YORK and ANOR v MAZEY and ORS t/as PHOTIOS SLATER and CO [1997] NSWCA 358

YORK and ANOR v MAZEY and ORS t/as PHOTIOS SLATER and CO

SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

SHELLER, COLE and BEAZLEY JJA 5, 6 February 1997, 13 February 1997

[1997] NSWCA 358

NEGLIGENCE of solicitor — finding of trial judge not disturbed.

Sheller JA I agree with Cole JA.

Cole JA The appellants Sam York and Geoffrey Harry Houseman, sued their solicitors Photios Slater & Co in negligence, for breach of contract and in deceit. Cooper DCJ rejected the claim in deceit but held the claim in negligence established and awarded damages for economic loss suffered in consequence in the sum of $9,697.76 which, after addition of interest, resulted in a verdict of the appellants in the sum of $14,325.34. Having found negligent breach of duty his Honour did not in terms address the claim in contract.

The appellants have not challenged on appeal the rejection of the claim in deceit. Nor do they contend that the trial judge erred in his statement of the duty owed by the solicitors to the appellants. The short point taken on appeal is that his Honour erred in holding that the negligence of the solicitors was responsible for delaying settlement of a purchase transaction for one week only rather than for the period between 31 January 1989 and 21 February 1989. As the appellant's interest costs were related to the lending bank's cost of finance at the date of settlement, and as interest rates trended upward during this period, the appellants seek the total additional interest paid by them on funds borrowed to finance the purchase beyond those which would have been payable had the matter been settled on 31 January 1989. The claim originally made that the transaction should have settled prior to 31 January 1989 was abandoned at the hearing and accordingly was not available on appeal.

Additionally, the appellants challenge the trial judge's exercise of discretion regarding costs. As the claim in deceit was unsuccessful and, in the view of the trial judge was unsupported by evidence and thus should have not have been brought, Cooper DCJ in exercise of discretion deprived the successful plaintiffs of their costs by offsetting the costs relating to the deceit issue upon which they failed against the costs to which otherwise they would have been entitled in respect of the negligence claim on which they succeeded.

By a cross-appeal the respondent solicitors challenge the finding of breach of duty. They also contend that, even if such breach be established, the matter could not have settled before the day it did because of defaults or delays on the part of others for whom they were not responsible, and thus no loss flowed from any established negligence. Notwithstanding the notice of cross-appeal, the only submissions advanced regarding costs were that if the appeal and cross-appeal be unsuccessful, the discretionary decision depriving the plaintiff of its costs should be maintained.

THE FACTUAL CIRCUMSTANCES The appellants intended to purchase a property at 10 Regent Street, Chippendale. They negotiated a price of $1,100,000. Mr Houseman engaged the solicitors, through a partner in the firm

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Mr Stell, to act for them in relation to the conveyancing transaction. The appellants intended to borrow the totality of funds necessary to effect the purchase from Advance Bank. Attending to conveyancing matters encompassed by such borrowing was within the solicitors' retainer.

Following the retainer, the solicitors received a draft contract from the vendor's agent. On 19 September 1988 they proposed variations to the contract by a letter to the vendor's solicitors, Messrs Sly & Weigall. Prior to that time the purchase price was re-negotiated down to $1,050.000.

The appellants, without the assistance of the solicitors, during September and October 1988 negotiated with the Commonwealth Bank and subsequently the Advance Bank regarding borrowing funds to effect the purchase. During those negotiations an officer of the Advance Bank, Mr Bywater, indicated that he would need to obtain legal advice regarding whether a s317A certificate under the Local Government Act was a condition precedent to the granting of a loan. That resulted in the borrowers consulting Mr Stell who, on 3 November 1988, sought written confirmation from the Advance Bank that they would not require such a certificate. The Bank confirmed that by telephone on 7 November 1988 and by letter to Mr Stell on 8 November 1988. In its written confirmation the Bank advised that its position was determined after talking with "Bob McLaughlin of Beston & Riordan, panel solicitor for Advance Bank, regarding the above property".

