of mitigation.

It was noted that the plaintiffs had originally “estimated” the costs as “$390,000 being 80% of the costs incurred up until 1 May 2006” being the settlement of those proceedings.

It was contended that the “only” evidence of the costs claimed were a bundle of accounts provided to the legal advisers of NOT Lawyers on 16 April 2010.

NOT Lawyers relied in the submissions upon the observations of Chernov J (with whom Buchanan JA) agreed in Longdon v Kenalda Nominees Pty Limited [2003] VSCA 128 at [33]. There, inter alia, it was emphasised that it was for the plaintiff to prove both the fact of loss arising from (in that case the defendant’s breach of contract) and the amount of the loss. Further, a plaintiff was required to establish both matters with as much certainty and particularity as is reasonable in the circumstances.

It was submitted that the principles stated in that case have equal application to the claim made by Artistic.

The submissions of NOT Lawyers on the Artistic claim did not directly take issue with the claim based upon 80% of total costs incurred but concentrated upon the issues of principle referred to in the submissions. In particular, it was contended there was no evidence as to who paid the accounts. Some were addressed to ABC and some to Artistic.

It was further contended that, if ABC paid any of the accounts, then the only basis on which Artistic could demonstrate loss would be if it could point to an obligation in it to repay ABC.

It was also submitted that, assuming ABC could establish such an obligation, then on the face of it, assuming ABC paid the costs shortly after the dates of the accounts, then ABC is now out of time to enforce any obligation of that kind.

It was also submitted that Artistic was not entitled to recover all of the sums it had incurred in relation to the Elliot & Tuthill proceedings. In this respect, it was contended that any such claim may only relate to costs on a party and party basis. Reliance, in this regard, was placed upon the observations in British Racing Drivers’ Club Limited v Hextall Erskine & Co [1996] 3 All ER 667 at 691 to 692.

In oral submissions, Mr Stevenson observed that the problem facing Artistic was that it was unable to prove who paid the invoices or accounts. Exhibit P, the trust account statement, was said to record monies coming into that account from ABC, firstly, on 13 June 2000 and again on 31 October 2000. Attention was also drawn to an entry in the trust statement dated 27 November 2000 entitled “Attorney General’s Department Supreme Repayment of Security for Cost Monies” in the amount of $50,000 credit. The entries of 30 September 2002 show ABC as having made payments as described in Exhibit P. Mr Stevenson, accordingly, submitted that so much evidence as there was suggested that ABC was paying money. If ABC was paying the fees, in effect, on account of Artistic, it was out of time to recover them from Artistic. It was submitted that there could not therefore be any liability to pay. In any event, the claim by Artistic essentially rests upon the drawing of an inference that it was in reality Artistic who paid the invoices. Mr Stevenson, however, suggested that that was a matter of “… sheer speculation and such evidence as there is in Exhibit P suggests the contrary” (transcript, 23 April 2010, p.754). (6) Consideration

Apart from the documentary evidence in support of the claim by Artistic, to which I have referred, there is no other evidence to establish that Artistic paid the costs, disbursements and counsels’ fees. Further, insofar as ABC paid any of such costs, there is no evidence of any arrangement made between ABC and Artistic in respect of costs and disbursements incurred in the course of proceedings brought by Artistic.

The drawing of an inference depends, of course, upon the existence of evidence which permits that to do done.

Mr Newlinds submitted (at p.718) it is commonplace for different entities in a group to pay accounts that are actually due and owing by other members of the group to treat that arrangement by way of loan.

In the present case there is no evidence of any traditional group structure in which one company acts as a holding company and the other is a subsidiary of it. There is no evidence that attention was given at the time costs and disbursements were incurred or paid that Artistic would assume the obligation of reimbursing ABC.

Mr Newlinds submitted that a powerful inference could be drawn that Harris & Company and those instructing them “… were obviously satisfied that the appropriate person to be the beneficiary of the trust account was Artistic …” (t.718). That submission was directed, in particular, to the disbursements set out in the schedule of the claim.

The submission for Artistic that a loan can be inferred from the documentary evidence requires analysis. In effect, the submission as to drawing of inferences in the context of Artistic’s claim, it would seem in reality, to be a submission that the evidence would support the existence of an implied loan contract between the two companies at the time the costs and disbursements were incurred or paid.

