MACEDONE v COLLINS; COLLINS WALLIS PROPERTIES PTY LTD v ST GEORGE COMMERCIAL CREDIT CORP LTD; COLLINS v ST GEORGE COMMERCIAL CREDIT CORP LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL COLE, BEAZLEY JJA and ABADEE AJA 19 November 1996, 20 December 1996 [1996] NSWCA 336 ENFORCEABILITY of guarantees and mortgages — condition precedent — scope of solicitors duty to explain power of attorney — scope of retainer — applicability of principles of equitable compensation for breach of trial as distinct from equitable compensation for breach of duty of skill and care. Cole JA No 40351/94 Mr and Mrs Collins each held one share in and were directors of Run-o-Waters Pastoral Co Pty Ltd which was the trustee of the Collins family trust. Each of Mr and Mrs Wallis held one share in and were directors of A B Wallis Pty Ltd which was trustee of the Wallis family trust. Mr Collins and Mr Wallis operated a company Collins Wallis Pty Ltd which conducted the business of shopfitter and joiner. That company wished to acquire premises from which to conduct its business. Accordingly a company Collins Wallis Properties Pty Ltd was formed to purchase a factory. The shareholders in Collins Wallis Properties Pty Ltd were Run-O-Waters Pastoral Co Ltd and A and B Wallis Pty Ltd each holding one share. Mr Collins and Mr Wallis were the directors of that company with Mr Wallis being the secretary. To finance the proposed purchase, application was made to St George Commercial Credit Corporation Ltd ("St George"). Mr BD Willis, a solicitor with Macedone Christie Willis Salari and Partners, ("the solicitors") was instructed by Messrs Wallis and Collins to advise in relation to the purchase of the factory and the loan from St George to Collins Wallis Properties. The application to St George showed Collins Wallis Properties as borrower and Mr and Mr Wallis and Mr and Mrs Collins as guarantors. Mr and Mrs Collins lived separately, she in premises at 9 Androsen Road, Engadine ("the Engadine property''), whilst he lived at 241 East Kurrajong Road, Kurrajong ("the Kurrajong property"). They were joint owners of each property although subsequently Mrs Collins acquired Mr Collins' interest in the Engadine property, and she transferred her interest in the Kurrajong property to Mr Collins. On 25 November 1988 St George wrote to Collins Wallis Properties offering a loan of $ 1,185,000 to purchase the property for $920,000 and to discharge a bill facility with Westpac Banking Corporation of $185,000, and provide for acquisition costs. The five year loan was to be secured by mortgages over the factory, the Engadine property, the Kurrajong property, Mr and Wallis' house at 14 Raleigh Street, Blakehurst ("the Blakehurst property"), and joint and several guarantees from A and B Wallis Pty Ltd and Run-O-Waters Pastoral Co. Pty Ltd in their own right and as trustees for the family trusts, Collins Wallis Pty Ltd in its own right and as trustee for the Collins Wallis Unit trust, and from Mr and Mrs Collins and Mr and Mrs Wallis. 2 UNREPORTED JUDGMENTS On 2 December 1988 forms of acceptance of the offer were signed by Mr and Mrs Wallis and Mr and Mrs Collins in their various capacities as directors and secretaries of the various companies and in their personal capacity as guarantors. Mrs Wallis admitted to signing the document although she did not read it. Mrs Collins intended to vacation in Fiji during December and January 1988-1989. She did not trust her husband from whom she was separated but trusted Mr Wallis. Accordingly she offered to give to Mr Wallis a power of attorney. Her evidence, accepted by Rolfe J, was that she said to Mr Wallis: "T am going to Fiji on the 22nd of December and will be back on the 17th of January. If anything comes up with the business while I am away, you can sign for me because I don't trust Glen." His Honour also noted that she subsequently said to Mr Willis, the solicitor: "Tl let Barry (Walks) sign for me while I am away in Fiji for anything to do with the business." Once Mr Wallis knew that Mrs Collins was going overseas he requested Mr Willis to prepare for her a power of attorney. Mr Willis was reluctant to do so fearing a conflict of interest with existing instructions to act for the borrowing company. Nonetheless he did so. Mrs Collins called upon him and after he had explained the power of attorney to her in terms to which I will refer suggested she obtain independent legal advice but she declined. Rolfe J found that: "Mrs Collins agreed that she knew the power of attorney was required in respect of purchasing the factory, and she gave further evidence which made it clear she was aware the factory was being purchased. I am satisfied that Mrs Collins knew that and, at the least, intended her power of attorney should be used for that purpose." Not only did Mrs Collins agree that she said to Mr Willis: "T will let Barry (Walks) sign for me while I am away in Fiji for anything to do with the business." but, his Honour noted that she said in evidence: Q. "You were content to leave all your affairs in the hands of Barry while you were away? A. "Yes." Q. "And you were aware that the power of attorney enabled him to do anything in relation to your affairs that you could do yourself." A. "Yes." Rolfe J noted that: "The cross-examination of Mrs Collins never embraced a question... that Mrs Collins understood or agreed that the power of attorney would or might be used for the purpose of making her personally liable for the whole indebtedness of the first defendant to the plaintiff. However, whilst that precise question might not have been put Mrs Collins agreed that she was content to leave all her affairs in Mr Wallis' hands while she was away, that she was aware that the power of attorney enabled him to do anything in relation to her affairs that she could do, that she was not able to deny that Mr Willis said to her that her house had been put up as collateral security for the loan, and that if the first defendant (Collins Wallis Properties) could not meet its obligations "it may well be that the financier could exercise its rights to have you evicted from your home to enable your home to be sold." His Honour accepted the evidence of Mr Willis that "he made such a statement to Mrs Collins and, as I understand it, there is no real dispute about that". WAACEDONE v COLLINS; COLLINS WALLIS PROPERTIES PTY LTD v ST GEORGS COMMERCIAL CREDIT CORP LTD; COLLINS v ST GEORGE COMMERCIAL CREDIT CORP LTD (Cole JA) Nonetheless his Honour accepted the evidence of Mrs Collins that "she would not have given the power of attorney had she known that it could be used to mortgage her interest in the Engadine property or to give a personal guarantee... I accept that she signed the power of attorney for use for business purposes, which may well have included the purchase of the factory at Padstow, but not in circumstances where she intended it should be used to mortgage her interests in the Engadine property or to give a personal guarantee for the total indebtedness of the first defendant". The appellant solicitors challenge that finding as being glaringly improbable having regard to the facts as found. Rolfe J held that the solicitors had admitted on the pleadings that they owed a duty of care to advise Mrs Collins "of the nature, effect and content of the said power of attorney". His Honour found that that duty had been breached because, although Mr Willis had made clear to her, against the background that she was content to leave all her affairs in the hands of Mr Wallis whilst she was away, in particular concerning the proposed purchase of the factory by Collins Wallis Properties, and whilst she understood from Mr Willis that if the property company could not meet its obligations the financier could exercise its rights and evict her from her home, the solicitor had not made specifically clear to her that the power of attorney could be used to mortgage her Engadine property, which she jointly owned with her husband, or to give a personal guarantee. The circumstances in which an appellate court may interfere with a trial judge's findings of fact are both well known and limited!. However, in my opinion no question of application of those principles arises here. The true question raised by the first three grounds of appeal is whether, on the facts as found by Rolfe J, the duty which his Honour found was owed by the solicitors to Mrs Collins was breached. The two findings of his Honour which at first glance may appear to be in conflict are first, the finding that Mr Willis had made clear to Mrs Collins in terms sufficient to make her aware that Mr