Todd Hadley Pty Limited v Lake Maintenance (NSW) Pty Limited

BELL P: The underlying proceedings to which this application for leave to appeal relates involve the written valuation of a property at Wallalong, New South Wales (the Property) by Todd Hadley Pty Limited (the Valuer) on 12 February 2010 (the Valuation Report). The Property was valued for mortgage lending purposes at $7,450,000.

On 23 June 2010, Lake Maintenance (NSW) Pty Limited (the Lender) lent the sum of $3,073,000 to Mr David James Bone (the Borrower) who had procured the valuation and provided it to the Lender. The loan was secured by a mortgage over the Property executed on 21 June 2010 by the Borrower as mortgagor in favour of the Lender as mortgagee. The mortgage contained, in cl 3.1, a personal covenant by the Borrower to repay the principal sum and interest to the Lender. The loan was repayable together with interest on 23 December 2011.

On 25 January 2012, the loan not having been repaid, the Lender appointed receivers to sell the Property. Following the receipt of two offers in the sum of $910,000 and $1,005,000, the latter offer later being increased to $1,105,000, the receivers obtained an independent valuation of the Property at $900,000. On 23 May 2012, a contract was entered into for the sale of the Property for the sum of $1,250,000. Completion took place on 15 June 2012.

The underlying proceedings were commenced on 14 June 2018. In those proceedings, the Lender sues the Valuer for damages for professional negligence as well as for relief under the Competition and Consumer Act 2010 (Cth), Sch 2 − Australian Consumer Law, the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) in relation to the Valuation Report.

Various defences have been filed, including limitation defences, pleading that the Lender’s causes of action accrued:

By Notice of Motion filed on 20 November 2018, the Valuer sought that the Court determine, pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), the following as separate questions in the proceedings:

It was made plain in the course of the hearing of the application for leave to appeal that the reference to s 262 of the Australian Consumer Law should have been a reference to s 236. It is also apparent that the reference to s 68 of the Fair Trading Act is a reference to s 68 of that Act as it was prior to the commencement of the Fair Trading Amendment (Australian Consumer Law) Act 2010 (NSW), reflecting the Lender’s reliance in para 52 of the Statement of Claim on s 42 of the Fair Trading Act as in force at the time of the Valuation Report and/or 31 December 2010.

As is customary, the Notice of Motion also sought “[s]uch other orders as this Honourable Court thinks fit”.

The primary judge dismissed the application.

In [55]-[57] of the primary judgment, her Honour said:

It was common ground that her Honour was mistaken in her attribution in [56] to the plaintiff Lender of an estimate of “at least two weeks” for the hearing of the separate questions. It is also plain from the further reference to a “two week hearing” in [57] that this was not a typographical error. Senior counsel for the Lender, Dr Birch SC, accepted this, saying “[i]t’s not altogether clear why her Honour said what she did in the judgment”. In fact, the Lender had estimated that a separate hearing would take between one to two days and the Valuer half a day. That was to be contrasted with competing estimates of between one week (the Lender’s estimate) and at least two weeks (the Valuer’s estimate) if the whole matter were to run.

Dr Birch also indicated in the course of the hearing of the application for leave to appeal that the attribution in [56] of the judgment to the Lender of an argument that the hearing of the separate question would “require it to call much of its factual case, at great expense and with likely duplication” was not a submission he made.

These matters were seized upon by the Valuer, as applicant for leave to appeal, to warrant the grant of leave to appeal and the re-exercise by this Court of the discretion in relation to the application for separate questions. Reference was made in this regard to the judgment of Ward JA (as her Honour then was) in Dank v Cronulla Sutherland District Rugby League Football Club Ltd [2014] NSWCA 288 at [73]-[74] where her Honour said:

The two errors identified in [11] and [12] above were said by the Valuer to be “material errors of fact”. In my opinion, that submission was correct.

The length of time which a separate question with the capacity to resolve the entirety of the dispute may take, relative to the likely length of a full hearing, is a very important consideration in the exercise of a discretion whether or not to order the decision of a separate question, as authorities cited by the primary judge made plain. These included: TVW Enterprises Ltd v Duffy [1985] FCA 109; Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-142; Southwell v Bennett [2010] NSWSC 1372 at [15] (Southwell); Allandale Blue Metal Pty Ltd v Roads and Maritime Services [2013] NSWCA 103 at [92] per Ward JA (Allandale), in turn citing Flore v NSW Department of Education and Training [2006] NSWSC 1227 at [32]; Street v Luna Park Sydney Pty Limited [2007] NSWSC 697 at [6]; Stewart v Ronalds [2009] NSWSC 455; Hubertus Schuetzenverein Liverpool Rifle Club Limited v Commonwealth of Australia (1994) 51 FCR 213; [1994] FCA 1161; (1994) 85 LGERA 37.

Section 56 of the Civil Procedure Act 2005 (NSW) also necessarily makes an identification of the likely length and cost of the hearing of a separate question, as opposed to the likely length and cost of a full trial, highly germane to the exercise of any discretion as to whether or not to order a separate question.

