New South Wales Court of Appeal CITATION : Lee v. Brand & Anor. [2003] NSWCA 198 revised - 28/07/2003 HEARING DATE(S) : 3 July 2003 JUDGMENT DATE : 24 July 2003 JUDGMENT OF : Sheller JA at 1; Hodgson JA at 2; Tobias JA at 78 DECISION : 1. Mr. Lee's appeal against Mr. Brand allowed with costs. 2. Mr. Brand to have Suitors Fund certificate if otherwise entitled. 3. Mr. Brand's orders against Mr. Lee set aside, and in lieu thereof Mr. Brand's cross-claim against Mr. Lee dismissed, and Mr. Brand to pay so much of Mr. Lee's costs of the proceedings as are not referable purely to Mr. Sahota's claim against Mr. Lee. 4. Mr. Brand's cross-appeal dismissed with costs. 5. Mr. Lee's appeal against Mr. Sahota allowed to the extent of substituting for the quantified damages a judgment for damages to be assessed, and matter returned to the District Court for that assessment. 6. Each party to that appeal to bear its own costs; and Mr. Sahota to have a Suitors Fund certificate if otherwise entitled. 7. Mr. Lee to pay so much of Mr. Sahota's costs of the proceedings as are not recovered from Mr. Brand. 8. Mr. Lee's application to put on a cross-claim dismissed with costs. CATCHWORDS : LEGAL PROFESSION - Solicitors - Solicitor acting for lender - Whether also acting for guarantor - DAMAGES - Lender recovers judgment against guarantor - Lender also sues solicitor - Whether damages suffered - When and how damages against solicitor assessed. CASES CITED : Baldry v. Jackson [1976] 2 NSWLR 415 Hill v. Van Erp (1997) 188 CLR 159 Alexander Lee - appellant PARTIES : Robert John Brand - first respondent Narinder Singh Sahota - second respondent FILE NUMBER(S) : CA 41060/02 Mr. D. Davies SC with Andrew Colefax for the appellant COUNSEL : Mr. D.E. Baram for the first respondent Mr. A.G. Melick SC for second respondent Phillips Fox for appellant SOLICITORS : Kosmin & Associates, Double Bay for first respondent Helliars, Parramatta for second respondent LOWER COURT District Court JURISDICTION : LOWER COURT DC712/98 and DC6815/00 FILE NUMBER(S) : LOWER COURT Sorby DCJ JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41060/02 DC 712/98 DC 6815/00 SHELLER JA HODGSON JA TOBIAS JA Thursday 24 July 2003 LEE V. BRAND & ANOR. Judgment 1 SHELLER JA: I agree with Hodgson JA. 2 HODGSON JA: On 18 October 2002, Sorby DCJ made orders disposing of proceedings brought by the second respondent Narinder Singh Sahota against the first respondent Robert John Brand and the appellant Alexander Lee, in which Mr. Brand had put on a cross-claim against Mr. Sahota and Mr. Lee. In substance, those orders were: 1. Judgment for Mr Sahota against Mr. Brand in the sum of $273,075.00, and costs. 2. Judgment for Mr. Sahota against Mr. Lee in the sum of $236,751.21, and costs. 3. Mr. Brand's cross-claim against Mr. Sahota dismissed with costs. 4. Judgment for Mr. Brand against Mr. Lee for $73,199.00, and costs. 5. Mr. Lee to indemnify Mr. Brand for any sums recovered by Mr. Sahota from Mr. Brand. 3 Mr. Lee appeals to this Court from the orders made against him. Mr. Brand cross-appeals from the orders made against him. CIRCUMSTANCES 4 Mr. Brand is a property developer, who practised as a solicitor between 1964 and 1987, and was struck off the roll of solicitors in 1994. 5 Mr. Lee was admitted as a solicitor in 1982, and from about 1990 he acted in about 200 conveyancing transactions as solicitor for Mr. Brand and companies with which Mr. Brand was associated. 6 There is in evidence a memorandum prepared by Metway Bank Limited (Metway) dated 24 August 1995, recording a proposal brought in the name of Mr. Brand whereby Metway would provide finance of up to $1,201,000,00 for the construction of twelve residential units on the property 68-70 Reynolds Avenue, Bankstown. The proposed borrower was noted as being R. & Z. Younan and Australian Building Systems International Pty. Limited (ABSI). 7 On 18 September 1995, ABSI and R. & Z. Younan granted a mortgage over the property 68-70 Reynolds Avenue, Bankstown, being the land in Folio Identifiers B/319425 and C/319425, to Metway securing an advance of $1,136,000.00. This mortgage was executed for ABSI by Mr. Brand as director and a Mr. Brawn as secretary. The mortgage was guaranteed Mr. Brand. A certificate was provided to Metway by a solicitor Mr. Roberts to the effect that he had explained the guarantee to Mr. Brand. 8 In February 1996, Mr. Brand approached Mr. Lee on a number of occasions, asking if he had a client interested in making an investment. A little later, Mr. Sahota sold his taxi for $150,000.00, and discussed with Mr. Lee how he might invest that amount. 9 Mr. Lee then contacted Mr. Brand, and Mr. Brand told him about the Reynolds Avenue project. Mr. Lee noted some particulars about the project, including that there was a mortgage to Metway, that $115,000.00-$120,000.00 was to be utilised to bring the work to first progress payment stage, and that the registered proprietor was "Australian Buildings Systems Pty. Limited". The notes referred to the grant of a second mortgage over the property. 10 Mr. Lee then contacted Mr. Sahota again, and gave him a document setting out features of the proposed transaction, including the following: All costs & stamp duty to be paid by owner. Signed mortgage – stamped – lodge caveat on property. + guarantee & indemnity from directors. 11 Mr. Sahota agreed to invest the $150,000.00 on this project. 