Wallis could do anything in relation to her affairs that she could do, that her house had been put up as collateral security for the loan, and if the borrower could not meet its obligations the financier could evict her from and sell her home; and, second, his Honour acceptance of Mrs Collins' evidence that if she had known the power of attorney could be used to grant a mortgage or give a guarantee she would not have executed it. The fact that Mrs Collins gave this latter evidence which was accepted does not in truth touch upon whether the solicitor breached a duty of care to her. The true issue is the scope of the duty owed by the solicitor and whether the undisputed statements made by him to Mrs Collins, as she admitted and the trial judge accepted, discharged that duty. In my view they did. It is quite clear that Mrs Collins knew that during her absence overseas documents might be required to be signed on her behalf. That is why she agreed to give Mr Wallis a power of attorney because she knew a factory was being purchased by a company with which she had association, although the precise detail of that association may not have been clear to her. It may be accepted, as was admitted on the pleadings, that the solicitors had a duty to explain the nature effect and content of the power of attorney. So far as Mrs Collins was concerned, 1. Devries and Anor v Australian National Railways Commission and Anor (1993) 177 CLR 472 at 479. 4 UNREPORTED JUDGMENTS Rolfe J finding her to be a person of limited commercial understanding or experience, the effect of exercise of the powers under the power of attorney could not be greater upon her than that she lose her only asset, her home. Rolfe J thought that the fact she would be unwilling to risk her home supported her evidence that she would not have given the power of attorney had Mr Willis explained to her that it could be used to mortgage her home or give a personal guarantee on her behalf. However that is precisely what Mr Willis did explain to her, namely, that in consequence of giving the power of attorney and it being used to sign documents related to the purchase of the factory, if the borrower could not meet its liabilities she could be evicted and her house sold. In those circumstances, as it seems to me, the duty of the solicitor was discharged. Rolfe J was impressed by the evidence that Mr Willis said to Mrs Collins that her house "had been put up as collateral security for the loan'. Rolfe J thought that was not so. It is clear that as a matter of strict law, before the mortgage documents were signed the Engadine property did not constitute security for the loan. However, in real terms it had been agreed that it would be given as security, and Mr Willis' statement to Mrs Collins to that effect was preliminary to his advising her that if there was default she could be evicted and the house sold. That seems to me to be a sensible way of explaining to a legally unsophisticated person the import of granting a power of attorney which permitted, whether in consequence of mortgage or guarantee, the person's house to be placed in jeopardy should the borrower default. In my view it is unnecessary for a solicitor in those circumstances to explain each of the legal mechanisms by which, in the event of default, the dwelling may be put at risk. It was argued on appeal by Mrs Collins that the solicitors owed a duty of care to her not to provide advice to her unless she provided her fully informed consent to Mr Willis acting despite his conflict of interest. However, even if that be so, and I doubt if a duty is properly expressed in those terms, and assuming it was breached, nothing flows in consequence. That is because if the advice which was given by Mr Willis, that the powers under the power of attorney could be exercised to execute documents which in the event of the borrower's default could result in Mrs Collins being evicted and her sole asset being her house sold, was a sufficient explanation of the consequences of giving of the power of attorney, as in my view it was, had been given by another solicitor without conflict of interest, Mrs Collins plainly would still have executed the power of attorney. It follows that any conflict of interest with which Mr Willis may have been burdened was irrelevant to Mrs Collins receiving proper advice regarding the possible deleterious consequences of her executing the power of attorney. It was further argued that the power of attorney should have been limited to the time during which Mrs Collins was overseas. In fact the documents giving rise to Mrs Collins liability were signed by Mr Wallis pursuant to the power of attorney after she returned from her vacation. However Mr Wallis signed the documents absent knowledge of her return. As Mr Willis advised Mrs Collins, correctly in my view, that the effect of giving a power of attorney permitting Mr Wallis to sign documents, of whatever character, on her behalf associated with the purchase of the factory was in the event of default of the purchaser to place her at risk of being evicted and her sole asset sold, yet she remained content to sign the power of attorney, to my mind it is clear that the duration of the power of attorney was irrelevant to her assuming obligations associated with the purchase of the factory. If as was the case, she was content to give such a power of attorney, it is apparent that she was prepared herself to execute such WAACEDONE v COLLINS; COLLINS WALLIS PROPERTIES PTY LTD v ST GEORGE COMMERCIAL CREDIT CORP LTD; COLLINS v ST GEORGE COMMERCIAL CREDIT CORP LTD (Cole JA) documents. Once it is established that she received proper advice regarding the consequence of granting a power of attorney to permit execution of documents associated with the purchase of the factory, her claim against the solicitors necessarily fails. There were two further matters pressed on appeal. It was contended that no explanation was given to Mrs Collins that in consequence of giving the power of attorney, she might become liable for all of the debts of the borrowing company to the lender under her personal guarantee, and if it could not meet its obligations she could be made bankrupt. Explaining that she could be evicted from her home and it sold was said not to be sufficient explanation of the risks she faced from giving the power of attorney. I regard this submission as being unrealistic. To a person possessed of little else than her home, to be informed of the possible consequence of eviction from and loss of her home would be the most graphic explanation of risk available. Mrs Collins worked as a cleaner. She had no assets of any significance apart from her home. Any explanation of consequences beyond that loss could not realistically be expected to affect her decision whether to grant the power of attorney. She determined to give it notwithstanding that she had explained to her the possible consequence of being dispossessed and her home sold. As the Privy Council noted in Clark Boyce v Mouat?, pointing out to a person such as Mrs Collins that upon default by the borrower she may lose her house is a blunt description of the risk. There was much discussion in the evidence and judgment regarding the meaning of "personal". Whilst Mrs Collins said she was said prepared to give the power of attorney in relation to matters connected with the business, she resisted any encroachment of that power into her personal affairs. Rolfe J found she did not understand what "personal", in the sense of making her personally liable, meant. Accepting that finding, in circumstances where Mrs Collins was prepared to grant the power of attorney after being told it could result in her being evicted and her house sold - they plainly being matters affecting her personal life as distinct from matters connected with the business - I find it not possible to conclude that in reality any additional words reflecting possible additional personal responsibility beyond loss of her home and her resulting dispossession could or would have affected her attitude to the grant of the power of attorney. To avoid this obvious causation problem it was submitted that, as the solicitor had a fiduciary duty to Mrs Collins arising from being in a position of conflict of interest, once loss was established in circumstances of breach of duty, recovery of the loss followed. Reliance was placed upon the notion of equitable compensation. and reference was made to Re Dawson3. The relationship of solicitor and client usually commences as a contractual relationship. However the liability of the solicitor to his client may embrace tortous responsibility. Any responsibility in contract or in tort will depend upon the nature of the function which the contract or the proximity of the relationship requires the solicitor to perform. As Deane J in Hawkins v Clayton*: "The relationship of solicitor and client is... a relationship of proximity which ordinarily involves the combination of those elements with respect to foreseeable loss which may be caused to the client by the performance of professional work. 2. [1994] 1 AC 428. 