Whilst it is correct that the primary judge spoke in [56] of being “reinforced” in her conclusion by the matters she goes on to discuss in that paragraph, if, as seems to be apparent, her Honour considered the application for a separate question whilst labouring under a mistaken belief as to a highly material matter, namely the likely length of hearing of the separate question(s) vis-à-vis the estimated length of the full trial, it seems to me, with respect, impossible to conclude other than that her Honour’s discretion miscarried. As was said in House v R (1936) 55 CLR 499 at 505; [1936] HCA 40:

It follows, in my opinion, that her Honour’s exercise of discretion was necessarily vitiated with the consequence that leave to appeal should be granted and the discretion exercised afresh.

It is necessary therefore to turn to the submissions advanced by the parties in support of and against the stating of separate question(s).

Mr McCulloch SC, who appeared for the Valuer, accepted, consistent with well-established authority, that the Court should exercise caution when asked to order the determination of separate questions: see, for example, Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 at [436]; Tepko Pty Limited v Water Board (2001) 206 CLR 1; [2001] HCA 19 at [168]-[170]; Commonwealth Bank of Australia v Clune [2008] NSWSC 1125 at [6] (Clune); Bailey and Bailey v Director-General Department of Energy Climate Change and Water [2010] NSWSC 979 at [4]; Southwell at [15]. He contended, however, that the issue sought to be raised by the proposed separate question(s) raised a discrete question of law that, if answered in his client’s favour, would resolve the proceedings.

The issue and real question, in short, was whether the Lender’s causes of action against the Valuer arose at least by the time the subject Property was sold by the Lender, as mortgagee in possession, as a result of which it became clear that the Lender was unable to recover the amount advanced under the mortgage from the sale of the mortgaged Property or whether it only arose at some other later date when it could be shown to be reasonably ascertainable that the Lender was unable to recover the balance of the debt owed from the Borrower under the personal covenant contained in the mortgage.

The Valuer contended that this question was answered directly by the following passage from the judgment of Gaudron J in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 at 424-425; [1999] HCA 25 at [16] (Kenny & Good):

Gaudron J cited as authority for the penultimate sentence the decision of Brennan J in Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 537; [1992] HCA 55 (Wardley) where his Honour had said:

The Valuer also placed reliance upon the following passages in the judgment of Gummow J in Kenny & Good at [85]-[89]:

Dr Birch essentially accepted in the course of argument on the application for leave to appeal that, were the question posed in [21] above answered in the Valuer’s favour, the Valuer would succeed. He said:

Essentially, the question boils down to whether or not, in a mortgage transaction, loss or damage occasioned by an allegedly negligent or misleading valuation arises from the inability to recoup moneys advanced pursuant to the mortgage from the mortgaged property, or whether any cause of action will only arise when it is ascertained or reasonably ascertainable that the moneys advanced (or the balance of the moneys advanced) cannot also be recouped from the borrower under the borrower’s personal covenant in or implied into the mortgage (see NZI Capital Corp Pty Ltd v Child (1991) 23 NSWLR 481 at 489) or in loan documentation associated with the mortgage.

Dr Birch submitted that the latter view for which he contended was supported by the following passages from the majority joint judgment in Wardley (at 527 and 533):

It is interesting at this point to observe that Gaudron J was a member of the majority in Wardley and obviously saw nothing inconsistent in these passages with her subsequent observations in Kenny & Good set out at [22] above. Interestingly also, the majority in Wardley said earlier in the judgment (at 527) that:

In Ross v Cook [2009] NSWSC 671, Davies J considered both Kenny & Good and Wardley together with HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54. At [31]-[32], his Honour observed:

Davies J returned to the question in AE Consulting Pty Ltd v Online Valuations Pty Ltd [2012] NSWSC 1300 at [16]-[17] where he observed:

It might also be noted that in Artistic Builders Pty Limited v Nash [2010] NSWSC 1442, Hall J described the following “established” propositions (at [628](4)-(5)):

In Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 at [27], French CJ, Hayne and Kiefel JJ held:

If the interest of the Lender infringed by the alleged negligence and/or misleading or deceptive conduct of the Valuer is correctly identified as the Lender’s interest as mortgagee, then there would be a strong argument for saying that the cause of action accrued following the exercise of rights under the mortgage, the relevant contingency (if there was in truth any contingency at all) being the default under the mortgage, loss crystallising consequent upon the mortgagee’s exercise of its power of sale.

So framed, the debate between the parties can be seen as one in relatively narrow compass.

One of Dr Birch’s concerns, advanced in opposition to the ordering of the separate questions as formulated by the Valuer, was an apprehension that, even if the Court were to answer the posited separate question(s) in his favour such that the causes of action did not accrue until the inability of the Lender separately to recover directly from the Borrower under the personal covenant was reasonably ascertainable, the question of when that was was a factual one, unsuited for determination in a separate hearing. He also expressed concern that, alternatively, if the questions posited were answered favourably to him, he would then be met at trial with a factual case to the effect that the Borrower’s insolvency was reasonably ascertainable by the time of the sale of the Property, so that there would be no particular utility in the separate question hearing.

