Legal database - View: Cases: PricewaterhouseCoopers Legal v Perpetual Trustees Victoria Ltd

Case References:
Besterman v. British Motor Cab Co Ltd - [1914] 3 KB 181
Elitestone Limited v. Morris - [1997] 1 WLR 687
Eon Metals NL v. Commissioner of State Taxation (WA) - (1991) 91 ATC 4841
Joslyn v. Berryman - (2003) 214 CLR 552
May v. Ceedive Pty Ltd - [2006] NSWCA 369
N H Dunn Pty Ltd v. L M Ericsson Pty Ltd - (1979) 2 BPR 9241
Palumberi v. Palumberi - (1986) NSW ConvR 55-287
Wynbergen v. Hoyts Corporation Pty Ltd - (1997) 72 ALJR 65

Hearing date: 11-13 September 2007
Judgment date: 8 October 2007

Judgment by:
Ipp JA

[16]

The parties to the appeal and the cause of the litigation

[17] These reasons concern various orders made by Sorby DCJ following a trial in the District Court. The parties to the trial (which involved a claim and three cross-claims) were Perpetual Trustees Victoria Limited ("Perpetual"), a finance house, PricewaterhouseCoopers Legal ("PWC"), a firm of solicitors, Casey & Company Valuers Pty Ltd ("Casey"), a valuer, Interstar Securities (Aust) Pty Ltd ("Interstar"), a company associated with Perpetual, Bettaway Finance ("Bettaway"), a firm of "mortgage organisers" and Mr Michael Solari, a solicitor.

[18] The underlying cause of the litigation was a loan of $500,000 made by Perpetual to a property developer, Lakeline Properties (NSW) Pty Ltd ("Lakeline"). The loan was secured by a mortgage over seven lots (2, 3, 5, 6, 8, 110 and 111) in a residential park (a manufactured home estate) that Lakeline owned (known as Lakeline Estate). Interstar acted for Perpetual in handling the loan transaction. Bettaway sought the loan on Lakeline's behalf. Mr Solari acted as Lakeline's solicitor in the transaction. Casey provided a valuation of the lots. PWC acted as Perpetual's solicitors.

[19] Lakeline defaulted on the loan. A receiver was appointed and Lakeline, later, was wound up. There was a shortfall between the proceeds of the secured lots and the money owing under the loan. Perpetual sued PWC and Casey for the damages represented by the shortfall.

[20] Sorby DCJ granted a verdict and judgment for damages for negligence in the sum of $452,692.47 in favour of Perpetual against PWC and Casey. His Honour apportioned the damages payable to Perpetual as between PWC and Casey in the proportion of 80/20 (with PWC paying 80%). He ordered Mr Solari to contribute 10% of the damages payable by PWC. He dismissed cross-claims made against Bettaway and Interstar and made various costs orders.

[21] The proceedings before this Court involve an appeal and a cross-appeal. PWC and Casey challenge the judgment in favour of Perpetual (each contends that it was wrongly held liable) and challenge the apportionment made in respect of each. PWC contends that the judge erred in dismissing its claims that Perpetual was guilty of contributory negligence and that Interstar should contribute to Perpetual's damages. PWC and Casey challenge the costs orders that were made against each.

[22] Initially, Mr Solari was a cross-appellant and, also, a cross-respondent in regard to the orders made against him in favour of PWC. When argument on the appeal commenced, however, the Court was informed that the proceedings between PWC and Mr Solari had been settled and Mr Solari played no further part in the hearing. By consent, the orders that Sorby DCJ had made against Mr Solari were set aside and the appeal and the cross-appeal involving Mr Solari were dismissed. For that reason I shall not again refer to the claims involving him.

PWC and Casey innocently rely on forged leases in believing that the homes are fixtures

[23] Before lending the $500,000 to Lakeline, Perpetual obtained a valuation of the seven lots from Casey. At the time of the valuation, a manufactured home was installed on each of the seven units. In these reasons the expression "manufactured home" denotes a dwelling constructed off-site in sections. The sections are intended to be transported to a residential site for assembly and installation as a dwelling.

[24] Mr Casey, the principal of Casey, valued the seven lots on the basis that the manufactured home on each had merged with the lot on which it was installed (and, hence, Lakeline was the owner of the dwelling as well as the lot).