3. (1966) 2 NSWLR 211. 4. (1988) 164 CLR 539 at 579. 6 UNREPORTED JUDGMENTS It is a relationship of proximity of a kind which may well give rise to a duty of care on the part of the solicitor which requires the taking of positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client. Whether the solicitor client relationship does give rise to a duty of care requiring taking of such positive steps will depend upon the nature of the particular professional task or function which is involved and the circumstances of the case."5 The relationship between a solicitor and the client is also in some circumstances a recognised fiduciary relationship®. However it does not follow from that circumstance that fiduciary duties and obligations attach to all aspects of the solicitor's relationship with his client, or acts done in implementation of obligations arising from the contractual or tortous relationship of solicitor and client. This was made clear in Breen v Williams by Brennan J: "Tt is erroneous to regard the duty owed by a fiduciary to his beneficiary as attaching to every aspect of the fiduciary's conduct, however irrelevant that conduct may be to the agency or relationship that is the source of fiduciary duty."7 by Dawson and Toohey JJ: "Whilst duties of a fiduciary nature may be imposed upon a doctor, they are confined and do not cover the entire doctor-patient relationship." and later: "Tt was been observed that what the law exacts in a fiduciary relationship is loyalty, often of an uncompromising kind, but no more than that. The concern of the law in a fiduciary relationship is not negligence or breach of contract. Yet it is the law of negligence and contract which governs the duty of a doctor towards a patient: This leaves no need, or even room, for the imposition of fiduciary obligations. Of course, fiduciary duties may be imposed upon contractual obligations and it is conceivable that a doctor may place himself in a position with potential for a conflict of interest - if, for example, the doctor has financial interest in a hospital or a pathology laboratory - so as to give rise to fiduciary obligations." and by Gaudron and McHugh JJ: "In some circumstances, the dependency of the patient or the provision of confidential information may make the relationship between a doctor and patient fiduciary in nature. But that does not mean that their relationship would be fiduciary for all purposes. As Mason J pointed out in Hospital Products, a person may stand in a fiduciary relationship to another for one purpose but not for others. In Birtchnell v Equity Trustees, Executors and Agency Co Ltd Dixon J said that "in considering the operation of (fiduciary principles), it is necessary (to ascertain) the subject matter over which the fiduciary obligations extend."!0 Accordingly it is necessary to determine the scope of the solicitor's retainer in order to determine the tasks which he was obliged to perform, and then to determine whether, in the circumstances of the particular case the acts or 5. See also Cousins v Cousins (Unreported), Court of Appeal, 18 December 1990 per Priestley JA; Citicorp Australia Ltd v O'Brien and Ors (Unreported) Court of Appeal, 25 October 1966, per Sheller JA at 25-26. 6. See Breen v Williams (1966) 70 ALJR 772 per Dawson and Toohey JJA at 782, per Gaudron and McHugh JJ at 790, and Gummow J at 608. 70 ALJR at 780. 70 ALJR at 781. 70 ALJR 782. 70 ALJR 790. Sern WAACEDONE v COLLINS; COLLINS WALLIS PROPERTIES PTY LTD v ST GEORGE COMMERCIAL CREDIT CORP LTD; COLLINS v ST GEORGE COMMERCIAL CREDIT CORP LTD (Cole JA) omissions of the solicitor said to constitute breach of duty, constituted breach of a fiduciary duty owed to his client, or was merely a breach of contractual or tortous duty otherwise owed. This was made clear by Ipp J in Permanent Building Society v Wheeler!! in a passage recently adopted by the English Court of Appeal in Bristol and West Building Society v Mothew!2. His Honour said: Tt is essential to bear in mind that the existence of a fiduciary relationship does not mean that every duty owed by a fiduciary to the beneficiary is a breach of a fiduciary duty. In particular, a trustee's duty to exercise reasonable care, though equitable, is not specifically a fiduciary duty. The director's duty to exercise skill and care has nothing to do with any position of disadvantage or vulnerability on the part of the company. It is not a duty that stems from the requirements of trust and confidence imposed on a fiduciary. In my opinion, that duty is not a fiduciary duty, although it is a duty actionable in the equitable jurisdiction of this Court." In Bristol and West Building Society Lord Staughton after quoting Ipp J wrote regarding the availability of equitable compensation for breach of the duty of care and skill in distinction from damages for breach of contract or in tort, or equitable compensation for breach of trust: "Although the remedy which equity makes available for breach of the equitable duty of skill and care is equitable compensation rather than damages, this is merely the product of history and is in my opinion a distinction without a difference. Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution.!3 This leaves those duties which are special to fiduciaries and which attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory. A fiduciary is some one who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence." and later: "The nature of the obligation determines the nature of the breach. The various obligations of a fiduciary merely reflect different aspects of his core duties of loyalty and fidelity. Breach of fiduciary obligation, therefore, connotes disloyalty or infidelity. Mere incompetence is not enough. A servant who loyally does his incompetent best for his master is not unfaithful and is not guilty of a breach of fiduciary duty. In the present case, it is clear that, if the defendant had been acting for the Society alone, his admitted negligence would not have exposed him to a charge of breach of fiduciary duty. 11. (1994) 14 ACSR 109 at 157. 12. (Unreported), 24 July 1996. 13. For a discussion of principles of the equitable rules of compensation for breach of trust, as distinct from equitable compensation for breach of duty of skill and care being discussed by Lord Staughton, see Target Holdings Pty Ltd v Redferns [1996] 1 AC 421 at 434 per Browne-Wilkinson LJ, and Haira v Burbery Mortgage Finance and Savings Ltd (1995) 3 NZLR 396 at 407-8. 8 UNREPORTED JUDGMENTS A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other. See Clark Boyce v Mouat [1994] 1 AC 428... Breach of the rule automatically constitutes a breach of fiduciary duty. But this is not something of which the Society can complain. It knew that the defendant was acting for the purchasers when it instructed him." Similarly, here, Mrs Collins knew that the solicitor was acting for both the borrower and other guarantors. Nonetheless, as Lord Staughton said: "Even if a fiduciary is properly acting for two principals with potentially conflicting interests he must act in good faith in the interests of each and must not act with the intention of furthering the interests of one principal to the prejudice of those of the other. I shall call this "the duty of good faith". But it goes further than this. He must not allow the performance of his obligations to one principal to be influenced by his relationship with the other. He must serve each as faithfully and loyally as if he were his only principal. Conduct which is in breach of this duty need not be dishonest but h must be intentional. An unconscious omission which happens to benefit one principal at the expense of the other does not constitute a breach of a fiduciary duty, though h may constitute a breach of the duty of skill and care. This is because the principal which is in play is that the fiduciary must not be inhibited by the existence of his other employment from serving the interests of his principal as faithfully and effectively as if he were the only employer. I shall call this "the no inhibition principle". Unless the fiduciary is inhibited or