New South Wales Court of Appeal CITATION: Baker & Anor. v. Gurtner & Anor. [2007] NSWCA 63 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S): 19 March 2007 JUDGMENT DATE: 19 March 2007 JUDGMENT OF: Hodgson JA at 1; Santow JA at 38; Campbell JA at 40 EX TEMPORE JUDGMENT DATE: 19 March 2007 DECISION: 1. Leave to appeal granted. 2. Notice of Appeal to be filed within fourteen days. 3. Appeal allowed. 4. Orders below set aside. 5. A new trial in the District Court. 6. Costs of the trial before Ashford DCJ to be in the discretion of the judge hearing the new trial. 7. The respondent to pay the claimant's cost of the application and appeal and to have a certificate under the Suitors Fund Act if otherwise eligible. CATCHWORDS: AGENCY - MORTGAGES AND CHARGES - Money given to agent for purpose of making a loan upon the security of a charge - Whether charge obtained - Inadequacy of primary judge's findings and reasons. CASES CITED: Composite Buyers Limited v Soong (1998) 38 NSWLR 286 Troncone v Aliperti (1994) 6 BPR 13291 Jason Nicholas Baker - 1st claimant PARTIES: Fast Track Financiers Pty. Limited - 2nd claimant Peter Alan Gurtner - 1st opponent James Hume - 2nd opponent FILE NUMBER(S): CA 40493/06 COUNSEL: Mr. D. Allen for claimants Mr. G. Carolan for opponents SOLICITORS: Proctor & Associates, Parramatta for claimants Andrew J. Foster, Eastwood for opponents LOWER COURT JURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC1297/04 LOWER COURT JUDICIAL OFFICER: Ashford DCJ LOWER COURT DATE OF DECISION: 14 July 2006 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40493/06 DC 1297/04 HODGSON JA SANTOW JA CAMPBELL JA Monday 19 March 2007 BAKER & ANOR. V. GURTNER & ANOR. Judgment 1 HODGSON JA: On 14 July 2006, Ashford DCJ gave reasons for judgment in proceedings in which the opponent, Peter Gurtner, had sued the claimants, Jason Baker and Fast Track Financiers Pty Limited (which I will call FTF), for breach of duty of care and/or fiduciary duty in respect of a loan of $60,000 made by the opponent to one James Hume. The opponent had also sued Mr Hume in the same proceedings, and had previously obtained judgment against him. 2 On the basis of those reasons, the primary judge gave judgment for the opponent against the claimants in the sum of $60,000 plus interest pursuant to s 83A of the District Court Act from 7 July 2003, and ordered the claimants to pay the opponents' costs. 3 The opponent seeks leave to appeal from that decision. The application for leave has been argued on the basis that if leave is granted, the appeal will be determined without further argument. 4 I will first briefly state the background circumstances. 5 In about mid-2003, the opponent had a discussion with Mr Baker concerning a possible loan to be made by the opponent to Mr Hume in the sum of $60,000 for four months, for which interest would be paid at $2,000 per month. 6 On or about 4 July 2003 Mr Baker sent, by facsimile to the opponent, a copy of a letter of that date from FTF to Mr Hume, signed by Mr Baker, advising that FTF had a client happy to lend $60,000 for four months with interest at $2,000 per month. 7 The letter referred to the giving of a security as follows: Registered caveat/unregistered mortgage 171 Auburn Road Yagoona NSW 2199 Lt 6 DP 15658 (1st mort $315K Tonto Home Loans) 8 The letter also contained the following items: 9. Subject to satisfactory searches and completion of documentation. 10. Subject to confirmation of the following: 1. Copy of insurance on security of property with lender noted 2. caveat being registered on security property … 13. All legal costs and disbursements relating to the advance are to he paid by the Mortgagor (including establishment fees, statutory charges etc.) a) $500.00 application fee b) $000.00 brokerage c) $500.00 legals approx 9 This facsimile copy of the letter contained at the bottom of each page a signature purporting to be that of Mr Hume, and it was followed by a further page purporting to be an acceptance of its terms and conditions also purportedly signed by Mr Hume. 10 Other documentation came by facsimile with that letter, including a form of caveat identifying the land referred to in the letter, giving Mr Hume as the registered proprietor and the opponent as the caveator, and specifying the estate or interest claimed as "equitable interest" by virtue of "loan deed" date "04 Jul 2003", and under parties "loan advance from Peter Alan Gurtner to James Edward Hume" by virtue of facts "as above". The copy of this document that was sent by facsimile purported to have the consent of the registered proprietors to the caveat signed by Mr Hume. 11 On 7 July 2003, the opponent attended at Mr Baker's office and gave him $50,000 in cash and a cheque for $10,000. Mr Baker gave him $2,000 back, saying this was the payment of the first month's interest. 12 The opponent subsequently received two payments of $2,000, purportedly being interest for August and September, but he did not receive any further payment of interest and did not receive the repayment of the principal of the $60,000. 13 On 10 November 2003, the opponent conducted a title search and found that no caveat had been lodged. On 14 November 2003, a caveat was lodged, purportedly on behalf of the opponent, either by Mr Baker or by a solicitor Mr Kekatos. At that time the caveat contained a signature purporting to be that of the opponent. 