Negotiations regarding the terms of the contract for sale continued throughout November. Absent exchange of contracts the vendors again placed the property on the market on 29 November 1988. Early in December agreement was reached upon the terms of the contract for sale. On 5 December 1988 the vendor's solicitors forwarded the contract with agreed amendments and stated their instructions that "settlement must take place by 29 December 1988, time being of the essence of the contract". Mr Stell advised the purchasers not to exchange contracts until the loan application to Advance Bank to finance the purchase had been approved. Mr Stell was orally advised by Mr Houseman of such approval on 8 December 1988 and contracts were exchanged on 9 December 1988.

The contract provided for completion within 42 days of the date of exchange (that is, by 20 January 1989) failing which either party was at liberty to serve a fourteen day notice to complete. Mr Stell advised the appellants of that by letter dated 12 December 1988 and requested that they "forward to us as soon as possible a copy of your letter of loan approval from your financier in order that we might commence satisfying its requirements" On 12 December 1988, the solicitors had forwarded requisitions to the vendor's solicitors, and, about that time sought searches of the title of the property being purchased.

The formal letter of loan approval from the Advance Bank was dated 12 December 1988. The security required for the loan was a first mortgage over the Chippendale property and a third party mortgage over residential property owned by the Housemans in Randwick and the Yorks in Waverley together with unlimited joint and several guarantees from Mrs York and Mrs Houseman and S & K York Stationers Pty Ltd. It was a term of the loan approval that formal consent to registration of the mortgages over those properties be obtained from the Commonwealth Trading Bank and the St George Building Society which held prior mortgages over the residential properties. The offer of loan was open for 45 days. The funds were available on two days written notice of compliance with all of the bank's conditions. The interest was a specified percentage above the bank's

URJYORK and ANOR v MAZEY and ORS t/as PHOTIOS SLATER and CO (Cole JA) 3

minimum cost of funding at the date of settlement. The last day for acceptance of the offer of loan was 27 December 1988.

The appellants faxed a copy of the letter of approval to the solicitors on 14 December 1988.

In mid-December the appellants conferred with their solicitors regarding the terms of the offer of loan, and its terms were considered and discussed. They were advised that the provision permitting the offer of loan to be withdrawn or amended if settlement did not occur within 45 days of acceptance should be amended to sixty days. That advice was accepted, the alteration made and the signed acceptance of loan offer delivered to the Advance Bank on Thursday 22 December 1988. Thus the loan was available to be drawn down until 20 February 1989.

On 28 December 1988 Advance Bank instructed Messrs Beston & Riordan to act on its behalf in relation to the loan. The Bank requested Beston & Riordan to contact the borrower's solicitors "on receipt of these instructions" to commence proceedings. The letter of instructions stated that the loan was to be settled on 31 January 1989.

Owing to a family death, Mr Stell left Sydney upon 4 January 1989, leaving the conveyancing transaction in the hands of Miss Hughes in the solicitors' firm. On that date she looked through the file. She overlooked the fact that her firm was instructed to act in relation to the giving of mortgages over the two residential properties.

After the forwarding of the letter of acceptance of the loan to Advance Bank, the position was that the contract for sale of land required completion within forty-two days of exchange, that is, by 20 January 1989. The loan agreement to finance the purchase, however, required settlement within sixty days of acceptance of the date of the loan, that is, by 20 February 1989, and the lender instructed its solicitors that the matter was to be settled on 31 January.