believes (whether rightly or wrongly) that he is inhibited in the performance of his duties to one principal by reason of his employment by the other his failure to act is not attributable to the double employment. Finally the fiduciary must take care not to find himself in a position where there is an actual conflict of duty so that he cannot fulfil his obligations to one principal without failing in his obligations to the other... I shall call this "the actual conflict rule"... In my judgment the distinction drawn by Ipp J in Permanent Building Society v Wheeler is sound in principle and is decisive of the present case. On the Society's pleaded case the fact that the defendant was acting for the purchasers played no part in his failure to report the true state of affairs to the Society. It did not inhibit him from fulfilling his obligations to the Society. It is consistent with its pleaded case that the defendant would have done so but for negligent oversight. It would have been exactly the same if he had failed to notice and report the existence of the defect in the purchaser's title. To characterise either such failure as a breach of fiduciary duty because he was acting for both parties in a situation where that fact did not contribute to his failure is, in my opinion, to substitute a verbal formula for principle." Rolfe J's findings regarding the scope of the Mr Willis' retainer are not clear. His Honour recorded at least twice Mr Willis' denial that he was acting for Mrs Collins in relation to her giving a guarantee and mortgage!4. Undoubtedly he was acting for her in relation to the preparation of a power of attorney. Rolfe J expressed his conclusion regarding the scope of retainer as follows: 14. Appeal Book, p630K, 635H-L. WAACEDONE v COLLINS; COLLINS WALLIS PROPERTIES PTY LTD v ST GEORGE COMMERCIAL CREDIT CORP LTD; COLLINS v ST GEORGE COMMERCIAL CREDIT CORP LTD (Cole JA) "T found this evidence unacceptable. I can see no basis in the evidence for Mr Willis concluding either that he was not acting on behalf of Mrs Collins or that Mrs Collins did no understand him to be acting. In my opinion Mr Willis understood full well that he was advising Mrs Collins in a professional capacity. Indeed that was the matter that caused him concern and led to his suggestion that she should seek independent legal advice. Quite apart from that there is other evidence, to which I have referred, leading to the inevitable conclusion that Mr Willis was acting for Mrs Collins IN RELATION TO THE GIVING OF THE POWER OF ATTORNEY, which had the potentiality of exposing her to the liabilities about some of which he warned her."!5 (emphasis added). That does not constitute a finding that Mr Willis was acting for her generally in relation to the giving of the mortgage or guarantee. My understanding of Rolfe J's judgment was that he held affirmatively that Mr Willis was acting for Mrs Collins in relation to the preparation of her power of attorney, and that Rolfe J was of the view that that involved an obligation to explain the risks attendant upon giving such a power. Further, his Honour was of the view that Mr Willis was obliged to explain the detailed consequences of giving a mortgage over her house, and a personal guarantee of the sum being borrowed. His Honour did not make any finding that Mr Willis was obliged to explain the detailed nature of the transaction in which he was acting for the borrowing company, nor that he was obliged to advise Mrs Collins of the advantages or disadvantages of her being a party to the transaction at all. There is thus no finding that the scope of retainer exceeded the preparation of and giving of advice in relation to the execution of a power of attorney obviously intended to be used in relation to the purchase by Collins Wallis Properties of the factory, as it was. The case put against Mr Wallis was not that any "double employment" in fact inhibited him giving advice. The case put against him rather was that his explanation of the risk attendant upon giving a power of attorney was inadequate because it did not in specific terms explain the consequences of giving a mortgage or a personal guarantee of the sum being borrowed. No suggestion was made in the evidence or the judgment that in fact Mr Willis had acted in any way to advantage his client purchasers at the expense of Mrs Collins, or disadvantage Mrs Collins for the benefit of his other clients. Thus, even if Mr Willis be regarded as being in a fiduciary relationship to Mrs Collins, there is no evidence of any breach of that duty. The advice given by him which Rolfe J thought to be defective was not related to any fiduciary duty by which he may have been bound, and was unrelated to the circumstances giving rise to any such duty: any inadequate explanation was not related to double employment. It follows, in my judgment, even if, contrary to the view I have expressed, Mr Willis gave inadequate advice to Mrs Collins concerning the risks attendant upon her giving the power of attorney, such breach would attract damages associated with breach of contract or tort, with attendant causation problems, and would not attract the principles of equitable compensation. In my opinion the solicitor's appeal should be upheld, and there should be judgment for the solicitors on the second cross-claim. Once the appeal has been decided favourably to the solicitors, upon Mrs Collins' cross-claim, nothing arises for determination regarding the solicitor's refused application to file a fourth cross-claim. 15. Appeal Book, p635U-636F. 10 UNREPORTED JUDGMENTS No.40352/92 THE ENFORCEABILITY OF THE GUARANTEES Each of Mrs Collins, Mr and Mrs Wallis and A B Wallis Pty Ltd have challenged the enforceability of both the guarantees and mortgages which they gave or which were signed on their behalf. The basis of the challenge was as follows. By a letter of offer dated 2S November 1988, as amended by a letter of offer dated 20 February 1989 each addressed to Collins Wallis Properties, St George offered to lend $1,185,000 to that company upon certain terms. The letters of offer were accepted by Collins Wallis Properties by signing under seal a "form of acceptance" which "hereby accepts the within mentioned offer on the terms and conditions stated". The amending letter was accepted by a similar expression. Each of the guarantors executed in relation to each letter a "form of acceptance" whereby they: "Hereby confirm the within mentioned offer on the terms and conditions stated." It was argued that the terms of the initial and amended letter of offer contained conditions precedent, namely, that each of Run-O-Waters Pastoral Co and AB Wallis Pty Ltd in their own right and as respective trustees for the Collins and Wallis family trusts provide guarantees of the borrowings, and that each of Mr and Mrs Wallis and Mr and Mrs Collins do likewise. It was contended that the mortgages and guarantees in fact given were dependent upon the fulfilment of the condition precedent that each of the parties I have mentioned give an effective guarantee. If one did not do so the others rights of contribution from co-guarantors would be effected and accordingly there would be a material alteration affecting the obligations of the guarantors and they would be discharged. It was contended that the condition precedent was not fulfilled in the case of Run-O-Waters Pastoral Co for the following reasons: 1. Under the Collins family trust deed the trustee had power to guarantee the liabilities of a beneficiary only. Collins Wallis Properties was not such a beneficiary. Accordingly the guarantee given by the company as trustee for the Collins family trust was ineffective to attach to trust assets. A similar situation applied in the case of A and B Wallis Pty Ltd and the Wallis family trust. 