12 Mr. Lee then prepared a mortgage to be executed by ABSI and a guarantee to be executed by Mr. Brand. On the mortgage as it appeared at the date of hearing there were hand-written alterations relating to the identification of the mortgagor and the mortgagee, including a change in the name of the mortgagee from "Australian Building Systems Pty. Limited" to ABSI and R. & Z. Younan; and Mr. Brand claimed that these had been made after he had executed the documents. This claim was rejected by the primary judge, and subject to what I say below about an admission made on behalf of Mr Lee, no challenge is now brought against that finding. There was also an alteration on one copy of the document as it appeared at the date of hearing, in that the identification of the mortgaged property as B/319425 and C/319425 had been changed by the addition of the words "now being 1/SP54537, 7/SP54537, 8/SP54537 and 9/SP54537", this apparently reflecting registration of a strata plan and transfer by the mortgagor to other parties of eight out of twelve residential units. 13 One other discrepancy in the documentation was that the guarantee identified the mortgagor as ABSI, and not as ABSI and R. & Z. Younan, whereas the mortgage as executed showed ABSI and R. & Z. Younan as the mortgagor. This mortgage was dated 10 April 1996. It showed Mr. Sahota as mortgagee, and the principal as $150,000.00 repayable on 10 January 1997. 14 The guarantee was also dated 10 April 1996. It contained among other provisions cls.4-6, in the following terms: 4. UNCONDITIONAL NATURE OF OBLIGATION 4.01 The liability of the Guarantor under this Guarantee shall not be affected by anything which but for this provision might operate to release or otherwise exonerate it from its obligations in whole or in part, including, without limiting the generality of the foregoing: (a) the grant to the Mortgagor, the Guarantor or to any surety or other person of any time, waiver or other indulgence, or the discharge or release of the Mortgagor or any other surety or other person; (b) any transaction or arrangement that may take place between the Lender and the Mortgagor, the Guarantor or any other person; (c) the liquidation of the Mortgagor, the Guarantor or any other person; (d) the Lender exercising or refraining from exercising any other security or any rights, powers or remedies against the Mortgagor, the Guarantor or any other person; (e) the amendment, variation, replacement, extinguishment, unenforceability, failure, loss, release, discharge, abandonment, assignment or transfer either in whole or in part and either with or without consideration of any Transaction Document or any Encumbrance or guarantee now or in the future held by or in favour of the Bank from any of the Customer, the Guarantor or from any other person in relation thereto or by the taking of or failure to enter into any Transaction Document or to take any such Encumbrance or guarantee or any Transaction Document or any such Encumbrance or guarantee becomes void or voidable; (f) the failure or omission by the Mortgagor or the Lender to give notice to the Guarantor of any default by the Mortgagor under any Transaction Document or any of the foregoing; (g) the Lender becoming a party to or bound by any compromise, assignment of property or scheme of arrangement or composition of debts or scheme of reconstruction by or relating to the Mortgagor, the Guarantor or any other person; (h) the Lender obtaining a judgment against the Mortgagor, the Guarantor or any other person for the payment of any of the Moneys Hereby Secured; or (i) any legal limitation, disability, incapacity or other circumstances related to the Mortgagor, the Guarantor or any other person, whether with or without the consent of the Guarantor. 5. PRINCIPAL AND INDEPENDENT OBLIGATION 5.01 This Guarantee shall be: (a) a principal obligation and shall not be treated as ancillary or collateral to any other right or obligations (b) in addition to and not in substitution for any Encumbrance or guarantee which the Lender may hold in respect of the obligations of the Mortgagor or the Guarantor or any other person and may be enforced against the Guarantor without first having recourse to such Encumbrance or guarantee or taking any steps or proceedings against any of the Mortgagor or any other guarantor and notwithstanding the loss by the Lender of any such Encumbrance or guarantee or any laches, acts, omissions or remissions on the part of the Lender. 6. CONTINUING GUARANTEE 6.01 This Guarantee: (a) shall be a continuing guarantee and indemnity and shall remain in full force and effect until the Moneys Hereby Secured have been paid or satisfied in full to the satisfaction of the Lender and this Guarantee has been discharged by the Lender; and (b) shall not be considered as wholly or partially discharged by the payment at any time of any of the Moneys Hereby Secured by any settlement of account or by any other act, matter or thing whatsoever and shall apply to the present and any future balance of the Moneys Hereby Secured remaining unpaid. 15 A similar guarantee was also executed by Mr. Brawn, but no claim was made against Mr. Brawn in these proceedings. 16 The stamp duty on the mortgage amounted to $553.00. The usual practice would be for this amount to be deducted from the money advanced. This was not done in this case. Mr. Lee says that this was because of a specific request by Mr. Brand that it not be done since the whole of the money was needed, coupled with a promise by Mr. Brand to pay the stamp duty. This was denied by Mr. Brand. 17 On 12 April 1996, Mr. Lee sent a memorandum to the secretary of ABSI for costs and disbursements for "acting herein on behalf of the mortgagee" amounting to $1,070.00, and a request for $553.00 stamp duty forthwith. 18 This money was not paid; and on 7 June 1996 Mr. Lee sent a further letter to the secretary of ABSI noting that he had not received the costs and stamp duty, and advising that the last day for payment of stamp duty without a fine was 11 June 1996. He requested cheques for costs and stamp duty "as a matter of urgency". 