The offices of Messrs Beston & Riordan reopened after the Christmas closure on Tuesday 10 January 1989. That was the date upon which the letter of instructions from Advance Bank dated 28 December 1988 requesting that they contact the borrower's solicitor should have and perhaps did come to their attention. However Beston & Riordan did not contact the borrower's solicitors until Monday 16 January. Prior to that on 11 January 1989 the Advance Bank had faxed to Beston & Riordan a letter from the Commonwealth Bank of Australia, one of the holders of mortgages over the residential properties owned by Mr and Mrs York and Mr and Mrs Houseman advising that consent to the giving of the third mortgage security over the residential property required by Advance Bank would not be given until an enclosed priority document was executed. The enclosed priority document set forth particulars of title of each of the residential properties owned by Mr and Mrs York and Mr and Mrs Houseman. Thus as at 11 January 1989, Messrs Beston & Riordan had particulars of title of the two residential properties over which mortgages were to be taken. It is likely they also had particulars of title of the property being purchased as the Bank forwarded to them a valuation report on the property. Nonetheless on 16 January 1989 Messrs Beston & Riordan sought by telephone particulars of title of those three properties. The trial judge found that on 16 January 1989 full particulars of title in respect of the Chippendale property were given orally to Beston & Riordan on 16 January, but that in respect of the two residential properties only the lot and deposited plan numbers were provided orally on 17 January. The certificate of title references to those two properties were not then provided by the solicitors

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as they had not conducted searches to determine those details. Cooper DCJ found that Beston & Riordan requested full particulars of title of all three properties in writing.

The respondent solicitors had obtained appropriate searches in respect of the property being purchased on about 20 December 1988. They did not order searches in respect of the two residential properties to be given as security until 17 January 1989 after the oral request from Beston & Riordan. The results of those searches were received on 23 January 1989. The trial judge held that it was the responsibility of the borrowers' solicitors to provide full particulars of title, including a reference to the certificate of title, and that finding was not challenged on appeal. Cooper DCJ did not make any finding whether the obligation to provide such particulars arose only on request from the lender's solicitors, or whether it was independent of any such request.

On 23 January the respondents wrote to the other mortgagee, St George Building Society Ltd seeking its consent to the granting of a third mortgage over the Houseman's residential property, although St George had in fact given such consent in writing on 1 December 1988. Miss Hughes accepted in evidence that it was the obligation of the borrower's solicitor to obtain such consent, and it was a term of the loan agreement that the borrower provide them.

On 24 January 1989 the respondent solicitors wrote formally giving particulars of the three properties to be mortgaged and requesting the mortgage documents as a matter of urgency.

On 27 January 1989 the Advance Bank returned the executed letter of priority requested by the Commonwealth Bank. On 31 January 1989 St George advised the respondents, for the second time, that it did not object to the third mortgage over the Randwick property. On 2 February 1989 the Commonwealth Bank advised Advance Bank direct that it consented to the mortgage over the Waverley residential property, but this consent was not forwarded to Beston & Riordan until 8 February 1989.

Notwithstanding the contractual provision that settlement was required within forty-two days of exchange of contracts (20 January 1989), Messrs Sly & Weigall wrote on 3 February 1989 advising that the vendors had executed the transfer and were "ready to settle". The transfer had been forwarded to the vendors on 23 January. Sly & Weigall noted the respondent's advice that they were awaiting receipt of mortgage documents from the solicitors for Advance Bank but were hoping to settle the matter on 8 February 1989.

It was not until 10 February 1989 that Beston & Riordan provided the mortgage documents to the respondents for execution. By the covering letter they advised that before they requested a cheque from the Bank they required eight specified documents. The letter concluded: "Please note that this firm must order monies for settlement. We require, therefore, in excess of three (3) days notice of settlement date".

On receipt of the mortgage documents the respondents requested the appellants to call to sign the mortgage documents. That request was made on Friday 10 February 1989. On Monday 13 February the solicitors were advised that all necessary signatories could not all attend. Accordingly the documents were sent to them and were received back by the solicitors duly executed on 14 February. That was also the date upon which the vendors served a notice to complete.

URJYORK and ANOR v MAZEY and ORS t/as PHOTIOS SLATER and CO (Cole JA) 5

After stamping on 15 February 1989, the executed documents were delivered to Beston & Riordan with an indication that the purchasers were anxious to settle and requesting that the funds be available for settlement. On 16 February Beston & Riordan certified to the Bank acceptance of the title and advised that an appointment had been made to settle the matter on 20 February 1989 and requesting appropriate funds. All parties attended to settle on 20 February 1989 but Advance Bank failed to produce the appropriate cheques. The matter was settled on 21 February 1989. Apparently at the request of the borrowers, Advance Bank agreed to the interest rate being that applicable on 17 February 1989, namely 15.674%. In fact that rate was higher than the rate applicable on the date of settlement. As Cooper DCJ noted, in final address the appellant's counsel Ltd their claim to the extent to which interest rates had risen between 31 January and 17 February 1989.

