Supreme Court New South Wales Medium Neutral Citation: Richtoll Pty Ltd v WW Lawyers (in Liquidation) Pty Ltd [2016] NSWSC 438 Hearing dates: 7.3.2016; 8.3.2016; 9.3.2016; 10.3.2016; 14.3.2016 Date of orders: 19 April 2016 Decision date: 19 April 2016 Jurisdiction: Common Law Before: Hoeben CJ at CL Decision: (1) Verdict and judgment for the defendant. (2) The plaintiffs are to pay the defendant's costs of these proceedings. Catchwords: LEGAL PRACTITIONERS – incorporated legal practice – duty to clients – whether general retainer in existence – terms of retainer – asserted breach of retainer – clients suffering large losses as a result of mortgage lending – torts – negligence – duty of care – whether duty of care included passing all information acquired onto clients – operation of s 5O Civil Liability Act 2002 (NSW) - duty and breach – whether duty extended to advising on valuation of security – whether solicitors should have carried out ASIC search shortly before draw down of loan to company borrower – causation – whether alleged breaches of duty and retainer caused loss – whether clients would have made loans regardless of breach of duty – causation not established - contributory negligence – proportionate liability of solicitors. Legislation Cited: Civil Liability Act 2002 (NSW) – ss 5B, 5D, 5E, 5O Cases Cited: Adeel's Palace Pty Ltd v Moubarak; Adeel's Palace Pty Ltd v Bou Najem [2009] HCA 48; 239 CLR 420 AJH Lawyers Pty Ltd v Hamo [2010] VSC 225 Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1 Booksan Pty Ltd, Jaymay Constructions Pty Ltd v Wehbe, Elmir; GIO General Ltd & GIO Workers Compensation (NSW) Ltd v Webhe, Elmir [2006] NSWCA 3 Citycorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 David v David [2009] NSWCA 8 Dobler v Kenneth Halverson; Dobler v Kurt Halverson (by his tutor) [2007] NSWCA 335; 70 NSWLR 151 Dominic v Riz [2009] NSWCA 216 Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; 247 CLR 613 Kayteal Pty Ltd v John Joseph Dignan [2011] NSWSC 197 Keddie v Stacks/Goudkamp Pty Ltd [2012] NSWCA 254 Kowalczuk v Accom Finance [2008] NSWCA 343; 77 NSWLR 205 Maes Finance Ltd, Mac No 1 Ltd v Sharp & Partners (a firm) [1999] EWHC Technology 209 Midland Bank Trust Co Ltd v Hett Stubbs & Kemp (A Firm) [1979] 1 Ch 384 Minkin v Landsberg (T/A Barnet Family Law) (2015) EWCA Civ 1152 Mortgage Express Ltd v Bowerman & Partners (a firm) [1996] 2 All ER 836 National Home Loans Corp plc v Giffen Couch & Archer (a firm) [1997] 3 All ER 808 Nationwide Building Society v Balmer Radmore (a firm) [1999] All ER (D) 95 Omega Trust Co Ltd v Wright Sun & Pepper (No 2) (1998) PNLR 337 Provident Capital Ltd v Papa [2013] NSWCA 36; 84 NSWLR 231 Rexstraw v Johnson [2003] NSWCA 287 Sydney South West Area Health Service v MD [2009] NSWCA 343 White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164 Winnote Pty Ltd v Page [2006] NSWCA 287; 68 NSWLR 531 Zakka v Elias [2013] NSWCA 119 Category: Principal judgment Parties: Richtoll Pty Ltd – First Plaintiff Ongoing Financial Services Pty Ltd – Second Plaintiff WW Lawyers (In Liquidation) Pty Ltd - Defendant Representation: Counsel: Mr AJ Abadee/Mr EWL Anderson – Plaintiffs Mr DA Priestley SC - Defendant Solicitors: Garland Hawthorn Brahe – Plaintiffs Meridian Lawyers - Defendant File Number(s): 2010/096258 JUDGMENT 1. HIS HONOUR: Nature of proceedings Richtoll Pty Ltd (Richtoll) and Ongoing Financial Services Pty Ltd (OFS) as former clients, sue WW Lawyers Pty Ltd (in liquidation) (WWL), an incorporated legal practice. They seek damages for professional negligence and breach of contract. The plaintiffs were in the business of lending money for investment, secured by real property. OFS retained WWL to provide services in relation to various loans. The nature and scope of the retainer/retainers are in dispute. 1. The claim arises from two transactions. The first in point of time was a loan of $3 million, the security for which was Unit 2, 18 Carlisle Street, Tamarama (the "Tamarama property"). The second in point of time was a loan of $4.5 million to Sanctuary Developments (Australia) Pty Ltd (Sanctuary) which was secured by a second mortgage over partially developed parcels of land at Airlie Beach in Queensland. Factual Background 1. Unless otherwise indicated, I find the facts to be as follows. 2. OFS was incorporated in May 2007 for investment purposes. It had available to it a sum of $14 million which it intended to use for loans secured by real estate which would produce high rates of return. The position of Richtoll, and why it is a plaintiff in the proceedings, was never explained. No point was taken by the defendant in relation to it. Accordingly, I have treated it as simply an alter ego of OFS. It was accepted by the parties that should OFS be successful, Richtoll would share in that success. 3. The principals of OFS were Mr Christopher Richards (Richards) and Mr James Toland (Toland). They had extensive experience in property development, particularly the renovation of property. It was as a result of their success in this area that OFS had a substantial sum available to it for investment. In the course of this activity, they acquired some general exposure to lending for property redevelopments. This exposure was in the capacity of borrowers and only in respect of mainstream commercial loans. Through OFS they were looking to invest via mortgage lending. At all material times Richards and Toland were directors and shareholders in OFS and Richtoll. 4. Mr Mark Williams, solicitor, (Williams) had set up WWL in 2005, trading under the name of 'Worthington Willliams Lawyers'. He was the only principal lawyer, although the firm employed solicitors from time to time. From the firm's inception an acquaintance of Williams, Cumali Arslan (Arslan) commonly known as "Jimmy", was a director of WWL. Arslan was not himself a lawyer. 5. Williams was admitted to practise as a solicitor in NSW in 1983. He worked as an employed solicitor for White Barnes and Maguire until 1988 when he joined Keast Hussein Williams as a partner. Between 1983 and when he set up WWL his work as a solicitor involved litigation including personal injury, commercial and family law. He developed a knowledge of property and commercial legal practice. He deposed that WWL engaged in commercial law, family law and property law. It performed some work for clients who loaned money secured against property and other assets. WWL ceased to trade and went into administration in November 2009. 6. Since that time Williams has resided in the United Kingdom and has primarily worked as a community worker and cricket coach. He does not hold a practising certificate as a lawyer in either Australia or the United Kingdom. He deposed that he did not hold any records of the files of WWL in relation to the services which it performed for the plaintiffs. His assumption was that the liquidator had taken possession of all files when WWL went into liquidation. He said that he had not kept any computer which contained information relating to the work of WWL and had no access to emails sent and received while WWL was operating. 7. In his affidavit of 25 March 2015 Williams described the relationship between WWL and Arslan as follows: "9 I first met Cumali Arslan who was known to me as "Jimmy" at some time in the late 1990s as a family law client. Mr Arslan was regularly involved in property development and financing deals through businesses that he operated. 10 Early on in the life of the firm, Mr Arslan commenced to provide business development services to WW Lawyers as he had numerous contacts who were potential clients. Mr Arslan was not formally employed at any time by the firm. He was remunerated for his services by payments to a company he had set up as I recall a company called Unox. Initially these payments were by way of commission related to client referrals to the firm. He was subsequently paid a monthly fee to Unox for a period of time. 11 Over the years from 2006 to 2009 Mr Arslan worked in the offices of WW Lawyers from time to time. After a period of time he took on some office administrative tasks, taking these over from the previous office manager. He represented himself externally with the authority of the firm, as a Business Development Officer of WW Lawyers. 12 Mr Arslan was not, to my knowledge, legally qualified and did not to my knowledge hold himself out as legally qualified or as a practising lawyer or as capable of providing legal services at all. Nor did I or to my knowledge anyone else represent Mr Arslan as having such capacities." 1. Arslan did not swear an affidavit in these proceedings but provided what was described as an "outline of evidence", the accuracy of which he confirmed when giving evidence. In that outline, Arslan described his position with WWL as follows: "4 When WW Lawyers commenced to trade I provided services to the firm mostly in the form of client referrals and some administrative work. The services were provided through a corporate entity of which I was director. I worked out of WW Lawyers' offices. I was not an employee and was not paid a regular salary." There was also in evidence (exhibit 13) an affidavit of Arslan, sworn 4 February 2011, in other proceedings brought by OFS against him (2010/254012). This document was introduced as MFI 8 during the cross-examination of Arslan. It was, however, subsequently read in the defendant's case. The fact that it predated Arslan's oral evidence by five years gave the document particular importance. 1. What was said at the initial meetings between Richards and Tolland on the one hand and Williams on the other is in issue. The terms of the retainer/retainers under which WWL performed services for OFS and Richtoll are also in issue. 2. On or about 2 August 2007 Williams met Richards for the first time at a lunch arranged in Sydney. The two were introduced by a mutual contact, Ms Ivy Lee, who was present at the lunch. 3. Richards says that his intention in attending the lunch was to secure the services of WWL to assist in the fledgling mortgage lending business of OFS. He said that he had discussed this possibility with Ivy Lee and that she had suggested that WWL was experienced in the area and was suitable to provide a full suite of services to clients. At par (11) in his affidavit of 27 October 2014 Richards deposed that Williams said: "My firm is a small firm that specialises in mortgage matters, due diligence, collecting interest payments and all other matters associated with loan transactions… Basically my firm operates as a 'one-stop' shop." 1. In response to a statement from Richards that he was looking for a law firm that would "check out" the borrower, examine their financials, approve the loan and do all the legals, Richards deposed that Williams said: "It's exactly what we specialise in … We would handle your matters from the womb to the tomb." 1. The only other attendees at that lunch who have provided affidavits in these proceedings are Ivy Lee and Williams. In her affidavit of September 2014, Ms Lee gave evidence of a conversation supportive of Richards' version. In cross-examination, however, it became clear that she was only recalling the general tenor of the discussion. I find that she has no detailed recollection of what was said and in particular, the use of such words as "vetting loans" and "due diligence". Ms Lee was first asked to recall the meeting in which she had no business interest herself, shortly before preparing her affidavit seven years after the event (September 2014). In cross-examination she conceded that she could not recall what was said at the meeting just the intention of the meeting and her perception of it: "Like I say I don't remember exactly the words but I guess when I when I went to do that area of work I guess they were also have to perform the due diligence type of responsibility, I mean that's my perception. In the funding so I guess our perception is that he will probably be cautious to introduce certain clients that are reliable and responsible. That's my perception." (T.120.16) 1. In his affidavit Williams denied that he said that WWL specialised in mortgage management or placement of funds, denied saying that WWL could manage the whole process, denied saying that WWL would be able to vet borrowers and denied saying that WWL would perform "due diligence". Williams denied saying that WWL was a "one stop shop" and that it would handle matters from "womb to the tomb" and denied that it would collect interest payments. He agreed that he may have said that WWL did have some sources for finding potential borrowers and that it could do the documentation for loans and any enforcement that became necessary. 2. It was Richards' evidence that because of his inexperience as a lender, he was looking for a law firm which was capable of providing a wide range of services, which would include the identification of investment opportunities, and would perform "due diligence" by which he meant ascertaining the prospective borrower's servicing capacity and valuing the property that would be the security for the loan. On behalf of OFS he was also seeking that such a law firm would perform associated legal services, which would include the drafting of loan and security documents, as well as the provision of such legal advice as was appropriate to protect its interests. He said that as a result of his discussions with Williams, he believed that WWL would provide such services. 3. It is the plaintiffs' case that not long after the lunch meeting, Richards sent an email to Williams, dated 8 August 2007. Part of that email is missing due to how it was photocopied. The email purported to be sent by Mr Richards and was addressed to "Mark Williams (Vincenza.Barbaro@wwlawyers.com.au). Vincenza Barbaro was a secretary/paralegal in WWL at that time. The content of the email, allowing for the missing parts, was as follows: 1. 2. (exhibit E(1), p25) 3. Williams denied having seen that email before these proceedings. There are some difficulties with this email which I will discuss in due course. 4. It is common ground that not long after the lunch meeting, there was a meeting at WWL's offices. This was attended by Richards, Toland, Williams and Arslan. Williams introduced Arslan to the others at this meeting. There is no issue that Arslan was introduced as the "Business Development Manager" of WWL. What was said at the meeting, however, is in issue. 5. Richards in his affidavit of 27 October 2014 says that at that meeting Williams said: "We are both qualified to introduce investment opportunities, provide legal advice and then package and manage the loans. This is what we specialise in. We can provide you with the full service you are seeking. We source the loans, vet the loans and then do the associated legal documents." In his affidavit of 22 October 2014 Toland says that Williams said: "We source the loans, vet the loans and then do the associated legal documents … Jimmy and I will personally oversee the loan introduction, the borrower's validity and the legal documentation under the umbrella of WW Lawyers." 1. Williams denied saying that "we are both qualified". He denied saying that Arslan had any qualifications. He denied saying that "we were qualified to introduce investment opportunities". He denied saying that "we could package and manage loans" and denied saying that "we would vet loans". He deposed that at most he "would only have said we might be able to introduce borrowers". He agreed that he said that "we could do the work and make sure the security was properly documented". He made similar denials in relation to the words attributed to him by Toland. 2. Arslan in his outline of evidence said that he did not recall Williams saying that he, or they, would source or vet loans. He recalled little of the meeting in his oral evidence. He did, however, give other evidence as to where responsibilities lay which effectively contradicted the statements of Richards and Toland. "Q. You told Mr Richards in or about late August 2007 that this company, Global Consultants Pty Ltd was an entity that was under the law firm, WW Lawyers umbrella, you said that to Mr Richards didn't you? A. Absolutely not." (T.284.46) … Q. I'm just trying to understand what you mean by your understanding as to whether you were legally an employee Mr Arslan, what do you mean by that? A. Well I was working on my own, I was never doing any WW work, that's why. I was always working on my own." (T.286.1) 1. In the Third Further Amended Statement of Claim (3rd FASC), the plaintiffs plead that there was a retainer agreement, presumably of a general nature, arising from these events which governed the relationship between the parties thereafter. This is denied by Williams who contends that regardless of the content of these early discussions, WWL was retained on a matter by matter basis only. 2. There are aspects of the pleaded retainer agreement which are significant. It is alleged that "Mr Arslan and Mr Williams (on behalf of the defendant) and Mr Richards (on behalf of OFS), agreed that … Mr Arslan, OFS and the defendant could and would act on behalf of Mr Richards, NSW Historic of their nominee" to provide various services. As pleaded, these assertions create some uncertainty, i.e. that the retainer agreement apparently involved both Arslan and Williams acting in a manner that gave rise to a retainer and that somehow the retainer agreement involved not only that WWL would act on behalf of Richards and OFS but that Arslan, separately, would act on their behalf as well. As pleaded, it is not certain who the client is said to be. Because of the way in which the case was run, however, I have proceeded on the basis that the client was OFS (which includes Richtoll). 3. The services that are said to have been agreed upon as part of the retainer agreement included identifying loan proposals and "good potential borrowers", included conducting financial and legal due diligence on the borrowers and a number of other services that included drafting documentation, monitoring loans and providing legal and commercial advice. This sets out one of the fundamental areas of dispute in the proceedings. Firstly, there is the dispute as to whether there was any representation or commitment made that WWL would conduct due diligence, vet borrowers and vet any relevant security. Secondly, there is a dispute as to whether and to what extent any representation about Arslan's relationship to WWL was made. There is also a dispute as to the extent to which, if at all, any conduct or omissions on the part of Arslan might either be attributable to WWL or in some manner constitute a breach of duty or retainer by WWL. 4. I have concluded that the evidence is not capable of establishing any general retainer, let alone the terms of such a retainer. In reaching that conclusion, I have had regard to my assessment of the reliability of the witnesses and my finding that generally speaking Williams and Arslan were more reliable witnesses than Richards and Toland, the reasons for which I will set out in due course. 5. I have also taken into account the following matters. Having regard to the passage of time, and the absence of documentation (except for the disputed email), I have considerable doubts as to the reliability of evidence as to detail from the witnesses who attended those meetings. The result is that there is insufficient evidence to confidently make positive findings as to any such retainer. Moreover, even taking the plaintiffs' evidence at its highest, no agreement was reached and no terms were settled upon. This is important because normally a general or overarching retainer is a questionable proposition as a matter of law and requires some precision in the evidence if it is to be open as a finding (Midland Bank Trust Co Ltd v Hett Stubbs & Kemp (A Firm) [1979] 1 Ch 384 at 402). 6. Importantly, however, a general retainer in the terms proposed by the plaintiffs is contradicted by events which occurred shortly after the retainer is said to have been entered into. A retainer in the terms proposed by the plaintiffs is contradicted by subsequent correspondence by WWL to the plaintiffs (exhibit 6) and is not supported by any other documents created by either side. In that regard, I refer specifically to the letter from WWL to OFS of 13 August 2007. That letter (which I find was received by Mr Richards on behalf of OFS) is inconsistent with such a general retainer and had there been such a general retainer in place, its receipt by Mr Richards would almost certainly have produced a complaint or some other remonstrance on his part to Williams. There was no such complaint or even a comment in relation to that letter. 7. I have concluded that at these meetings no more was proposed by Williams than that WWL could provide various legal services relating to loans and could assist clients in arranging for third parties (such as Arslan or associated businesses) to source loans. Although Richards denied that Arslan was discussed at the lunch meeting, Ms Lee recalled that he was. Notwithstanding my earlier finding about the reliability of her recollection, it is unlikely that she would have recalled or made reference to that name if it had not been raised during the lunch meeting. It seems likely that Arslan was mentioned as someone who could provide certain services separate from WWL. 8. It follows from the above that I view the email of 8 August 2007 with some suspicion. Its contents are simply too convenient for the plaintiffs' case. Like the oral assertions of Messrs Richards and Toland, its content is not consistent with correspondence subsequently sent by WWL to OFS and Richards. Oddly it suggests that Arslan was discussed at the lunch meeting, a proposition which Richards denies. The fact that the email was sent to Ms Barbaro at such an early point in the relationship between WWL and OFS is also odd. I am not satisfied the email was sent to WWL. I am also not satisfied that it was received by Williams. Judging from subsequent correspondence, had such an email been received by Williams I am satisfied that he would have responded to it in a way which traversed some of its assertions. 9. In any event, over the following months OFS engaged WWL to provide services with respect to several loans which it made to third party borrowers totalling several millions of dollars, usually for short terms at high interest rates, secured by real property. The plaintiffs sue WWL with respect to two of these loans. I find in accordance with Williams' evidence that a separate retainer was entered into between WWL and the plaintiffs for each loan transaction. The Tamarama loan 1. Arslan purchased the Tamarama property in 2003. In 2006 Williams provided legal services in connection with Arslan's refinancing of his loan with his lender, La Trobe Capital Mortgage Corporation Limited (La Trobe). The Tamarama property was security for a loan from La Trobe in the amount of $1.8 million. Documentation from La Trobe indicated that in August 2007 Arslan was in arrears and had been subject to two late payment fees. At that time the balance of the loan owing was $2 million and La Trobe was taking steps to gain possession of the property as mortgagee (exhibit E1, p427). 2. In May 2007 Arslan procured for himself a valuation of the Tamarama property. The valuation indicated that the property was worth between $2.5 - $2.9 million with the upper figure reflecting a value upon completion of certain improvements. Although the valuation was ordered on behalf of WWL, it is clear from the signature on the requisition for the valuation that it was signed by Arslan. Williams denied having ordered the valuation and denied having seen it before the loan transaction in relation to the Tamarama property was finalised. I accept Williams' evidence on this issue and am satisfied that he neither ordered the valuation nor saw it before the finalisation of the loan. There was no reason or occasion for him to have seen the valuation and it was not put to him that he had. 3. Richards deposes to a conversation in which Arslan represented that he had conducted his own research into the value of the Tamarama property. In his affidavit of 27 October 2014 Richards said: "16 … I said: "Have you done the research as to the value of the property?". Mr Arslan said: "I have done the research, I have got a valuation up to $3.7 million and once it is renovated it will be up to $4 million, it is a prime development site. I have checked the assets and liabilities of the owners and it is a great deal for OFS." "The security is a prestige apartment with potential for capital gain. It is a safe investment, they just haven't been able to fund the building work. The LVR is 75-80% and the rate is 23% and its short term for capital enhancement. It's a family property and there will be no problem with repayments. I have viewed a valuation. It is an excellent opportunity." I said: "What are the building works?" Mr Arslan said: "Better access for parking and balconies and some renovations." I said: "Okay, if you have done the work on it and you advise it is a good deal, have Mark [Williams] prepare the loan and mortgage documents for James and I to review." Mr Arslan said: "That will be done"." Richards agreed in cross-examination that, on the basis of that conversation only, he instructed Arslan to have Williams prepare the relevant loan and mortgage documents. 1. The plaintiffs allege that in August 2007 at some time after the earlier meetings at the restaurant and the offices of WWL, Arslan contacted Richards with a proposal for a loan of $3 million by OFS to the owner of the Tamarama property. There is a dispute whether Arslan made it clear to Richards that he was the owner or represented that the owner (and proposed borrower) was merely a relative of his. Richards says that at this time he knew Arslan as "Jimmy" while the subsequently executed loan documentation named Arslan by his proper first name, Cumali. 2. There were three units in the block at Tamarama. Arslan owned the middle unit. It was that unit which secured the loan with OFS. The payment of $57,500 to OFS on settlement represented a pre-payment of interest. The interest rate provided for under the loan agreement was high, being 23% per annum standard rate and a default rate of 28%. 3. There is an issue as to the capacity in which Arslan was acting in his dealings with Richards. Richards asserts that he understood that he was dealing with Arslan in these matters as a part of WWL and not as somebody independent of the firm. In cross-examination the following evidence was given: "Q. I suggest that you considered that at that time, that's at the time that you had the conversation with him, about Tamarama that you understood that his relationship with WW Lawyers was informal, what do you say to that? A. Not correct. Q. You understood that it was something of a consultancy? A. Not correct. Q. Have you ever said anything to that effect? A. I've never been asked." (T.40.8) 1. In the course of that cross-examination Richards was shown an earlier affidavit which he had sworn in these proceedings on 20 April 2010. His attention was drawn to the following paragraphs in that affidavit: "5 Jimmy, whilst in his employ at WWL as a Business Development Manager of some sort introduced OFS to the Sanctuary mortgage and their need for funds. … 21 Jimmy was on an informal arrangement as what I believe to be a consultant and Business Development Manager for WWL. … 23 I then called Jimmy and we had a discussion and said words to the following effect to each other: Chris: "I've spoken to my business partner James and we have agreed to loan the funds that Highrange requires. Please arrange for Worthington Williams Lawyers to prepare the mortgage documents." Jimmy: "OK I will do that. I will also use one of my companies, Global Consultants Pty Limited who provides consultancy services to do the research on the deal and the valuations." Chris: "OK I have no issue with that. Please proceed to prepare the documents."" 