14 On 1 April 2004, the opponent filed a statement of liquidated claim in the District Court against Mr Hume and the claimants. After referring to the letter of 4 July 2004 and the meeting of 7 July 2004 the Statement of Claim continued: 7. During the course of the meeting the second defendant represented to the plaintiff that: (a) He was an experienced financial consultant and he would act for the plaintiff for the purpose of documenting the proposed loan and a mortgage from the first defendant to secure the proposed loan; (b) The proposed loan would be secured by an unregistered mortgage and caveat registered on the title of the property; (c) The proposed loan advance would not be made until such time as the first defendant had provided to the second defendant: (i) A copy of the insurance policy for the property with the name of the plaintiff noted on the policy schedule; (ii) A mortgage of the property; (iii) A caveat executed by the first defendant and in registrable form; (iv) A statutory declaration confirming the property was not subject to environmental hazards ("the security"); (d) His fee for acting tor the plaintiff in respect of the proposed loan would be paid by the first defendant. 8. In consideration for the promises made by the second defendant and acting in reliance upon the representations made by him, the plaintiff agreed to pay to the second and/or third defendants the sum of $60,000.00 ("the funds"). 9. The funds were paid to the second and third defendants on condition that it was to be held on trust by the second and/or third defendants and advanced to the first defendant only upon him providing the security to the satisfaction of the second defendant. 10. The second defendant and third defendants in their capacity as an agent for the plaintiff or as trustees of the funds paid to them by the plaintiff, owed to the plaintiff a fiduciary duty and a duty of care to ensure that the advance to the first defendant was made only upon the first defendant providing the security. 11. The second defendant paid to the plaintiff the sum of $2,000.00 on account of the first month's interest on the proposed loan. 12. Negligently, in breach of their obligations as agents and fiduciaries the second and/or third defendants advanced to the first defendant the funds without obtaining: (a) A mortgage; (b) A caveat in registrable form; (c) A copy of the insurance policy for the property with the name of the plaintiff endorsed on the schedule; (d) Any statutory declaration. 13. The second and third defendants failed to register a caveat on the property. 14. The loan and interest was due to be repaid on or by 4 November 2003, but despite demands the first, second or third defendants have failed to repay the principal and interest. 15. The plaintiff claims: (a) Judgment in the sum of $60,000.00; (b) Alternatively, damages; (c) Interest on $60,000.00 at a rate of $3,000.00 per month from 7 August 2003 to the date of judgment; (d) Alternatively, interest pursuant to section 83A of the District Court Act from 7 July 2003 to the date of judgment; (e) Costs. 15 A judgment was obtained against Mr Hume, and it is common ground that Mr Hume has since become bankrupt. 16 In her reasons for judgment the primary judge referred to the evidence of a handwriting expert, Mr Dubedat, called by the opponent. The primary judge made no finding as to the genuineness of signatures purporting to be those of Mr Hume saying: "There is no evidence before me which substantiates which signatures are in fact those of Mr Hume". However, the primary judge did accept the opponent's evidence that he did not sign the caveat that was actually lodged. 17 The primary judge did not find that the opponent expected that there would be an unregistered mortgage: see paras [44] and [48] of her judgment. However, she was satisfied that the claimants failed to take any steps to provide security for the loan, requiring at least that the caveat be supported by a valid equitable instrument. 18 The primary judge then continued as follows: 49. The failure of the second and third defendants to ensure the plaintiff received a valid caveat, an unregistered mortgage or appropriate equitable charge resulted in the plaintiff losing the right to exercise a remedy against the property and he is now an unsecured creditor of a bankrupt estate. 50. I am satisfied there was a duty of care owed by the second and third defendants to the plaintiff. I find the second and third defendants held themselves out to be corporate and financial consultants and actively solicited funds from the plaintiff who relied upon them for their skill and expertise. The defendants assumed control of the transaction and I prefer and accept the evidence of the plaintiff in that regard. 51. I am satisfied there was a breach of the duty of care by the second and third defendants in not advising the plaintiff that lodgement of a caveat was a futile proposition. The plaintiff advanced money in a circumstance where there was no registerable (sic) interest over the property. There was consideration by the plaintiff by paying monies to the second and third defendants for an advance to the first defendant from which advance the second and third defendants would benefit promising in return that they would protect the plaintiffs interests by insuring the loan monies would not be advanced to the first defendant until such time as there was security for the loan. In breach of that contract the second and third I defendants advanced the loan monies to the first defendant. 