2. Run-O-Waters Pastoral Co did not validly affix its seal to its guarantee so as to bind it in its own right for two reasons: (a) the seal could be affixed only with the authority of the directors. Mrs Collins was a director. The board meeting of 24 February 1989 purporting to be the authorisation for Run-O-Waters to enter into the guarantee was attended by Mr Collins, a director, and by Mr Wallis who was not a director but purported to act as attorney for Mrs Collins as a director of the company. He could not validly so act as a director. Accordingly the authorisation purportedly given by the meeting of directors was invalid, and thus the guarantee was not properly executed on behalf of the company. (b) The seal of the Run-O-Waters was not properly affixed to the guarantee. To be properly affixed there must be attached to the seal the signature of a director and counter signature by another director or secretary or other person appointed by the directors to counter sign the document. The seal was purportedly counter signed on Mrs Collins' behalf as secretary by her attorney Mr Wallis. This did not comply with the articles. Accordingly the attaching of the seal was ineffective to render the company liable. WAACEDONE v COLLINS; COLLINS WALLIS PROPERTIES PTY LTD v ST GEORGE COMMERCIAL CREDIT CORP LTD; COLLINS v ST GEORGE COMMERCIAL CREDIT CORP LTD (Cole JA) Rolfe J rejected each of the above contentions. His Honour rejected the contention that there existed a condition precedent of the nature stated. After referring to a discussion between Mr Simic, an officer of St George, and Messrs Collins and Wallis at which Mr Simic had made clear that personal guarantees and company guarantees from each who in fact gave them would be required and that "the loan would be conditional upon all of those conditions being met" to which Mr Wallis had said "everyone will have to be in" and Mr Simic replied "yeah you wouldn't want to put your house up if Glen didn't", his Honour said: Tt was clearly contemplated that upon acceptance of the offer the solicitor for the plaintiff would draw up the necessary documentation which documentation would incorporate all the contractual teens. All parties proceeded on this basis. In my opinion it was the contemplation of all parties that the contractual arrangements would be comprised in the written documents."!6 That is the usual expectation in transactions of this nature. However these particular letters of offer have some unusual features. The letters offer a loan "on the following terms and conditions". After specifying the amount the interest rate was stated: "For the time being, interest will be charged at 17.55% pa, reducible if there has been no default under any security or the terms set out in this letter and all monies have been paid on due date, to 15.50% pa" In relation to the guarantees the letter stated that: 'The corporation requires this advance to be jointly and severally guaranteed Certain costs and fees were made payable by the offeree if the loan was accepted whether it proceeded or not. The letter continued: "This offer of a loan is made to the applicant on the condition that the undermentioned requirements are fulfilled by the applicant to the satisfaction of the corporation and its solicitor within the time limits as stipulated." Certain special conditions were then set forth. The initial letter of offer concluded: "If you wish to accept his offer, please signify your acceptance by signing the enclosed 'Form of Acceptance" with annexed copy of this letter and returning it to this office within seven (7) days. Upon receipt of your acceptance, the corporation's solicitor will be instructed to prepare documents and proceed to settlement. Acceptance of this letter will constitute a binding contract by you to observe the teens set out in this letter." (emphasis added) There was attached the form of acceptance by the borrower and the confirmation of the offer by the guarantors to which I have referred. Further, there was uncontested evidence from Mr Wallis that he would not have proceeded with the giving of the mortgages or the guarantees unless valid and effective mortgages and guarantees were given by all of the persons required by St George to give them. St George argued that there was no written, oral or implied condition precedent of the type asserted. Further it contended, as his Honour found, that the arrangements encapsulated by the conversation with Mr Simic and in the accepted and confirmed letters of offer were intended to be and were superseded by the security documents. 16. Appeal Book, 675-676. 12 UNREPORTED JUDGMENTS A question arises whether St George should be permitted to rely on this latter submission because of the manner in which it pleaded and conducted its case. By its summons it pleaded that the advance of $1.185 million was made "pursuant to an agreement made between the plaintiff and the first defendant (Collins Wallis Properties) on or about 22 February 1989 ("the Agreement*)". The rate of interest was alleged to be "pursuant to the Agreement". The claim against the borrowing company alleged breach of failure to pay interest "pursuant to the Agreement and the mortgage". It thus conducted its case against the borrower on the basis that the "Agreement" contained in the letters of offer survived the security documents. However the claim against each of the guarantors who also gave mortgages was not based on "the Agreement" as defined, but was grounded upon the written agreement of guarantee and indemnity. As those claims are not dependent upon "the Agreement" upon which in part the claim against the borrowing company was mounted, I do not think that St George are prevented from relying upon the submission that, as against the guarantors and mortgagors, excluding the borrower, any understanding arising from the evidence of the mortgage and guarantee conversations with Mr Simic, or correspondence between the lender and borrower, were superseded by the documents upon which the guarantors and mortgagors are sued. However it seems to me to be undoubted that it was the intention of both the lender, the borrower, Mr and Mrs Collins and Mr and Mrs Wallis, and the companies which they controlled that each would give the guarantees and mortgages which the accepted letters of offer contemplated. Not only was it a requirement of St George, but it was the basis upon which the Wallis and Collins interests accepted that they would become party to the loan transaction. It was the substratum upon which the transaction was based both from the aspect of the lender and the Collins and Wallis interests which constituted the borrower. Having regard to the equality of the interests of the Wallis and Collins groups, it is commercially unrealistic to contemplate that one of those groups would have been prepared to accept a greater obligation than the other. The fact that all parties understood that it was the intention of the borrower and the various guarantors that they would give guarantees and mortgages, and of the lender that it would take such guarantees and mortgages does not mean, necessarily, that provision of effective and valid mortgages and guarantees was a condition precedent to the obligations under the written documents intended to be executed arising. The law was stated as long ago as 1856 by Erle J in Pym v Campbell!7: "The production of a paper purporting to be an agreement by a party, with his signature attached, affords a strong presumption that it is his written agreement; and, if in fact he did sign the paper animo contrahendi, the terms contained in it are conclusive, and cannot be varied by parel evidence... the distinction in point of law is that evidence to vary the terms of an agreement in writing is not admissible, but evidence to show that there is not an agreement at all is admissible." As Stirling J records in Pattle v Hornibrook!8, in Pym v Campbell, Crompton J said: 17. [1856] 6 E and B 370 at 373. 18. [1896] 1 Ch 25 at 30. WAACEDONE v COLLINS; COLLINS WALLIS PROPERTIES PTY LTD v ST GEORGS COMMERCIAL CREDIT CORP LTD; COLLINS v ST GEORGE COMMERCIAL CREDIT CORP LTD (Cole JA) "T know of no rule of law to estop parties from showing that a paper, purporting to be signed agreement, was in fact signed by mistake, or that it was signed on the terms that it should not be an agreement until money was paid, or something else done... the parties may not vary a written agreement; but they may show that they never came to an agreement at all, and the signed paper was never intended to be the record of the terms of the agreement; for they never had agreeing minds. Evidence to show that does not vary an agreement, and is admissible." Stirling J continued: "Both the learned judges, therefore, lay it down that evidence may be admitted to show that there is not an agreement at all. Other authorities for the same proposition are Gudgen v Bessett)1856) 6 E and B 986 and Furness v Meek 27 LJ (Ex) 34." These authorities were approved by Isaacs J in Maynard v Goode!9 where his Honour said: "Learned counsel pressed greatly the view that since these stipulations, and particularly the second, were conditions precedent, the relation of vendor and purchaser could not rise until their fulfilment. But a condition precedent may have that effect, and it may not. We must ask the question "Precedent to what?". If it is precedent to the agreement being operative as a contract, it is of