THE TRIAL JUDGES FINDINGS Cooper DCJ found that there were a number of circumstances which produced delay in settlement from 31 January until 21 February. His Honour expressed these delays in the following terms:

"The first was the failure by Beston and Rierden(sic) to comply with its instructions to contact the defendants promptly. Had h done so contact should have been made on about 10 or 11 January.

The second was the failure of Miss Hughes to appreciate on 4 January the need promptly to order searches relating to the Waverley and Randwick properties.

The third was the failure of Beston and Rierden(sic) to complete the documentation within two weeks.

The fourth was some five days taken in getting the documents executed and back to the defendant.

The sixth (sic) was the requirement of the Advance Bank of notice of three working days to have cheques prepared.

The seventh was the failure of the bank to produce the cheques on 20 February.

These delays add up to fairly close to three weeks, which is the difference between 31 January and 21 February. But, it must be emphasised that the breach of duty by the defendants was responsible for only one of the week's delays."

His Honour found that the only delay for which the respondents were responsible was that between 17 and 24 January in the provision of complete particulars, including references to the certificates of title, in respect of the two residential properties. Having the obligation to provide such complete particulars his Honour was of the view that the solicitors should have requested searches of those two properties so as to be in a position to provide the particulars when sought by Beston & Riordan on 16 or 17 January. His Honour held that to obtain searches at that time took approximately one week. Thus if Miss Hughes had on or shortly after 4 January on taking over the file sought the searches of those properties she would have been in a position to provide the particulars when sought by Beston & Riordan on 16 or 17 January. Assuming such searches had been sought on 4 January they would have been available on 11 January but the delay between 11 and 16 January was due to the failure of Beston & Riordan to contact the borrower's solicitors as the bank had instructed. Accordingly the solicitors were responsible for the delay between 17 and 24 January which delay was held to result in a weeks delay in settlement.

THE ARGUMENT ON APPEAL The trial judge rejected the contention of the appellant that in December after the offer of loan was accepted on 22 December the solicitors for the prospective mortgagors should have immediately ascertained and contacted the solicitors for the lending bank. His Honour was

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satisfied that it was normal practice for the solicitors for the mortgagor to wait to hear from the solicitor for the mortgagee. If the period of waiting became unreasonable it was found to be incumbent on the mortgagor's solicitor to contact the mortgagee's solicitor but in the present circumstances Cooper DCJ found that the period of delay in contact between the respective solicitors was not so lengthy as to impose that obligation upon the respondent solicitors. The delay was from 28 December 1988 until 16 January 1989. During that time the offices of Beston & Riordan were closed until 10 January 1989. The result of that finding was that there was no negligence established flowing from the respondents solicitors failing to contact Beston & Riordan prior to 16 January 1989 when the bank's solicitors contacted the respondent solicitors seeking particulars of title of the three properties to be the subject of mortgages. This finding was challenged on appeal.

In my judgment no ground has been advanced to justify disturbing this finding of fact. Having regard to the fact that the offer of loan was not accepted by the appellants until Thursday 22 December 1988, the second last working day prior to the Christmas break, and the circumstance that in fact the offices of Beston & Riordan were closed until 10 January 1989,it was open to the trial judge to find that it was not unreasonable for the respondent solicitors not to contact that firm prior to them being contacted on 16 January 1989. Accordingly this court should not disturb that finding.