But for these concerns, Dr Birch’s opposition to the separate question(s) was far less pronounced. Thus he said in the course of argument:

It was as a result of this that, in the course of his reply submissions, I sought to ascertain from Mr McCulloch the precise ambit of what he sought to achieve by way of the separate question(s). After identifying that his evidence would be documentary in nature (in addition to the admissions the Valuer had made on the pleadings), the following exchange occurred:

The assurances from Mr McCulloch, in my opinion, allay the apprehensions Dr Birch articulated in argument. I take them to mean that, neither on the hearing of a separate question nor at any subsequent trial if the separate question is answered unfavourably to the Valuer, would the Valuer seek to contend that the Borrower’s inability to pay on the personal covenant was ascertainable at any particular date such that the claim was statute barred for that reason. Indeed, I take Mr McCulloch’s assurances to mean that the Valuer would not seek to lead any evidence about or make submissions, either at the hearing of a separate question or any subsequent hearing of the matter, in relation to the ascertainability of the Borrower’s ability to meet his obligations under the personal covenant.

If a separate question is to be ordered, it would only be ordered on the basis of these assurances which would preclude the Valuer from running any limitation defence, other than that the limitation period commenced to run no later than the date of entry into the contract for the sale of the Property because, by that date, it was clear that the Lender would not be able to recoup all of the moneys advanced from the sale of the mortgaged Property out of that sale.

The clarification of these matters in the course of Mr McCulloch’s reply submissions had the consequence that it was clear that any hearing of the separate question would essentially be confined to a question of law, given that no controversy attached to the chronology concerning the date of the Valuation Report, the date of the mortgage, the date of the contract for sale of the Property and the date of the commencement of proceedings. This eliminated any scope for factual controversy, and, as I have noted, the Valuer eschewed any factual case based upon the ascertainability or otherwise within the six-year limitation period of the Borrower’s wherewithal to meet his obligations under the personal covenant as contained in cl 3.1 of the mortgage. Such a hearing, with the benefit of written submissions, would take no more than a day and in all likelihood considerably less. Such a hearing would be a ripe candidate for removal into the Court of Appeal for determination under r 1.21 of the UCPR.

When this is compared to the likely length of a full hearing, which would involve not only questions of expert evidence in relation to the competence of the valuation but also questions of reliance by the Lender (in relation to which lengthy cross examination could be expected and was indeed foreshadowed), the contrast is significant. As noted earlier in these reasons, the parties estimated that between one and two weeks would be involved in a full hearing of the matter. A hearing of that dimension also requires significant preparation time. A much longer hearing also means a much more expensive hearing. There is also the public interest entailed in the efficient use of scarce judicial resources.

Mr McCulloch strongly urged upon the Court the injunction contained in s 56(1) and (2) of the Civil Procedure Act, namely that:

In this context, as Beech-Jones J said in Crawley v Vero Insurance Ltd [2012] NSWSC 593 at [16]:

If the separate question were to be answered in favour of the Valuer, there would be a very significant saving of cost and time. Even if it were resolved against the Valuer, any additional expense involved in the hearing of the separate question would be marginal. The issue would not be revisited at trial and, in light of what Mr McCulloch made clear in the passage set out at [37] above, the question of limitation would not be revisited, nor would any factual issues be opened up in relation to it. As Ward JA said in Allandale at [92]:

Furthermore, the narrow and essentially legal nature of the separate question means that no issue relating to the credibility of witnesses would arise as a result of a separate question hearing, this being a consideration which often tends powerfully against orders for separate questions: Warragamba Winery Pty Ltd v State of New South Wales [2010] NSWSC 66 at [10]−[14].

In my opinion, this is an appropriate case for a separate question, although I do not consider that it is either necessary or desirable for each of the four questions set out in [6] above to be answered. It is appropriate for the Court to have a role in the formulation of the question(s) to be asked: Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 at [6]; Clune. In my view, the issue sought to be determined by the Valuer can be resolved by formulating a question as follows:

Given that the feasibility of hearing and ambit of the issue sought to be raised by the separate question was only clarified on appeal, costs both of the motion and of the appeal should, in my opinion, be costs in the cause.

Accordingly, I would make the following orders and notation:

McCALLUM JA: Lake Maintenance (NSW) Pty Ltd made a loan of approximately $3 million to a man named David Bone. The loan was secured by a mortgage over a property valued at $7,450,000. Mr Bone was unable to repay the loan and the security property was sold for significantly less than anticipated. Lake Maintenance brought proceedings in the Supreme Court against the valuers claiming damages for professional negligence and statutory breaches in connection with the provision of the valuation. The amount claimed (including interest at the default rate under the loan agreement with Mr Bone) exceeds $22 million.