1. Having been taken to those paragraphs, the following cross-examination of Richards took place: "Q. At the time that you swore this affidavit you did consider that the arrangement was informal between him and WWL? A. On this particular loan it's possible. Q. Mr Richards, are you suggesting that you thought the arrangement was different for this loan than in general terms? A. At the time I - when we did the other loan it was certainly not the case. This one I just don't - I can't say, I don't recall what circumstances were here. This was another loan. Q. Mr Richards, when you said at paragraph 21 "Jimmy was on an informal arrangement" you were talking about your understanding of his arrangement with WW Lawyers at around that time, correct? A. Well this was a different loan, and I just can't recall the circumstances of this loan. Q. You say in paragraph 20 above it "in or around mid to late September 2007 I was approached by Jimmy" do you see that? A. Yes. … Q. Do you think, do you, that your understanding of what the arrangement was changed in between the Tamarama loan and the High Range loan? A. It was a different loan, I just can't recall the circumstances with it." (T.41.5 - .31) 1. Apart from that material placing doubt on Richards' "understanding" of the position of Arslan, Toland's evidence as to his understanding supported Arslan's activities being independent of WWL. "Q. I want to suggest to you that in that meeting, it was made clear to you that Mr Arslan would have one role and the law firm would have another, that is right, isn't it? A. That would be my understanding, because he is not a lawyer, I was relying on the legal veracity of Mr Williams and the other lawyers associated with the office, and I was relying on Mr Arslan to give good advice in that regard, finding suitable loans." (T.168.42) 1. Later in his evidence Toland said: "Q. But you did expect, didn't you, in relation to the loans that OFS made in 2007 that Mr Arslan would charge money in some way? A. He did when these loans were entered into. He got a fee from it." (T.171.32) 1. It was evident that OFS understood that Global Consultants Pty Ltd (Global) had been incorporated to provide services in relation to loans, separate from the law firm. Global was incorporated on 24 August 2007 with Arslan as a 50% shareholder and as its director. There was a 50% shareholding by a company controlled by Williams and his wife but the control of Global clearly lay with Arslan. Even though Global was providing services separate from the law firm, there was no change to the arrangements between WWL and OFS as a result of its incorporation. 2. Richards was reluctant to concede any obvious distinction between Arslan's role and that of WWL. He initially attempted to rely upon the fact that Global was not incorporated at the time of the Tamarama loan, but when it was pointed out to him that no change in WWL's responsibilities apparently arose from this (i.e. Arslan must have been providing these services, whatever they were, as an individual separate from the law firm from the beginning) he resorted to the proposition that Arslan and Global were operating under "the umbrella" of WWL. There is no support for that proposition in any of the documents and it is contradicted by the letters of limitation of retainer sent by WWL in respect of every loan (exhibit 6). 3. The prevarication of Richards on this issue can be seen in the transcript when he was cross-examined about the contents of paragraph 23 in his affidavit of 20 April 2010, which is set out at [39] - [40] hereof. The cross-examination of Richards on this issue continued as follows: "Q. You said, "Okay, I have no issue with that", do you see that? A. Yes. Q. This is September 2007. That was entirely inconsistent with your understanding of what WW Lawyers were going to provide to your companies in relation to each of these loans, isn't that right? A. Well, Global was a company set up to handle specifically our loans, that was told to us it was covered by Worthington Williams. Q. I am suggesting that when Jimmy Arslan said to you that, "Another entity was going to do the research on the deal and the valuations", that was entirely inconsistent with what you expected for your loans, isn't it? A. Well, I can't recall when Global was set up but I don't think they owned existence on it when Tamarama was going through. … Q. That was entirely inconsistent with what you expected at that time still, wasn't it? A. No, when High - when Tamarama, we were doing the loan with Tamarama, we had an understanding of what the company was going to do, quite specific. This is different to the Tamarama loan. Q. There was a change, was there? A. Only that he is saying, it is Global that is doing it here, or I was saying it. Q. There was some change in your understanding of what WW Lawyers was going to do, was there? A. No, no, they were still to do the same. Look after our loans. Q. But now someone else is doing the research work, is that right? A. Well Global, it is the same, Global is doing it, yes, but our understanding was that Global was doing the work for Worthington Williams or in - they were under their umbrella. Q. That is not what Jimmy said there at all, is it? A. Well, that is what he is saying, is that Global was doing the work. Q. Yes, nothing about under the umbrella or any association with WW Lawyers at all? A. That was previously discussed about the umbrella of Worthington Williams. Q. Here he said, you say, "I will also use one of my companies, Global Consultants, who provide consultancy services", that is what he said, isn't it? A. I don't recall that, but that is there. Q. Do you doubt the words in your affidavit now? A. No, if it was said that is there, that is correct." (T.43.20 - 44.17) 1. While both Richards and Toland used the expression "umbrella" and Richards initially testified that the term had definitely been used in discussions with Williams and Arslan, both conceded that it may not have been an expression that was ever used at the relevant time (Richards T.97.45, Toland T.169.25). Arslan firmly denied it (T.284.49) and it was not put to Williams. There is no basis in the evidence for a conclusion that Williams had anything to do with the activities of Global. Although a company controlled by him was a shareholder in Global, Williams received nothing from it (T.216.49) and there was no suggestion that he did any work in it or for it. 2. As already indicated, the differentiation between the functions performed by Global and WWL was made clear in the letters from WWL to OFS in the case of each loan (exhibit 6). WWL was providing services in relation to the preparation and execution of loan documents whereas Global was providing other services which included sourcing clients who required loans and providing commercial advice in relation to those loans. This is evident when one compares the fees charged by WWL in relation to each loan (which were modest) with those charged by Global which were $10,000 in relation to the Tamarama loan, $39,450 in a matter of Schneller Family Trust Pty Ltd, $10,891 in a matter of Tollan Real Estate Pty Ltd and $230,625 in relation to the Sanctuary Loan (exhibit 1). I find that there was no misapprehension on the part of Richards as to the role of WWL and that of Global. I find that Richards was well aware that when providing commercial advice to him, Arslan was acting either on his own behalf or on behalf of Global or one of his other companies and not on behalf of WWL. I find that Global was not operating "under the umbrella" of WWL. I find that the activities of Global were quite separate to those of WWL. 3. An important document when considering the Tamarama loan is the letter from Williams to OFS of 13 August 2007 to which reference has already been made (exhibit E(1), p 379). It is necessary to set out the letter in full. It is addressed to OFS and to Mr Richards as a director. Mr Richards initially said that he did not receive the letter (Affidavit, 27 October 2014, par 19). In par 3 of his affidavit of 1 September 2015 Richards said that he had no recollection of having received the letter and confirmed that under cross-examination (T.64 - 65). 4. The letter is as follows: "Re: CUMALI ARSLAN ADVANCE FROM ONGOING FINANCIAL SERVICES Security: 1/18 Carlisle Street, Tamarama We refer to our recent discussions. We confirm that your company has agreed to lend Cumali Arslan a sum of $3,000,000 upon various terms and conditions. We further confirm your instructions for this firm to act on the company's behalf in respect of preparation of the loan transaction documentation and upon settlement thereof. Enclosed herewith is a draft of each of the following: 1. Proposed Loan Agreement, and 2. Proposed Mortgage Please contact the writer to discuss same. We advise that this firm has acted on behalf of The Borrower in various transactions. The Borrower is currently a client of the firm. We have advised him, in writing, that we act on your behalf in respect of this transaction and are unable to advise him in respect thereto. If you have any queries and, in particular, if you have objections to us acting on behalf of the company in respect of this transaction, please immediately advise the writer of same. We note this firm has not conducted any due diligence in respect of this transaction and is not prepared to take any responsibility in respect thereto. We advise you should rely upon your own enquiries in this regard. If you have any queries please do not hesitate to contact the writer. Most importantly, kindly advise as to whether the documents enclosed herewith reflect the agreement contemplated." 1. The letter sets out in clear terms the understanding of WWL as to its retainer in relation to the Tamarama loan, i.e. "We further confirm your instructions for this firm to act on the company's behalf in respect of the preparation of the loan transaction documentation and upon settlement thereof". It specifically excluded the carrying out of any due diligence. As already indicated, there was no subsequent complaint or comment by Richards as to that articulation of WWL's retainer in respect of the Tamarama loan. I find that WWL's retainer in respect of the Tamarama loan was as set out in that letter. 2. The contents of that letter are to be contrasted with the evidence of Richards in cross-examination that he did not think that he was actually provided with a draft agreement and that he did not recall receiving it: "Q. But you were provided with a copy of the loan contract at some time before you signed it, correct? A. The day we were signing it I recall, and it was explained to us by Mark Williams and it was signed. … Q. Yes, have you ever complained to anyone that the draft you saw of that contract did not have clause 9 in it but when you came to sign it, it did? A. Well we didn't really receive a draft, we just were explained by Mark Williams it was a standard document and James and I signed it. Q. I am just asking you if you have ever complained to that effect to anyone? A. Only to our lawyers when litigation was started. Q. That you had seen a draft without clause 9? A. No, I had never seen a draft. It was explained to Mark - by Mark Williams at the time we signed it, he went through the mortgage document and we signed it. Q. You say you went through the mortgage document, we are talking about the loan agreement for the moment, he went through that with you, did he? A. Yes. Q. He pointed out clause 9 to you? A. No, no he didn't, he said it was a standard document and that was all we did, we signed it. Q. When you say he went through it with you then, what did you mean? A. Well, it was a standard document, it was a standard mortgage document? Q. What did he do? A. He showed us where to sign and we signed. Q. He didn't say anything about the document? A. Well, he explained it was a mortgage document and he went through what property it was for, et cetera, and then we signed it." (T.63.31 – 64.22) 1. As claimed in the 3rd FASC and as is clear from the above cross-examination, one of the complaints by OFS is that a clause (clause 9) was inserted into the Tamarama loan agreement without the knowledge and consent of Richards and Toland. Richards' evidence is that he did not receive a draft of the loan agreement but that he and Toland were invited to sign a document which they had not previously seen and which they did not read at the time they signed it. Toland's evidence is that he did not sign the loan agreement and that no-one explained it to him, nor was he told about the insertion of clause 9 in it. Implicit in that evidence is that neither Richards nor Toland had any discussions with anyone (including Arslan) concerning the content of the Tamarama loan agreement. Despite his earlier evidence about Williams "going through" the loan/mortgage document, the final position adopted by Richards was that there was no explanation of the loan agreement and that they were simply asked to sign it. This he did without reading it. 2. That last assertion was conceded by Williams who agreed that there was no oral or written advice to OFS, Richards or Toland about the terms or effect of the loan agreement. Whereas in some circumstances that might be an issue, it does not matter greatly in this case since the only clause of which the plaintiffs complain is clause 9. 3. I am satisfied that the letter from WWL to OFS of 13 August 2007 (exhibit E(1), p379-80) was not only sent by WWL but was received by Richards on behalf of OFS. On that issue, I prefer the evidence of Williams to that of Richards. The evidence of Williams is supported by the contents of exhibit 6, which consists of similar "retainer" letters sent by Williams to OFS (Richards) in relation to other loans. The letters follow a generally similar format. It was never put to Williams that he did not send the letter. No reason was put forward as to why, if Williams sent the letter, it would not have been received by Richards. 4. The letter is important in a number of other respects. One of those is the credit of Richards. It places considerable doubt on his evidence as to the content of the conversations with Williams at the lunch meeting and the initial meeting at the offices of WWL. It places in doubt the email of 8 August 2007. It places in doubt his evidence that no draft agreement or mortgage document were sent to him. The fact that there was no response to the letter, nor to the other letters to similar effect in exhibit 6, is consistent with the contents of this letter and those letters being in accordance with Richards' understanding of the retainers between OFS and WWL. 5. The plaintiffs allege that the whole of clause 9 of the loan agreement was included without any consultation with Richards or Toland. It is common ground, as Williams conceded, that no advice was given by WWL to the plaintiffs, or anyone on their behalf, as to the terms or effect of clause 9. Clause 9 was in the following terms: "9.1 In the event The Borrower is in default in respect of any payment due under this Agreement for a period of four (4) consecutive months, and The Lender has not exercised its rights under Clause 3 hereof, then The Lender, at its sole discretion, may notify the borrower, in writing, that The Lender requires The Borrower to transfer to The Lender all his right, title and interest in The Security and The Borrower shall so effect such transfer within 14 days of the date of any such Notice. 9.2 In the event The Lender exercises its option pursuant to clause 9.1 hereof, then such transfer shall be in full and final discharge of all obligations of the Borrower under the Agreement. 9.3 The Lender shall be responsible for all costs and stamp duty payable in respect of any transfer effected pursuant to Clause 9.1 hereof." 1. Williams and Arslan say that the insertion of clause 9 in the loan agreement occurred at the request of Richards. Arslan says that the request for its insertion was made to him by Richards and that he passed that request onto Williams (exhibit 7, par 16). Williams says that both Richards and Arslan specifically requested that clause 9 be inserted in the loan agreement (exhibit 10, p11, par 35). In cross-examination Williams said that after he had been told by Arslan to insert clause 9, he confirmed that instruction by speaking to Richards (T.254.1). Williams said that Richards made it clear to him in discussions at the time that he understood the meaning of clause 9 (T.254.47). 2. Clause 9 is straightforward in its terms and would be readily understood by a literate non lawyer. Richards conceded that he understood the effect of the clause when he read it. "Q. But you have had plenty of opportunity to read it since then, haven't you? A. Yes. Q. You haven't had any trouble understanding it, have you? A. No. Q. The effect of it is simple, correct? A. Yes. Q. We are talking about clause 9? A. Yes." (T.54.36) 1. The effect of clause 9 is fairly simple in mechanical terms. It provided that if the borrower fell into default in respect of repayments for four consecutive months then the lender held a unilateral option to take title to the security property by means of requiring its transfer by the owner/borrower. Such a term had the effect of circumventing the ordinary requirement for a mortgagee lender to follow the process of mortgagee sale to discharge the outstanding debt. It had thereby the potential to save time, effort and cost to the lender in the case of default by the borrower. It also had the obvious potential for financial gain to the lender if at the time of the exercise of the option, the security property was of a market value greater than the outstanding debt. 2. There was, as the experts noted, a notional risk for the lender in sub-clause 9.2 which provided that if such a transfer were effected, it would be in full and final discharge of the borrower's obligations under the agreement. If the lender exercised the option at a time when the value of the property was less than the outstanding debt, then the lender would ostensibly suffer loss. It was never suggested by Richards that he did not understand this aspect of clause 9. Even then it was only OFS which could exercise the option. 3. In order to understand the events which transpired between the parties relevant to clause 9, it is necessary to say a little more about the Tamarama loan. The transaction settled on 22 August 2007 when the loan monies of $3 million were advanced. On settlement the cheques were drawn as follows: 1. WWL Trust account - $150,000.00 2. WWL - $2,120.00 3. Office of State Revenue - $8,000 4. La Trobe - $1,820,000.00 5. La Trobe - $204,756.80 6. Pocheptsova Olga - $120,000 7. Hansons Lawyers - $2,683.67 8. OFS - $57,500.00 9. Cumali Arslan - $634,849.53 The explanation for those cheques is set out in a three page letter, dated 22 August 2007, from WWL to Richards on behalf of OFS which reported on the settlement of the loan transaction (exhibit E(1), pp240 – 242). Annexed to the letter is a Memorandum of Fees from WWL to OFS in the amount of $2,120 for acting on the loan transaction. 1. I find that Richards requested that a clause in the form of clause 9 be inserted in the loan agreement. It was agreed by the experts that this was an unusual clause. It is a surprising, if not an extraordinary, proposition that any solicitor in a loan transaction would insert an unusual clause in the loan agreement without the consent of the client particularly if he or she did so without explaining the clause. This is particularly so when dealing with a new client. Richards' evidence of signing the loan agreement without reading it in total reliance upon WWL, is also surprising. 2. The absence of any complaint or even comment by Richards subsequent to the completion of the Tamarama loan transaction tends very much against an acceptance of Richards' evidence on this issue. On the contrary, subsequent events suggest strongly that not only was Richards well aware of the presence of clause 9, but sought to exploit it in due course. 3. As the experts agreed and as is apparent from the terms of the clause, it favoured OFS. There was only a limited circumstance in which it would favour the borrower, which would have been obvious to Richards. Moreover, the initiative for activating clause 9 was solely in the control of OFS. 4. Finally, there was evidence of Richards requesting the insertion of a similar clause in a later loan agreement. While that later document speaks for itself, the evidence of Richards in relation to it is of importance. It supports the evidence of Arslan and Williams in relation to clause 9 and it provides another indication of Richards' unreliability as a witness. "Q. You would, from time to time, instruct WW Lawyers to insert specific types of clauses into loan contracts, wouldn't you? A. No. … Q. You never did anything like that? A. No. Q. Can you just please turn in the large bundle that you have to page 848, which I think is in number 3? You see at 848 in the plaintiff's tender bundle there is an email from you to Jimmy Arslan dated 25 February 2008, do you see that? A. Yes, I do. Q. I suggest that this reflects there, at point 1, you asking for particular clauses to go into legal contracts, do you accept that? A. I don't recall the clauses. Q. Yes, but do you accept that it shows you asking for new clauses to go into a contract? A. If they were relevant to the contract and the conditions of the contract, we would have discussed that. Q. You were asking for clauses to go into a contract? A. Well I don't recall what the actual clauses were, if I could see the clauses then I could explain how they were instructed. But if you are doing a contract, you discuss the price or the deposit conditions or whatever it is you are putting in, that is classified, I would imagine, as a clause. …" (T.54.47 – T.55.29) "Q. Can you see there that you are asking Mark Williams to insert a particular option clause in a contract? A. Well, I would more say they are conditions of the contract. Q. You call it an option? A. Yes. Q. Going down in that same email, if your eyes can find the line that starts, "Mortgage money", it is up about seven from the bottom? A. Yes. Q. Then the sentence starts, "There will be another clause stating that we can exercise the option at any time and take over the property".? A. Yes. Q. You see that? A. Yes. Q. That is what you wanted, correct? A. Yes, yep. Q. This email records you instructing your solicitors to insert particular types of clauses into contracts, doesn't it? A. I think after long discussions with Tony Flighter and that we had agreed on the conditions of where it was heading that was my understanding for the clauses to be put in. Q. Do you accept now that from time to time, you would instruct your lawyers to insert particular clauses into contracts? A. Well of course that would have been subject to me discussing it with Mark Williams. … Q. In any case, when you said, "There will be another clause stating that we can exercise the option at any time and take over the property", you were telling Mark Williams what should be in there, that wasn't something that he had advised you about, isn't that right? A. Well, I don't - I mean, we were a second mortgagee, I don't see how we could have taken the property over at any time. Q. It seems very similar to clause 9 in the Tamarama agreement, doesn't it? A. Well I would have to see it in context, I mean, it is unfair to sort of say, "Well look, stretch your memory on this and tell us all", I just don't recall the actual context of it. …" (T.56.50 – 58.10) See also exhibit E(3), p848 and exhibit 11, pp8, 26. 1. The events which transpired between the parties in relation to clause 9 were not uncomplicated, but support the proposition that Richards requested the insertion of clause 9 and in due course sought to activate it until dissuaded by Mr Kendall (Kendall), an accountant retained as a consultant by OFS in late 2007. 2. After the initial drawdown of the $3 million loan, Arslan made no further repayments of principal or interest beyond the pre-payment of $57,500. This failure was perhaps predictable since it was never Arslan's intention to continue to hold the property and make loan repayments for any significant period of time. When the default occurred, there is no evidence of Richards or OFS taking any action against Arslan immediately, other than engaging Kendall to investigate the position. 3. In about February 2008 Arslan advised OFS that he had located a purchaser for the Tamarama unit. The purchase price was $3 million. Contracts for Sale of the unit at that price were exchanged with this purchaser. 4. Because of Arslan's default and the existence of clause 9, OFS acquired certain rights. At some point before settlement of the purchase, Richards communicated to Williams and Arslan that as in effect the equitable owner of the unit, OFS did not wish for the sale to proceed. Just why Richards adopted that position is contentious. According to both Williams and Arslan, Richards intervened and requested that the sale contract be rescinded because Richards had decided to attempt to acquire all three units in the block and develop them further, thereby maximising the capital gain. 5. In his affidavit in reply on this subject (1 September 2015) Richards says that the purchaser was in default under the Contract for Sale in not having paid the requisite deposit bond by the required date (which would seem to be true). Richards says that this was of particular concern because Arslan had advised him that the purchaser did not have finance and was looking for vendor finance from the equitable owner, OFS. Richards considered this to be no more than an attempt by Arslan to shift the exposure for his debt onto OFS. In correspondence with OFS, Williams and Arslan note that the failure to pay the deposit bond in time should not have been fatal to the sale proceeding, rather it was the change of heart on Richards' part only. 6. Richards denied that he had an intention to develop the whole block at the time of rescission but it is clear that he did from the contemporaneous correspondence (exhibit E(3), pp884 and 886). It is also clear from correspondence that despite his oral evidence (T.105), the purchasers were in a position to pay the deposit having earlier handed over cheques which they suggested be banked (exhibit 8, exhibit E(3), pp862 and 869). Both Williams (T.257.37) and Arslan (T.306.12) recalled that this was the case. 7. Despite Richards' denial, it is apparent that on or about March 2008 Richards requested Arslan to sign a transfer of the Tamarama unit naming OFS as the transferee and the sale price as $3 million. Williams and Arslan were both definite that this occurred in early 2008. Neither had any ongoing reason to lie about this. A contemporaneous email from Arslan to Richards of 25 March 2008 confirms this request and action (exhibit E(3), p886). This was not contradicted by Richards (T.114.12 - .43). The transfer was given to Richards and no copy survives. These actions of Richards are not consistent with those of a person who had clause 9 inserted into the loan agreement without his knowledge and consent. 