52. Had the contract not been breached the plaintiff would have a security for his interest. 53. Whilst the defendants submit the loan transaction was in fact organised by Tsingolas he is not a party to this action nor as I have said did any party seek to call him to give evidence. The transaction between the parties was conducted in the main by the second defendant. Meetings were at his office and correspondence provided by him. Accordingly I am satisfied there was a breach of the fiduciary duty owed to the plaintiff. 54. There will be a verdict and judgment for the plaintiff in the sum of $60,000 plus interest pursuant to s83A of the District Court Act from 7 July 2003 to date of judgment as against the second and third defendants. 19 The claimants seek leave to appeal on the following grounds: 1. Ashford DCJ gave judgment in favour of the First Respondent in the absence of any evidence of causation and quantum of loss. 2. Ashford DCJ erroneously held that an agreement that a caveat could be lodged on title to real property to secure repayment of money lent did not create an equitable charge. 3. Ashford DCJ failed to give adequate reasons. 20 I will consider in turn the following issues raised by those grounds: (1) whether there was no evidence of loss; (2) error as to the need for a valid equitable charge; (3) inadequate reasons. 21 In relation to the first issue, whether there was evidence of loss, the submissions of Mr Allen for the claimants on this matter initially proceeded on the assumption that what the opponent had claimed was that, but for the claimant's breaches of duty, the opponent would have had the benefit of a security for the loan that he had made. On that assumption, Mr Allen submitted, proof of loss would have required proof of what the security would have been worth to the opponent if it had been obtained in July 2003, and there was no such proof. 22 As I understand it, Mr Carolan for the opponent conceded that this was so, correctly in my view. However, Mr Carolan contended that the opponent's claim and the primary judge's decision did not proceed on this basis at all: rather, they proceeded on the basis that, but for the claimant's breaches of duty, money would not have been advanced, so that the result of the claimant's breaches of duty was that the opponent had parted with $60,000 which has been entirely lost. 23 I would say immediately that a consequence of this way of putting the case would be that the opponent could not claim to have the benefit of his bargain to get $8,000 interest, because what the opponent is saying is that the deal should not have gone ahead at all. So on that basis, the opponent's claim could not be for any more than $58,000 plus interest at District Court rates, reduced later by two further payments of $2,000 each in August and September 2003. 24 Mr Allen's response to this way of putting the case was to the effect that it was not the case as pleaded or relied on before the primary judge. He submitted that the pleading contained no allegation of any contract not to pay the money over until security was obtained, and no allegation of any basis on which a fiduciary duty or duty of care to that effect could be found. He referred to the written submissions below of the opponent, to the effect that the claimant's breach "resulted in the plaintiff losing the right to exercise the remedies against the property". He submitted that this was also confirmed by the oral submissions. Mr Allen also submitted that even this approach would have required evidence of what if any payment could be expected from Mr Hume at bankruptcy. 25 Dealing with that last point first, it was opened to the primary judge that there was no prospect of any return to the opponent from the bankruptcy, and the point that this was not supported by evidence does not appear to have been squarely taken below. There could be a question as to whether this matter goes to proof of loss, with the onus on the opponent, or to mitigation of loss with the onus being on the claimants. But in any event, where this point was not clearly taken below, it would not be a matter, in my opinion, on which leave to appeal would be given. 26 On the main point, there is force in Mr Allen's comments on the pleadings and the submissions. But it was alleged in paras 9, 10 and 12 of the statement of claim to the effect that the advance of funds was in breach of the claimant's obligations, and in para 23 of the written submissions it was put that the provision of security was a "condition precedent" to the advance. There were oral submissions to somewhat similar effect at pp 2 and 89 of the blue folder. 27 The pleadings, submissions and findings of the primary judge were all not clear. But on the whole I think it was open, on the way the case was conducted, for the primary judge to find a breach of some obligation in advancing the money, and the reasons of the primary judge can be interpreted as her making that finding. Whether there was a proper basis for that finding, and whether her reasons were adequate, arise under the other two issues. 