The defendants pleaded that the claims were statute-barred and sought to have that issue resolved by the determination of separate, preliminary questions. That application was refused by the primary judge (Wilson J). The defendants (referred to hereafter as the applicants) seek leave to appeal from that decision. Leave is required because the decision was interlocutory: s 101(e) of the Supreme Court Act 1970 (NSW).

The matter was listed for concurrent hearing of the application for leave and, if granted, the appeal. I am of the view that leave to appeal should be refused, for the following reasons.

Each of the causes of action relied upon by Lake Maintenance carries a limitation period of six years. The proceedings were commenced on 14 June 2018; the defence contends that all of the causes of action accrued more than six years before that date. In each case, the defence is pleaded by reference to dates on which the likely shortfall upon sale of the security property would have been apparent.

The valuation report provided by the applicants was prepared on the instructions of Mr Bone. It related to a property in Wallalong, a rural suburb in the Hunter Region of New South Wales. The applicants provided a report to Mr Bone dated 12 February 2010 expressing the opinion (subject to the comments and qualifications contained in the report) that the market value of the land as at the date of the report was $7,450,000. That figure was derived having regard to an assessment of the potential for future rezoning and development of the land.

Several months later, Mr Bone provided the valuation report to Lake Maintenance in support of his loan application. On 21 June 2010, he granted the mortgage and on 23 June 2010 the parties entered into a loan agreement under which Lake Maintenance agreed to advance the sum of $3,073,000 to Mr Bone on the terms set out in the agreement. The loan was for a term of 18 months and was repayable together with interest in the sum of $1,965,000 (roughly 42% per annum) on 23 December 2011. The total debt when the loan expired was accordingly $5,038,000. The loan agreement specified a default interest rate of 0.15% per day on that sum ($7,557 per day; 54.75% per annum).

Shortly before the loan was due for repayment in December 2011, Mr Bone provided a statement of his financial position to Lake Maintenance representing that he had assets available to him (mostly real property) valued at over $30 million encumbered in the sum of about $17.6 million.

On 25 January 2012, Lake Maintenance took possession of the Wallalong property and appointed receivers to sell it. On 26 April 2012, an offer was made by way of tender to purchase the property for $910,000. On 27 April 2012, an offer of $1,005,000 was made by a different party. The second offer was later increased to $1,105,000. On 1 May 2012, a valuation was obtained on the instructions of the receiver valuing the property at $900,000. On 14 May 2012, Lake Maintenance’s sole director offered to purchase the property for $1,250,000. A contract for sale was entered into on 23 May 2012.

The applicants contend that the claims were all statute-barred by that point. The defence invokes s 14 of the Limitation Act 1969 (NSW), s 262 of the Australian Consumer Law (it was accepted at the hearing that the correct section is s 236), s 82 of the Trade Practices Act 1974 (Cth) and s 68 of the Fair Trading Act 1987 (NSW). The defence is pleaded in identical terms in respect of each cause of action, as follows (defence filed 21 September 2018 pars 62-66, taking the negligence pleading as an example):

The sale was completed on 15 June 2012 (giving Lake Maintenance net proceeds of $1,017,561.70) but registration of the transfer was delayed until sometime later. That was a concession to Mr Bone, who had been attempting throughout the sale process to refinance the loan. He was unsuccessful and the transfer was ultimately registered on 8 November 2012.

In the meantime, Lake Maintenance had commenced proceedings against Mr Bone. Those proceedings were resolved in February 2015 by deed of settlement following a formal mediation. The deed provided for Mr Bone to pay Lake Maintenance the sum of $5 million. However, he failed to pay that amount and on 20 February 2017 Lake Maintenance entered judgment against him in that sum. It has been unable to recover any monies from Mr Bone other than the proceeds of the sale of the Wallalong land.

The applicants’ notice of motion sought an order under r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) for the separate determination of the following four questions:

The dates identified in questions (1) and (2) are, respectively, the date on which the receiver obtained a valuation of the Wallalong property at $900,000 and the date on which Lake Maintenance entered into the contract for sale of the property for $1,250,000 (being the dates specified in pars (b) and (c) of each relevant paragraph of the defence). I note that question (3) does not reflect the defence as currently pleaded and it is not clear why that date was chosen for inclusion in the separate questions. According to the material before the Court, the sale was completed on 15 June 2012.

In any event, it is uncontroversial that, on any of the dates specified in questions (1)-(3), confining attention to the security property as the only source of recoupment of the loan, Lake Maintenance must have suffered a loss at that point. However, the parties were in dispute as to whether that is the right question for the purpose of determining when the causes of action accrued. As the argument was developed, the critical issue was the significance of the personal covenant in the loan agreement.

In the proceedings before the primary judge, the applicants contended that the personal covenant could be put to one side and that the question was whether a loss had been suffered under the mortgage. The argument relied on the decision of the High Court in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 at 424-425; [1999] HCA 25 at [16], where Gaudron J said:

The applicants contended that the words “when recoupment is rendered impossible” mean “when recoupment utlilising the security property” is rendered impossible. Without determining whether that is actually a principle for which the decision in Kenny & Good stands, it is convenient to refer to the applicants’ contention as the Kenny & Good proposition.