8. The following extracts from correspondence provide a snapshot of what was happening in relation to the Tamarama property after Arslan had defaulted in his interest repayments and contracts for its sale had been exchanged: Letter Williams to Richtoll Pty Ltd (Richard and Toland), 3 March 2008. "… Unit 2/18 Carlisle St, Tamarama We refer to the telephone conversation between Chris Richards and our Mr Warda today. We confirm your instructions to rescind Agreements for sale of the abovementioned property on the basis of the failure to pay deposit monies in respect of each sale. These instructions will later modify, in that, queries our Mr Warda as to whether those Agreements could be put "on hold". We confirm our advice that the latter is not possible but that very comment has made us uncertain as to your instructions. Shortly after receiving your instructions, we received correspondence from the solicitors for the purchaser. Enclosed herewith is a copy of same. As you will appreciate, that correspondence indicates an intention to rectify the default giving rise to the option to rescind. Accordingly, there may be an argument that you are no longer entitled to rescind but on balance we think that argument will fail. In the event that the purchasers argued that the rescission was unlawful then they could take action for the specific performance of the Agreements which would involve you in protracted and costly litigation. Please be aware that you, as effective vendors, are entitled to 0.025% of the deposit in circumstances of rescission. However, as we are not holding any deposit you would obviously have to commence litigation to recover that entitlement which would not be cost effective. If you require us to commence such proceedings, we would require your instructions. In respect of the Tamarama property, we understood that sale was to effect a repayment of the loan to Ongoing Finance and that the real vendor was selling the property as trustee for that company under what would otherwise be a power of sale but to avoid formal proceedings in that regard. If that Agreement is rescinded then that raises the issues as to the enforcement of the loan and we require your specific instructions in that respect. As we recollect, without specific reference to the Loan Agreement, the lender is entitled to take title to the property if the borrower is in default as defined under the Loan Agreement. In any case, we would appreciate if you would both contact the writer in order to provide to him your instructions as to rescission. We will not rescind any Agreement unless and until we receive those instructions. We look forward to hearing from you. Yours faithfully, WORTHINGTON WILLIAMS LAWYERS Mark F Williams Solicitor" (exhibit 10, pp31-32) Letter to Directors OFS from Warda,14 March 2008. "We refer to recent communication. 1. Loan to Tamarama: As per your instructions, the contract has been rescinded, we have had severe protest from the purchasers of the said property including the two properties in Point Piper, to the extent that caveats were issued by the purchasers across all three properties. These caveats were only then lifted after our law firm had various discussions, also, when Mr Arslan conferred directly and privately with the purchasers. …" (exhibit 10, p33) Letter to Directors OFS, 20 March 2008. "We refer to an email we have today received from Chris Kendall ("Chris K"). Enclosed herewith is a copy of that email for easy reference. We note the writer had a telephone conversation with Chris Richards ("Chris R") on 6 March, 2008, where it was agreed that whilst this firm was authorised to liaise with Chris K in respect of loans made by Ongoing Financial Services Pty Ltd ("Lender") we are uncertain as to whether those instructions extended to taking instructions direct from Chris K in respect of action to be taken on any loans. We would appreciate if both Chris R and James Toland ("'James") would clarify that position, in writing, so that we certain from whom our instructions are to be given. During the course of that telephone conversation, Chris R dictated a letter to this firm stating that all correspondence and documents were to be sent to him at his email address and his business address in Maitland. This was to avoid duplication, as has occurred in the past, and so that all documents were stored in one place. That letter was to state that if Chris K or James wanted documents they were to first ask Chris R before making any request to this firm. We did not receive that letter. Please clarify, in writing, to whom correspondence and documents are to be sent. In respect of the progress of each loan, and with particular reference to the email of Chris K enclosed herewith, we advise/comment as follows:- 1. We assume the instructions from Chris K are as a result of a Schedule recently forwarded to Chris K by Cumali Arslan ("Arslan") as to the position of each loan. We understand that Schedule to be correct. We would appreciate if you would clarify as to whether those instructions do arise from that Schedule. This law firm also forwarded that Schedule on 14 March, 2008. This is important so that we are all aware of the basis of your instructions. This letter should be read in conjunction with that Schedule and our letter of 14 March, 2008. … 8. Loan to Arslan: We confirm the instructions of Chris R, during his telephone conversation with the writer on 6 March, 2008, and before, as follows:- (a) An Agreement for Sale of the security was entered into for $3 million. You instructed us to rescind that contract, together with two other contracts. That Agreement was entered into Arslan, as Vendor, and he confirmed that the rescission should take place as he held the property on trust for the Lender. Accordingly, the Agreement was rescinded and the purchaser appears to have accepted the rescission. We did not provide you with any advice as to whether the rescission was appropriate but only carried out your instructions to do so. You appeared to be under the impression that the Loan would not have been paid out in full. This is perhaps so from the sale price but this does not mean the sale would have completed in the absence of further payment. We were only informed that this was your impression on 6 March 2008, after the rescission had been effected. (b) The Lender does not wish to take enforcement proceedings at this stage. (c) The Lender was prepared to hold onto the security, albeit in the name of the Borrower on trust for the Lender, because it was of a view that the property could be developed and a financial gain thereafter achieved. (d) In order to maximise the development potential, the Lender was to liaise with Arslan as to acquiring al apartments on the site. We note that you were to confirm these instructions in writing but as yet we have not received same. Until we receive your instructions in writing we will take no further action. We understand that you have today given instructions to Arslan to undertake certain tasks. Accordingly, we understand you may not be in a position to instruct us to take action, if any, until those tasks are completed. … WORTHINGTON WILLIAMS LAWYERS Mark F Williams" (exhibit 10, pp36, 37, 39, 40) Letter to Directors OFS from Williams 28 March 2008. "We refer to our letter of 20 March, 2008, a copy of which we herewith enclose. We have not heard from you direct in respect thereto. By way of update, we advise as follows: … 7. Loan to Arslan: We are awaiting your instructions as per our abovementioned letter. We also note that we have not received instructions from you in respect of matters referred to in our abovementioned letter for the general conduct of loans (we refer to paragraphs 3 and 4 of our abovementioned letter). Please respond thereto. We look forward to hearing from you. Yours faithfully, WORTHINGTON WILLIAMS LAWYERS Mark F Williams" (exhibit 10, p43) 1. Kirath Ramrakha (Ramrakha), an employed solicitor with WWL, gave evidence that Richards again sought a transfer from Arslan in mid 2009. Richards denies this but there is little reason to doubt the independent witness. It was not put to Ramrakha that he was lying or mistaken (T.315). The evidence revealed that Ramrakha swore an affidavit and provided a letter statement (exhibit 9) to the same effect in 2010. It is clear that the transfer was discussed between them from an email of 24 July 2009 (exhibit 2) yet Richards would not admit that this was so (T.122.30). 2. The context in which this evidence is important is that OFS alleges that as a result of the inclusion of clause 9 in the Tamarama loan agreement, it suffered loss in the form of the unpaid loan principal and legal costs in the dispute with Arslan. Evidently no steps had been taken to register the transfer provided in early 2008. In this regard, the 3rd FASC pleads: "At various stages in 2008 to 2010, Mr Arslan purported to exercise the option clause so as to limit his liability under the Tamarama Loan Agreement." (3rd FASC, par (19)). This allegation appears to misunderstand the effect of clause 9 in that the only person who could exercise it was OFS. In any event, the plaintiffs' evidence seems to deny that anything was done by anyone to effect a transfer. The only evidence to the contrary is that called on behalf of the defendant which makes it clear that Richards on behalf of OFS was the moving party. 1. There is an issue concerning whether a representation as to the value of the Tamarama property was made by another employed solicitor of WWL. Richards gave evidence that before the execution of the loan documentation, he spoke to John Warda (Warda), a solicitor then in the employ of WWL. He says that Warda said to him: "I have sighted the valuation and it is in excess of $3.7m. I have also searched the titles and they are fine." (exhibit E(1), p9, par (18)) In response to a question from Richards as to whether he was satisfied with the valuation, Warda is reported to have said that he was. 1. Warda was employed at WWL from December 2005 until February 2009. During that time he conducted work on a number of the OFS loan files within the WWL office. He died in May 2011. No allegation that Warda had made any representation about the value of any security property was made until affidavits were filed on behalf of the plaintiffs in October 2014. 2. In his affidavit (par (13)) Toland made a similar allegation against Warda. At around the same time, Warda is supposed to have said to Tolland words to the general effect: "… I have seen valuations which support the 80:20 LVR. The Loan Agreement has the standard terms for such agreements and like all Loan Agreements it is in your favour as the lender." 1. In response to these allegations against Warda, Williams in his affidavit set out his experience with Warda as an employed solicitor over the relevant period. Ramrakha also provided an affidavit making similar observations about Warda's character and general practice as a solicitor. 2. Williams says that although Warda was in his late 30's, he was inexperienced and that he (Williams) firmly instructed him that if a client sought his advice he should check with Williams first and so far as he was aware, Warda followed that instruction. Williams says that at no time did he ask Warda to consider or provide any services or advice as to the value of a security property and that he was not aware that Warda had been asked to provide such advice. Williams says that in his experience it would be particularly out of character for Warda to have expressed any view about financial rather than legal matters to a client. Williams said: "… I found him to be adverse to expressing his own opinions and making his own decisions in his practice." (exhibit 10, p19, par (98)). 1. Ramrakha in his affidavit (25 May 2015) says that he never became aware of Warda providing advice in any matter concerning the valuation of real property, including the valuation of real property used as a security. He was unaware of Warda having conducted any financial investigation or providing advice in respect of either the Tamarama loan or the Sanctuary loan. 2. I have concluded that these allegations against Warda are not true: 1. On the plaintiffs' case, no such valuations existed. The highest valuation for the property existing at the relevant time put the property in a range of between $2.5 and $2.9 million. Arslan recalled a higher valuation which has not been produced (T.292.41). 2. The statements attributed to Warda by both Richards and Toland are not merely statements of his opinion but definitive as to having personally sighted the relevant valuation. Since there is no evidence of such another valuation being in existence, it is implicit in the evidence of Richards and Toland that Warda was untruthful in the representations which he made. 3. On the evidence of Williams and Ramrakha it was out of character for Warda to make such statements, be they reckless or untrue, in a professional context. 4. No motive for Warda to have made false statements about the security property appears in the available material. There is no suggestion that he had any financial incentive in the loans proceeding. He was merely an employed solicitor of the firm. The legal costs payable to the firm as a result of the Tamarama plus Sanctuary loan transactions were modest. 5. In early iterations of the Statement of Claim, such misrepresentations had been specifically attributed to Arslan alone. Nothing was said about Warda in any context until the service of the plaintiffs' affidavits in October 2014. When this was put to Richards in cross-examination, he was not able to recall the content of the earlier Statements of Claim. Accordingly, it is unclear when and in what circumstances the plaintiffs became aware of Warda's death and his consequent unavailability to refute any misrepresentations attributed to him. 6. In the case of both the affidavit of Toland and that of Richards, these conversations with Warda are recounted selectively in isolation and in the absence of evidence of any other contact or communication with Warda. For reasons which I will elaborate both Richards and Toland were defensive witnesses with somewhat selective memories and had a tendency to avoid answering questions directly and fashioning answers to assist the plaintiffs' case. 7. Importantly, neither Richards nor Toland was able to deal in any convincing way with questions as to the circumstances in which they came to believe that what Warda had told them was wrong or what they did about it (T.51.45, 52 and 185). In the case of Toland his answers were unresponsive and evasive (T.179-182). If their evidence on this issue is correct, then Warda knowingly made false statements to them about the valuation of the Tamarama property. Despite this, there is no suggestion that they raised this issue either with Warda or Williams or even discussed the matter between themselves (T.159, 184). It is not without significance that these alleged misrepresentations were conveniently made to both Richards and Toland by Warda in relation to the two loans in dispute but not in relation to other loans. 1. There is an issue as to whether Arslan disclosed to Richards and Toland that he was the owner of the Tamarama property and therefore the borrower. Richards and Toland say that they were not aware of this and that they had been positively misled by Arslan when he told them that the property was owned by a relative of his. Arslan was definite in his affidavit (exhibit 13), "outline of evidence" (exhibit 7) and in his oral evidence that he made it clear that he was the owner. 2. Richards was cross-examined by reference to email correspondence between him and "Jimmy" Arslan which also bore the email stamp "Cumali Arslan". Richards' explanation was that he had not and would not have seen that email stamp because he relied upon his secretary to both read and reply to emails on his behalf after he had dictated the content. 3. Williams in his affidavit said: "Certainly in all my dealings with Chris Richards in relation to that loan he never suggested anything to make me think that he was not aware that the borrower was Jimmy Arslan himself" (exhibit 10, p14, par (51)). 1. His evidence at trial was: "Q. You don't identify in this letter the name of the borrower as Jimmy Arslan, do you? A. No. Q. This is the Jimmy Arslan whom you say you'd previously acted? A. Yes. Q. In your affidavit, Mr Williams, you say that Mr Richards had never suggested anything to indicate that he was unaware that Jimmy Arslan was the borrower; do you remember saying that in your affidavit? A. I think I do, yes. Q. But if you believed that Mr Richards knew that Jimmy Arslan was Cumali Arslan, why didn't you refer to Jimmy's name in this letter? A. That's - his real name is Cumali Arslan. That's his name. He's known as Jimmy, but that's his name Cumali Arslan. Q. It's the position, isn't it, that at no time prior to 22 August 2007 did you take any steps to disclose to Mr Richards that Jimmy Arslan was the borrower? A. We had discussions about it. Q. I put to you Mr Williams that in those discussions you didn't identify that it was Jimmy Arslan who was the borrower did you? A. I would disagree with that." (T.249.35 - 250.7) 1. It seems somewhat farfetched that neither Richards nor Toland associated Cumali Arslan with "Jimmy Arslan". On that issue, it is not clear from the evidence of Williams that he had in mind a specific occasion when he told Richards or Toland that Cumali Arslan and Jimmy Arslan were the same person. Rather the effect of his answers is that his recollection at trial was that this must have been so because of the discussions which took place. The more likely scenario is that set out in Williams' affidavit, i.e. that in his dealings with Richards nothing was said which alerted him to the fact that Richards might have had a misunderstanding as to who the owner of the Tamarama property was. As a result there was no occasion for him to specifically raise that issue. 2. In any event, the real issue is not whether Arslan in fact sought to mislead Richards and Toland as to the ownership of the Tamarama property, but whether Williams knew that this had taken place and that Richards and Toland misunderstood who the owner was. 3. There is no evidence that Williams knew (if such were the case) that Arslan had misled Richards and Toland as to the identity of the owner of the Tamarama property. There is no evidence that Williams knew that Richards and Toland were acting under a misunderstanding as to who the owner of the Tamarama property was. Williams' evidence is to the contrary. There was no occasion identified in the evidence when that information or misunderstanding would have been conveyed by either Richards or Toland to Williams. Nothing was put to Williams to suggest or identify a particular occasion when he should have clarified the question of ownership of the Tamarama property. 4. On that state of the evidence, there was no obligation on the part of Williams to bring to the attention of Richards and Toland that the owner of the Tamarama property and Jimmy Arslan were the same person. In the absence of any evidence that Richards and Toland were unaware of that fact, Williams was entitled to assume that they were so aware and conduct himself accordingly. There is nothing in the letter of 13 August 2007 which is factually incorrect, or that was misleading on this issue. It is a formal letter. The registered owner of the property was Cumali Arslan and that is the person to whom reference is made. 5. Taking those matters into account and also the adverse view which I have formed as to the reliability of the evidence of Messrs Richards and Toland, I find that there was no obligation on the part of Williams to specifically point out to Richards and Toland that the owner of the Tamarama property was the person they knew as Jimmy Arslan. Moreover, the absence of evidence of any complaint by Richards or Toland to Arslan or Williams that they had been misled as to the ownership of the Tamarama property tells against them being so misled. 6. There was an issue at trial as to whether Williams acted for Arslan as well as for OFS in relation to the Tamarama loan. 7. In the letter of 13 August 2007 Williams asserted that the borrower in respect of the Tamarama land was a client of WWL but that he had advised the borrower that in this transaction WWL was acting for OFS and was unable to provide the borrower with any advice in relation to the transaction. That is in accord with the evidence of Williams at trial. The plaintiffs submit that the documentation makes it clear that WWL was acting on behalf of the borrower and that this evidence of Williams is false. The documentation to which reference is made comprises the letter from Hansons (the solicitors for La Trobe) of 15 August 2007 (exhibit E(1), p 427) and the filing of the discharge of the La Trobe mortgage and the registration of the OFS mortgage. 8. These documents do not establish that WWL was acting for Arslan in relation to the Tamarama loan. The letter from Hansons of 15 August 2007 is readily explainable by the fact that WWL had acted for Arslan in 2006 in the loan by La Trobe. Hansons may have assumed that this was still the case. The registration of the discharge of the La Trobe mortgage and of the OFS mortgage were steps which WWL would have to have taken in any event to protect the position of OFS in relation to the loan. It is likely that Arslan acted for himself in this transaction. 9. Because Arslan was in regular contact with Williams and was from time to time passing on instructions which he received from Richards, he would have told Williams, how apart from the discharge of the La Trobe loan, he wished the cheques to be drawn. It is also clear from the WWL letter of 22 August 2007 (exhibit E(1), p240) to Richards that OFS also had a say in how the cheques were to be drawn in that $57,500 was to be paid to OFS as the first interest instalment, $8,000 was to be paid to the Office of State Revenue for stamp duty and $150,000 was to be held in trust in respect of construction costs (I assume for the extra work to be carried out on the Tamarama property). In those circumstances, I am not satisfied that WWL was acting for Arslan in relation to the Tamarama loan. I accept the evidence of Williams on that issue and the assertion to that effect in the letter to OFS and Richards of 13 August 2007. 10. At this stage, I should say something further about my assessment of the reliability of the principal witnesses in this matter. 11. I found Richards to be an unconvincing and unsatisfactory witness. Richards was evasive in his responses and regularly took refuge in non-committal answers, i.e. "It's possible". His responses to whether or not he had received the letter from WWL of 13 August 2007 and the other letters comprising exhibit 6, were particularly unconvincing. These letters were clearly sent by Williams and the contrary was never put to him. They were clearly received by Richards. His answers ranged from "possible" to "highly possible", but never "yes" or "no". These responses were not candid. Similarly, in relation to the invoices issued by Arslan on behalf of Global (exhibit 1), Richards refused to say whether or not he had received them (T.103.15). Other areas where his responses were inconsistent with unchallenged or incontrovertible evidence have been referred to earlier in this judgment. I found Richards to be an unreliable witness. 12. That unreliability carries over to Richards' evidence that he was inexperienced as a lender and relied entirely upon Williams or Arslan (said by Richards to be acting on behalf of WWL or under its umbrella) for advice as to what transactions and loans should be entered into by OFS. My assessment of Richards as he gave evidence is that he is an astute businessman who was well aware of the need to obtain valuations which showed that loans to be made by OFS were adequately secured. That conclusion is consistent with the documentary evidence. I accept the evidence of Arslan that the sort of loans that OFS through Richards was intending to make were those where the money advanced was adequately secured, i.e. asset lending (exhibit 13, par (8), T.284.20). Whether or not the borrower had the capacity to make the high interest payments which those loans imposed was of less importance to Richards than the value of the property which could be sold in the case of default. Richards' conduct in relation to the Tamarama loan and his reluctance to take action against Arslan as the defaulting borrower, provides support for that conclusion. 13. Toland was not an addressee of the 13 August 2007 letter, nor most of the other letters in exhibit 6. He was unable to assist on whether they were received, other than to suggest (on no apparent basis) that they had all been concocted after the event (T.191.35). Although he said that he would have been very concerned if he had read them and would have taken action (T.191.10 - .20), he accepted that he may, in fact, have read one or more of them (T.193.15). 14. I found Toland to be an unconvincing and unsatisfactory witness, although in a different way to Richards. He chose to avoid directly answering questions which he perceived might be dangerous to the plaintiffs' case. He made long-winded, non-responsive answers calculated to support his case on the topic on which he was being questioned. His responses were often patently partisan. I gained the clear impression that he had little direct knowledge of these transactions and had generally left the arrangement of loans to Richards. His affidavit was particularly lacking in detail. This is not surprising when he was purporting to remember events which had happened seven years before and in relation to which he had taken no notes nor made any other record and where he was not directly involved in most of the transactions. 