19 Mr. Lee gave evidence that in addition to these written requests, there were phone calls to Mr. Brand and Mr. Brawn requesting stamp duty as a matter of urgency. 20 No amount for stamp duty was ever received by Mr. Lee from either ABSI or Mr. Brand, and the mortgage was not stamped until July 1997, when Mr. Lee paid the stamp duty himself and placed a caveat on the title. The mortgage was still unregistered, and no previous caveat protecting the interest of the mortgagee had been lodged. Mr. Lee gave evidence that it was the practice of the Land Titles Office not to accept a caveat unless there was evidence of stamp duty having been paid. 21 Between April 1996 and July 1997, a number of unregistered interests arose and were protected by caveats, which took priority over the mortgage to Mr. Sahota, and in addition a number of residential units were sold. 22 Furthermore, on 17 October 1996 ABSI and the Younans executed another mortgage in favour of Metway securing a further $84,000.00. This was executed by Mr. Brand as director and Mr. Brawn as secretary, and guaranteed by Mr. Brand. In connection with this mortgage also, there was a certificate dated 16 October 1996 by Mr. Roberts to the effect that he had explained the guarantee to Mr. Brand. 23 A company extract in relation to ABSI as at 15 October 1996 shows Mr. Brand and Mr Brawn as directors and Mr. Brand as the sole shareholder. There is also in evidence a document addressed to Metway, signed by Mr. Brand and Mr. Brawn, bearing a facsimile date 16 October 1996, asserting that they were respectively director and secretary. 24 However, there are other documents in evidence suggesting that Mr. Brand may not have been a director at this time. There are unsigned letters or copies of letters dated February 1996, evidencing a tender of resignation by Mr. Brand as a director of ABSI. There is a memorandum from Mr. Brawn to Mr. Brand dated 25 September 1996, requiring his signature to an acknowledgement of debt. There are minutes of a board meeting of ABSI held on 11 October 1996, signed and dated by Mr. Younan and Mr. Brawn, recording the appointment of the Younans as additional directors and the resignation of Mr. Brawn and Mr. Brand as directors. These minutes also contain a resolution approving the execution of the mortgage in favour of Metway for $84,000.00. There is a letter dated 18 March 1998 to Mr. Brand from Mr. Younan requesting payment of a loan and interest, and enclosing a balance sheet for ABSI as at 30 June 1996 showing an unsecured loan to Mr. Brand of $46,409.00. There is a further undated document from Mr. Younan to Mr. Brand requiring a communication by "13 July" as to how he was to pay the debt. Finally, there was a Statement of Claim in the District Court dated 26 June 1998 by which ABSI claimed $46,409.00 from Mr. Brand, and an Amended Statement of Claim claiming $47,100.00, in both cases referring to alleged withdrawals by Mr. Brand from ABSI between September 1995 and February 1996. 25 Mr. Brand gave evidence to the effect that from about February 1996 he had tendered his resignation as director from the company, was in dispute with Mr. Brawn, had no further involvement with the development, and had informed Mr. Lee of these things. Mr. Lee denied that he knew of such matters. 26 These proceedings were commenced on 26 June 1998, initially against Mr. Brand only, claiming on the guarantee. 27 On 14 December 1998, Mr. Sahota received $7,500.00 as a result of the sale of the last unit. 28 On 3 August 1999, Mr. Brand cross-claimed against Mr. Sahota and Mr. Lee. As against Mr. Lee, he alleged that Mr. Lee was acting as solicitor for Mr. Brand and that the mortgage and guarantee were void. 29 On 9 June 2000, Mr. Brand filed an Amended Cross-claim, in which he added a claim that he had borrowed $46,409.00 from ABSI, and that part of the alleged retainer with Mr. Lee was that Mr. Lee was to ensure that the security documentation was to protect Mr. Brand's rights in respect of this amount, such that upon a sale Mr. Brand could discharge the sum of $46,409.00 as a debt due and payable to ABSI. 30 On 10 August 2001, Mr. Sahota filed a Further Amended Statement of Claim joining Mr. Lee as defendant. DECISION OF PRIMARY JUDGE 31 As noted earlier, the primary judge rejected Mr. Brand's evidence that names on the mortgage and guarantee were altered after execution, and held that Mr. Brand was bound by the guarantee. He did not deal with the matter of alteration of the description of the mortgaged property. He gave judgment for Mr. Sahota against Mr. Brand for the amount of loan and interest pursuant to the guarantee. 32 However, the primary judge held that Mr. Lee had acted as Mr. Brand's solicitor in the transaction and owed a duty of care to Mr. Brand; and that he breached that duty in failing promptly to register the mortgage or protect it by a caveat. It was apparently on that basis that he found Mr. Lee was liable to indemnify Mr. Brand against his liability to Mr. Sahota. 33 In his orders, he made Mr. Lee also liable to Mr. Brand for $46,409.00 plus interest, although he gave no reasons for this. 34 He found Mr. Lee liable to Mr. Sahota by reason of the failure to register the mortgage or protect it by caveat, and on that basis gave judgment against Mr. Lee for the amount of the advance plus interest at Court rates rather than the mortgage rates, this explaining the lower judgment against Mr. Lee as compared with that against Mr. Brand. GROUNDS OF APPEAL 35 Mr. Lee relied on the following grounds of appeal: 1 His Honour erred in finding that there was a duty of care or contract of retainer between the Appellant and the First Respondent. 