the nature urged by Mr Loxton. Davis v Jones 1856 17 CB 625, Pym v Campbell [1856] 6 El and BL 370 and Pattle v Horniebrook [1897] 1 Ch 25 are instances of this." The reasons why a condition precedent may undermine the effectiveness of a subsequent written agreement is that in truth the agreement of the parties encompasses both the written agreement and the condition precedent. Accordingly it is necessary to see whether, as between the lender and the guarantors and mortgagors, as distinct from the borrower, there was an agreement that the written terms of the mortgages and guarantees which they undoubtedly executed were subject to a condition precedent that they would not become operative or binding unless or until an effective mortgage and guarantee was given by each of the intended mortgagors and guarantors. That is a different question to whether the parties intended that the transaction would involve the giving and receipt of such mortgages and guarantees. In my judgment there is no express evidence of such a condition precedent. The conversation between Mr Simic and Messrs Wallis and Collins was not to the effect that the liability under the written mortgages and guarantees was dependent upon each of the intended mortgagors and guarantors giving an effective mortgage or guarantee. In truth neither the lender, the borrower, or the intending mortgagors and guarantors addressed the question of what would happen if through want of power or other technical reason a mortgage or guarantee failed. The totality of the conversations between the parties, and the letters of offer, simply recorded the understanding of all parties that effective mortgages and guarantees were required and would be given. In my view that does not establish expressly the condition precedent alleged. Although I do not think there was any express formal agreement between the guarantors and mortgagors, excluding the borrower, and St George prior to execution of the mortgages and guarantees, the understanding between all parties was that each proposed mortgagor and guarantor would execute a joint and several guarantee. That was made clear by the express terms of the letter of offer 19. (1956) 37 CLR 529 at 540. 14 UNREPORTED JUDGMENTS which the prospective guarantors and mortgagors confirmed in writing. It is well established that use of the expression "joint and several" in relation to guarantees expresses a relationship that a guarantor is agreeing to become such only upon the basis that another does likewise.2° It is equally well established that if a person agrees to become a guarantor upon the basis that a guarantee will be obtained from another, and such other guarantee is not obtained, the first guarantor is discharged. Dixon J expressed the position in the following terms in Williams v Frayne?!: "If the guarantee is given upon a condition, whether express or implied FROM THE CIRCUMSTANCES, that a specific security shall be OBTAINED, completed, protected, maintained or preserved, any failure in the performance of the condition operates to discharge the surety and the discharge is complete. But otherwise the surety can complain only if the creditor sacrifices or impairs a security, or by his neglect or default allows it to be lost or diminished and in that case the surety is entitled in equity to be credited with the deficiency in reduction of his liability." (emphasis added). To similar effect is the statement of Cotton LJ in Carter v White22: "The principle is this, that if there is a contract express or implied that the creditor shall ACQUIRE or preserve any right against the debtor, and the creditor deprives himself of the right which he has stipulated to acquire, or does anything to release any right which he has, that discharges the surety..."23 (emphasis added). And Jordan CJ and Halse Rogers J expressed the position in Hancock v Williams and Anor?4 in the following terms: "Thus, if the contract of suretyship provides that another person shall join in the guarantee or that a security shall be taken for the obligation guaranteed and the obligee DOES NOT OBTAIN or subsequently releases the co-guarantor or the security, the guarantor is discharger because the obligation is not or ceases to be that which he guaranteed - an obligation with a co-guarantor or a security." (emphasis added) In an analogous but not identical situation, Powell J expressed the position in the following terms: "Tf a parel contract of guarantee which is executed by an intending surety is drawn in a form showing another or others as intended joint and several sureties, it will be presumed, in the absence of acceptable evidence to the contrary, that the execution of that other, or those others, was a condition precedent to the surety who signed the guarantee becoming liable under it, and his, or their, failure to execute the guarantee will afford to the intending surety who executed the guarantee a defence at law to an action on the guarantee."25 The reasoning behind these authorities is clear. If an intending surety agrees to become such only upon the basis that others do likewise, with the attendant rights of contribution from other co-sureties, and the lender does not obtain or acquire the co- guarantees, the intending surety's position is diminished, because he is deprived of such rights of contribution and thus the bargain which he made with the lender is not that which is implemented. Accordingly he is released. 20. Ward v National Bank of New Zealand Ltd [1883] 8 AC 755 at 764; Phillips v O' Donovan: The Modern Contract of Guarantee (second edition), 328. 21. (1937) 58 CLR 710 at 738. 22. [1883] 25 Ch 666 at 670. 23. See also The Northern Banking Co Ltd v Newman and Anor (1927) IR 520 at 536. 24. (1942) 42 SR 252 at 255. 25. Marston v Charles H Griffith and Co Pty Ltd (1985) 3 NSWLR 294 at 300. WAACEDONE v COLLINS; COLLINS WALLIS PROPERTIES PTY LTD v ST GEORGE COMMERCIAL CREDIT CORP LTD; COLLINS v ST GEORGE COMMERCIAL CREDIT CORP LTD (Cole JA) In my view these principles apply in the instant case. There is to be implied from both the requirements of the lender and the understanding of the guarantors and mortgagors flowing from the conversation and correspondence to which I have referred, an implied condition precedent of the type alleged regarding the guarantees. There was no suggestion that either the lender or the sureties at any stage departed from the arrangement referred to in the acknowledged letters of offer that joint and several sureties would be taken from all the prospective guarantors and mortgagors, excluding the borrower. The obligation was upon the lender to acquire those securities if it wished to enforce the guarantees. It did not acquire such securities due to the negligence of its solicitor. Accordingly the guarantors are discharged from their liability under the guarantees if the lender failed to acquire from each intended guarantor a guarantee contemplated by the parties. The implied term is not inconsistent with any provision in the guarantees. CI5(i) has no application as each of the guarantees given was a separate document and no person, other than the persons named in the particular guarantees, was intended to execute the document. C15(f), being a contractual term between the particular guarantors and the lender, cannot operate to confer power on the trustees to grant a guarantee attaching the trust assets of the Collins or Wallis family trusts. C15(j) is equally impotent for that purpose. Thus nothing in cl5 is inconsistent with the implied term, and nor does cl5 operate to cure the deficiencies of power or execution to result in satisfaction of the implied term. However the position is otherwise, in my view, in relation to the mortgages. The accepted letters of offer specified as security mortgages over the factory premises and over the Engadine, Kurrajong and Blakehurst properties. They were not expressed to be joint and several mortgages, and the special rules applicable to the liability of guarantors in circumstances of contemplated joint and several responsibility do not apply. They were simply security for the advance to the borrower. Although the arrangement contemplated the giving and taking of the mortgages, in addition to the obtaining of joint and several guarantees, there was no condition precedent or arrangement between the parties that if some security, here the guarantees, failed, the mortgages were to be regarded as inoperative. Put another way, for the reasons I have given, there was no condition precedent to the operation of the mortgages. It becomes necessary to consider whether the lender did obtain the