15. The following evidence when Toland was being cross-examined about whether he had seen and discussed the letters in exhibit 6 gives the flavour of the answers which he was providing to the cross-examiner: "Q. You are not aware that there exist copy letters in relation to every loan that was made by OFS in 2007 from WW Lawyers to Mr Richards in which it is said, "we are not however responsible for due diligence in respect of the loan"? A. I'm not aware of those letters existence, so that came to light later. I didn't even know they existed. Q. You must be concerned to know that those letters exist, firstly? A. I have a suspicion as to where they came from but it's only my own personal opinion so perhaps it's not relevant. But I never saw a copy of them, I never heard about them, and Mr Richards never informed me because he doesn't believe he saw them either. We've discussed this and we don't think that those were issued on the dates that they're purporting to be issued. Q. These are the letters that are in a bundle in relation to all the other loans, you've discussed those with Mr Richards have you? A. Rephrase the question if you would sir. Q. You've discussed letters that were received in all the other loans with Mr Richards have you? A. No. Q. What were you talking about when you say, "I've discussed it with Mr Richards"? A. We just - mostly we discussed the information that was presented to us in the veracity of the loans. Most of these letters I didn't see. Q. What letters? A. The letters you were showing me now, I don't believe I've seen them before, and certainly not in the context that they've been given to me. Q. I've only shown you one so far? A. Well you refer to plural, but I don't recall seeing this type of letter. Q. Mr Toland, you've discussed with Mr Richards his evidence that he's given in this case haven't you? A. No, I have not. He's independently gone and sought legal advice, we've only discussed with ourselves what we've talked about in relation to loans, that's what we've discussed. Q. Sir, you understand, do you, that there exists copy letters in these proceedings from WW Lawyers to Mr Richards in relation to all the loans? A. Do I know that, or are you inferring that I know that, what are you asking? Q. That's your understanding now is it, from information that you've received? A. No, I only know of this letter and any other letters that - no, I do not know of the volume of letters. I do not know of that, no." (T.191.25 – 192.20) 1. In contrast, I found Williams to be an honest and forthright witness. He was prepared to concede matters where appropriate, even when this was against his interest. He was prepared to concede (despite the equivocal nature of Richards' evidence on the subject) that he had not explained the loan agreement for the Tamarama loan to Richards. This was a potentially damaging admission the effect of which he would have been well aware. Williams answered questions directly without obfuscation. He gave no impression of seeking to tailor his evidence to affect the outcome. 2. There was an issue in the trial as to whether Williams had seen the 15 August 2007 letter from Hansons Lawyers (the solicitors acting for La Trobe, the outgoing mortgagee for the Tamarama property). That letter indicated that Arslan was in default in relation to that mortgage and by way of both principal and interest his indebtedness to La Trobe was in the order of $2,024,756.80. In evidence Williams could not recall being personally aware of the matters raised in that letter. He denied that he was aware of any financial difficulty of Arslan at that time (T.248.49). Arslan himself did not accept that he was in financial difficulty in the general sense, but accepted that he was in default in relation to the La Trobe mortgage. The reason for him being in default, he explained, was because an anticipated sale of the property had not proceeded. Arslan did not accept that he had spoken about his financial circumstances to Williams at any time (T.289.30, T.293.16). 3. I am satisfied that not only was the letter received by WWL but that it was brought to the attention of Williams. In making that finding, I do not conclude that Williams was deliberately seeking to mislead the Court. The better explanation is that with the passage of time he had simply forgotten the contents of that letter. Even allowing for that discrepancy in his evidence, I found Williams to be a reliable witness. 4. I did not find Arslan to be as forthright and reliable as Williams. On some matters his recollection appeared to be selective. Nevertheless, when pressed he answered questions directly and became somewhat indignant in relation to certain of the propositions put to him. In a number of important respects, however, his evidence was corroborated by that of Williams. For example, Arslan had no recollection of the detail of what was said at the first meeting in the offices of WWL attended by Richards and Toland, but was adamant that at no time did he ever assert to Richards that either he or Global was operating as part of or under WWL (T.284.46 – 285.21). 5. When assessing the reliability of Arslan, it needs to be kept in mind that he was originally a defendant in these and other proceedings brought by OFS in 2010. In these proceedings his joinder arose from a loan to a company which for convenience can be called "High Range". That was a loan where WWL did the legal work and Arslan introduced the borrower to OFS. At some time thereafter, the property which was the security for that loan, was transferred into Arslan's name. Arslan's involvement in the litigation brought by OFS ceased when a settlement was arrived at between him and the plaintiffs, which included the transfer by Arslan of that property to OFS, and his release from any further liability. It follows that apart from suffering reputational damage, Arslan had no motive not to tell the truth when giving his evidence. 6. In summary I found Arslan to be a generally reliable witness particularly when giving evidence as to the relationship between Global and WWL and on the issue of whether Richards asked that clause 9 be included in the loan agreement (T.297.2, T.299.36, T.300.11). He was less candid when giving evidence about the extent to which he carried out "due diligence" activities in respect of loans made by OFS (T.286.18 - .38, T.287.43). 7. As already indicated, there is a dispute between Arslan and Richards as to whether Arslan told him that the Tamarama property was owned by a relative and did not disclose that he was the owner. There is also a dispute between them as to whether Arslan falsely asserted to Richards that he had a valuation of the Tamarama property "up to $3.7 million and once it is renovated, it will be up to $4 million" (see [35] hereof). 8. In his affidavit of 4 February 2011 (exhibit 13), Arslan deposed the following conversation with Richards at par (6): "Me: "Chris, Mark has told me about your business. He said that you maybe interested in a loan deal." Richards: "Yes, I would be interested. What are the details?" Me: "There are three units in a block of units at Tamarama. I own the middle one. Upstairs is owned by the original owner. Downstairs is a mortgagee in possession. I have a friend who is interested in buying my unit who is more like a relative than a friend. The alternative is to refinance it, I'll then finish the remaining works and I'll then sell ASAP." Richards: "Sounds good". The relevant part of that conversation was repeated in Arslan's "Outline of Evidence" at par (14) (exhibit 7). 1. Under cross-examination when asked about the April 2007 valuation of the Tamarama property, Arslan gave the following evidence: "ABADEE Q. Were you aware that LandMark White had valued the property at a range of between 2.5 and 2.9 million? A. Actually the only one I recall is there was another one where they came out and it was a lot higher, it was like three and a half or 3.7 after works were completed for the entire property; that was the only other one that I recalled that they had. This one it more than likely could have been because at that date there was a lot of construction works were going on, not just in my unit but the unit downstairs, and upstairs as well. So obviously they would have affected the whole outlay of the property as well. Q. In that answer I think you gave Mr Arslan, I think I'm right in understanding you to say that there was some later valuation, for a higher figure? A. I somehow recall something, I don't know if was on or it could have been just someone out there. I remember there was I can't 100% remember, I can't be certain to it, that's the only problem. But I do recall there were high figures, but you know, obviously this was at a time when the property market was just going up and up and up and everyone thought, you know, the sky was the limit sort of thing. Q. Do you think that higher valuation may have been prepared by LandMark White? A. I'm not sure. There was another valuation prepared by another valuer for the unit downstairs which - Provident Capital was the mortgagee because I was in a legal case with them, and I remember the valuer of that actually did a valuation which was slightly higher. I'm pretty sure it was their valuer." (T.292.38 – 293.12) 1. When Arslan was cross-examined as to the conversation with Richards at [36] hereof, he said that he could not recall such a conversation. 2. I do not accept that Arslan sought to mislead Richards as to the true owner of the Tamarama property. I am satisfied that Richards well knew that Arslan was the owner. That was certainly the position which Arslan maintained in his affidavit of February 2011 and it is consistent with the subsequent dealings which he had with Richards. It would have been a foolish lie because inevitably Richards would have learned that Arslan was the owner. Once the lie was discovered, it was unlikely that Richards and Arslan would have continued to deal with each other as they obviously did over the next 12 months or so. Such a lie is also inconsistent with Richards' evidence as to how he learned that Arslan was the owner. Richards said that after the loan transaction was completed, Arslan in the course of a conversation made it clear that he was the owner. Richards did not give evidence of being surprised or upset when told. 3. The emails in Richards' own system revealed that as early as 21 August 2007 Arslan was identified as Cumali Arslan and that this name was generated as the name of the recipient when emails were sent to him. A number of emails sent by Richards commencing "Hi Jimmy" have been uncovered. Richards said that sometimes emails would be printed out and given to him but he did not recall seeing these (T.47). It is unclear how the email address of the person whom Richards thought was "Jimmy" could have been entered into his system as "Cumali" unless the person entering it could see that they were the same person. 4. The position in relation to whether Arslan told Richards that he had a valuation of the Tamarama property in the amount of $3.7 million is less clear. Arslan cannot remember any such conversation. He does have a recollection that there was such a valuation in existence which makes it likely that he would have said something about it to Richards. No such valuation has been produced by either side. If there were no such valuation and Arslan had falsely stated that there was, his lie would have been easily detected if, when asked to do so, he had failed to produce the valuation. Again, telling such a falsehood would have made any future dealings between Arslan and Richards most unlikely. It also strains credulity that, having been told of the existence of such valuation, Richards would not have insisted on seeing it before the loan was made. This is so despite Richards' evidence that he did not ask to see any valuation but relied entirely on Arslan. I have concluded that on balance Arslan did not mislead Richards on this issue in the way alleged. 5. There is, of course, no evidence that Williams said anything about a $3.7 million valuation of the Tamarama property to Richards or (if it be the fact) that he knew that Arslan had done so and that (if it be the fact) such a representation was false. I have already set out why I do not accept the evidence of Richards and Toland that Warda said anything to either of them about such a valuation. 6. Apart from the amount of $57,500 for the first interest instalment, Arslan made no further payments of principal or interest in relation to the Tamarama loan. By late 2007 or early 2008 Arslan was in default under the loan agreement. A further valuation of the Tamarama property was obtained in 2010. It gave the value of the property as at 27 May 2010 as $2,750,000. OFS sold the Tamarama property as mortgagee in possession in November 2011 and received $1,300,000. The amount claimed by the plaintiffs in respect of the Tamarama loan is the difference between that amount and the loan of $3 million, i.e. $1,700,000 plus interest up to the date of trial, i.e. $3,420,240.41. The Sanctuary Developments Loan 1. In late August 2007 Arslan proposed another loan opportunity to OFS. This was a loan in the sum of $3.5 million for a six month period to a borrower, The Sanctuary Developments (Australia) Pty Ltd (Sanctuary), to be secured by a number of partially developed parcels of land at Airlie Beach in Queensland. As with the Tamarama loan there was a separate attribution to Warda of representations made in relation to the value of the security. This is now only relevant on credit issues since the case against WWL relating to the valuation of the security was abandoned by the plaintiffs at the beginning of the trial. 2. The letter from WWL (Williams) to Richards as director of OFS of 21 August 2007 sets out the background to this transaction. "Re: ONGOING FINANCIAL SERVICES – PROPOSED LOAN TO – THE SANCTUARY DEVELOPMENT (AUSTRALIA) PTY LTD We refer to the abovementioned transaction. We are instructed that the above mentioned loan was introduced to Global Consultants Pty Ltd ("Global") (the company of Jimmy Arslan) as Manager of the proposed Loan, by Pinacle Funding Pty Ltd ("Pinacle"). We are informed that Pinacle holds professional indemnity insurance for brokerage work. However, we have not had some verified. We confirm your instructions for us to prepare the loan documentation to reflect the terms and conditions of the Loan and attend settlement and all necessary registration arising there from. We sincerely thank you for those instructions. We are not, however, responsible for the due diligence in respect of the Loan. We are taking instructions from Global in respect of the terms and conditions of the Loan SUBJECT TO your final approval thereof. The due diligence performed by Pinacle has been assessed by Global. In this regard, we are instructed by Global as follows: 1. LVR – does not exceed 80% of the value, as per valuation provided by Pinacle of the security property including both the first Mortgage loan and the loan proposed by you. On the basis of the documents provided by Pinacle, after deducting the outstanding amount of the first Mortgage from the valuation of the security, there is a sum of about $5 million in equity left in the security to cover your loan. 2. No documentation has been provided to assess the Borrower's ability to service the Loan. However, in this regard, we note that interest for the term of the Loan is being paid in advance from the funds being lent. This of course does not reflect upon the Borrower's ability to repay the principal within the period prescribed. The obvious risk whenever the Lender takes a second Mortgage as security is that any equity left in the security may be exhausted by the cost of the first Mortgagee in the event of default by the Borrower on the first Mortgage. However, as there is a risk, this is the reason you are entitled to charge a premium interest rate. We are instructed by Global that you have approved the loan. Accordingly, enclosed herewith is a draft copy of each of the following: 1. Loan Agreement, and 2. Deed of Guarantee and Indemnity. … Nonetheless, please instruct us as to whether the terms and conditions of the enclosed documents are satisfactory. If so, we will then prepare the corporate Charge, which is a relatively easier document to prepare and is somewhat dependent upon the terms and conditions of the enclosed document. If the terms and conditions of the enclosed documents are not satisfactory, please advise in what respect. … We will NOT forward such documents to the Borrower unless and until you specifically approve same and we receive confirmation of the title particulars of the security property. As to the securitisation of the Loan, we note as follows: 1. The Loan will be primarily secured, by way of Mortgage, being a second Mortgage, as against a property owned by The Borrower, being Lot 64, Jubliee Pocket Road, Jubilee Pocket in the State of Queensland. In respect of the first Mortgage, enclosed* herewith is the Priority Deed issued by the first Mortgagee. In respect of that document, we refer to our advice as set out below. 2. The Loan will also be secured by way of a Fixed and Floating Charge over the assets of The Borrower. However, the only significant asset of The Borrower appears to be the security property. There is also four other Charges registered as against those assets. We are aware that one of those Charges relates to a loan which will be discharged when the funds from the proposed Loan are drawn down. Another of those Charges has been registered to protect the first Mortgagee, which can only be expected. The other two Charges appear to relate to motor vehicle finance. We are instructed that Global has sought details of the latter two Charges from Pinacle. 3. The director has given a personal guarantee for The Loan. Under that Guarantee we have charged the real property of the Guarantor and related corporate entities. We will lodge Caveats, pursuant to the Guarantee Deed, as against those properties. However, this does not give your company a power of sale over those properties (as distinct from the primary security). PLEASE NOTE irrespective of the Guarantee, Charge, and Caveats, you are primarily relying upon a second Mortgage as against the security in favour of your company to secure the Loan. In respect of the Priority Deed relating to that Mortgage, insofar as it regulates the relationship of both Mortgages and the first Mortgage, we advise as follows: 1. We only received that document today and any advice we given herein is SUBJECT TO our consideration of that document. 2. We anticipate, however, that this document will NOT, as is usually assumed, give the second Mortgage priority over the first Mortgage. 3. However, we anticipate that in the event of a default in respect of the second Mortgage, the document will permit the second Mortgagee to force the first Mortgagee to exercise its power of sale over the security thereby recouping, if there is sufficient funds arising from the sale, the monies owed to the second Mortgagee. … We await your instructions. Yours faithfully, WORTHINGTON WILLIAMS LAWYERS Mark Williams" (exhibit E(1), p 237 - 239) 1. I find that the retainer between WWL and OFS in relation to the Sanctuary loan is in accordance with that which is set out in this letter, i.e. "instructions for us to prepare the loan documentation to reflect the terms and conditions of the loan and attend settlement and all necessary registration arising therefrom" and it did not include carrying out "due diligence" in relation to the loan. Although the letter does provide advice on other matters, Williams explained that this was necessary because he wanted to obtain clear instructions from OFS and there had been some difficulties in that regard. 2. On 16 August and 17 August 2007 WWL caused searches to be undertaken of the proposed borrower on the ASIC register. This revealed Sanctuary to be registered and at that time fully self-administered. Shortly after this and before the loan agreement was executed, the parties agreed to increase the loan amount to $4.5 million. This occurred on or about 6 September 2007. There was an option to increase the term of the loan by three months. The interest rate was set at 35% per annum payable in advance (exhibit E(1), p245). On 6 September WWL considered that settlement or completion was imminent. However, the loan moneys were not drawn down immediately. 3. On 11 September 2007 external receivers and managers were appointed to Sanctuary. Subsequent correspondence revealed that this appointment related to an outstanding debt and a related company charge connected to a boat. On 21 September 2007, without having become aware of the appointment, OFS advanced the $4.5 million in loan moneys to Sanctuary. Between 17 August and 21 September 2007 no further search of Sanctuary on the ASIC register was conducted by WWL. 4. Under the loan agreement between OFS and Sanctuary an event of default included the appointment of a receiver to Sanctuary. 5. By way of further background, the borrower was a developer in the process of developing and selling various subdivided lots. It can be inferred that the borrower was probably dependent on their sale to service any loans rather than on any independent income. By early 2008 the Global Financial Crisis was developing throughout the world and was affecting property prices in Australia, particularly in holiday areas such as Airlie Beach. 6. On 9 October 2007 WWL became aware of the appointment of receivers to Sanctuary and began corresponding with the borrower's solicitors. No specific action was taken with respect to the circumstances which constituted a default under the loan agreement and in February 2008 the debt in question was discharged and the receivers withdrew. 7. The following extracts from correspondence are instructive. Letter/email Williams to Hickey Lawyers (the solicitors acting for Sanctuary) 10 October 2007. "We have been unable to register the Fixed and Floating Charge with ASIC because, as we are informed, a Receiver has been appointed to your client company. A corporate search reveals that the company is under external administration and a Receiver was appointed as of 11 September, 2007, before the loan was advanced. As you would appreciate, there is a great deal of concern in respect of same. We are instructed by the Manager of the loan that he had a discussion with the Director of your client company yesterday and was informed as follows:- 1. The Receiver has been appointed in respect of a default under a Fixed Charge in respect of a boat owned by your client company. 2. He had understood your firm was to discharge the Charge from the funds your firm retained in trust and did not understand the reason such discharge had not taken place. We request that you advise, by way of return, as to the following:- 1. The reasons for the appointment of the Receiver; 2. Your instructions as to the use of the funds you currently hold in trust; 3. What steps, if any, have been taken, or you intend to take, to remove the Receiver; 4. The amount required to discharge the subject Charge and remove the Receiver; 5. Whether you are prepared to UNDERTAKE not to deal with funds you hold in trust other than to discharge the Charge and/ or remove the Receiver. As you would appreciate, (a) the appointment of a Receiver is a default under the Loan Agreement and Mortgage and (b) we were not informed of the appointment of the Receiver prior to the advance of the loan funds. If we do not receive a satisfactory response to our correspondence by midday today, we will take instructions as to the following:- 1. Exercising our client's rights under the Loan Agreement and/or Mortgage, and 2. Seeking urgent injunctive relief in the Federal Court of Australia, as against the company and your firm, restraining it from utilising the trust funds other than as described above. We your urgent response. Yours faithfully WORTHINGTON WILLIAMS LAWYERS Mark Williams" (exhibit 10, pp78-79) 1. On 10 October 2007 at 11.12am the following email was sent by Hickey Lawyers to Williams. "Subject: Advance from OFS Mark, I refer to your fax to me earlier today. I have been unable to contact my client this morning but respond to your fax as follows until I can obtain full instructions from my client. I note that the funds are being held in our trust account pursuant to an undertaking given to Strategic Finance Limited. The funds will continue to be held until the issues with Strategic are resolved including a resolution regarding the boat. We cannot give you a separate undertaking regarding those funds. Our client is in the process of refinancing the boat which will resolve the ASIC issues. We understand that the refinance in respect of the boat will occur shortly. We will revert to you with further details after we have spoken to our client." (exhibit E(1), p258) (Strategic Finance was the first mortgagee.) 1. Letter/email Williams to Hickey Lawyers 22 October 2007. "We refer to previous correspondence and, in particular, our letter of 10 October, 2007. We have now been able to register the subject Fixed and Floating Charge with ASIC. We note that whilst you have responded to our abovementioned correspondence such response did not provide the information requested and foreshadowed a further response. However, we have heard nothing further from you. We advise that unless, by close of business this week, the Receiver appointed to your client company is either removed or you can provide us with a written assurance, which is satisfactory to our client, that such appointment is being dealt with so that the Receiver will be removed in the short term, then our client will, first thing next week, exercise its' rights under the Loan Agreement and collateral documents in respect of recovering the loan funds. Our agents in Queensland have informed us that your client is selling some of the properties which form part of the security for the subject loan. Indeed, the sale of one of those properties is due to complete on 25 October, 2007. Our agent has requested of us to have our client execute certain documents to facilitate the completion of such sale, ie. a Form 312 in respect of Lot 77 by 25 October, 2007. We are surprised that such sales have not been communicated to us direct. Kindly advise, by way of return, as to whether our clients will be receiving any funds in respect of any discharge of security to offset as against our client's loan and, if not, the reason you presume that we will provide the relevant discharge. We await your urgent response. Yours faithfully WORTHINGTON WILLIAMS LAWYERS Mark Williams" (exhibit E(1), p259 - 260) 1. By 25 October 2007 no response from Hickey Lawyers had been received. In a further letter/email of that date Williams noted the "great concern" of his client and reiterated the threat that unless a response was received by the close of business that week, "we will, SUBJECT TO our client's instructions and without further notice to you or your client, except as prescribed by the loan arrangement, initiate action to recover your client's liability first thing on Monday morning." (exhibit E(1), p261) 2. Various forms of consent relating to the sale of some property by Sanctuary were sent as was as the communication of a requirement that WWL be told of any further sale of assets. 