2 His Honour erred in finding that, even if there was a duty of care or contract of retainer between the Appellant and the First Respondent, any damage was sustained by the First Respondent as a result of any breach by the Appellant of any such duty or contract. 3 His Honour erred in requiring the Appellant to indemnify the First Respondent for any sums recovered by the Second Respondent against the First Respondent. 4 His Honour erred in entering a verdict and judgment against the Appellant in favour of the First Respondent on the Cross-Claim. 5 His Honour erred in including in the verdict and judgment in favour of the First Respondent against the Appellant on the Cross-Claim the sum of $73,199. 6 His Honour erred in failing to give any reasons for orders 7A and 9 made on 18 October 2002. 7 His Honour erred in ordering the Appellant to pay the First Respondent's costs of the Cross-Claim against the Appellant. 8 His Honour erred in finding that the Second Respondent had sustained damage as a result of any breach of duty of care to the Second Respondent by the Appellant. 9 His Honour erred in entering a verdict and judgment in favour of the Second Respondent against the Appellant. 10 His Honour erred in ordering the Appellant to pay the Second Respondent's costs. 11 His Honour erred in finding an admission of breach of duty of care by the Appellant's Counsel was unqualified. 12 His Honour erred in finding that the admission of breach of duty of care by the Appellant's Counsel was intended by him to be unqualified. 13 His Honour erred in finding the Respondents would suffer prejudice if the Appellant were permitted to withdraw an unqualified admission of breach of duty and substitute a qualified admission. 14 His Honour erred in failing to permit the Appellant to withdraw an unqualified admission of breach of duty. 36 Mr. Lee also seeks leave to put on a cross-claim against Mr. Brand claiming contribution on the basis of co-ordinate liability. 37 Mr. Brand's cross-appeal raises the following grounds: The Learned Trial Judge: 1. Erred by failing to find in favour of the Defence raised by the cross-appellant to the cause of action brought against him for payment under the Guarantee, namely a contention by the cross-appellant that he should be discharged from liability because: a. The security properties being Lots B and C of Folio Identifier 319425 were converted to Strata Title and thereafter sold without the consent of the cross-appellant, such that in law he should have been discharged. b. Making variations to the Mortgage between the cross-respondent and Australian Building Systems International Pty Limited without the consent of the cross-appellant. 2. Erred in making a determination that the cross-appellant had guaranteed the performance of Australian Building Systems International Pty. Limited and Raymond and Zena Younan and not holding that the Mortgage was void or that the cross-appellant was discharged. 38 I will deal with the issues in the following order: 1. Mr. Brand's cross-appeal. 2. Whether Mr. Lee owed a duty of care to Mr. Brand. 3. If so, whether there was a breach of that duty causing damage. 4. The judgment in relation to the $46,409.00 plus interest. 5. Mr. Sahota's quantum of damages against Mr. Lee. 6. The effect of an admission made by Mr. Lee's Counsel. 7. The question of co-ordinate liability. CROSS-APPEAL 39 In support of the cross-appeal, Mr. Baram for Mr. Brand made two submissions. 40 First, he submitted that the alteration to the mortgage in relation to the identification of the property amounted to an alteration to the principal contract or mortgage without Mr. Brand's consent, with the result that he as guarantor was discharged. Associated with this was the change of the property subject to the mortgage to a strata title, with the result that the original lots B and C disappeared; and the sale of eight of the twelve units further altered the principal contract of mortgage. 41 Second, Mr. Baram submitted that the circumstance that the mortgage was given by ABSI and R. & Z. Younan, whereas the guarantee guaranteed only the performance of ABSI, meant that he was not liable to Mr. Sahota under the guarantee. 42 In my opinion, there is no substance in these submissions. 43 Where a second mortgage is guaranteed, the circumstance that action by the mortgagor and a first mortgagee affects the land mortgaged cannot affect the rights of the second mortgagee, who is not responsible for such matters. In so far as reliance is placed on the alteration made to the document itself, it was not shown that that alteration was made by the second mortgagee, that is by Mr. Sahota; and in any event, in circumstances where, without any participation of Mr. Sahota, the mortgaged property had in fact changed to four residential units, the alteration was immaterial. Furthermore, in my opinion cls.4-6 of the guarantee, and in particular cl.4.01(a) and (b), would protect Mr. Sahota from loss of his rights against Mr. Brand by such events affecting the mortgage. 44 The circumstance that the guarantee purports to guarantee the liability only of ABSI under the mortgage would not in my opinion assist Mr. Brand. The guarantee defines "moneys hereby secured" to mean, inter alia, all moneys payable to the lender by the mortgagor either alone or in conjunction with any other person. The moneys owing under the mortgage are moneys owing by ABSI in conjunction with R. & Z. Younan. Accordingly, it is not necessary to consider whether the liability of ABSI under the mortgage itself is joint and several. 