New South Wales Supreme Court CITATION : Chandra v Perpetual Trustees Victoria Ltd [2008] NSWSC 178 HEARING DATE(S) : 28/02/2008 JUDGMENT DATE : 7 March 2008 JURISDICTION : EQUITY JUDGMENT OF : Bryson AJ DECISION : Parties are directed to consult and bring in Draft Order for settlement. CATCHWORDS : TORRENS SYSTEM - Assurance Fund - costs of litigation as loss or damage for compensation under s 129 - consideration of claims of plaintiffs and mortgagee who earlier succeeded in claims against the Fund - see [2007] NSWSC 694 - consideration of - causation of loss - process of assessment and reasonableness of costs incurred. LEGISLATION CITED : Real Property Act 1900 s 129 Perpetual Trustees Victoria Ltd v Tsai (2004) 12 BPR 22 Printy v Provident Capital Ltd [2007] NSWSC 287 CASES CITED : Flounders v Millar [2007] NSWCA 238 March v Stramare (1991) 171 CLR 506 Stapley v Gypsum Mines Ltd [1953] AC 663 Fatah Chandra - 1st Plaintiff Anje Srikandi - 2nd Plaintiff Perpetual Trustee Victoria Limited - 1st Defendant PARTIES : Registrar-General of New South Wales - 2nd Defendant Stephen Richard Miller - 3rd Defendant State of New South Wales - Cross-defendant to first cross-claim Wendy Donald - cross-defendant to second cross-claim. FILE NUMBER(S) : SC 3261/2006 D E Grieve QC and Ms D M Coulton - Plaintiffs COUNSEL : T G R Parker SC - 1st Defendant P Walsh -2nd Defendant George Sten & Co Solicitors - Plaintiffs SOLICITORS : Allens Arthur Robinson - 1st Defendant Laurie Ryan - 2nd Dft IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRYSON AJ Friday 7 March 2008 3261/06 FATAH CHANDRA & ANOR v PERPETUAL TRUSTEES VICTORIA LTD & ORS JUDGMENT 1 BRYSON AJ: These reasons deal with the claims by two of the parties that costs they have incurred in this litigation should be included as elements of the compensation from the Torrens Assurance Fund to which they are entitled under s 129 of the Real Property Act 1900. The issues were defined by Points of Claim and Defence and Points in Reply, and written submissions to which counsel spoke. 2 I decided the principal issues on 6 July 2007 – [2007] NSWSC 694 – and dealt with costs inter partes on 5 October 2007. As my earlier reasons show, a forged mortgage was registered on the Certificate of Title for the plaintiffs' house after Mr Joey Pan obtained a new duplicate certificate of title under s 111 of the Act by manipulations and false documents, without any participation by the plaintiffs, and then obtained two large loans from the first defendant Perpetual Trustees Victoria. Perpetual Trustees Victoria claimed that the loans totalling $750,000 were secured by the mortgage, and took steps towards its enforcement. The plaintiffs commenced proceedings against Perpetual Trustees Victoria and the Registrar General, with some urgency to obtain an injunction to restrain threatened enforcement action by Perpetual Trustees Victoria; and obtained the leave of the Court under s 132(2)(a) to commence Court proceedings without administrative procedure under s 131. At an early stage the plaintiffs joined Mr Miller as the third defendant. Mr Miller is the solicitor who was deceived by Mr Pan, and obtained the new duplicate certificate of title in the belief that he was doing so with the authority of the plaintiffs. The plaintiffs established that the mortgage did not have the effect which Perpetual Trustees Victoria claimed for it, and that it did not secure the loans. 3 Compensation for the loans so lost was payable under s 129 and has now been paid to Perpetual Trustees Victoria. The forged mortgage was taken off the certificate of title by registration of a discharge of mortgage executed by Perpetual Trustees Victoria. The plaintiffs obtained an order for costs against Perpetual Trustees Victoria, and those costs, assessed at $212,674.47 as costs between parties, were paid by Perpetual Trustees Victoria on 11 December 2007. This was not the whole of the costs which the plaintiffs incurred; evidence of their solicitor Mrs M.M. Sten shows that in accordance with their costs agreement the plaintiffs incurred $283,565.96 to her firm. In an arrangement which was not challenged and I regard as reasonable, they agreed to assess the party-and-party costs payable by Perpetual Trustees Victoria at 75% of that amount. They now claim that they should recover the remaining 25% of their costs out of the Torrens Assurance Fund as compensation in accordance with s 129(1). 4 The Registrar General did not contend that the plaintiffs' costs insofar as they related to their claim against Mr Miller fell outside s 129(1). Counsel for the Registrar General contended that there should not be included in the assessed compensation the plaintiffs' costs insofar as the plaintiffs pursued a claim against the Registrar General relating to the moneys purportedly secured by the mortgage. Counsel contended that given the case law – Perpetual Trustees Victoria Ltd v Tsai (2004) 12 BPR 22, 281 and Printy v Provident Capital Ltd [2007] NSWSC 287 - the claim that no money was in fact secured under the mortgage was so clear that the claim against the Registrar General should not have been brought. I do not regard matters as having been so clear that this submission should be upheld. Tsai was an interlocutory decision of a single judge; it was given on documents quite close although not identical with those in the present case. It did not settle the law about the meaning of Perpetual Trustees Victoria's documents; although I found it very helpful and highly persuasive when I considered similar documents. Printy was not decided until shortly before the trial of the present proceedings, and again, the documents were in different terms. 