co-guarantees contemplated. It is clear in my view that it did not for the following reason: Two co-guarantees contemplated were those from AB Wallis Pty Ltd and Run-O-Waters Pastoral Co Pty Ltd as trustee for the Wallis and Collins family trusts. It is clear that those companies as trustee of those trusts had no power to give guarantees in respect of entities which were not beneficiaries. The borrower was not. Thus assets to which the lender may have had access in reduction of debt, or to which Mr and Wallis and Mr and Mrs Collins may have had access as co-guarantors, were not available. I did not understand this proposition to be in serious contest. It accords with the finding of Rolfe J that no access may be had to those assets. Accordingly the guarantees are not binding upon the guarantors. It thus becomes unnecessary to consider the other suggested bases of invalidity of the granting of the guarantee by Run- O-Waters Pty Ltd related to the resolution purportedly authorising execution of the guarantee, and the affixing of the seal. 16 UNREPORTED JUDGMENTS Each of the guarantors was thus released from their guarantee but not from their mortgage. No 40353 OF 1994 Rolfe J found that Mr Alidenes, St George's solicitor, had breached his retainer in that there was undisputed evidence that, as solicitor for the lender he ought to have ensured that companys' giving guarantees as trustee had power to do so. Thus St George's cross-claim succeeded but only $1 damages was awarded. His Honour having found breach of retainer awarded that sum: "Because there is no evidence either that the plaintiff after enforcing its other rights will suffer a shortfall, or that the trusts have any further assets. I award damages in the sum of $1. The claim based on negligence fails as no damage has been proved." On appeal counsel for St George argued that the correct approach to damages was to "put the Bank in the position it would have been had the breach not occurred". He contended that on the evidence it was probable that the Bank would not have advanced any monies to the lender. The Court inquired whether there was, in the evidence, a calculation which showed the amount advanced by the Bank less the recoveries. None could be pointed to. Rolfe J had held that each of the guarantees given by Mr and Mrs Collins and Mr and Mrs Wallis were enforceable and the guarantees given by the two trust companies were enforceable against those companies assets but not the trust assets. His Honour stood over the matter to allow damages as between the Bank and the defendants to be calculated. In a further judgment dated 19 May 1994 his Honour said: "There is a further complication. The amount for which judgment is given ($719,071.57) is not the full amount of the plaintiff's original debt. The principal debtor contributed some through the sale of its property. The family home of Mr and Mrs Wallis has been sold and the present judgment reflects the balance owing. The home of Mr Collins is the subject of an order for possession. The rights as between the guarantors are not to be assumed to be, therefore, determined by looking at the present judgment. There are other amounts to which regard must be had." A further complicating factor is that a stay was granted preventing St George from executing its judgment against Mrs Collins either under the mortgage or the guarantee pending her recovery from Mr Willis of the sum she was obliged to pay to St George. Thus, as I would understand it, the amount of the judgment of $719,071.57 which St George has against the defendants under the orders of Rolfe J does not reflect the value of the Engadine property or the Kurrajong property. The sum which the Bank would be entitled to recover against Mr Alidenes could not exceed the amount advanced less the value of monies repaid and assets realised or otherwise valued for damages calculation purposes with interest adjustments. Mr Alidenes contended that the Bank bore the onus of proving its loss in its claim against him and has not done so. Further, it had not called any evidence regarding the course it would have adopted had it known the trusts were not entitled to provide guarantees and thus it could not be assumed that the Bank would not have proceeded with the transaction. Further the Bank had not called evidence to establish the consequence of Mr Alidenes' negligence, namely, the assets within the trusts to which recourse may have been had and, presumably, the assets Mr and Mrs Collins and Mr and Mrs Wallis other than the realty mortgaged may have had available under the guarantees. WAACEDONE v COLLINS; COLLINS WALLIS PROPERTIES PTY LTD v ST GEORGE COMMERCIAL CREDIT CORP LTD; COLLINS v ST GEORGE COMMERCIAL CREDIT CORP LTD (Beazley JA) With some hesitation and reluctance I have come to the view that the orders of Rolfe J in relation to the damages payable by Mr Alidenes to the Bank should be set aside and the matter remitted to the Commercial Division for further determination. The claim originally litigated was that both the guarantees and mortgages given by Mr and Mrs Wallis and Mr and Mrs Collins, as well as the two trust companies were unenforceable due to Mr Alidenes' negligence. Rolfe J thought they were enforceable except as to the trust assets. I am of the view that the mortgages are enforceable but the guarantees are not. It is apparent that there are a great number of permutations of possible quantum of damages which the Bank might, depending upon the ultimate findings of the court, have sought to establish. The convenient course may have been to adjourn the question of damages until the findings were known but that, apparently, did not occur. It seems to me that there has not been a proper consideration of the question of damages between the Bank and Mr Alidenes and the matter should be referred back to the Commercial Division for that purpose. I am encouraged to that view by Mr Alidenes' counsel suggesting that to be a proper and available option. I would propose the matter stand over until 9.30am. on Wednesday 5 February 1997 to permit the parties to agree upon short minutes of order to reflect these reasons for judgment. Abadee AJA I agree with the reasons for judgment of Cole JA and the orders proposed by him. Beazley JA I have had the advantage of reading the judgment of Cole JA. I agree that the guarantees were each subject to a condition precedent that each of the other proposed guarantors executed their respective guarantees. I also agree that the entry into the mortgages was not subject to the same condition precedent. However, I do not agree that that necessarily concludes the question in relation to the mortgages. The letter of offer of the financial facility specified as a term and condition of the offer that security be provided by way of a registered second mortgage over the Padstow factory premises and by way of registered first mortgage over Mrs Collins' property at Engadine, Mr Collins' property at Kurrajong and Mr and Mrs Wallis' property at Blakehurst. In addition, the letter of offer specified that St George "requires this advance to be jointly and severally guaranteed by [the 7 guarantors]"'. Mr Wallis gave evidence that in early November he spoke to an officer of St George, Mr Simic, in relation to the acquisition and financing of the Padstow factory, during which Mr Simic said to him: "Because you're borrowing more than the current value of the factory based on the estimated valuations given by you to me, St George will require Mortgages over all of the properties, plus guarantees from the companies plus personal guarantees from all the directors to keep within the Bank's percentage guidelines for borrowings. The loan would be conditional upon all of those conditions being met." Mr Wallis gave evidence that he would not have proceeded with the loan "if any of the properties or guarantees were not taken by St George"; that he 'fully accepted Mr Simic's statement that all the Mortgages and Guarantees referred by him were necessary to fully cover the proposed loan"; and that he "entered into the loan on the basis that Mortgages and Guarantees were given by all of the persons and the Corporations as required by St George". 