45 For those reasons, in my opinion the cross-appeal must fail. DUTY OF CARE 46 On this matter, the primary judge made the following findings: The evidence of Mr Lee presents a picture of an overbusy suburban solicitor who in Mr Brand, a former solicitor and regular client, he did not feel it necessary to act, on each occasion as he would with a layperson. The arrangement was to some extent loose or flexible allowing Mr brand to conduct his property development using Mr Lee's legal services when necessary. However evidence of the long association between Mr Lee and Mr Brand from 1990 to 1996 together with Mr Lee "finding" the funds being sought (from the Plaintiff) for Mr Brand's project is evidence that on the Reynolds Avenue transaction, as in earlier business transactions, Mr Lee acted for Mr brand, knowing as he did that neither Mr Brand or Mr Braun (sic) (a former solicitor) had separate solicitors. Mr Lee in his evidence seeks to convey that Mr Brand a former commercial lawyer did not need legal advice in any event, about the registration of the mortgage, the payment of stamp duty or the significance of the guarantee. In my opinion, while the Plaintiff was clearly the client of Mr Lee, Mr Lee allowed a situation to evolve, because of past business and professional relationship between himself and Mr Brand, where he acted for Mr Brand making assumptions as to the knowledge of Mr Brand as to certain legal consequences, that despite the relationship he should have set down clearly in writing and not relied on casual phone conversations and file notes. Mr Brand relied on Mr Lee as his solicitor to the extent he considered he required Mr Lee's assistance. I can understand and accept that Mr Lee may have warned Mr Brand, as he said he did in para 22 of his statement as to the need for independent legal advice with respect to the director's guarantees. I further accept that Mr Brand would reply in the tone and manner he did as recorded by Mr Lee because of the nature of the professional relationship between the two men. The fact that Mr Lee even offered the advice he did as set out in para 22, in my view, connotes a relationship between Mr Lee and Mr Brand of solicitor and client. From the evidence, including the evidence given in the witness box by Messrs Brand and Lee which I listened too and observed carefully, I conclude on the balance of probabilities that at the relevant time, in relation to the Reynolds Avenue property Mr Lee was in a solicitor client relationship with Mr Brand notwithstanding that the relationship, forged over a 6 year period, was one in which, because of the experience of Mr Brand an independent person might say did not exist. However I have reached the conclusion, for the reason I have given that Mr Lee was Mr Brand's solicitor for limited purposes on the Reynolds Avenue project and as such owed him a duty of care. 47 It was submitted by Mr. Davies SC for Mr. Lee that the primary judge was in error in a number of respects. In particular, there was no evidence that Mr. Lee had ever acted for Mr. Brand in any transaction such as this, where Mr. Lee was acting for a person lending money to Mr. Brand or one of his companies; Mr. Lee's evidence, accepted by the primary judge, that he advised Mr. Brand to seek independent advice, supported the view that neither Mr. Lee nor Mr. Brand regarded Mr. Lee as acting for Mr. Brand; the primary judge's statement that this circumstance was supportive of the existence of a solicitor/client relationship between Mr. Lee and Mr. Brand was a plain error; and Mr. Brand had received advice from a different solicitor, Mr. Roberts, in relation to guarantees given to Metway both before and after this transaction. 48 Mr. Baram submitted that the primary judge was not in error in making the finding of a solicitor/client relationship, and that such finding was amply supported by the evidence: Mr. Brand's statement asserted that "on or about 10 April 1996 I went to Lee's office and instructed him to act on my behalf as a guarantor for the loan", such evidence being admitted without objection; Mr. Lee had full details of the transaction from Mr. Brand; Mr. Lee had acted for Mr. Brand on 200 property transactions between 1990 and 1996; Mr. Lee's evidence was unsatisfactory in relation to his support of Mr. Brand in relation to orders sought against Mr. Brand by the Law Society; Mr. Brand had an original of the notes taken by Mr. Lee at the time when Mr. Brand gave Mr. Lee the details for the transaction; and Mr. Lee in fact continued to act on behalf of one of Mr. Brand's companies until November 1996. The primary judge carefully considered the facts, and the Court of Appeal should not intervene in his determination. 49 In the alternative, Mr. Baram submitted Mr. Lee owed Mr. Brand a duty of care having regard to the close relationship and proximity of the parties: see Hill v. Van Erp (1997) 188 CLR 159. 50 In my opinion, the primary judge was in error in finding the existence of a solicitor/client relationship between Mr. Lee and Mr. Brand in relation to Mr. Brand's guarantee. 51 Mr. Brand's assertion that he instructed Mr. Lee to act for him was denied by Mr. Lee, and the judge heard evidence concerning the actual conversations that took place and the background and circumstances of those conversations. It was not suggested by Mr. Brand that there was a conversation in which he expressly asked Mr. Lee to act as his solicitor for the guarantee transaction, and the question of whether there was a solicitor/client relationship for the purposes of that transaction depended upon inferences drawn from what was actually said and from the background and circumstances. 