The further argument on the appeal was that, particularly in light of the terms of the loan agreement which fixed the interest rate for the full term of the loan by reference to the cost of funds on the date of settlement, the solicitors had a duty to the appellants to act with promptness so as to put their clients in a position to settle the matter on the date which the clients regarded as the most commercially advantageous to them at any time prior to the last day upon which the loan funds could be drawn down. This particularly was said to be so because of the climate of rising interest rates. Thus the solicitors had an obligation, in particular, first, to obtain the necessary consents of the prior mortgagees promptly and, second, to obtain appropriate searches so as to be in a position to supply references to title, including the certificate of title references, to the two residential properties being given as security. It was contended that they did neither promptly because the consents of the prior mortgagees were not sought until 23 January nor obtained from St George and the Commonwealth Bank until 31 January and 2 February respectively. Further, searches should have been sought on 4 January 1989 so that particulars could have been provided to Beston & Riordan on 11 January, and thus settlement could have occurred on 31 January.

The task of the appellant on the appeal was to persuade the Court that the alleged deficiencies in conduct of the solicitors was the cause of delay in settlement for the three weeks between 31 January and 21 February. The appellant commenced that task with the advantage of the trial judge's finding that one week of that delay was due to the solicitor's failure to order searches properly so as to permit the provision of full particulars by 16 or 17 January. Unless the appellant could persuade the Court that the failure promptly to order searches resulted in delay in excess of the seven days found by the trial judge, this aspect of this argument must fail. If the solicitors had sought searches on 4 or 5 January, those searches would have been available on 11 or 12 January. Having found that it was reasonable for the solicitors not to contact the mortgagee's solicitors but to await being telephoned by the mortgagee's solicitors on 16 January, it necessarily follows that even had the solicitors obtained particulars of title

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promptly they were not obliged to communicate them until requested by the mortgagee's solicitors on 16 or 17 January. As they were in fact provided on 24 January no delay arising from the failure to search promptly beyond seven days was established.

Regarding the alleged delay in obtaining necessary consents of prior mortgagees of the residential properties, the submission that this constituted a delaying factor in settlement is contrary to the trial judge's finding of the factors delaying settlement for three weeks between 31 January and 21 February quoted previously. In my view Cooper DCJ was correct in not including in the six factors which he found generated the three weeks delay the factor of late seeking of prior mortgagees' consents. The St George consent was obtained by 31 January so it obviously did not delay settlement beyond that date. The Commonwealth Bank consent was obtained on 2 February which was prior to the date on which the vendor was ready to settle. Further the Commonwealth Bank consent was communicated to the Beston & Riordan on 8 February 1989, two days prior to that firm providing the security documents to the solicitors. Even had those documents been provided seven days earlier, on the assumption that particulars should have been provided by the mortgagors' solicitors on 17 rather than 24 January, so that the mortgage documents would have been provided by Beston & Riordan on 3 February, the period of time taken to obtain execution of those documents by the mortgagors, coupled with the time taken by the Advance Bank to provide the funds after request from their solicitors would have taken the first available date for completion beyond the date upon which the Commonwealth Bank consent was provided and communicated to the lender's solicitors. It follows that this factor also did not delay settlement.

In consequence the appellant was unsuccessful in establishing that either of the alleged defaults of the solicitors in failing promptly to search so as to be able to provide particulars, or failing promptly to seek prior mortgagee's consents, resulted in any delay in settlement beyond the seven days found by the trial judge. The appeal thus fails.

THE CROSS-APPEAL It was contended in the cross appeal that the provision of oral particulars on 16 or 17 January of the Lot and DP numbers of the residential properties was a sufficient provision of particulars, particularly having regard to the fact that although apparently unbeknownst to them Beston & Riordan had the certificate of title references on file. It was further contended that there was no obligation upon the solicitors to order title searches in advance of being informed of the mortgagee's requirements for particulars.

These submissions are contrary to the judge's finding, and the position accepted on appeal that it was the obligation of the solicitors for the mortgagor to provide particulars of title to properties to be mortgaged, at least when requested by the solicitors for the mortgagee. Implicitly his Honour found that the solicitors should have taken steps to place themselves in a position to provide those particulars when requested. Once it is found that there was an obligation to provide particulars, the circumstance that the mortgagee's solicitors may have had particulars becomes irrelevant to any breach of duty as between the mortgagors and their solicitors.