5 Subject to possible questions affecting quantum, the plaintiffs' costs of the litigation, after giving credit for costs otherwise recovered, are within the meaning of s 129(1) loss or damage which they suffered as a result of the operation of the Act in respect of their land, arising from an act or omission of the Registrar General as referred to in s 129(1)(a). The registration on the title register for their house of a forged mortgage and the attempt to enforce it imposed on them the practical necessity of proceeding, with all available speed, to claim judicial remedies; and they were also under the practical necessity of joining Perpetual Trustees Victoria as well as the Registrar General as defendants; they could not well establish what their loss or damage was without obtaining judicial determination on Perpetual Trustees Victoria's rights under the mortgage. Nor could they establish what their loss or damage was unless they also joined Mr Miller as a defendant. Having regard to s 129(2)(b), upon which the Registrar General relied, it was not practically possible to establish the amount of their loss and their entitlement to compensation without at the same time establishing what entitlement they had against Mr Miller. 6 When the plaintiffs commenced their proceedings they were under extreme challenge for possession of their dwelling by Perpetual Trustees Victoria, a not inconsiderable opponent, and were confronted by a forged mortgage registered on the Torrens Register, a formidable threat to their peace and security. They could not be expected to act with restraint in the pursuit of remedies which appeared to be available and in particular they could not be expected to try conclusions with Perpetual Trustees Victoria before initiating a claim on the Fund to get the money with which to pay out the mortgage if they had to. To cite Oliver Wendell Holmes Jr in another context, "Detached reflection is not required in the presence of an uplifted knife." The state of the register, with the forged mortgage on it, made it essential for the plaintiffs in the prudent protection of their own interests that they obtain judicial decision on the liability of the three persons whom they sued. The costs of that litigation are in my finding loss or damage as a result of the operation of the Act in respect of their land, which loss and damage arose from the acts of the Registrar General. 7 Counsel for the Registrar General also made observations on the quantum of the costs which should be allowed. I have no concern about the total amount of costs and disbursements which Messrs Sten charged to the plaintiffs. Mrs Sten's evidence shows that the charges accord with the costs agreement. My own general consideration of the nature of the litigation, the length of the hearing, the kinds of attendances which were required and of the issues which had to be attended to, in the scale of the amounts in contention, particularly the loans which amounted to $750,000 apart from interest and other charges, with the benefit of my own knowledge and understanding of the expense involved in litigation in this Court, leads me to find that the charges are reasonable and that no further detailed examination of them is required. Subject to settling the terms of my order in detail and addressing questions of interest I will order payment of the balance of costs charged by Messrs Sten as compensation under s 129(1). There may be some question of interest, and the plaintiffs are also entitled to an order for their costs of the assessment; in strictness those costs should be included in the amount of compensation which I order. 8 Perpetual Trustees Victoria put forward four classes of costs as loss or damage for which it is entitled to payment of compensation under s 129(1). These are: (a) the costs incurred in defending the plaintiffs' claim; (b) the costs it has been ordered to pay the plaintiffs pursuant to the costs orders of 5 October 2007; (c) the difference between the actual costs incurred by Perpetual in pursuing its cross-claim against the Registrar General and Mr Miller and the party-and-party costs the Registrar General has been ordered to pay Perpetual Trustees Victoria pursuant to the costs judgment of 5 October 2007; (d) costs incurred by Perpetual in pursuing its cross-claim against the State of New South Wales, including any costs it is liable to pay the State of New South Wales. 