3. On 29 October 2007 Hickey Lawyers responded: "We refer to your recent correspondence concerning the receiver appointed to the Sanctuary Developments (Australia) Pty Ltd. As you are aware, the Receiver was appointed by CBFC, the financier of a boat owned by the company. We are instructed to advise that the boat has now been sold to a third party conditional only on an inspection of the vessel by the purchasers' financier (BMW Finance). The vessel will be moved to a hard stand in Airlie Beach during the course of this week. We are currently liaising direct with Mr Damien Bender of Korda Mentha and no further costs are being incurred in respect of the receivership until our client has had a reasonable opportunity to complete the same process which is currently underway. We confirm that we are currently holding in our trust account approximately $295,000.00 which we are advised is sufficient to extinguish the whole of the debt. However our undertaking has been given to the first registered mortgagee that the funds will not be released without their express written authority. The first lender has also been appraised of steps taken by our client to sell the boat, extinguish the charge to CBFC and remove the receiver. We will keep you advised of further developments in particular the results of the financier's inspection during the later part of this week." (exhibit E(1), p263) 1. On 30 October 2007 WWL responded to Hickey Lawyers saying: "At this stage, our instructions are not to issue a default notice under clause 3 of the Loan Agreement. However, as per your letter dated 29 October 2007 our client is expecting a progress report in respect of removal the Receiver by close of business this week. Our client reserves it rights in respect of any default on the part of your client." (exhibit E(1), p264) 1. On 8 November 2007 WWL provided Hickey Lawyers with consents to the sale of other assets of Sanctuary's. The letter concluded: "Nothing in this letter should be construed as our client waiving any right it may have in respect of enforcement arising from any default by your client pursuant to the Loan Agreement or any collateral document thereto." (Exhibit E(1), p266) 1. By email dated 6 February 2008 the Receivers advised WWL that they were finalising their statutory obligations and would retire from their appointment by the end of February 2008 (exhibit E(1), p267). This in fact occurred. In March 2008 Sanctuary defaulted in the repayment of the loan. 1. The letter from Williams to the Directors, OFS of 20 March 2008 (see [73] hereof) said the following concerning the Sanctuary loan: "2. Loan to Sanctuary Developments (Australia) Pty Ltd: It would appear that the basis of your instructions, to issue a Statutory Demand on 25 March, 2008, is the expiration of the period, contained in the Default Notice, which was served on the Borrower on 11 March 2008. We are informed by Arslan that he has heard nothing in respect of the Default Notice. We also have heard nothing in respect of the Default Notice. If we hear anything from the Borrower in respect of that Default Notice we shall communicate same to you as soon as practically thereafter and obtain your instructions. In the event the Default Notice is ignored, we shall prepare and serve a Statutory Demand upon the Borrower on 26 March, 2008, being 14 clear days from the date the Default Notice was served. The other action that could be taken, as of 26 March 2008, is to commence recovery proceedings as against the Guarantor. Kindly provide your instructions as to whether you wish to consider taking such action and if so, we will provide you with advice in respect of same. In our experience, to commence such proceedings inevitably exerts pressure such that the Borrower seriously considers its position in respect of repayment of the Loan." (exhibit 10, p37) 1. By letter/email from Williams to the Directors OFS of 28 March 2008 the following was said in relation to the Sanctuary loan: "1. Loan to Sanctuary Developments (Australia) P/L: We have prepared and served a Statutory Demand as per our abovementioned letter. Enclosed herewith is our Tax Invoice for same. As previously advised, we do not expect payment from you in respect thereof but will seek to have same paid by the Borrower in due course. This week we were contacted by the Broker to the Loan. He has arranged to confer with the writer on Monday next. He is preparing a proposal to us in respect of an extension of the Loan. We do not know the details of that proposal. We will take instructions from the Broker and advise in due course. However, such discussion will not prejudice the operation of the Statutory Demand." (exhibit 10, p42) 1. Although Sanctuary was in default, in April and May negotiations to roll over the loan were proceeding. The details are set out in letters of 16 April, 28 April and 5 May 2008 from Williams to Hickeys Lawyers (exhibit 10, p 99 – 100). The result of those negotiations is set out in a letter/email from Williams to the Directors OFS dated 9 May 2008. "We are informed by Mr Arslan that Mr Toland instructed him yesterday to proceed to an extension of the abovementioned Loan. In this regard, enclosed herewith is a copy of each of the following: 1. Loan Variation Agreement. Please execute same and return forthwith. 2. Letter to solicitor for Borrower/Guarantor of todays date. The essential terms and conditions of the loan extension are as follows: 1. The Loan has been extended until 6 July, 2008, for the purposes as set out in the letter to the solicitors. 2. The Borrower is to pay interest on the Principal at 35% per annum, capitalised and repayable on the last day of the extended period, from the Default Date to the Due Date. 3. The Borrower has consented to Caveats, as distinct from Mortgages, being registered as against the title of additional property. As previously advised, we will not be relying upon that Charge to enforce the debt but it makes it more difficult for the Borrower to enter into further loan transactions, thereby reducing equity in property for the purpose of recovering your loan funds, when Caveats are lodged. …" (exhibit 10, p105-106) 1. By a letter/email of the same date to Hickey Lawyers a copy of the "final version of the Loan Variation Agreement" was sent by WWL together with a memorandum of their fees and a memorandum of fees owing to Global. The letter concluded: "We confirm our advice to your client that the extension to the Loan is predicated upon your client taking action to repay the "liability" by the Due Date. We doubt our client will agree to any further extension. If the Loan Variation Agreement is NOT settled today then recovery proceedings will commence without further notice." (exhibit 10, p108) 1. The effect of that correspondence was that Sanctuary had been in default under the original loan agreement since 6 March 2008. Such default was the non-payment of the principal. Rather than enforce the Statutory Demands which had been served on Sanctuary, a loan variation agreement was entered into on 9 May 2008 which extended the date for the payment of the principal and accrued interest to 6 July 2008. Interest was at an annual rate of 35%. Additional security was a property at 85 Gardiner Road Waterford in Queensland. (exhibit 10, p125) 2. Sanctuary defaulted on the payment date specified in the variation of loan agreement and in November 2008 a liquidator was appointed to the company. By September 2014 it became clear that the first mortgagee would not be fully paid. Accordingly, the plaintiffs allege that they recovered no amount of the principal or interest (other than the initial prepayment of interest of $525,000 at the time of the initial drawdown of the loan). 3. The start point for the plaintiffs' calculation of their loss in respect of this transaction is the loan of $4.5 million advanced to Sanctuary on 21 September 2007. Interest in the amount of $525,000 was pre-paid until 20 March 2008. No funds were recovered from the sale of the properties by the plaintiffs. Interest from 20 March 2008 until the first date of this trial is $2,843,063.01. When added to the principal debt, the total loss in respect of the Sanctuary loan claimed by the plaintiffs is $7,343,063.01. 4. The plaintiffs allege breaches of duty and retainer by WWL in failing to identify and advise OFS that the Borrower had a receiver appointed before the drawdown of funds on the basis that OFS would not have proceeded with the loan had it been so aware. The Tamarama loan – submissions 1. The plaintiffs' case as finally articulated in their written submissions depended upon two findings of fact, one of which I have already rejected. Those findings of fact were: 1. That Williams knew, or ought to have known, that Richards and Toland were unaware that Cumali Arslan and Jimmy Arslan were the same person. 2. That Arslan was in such a difficult financial predicament that it called into question his capacity to service the loan made to him by OFS. 1. In relation to the first, I have already found that Williams had no actual or imputed knowledge of any such misunderstanding. I found that there was no factual basis for him to have foreseen or to have had in contemplation that such a misunderstanding had occurred. No specific instance was identified by either Richards or Toland in their evidence which would or should have put Williams on notice of such a misunderstanding on their part. Apart from the doubts which I have expressed as to whether or not Richards and Toland in fact had such a misunderstanding, I do not find that it was reasonably foreseeable by Williams that they had such a misunderstanding. 2. In relation to the financial position of Arslan, to say that he was in such a difficult predicament that it called in question his capacity to service the loan, is to put Williams' level of knowledge too high. What Williams would have known from the receipt of the letter from Hansons of 15 August 2007 was that before the loan from OFS had been negotiated, La Trobe intended to take possession of the Tamarama property on 15 August 2007. He would also have been aware or have inferred that this action was being taken by La Trobe because of default under their mortgage, either in relation to the payment of principal or interest or both. 3. The plaintiffs submit that Williams should have passed that information on to them by telling Richards and Toland of it and should have advised that not only did it call into question Arslan's capacity to service the OFS loan but that OFS should not rely upon any due diligence carried out by Arslan, but should either perform that function itself or have some independent person or agency carry it out. 4. The plaintiffs submit that this obligation came within the implied term in Williams' retainer that he exercise reasonable care and skill when acting on their behalf. The plaintiffs accepted that ordinarily in a loan transaction a solicitor acting on behalf of the lender would be required to obtain a valid and enforceable security but not to advise on the value of the security. They submitted that where in the course of investigating title a solicitor acting for a lender discovers facts that would materially bear upon the value of the lender's security, or some other ingredient in a lender's decision to proceed with the loan, that solicitor has an obligation to point those matters out to the lender. In support of that proposition they relied upon Mortgage Express Ltd v Bowerman & Partners (a firm) [1996] 2 All ER 836 which was followed in Rexstraw v Johnson [2003] NSWCA 287 at [92] and Kayteal Pty Ltd v John Joseph Dignan [2011] NSWSC 197 at [38]. 5. The plaintiffs submit that although a solicitor's retainer largely circumscribed his responsibilities, if in the execution of that retainer the solicitor learns of facts which put him or her on notice that the client's interests are endangered or at risk unless further steps beyond the limit of the retainer are taken, there may be circumstances where the solicitor is obliged to speak out in order to bring to the client's attention that matter of concern and to advise the client of the need for further advice either from the solicitor or from a third party (David v David [2009] NSWCA 8 at [76], Provident Capital Ltd v Papa [2013] NSWCA 36; 84 NSWLR 231 at [75]). The plaintiffs also relied upon AJH Lawyers Pty Ltd v Hamo [2010] VSC 225. They submitted that Beach J held in that case that solicitors owed a duty to give "holistic" advice in and around the client's retainer unless the retainer is specially limited to avoid the need for such advice. The Court was referred to Zakka v Elias [2013] NSWCA 119 at [68] which approved those observations by Beach J. 6. The plaintiffs submit that the letter of 13 August 2007 does not assist WWL on this issue. The plaintiffs submitted that the disclaimer in the letter limited the liability on the part of WWL with respect to "due diligence" but did not affect WWL's obligations under the general law to protect the plaintiffs' interests in the circumstances referred to. 7. The plaintiffs submit that because they did not know about Arslan's default under the loan from La Trobe, and because WWL through Williams had held out Arslan as someone capable of performing due diligence for OFS, they had no reason to make any inquiries as to Arslan's financial standing and capacity to service the loan. The plaintiffs relied upon that factor as distinguishing this case from National Home Loans Corp plc v Giffen Couch & Archer (a firm) [1997] 3 All ER 808. 8. To the extent that the submission relies upon the assertion that WWL held Arslan out as someone capable of performing due diligence, the submission is contrary to the factual findings which I have made and is not otherwise supported by the evidence in the trial. For the reasons already stated, I have rejected the very broad retainer asserted by the plaintiffs to have existed between WWL and themselves. I have rejected the evidence of Richards and Toland as to what was said by Williams about WWL being prepared to and actually carrying out functions in the nature of due diligence. Apart from those assertions by Richards and Toland there was no evidence which supports WWL endorsing Arslan in this way. 9. The plaintiffs submit that despite the disclaimer in the letter of 13 August 2007, the circumstances of this case meant that the scope of WWL's obligations to OFS, whether under an implied term in its retainer or its common law duty of care, extended to the provision of advice and the making of disclosures in respect of matters that came to its attention during the course of its retainer. The plaintiffs submit that such disclosure would include the financial position of Arslan so far as it was known by Williams and in particular the information which he had received from Hansons in their letter of 15 August 2007. 10. The plaintiffs submit that under the common law there was a clearly foreseeable risk of financial harm to OFS if WWL allowed the Tamarama loan to proceed without the provision of further advice in circumstances where it knew that the borrower had provided due diligence in respect of the loan and knew, or should have appreciated, the risk that OFS was not aware of that fact. In addition, WWL had learned of Arslan's default under the La Trobe mortgage which allowed a strong inference that he was in financial difficulty. (As indicated, part of the factual basis for that submission has already been rejected.) 11. By reference to s 5B of the Civil Liability Act 2002 (NSW) (CLA) the plaintiffs submit that there was a foreseeable and not insignificant risk of financial harm to OFS against which a reasonable solicitor in WWL's position would have taken precautions. The plaintiffs submit that the precautions which a reasonable solicitor would have taken would have been to (a) confirm that OFS knew that Cumali Arslan and Jimmy Arslan were the same person and (b) to advise OFS of the inherent dangers associated with having the borrower perform its own due diligence. The plaintiffs submit that WWL should have warned OFS of the inherent dangers in having the borrower perform its own due diligence even if Williams was unaware that OFS through Richards and Toland had such a misunderstanding. 12. The plaintiffs submit that the reasonableness of such precautions was supported by the considerations in s 5B(2) CLA. They submit that the precautions which could have been taken were not burdensome. The probability of financial harm being suffered was high and if not high, then certainly readily foreseeable. The plaintiffs submit that Arslan's overstating of the value of the secured property ($3.7 - $4 million as against the true valuation of $2.5 - $2.9 million) was precisely the kind of thing that might happen if WWL did not provide the advice referred to. The plaintiffs submit that the likely seriousness of the harm which OFS would suffer if such advice were not given was significant, i.e. the loss of much of the $3 million loan. In summary, the plaintiffs submit that not only did WWL owe a duty to them of the kind they rely upon but it was in breach of that duty by failing to provide information which it had concerning Arslan's default under the La Trobe mortgage and advice/warning as to the dangers of having a borrower carry out due diligence in respect of a transaction from which he would benefit. 13. The plaintiffs put the issue of causation in two ways. They submit that had OFS become aware through WWL that Arslan was the borrower and had WWL advised of the dangers associated with allowing Arslan to do due diligence in relation to his own loan, events may have progressed in two ways. The first, and that for which the plaintiffs primarily contend, was that the Tamarama loan moneys would never have been advanced. The plaintiffs submit that Richards and Toland would have realised that Arslan had misled them and would, on that basis alone, have reposed no confidence in him or the loan that he was endorsing. They would have rightly been sceptical and suspicious of a person who was recommending a loan in circumstances where that person had a clear vested interest in the loan taking place. 14. Alternatively, the plaintiffs submit that having received advice from WWL as to the dangers of Arslan doing his own due diligence, OFS would have sought independent assessments of the servicing capacity of the borrower and the value of the security. The plaintiffs submit that those investigations would have uncovered Arslan's financial difficulties and produced a true valuation of the secured property. They submit that once those things had occurred it was highly unlikely that OFS would have advanced any funds to Arslan. 15. As a further alternative, but not one which the plaintiffs particularly favour, they submit that even if OFS were an "asset lender" the full $3 million would not have been advanced to Arslan once the proper value of the Tamarama property was known. The plaintiffs submit that applying the 75-80% LVR which it was common ground Richards and Toland insisted upon, the most that might have been advanced was $2 million. On that alternative the plaintiffs accept that the amount of damages which they would recover in respect of the Tamarama loan would be reduced. Consideration 1. Part 1A and in particular s 5B CLA apply to determine questions of negligence and related claims in contract for failure to take reasonable care. The application of the statute must be undertaken in the context of the common law – in this case the common law relating to solicitors' duties. Solicitors owe their clients a concurrent duty in tort and contract (Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1). In each case the duty is to apply the relevant degree of skill and exercise of reasonable care in carrying out the particular task in which the solicitor has been engaged (Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1 at [147]). The starting point in determining the scope of the duty is to ascertain what the client engaged the solicitor to do or advise upon. 2. In advising clients entering into commercial contracts a solicitor does not have a duty to give opinions about the financial prospects of the proposed arrangements (Citycorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418). Generally speaking a solicitor does not owe duties in tort to the client going beyond the duties arising from the retainer to perform the task in question. This is in some circumstances referred to as a "penumbral duty" (Kowalczuk v Accom Finance [2008] NSWCA 343; 77 NSWLR 205 at [294]; Dominic v Riz [2009] NSWCA 216 at [89]; Winnote Pty Ltd v Page [2006] NSWCA 287; 68 NSWLR 531 at [84]). 3. If, however, a solicitor becomes aware of facts during the execution of the retainer putting the solicitor on notice that the client's interests are at particular risk, the solicitor may be obliged to provide further advice, or at least suggest that further advice be obtained (David v David at [76]; Dominic v Riz at [91], Keddie v Stacks/Goudkamp Pty Ltd [2012] NSWCA 254 at [104]; Provident Capital Pty Ltd v Papa at [75]). Ordinarily unless provided for by the retainer, a solicitor acting for a commercial lender will be responsible for the legal efficacy of any security for the loan, but not the value of the security, or the creditworthiness or capacity to make repayments of the borrower (Nationwide Building Society v Balmer Radmore (a firm) [1999] All ER (D) 95; Kayteal Pty Ltd v Dignan at [36] – [38]; White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164 at [128]; National Home Loans Corporation plc v Giffen Couch and Archer) nor is a lender's solicitor necessarily obliged to disclose information acquired in confidence before the commencement of the retainer by the lender in respect of the borrower's poor financial status (Omega Trust Co Ltd v Wright Sun & Pepper (No 2) (1998) PNLR 337; Maes Finance Ltd, Mac No 1 Ltd v Sharp & Partners (a firm) [1999] EWHC Technology 209; Kayteal Pty Ltd v Dignan at [37]). 4. The onus of establishing the existence in terms of a retainer rests on the party so asserting, usually the client plaintiff. Obviously a written retainer or other document purporting to outline the terms of the retainer will be weighty evidence. It has been said that solicitors who seek to limit their retainer ought to do so clearly and usually in writing as a matter of prudent practice (Minkin v Landsberg (T/A Barnet Family Law) (2015) EWCA Civ 1152 at [38] – [39]). 5. Expert opinion was obtained from two solicitors, Mr Carkagis on behalf of the plaintiffs, and Mr Rosier on behalf of the defendant. Both of those expert witnesses were impressive and were, in my opinion, fully conversant with the duties and obligations of a competent solicitor practising in Sydney in 2007 – 2008. Mr Carkagis was asked to make two alternative assumptions, one that the solicitors were engaged to provide a full service retainer, including due diligence, and in the alternative, that the retainer was limited to the preparation of the loan documentation. Mr Rosier was asked to provide an opinion on a similar basis. 6. Consideration of whether WWL was in breach of its duty and retainer first requires an assessment of the scope of the retainer and consequently the scope of the tortious duty. I have already indicated why the plaintiffs cannot rely upon the initial conversations, both at the lunch and at the offices of WWL. A major difficulty for the plaintiffs is the unfavourable opinion which I have formed of both Richards and Toland as witnesses and the very general nature of the evidence which they gave. The contents of their affidavits and their oral evidence lacked detail. It also seems likely, despite Toland's evidence to the contrary, that he and Richards discussed the issues in the trial and their evidence before the trial commenced. 7. The evidence of Messrs Carkagis and Rosier was to the effect that the full mortgage service comprising services not traditionally legal in nature are not services ordinarily provided by a solicitor. It follows that as a matter of law, no duty to undertake such tasks would ordinarily be implied as falling upon a solicitor retained to provide legal services to a commercial lender in a loan and mortgage transaction. As I have already set out there is an inherent improbability in WWL representing that it, as a law firm, would provide such services. 8. As is clear from the correspondence, parts of which I have set out in the judgment: 1. WWL did not ultimately purport to provide any such "full mortgage services" with respect to any of the OFS loans. This is clear from the letters which they sent (exhibit 6) in respect of those loans. 2. Arslan was independently communicating with Richards and possibly Toland identifying loan opportunities and through his corporate entities, Global and Lachlan Global Management Pty Ltd, rendering substantial fees for services of some sort apparently related to the loans (exhibit 10, p199 and T.218.5 – T.219.34). 3. WWL expressly disavowed providing any such service in letters that it sent to OFS/Richards in relation to loans only weeks after the initial discussion (exhibit E(1), p 379). 1. Even if what was discussed in the early conversations was somewhat along the lines asserted by Richards and Toland as to what services might be provided and by whom (which I do not accept) such discussions were overtaken by the clear and unequivocal disclaimers and limitations as to the scope of the services to be provided pursuant to the statement of retainer in the letters which were sent. 2. The difficulty for the plaintiffs is that WWL stated in clear and unequivocal terms that it was taking no responsibility for due diligence in respect of the security property or the borrowers. This limitation was expressed in very similar terms in the letters sent and addressed to Richards during the relevant period (exhibit 6). These were commercial transactions for very significant sums of money. They were at that time the core business of the fledgling entity, OFS, and in relation to which Richards was the prime mover. The letters were not lengthy or difficult to understand. For the reasons already set out, I have concluded that Richards received and read those letters. The absence of complaint or even comment by Richards concerning these disclaimers strongly suggests that they were consistent with his and Toland's understanding of the terms of the retainer or retainers. 3. There are difficulties for the plaintiffs in fixing vicarious liability to WWL for the conduct of Arslan. He was not a lawyer and was not, at least at the relevant time, an employee as confirmed by the shareholders' agreement (exhibit 10, p172) and by Arslan in oral evidence (T.285). He clearly made his own business arrangements directly and through his companies with Richards and the plaintiffs in relation to further loans. I have found that despite holding himself out (with the authority of Williams) as a "Business Development Manager" of WWL, working from its offices, using an email address associated with it and being a director and shareholder of the incorporated legal practice, he was not a lawyer and was not providing services as an agent or employee of WWL. 4. Richards and Toland understood that Arslan was not a lawyer and that he was from time to time, at least, undertaking activities in a personal capacity divorced from the firm's activities. This is clear from the invoices rendered by his company. The clear terms of the retainer letters suggest that this was the situation. I have found that Arslan's statements were not as a matter of law conduct by or on behalf of WWL and that Richards understood or at the very least ought to have understood that fact. 5. I have referred to the modest charge ($2,120) made by WWL for the services it provided in relation to the Tamarama loan (exhibit E(1), pp243, 244). The memorandum of costs refers only to "preparation of loan documentation and attend on settlement". This is consistent with the evidence of Williams as to the limited nature of WWL's retainer and with the letter of 13 August 2007 setting out the retainer (exhibit E(1), p 379 – 380). 6. For the reasons set out at [52] – [75] hereof, I have concluded that clause 9 of the loan agreement was inserted at the request of Richards. It was for this reason and because the clause is straightforward in its terms that no explanation of it was provided by Williams. Richards agreed that he understood the meaning of clause 9. In those circumstances, and in accordance with the opinion of the experts, I have concluded that there was no obligation on the part of Williams to explain clause 9 to either Richards or Toland. 