On that basis, the applicants contended that their application could be determined on limited documentary evidence without the need for testimonial evidence. An affidavit sworn in support of the application by Mr Chylek, the solicitor for the applicants, estimated that, with the assistance of a timetable for written submissions, the hearing of the separate question would take approximately half a day (par 34(j)). In written submissions under the name of senior counsel for the applicants, the estimate was that the hearing of the separate question with written submissions “should take no more than one day”. It is clear that those estimates assumed the correctness of the Kenny & Good proposition and of the contention that the separate question could be determined on the documents.

Lake Maintenance disputed that the scope of the application could be confined in that way. It submitted that, in order to make out the limitation defences, the applicants would have to establish that, as at the material date (15 June 2012), it was reasonably ascertainable by reference to objective evidence that recoupment of the moneys advanced in reliance on the valuation was impossible having regard to the prospect of recoupment not only from the security property but also from enforcement of the personal covenant. In circumstances where Mr Bone had represented that he was a man of considerable wealth and had repeatedly stated his intention to refinance the loan, it was submitted that determining when recoupment from Mr Bone appeared impossible would be a complex factual question. Lake Maintenance noted that the onus of proof would be on the applicants on that issue.

The contention that there would be a complex factual question if the personal covenant was brought into consideration was supported by an affidavit sworn by the solicitor for Lake Maintenance, Mr McLeod, in which he set out the lengthy course of dealings between Lake Maintenance and Mr Bone after default and before settlement of the sale of the property, after settlement of the sale of the property and continuing up to the point when Mr Bone was made bankrupt on the petition of Lake Maintenance in September 2017. Based on his experience and the anticipated evidence in the proceedings, Mr McLeod expressed the opinion that the determination of the separate question would increase the costs and delay the proceedings. Specifically, he disagreed with Mr Chylek’s analysis as to the possibility of determining the separate question by reference to a discrete body of documentary evidence, expressing the view that the evidence was “interrelated, extensive and complex”.

Mr McLeod gave an estimate for the hearing of the separate question of “at the very least one day” and said it would be “more likely to require a two day hearing”. His estimate for a single final hearing was five days. Mr Chylek’s estimate was that any final hearing in the proceedings would take not less than 10 days (par 34(c)).

Lake Maintenance’s written submissions expanded on the argument that the matters referred to in the applicants’ submissions would be insufficient to make out the limitation defences. It was submitted that consideration of all of the matters relevant to those defences (including the personal covenant) would involve a substantial factual inquiry that “could well overlap with other issues in the proceedings” including the defence of contributory negligence.

Lake Maintenance’s written submissions identified four reasons (involving some overlap) for not ordering the separation of the limitation defences. First, it was submitted that the applicants would not even establish an arguable limitation defence merely by establishing that, at the dates identified in the proposed separate questions, the value of the Wallalong property was insufficient to permit recoupment of the moneys advanced. Lake Maintenance submitted that the applicants would have to demonstrate the impossibility of recoupment also having regard to the personal covenant.

Secondly, assuming the applicants undertook that burden, it was noted that consideration of the personal covenant would introduce a raft of evidence requiring examination and analysis of Mr Bone’s financial position and that of his related company over the relevant period and consideration as to what would have been reasonably ascertainable by an objective observer in the position of Lake Maintenance in June 2012.

Thirdly, Lake Maintenance noted the potential overlap between that type of inquiry at a hearing of the limitation defences and the substantive issues in the case. Again, reference was made to the defence of contributory negligence through failure to ensure that there was value in Mr Bone’s personal covenant.

Fourthly, it was submitted that the applicants “may need to call further evidence, including evidence from Mr Bone”. Lake Maintenance submitted that it was not possible to know until that evidence was produced whether or not it would overlap with other issues in the trial.

In summary, the position put forward by Lake Maintenance was two-fold. Assuming the applicants’ case would be confined to the documents relating to the mortgage and the sale of the security property, Lake Maintenance submitted that there was a serious doubt as to whether the limitation defences could be made out. Alternatively, assuming the applicants accepted the need, in proving impossibility of recoupment, to have regard to the personal covenant, the issues of complexity and duplication of evidence would arise.

The hearing of the application saw the parties jockeying for position in the resolution of that contest. Counsel for the applicants emphasised the two-week estimate for a final hearing and suggested that it may even be an underestimate. He submitted that, on the other hand, the myriad issues identified in the affidavit of Mr McLeod could, if the separate question was ordered, be addressed by agreed facts, as contemplated by s 191 of the Evidence Act 1995 (NSW).

For his part, counsel for Lake Maintenance adhered to the estimate of only one week for a final hearing. He accepted that the limitation question might be short provided it was “pinned down” to the matters pleaded (set out above). He submitted that, if the Court were minded to make the order for separate determination of the proposed questions, the applicants should be required to give an undertaking not to expand the scope of the pleaded defence. He also made it clear that, if the applicants did seek to rely on any expanded case, there would be no agreement as to facts such as the point at which it was reasonably certain that Mr Bone would not be able to contribute to the recoupment of the loss.