9 There were a number of submissions relating to quantum of costs which should be included when compensation is assessed. I will deal with these separately. 10 Again it was not disputed that compensation should include costs of litigation with Mr Miller. Counsel for the Registrar General contended that compensation should not include costs relating to the proceedings between the plaintiffs and Perpetual Trustees Victoria; it was contended that Perpetual Trustees Victoria had acted unreasonably in resisting the plaintiffs' claim. These submissions recurred to some observations I made in my judgment on costs on 5 October 2007 in paragraph 3 in which I said: Now the facts have been found hindsight shows that they had a clear case against Perpetual Trustees Victoria supported by two decisions of first instance Judges of this Court on relevantly similar facts. Perpetual Trustees Victoria Ltd v Tsai (2004) 12 BPR 22281 was decided on documents of Perpetual Trustees Victoria which were not identical but relevantly similar to the documents in this case and suffered from the same defect. Perpetual Trustees Victoria did not merely put the plaintiffs to proof of their claim but resisted it vigorously. In my judgment this was an unreasonable thing to do because the documents were ineffective for reasons which were fairly clear. In practical terms it compelled the plaintiffs to join as defendants the two other persons against whom (it has clearly been established) they were entitled to recover their losses if they had not succeeded against Perpetual Trustees Victoria. A number of things contributed to the predicament in which the plaintiffs had to bring proceedings, but the use by Perpetual Trustees Victoria of poorly drafted documents containing a blunder which had been exposed in earlier litigation was prominent. 11 I made these hindsight observations while exercising an altogether different power, the power under UCPR 42.1 to order costs. The issues arising under s 129(1) are altogether different and in particular they are not discretionary. My decision that resistance by Perpetual Trustees Victoria was an unreasonable thing to do did not establish whether there was entitlement under s 129(1), and has only a very distant relation to that question. In my view ss 129(1) and 129(2) operate in a complementary way. Subsection (1) is inclusive and its provisions particularly para (a) serve the purpose of protecting persons adversely affected by the operation of the Torrens system; and fault or failure by the Registrar General is not a necessary part of an act or omission which falls within para 1(a). Subsection (2) operates differently; it complements subs (1) in that in the stated cases it excludes compensation which otherwise would fall within an entitlement under subs (1). Although there are references to "any act or omission" both in subs (1)(a) and in subs (2)(a) consideration of context and purpose shows that the reference in subs (2)(a) is not to any act or omission at all of the person suffering damage; such a reading would go far towards depriving the provision of compensation of effect, and would produce some absurd results. The reference must be limited to any act or omission which is in some way a fault, a failure or is otherwise shortcoming in a way which makes it an appropriate ground for limiting the extent of compensation. In some way this is fault-related. 12 The most vigorous contestation at the hearing was on issues involving Mr Miller. In exercising my costs discretion I concentrated on what was reasonable as between the plaintiffs and Perpetual Trustees Victoria. In addressing subs 129(2)(a) I place Perpetual Trustees Victoria's resistance to the plaintiffs' claim in a wider context, four-cornered litigation conducted combatively, and Perpetual Trustees Victoria while enmeshed in that litigation, even if it had a clear view of the likely outcome of its contest with the plaintiffs, was committed to maintaining a combative stance; it could not openly concede its position against the plaintiffs and hope to try conclusions with its other opponents with a successful outcome. I find that costs which Perpetual Trustees Victoria had to pay the plaintiffs, and costs incurred in conducting its own litigation with the plaintiffs are within subs (1) loss which Perpetual Trustees Victoria suffered as a result of the operation of the Act in respect of the plaintiffs' land. Any reduction of the type contended for must be justified under subs 2(a); it should be decided whether defending the plaintiffs' case was an act or omission in the sense of a loss, failure or shortcoming, and if it is it must be determined to what extent the loss is a consequence of that act or omission. In my finding defending the plaintiffs' case was not to any extent an act or omission within subs 2(a). 13 Subject to questions of quantum, I am not prepared to reject claim (a). I will allow claim (b). 