7. Even if that were not the case, it is difficult to see how the insertion of the clause could have caused any harm to OFS. The clause could only be activated by OFS. Since Richards understood the meaning of the clause the possibility of him exercising the right provided for by the clause in an imprudent manner was remote and would not have been reasonably foreseeable by Williams. 8. In the circumstances, there is no basis for the allegation that WWL breached its retainer or the duty of care which it owed to OFS in respect of clause 9 in the loan agreement. 9. As can be seen from the plaintiffs' submissions, the primary claim in relation to the Tamarama loan is that WWL breached its retainer and the duty which it owed to OFS by failing to advise that Arslan was at the time of the proposed entry into the loan agreement, very recently in default of a substantial loan and mortgage agreement in relation to the same property. That claim depends upon the letter from Hansons Lawyers of 15 August 2007 (exhibit E(1), p427). 10. I have already found that WWL did not act for Arslan on the discharge of the La Trobe mortgage. The documents which the plaintiffs relied upon, such as the fees paid to the firm and their lodging of the discharge of mortgage, were equally consistent with WWL acting for the incoming mortgagee, OFS. (Statements to the contrary in the correspondence from Hansons Lawyers are readily explained by a reasonable assumption on their part that because WWL had acted for Arslan in June 2006 when the La Trobe loan was taken out, they were still acting for him on this occasion.) 11. Because I have found that the letter from Hansons Lawyers of 15 August 2007 came to the attention of Williams, the question arises as to what, if any, was the obligation of WWL to advise OFS of the contents of that letter. I have already found that the scope of the relevant retainer did not specifically include an obligation to advise as to the particular borrower's capacity to pay. As already discussed, in some circumstances the solicitor may come under a duty to advise a client of matters of which he or she is aware that might be relevant to the decision to enter into a loan agreement subject to security. There is no expert opinion either way on this issue. Neither expert had been asked to consider the question in their reports (both the individual reports and the joint report). In those circumstances I rejected any question put to them on that issue when they gave their evidence. Nevertheless, I am required to answer that question given the importance which it now has in the plaintiffs' case. 12. Williams was cross-examined on this issue. In order to better understand the cross-examination, it should be understood that Williams was being cross-examined not about the letter to OFS of 13 August 2007 relating to the Tamarama loan but the letter to OFS of 21 August 2007 relating to the Sanctuary loan: "Q. You disclose those things because as a reasonably competent solicitor, it was important for your lender client to be made aware of facts that might be material to its decision to lend; do you accept that? A. No. … Q. You didn't understand that it was part of your firm's responsibility to make your lender client aware of facts that might be material to its decision to lend? A. Our primary responsibility and the responsibility to which I agree was that we would reflect the agreements that Mr Richards made with borrowers in loan documentation and progress those transactions through to completion. What happened was that I felt there was a schism between James Toland and Chris Richards. When I had that conversation with James Toland, I then elaborated more in the letter so that both of them could be quite sure about what they were entering into. Q. You said that you'd had experience prior to August 2007 acting for a number of lenders? A. Yes. Q. By that, you're aware, aren't you, that matters that may typically concern a lender in entering into a secured transaction may include, firstly, the valuation for the secured property; is that right? A. Sorry, could you? Q. From your experience in acting for lender clients, you understood that there may be a number of material matters that may be relevant to a lender's decision to lend on a secured transaction? A. Yes. Q. One of those, I suggest to you, is a valuation of the secured property? A. Yes. Q. Another I suggest to you is the capacity of a borrower to service the loan? A. Yes. Q. If in the course of executing your retainer for a lender client you learnt of information which may be material to a lender's decision to lend, that is something you would ordinarily disclose to your client, isn't it? A. Not necessarily." (T.239.1 - .44) 1. It is also relevant that Richards and Toland were experienced and successful property developers which Williams was entitled to take into account in deciding what advice was necessary. That is not to say that they would know of Arslan's financial history, but they might reasonably be assumed to know that borrowers for this kind of finance were often in some difficulty and in arrears under existing commitments. 2. It is the defendant's position that the facts of this case have a high degree of similarity to those in National Home Loans Corporation plc v Giffen Couch & Archer (a firm). This was a decision of the Court of Appeal in England (Leggatt, Peter Gibson and Hobhouse LJJ) delivered in June 1997. It was an action by a mortgage lender suing its solicitors, who were also acting for the borrowers in a re-mortgage transaction, for failing to reveal information which the solicitors obtained relating to the borrowers. 3. The borrowers sought a loan of £90,000 from the lender secured by way of first mortgage over their home. In the application form they made a number of false assertions. They asserted that the value of the property was £150,000, that they had never at any time been in arrears by more than one month with any existing previous loan and that they had never had any County Court judgment recorded against them. In fact they had been in arrears for more than one month on their mortgage with another lender and their arrears were in excess of £4,000. There had also been a County Court judgment against one of the borrowers which was subsequently paid. The lender obtained its own valuation in the amount of £125,000 and discovered the County Court judgment. Despite this proof of the inaccuracy of what the borrowers had stated in their application, no further inquiries were made by the lender to check whether other statements made by the borrowers might also be inaccurate. Gibson LJ observed: "It would appear from the paucity of the information sought on the application form relating to the applicant's income and existing mortgage that the plaintiff at that time relied principally on the fact that it was only lending 75% of the value of the mortgaged property as providing its chief protection in the event of default." (at 811[d] – [e]) 1. In the course of acting for both parties, the solicitors were sent a number of documents which included details of the mortgage offer and a printed form of instructions to solicitors and licensed conveyancers. Under that document the solicitors were instructed to investigate the title to the property and to advise if any condition of offer of the loan or any condition of the instructions had not been or could not be complied with. They were also instructed to report on title on the lender's form which was also sent to them. The form required the solicitors to certify amongst other things: "6. We are not aware of any material change in the Applicant's circumstances subsequent to the date of the offer of loan." There was no requirement for the solicitors to report on the state of the account on any existing mortgage. There was no evidence that the solicitors ever saw the borrower's application for loan form or were aware of the misrepresentations in it. 1. In the course of their inquiries the solicitors learned that there were arrears of over £4,000 in the mortgage with the outgoing mortgagee and that the borrowers had told them that completion had to take place by a specified date in default of which the matter was to be placed in the hands of the outgoing mortgagee's solicitors. The solicitors did not pass on the information as to the arrears, or as to any implied threat of legal proceedings, to the lender. It was common ground that it had never occurred to the solicitors that they were under a duty to pass on that information. 2. After the loan transaction was completed, the borrowers quickly fell into arrears and the lender as mortgagee sold the property for £70,000. The lender then sued the solicitors for the loss which it had suffered thereby. The lender said that it would not have made the loan to the borrowers had they been made aware of the arrears and the threat of legal proceedings by the outgoing mortgagee. At first instance, the trial judge found that the solicitors were under a duty to tell the lender about these matters. 3. In reaching his conclusion that the decision of the trial judge was wrong, Gibson LJ relied upon the following statements of principle: "'The extent of his duties depends upon the terms and limits of that retainer and any duty of care to be implied must be related to what he is instructed to do." (Oliver J Midland Bank Trust Co Ltd v Hett Stubbs & Kemp (a firm) (1979) Ch 384 at 402) "The precise scope of that duty will depend inter alia upon the extent to which the client appears to need advice. An inexperienced client will need and be entitled to expect a solicitor to take a much broader view of the scope of his retainer and his duties than will be the case with an experienced client." (Donaldson LJ Carradine Properties Ltd v D J Freeman & Co (a firm) (1982) 126 SJ 157, approved in Virgin Management Ltd v De Morgan Group plc [1996] CA, unreported, 24 January 1996). 1. Gibson LJ considered the following factors to be relevant to the court's decision: 1. The precise limitations of the retainer, i.e. to act "in the preparation of a mortgage … in accordance with the Notes for Guidance and the documents provided" (at 813[f]). 2. As a commercial lender it had provided its own detailed printed instructions to the solicitors. Those instructions specified the particular matters on which the lender required to be advised (at 813[g] – [j]). 3. The only action which the solicitors were instructed to take relating to the financial circumstances of the borrowers was twofold: to do a bankruptcy search and to report on any matter revealed by the search" (at 813 [j] – 814[a]). 4. The lender did not send a copy of the loan application by the borrowers to the solicitors and there was no evidence that the solicitors knew of any of its contents (at 814[a]).. 5. The report on title requiring the solicitors to certify that they were not aware of any material change in the circumstances of the borrowers was qualified by the limited nature of the financial inquiries which the solicitors were directed to carry out (at 814[a] – [c]). 1. Gibson LJ further observed: "It is not clear to me that the information on the arrears and the threat of proceedings came to the [solicitors] in the course of doing the work they were instructed by the [lender] to do as distinct from coming to them as solicitors for [the borrowers] seeking to redeem the Western Trust mortgage, but, on the assumption that the [solicitors] received that information in both capacities, … 'the question whether [the solicitors] should pass it on to one client or the other or both or neither … depends on the relevant interest of each client which the solicitor is engaged to serve' …. The information in the present case did not relate to title nor to the adequacy of the security, with the obtaining of which the [solicitors] were acting for the [lender], nor to any other matter on which the [solicitors] were instructed to report or advise. In the circumstances already outlined, I do not accept that the information was clearly of potential significance to the [lender]." (p815(a)) 1. In conclusion, Gibson LJ said: "But the transaction in the present case was a remortgage, as the [lender] knew, and on the completion of the transaction, the existing mortgage debt would be cleared. The [lender] was not concerned to discover what that debt was and whether further moneys were being raised by [the borrowers] by the remortgage. Indeed, it offered them a facility to borrow yet more money, up to 75% of the valuation of the property. Further, whereas the solicitors in the Mortgage Express case obtained information which neither the mortgagor nor the mortgagee would have had, the information in the present case relating to the arrears was information which it would be reasonable to suppose that the [lender] would have obtained from [the borrowers], if not from the existing mortgagee, if it had wanted to do so. … I therefore conclude, in acceptance of Mr Davidson's submissions, that the [solicitors] were not in breach of duty when they did not pass on to the [lender] the information as to the arrears and as to the implied threat of proceedings" (at 816). 1. The National Home Loans case is very fact specific. In that regard it could not be said that OFS was an experienced lender such as the lender in that case. Certainly it did not have a specific set of directions which it passed onto WWL and which, by implication, restricted the obligations of WWL. On the other hand, it was a re-mortgage situation and it was well open to OFS to make an inquiry of La Trobe as to the state of the loan. This was particularly so when OFS was aware that Arslan was the owner of the property, as well as the promoter of the re-financing arrangement. There is also the express limitation on responsibility (which was not queried or challenged at any time by OFS) by WWL in its letter of 13 August 2007 to the effect that its instructions were: "To act on the company's behalf in respect of preparation of the loan transaction documentation and upon settlement thereof and … this firm has not conducted any due diligence in respect of this transaction and is not prepared to take any responsibility in respect there to" (exhibit E(1), p379). 1. Because of those express limitations in the only document which purports to set out the retainer and duty of WWL, I have concluded that it did not have an obligation to disclose Arslan's financial position under the La Trobe mortgage to OFS. 2. I do not base that conclusion on the proposition that this information came to Williams in confidential circumstances because Arslan was a previous client of the firm. As the letter of 13 August 2007 from WWL to OFS made clear, WWL was not acting for Arslan in that transaction. Accordingly, the status of the information which was communicated by La Trobe's solicitors to WWL in the letter of 15 August 2007 is difficult to determine. It probably came to the notice of WWL because Arslan had previously been a client. Did that circumstance govern its receipt at a time when WWL had expressly asserted that Arslan was no longer a client? If the correct characterisation of the receipt of that information is that it was received in confidential circumstances, then that is another reason why there was no obligation on the part of WWL to disclose it. 3. In these circumstances I am not prepared to find that WWL breached its retainer and/or duty of care which it owed to OFS in relation to the Tamarama loan by not disclosing to OFS Arslan's financial position under the La Trobe mortgage as disclosed by the letter from La Trobe's solicitors to WWL of 15 August 2007. 4. If I am wrong in that conclusion, the plaintiffs would still fail in this part of their claim against WWL in that causation has not been established. 5. Because these proceedings involve a claim in negligence for conduct occurring in New South Wales, s 5D of the CLA must be applied to the determination of causation. Part 1A of the CLA applies to these claims irrespective of how they are formulated (Booksan Pty Ltd, Jaymay Constructions Pty Ltd v Wehbe, Elmir; GIO General Ltd & GIO Workers Compensation (NSW) Ltd v Webhe, Elmi [2006] NSWCA 3). Under S 5D the plaintiffs must establish causation on a "but for" basis, i.e. the breach or breaches in question were necessary conditions of the asserted harm (Adeel's Palace Pty Ltd v Moubarak; Adeel's Palace Pty Ltd v Bou Najem [2009] HCA 48; 239 CLR 420). The plaintiffs bear the onus of proof of the relevant facts at all times (s 5E). 6. There is a substantial quantity of evidence to the effect that OFS had no relevant concern for the borrower's capacity to pay. Despite repeated self-serving assertions to the effect that OFS relied upon WWL and a denial that he associated high interest rates with high risk (T.95.45) Richards' evidence was ultimately to the effect that he was not concerned with the borrower's capacity to make repayments, as opposed to providing adequate security. "Q. I am just suggesting to you personally that you were not concerned about whether or not the borrower had the capacity to repay it? A. Look, when you are relying on someone else to do it, you don't do their work for them. Q. Perhaps you can answer this question, were you concerned, yes or no? A. No, I wasn't concerned." (T.94.2) "Q. How did you envisage you were going to get the money back if the borrower didn't repay? A. We didn't go into that, we didn't think about that. Q. You didn't think about it at all, is that what you say? A. No. Q. It is what you say, is it? A. Only after they went sour. Q. You had a conversation with Mr Williams about it as well, didn't you? A. Could you tell me or refresh my memory? Q. Didn't you say to Mr Williams "I am not concerned with the borrower's ability to service the loans, I'm happy to acquire blue chip properties put forward as security if and when the borrower's default"? A. No." (T.95.1) "Q. Just before we leave the Tamarama loan transaction Mr Richards what I want to suggest to you, again, is that at the time that you entered into the transaction you thought that you had adequate security, you agree with that? A. We relied on what they told us. Q. You thought that that was right? A. Yes. Q. You were otherwise unconcerned about the borrowers capacity to repay, is that correct? A. It - we didn't - it didn't come into our orbit, we weren't concerned, no." (T.144.41 – T.145.1) 1. Even the often repeated assertion that Richards believed that WWL would be "vetting loans" does not appear to have been associated by him with the capacity of the borrower to repay the loan. "Q. What did you understand Mr Williams to mean by the expression "vet the loans"? A. Well look at the assets and liabilities, look at the property, generally entirely manage it for us." (T.162.1) 1. In the course of his evidence, Toland suggested that a focus of OFS was on borrowers before their entry into loans. When pressed, however, he was not able to provide any substance to that suggestion (T.172.35 – .50). That suggestion was inconsistent with OFS' case. Richards maintained that he sought and received no such information because he left it to others. Despite this Toland gave evidence of receiving such information from Richards (T.173.40) yet shortly afterwards gave contradictory evidence. "Q. You weren't told anything by Mr Richards about any of the borrowers' capacity to pay, were you? A. Mostly no." (T.174.33) "Q. I suggest to you, sir, that you well knew that at the time you went into each of these loans that no documentation was being provided in relation to the borrower's ability to pay at all; isn't that right? A. I haven't seen - the answer is correct. Yes as to your answer." (T.194.33) 1. Arslan in his outline of evidence said that Richards admitted that OFS was entering into the business of "acquisition loans". This business practice has been described in the courts as "asset lending". In his affidavit of 4 February 2011 (exhibit 13) Arslan deposed: "8 … Richards: "I have spoken with Mark Williams and he will prepare the documents. He can't act for you as he is acting for me." Me: "OK. That doesn't worry me." Richards: "I was talking with Mark about you. Can you go out and get some loan customers for me. What we are looking for is to do loans so that if there is a default, we move on the property." Me: "Like acquisition loans?" Richards: "Exactly."" 1. In his oral evidence Arslan recalled that Richards was seeking "distressed loans". "Q. Mr Richards said to you "we are seeking to invest funds in mezzanine mortgage back loans which meet an LVR of at least 80%" do you remember him saying that? A. Sorry, who said that, sorry? Q. Mr Richards? A. I don't think they were in those terms, no. Q. Or something like those terms? A. Again I don't know if you're referring to that exact evening, but I do recall Mr Richards saying that they're looking for distressed loans." (T.284.10) "Q. Mr Arslan, you gave an answer to one of my friend's questions quite early on in your cross examination and I heard it to be to this effect, that you said that Chris Richards said to you that he was looking for distressed loans, my first question to you, importantly is, is that what you said, distressed loans, or not? A. Yes, they were distressed loans, yeah. Q. Did he explain what he meant by that expression? A. So it was like given loans where if they'd, you know, if when the distress I think they know there's going to be difficulty possibility so you usually stand as a caveat or a second mortgage, behind the first, and then if they do default you can take over the property as distressed loans. So, you know, the ability of being able to pay back the loans wasn't a priority. Q. This was something he said to you is it? A. Yeah. Q. When was this? A. Very early in the piece, like - that's what the loans were based on." (T.309.14 1. Williams deposed that this was his clear understanding gained from Richards. As indicated, I prefer the evidence of Williams and Arslan to that of Richards and Toland. That is particularly so in relation to this issue. There was no obvious reason for either Williams or Arslan to concoct these recollections and no real grounds for doubting their memory. The high interest rates on the various OFS loans is an important indicator of the high risk of default that was accepted by all parties to the loans. Despite this Richards denied being aware of any connection. Toland accepted that there was (T.175.7). 2. I have concluded that OFS made no inquiry about the borrower's capacity to make repayments in relation to this loan and that this was not a matter of concern to it in relation to loans generally (T.85 – T.86, T.91, T.187). This was so even after taking advice after the event from Mr Kendall (T.193.16, exhibit E(3), p 808). Williams decisively rejected the proposition that Arslan's capacity to service the loan would have been a material matter for OFS. Q. Do you accept from me, Mr Williams, that if there be any doubt about Mr Arslan's capacity to service a prospective $3 million loan, then that was a matter that was material to the decision of OFS to lend; do you accept that? A. No." (T.248.19) 1. These matters fundamentally undermine the plaintiffs' case on causation. I am not satisfied that knowledge of previous default by Arslan would have discouraged, let alone deterred, OFS from entering into the Tamarama loan. I base that conclusion on my preference for the evidence of Arslan and Williams and on the objective evidence in the matter, i.e. the terms of these loans, high interest rates for a short term. 2. I have already indicated why I do not accept that Richards and Toland were acting under any misunderstanding as to whether Jimmy Arslan and Cumali Arslan were the same person. If I am wrong in that conclusion for the reasons already given, I am not satisfied that knowledge that Jimmy and Cumali Arslan were the same person would have stopped OFS from entering into the Tamarama loan. It strains credulity to assert that OFS would not have entered into a loan with Jimmy Arslan when it was apparently content to lend such a large sum of money to some unknown family member of his about whom they knew and asked nothing in terms of creditworthiness or otherwise. 3. On the issue of causation, I find that even if OFS had been advised of Arslan's existing default under the La Trobe mortgage, OFS would still have proceeded to enter into the loan. As can be seen from exhibit 6 (the retainer letters) OFS was engaging in asset lending in respect of the Tamarama property. This was a short term, high interest loan, the security for which was a property which could be developed and sold for a sum substantially greater than the loan. This was Arslan's position which he says he made clear to Richards. Looked at objectively, it is not unusual or particularly risky that loans of that sort might be made to persons needing to refinance because of difficulties meeting existing loan commitments. Assessed objectively, I am not satisfied that any failure to advise about Arslan's default under the La Trobe mortgage led to OFS entering into the loan and consequently any loss to the plaintiffs. 4. There is also a causation issue in relation to the financial loss claimed by the plaintiffs. The loss, said to flow from the alleged breaches in relation to clause 9, appears to be simply as per par (22)(i) of the 3rd FASC "Costs of proceedings against Mr Arslan". Those costs are not particularised or quantified in the Statement of Claim and no evidence was led about them. Leaving aside my finding that clause 9 was inserted at the request of Richards, and that he well understood its meaning, it is far from clear that litigation and consequent costs would not have ensued as between the plaintiffs and Arslan regardless of the existence of that clause. 5. In any event I am not persuaded that clause 9 was ever activated. There is no evidence of any written requirement by OFS for a transfer by Arslan. The only such written requirement was made in October 2010 as part of a settlement of the proceedings against Arslan. That settlement did not eventuate because of a caveat on the title. Moreover the transfer was made out by Arslan to Richtoll Pty Ltd not OFS. 6. Ramrakha's evidence was to the effect that Richards asked him in the middle of 2009 to get Arslan to execute a transfer of the property. There is no evidence that this request was made or confirmed by written instructions. There is no evidence of any written requirement by OFS for a transfer by Arslan and because the transfer has disappeared, it is not known to which entity the transfer was made out. The title to the Tamarama property remained vested in Arslan until 2011 when OFS exercised its mortgagee's power of sale over the property. 7. No loss has been established by the plaintiffs based on the alleged insertion without instructions of clause 9 in the loan agreement in respect of the Tamarama property. 8. Leaving aside questions of breach and legal causation, there is another difficulty confronting the plaintiffs in relation to proof of loss in respect of the Tamarama property. OFS' loss or damage must be adjudged by reference to its interest in the recovery of moneys advanced. Its loss derives from its inability to recover the sums advanced to Arslan (Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; 247 CLR 613 at [26). 