28 Turning to the second issue, that is the question whether there was an error made as to the need for a valid equitable charge, the point here is that the primary judge did not find that the signatures purporting to be those of Mr Hume on the caveat document and the letter of 4 July 2003 were not his signatures. It was put that, if they were his signatures, then the documents would be sufficient to give rise to an equitable charge: see Troncone v Aliperti (1994) 6 BPR 13291 and Composite Buyers Limited v Soong (1998) 38 NSWLR 286. 29 In my opinion those documents, if signed by Mr Hume, could in the circumstances have been sufficient to give rise to an equitable charge, and this could have been sufficient to satisfy the obligations of the claimants. I note that Mr Carolan accepted it was never put by the opponent that the conditions precedent to paying money over to Mr Hume included that this be done with an intention to immediately lodge the caveat for registration. 30 To reach a final conclusion as to whether the documents were sufficient to give rise to an equitable charge, and satisfy the obligations of the claimant, would probably require consideration of the documents in the whole of the factual circumstances. I do not think it is appropriate for the Court of Appeal to undertake that consideration, because there is an unresolved factual question as to whether the documents were or were not signed by Mr Hume. 31 In failing to make a finding that they were not signed by Mr Hume, the primary judge made the observation that there was no evidence before her which substantiated which signatures were those of Mr Hume. However, there were in the District Court file an affidavit purporting to be sworn by Mr Hume as a defendant to the proceedings, and a notice of motion purporting to be signed by him. Although these documents were not tendered, the primary judge in a discussion with the opponent's counsel said she was entitled to look at them. These signatures were among those relied on by the opponent's handwriting expert. 32 If the primary judge was not accepting these signatures, that is the signatures on the affidavit and the notice of motion, as genuine signatures of Mr Hume, she should have explained why; and if these signatures were genuine signatures of Mr Hume, then the primary judge should have explained why she did not accept the evidence of the handwriting expert. 33 If that evidence were accepted, then it would be plain that the claimants did not obtain security; so the unsatisfactory nature of the primary judge's reasons on the question of the genuineness of those signatures makes it necessary for there to be a new trial on this issue. 34 Turning to the third question, the insufficiency of reasons otherwise, in my opinion there is much force in Mr Allen's submissions to the effect that the primary judge did not make any findings as to the basis or content of the duty of care which she referred to, made no findings as to the basis and scope of any agency and as to duties associated with such agency, gave no explanation of making a finding of a contract different from any contract pleaded or relied on, and gave no explanation of the finding of fiduciary duty which was not related either to a finding of agency or to the pleading. The deficiency of reasons in these respects is a further basis, in my opinion, why there must be a new trial of these proceedings. 35 Having regard to the amount of money involved and the errors I have identified, in my opinion leave to appeal should be granted and a new trial should be ordered. 36 I would note that, in the absence of evidence of what would have been the value of security which might have been obtained in July 2003, it is clear that the maximum amount recoverable by the opponent would be $54,000 plus some interest at District Court rates, not the agreed rate. I note that it appears likely also that the result would depend heavily on whether the opponent can prove at the new trial that the signatures on the caveat and the letter were not Mr Hume's. 37 The orders I propose are these: 1. Leave to appeal granted. 2. Notice of Appeal to be filed within fourteen days. 3. Appeal allowed. 4. Orders below set aside. 5. A new trial in the District Court. 6. Costs of the trial before Ashford DCJ to be in the discretion of the judge hearing the new trial. 7. The respondent to pay the claimant's cost of the application and appeal and to have a certificate under the Suitors Fund Act if otherwise eligible. 38 SANTOW JA: I agree. 39 I would add only this: that the sum of money involved is modest; the costs expended to date must be considerable; there is now the advantage of a judgment from the Court of Appeal which indicates the likely outcome on the assumption either that the signature of Mr Hume is shown to be genuine on the caveat or is not genuine. In those circumstances it would behove the parties to consider some other means of resolving their difference, if that is feasible, than yet more legal proceedings. 40 CAMPBELL JA: I agree with the judgment of Hodgson JA. I also agree with the additional remarks of Santow JA. 41 HODGSON JA: So the orders of the court are as I proposed. ********** 27/03/2007 - Incorrect date - Paragraph(s) Heading 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.