The primary judge noted the applicants’ submission, relying on the Kenny & Good proposition, that the proposed separate questions could “be resolved discretely, with resolution of a discrete question of law, by agreed facts, on the basis of written submissions, in a day, at very low costs”: at [47]. Her Honour said at [48]:

After considering the authorities relied upon by Lake Maintenance, her Honour concluded that it could not necessarily be said that it was apparent recoupment was impossible at the time of default or at the time when the contract for the sale of land was exchanged: at [53].

Her Honour concluded:

Her Honour then added at [55]:

The applicants contend that those remarks reveal manifest error, in the reference to an estimate of “at least two weeks” for any hearing of separate questions. It was common ground at the hearing of the present application that her Honour was mistaken in that respect. The estimate of “at least two weeks” was the estimate put forward by the applicants for a final hearing, not the estimate put forward by Lake Maintenance for any hearing of the separate questions. Lake Maintenance had not at any stage suggested an estimate of two weeks. The estimate provided in Mr McLeod’s affidavit was one to two days (albeit apparently on the premise that the applicants should be confined to their pleading, which rests on the correctness of the Kenny & Goode proposition). The significance of the judge’s mistake is considered below.

Before turning to consider the parties’ arguments, it is necessary to explain some material placed before this Court which was not put before the primary judge.

In its submissions opposing the present application, Lake Maintenance reiterated that the parties are at odds not only as to the facts to which the Court ought to have regard in determining the limitation defences but also as to the interpretation of the legal principles to be applied and the questions to be answered. It was submitted that consideration of all the matters that would be relevant to the limitation defences would involve a substantial factual inquiry that could well overlap with other issues in the proceedings including the defence of contributory negligence.

The applicants responded by reiterating their primary position that damage is sustained at the time when recovery becomes impossible via the security. It was submitted that the other issues raised by Lake Maintenance were wholly irrelevant to that inquiry.

However, against the risk of rejection of that contention, the applicants proposed that any separate determination of their limitation defence proceed on the basis of facts that would be formally admitted by them so as to obviate the need for the “substantial factual inquiry” posited by Lake Maintenance.

The applicants noted that the following facts are already formally admitted on the pleadings:

In addition to noting those facts, the applicants admitted the following further facts (invoking Part 17 Rule 2 of the UCPR):

The object of making those admissions was to obviate any dispute as to the facts, paving the way for the separate determination of the limitation defences turning on a discrete legal question, namely, the proper interpretation of the authorities to be applied in determining when recoupment of the sum loaned by Lake Maintenance to Mr Bone was “rendered impossible”.

The applicants accepted that the principles in determining whether leave to appeal should be granted from an interlocutory ruling on a matter of practice and procedure are summarised in the decision of this Court in Dank v Cronulla Sutherland District Rugby League Football Club Limited [2014] NSWCA 288 at [73]-[75], as follows:

The applicants submitted that leave should be granted because the error of the primary judge is manifest; the question raised for determination will finally resolve the proceedings and result in a significant saving in court time and cost to the parties and the proceedings are “ripe for determination”.

The first two proposed grounds of appeal are based on the primary judge’s statement at [56] (set out above) that Lake Maintenance had argued that any hearing of separate questions would take “at least two weeks”. In the proposed grounds of appeal, the applicants contend that the primary judge erred by having regard to “an incorrect fact, namely, that it would take two weeks” to hear the separate questions. Similarly, in their summary of argument, the applicants submit that the judge erred by “erroneously finding … that it would take two weeks to determine the separate question”. That is not what her Honour found. The passage in question records the submission put (albeit incorrectly). Her Honour did not find as a fact that the hearing would take two weeks.

For its part, Lake Maintenance initially sought to characterise the reference to two weeks as a “typographical error” in the judgment. However, it was acknowledged at the hearing that, more probably, her Honour mistook that aspect of the evidence. I am satisfied that her Honour confused the estimates contended for by the parties.

The mistake is understandable. The applicants had proposed an estimate for final hearing of at least two weeks. At the same time, Lake Maintenance was arguing that, contrary to the applicants’ submission, the evidence required to determine the separate questions could not be confined to documents and would require exploration of all of the factual issues concerning the financial position of Mr Bone and the representations he was making at various times. In that context, conflation of the estimates to a degree reflected the logic of the competing positions. Unfortunately, however, it overlooked the shorter estimate accepted by Lake Maintenance.

One further matter should be noted as to the primary judge’s remarks at [56]. Her Honour recorded that Lake Maintenance was arguing that the hearing of the separate questions would require it to call much of its factual case. I understood its position on that issue to have been slightly more qualified. Lake Maintenance argued that the applicants could not succeed unless they took on the burden of establishing, on an objective test, that recoupment was impossible by reference not only to the security property but also to the position of Mr Bone. The contention was that, if the applicants assumed that burden and lead evidence on that issue, there would be considerable overlap between the evidence the applicants would have to lead on the separate question and the evidence at trial. It was also suggested that Lake Maintenance might, in turn, also need to put on evidence that might duplicate the evidence at the trial. Part of the point was that those features of the separate hearing could not be known in advance. It was in that context that Lake Maintenance suggested that, if the separate questions were to be ordered, the primary judge should take steps to ensure that the applicants were confined to the limitation defences then pleaded.