14 With respect to claim (c), the position is affected by the concession relating to claims of other parties against Mr Miller - the Registrar General does not say that they should not have sued Mr Miller. The costs incurred by Perpetual Trustees Victoria in pursuing its cross claim against the Registrar General in my opinion fall readily within s 129 (1)(a); some perhaps most of those costs are in any event are payable by the Registrar General under my earlier costs order, but while credit should be given for any amount so paid, and the question of quantum has to be considered, the costs incurred by Perpetual Trustees Victoria in pursuing its cross-claim against the Registrar General are a loss for which Perpetual Trustees Victoria should receive compensation. 15 With respect to claim (d), the cross claim against the State of New South Wales experienced considerable vicissitudes. The Court was asked by the State to strike it out at an interlocutory stage; Associate Justice Macready rejected this application on 16 March 2007. The cross-claim was resolved and dismissed under some agreement between Perpetual Trustees Victoria and the State early in the hearing before me. It was contended that making the claim against the State was a necessary step when it emerged that the Registrar General's defence denied that Perpetual Trustees Victoria's loss was within a recoverable category under s 129(1) and that this made it necessary to address a fault-based claim; and when that part of the Registrar General's defence was abandoned, the claim against the State was also abandoned. 16 The operation of s 129(1) requires consideration of causation of loss or damage. This is raised in two ways – by the words "suffers loss or damage as a result of the operation of this Act in respect of any land" and by the words "where the loss or damage arises from "(the matter in para (a) or some other matter in subs (1)). Senior counsel for Perpetual Trustees Victoria contended to the effect that the enquiry, in relation to legal costs incurred by Perpetual Trustees Victoria, goes no further than to establish what costs Perpetual Trustees Victoria incurred to its lawyers in accordance with its cost agreements with them, and that at no point does assessment or quantification by the court or any process of reviewing the charges for their reasonableness arise. 17 Causation has proved a difficult matter to elucidate, notwithstanding extensive judicial attempts to do so. Recent and valuable elucidation of some of its problems was given in Flounders v Millar [2007] NSWCA 238, 49 MVR 53 by Ipp JA. In tort law Australian authority establishes that a pragmatic approach rather than one founded in a highly defined enquiry is to be taken to causation questions: March v Stramare (1991) 171 CLR 506. 18 Practical limits have to be imposed when deciding causation. At some point which has to be recognized by an assessment based on common sense, facts or events become too remote, or too little connected with an outcome to be treated as causes of the outcome: even though they must have existed for the outcome to occur. In Stapley v Gypsum Mines Ltd [1953] AC 663 at 676 Lord Porter said: Causation is always a difficult topic. One is but using a commonplace if one repeats that many causes have some place in the sequence of events which lead to a result, or follows Lord Shaw in saying that "causation is not a chain, but a net": Leyland Shipping Co. Ltd v Norwich Union Fire Insurance Society Ltd. [1918] A.C. 350, 369; 34 T.L.R. The question always is how far back is one justified in going or how wide a net must one envisage. Doctrine expounded in Stapley v Gypsum Mines Ltd can be clearly recognized in March v Stramare which is authoritative in Australia: the fact-finder is left to rely on common sense to show where influences on the outcome should be seen to have ended. The image of causation as a net and not a chain is an important illustration, but leaves much to the judgment of the fact-finder: in Stapley there are several valuable examinations of earlier judicial opinion, but the House was divided and the majority for the interpretation of the facts which prevailed was narrow. 19 It is usual that many acts, events and influences can be found to have some relation to an outcome, and choices must be made and boundaries drawn so as to exclude some matters from conclusions about causation employed for the resolution of legal problems and decisions. Judgments have to be made about matters of degree, and influences have to be excluded even though it is possible to see that they are not entirely unrelated. 