9. The fact that negligence may have caused the plaintiffs to enter into a contract that they otherwise would not have entered into, does not inevitably mean that they have suffered damage merely by entering into the contract. This is because it will not immediately be self evident that the value of the chose in action acquired, i.e. the right to repayment of moneys advanced, is worth less than the amount paid. In general terms in a case involving a loan of moneys, damage will be sustained and the cause of action will accrue only when recovery can be said with some certainty to be impossible (Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd at [31] – [32]). 10. In the circumstances, any loss should prima facie be calculated by reference to OFS' capacity to recover the moneys from the borrower at the time of loss first accruing, i.e. either the handing over of the loan moneys, the first default under the loan agreement or at the latest, when it purported to exercise the power under clause 9, there being in any case no reduction in the value of the security property at those times. Whatever legal approach is applied, it is clear that at or shortly after the loan was advanced, OFS had the capacity to recover all or nearly all of the principal sum. OFS should have identified early in 2008 that the loan was going bad, that the security property would not fully cover the loan plus interest to date, and that Arslan may not be good for the balance in which case the cause of action was certainly complete and damages were assessable. 11. The evidence suggests that the plaintiffs had an opportunity to sell the unit for $3 million in February 2007. A contract for sale of land for that sum was exchanged but rescinded. There were also valuations, both before and after the Tamarama loan was extended, which suggested that the value of the property was in the range of $2.5 - $2.9 million. At about the date when loss first accrued (February 2008), the property was professionally valued at $2.9 million (exhibit E(3), p832). There was also no evidence of why the plaintiffs did not attempt to sell the property at any time before its ultimate sale in November 2011. There is, however, evidence that Richards, at least, intended to buy all of the units in the block and develop the block as a whole for maximising capital gain. 12. In the circumstances, the plaintiffs suffered virtually no loss in relation to the Tamarama loan. Alternatively, the loss might be valued by comparing the amount of money extended by way of loan with the asset which was effectively "acquired" on being provided as security. This would be analogous to quantification of loss where an asset is acquired as a result of a negligent misstatement or misleading and deceptive conduct. On the basis of the available valuation evidence, if the sale price of $3 million was not to be taken as a determinative figure, then a reasonable value to place on the Tamarama unit at the relevant time might be $2.75 million. This would yield a notional loss of $250,000 plus some loan interest. On the asset acquisition approach just outlined, interest would commence to run from the date of the drawdown of the loan, being 17 August 2007. 13. One further and final difficulty with the plaintiffs' claim for loss with respect to the Tamarama loan was their decision not to pursue Arslan for the full amount of the loan debt including interest. Proceedings of that nature were commenced but settled as noted earlier. It is for the plaintiffs to establish that that settlement was reasonable. There is no evidence about this. 14. One only gets to the issue of quantification of the claim in respect of the Tamarama loan if I have erred in my findings as to no breach of retainer or duty and that causation has not been established by the plaintiffs. 15. For those reasons in relation to the Tamarama loan the plaintiffs have failed to make out their claim either in contract or in tort. Submissions – the Sanctuary Development loan 1. The plaintiffs submit that even if the letter from WWL to OFS of 21 August 2007 narrowed WWL's retainer in relation to this loan to the preparation of "loan documentation to reflect the terms and conditions of the Loan and attend settlement and all necessary registration arising therefrom" as set out in par 3 of that letter (exhibit E(1), p237), matters such as the undertaking of an ASIC search of the borrower were not excluded. 2. The plaintiffs submit that this was because of the advice contained in the balance of the letter. That advice related to certain risks associated with the form of security being taken for the loan. The plaintiffs submit that in that regard WWL's retainer was not nearly so narrow as the first sentence of par 3 of the letter might suggest. The plaintiffs submit that in the light of the expert evidence of Messrs Rosier and Carkagis as to matters undertaken by solicitors as ordinary incidents of acting for lender clients, the Court would proceed on the basis that those matters fell within the ambit of WWL's responsibilities unless there was clear evidence of a contrary intention. The plaintiffs submit that the very fact that WWL undertook searches on 16 and 17 August 2007 is persuasive evidence that Williams considered the performance of those searches to be within his sphere of responsibility even if the activity did not obviously fall within the description of "drafting". The plaintiffs submit that the issue was not whether Williams had the responsibility of undertaking the searches but the sufficiency of the timing of them. 3. The plaintiffs submit that the issue at trial had become a narrow one. It was whether in the particular circumstances of this case, reasonable care on the part of WWL required that it perform an ASIC search of the borrower at a time very shortly before the loan moneys were advanced. The plaintiffs submit that adjudication of a cause of action founded on the failure by a defendant to exercise reasonable care in respect of a plaintiff, whether arising in tort or contract, is governed by Part1A CLA. Section 5B(1) CLA provides that a defendant will have been negligent in failing to take a precaution against a risk of harm where that risk was both foreseeable and not insignificant and a reasonable person in the defendant's position would have undertaken the precaution. 4. The plaintiffs submit that the identification of the relevant risk of harm in this case was relatively straightforward as is the answer to the question of whether that risk was foreseeable and not insignificant. They submit that there was plainly a foreseeable and not insignificant risk that OFS would suffer financial harm if the loan moneys it proposed to advance to Sanctuary Developments were advanced after that company had a receiver and manager appointed to it as a result of a failure to service debts it owed to existing creditors. There was a real risk of financial harm to OFS if the premise upon which it was lending the loan moneys, i.e. that the moneys were going to a liquid entity capable of servicing the loan, proved to be false. 5. The plaintiffs submit that the precaution that a reasonable person in WWL's position would have taken against that risk of harm was the performance of an ASIC company search shortly before the advancing of the loan moneys. The experts jointly agreed that an ASIC search was the quickest and cheapest means of determining the status of the administration of a corporate borrower. "ABADEE: Mr Rosier, if a reasonable solicitor who's tasked to act for a lender on a secured transaction wanted to obtain quickly and cheaply information as to the administration of the borrower would there be any better method of ascertaining that than doing an ASIC search, an ASIC company search? WITNESS ROSIER: Well if the borrower's a company, no. WITNESS CARKAGIS: I agree." (T.325.31) 1. The plaintiffs submit that the effect of the taking of that precaution in this case would have been to detect that a receiver and manager had been appointed which would in turn have caused Williams serious concern as to the liquidity of the borrower and provided OFS with the opportunity to reconsider the advance of the loan moneys. 2. The plaintiffs submit that the reasonableness of the precaution proposed is confirmed by reference to the considerations in s 5B(2) CLA. The plaintiffs submit that the probability of financial harm to OFS occurring in the absence of such a search was not insubstantial. While accepting that it is not necessarily a fait accompli that the advancing of moneys to a company in receivership will cause loss, in this case the plaintiffs submit the probability of financial loss being suffered by OFS, if that were the case, was sufficiently high to warrant a search being undertaken. 3. The plaintiffs submit that this was all the more so when the likely seriousness of the harm to OFS and the burden of taking the precaution in question are considered. The plaintiffs submit that viewed prospectively the seriousness of the harm OFS would suffer if the sum of $4.5 million were advanced to a borrower unable to service the loan was likely to be enormous – the sum of $4.5 million was a large proportion of the plaintiffs' capital. Further and importantly, the burden of undertaking the ASIC search was trifling – a matter of minutes and a few clicks of a mouse. 4. The plaintiffs submit that those submissions in relation to breach of duty were supported by an examination of particular circumstances in the case. The plaintiffs submit that this was a loan: For a very large sum of money. Secured only by a second mortgage. Made at a high rate of interest indicating increased associated risks. Made to a company in an industry fraught with risks in relation to liquidity. In relation to which there had been a significant lapse of time between the last search undertaken and the advancing of the loan monies. Made by lenders whose goal was to secure a return by way of interest from the loan moneys advanced. Made by inexperienced lenders who, irrespective of the Court's ultimate conclusion as to the scope of WWL's retainer, were clearly very reliant upon WWL to take care in respect of their interests. 1. The plaintiffs submit that the lack of sophistication of OFS should be contrasted with the practices of more sophisticated clients discussed by Mr Carkagis in his evidence. "PRIESTLEY: If the client has conducted a search and provided it to the solicitor, then you would not in the ordinary case, putting this loan aside, necessarily expect a solicitor in reasonably competent practice to have conducted a further search? WITNESS CARKAGIS: Again, I'll qualify it. Some clients have that approach; some clients don't. The clients who have that approach always do their own searches because they have access, as we've heard, to the computer system these days; so, they carry out their own searches to check out the borrower, and they take the view that they'll give you a copy of that search which is dated fairly recently to prepare the documents. PRIESTLEY: Do you agree with that, Mr Rosier? WITNESS ROSIER: Yes, I do, yes." (T.330.16) The plaintiffs submit that Richards and Toland were not individuals with established practices of performing searches of this type. 1. The plaintiffs rely upon par (19) of the Joint Experts' Report which provided as follows: "19. Question 8 In circumstances where a solicitor: a. knows that its lender client has entered into a loan for $4.5m to a borrower; b. knows that the said loan is to be secured by entry into a second-rating mortgage over property, subordinated to a prior mortgage to secure a loan of $12m; c. knows of the risk that its client may be unable to recover monies advanced should the borrower default and should the prior security holder enforce its security over the secured property; d. knows that the appointment of a receiver and manager by some other secured creditor is an event of default Which may entitled its client to terminate the client's loan e. has prior to the client's entry into the loan transaction, procured a search of ASIC's public register that determines the borrower's status, including whether or not it was in external administration would a reasonably competent solicitor conduct a further search of ASIC's public register, to determine the status of the borrower prior to completion of the transaction? The experts are now agreed that in the particular circumstances of this case that usual practice of a reasonably competent solicitor would be to make a further search of the ASIC register prior to settlement. They agree that whether, or not, a search should be made of the ASIC register at the outset of the transaction and a further search immediately before completion of a loan transaction depends upon the circumstances of the case and in particular the period of time between first instructions and any matter of concern coming to the notice of the client or the practitioner. Here, after discussion, they have agreed that the time lapse between the ASIC search by the defendant and the date of settlement should have given rise to a concern of a possibility in the change of status of the borrower sufficient to warrant a further ASIC search prior to completion of the loan transaction. They agree that whether such a further search should be done in lending transactions is a matter of judgment for the solicitor conducting the transaction and that making such a search is not a universal practice of reasonably competent solicitors." (exhibit E(2), pp531L – 531M). 1. The plaintiffs note that while Mr Rosier agreed with the proposition put to him by senior counsel for WWL that this was a borderline case Mr Carkagis was firm in his conclusion that it was not. "PRIESTLEY: Mr Rosier, it's certainly capable of being expressed as a borderline case? WITNESS ROSIER: Yes, I think so. I mean the fact that I shouldn't stand here and hold myself as the ..(not transcribable).. by virtue and determining such matters but the fact that I changed my mind indicates that certainly I do regard it as a borderline case. PRIESTLEY: Mr Carkagis do you accept that description or not? WITNESS CARKAGIS: No, it's not a borderline case." (T.335.13) 1. The plaintiffs submit that for those reasons WWL breached its retainer and the duty which it owed to OFS in failing to perform a search of the ASIC register at a time shortly before the advance of the loan moneys to Sanctuary. 2. The plaintiffs submit that s 5O CLA does not assist WWL on the issue of breach of retainer or duty. They note that s 5O provides a defence to negligence where a professional person can demonstrate that he or she acted in a manner "widely accepted in Australia by peer professional opinion as competent professional practice". 3. The plaintiffs further note that s 5O has been interpreted to be a defence in the true sense Dobler v Kenneth Halverson; Dobler v Kurt Halverson (by his tutor) [2007] NSWCA 335; 70 NSWLR 151 at [60] per Giles JA (Ipp and Basten JJA agreeing), i.e. the particular practice relied upon by a defendant must be properly pleaded and particularised (Sydney South West Area Health Service v MD [2009] NSWCA 343 at [21] – [23] per Hodgson JA (Allsop P and Sackville AJA agreeing)). The plaintiffs submit that WWL had not properly identified in its pleading the particular practice and the material facts underpinning it upon which it seeks to rely to make good this defence. 4. The plaintiffs submit that s 5O requires more than merely evidence that some persons in a profession might act in a particular way in certain circumstances. The plaintiffs submit that s 5O requires positive proof of a practice "widely accepted". This is a matter in relation to which the defendant bears the onus of proof. The plaintiffs submit that the high point of WWL's evidence on this issue was that of Mr Rosier to the effect that there was "an arguable case" for a practice of not undertaking a further ASIC search in circumstances such as these. The plaintiffs submit that this evidence from Mr Rosier about what he would have done was the product of considered thinking whereas there was no issue that Williams did not think about it at all. 5. The plaintiffs submit that by Williams' own admission his failure to undertake a further ASIC search was inadvertent rather than a deliberate exercise of professional judgment. The plaintiffs submit that the defence in s 5O does not apply to conduct of that kind. The plaintiffs submit that the use of the word "acting" in the section implies that certain actions were taken after consideration. It follows, so the plaintiffs argue, that the s 5O defence is not made out. 6. In relation to causation, the plaintiffs submit that the evidence of Richards and Toland made it clear that the capacity of borrowers to service loans was a matter of significance to them. In support of that submission, the plaintiffs rely upon T.91 – 94, T.152, T.172 – 173. (By way of interpolation, T.91 – T.94 does not provide any support for that submission. On the contrary the effect of Richards' evidence in those pages was to say that he relied entirely upon WWL to make inquiries to that effect and at T.94.9 he agreed with the cross-examiner's proposition that he was not concerned whether or not the borrower had the capacity to repay the loan. Similarly, no support for that proposition is provided by T.152. The evidence of Richards went no further than to say that when he learned that a receiver had been appointed to Sanctuary, he was concerned but could not explain why he was concerned.) 7. At T.172 – T.173 Toland's evidence contradicted that of Richards, to which reference has just been made. It was his evidence that he and Richards insisted on documentation being sent to them which they then examined in order to decide whether they should make the loan. "Q. Mr Toland can you remember an occasion when you were told something about a borrower that led you to be cautious and to say we shouldn't go ahead with the loan, or are you just making that up? A. That is - no it is not making it up, it would be discussions with Mr Richards. He would have the information sent to his office and I would be in his office, I was not in Worthington Williams office, I was in our office in Maitland and we would discuss documents that would be sent to us and I would look at this the loans. I can recall definitively rejecting at least three of these particular things, and said, "Let's not proceed with them". … Q. You don't say anything about any concern about any borrower? A. But the reality is that you were given information, and you back a judgment by the information. The LVR was part of that information, but if you were given further and better particulars they help you to make a judgment. Sometimes you got further and better particulars, how many other loans did they have, what was their current status, just anything that might give you an indication as to whether or not the loan was a good one or a bad one. … HIS HONOUR: Q. Mr Toland if I've understood you correctly when you had these discussions with Mr Richards Mr Richards would provide you with information, did he, about the borrowers, how many loans they had, matters of that kind? A. Whatever information was given to us in relation to a loan would be part of what we would discuss. We don't - we didn't always get a lot of information, but sometimes there'd be additional information, and occasionally it might have been that even Mr Arslan was a bit cautious about it, he said consider these matters and that would be part of why we would choose to reject it." (T.172.43, T.173.12, T.173.40) 1. The plaintiffs submit that whatever the failings of Richards and Toland in managing the business which they embarked upon, they were on behalf of the plaintiffs looking to enter loan transactions in which the borrower was viable in terms of repayments. The plaintiffs submit that there is no substance in the suggestion that the fact of a receiver having been appointed to Sanctuary Developments would not have been a matter of concern or consequence to them. The plaintiffs submit that the inclusion in the loan agreement with Sanctuary of a provision that the appointment of receivers constituted an event of default entitling OFS to call in the loan demonstrated the significance placed by OFS on the question of the status of the company borrower and its capacity to service its repayment obligations. (That last submission is of little weight. The provision relating to the appointment of receivers is a standard provision which appears in just about every loan agreement entered into by a company as borrower.) 2. The plaintiffs rely upon the evidence of the experts as to what a reasonable solicitor would have done in response to learning of the appointment of receivers before the advance of loan moneys. The plaintiffs note that both Messrs Rosier and Carkagis gave evidence that a competent solicitor would have advised OFS not to advance the moneys at that point and that the money should not be advanced until such time as inquiries had been made with the borrower's solicitors and satisfactory explanations and assurances had been provided as to the viability of the loan. The plaintiffs submit that the negligence of Williams prevented the making of such inquiries. The plaintiffs submit that acting rationally and prudently in their own interests and on the provision of hypothetical competent advice from their solicitor but for the negligence of Williams, OFS would not have advanced the loan moneys on 21 September 2007 or at all. 3. The plaintiffs submit that on this issue it is not open to WWL to rely upon the explanations and self-serving statements by Sanctuary's solicitor about its financial position on the issue of causation. The plaintiffs submit that to do so was to engage in hindsight reasoning. The plaintiffs submit that whatever the borrower did or said it could do after the advance of the moneys on 11 September 2007 was with the benefit of the additional $4.5 million which would have been enough money to, among other things, pay off the debt owing on the boat. Consideration 1. It should be noted that the allegations in the 3rd FACS in relation to the assessing the value of the security property in relation to the Sanctuary loan have been abandoned. The issue which remains is WWL's failure to search the ASIC register just before the loan moneys were advanced so as to discover that Sanctuary had a receiver appointed at the time. 2. The plaintiffs' expert, Mr Carkagis, originally said in his report only that a search should have been conducted "shortly before" the loan moneys were due to be drawn down. He refined this in the joint report and in his oral testimony to immediately before. Having discussed the matter with Mr Carkagis, and having thought carefully about it, Mr Rosier agreed with that approach in the joint report and in his oral evidence. 3. WWL did conduct the relevant search on 16 August 2007 and again (for a reason not explained) on 17 August 2007. At that time the register revealed no appointment of a receiver to the company. The receiver was not appointed until 11 September 2007 and 10 days later, the loan moneys of $4.5 million was advanced, i.e. the receiver was appointed 25 days after the last search and the loan moneys were advanced five weeks after the last search. 4. The first question is whether the failure to conduct a further search before the draw down constituted a breach of duty and of retainer. 5. In their oral evidence, Messrs Rosier and Carkagis justified their conclusion on the basis that this loan was for a large sum of money and because five weeks had passed between the last search and the draw down. 6. I found both experts to be impressive. Their expertise was unquestioned. Most particularly, they appeared to be doing their best to provide assistance to the Court in relation to their areas of expertise. Of the two experts, Mr Rosier was perhaps more prepared to consider alternative scenarios. That, however, is not to in any way discount the opinion of Mr Carkagis. I found their opinions on this issue to be compelling and persuasive. They also accorded with common sense. 7. Despite these matters, the defendant submits that the Court should decline to find that the failure to search just before the loan draw down constituted any breach of duty or retainer. In support of that submission, the defendant relies upon the following matters: 1. The task of searching the ASIC register was not subject to any express retainer. On that issue the defendant noted that Mr Carkagis had said that in some cases clients might do that work themselves. 2. Even if a search of the ASIC register was included in the retainer, a preliminary search as occurred here satisfied the duty and the retainer. 3. Both experts accepted that when to search the register and whether to conduct a further search were matters for a value judgment on the part of the solicitor and that there was not any clear obligation (T.332.13). 4. While both experts said that they did their best to avoid the application of hindsight, it was inevitable that hindsight would play a part given that a receiver had in fact been appointed within the five week period between the last search and the loan draw down. 5. Although Mr Carkagis did not agree, Mr Rosier accepted that this was a borderline case. In that regard, Mr Rosier would not have conducted a further search had the draw down occurred on 6 September as originally planned (i.e. three weeks after the last search). 1. Subject to the s 5O CLA question, I have concluded that WWL was in breach of its duty and its retainer by the plaintiffs in not carrying out a further ASIC search just before the loan draw down. In reaching that decision, I have relied upon the expert opinion of Messrs Rosier and Carkagis. I have taken into account the basis for their conclusion, i.e. the size of the loan and the amount of time which had passed since the previous search. I have also taken into account the relative ease with which such a search can be carried out. A search of the ASIC register can be done online and would occupy only a matter of minutes. 2. As indicated, the defendant relies upon s 5O CLA which provides a defence to professionals if they can demonstrate that irrespective of whether the Court might be inclined to objectively consider the conduct to be negligent, it was widely accepted by peer professional opinion as competent practice among solicitors at the time. 3. Section 5O provides: "5O Standard of care for professionals (1) A person practising a profession (a professional) does not incur a liability in negligence arising from the provision of a professional service if it is established that the professional acted in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice. (2) However, peer professional opinion cannot be relied on for the purposes of this section if the court considers that the opinion is irrational. (3) The fact that there are differing peer professional opinions widely accepted in Australia concerning a matter does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section. (4) Peer professional opinion does not have to be universally accepted to be considered widely accepted." 