Although the primary judge mistook the estimate contended for by Lake Maintenance, the error did not wholly undermine the point her Honour was making, which was based on “the attitude of the parties”. For convenience, the full paragraph is repeated here:

The point was that the very fact that the parties had starkly differing views as to the factual scope of the issues required to be determined for the purpose of the separate questions was in itself likely to complicate their determination. The applicants do not suggest that the attitude of the parties was an irrelevant consideration. Whereas the applicants contended that the separate questions raised a neat, discrete point that could be determined on the documents, Lake Maintenance maintained that the issues raised by those questions were inextricably linked with the substantive issues for trial and that the evidence would involve significant duplication.

Even on the strength of the estimates in fact propounded by the parties, the point had some force. The multitude of issues as to which the parties disagreed told against the likelihood that the hearing of the separate questions would proceed in the neat and orderly way portrayed by the applicants.

Further, as noted by Lake Maintenance, the primary judge’s remarks at [56] were said by way of makeweight to the principal basis for her Honour’s decision stated at [53]-[54], as indicated by the opening words of [55], “That conclusion is reinforced to a degree…”.

For those reasons, I am not persuaded that the factual error as to the time estimate argued by Lake Maintenance was material. I am not persuaded that leave should be granted on that basis.

The third, fourth and fifth grounds of appeal raise the issue of the Kenny & Good proposition. In short, the burden of the argument is that the applicants’ position on that issue is incontestable, or at least plainly right.

Lake Maintenance submitted that the primary judge properly applied the principles established by High Court authority including Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 533; [1992] HCA 55, Kenny & Good and Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Limited (2013) 247 CLR 613; [2013] HCA 10 to conclude that there was more than one source of the loss, namely the inability to recover against the security property as well as the inability to recover against the borrower’s personal covenant. It further submitted that the Court has had regard to any implications flowing from the presence of a personal covenant in a number of decisions involving contingent liability accrual dates in Ross v Cook [2009] NSWSC 671 (Davies J) and LM Investment Management Ltd v BMT & Associates Pty Ltd (No 2) [2016] NSWSC 317 (Ball J). The most relevant decision is Ross v Cook, where Davies J (who appeared in Kenny & Good) said at [36]:

I am not persuaded that any arguable error has been established in the primary judge’s consideration of this issue. The relevant passage at [53] of the judgment is set out above. Her Honour said “I do not think it could necessarily be said that it was apparent recoupment was impossible at the time of default or at the time when the Contract for the Sale of land was exchanged”. Those remarks indicate that her Honour was satisfied that, contrary to the applicants’ position, the Kenny & Good proposition was contestable, from which it followed that the prospect of a substantial factual inquiry at the hearing of the separate questions, including overlap with issues that would otherwise fall to be determined in the main proceedings, could not be ruled out.

The final proposed ground of appeal asserts (in substance) error in failing to find that the prospect of a substantial factual inquiry at the hearing of the separate questions could be overcome by the application of s 191 of the Evidence Act considered against the requirements of Part 6 of the Civil Procedure Act. I do not think there is any merit in that contention. It is very clear from Mr McLeod’s affidavit that, assuming the personal covenant is in play, the scope of the factual contest is large. There is no basis to think Lake Maintenance could properly be compelled to proffer its agreement as to the critical issue (when recoupment from that source appeared impossible), nor could the applicants’ admissions proffered in the present application overcome that difficulty.

Since writing this judgment I have read the President’s judgment in draft. I am less sanguine as to the effect of the clarification offered by Mr McCulloch during reply submissions. In particular, it is not clear to me whether it was intended to abandon the argument based on the admitted facts so as to confine the separate question to essentially a question of law involving no factual controversy. I accept that, if that is the basis on which the matter is to proceed, the prospect of the separate question is considerably more attractive. In any event, in view of the conclusion I have reached as to the primary judge’s decision, it is not necessary for me to determine that issue.

SIMPSON AJA: I have had the advantage of reading in draft the judgments of Bell P and McCallum JA. For the reasons that follow I agree with the orders proposed by the President. As the relevant facts have been fully stated in the other judgments, I can move directly to my reasons.

Each of the limitation defences pleaded by Todd Hadley invoked a statutory provision that created a limitation period of 6 years from the date on which the cause of action accrued: Limitation Act 1969 (NSW), s 14, Trade Practices Act 1974 (Cth), s 82, and Fair Trading Act 1987 (NSW), s 68 (as it then was).

That necessarily directs attention to when Lake Maintenance’s cause of action first accrued. Each of the separate questions proposed on behalf of Todd Hadley states a date (on which, presumably, it is contended that the cause of action accrued). Each date was more than 6 years prior to the commencement of the proceedings. Each of the dates is referable to a specific event. The underlying assumption appears to be that, on the happening of that event, Lake Maintenance’s cause of action accrued. If that were correct in respect of any of the alternative events, the cause of action was statute barred.