18 UNREPORTED JUDGMENTS Mrs Wallis also gave evidence that she understood that "all the Mortgages and Guarantees were necessary to secure the loan". Mrs Collins did not give evidence on this point as her concern was with the power of attorney which she had signed. Cole JA has expressed the view that the guarantees were subject to a condition precedent but that the mortgages were not. It was not necessary, therefore, in so far as the guarantees were concerned, for his Honour to consider whether the guarantors were also entitled to relief in equity. St George has submitted that this issue was not raised in the Court below. Counsel for Mrs Collins submits that the pleading in the cross claim of a condition precedent and of release was broad enough to include both the condition precedent at common law and in equity and that in any event there is an overlap between the two doctrines. I agree and consider that the evidence to which I have referred was relevant to the equitable doctrine. Accordingly, I propose to deal with the issue as argued on the appeal. Equity may relieve from the consequences of a valid guarantee, where, for example, the surety entered the guarantee "on the basis of a belief or understanding, induced in whole or in part by some statement or other act by or on betray of the creditor, including the terms of any document provided by the creditor": see Bleyer v Neville Jeffress Advertising Pty Ltd, New South Wales Court of Appeal, unreported, 15 December 1987 per Hope JA at 8. In Evans v Brembridge 8 De GM and G 10; (1856) 44 ER 327, Turner LJ expressed the principle in these terms: "..as the Plaintiff entered into the obligation upon the understanding and faith that another person would also enter into it, he has a right in equity to be relieved, on the ground that the instrument has not been executed by the co-surety." See also Hansard v Lethbridge 8 TLR 436 at 347 per Fry LJ; The National Provincial Bank of England v Brackenbury (1906) 22 TLR 797. The principle also applies where a party enters into a guarantee on the understanding that the obligation being guaranteed was also to be secured: see Re Parent Trust and Finance Co Ltd [1936] 3 All ER 432 (affirmed sub nom Greer v Kettle [1938] AC 156). In this case, the guarantors would have had a right in equity to be relieved from the consequences of the guarantee. The evidence to which I have referred also makes it clear that the guarantees and mortgages were part of what I might describe as "the package" whereby the loan was to proceed. The question therefore is whether the equitable principles available to relieve against liability under the guarantees extends to relieve against liability under the mortgages. The question is not without difficulty. The importance to a guarantor that guarantees be taken from all those whom it was understood were to guarantee the debt lies in the right to contribution. A guarantor is entitled to claim contribution from co-guarantors where the guarantor has paid more than that person's share of the guaranteed debt. If there are less guarantors, each guarantor's rights are thereby affected. The importance to a guarantor of the existence of securities securing the guaranteed debt is the right of subrogation, which entitles a guarantor, who satisfies any of the guaranteed debt, to all securities held by the creditor: Ross v Bank of New South Wales (1928) 28 SR (NSW) 539. The right only arises when the whole of the debt has been paid, although the guarantor need not have repaid the whole of the debt: Russet Pty Ltd v Bach (New South Wales Supreme Court, unreported, Hodgson J, No 2856 of 1985). The right of subrogation extends to all securities given to the creditor in respect of the guaranteed debt: AE Goodwin Ltd v AG Healing Ltd (1979) 7 ACLR 481. WAACEDONE v COLLINS; COLLINS WALLIS PROPERTIES PTY LTD v ST GEORGE COMMERCIAL CREDIT CORP LTD; COLLINS v ST GEORGE COMMERCIAL CREDIT CORP LTD (Beazley JA) In my opinion, a person who entered into a guarantee upon an understanding that mortgages were to be provided by certain of the co-guarantors would expect to have the benefit of the right of subrogation to which they would be entitled as co-guarantors. If there is no obligation under the guarantees, either because the guarantees did not come into existence due to the operation of a condition precedent or because the guarantors are entitled to equitable relief, those persons become mortgagors only and thus liable as principals for the debt. In circumstances where the guarantees and mortgages are truly part of a security package for the debt as was the case here, I am of the opinion that the guarantor/mortgagor is entitled to the equitable relief available to a guarantor. As Ihave said, the guarantors have made out an entitlement to that relief in this case. There are two other matters upon which I should express my disagreement with Cole JA. In my opinion, a solicitor who is under a duty to explain the effect of an instrument to a client, does not discharge that duty by explaining the implications in part only. It is true that the solicitor's explanation dealt with a significant and serious consequence of the execution of the power of attorney, namely that the grantee of the power could execute a mortgage over the grantor's property and that the property could be sold up. However, it cannot be assumed that the entry into a personal guarantee is not also a serious matter even for a person of limited means. Nor can it be assumed that had Mrs Collins been advised of the full implications of granting the power of attorney, that she would still have done so. I also disagree with his Honour that there was no breach of duty in failing to limit the power of attorney to the time Mrs Collins was overseas. Had the power been so limited, the guarantees and mortgages would have had to have been personally signed by Mrs Collins. As part of that process, the solicitors would have been required, in accordance with the law which governs conveyancing transactions in this State, to explain the effect of the mortgage document to Mrs Collins. Again, it cannot be assumed that the effect of that explanation would not have had any effect on Mrs Collins. Nor can it be assumed that the solicitors would not have advised Mrs Collins to obtain that independent legal advice (as they would have had a duty to do) or that she would not, on this occasion, have taken that advice. I agree, however, with Cole JA that there was no breach of fiduciary duty. As I have determined that Mrs Collins and the other guarantors are not liable under the mortgages, it is not necessary to determine the appeal against the trial judge's refusal to allow the fourth cross claim to be filed. I should state, however, that I consider his Honour was correct in refusing the cross claim to be brought, for the reasons which he gave. The orders I propose are: 1. In appeal No CA40351/94 - appeal dismissed. 2. In appeal No CA40352/94 and CA40353/94: (a) Appeal allowed; and (b) O1, O03, OS and O7 made by Rolfe J in proceedings No 50571/92 be set aside. 3. St George Commercial Credit Corporation should pay Mrs Collins' and Mr and Mrs Wallis' costs. Mrs Collins also seeks an order that the orders made by the Court on 19 May 1994, in proceedings No 50051 of 1993 be set aside. Those proceedings were brought by St George seeking possession of the Engadine property. His Honour's judgment records that orders were made in that matter in accordance with the 20 UNREPORTED JUDGMENTS Short Minutes of Order brought in by the parties. The Short Minutes of Order were not part of the appeal papers. An examination of the court file reveals that the Orders in the short minutes included judgment for possession and leave to issue a Writ of Possession. The file also reveals that a Writ of Possession was issued on 4 July 1994. If the writ has not been executed, I would propose a further order that orders made in proceedings No 50051 of 1993 be set aside. 1. In appeal No CA40351/94 - appeal dismissed. 2. In appeal No CA40352/94 and CA40353/94: (a) Appeal allowed; and (b) O1, O3, OS and O7 made by Rolfe J in proceedings No 50571/92 be set aside. 3. St George Commercial Credit Corporation to pay Mrs Collins' and Mr and Mrs Wallis' costs. 40351/94: Counsel for the appellant: SD Rares SC/N Perram Solicitors for the respondent: Mallesons Stephen Jaques Counsel for the first respondent: JT Gleeson Solicitors for the first respondent: AC Boyle Neilson and Co Counsel for the second, fourth, fifth and sixth respondent: G McVay Solicitors for the second, fourth, fifth and sixth respondent: Bowles and Co Counsel for the eighth respondent: M Cashion Solicitors for the eighth respondent: Kemp Strang and Chippindall Counsel for the cross-respondent: MJ Lawler 40352 of 1994: Counsel for the appellant: G McVay Counsel for the first respondent: M Cashion Counsel for the cross-respondent: M Lawler 40353 of 1994: Counsel for the appellant: JT Gleeson Counsel for the first respondent: M Cashion Counsel for the cross-respondent: M Lawler