In determining whether there existed an implied contract, it is essential to identify some evidence of contractual intent on the part of the companies in question. In that respect, it is necessary to examine the acts and conduct of the parties in the light of relevant or surrounding circumstances that permit a conclusion to be drawn of an implied or tacit agreement or understanding.

In Pobjie Agencies Pty Limited v Vinidex Tubemakers Pty Limited [2000] NSWCA 105, Mason P cited dicta of McHugh JA (as his Honour then was) in Integrated Computer Services Pty Limited v Digital Equipment Corporation (Australia) Pty Limited (1988) 5 BPR 11,110 at 117 to 118. There, his Honour cautioned against endeavouring to fit commercial arrangements into the classical analysis of contractual arrangements in terms of “offer” , “acceptance” , “consideration” and “intention to create a legal relationship” . Whilst these were said to be the benchmarks of a contract according to classical theory, nevertheless a contract may be inferred from the acts and conduct of the parties as well as or in the absence of their words. McHugh JA added:- “… The question in this class of case is whether the conduct of the parties viewed in light of the surrounding circumstances show a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract … Care must be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances.”

I am not persuaded by the argument put on behalf of NOT Lawyers that ABC would be out of time to enforce any obligation against Artistic. Limitation provisions bar the remedy but not the right: The Commonwealth v Verwayen (1990) 170 CLR 394, 405. Thus, a limitation defence must be pleaded to an action. It is hardly likely that there would be any prospect of a limitation defence to enforcement being raised by Artistic to ABC.

I am of the opinion, in any event, that the evidence is insufficient, either expressly or as a matter of inference, to support the existence of an anterior understanding or agreement as to a loan between Artistic and ABC that Artistic would reimburse ABC in respect of costs and disbursements paid by the latter.

On the basis of an absence of evidence that Artistic either paid any of the costs and disbursements claimed or that ABC paid them pursuant to an agreement or understanding with ABC, the claim by Artistic must fail. PART O - CONCLUSIONS

On the basis of the findings and conclusions set out in paragraph [517], I have determined that NOT Lawyers were in breach of their duty of care under the retainer with ABC in relation to the transaction for sale of the Bankstown property.

ABC suffered loss and damage as a result of NOT Lawyer’s breach of duty of care to ABC.

NOT Lawyers have established a limitation of action defence under s.14 of the Limitation Act to ABC’s claim in the proceedings. Accordingly, the proceedings by ABC against NOT Lawyers are statute-barred and therefore are not maintainable.

Harris & Company, in breach of their duty of care to ABC, failed to commence proceedings against NOT Lawyers within the six year period prescribed by s.14 of the Limitation Act 1969.

Harris & Company do not have a basis for and, accordingly, have not established the advocate’s immunity defence pleaded by them.

The claim against Harris & Company is an apportionable claim pursuant to the provisions of s.35 of the Civil Procedure Act .

The appropriate apportionment of liability is determined to be: (1) Harris & Company - 60% (2) Mr White - 40%.

Artistic’s claim against NOT Lawyers for costs, counsels’ fees and disbursements is dismissed.

In relation to judgment and damages, I note:- (1) ABC’s entitlement to damages against Harris & Company is subject to the provisions of the Professional Standards Act . (2) The maximum amount of damages that may be awarded against Harris & Company in accordance with the scheme under the Professional Standards Act is the amount of $3,500,000.

I direct the parties to lodge with my associate by 4.00 pm, Friday 11 February 2011:- (1) A document setting out the calculations of damages in accordance with and to give effect to the conclusions set out above. (2) Short minutes of order to give effect to the conclusions set out in these reasons for judgment.

The parties are to lodge written submissions in support of any applications for costs in accordance with a timetable to be agreed. A copy of the timetable is to be provided to my associate by 4.00 pm, Friday 4 February 2011.

The proceedings to be re-listed for the purpose of hearing submissions on the form of orders to give effect to this judgment. The parties are to confer and seek, by arrangement with my associate, a hearing date for that purpose.

Liberty to any party to apply.