A further argument addressed on the cross appeal challenged the implicit notion that because the interest rate was determined by reference to a fluctuating rate in a rising climate, the duty of the solicitors was to place the purchasers in a position to settle as soon as possible so that they could make the commercial decision when they wished to draw down the loan. Absent that background the

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solicitors were entitled to attend to the transaction in a normal time frame unburdened by the obligation to have the matter ready to settle as soon as possible so as to give the mortgagors the option of determining the date of settlement. It was contended that there were no instructions in the retainer to place the borrowers in the position to select a settlement date in their commercial discretion. Absent a retainer to do this, failure to do so did not constitute a breach of duty.

In my judgment this submission should be rejected. The evidence is clear that the mortgagors did not raise the question of rising interest rates prior to 16 January 1989. There was no retainer to take all steps as a matter of urgency to place the purchases in a position to settle as soon as possible. On and after 17 January the purchasers expressed concern about rising interest rates and the trial judge found that on 31 January Mr Houseman instructed the solicitors to settle the matter as quickly as possible. Accepting that finding, and the undisputed fact that the question of rising interest rates was not raised before 17 January, it does not follow that it was not a breach of duty not to have obtained searches so as to be in a position to provide particulars when sought on 16 January. The contract for sale provided for settlement on 20 January, and the lenders instructions were to settle the matter on 31 January, a date to which it seems the parties were working. In those circumstances it was open to the trial judge to find, as he did, that it constituted a breach of duty not to have been in a position to provide the particulars on 16 January 1989.

The third contention was that the found breach of duty was not causative of loss. It was argued that the first possible settlement date was Monday 13 February 1989 as Beston & Riordan did not receive the consents of the Commonwealth Bank and St George Building Society until 8 February when they were provided by Advance Bank, even though the consents were given on 2 February and 31 January respectively.

Further, it was argued that if Beston & Riordan had started work on the transaction on 24 January they could have settled by 31 January 1989. Although St George had provided a consent on 1 December 1988, that apparently was overlooked. A further consent was not sought by the solicitors until 23 January and provided on 31 January. It is not clear when the consent of the Commonwealth Bank was sought by the solicitors. Whilst the Advance Bank had, prior to 9 January 1989, sought the Commonwealth Bank consent, there is no evidence that the solicitors sought that consent prior to the date on which they sought the consent of St George, namely, 23 January 1989. It must be assumed that had it been sought earlier, it could have been provided earlier. In my judgment Cooper DCJ was correct for reasons previously given to exclude the obtaining of the consents as a delay factor. Further, it is implicit in his Honour's judgment that he rejected the evidence that the matter could have settled on 31 January after provision of particulars on 24 January, no doubt because in fact it did not.

The only remaining matter advanced was that had Beston & Riordan done as instructed by the bank, namely contact the solicitors on 10 January 1989, the matter would have been ready to settle by 31 January. In my view the solicitors cannot rely upon any failure by the lender's solicitors to act in accordance with instructions to negate their own breach of duty.

For these reasons, the cross appeal should be dismissed.

URVYORK and ANOR v MAZEY and ORS t/as PHOTIOS SLATER and CO (Beazley JA) 9

COSTS I see no reason to interfere with the exercise of discretion of Cooper DCJ in offsetting the costs of the deceit issue against the costs on the negligence issue and making no order as to costs in the trial below. As the appeal and the cross appeal have each been unsuccessful, a similar order should be made in this appeal. The sum involved in the appeal is small and the parties should not be put to further costs of involvement in a costing exercise. I would propose the following orders:

1. Appeal dismissed.

2. Cross appeal dismissed.

3. No order as to costs on the appeal or the cross appeal.

Beazley JA I agree with Cole JA.

1. Appeal dismissed. 2. Cross appeal dismissed. 3. No order as to costs on the appeal or the cross appeal.

Counsel for the appellant: TR Blackburn Solicitors for the appellant: Van Aalst Roth Counsel for the respondent: ML Williams/RA Dalgleish

Solicitors for the respondent: Ebsworth & Ebsworth