20 The causal test in s 129(1) involves considerations of these kinds, and in relation to legal costs, the best expression I can give to the limit is that the legal costs must, in the context of the relationship between a client and the client's solicitor, have been reasonably incurred in litigation relating to the operation of the Act in respect of land. While the costs which pass the causation test are no doubt ample, they are not uncontrolled or limitless. Aspects of legal work on the litigation which were futile and unproductive fall outside it. It must have been reasonable to perceive that the work should be done and that the charges should be made in the interest of the client and in the circumstances of the time. 21 I cannot regard the facts asserted as establishing that costs, either Perpetual Trustees Victoria's own costs or the costs if any which it has to pay the State, of that cross-claim are loss or damage suffered by Perpetual Trustees Victoria as a result of the operation of the Act in respect of the plaintiffs' land arising from any act or omission to the Registrar General. The connection is too attenuated for it to be concluded that the causal relationships indicated by s 129(1) exist when addressing what the loss resulted from and how it arose. It was not in my finding made necessary by the perception that the defence raised by the Registrar General meant that Perpetual Trustees Victoria should adopt the strategy of bringing a fault-based claim, and of bringing it against the State and not against the Registrar General (who does not appear to be open to fault-based claims but open only to claims against the Torrens Assurance Fund.) That cross-claim had to be defended against summary disposal, was taken to trial and was then abandoned. In my appraisal it was historically but not causally connected with the principal subject of the litigation. In my opinion Perpetual Trustees Victoria is not entitled to recover under claim (d). 22 There are in my opinion indications in the terms of s 129 that a process of examination and assessment is contemplated. This appears from the provisions of subs (2) limiting compensation, which of course can only be applied to what would otherwise be loss or damage and compensation to which there is an entitlement under subs (1). The references throughout the paragraphs in subs (2) to extents – for example in (a) "to the extent to which the loss or damage is a consequence of any act or omission by that person, …" indicate that a process of assessment is contemplated, and it is only by a process of assessment, and not by unqualified application of mathematics or logic, that the extent to which loss or damage is a consequence of act or omission can be established, so that that extent can be applied to the compensation otherwise recoverable. 23 In my opinion the questions relating to causation stated at two places in the opening words of subs (1) should not be addressed on the basis that the whole and every part of the costs incurred by Perpetual Trustees Victoria to its solicitors, and charged in many different charges usually monthly from 27 October 2005 to 29 January 2008, amounting in total to $569,879.23 have exactly the same claim for consideration for their being loss caused by the matters referred to in subs (1). Causal connections in most cases may be much the same or very similar, but the facts, events and circumstances which connect attendances and disbursements relating to legal work with suffering loss as a result of the operation of the Act will not be uniform, and it is well possible, indeed quite likely, that they will have different force in respect of different parts of the work done. Some of the work done may when viewed objectively have been unuseful; some of it may, when viewed objectively, have clearly been unuseful from the beginning; there may have been lines of enquiry or of activity which it was not reasonable to undertake. 24 I am unable to conclude that I would give effect to s 129(1) by simply accepting the amounts of the charges made to Perpetual Trustees Victoria as actually rendered, without examination. A process of assessment is necessary to sever out some of the costs in claim (a), some of the costs in claim (c) and all of the costs in claim (d). I am satisfied that the costs with respect to the cross-claim against the State of New South Wales are not recoverable; a process of examination is necessary to identify and exclude them. A process of examination is also necessary to establish the reasonableness, in the way I have discussed, of the costs which are to be accepted as loss and paid for as compensation. 25 In order to give full compensation for loss incurred in the context of Perpetual Trustee Victoria's commercial dealings I will allow interest up to the date of judgment at the rates in Schedule 5 of UCPR from the respective dates on which payments on account of costs were made on behalf of Perpetual Trustees Victoria to their solicitors: and similarly for the payment of party-and-party costs made to the plaintiffs. If the plaintiffs paid any costs to their solicitors I would allow interest on the same basis. 26 I propose to make an order of reference to a suitable expert person, no doubt a costs assessor, under UCPR 20 Div. 3. I ask the parties affected to consult on the identity of a Referee and the terms of the reference, and to bring forward a draft of an order of reference. If the parties are able to agree on the implementation of the views I have expressed it may not be necessary to settle the terms of my orders. 27 Order: Parties are directed to consult and bring in Draft Order for settlement. ********** 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. 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