52 In my opinion, it is important that the transaction was one in which a client of Mr. Lee was to be the lender, and thus was to be a person whose interests were to be protected by Mr. Lee. This was a matter obvious both to Mr. Lee and Mr. Brand. Accordingly, as again was obvious to both of them, there would be a conflict of interests if Mr. Lee also acted for Mr. Brand. The primary judge accepted Mr. Lee's evidence that he recommended to Mr. Brand that he get independent advice, and that Mr. Brand declined to do so. In my opinion, the view of the primary judge that this was a matter supportive of a solicitor/client relationship between Mr. Lee and Mr. Brand on the matter was a plain error, which alone would have justified this Court in reaching its own view on the matter. There was no evidence that any of the other transactions in which Mr. Lee acted for Mr. Brand was a transaction in which Mr. Lee also acted for a lender to Mr. Brand or his companies, or his companies, or indeed for any person with an adverse or potentially adverse interest as against Mr. Brand or his companies. Although the primary judge purported to base his finding of the solicitor/client relationship in part on observation of the witnesses in the witness box, the finding was an inference from primary facts; and in relation to primary facts, the primary judge made it clear that in general terms he preferred the evidence of Mr. Lee to that of Mr. Brand, where they conflicted. 53 In my opinion, the evidence was plainly insufficient to justify a finding of a solicitor/client relationship in respect of Mr. Brand's entry into the guarantee. 54 Turning to the question of whether Mr. Lee in any event had a duty of care to Mr. Brand, there could be no such duty of care unless there was a foreseeable risk of damage to Mr. Brand against which Mr. Lee should have taken some reasonable precaution. It was put in effect for Mr. Brand that, if the second mortgage was not at least protected by a caveat, there was a risk that the property over which the security was given could be disposed of and also the risk that subsequent securities could gain priority; and in that event, Mr. Brand could be called on under his guarantee to pay the debt, whereas otherwise the debt would have been paid out of the security. 55 In my opinion, that submission overlooks the circumstance that the loan was being made to Mr. Brand's company, and that any disposal of the secured property or creation of further securities which might be given priority over this security would be acts of Mr. Brand's company. 56 In relation to that matter, it was submitted for Mr. Brand that Mr. Brand had tendered his resignation as director of the company in February 1996, was in dispute with Mr. Brawn from about that time, and in fact had no substantial interest in the company itself or in the development. Mr. Brand gave evidence that Mr. Lee knew of these matters. 57 However, the fact is that Mr. Brand plainly remained a director at least until 11 October 1996, and he was representing to Metway that he was still a director on 16 October 1996. He executed a mortgage to Metway as director on or about 17 October 1996. The company extract as at 15 October 1996 showed Mr. Brand and Mr. Brawn as directors, and Mr. Brand as the sole shareholder. Mr. Lee gave evidence denying that he had been told of any dispute between Mr. Brand and Mr. Brawn, or about Mr. Brand no longer being interested in the company. Consistently with the primary judge's view of the witnesses, there is no reason why Mr. Lee should not have been accepted on that matter. 58 In my opinion, the risk that Mr. Brand himself might be disadvantaged because his own company might dispose of the mortgaged property or further encumber it was not a risk against which Mr. Lee should reasonably have taken precautions. In those circumstances, in my opinion, there was no relevant duty of care owed by Mr. Lee to Mr. Brand. BREACH OF DUTY AND DAMAGE 59 Having regard to my opinion that there was no duty of care owed by Mr. Lee to Mr. Brand, the question of breach does not arise. 60 However, I would say that, in my opinion, if any duty had been owed by Mr. Lee to Mr. Brand, I would not have been satisfied that there was a breach of that duty or that compensable damages were caused to Mr. Brand by that breach. 61 Having regard to the primary judge's view of the witnesses, there was no reason not to accept Mr. Lee's evidence that Mr. Brand requested that the whole of the $150,000.00 be paid over, and that there be no deduction to provide for stamp duty; and that Mr. Brand promised that he would pay the stamp duty. Furthermore, there was no reason not to accept Mr. Lee's evidence that he requested payment of stamp duty on a number of occasions from Mr. Brand and Mr. Brawn, in addition to writing the two letters that were in evidence. Furthermore, there was no reason not to accept Mr. Lee's evidence that the practice of the Land Titles Office was such that a caveat could not be lodged until stamp duty was paid. 62 So far as Mr. Lee was aware, any damage to the security could only come about through the actions of Mr. Brand's own company, and Mr. Brand was withholding the stamp duty which was necessary for the lodging of a caveat, notwithstanding his promise to pay it. I do not think that in those circumstances the damage caused to Mr. Brand could fairly be regarded as resulting from any breach of duty by Mr. Lee. I would add that there is another difficulty here for Mr. Brand, which was not the subject of submissions. Since he was, of all parties in the case, in the best position to lead evidence as to how things would have turned out if the caveat had been lodged and ABSI thereby restricted in obtaining further finance to complete the project, it should not be readily presumed in his favour that the project would have yielded enough to pay out both Metway's first mortgage and Mr. Sahota's loan. 63 Mr. Baram sought to rely on a admission of liability made by Mr. Lee's Counsel before the primary judge. He submitted that the unqualified admission of liability in favour of Mr. Sahota carried with it a relevant admission of liability to Mr. Brand, because the duties were so similar. 