There was, however, no agreement on behalf of Lake Maintenance that, on the happening of any of those events, its cause of action accrued. The principal opposition raised by senior counsel for Lake Maintenance to the determination of separate questions (by which the limitation defences would be finally decided) was the potential for a far reaching factual inquiry into that question.

In my opinion, on the basis of the proposed separate questions as framed, the fears so expressed were well-founded. Ordinarily, in allegations of tortious conduct, the cause of action is complete when damage caused by the alleged breach of duty is first sustained, and the cause of action therefore first accrues: Hawkins v Clayton (1988) 164 CLR 539 at 587; [1988] HCA 15. In cases where damage is alleged to have resulted from negligent advice it is not always a simple matter to pinpoint the time at which the damage is sustained.

In Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 at 527; [1992] HCA 55 the plurality (Mason CJ, Dawson, Gaudron and McHugh JJ) adopted the proposition (from the judgment of Gaudron J in Hawkins v Clayton) that, where the interest infringed by the alleged tortious conduct is in recouping monies advanced, the cause of action accrues when recoupment becomes impossible (at p 533). In Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25 at [16] (in a passage cited by both Bell P and McCallum JA) Gaudron J said that:

The proposed separate questions framed on behalf of Todd Hadley leave open what I consider to be a very large question concerning when it was reasonably ascertainable that Lake Maintenance would not be able to recoup the money advanced. One issue relevant to that question is whether it is to be assumed that possible recoupment is available only from the security property, or whether it is open to take into account personal covenants given by the borrower, from which the lender might seek recoupment. The last sentence of the passage from Kenny & Good extracted could be, and has been, taken to suggest that the existence and availability of, for example, personal covenants in addition to the security property is irrelevant to the determination of the time at which it will be reasonably ascertainable that loss will eventuate, and hence the time at which the cause of action first accrued.

In this case, if it were held that the potential for recoupment is limited to the security property, it is all but inevitable that the limitation defences would succeed and the proceedings would be brought to an end. That is a powerful consideration in determining whether a separate question or questions should be ordered, more powerful depending on the assessed strength of the argument. It is sufficient to say that I do not regard the argument that personal covenants are irrelevant, based on the observations of Gaudron J in Kenny & Good, as having particular strength. In my opinion, her Honour was not addressing a circumstance in which recoupment might have been possible from sources other than the security property, and no other member of the Court expressly adopted her Honour’s observations. Nevertheless, the question is distinctly arguable, and resolution in favour of the proposition, put on behalf of Todd Hadley, that the personal covenants have no bearing on the determination of the time at which the present cause of action accrued would all but terminate the principal proceedings, with significant savings in time and cost to the parties, as well as judicial resources.

But the Kenny & Good question is not the only relevant question. If it be held, contrary to the argument advanced on behalf of Todd Hadley, that Mr Bone’s personal covenant is available to be taken into account, questions would arise concerning when it was reasonably ascertainable that resort to the personal covenants would not satisfy the debt. That would involve questions concerning Mr Bone’s personal financial position, and what Lake Maintenance did know, or ought to have known, of it.

Those questions have the potential to overlap with one of Todd Hadley’s other defences, contributory negligence, which also in part raises a question of what (and when) Lake Maintenance knew or ought to have known of Mr Bone’s precarious financial position.

The argument in this Court proceeded on the footing that the real question for determination was the Kenny & Good question, that is whether, in determining when recoupment of the debt was rendered impossible, it would be open to take into account the existence and the consequences of the personal covenants.

This gave rise to substantial discussion on the hearing of the appeal. In a passage of transcript extracted by Bell P, senior counsel for Todd Hadley agreed (“absolutely”) that, if the separate questions were to be permitted to go forward, he would not propose to lead any evidence concerning Mr Bone’s solvency, and therefore, I take it, Lake Maintenance’s actual or constructive knowledge of his solvency (or insolvency).

The answer given by senior counsel to the President’s question significantly narrows the issues involved in any separate question for determination. The principal proceedings will involve complex questions concerning the valuation of the security property. If a clean, neat answer can be given to a separate question that has the potential to bring finality to the proceedings without the need for a lengthy and complex trial, that is to everybody’s advantage. That will occur if the answer is, as Todd Hadley contends, that the possibility of recoupment is limited to the security property.

If, on the other hand, the conclusion is reached that the personal covenants are able to be taken into account, nothing has been lost, but the issues for trial will have been reduced.

That being the case, and although the separate questions as proposed do not reflect the narrowing of the issues to be determined that emerged on the hearing of the appeal, I agree with Bell P that this is a suitable case for the determination of a separate question.

I agree with the reduction of the separate questions from three to one, as proposed by the President. I wish to make it perfectly clear that, without the agreement that Mr Bone’s financial stability would not be raised, I would take a different view.