1. WWL relies upon the following evidence to make out its defence under s 5O CLA: "PRIESTLEY: Is it fair to say Mr Rosier at the time that you were expressing that opinion it seemed to you from what you knew about the circumstances of this case that it might well have been reasonable professional practice not to have conducted a search? WITNESS ROSIER: Yes. I'm sort of driven back to section 5O of the Civil Liability Act and that phase widely accepted which I think it is capable of a number of interpretations but you can certainly say widely accepted doesn't mean a majority and widely accepted doesn't mean all, and it may not mean a majority, it just means that there's a substantial body of opinion in the profession even though there may be an argument on the other side of efficient, so I mean I'm inclined to the view that there could well be many people in my profession who have a large volume of experience in this sort of work who would say, "no, I just wouldn't have done the second search" and so I accept that that's a possibility. I just formed the view after discussion with Mr Carkagis that this was probably a case where you probably would have done one. … PRIESTLEY: Do you have any other comment on what Mr Rosier just said? WITNESS CARKAGIS: No. HIS HONOUR: What about the 5O point just unless there's any misunderstanding, do you agree with what Mr Rosier said about 5O? WITNESS CARKAGIS: I can't disagree with it. PRIESTLEY: Mr Rosier, it's certainly capable of being expressed as a borderline case? WITNESS ROSIER: Yes, I think so. I mean the fact that I shouldn't stand here and hold myself as the ..(not transcribable).. by virtue and determining such matters but the fact that I changed my mind indicates that certainly I do regard it as a borderline case. PRIESTLEY: Mr Carkagis do you accept that description or not? WITNESS CARKAGIS: No, it's not a borderline case." (T.33.34 – T.335.23) "PRIESTLEY: Mr Rosier, does that mean that some reasonably competent solicitors might not have conducted a search in this case and yet not departed from proper practice? WITNESS ROSIER: Well I think I've really answered that when I raised the question of section 5O, yes. I think there is an arguable case that it's not a departure from common practice or usual practice not to have done one and I'm a bit driven to the view that the - that sometimes solicitors do these things not so much because they think that it's a particularly prudent thing to do and usual practice but rather to avoid what - exactly what we're doing here today. And, you know, you don't necessarily always achieve a particular result by doing something, nor even expect to achieve one but you do it as a matter of course as a risk management tool. HIS HONOUR: Self-protection? WITNESS ROSIER: Self protection, your Honour, yes. PRIESTLEY: There's another expression for it, your Honour. WITNESS ROSIER: Protecting your backside, your Honour. WITNESS CARKAGIS: I don't disagree. I'll just qualify. Some client have certain procedures and practices which we must follow, and that gives us an out in the sense that if they say don't do another search because we will do it and we won't even tell you, then we don't do it. If in the circumstances where a client is relying on a solicitor to do a certain job and doesn't have certain practices and procedures but relies on the solicitor's practices and procedures, and in the circumstances of certain cases such as this, in the terms of those points raised before, sorry, in A to E, in that question, then it would be my view that in that last sentence, you should have carried out a search. HIS HONOUR: What about the section 5O point? I raised it with you earlier. What you're saying now is slightly different. Lest there be any argument later, what is your view on that? Would there be still a substantial group of solicitors who, if they didn't carry out that second search, would be regarded as usual practice, without necessarily being a majority? WITNESS CARKAGIS: Yes, I'll have to agree with that. There are practitioners out there who fall within that category." (T.337.49 – T.338.38) 1. The defendant relies upon the following observations by Giles JA (with whom Ipp and Basten JJA agreed) in Dobler v Kenneth Halverson; Dobler v Kurt Halverson (by his tutor): "103 For s 5O, the question is not necessarily one of preferring A's evidence of acceptable professional practice to the evidence of B. If B's evidence supports the manner in which the defendant acted, the question is whether there is established a professional practice widely accepted by (rational) peer professional opinion. If A and B both gave their evidence as evidence of whether the manner in which the defendant acted accorded with professional practice widely accepted by (rational) peer professional opinion, the question will be one of preferring A's evidence to that of B, but otherwise it will be one of acceptance of B's evidence, its weight and what it establishes. The conceptual distinction must be made, although in the acceptance of B's evidence and its weight regard to the evidence of A is likely to remain relevant." (emphasis added) 1. The defendant submits that both experts gave evidence which satisfied the statutory test in s 5O so that there was little scope for a contrary finding. In making that submission, the defendant accepts that the number of cases in which this defence might succeed in the face of a preliminary finding of breach of duty might be limited but that this was such a case. The defendant submits that the unchallenged expert opinion established that a significant proportion of WWL's professional peers would have accepted at the relevant time that it was competent practice not to search the ASIC register again in the 10 days before draw down. WWL submits that while a court could apply its own judgment to matters of competent legal practice, it should be cautious in doing so in cases where there was expert opinion and a specific mode of practice was under consideration. WWL submits that there was no scope for the application of s 5O(2) whereas subsections (3) and (4) were important and should be applied. 2. I am of the opinion that WWL has not made out a defence under s 5O. I have reached that conclusion on the basis of my analysis of the expert evidence upon which the defendant relies. The evidence does not establish that in 2007 it was widely accepted in Australia that competent practice on the part of a solicitor was not to search the ASIC register again in the last 10 days before the draw down of a loan. 3. The evidence of Mr Rosier at T.334 goes no further than to say "I'm inclined to the view that there could well be many people in my profession who have a large volume of experience in this sort of work who would say "no, I just wouldn't have done the second search" and so I accept that's a possibility." (emphasis added) What Mr Rosier is saying is that it is possible that there was a large group of solicitors who held that view. He is not stating it as a fact. Accordingly, Mr Carkagis' inability to disagree with Mr Rosier on this matter was to recognise that possibility not to confirm it as fact (T.335.11). This was made clear at T.335.23 when Mr Carkagis refused to accept that this factual circumstance was a "borderline case". 4. Similarly, the evidence of Mr Rosier at T.338.3 is in terms of there being an "arguable case" about it not being a departure from common practice not to have done such a search. That does not go far enough to satisfy the requirement of s 5O. Even the subsequent agreement of Mr Carkagis at T.338.37 does not go far enough. It goes no further than asserting "there are practitioners out there who fall within that category". 5. It follows that the evidence relied upon by the defendant is not sufficient to establish "that it was widely accepted by peer professional opinion as competent practice" in the profession in 2007 not to carry out a second search in the ten days before the draw down of the loan. It also follows therefore that in relation to this part of their claim the plaintiffs have established breach of duty/retainer on the part of WWL. 6. That does not end the matter. There remains the issue of causation. I have concluded for the reasons which follow that the plaintiffs have not established causation in relation to that breach of duty in respect of the Sanctuary loan. 7. As soon as WWL became aware of the appointment of the receiver, they made inquiries of the solicitors for Sanctuary seeking to clarify the position. They were advised that the appointment related to a debt for a charge arising from a loan for a boat only and that the borrower would shortly rectify the position and the receiver would withdraw. This in fact happened, although not until February 2008. The reason for the delay is not fully explained, although the correspondence suggests that some of the delay was due to the various procedural steps which the receivers were required to take in order to withdraw. 8. The correspondence reveals that shortly after the appointment came to light, the solicitors for Sanctuary advised WWL that they held sufficient moneys in trust to discharge the relevant debt and would do shortly. This was confirmed by the liquidator in due course (exhibit E(1), p 267; E(3), p 822). 9. Williams' evidence was that if he had become aware of the appointment of the receiver before draw down, he would have raised this in the first instance with Sanctuary's solicitors and then reported to his client. "Q. Had you learnt about the appointment of the receiver to this borrower in the period from 11 September, being the date that the receiver was appointed, to 21 September, which was the date to ask you to accept that the moneys were advanced to the borrower, what would you have told Mr Richards, or informed Mr Richards? A. I don't know whether I would have informed Mr Richards immediately. During - if we'd found out during that period I probably would have been in contact with the solicitors for the proposed borrower immediately and then I would have gone back to Mr Richards with that information, I think. So I probably would have told him that, yes, the company was in receivership and but I would have had the knowledge of what the solicitor told me from the proposed borrower. What I'm saying my first point of call would have been the solicitor for the proposed borrower and then my second point of call would have been Chris." (T.269.15) 1. Williams was definite that what he would have told Richards would depend upon what he had been told by the solicitors for the borrower. Both the expert solicitors accepted that the advice which Williams should have given at that stage would depend on the circumstances including what the borrower said about the matter as Williams himself thought (T.269.34), T.270.15, T.274.38). 2. The evidence reveals relatively clearly that the borrower's solicitors, if asked, would have said that the appointment related to a single debt which was not large relative to the impending loan. In those circumstances, the plaintiffs have not established that but for the failure to search the loan would not have gone ahead. Default did not occur until March 2008. If the draw down of the loan had been deferred pending the clearing of the debt which led to the appointment of the receiver, any default would also have occurred later. 3. This is particularly so if regard is had to the nature of the business being conducted by OFS, i.e. high interest, short term "mezzanine" lending, the relevance of which Mr Rosier refers to in his report at some length. As both Williams and Arslan said and which I have accepted, OFS was expressly interested in acquisition loans or distressed loans. Because OFS had already decided to enter into this loan transaction, short term difficulties such as that which led to the appointment of the receiver, would be unlikely to have discouraged OFS from continuing with the loan draw down, although it may have delayed the date on which the draw down took place. 4. It is not without significance that the WWL letter of 21 August 2007 (exhibit E(1), p 237, exhibit 6) specifically advised OFS that no documentation was available to assess the ability of the borrower to service the loan. The fact that that letter was received without comment by OFS is yet another indication that the borrower's capacity to repay loans was not of particular moment to OFS. This is so even though Toland said that he would be greatly concerned if such a letter were received by OFS. The fact is that numerous such letters (exhibit 6) were sent without any reaction from OFS. 5. Richards was cross examined in relation to the letter of 21 August 2007 at T.148 – 149. The answers are instructive: "Q. I suggest to you that it [interest] was just over $130,000 a month, does that sound about right? A. It could be right, yes. Q. Again, in relation to this loan, you made no inquiry whatsoever of anyone as to this borrower's capacity to repay the loan, did you? A. Personally, no. Q. You didn't ask Mr Williams to investigate that matter in this loan? A. Yes, that was their job. … Q. You didn't specifically ask Mr Arslan to investigate the borrower's capacity to pay at all either, did you? A. Well, Mr Arslan was involved with investigations on behalf of Worthington Williams and Global. Q. You were told things about the value of the security, weren't you? A. Yes. Q. You were told things about the LVR, loan value ratio? A. Yes. … Q. But you were never advised at any time by anyone, anything about the borrower's capacity to pay, do you accept that? A. Well, we didn't need to. That was what we expected them to do for us. Q. Can we take it from that answer that you do accept that you were never told anything about that matter by anyone? A. We were never told that they were not good potential borrowers, no. Q. You were told that they had the capacity to repay it, were you? A. Well we weren't told either way. Q. You never discussed the subject of credit worthiness in relation to this loan with anyone before it occurred, did you? A. With Jimmy Arslan, yes. Q. You discussed credit worthiness did you? A. Well he had said to me that they there were LVRs, they'd investigated this, investigated that and in his opinion Worthington Williams it was a worthwhile loan. Q. Have you set out the relevant conversations in your affidavits? A. Not such I don't believe, no. But it was a flow on from Tamarama right through; I mean we didn't need to reinvestigate our original instructions. Nor did they come back to us with a guide as to each loan; it was just the day it was set up that they were our original instructions on day one. We had no reason to doubt they weren't performing these duties. Q. To be clear your evidence now is that there was no discussion with Arslan about this specific loan, or this borrower, is that right? A. No. Q. That is your evidence, is it? A. Yes." 1. Despite being advised of the appointment of the receiver shortly after it came to light (exhibit E(1), p 261) OFS declined to call in the loan and avoid further risk (exhibit E(1), p 264). Indeed OFS was even prepared to roll over the loan taking further security in May 2008 (exhibit 10, p 105). By this time the receiver had withdrawn and Sanctuary had already defaulted under the loan in March 2008. Not only is it clear that OFS elected to take no action upon learning of the appointment of the receivers but far from recalling any feelings of alarm himself, Richards had trouble recalling being so advised at the time. "Q. Do you remember discussing with Mr Williams the fact that a receiver had been appointed to the borrower, Sanctuary Developments, at some time after the loan was drawn down? A. Yes, I think we were told about it, or we'd heard about it. Q. Mr Williams rung you up, did he, and said there's been a receiver appointed to Sanctuary Developments? A. I don't recall. Q. But you had some discussion in which you learnt that fact, is that right? A. After the loan had gone out. Q. Yes, shortly after, does that sound right? A. I couldn't remember. Q. You discussed with him what should be done, correct? A. I don't recall. Q. You gave him instructions as to what he should do about that matter? A. I don't recall. Q. He advised you that it constituted a default of the loan agreement for the borrower to have a receiver appointed didn't he? A. I don't recall. … Q. This is after you found out that a receiver had been appointed, shortly after the loan -- A. I gave him instructions after we found out they were in default. I don't recall about the receiver. Q. I thought you just answered one of my questions a moment ago that you remembered discussing with him the fact that a receiver had just been appointed is that not right? A. After the event. Q. Yes, it can't have been before it happened -- A. But I don't recall instructions as to what to do about it. Q. You don't remember giving him any instructions as to what to do about the fact that a receiver had been appointed? A. I don't recall, no. Q. I suggest to you that you did give him some instructions, you don't deny that? A. If I could have evidence of that, and read it, I'll familiarise myself with that. Q. Without any evidence in front of you do you deny it? A. I don't recall it. Q. I suggest to you that you did not in those instructions suggest that he try and call in the loan, that is, seek repayment of the principal? A. No, I don't recall that." (T.150.12 – T.151.17) 1. Having been told about the appointment of a receiver, Richards apparently did not think it was sufficiently serious to advise Toland. "Q. Do you recall being advised by anyone shortly after the loan moneys were drawn down in the Sanctuary loan that a receiver had been appointed to the borrower? A. That became apparent after the event, yes. Q. Who told you? A. It was in discussions with Mr Richards. Q. When? A. It was actually sometime after the event. So we really didn't discover it until quite late. HIS HONOUR: Q. What exactly do you mean by that? You said that on a number of occasions. You really need to be a little more specific of this area. The loan or the payment was made in September 2007? A. Yes. Q. As far as I can see from documents, Mr Richards at least was told in October of 2007 of that. When did you find out? A. When the loan was in default and only after the event. Q. You were not told in October 2007? A. No, never. PRIESTLEY: Q. When you say default, in answer to his Honour's questions, you mean default in the nature of failure to repay interest on time? A. As the loan was failing, then that evidence came out that there'd been a matter of a boat and that there was a mortgagee in possession." (T.205.8) 1. The failure of Richards to react to a notice that a receiver had been appointed or to even recall any details about that occasion and the apparent failure on his part to say anything about it to Toland is inconsistent with a finding that it is likely on balance that OFS would not have proceeded with the loan had it been advised of the appointment of a receiver. It is also clear from the correspondence and the evidence, both oral and by way of affidavit of Richards and Toland, that OFS never queried WWL as to why the appointment of the receiver had not been discovered before the draw down of the loan. This only appears to have become an issue in the course of the trial after the joint experts' report with its change of position by Mr Rosier in respect of questions 8 and 8A became available in early March 2016. 2. For these reasons, I have concluded that the plaintiffs have failed to establish causation under s 5D CLA. 3. It follows from the above findings and analysis that there should be a verdict for the defendant. If, however, I am wrong in my conclusions it is necessary to deal with the defendant's defences of contributory negligence and proportionate liability. In each case the defendant bears the onus of proving the defence. Contributory negligence 1. If it becomes necessary to consider contributory negligence in relation to each of the impugned transactions, i.e. the Tamarama loan and the Sanctuary loan, it can only be because liability has been found against the defendant. Implicit in such a finding is an acceptance of most of the plaintiffs' evidence and the rejection of a significant part of that called on behalf of the defendant. 2. In relation to the Tamarama loan, the following particulars of contributory negligence have been pleaded: "16.5.1 Failing to enquire as to and/or consider who the actual owner of the Tamarama Property was; 16.5.2 Failing to inquire as to and/or consider adequately or at all the terms of the Tamarama Loan Agreement prior to entering into it; 16.5.3 Instructing the Defendant to insert the Option Clause; 16.5.1 Entering into the Tamarama Loan Agreement without having carefully considered the value of the security property; 16.5.2 Advancing loan monies to the borrower without having carefully considered the value of the security property; 16.5.3 Failing to enquire as to and/or consider whether adequate valuations had been obtained in relation to the Tamarama Property; 16.5.4 Failing to enquire as to and/or consider the Burgess Rawson Valuation Report; 16.5.5 Failing to instruct the Defendant and/or Mr Arslan to obtain a valuation report and/or another valuation report to the Burgess Rawson Valuation Report; 16.5.6 Causing or allowing the Option Clause to be exercised, or be purported to be exercised, if either occurred; 16.5.7 Failing to enforce its rights as lender against the borrower under the Tamarama Loan Agreement, adequately or at all; 16.5.8 Failing to enforce its rights as mortgagee against the mortgagor under the Tamarama Security mortgage, adequately or at all; 16.5.9 Failing to seek legal advice from the Defendant, or any other lawyer, in a timely fashion or at all, as to its rights under the Tamarama Loan Agreement and the Tamarama Security mortgage; 16.5.10 Failing to follow any legal advice it did receive." 1. It is not appropriate, given the detailed analysis (and findings to the contrary) set out above to deal with each of the particulars of negligence. I propose, therefore, to deal with this issue in general terms only. 2. It is the plaintiffs' case that OFS relied entirely on WWL to make appropriate investigations and advise on the adequacy of the security for the Tamarama loan. It relied upon WWL to assess the capacity of the borrower to service the loan. On the basis that these allegations were made out, there was still on the evidence before the Court a surprising lack of engagement by the plaintiffs with these issues, in particular checking the valuation or valuations in relation to the Tamarama property and making no inquiries concerning the capacity of the borrower to service the loan. At the very least, one would have expected either Richards or Toland to have sighted any valuation evidence which supported the large loan amount. 3. There is also the failure to either read or respond to the WWL letter of 13 August 2007 which in terms expressly restricted the retainer and excluded due diligence. On the plaintiffs' case this was contrary to an earlier agreement and their understanding of what WWL was retained to do. 4. Taking those matters into account, together with the additional matters raised in the particulars of contributory negligence which have not otherwise been canvassed, I would assess the contributory negligence of the plaintiffs at 50% in respect of the Tamarama loan. 5. The particulars of contributory negligence alleged by the defendant in respect of the Sanctuary loan are: "25.1 Failing to enquire and/or consider the valuation documentation relating to the security referred to in paragraph 28 of the SFASOC; 25.3 Entering into the Sanctuary Loan Agreement without having carefully considered the value of the security property; 25.4 Advancing loan monies to the borrower without having carefully considered the value of the security property; 25.5 Failing to enquire as to and/or consider whether adequate valuations had been obtained in relation to the security property; 25.6 Failing to enquire and/or consider the status of Sanctuary Developments prior to advancing the loan; 25.7 Failing to instruct the Defendant and/or Mr Arslan to enquire about the status of Sanctuary Developments prior to advancing the loan, including whether or not it was in receivership." 1. As a result of concessions made at trial, particulars 25.1, 25.2 and 25.7 have no application. 2. The failure to respond to the letter from WWL of 21 August 2007 is even more significant in the circumstances of the Sanctuary loan. Accepting as I must for the purposes of this exercise, that negligence has been established against WWL, one has to balance the causal potency and relative culpability of a failure to conduct a search of the ASIC register shortly before the draw down of the loan with a failure to properly investigate the value of the security offered and the capacity of Sanctuary to service the loan. 3. I have concluded that in relation to both those matters, the fault element is more heavily weighted against the plaintiffs than it is against the defendant. I would assess contributory negligence in the Sanctuary loan matter at 65% against the plaintiffs and 35% against WWL. Proportionate liability 1. The defendant in its Defence pleads that if it is found liable to the plaintiffs, its liability must be determined pursuant to Part 4 of the CLA. In that regard, WWL asserts that Global and Arslan are concurrent wrongdoers within the meaning of s 34 CLA in relation to the plaintiffs' claim against it. The defendant submits that its liability is limited by s 35 CLA to an amount reflecting that proportion of the damage or loss that the Court considers just, having regard to the extent of the defendant's responsibility for the damage or loss. 2. The precise allegations made against Global and Arslan are that they were negligent, in breach of their retainer, or guilty of misleading and deceptive conduct. As a result they were responsible for causing loss and damage to the plaintiffs. 3. For this defence to be successful, findings would have had to have been made that the actions of Arslan and of Global were in no way the actions of WWL. Those findings have in fact been made. Findings have also been made that insofar as the Tamarama loan is concerned if Arslan did make false representations concerning the value of the property or as to its ownership, the fact of those misrepresentations was not known to WWL. 4. In relation to the Sanctuary loan there was a paucity of evidence as to the actions of Global given the confined nature of the allegations made against WWL. The only evidence emerges from the contents of WWL's letter to OFS of 21 August 2007. That letter makes it clear that another organisation, Pinacle, had performed due diligence in respect of the property and that Global had then checked the results of that due diligence exercise on behalf of OFS. The potential deficiencies in that process were identified in the letter. 5. If as seems likely Global erred in its assessment of the viability of the security offered, I would assess its liability in that regard as equal to that of WWL. It follows that I would apportion liability as between Global and WWL for the Sanctuary loan loss on that basis. 6. It should be kept in mind that the above conclusions in respect of contributory negligence and proportionate liability are only made on a contingent basis, i.e. in the event that my primary findings as to no liability on the part of WWL are set aside. 7. Accordingly, the orders which I make are as follows: 1. Verdict and judgment for the defendant. 2. The plaintiffs are to pay the defendant's costs of these proceedings. ********* 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. Decision last updated: 19 April 2016