64 Of course, this submission cannot apply in circumstances where Mr. Lee is found to have had no duty of care to Mr. Brand. In any event, it could amount to no more than an informal admission so far as Mr. Brand is concerned; and such an admission cannot have significant weight where the material facts are otherwise established. Accordingly, Mr. Brand is not assisted by the admission. 65 I would note finally that it is doubtful whether an order that Mr. Lee indemnify Mr. Brand was appropriate: probably, if Mr. Brand had been entitled to any order against Mr. Lee, it was an order for payment of damages. SUM OF $46,409.00 AND INTEREST 66 It was submitted for Mr. Lee that there was no conceivable legal basis for the judgment for this amount. 67 Mr. Baram submitted that it was supported by Mr. Brand's evidence that he had instructed Mr. Lee to ensure that the security document protected Mr. Brand's rights in respect of $46,409.00 which he owed to ABSI, so that this amount could be discharged from the proceeds of sale of the property over which the security was given. 68 This submission overlooks the plain fact that Mr. Brand had absolutely no right in the first place to have his debt discharged out of the proceeds of sale of the property. It is conceivable that, if he had some claim to the ultimate profits of the project, he may have been able to assert some right to have his debt paid out of his share of the profits. However, there is not the slightest evidence that the project made profits, nor is there any evidence as to what Mr. Brand's share of any such profits might have been. This aspect of the primary judge's judgment was entirely without foundation. DAMAGE SUSTAINED BY MR. SAHOTA 69 It was submitted by Mr. Davies for Mr. Lee that any damage caused to Mr. Sahota could only consist in a shortfall of what he was able to recover under the security and guarantee, as compared with what he would have recovered had the security been protected by a caveat lodged at the appropriate time. Accordingly, since he was entitled to payment in full under the guarantee, no damages had been suffered by Mr. Sahota at the time when the proceedings against Mr. Lee were commenced. Alternatively, he submitted, in circumstances where Mr. Sahota had brought the proceedings against Mr. Brand, and obtained judgment, damages recoverable against Mr. Lee could not be quantified until Mr. Sahota had completed reasonable steps in mitigation of his loss by taking reasonable steps to enforce his judgment against Mr. Brand. 70 Mr. Melick SC for Mr. Sahota submitted that Mr. Sahota had suffered actual loss prior to the commencement of the proceedings; but conceded that, if Mr. Lee's appeal against Mr. Brand succeeded, the appropriate course was to set aside the money judgment against Mr. Lee and substitute a judgment for damages to be assessed; and to remit the matter to the District Court for assessment of damages after Mr. Sahota had taken reasonable steps to enforce his judgment against Mr. Brand. 71 In Segal v. Fleming [2002] NSWCA 262 at [20]-[26], I discussed the difference between actual and prospective damage as follows: 20 In Scarcella v. Lettice (2000) 51 NSWLR 302, Handley JA said (at 306): 13 A cause of action in negligence is not complete until the plaintiff first suffers actual loss or damage. Damage which is prospective or contingent does not qualify as actual damage for this purpose. See Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 (Wardley ) at 530, 531 per Mason CJ, Dawson, Gaudron and McHugh JJ. 14 In order for the plaintiffs' cause of action to be complete, the plaintiffs' actual damage must be "measurable" ( Wardley at 531), or, in the words of Lord Reid in a personal injuries case (Cartledge v. E. Jopling & Sons Ltd. AC 758 at 772) the damage must be "beyond what can be regarded as negligible". 21 Reasons for requiring the occurrence of actual and measurable loss are given in Wardley by Mason CJ, Dawson J, Gaudron J and McHugh J at 527, as follows: In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired. To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of under-compensation or over-compensation, the risk of the former being the greater. 22 Wardley established that a person granting an indemnity, under which he or she is obliged to make a payment when the loss of the party to be indemnified is ascertained and quantified, suffers no actual loss until this contingency is fulfilled; so that a cause of action for purely economic loss, dependent upon damage being caused by the granting of the indemnity, does not arise until that contingency occurs. However, during the discussion of this question at 175 CLR 527-533, the majority of the High Court did not disapprove of Forster v. Outred & Co. [1982] 1 WLR 86, where it was held that a plaintiff suffered actual loss, not merely prospective loss, when, on negligent advice from her solicitors, she granted a mortgage over her property to secure debts of her son. 23 Their Honours in Wardley at 529 explained Forster by reference to the immediate effect of the plaintiff's execution of the mortgage, namely, an immediate reduction in the value of the plaintiff's "equity of redemption". I think it might be more accurate to say that the effect was a reduction in the value of the plaintiff's property : prior to the granting of the mortgage, the plaintiff owned the property unencumbered, so at that stage there was no "equity of redemption". By executing the mortgage, she made the property more difficult to sell, irrespective of whether or not her son ultimately defaulted on his debts: a purchaser would pay less for the property with a mortgage still on the title, and the plaintiff would have to come to some arrangement with the mortgagee in order to remove it from the title. As I understand it, that is the immediate loss that arose in Forster . 24 In Cassis v. Kalfus [2001] NSWCA 460 at [71]-[76], I adverted to the relevance of Sellars v. Adelaide Petroleum (1994) 179 CLR 332 to the question of when economic loss occurs. That case established that the loss of a chance having commercial value is actual damage that can complete a cause of action in tort. However, there is a significant difference between the loss of a chance , on the one hand, and the chance of a loss , on the other. 25 In the former case, where a chance is lost, it will never be known how things would have turned out if the chance had not been lost, so that the only possible compensation a plaintiff can obtain is compensation for the value of the chance itself. Accordingly it is reasonable to require a plaintiff to commence proceedings within the limitation period once the chance has been lost, and reasonable to award damages on that basis against a defendant. 26 On the other hand, where a person incurs a chance, even a substantial chance, of suffering a loss, in due course it may become clear that no loss is ultimately suffered; and so long as there is some appreciable chance that no loss will be suffered, it is unreasonable to require a plaintiff to commence proceedings and unreasonable to award damages against a defendant. However, once there is actual loss, even if there is also the chance of further loss, a plaintiff must commence proceedings within the appropriate limitation period, and can obtain damages reflecting actual loss suffered plus damages reflecting the chance of any further loss. 72 In this case, in my opinion there is no doubt that Mr. Sahota had suffered actual damage at least by 14 December 1998, when he received $7,500.00 as a result of the disposal of the last residential unit. In my opinion, the inference is clearly open that, had Mr. Lee protected the security by caveat at the appropriate time, there would have been a substantially larger return to Mr. Sahota from the sale of the security. (As mentioned before, no specific evidence was led as to what the position would have been if the security had been protected by a caveat; but unlike Mr Brand, Mr. Sahota was in no position to lead this evidence, and in my opinion as against Mr. Sahota the evidentiary onus was on Mr. Lee. The contrary was not submitted.) Mr. Sahota was then obliged to incur actual legal costs in advancing his claim against Mr. Brand. In my opinion, this goes well beyond prospective damage or chance of a loss, which would not amount to actual damage. 73 Mr. Lee was not joined in the proceedings until August 1999, and not sued by Mr. Sahota until August 2001. There has been no attempt to suggest that the Baldry v. Jackson [1976] 2 NSWLR 415 question should be addressed as at the date of the original commencement of the proceedings against Mr. Brand. 74 In those circumstances, in my opinion the appropriate course is to set aside the judgment against Mr. Lee and substitute a judgment for damages to be assessed, and to remit the matter to the District Court for assessment of those damages after Mr. Sahota has taken reasonable steps to recover his judgment against Mr. Brand. The amount of damages recoverable against Mr. Lee will also include any costs incurred in seeking the remedy against Mr. Brand which had not been recovered by Mr. Brand, as being the costs of reasonable steps in mitigation of damage. ADMISSION 75 The last four grounds in Mr. Lee's Amended Notice of Appeal related to the admission of breach of duty of care made by Mr. Lee's Counsel before the primary judge. Having regard to what I have said about that admission earlier in the judgment, it is not necessary to consider this matter further. CO-ORDINATE LIABILITY 76 In my opinion, in circumstances where Mr. Brand's liability to Mr. Sahota is under a guarantee, and Mr. Lee's liability to Mr. Sahota is in damages for breach of duty as a solicitor, and is quantified by taking into account what reasonable steps in mitigation of damage can recover from Mr. Brand, there is no question of co-ordinate liability. In those circumstances, it is not necessary to consider discretionary questions concerning the allowance of a new cross-claim at this stage of the proceedings. Mr. Lee's application to put on a new cross-claim should be dismissed with costs. ORDERS 77 I propose the following orders: 1. Mr. Lee's appeal against Mr. Brand allowed with costs. 2. Mr. Brand to have Suitors Fund certificate if otherwise entitled. 3. Mr. Brand's orders against Mr. Lee set aside, and in lieu thereof Mr. Brand's cross-claim against Mr. Lee dismissed, and Mr. Brand to pay so much of Mr. Lee's costs of the proceedings as are not referable purely to Mr. Sahota's claim against Mr. Lee. 4. Mr. Brand's cross-appeal dismissed with costs. 5. Mr. Lee's appeal against Mr. Sahota allowed to the extent of substituting for the quantified damages a judgment for damages to be assessed, and matter returned to the District Court for that assessment. 6. Each party to that appeal to bear its own costs; and Mr. Sahota to have a Suitors Fund certificate if otherwise entitled. 7. Mr. Lee to pay so much of Mr. Sahota's costs of the proceedings as are not recovered from Mr. Brand. 8. Mr. Lee's application to put on a cross-claim dismissed with costs. 78 TOBIAS JA: I agree with Hodgson JA. ********** Last Modified: 07/28/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.