[25] In addition, before lending the $500,000, Perpetual obtained from PWC a "certificate as to security documents" (known by the unfortunate acronym "SCAT") in regard to each lot. Each SCAT certified that Lakeline's title to the lot concerned, the subject of the particular SCAT, and "the documents relating thereto", were "in order" and that Lakeline had "good and marketable title to the property". When issuing the SCATs, PWC knew that Casey had valued each lot on the assumption that the manufactured home on it had merged with the land (being the lot in question) and that Perpetual intended to lend and obtain mortgage security on that basis.

[26] Before Casey released its valuations of the seven lots to Perpetual, Lakeline gave Casey what purported to be leases of the seven lots. Each lease recorded that Lakeline was the lessor of the lot and the manufactured home on it. The leases purported to show that Lakeline was leasing each lot (and the home installed on it) to a different "tenant" (who was residing in the home). Unbeknown to Casey, however, the leases were forgeries; they were fraudulent documents. In fact, no such leases existed. Mr Casey, however, was misled by the forged leases in valuing the property proffered as security for the loan.

[27] Before issuing the SCATs, PWC had been given Casey's valuations and the front pages of the forged leases. PWC relied, to a degree, on these documents in issuing the SCATs. PWC, too, was misled.

[28] In fact, the purported tenants under the forged leases had bought their homes from St George Building & Mechanical Pty Ltd ("St George"), a company associated with Lakeline. St George was a builder of manufactured homes. Mr Bruce Maples, a principal of St George, was also a principal of Lakeline.

[29] St George appears to have had an arrangement with Lakeline whereby St George required, as a term of contracts it entered into with purchasers of homes it manufactured, that the purchasers enter into residential site agreements with Lakeline. By these residential site agreements, the purchasers were to acquire the right to become residents of the Lakeline Estate and live there in the homes they purchased from St George.

[30] When the residents of the seven lots purchased their homes from St George, the homes had already been installed on Lakeline Estate. They proceeded to enter into residential site agreements with Lakeline as the contracts of purchase with St George required. Each resident believed, and later contended, that each was the owner of his or her home (and not Lakeline).

[31] After Lakeline had defaulted in the loan repayments, Perpetual received legal advice to the effect that the homes on the mortgaged land had not merged with the land and were owned by the persons who resided in them. The mortgaged land (without the homes) was sold but, as I have noted, the proceeds were insufficient to cover the amount owing under the mortgage.

The relevant claims and cross-claims in the District Court

[32] Perpetual brought proceedings in the District Court against Casey and PWC claiming damages for the loss constituted by the mortgage shortfall.

[33] Perpetual alleged that Casey owed it a duty of care which Casey had breached when it provided valuation reports in connection with the Lakeline lots. In the alternative, Perpetual alleged that Casey was liable to it in damages for breach of s 52 of the Trade Practices Act 1974 (Cth).

[34] Perpetual's claim against PWC was brought in contract and in negligence. Perpetual alleged that PWC owed it a duty of care which PWC had breached when it prepared the mortgage documents and acted on the settlement of the loan to Lakeline. In the alternative, Perpetual alleged that PWC was liable to it in damages for breach of s 52 of the Trade Practices Act.

[35] The parties drew no material distinction between Perpetual's claims in contract and negligence against PWC, and no point was made of any relevant difference between these two causes of action in the argument presented on appeal.

[36] Although the claims under the Trade Practices Act raise issues that are different from those under the other causes of action, these differences do not appear to have been agitated at trial and were not the subject of the appeal. At trial, Perpetual presented and argued its claim on the basis that its claim for breach of duty was its main claim and the claim under the Trade Practices Act was put in the alternative. Perpetual's approach on appeal was the same. In the light of the conclusions to which I have come it is not necessary to address the claims under the Trade Practices Act.

[37] PWC cross-claimed against Interstar, alleging that Interstar was a joint tortfeasor and obliged by s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) to contribute to any damages that PWC might be ordered to pay Perpetual. In the alternative, PWC claimed damages from Interstar on the basis that the latter had engaged in misleading or deceptive conduct contrary to s 52 of the Trade Practices Act. The claims against Interstar based on s 52 of the Trade Practices Act played no part in the appeal.

[38] Casey cross-claimed against Bettaway, Interstar and PWC for contribution orders. In a third cross-claim, PWC sought like relief from Bettaway and Casey.

The trial judge's findings

[39] Sorby DCJ concluded that the houses on the seven mortgaged lots "did not and had not at the time of the mortgage advance or at any other time become part of the realty". His Honour described this issue as the "threshold question" and found that "the dwellings were not, at the relevant time, fixtures".

[40] His Honour found that PWC owed Perpetual a duty of care which it breached "when it failed to, as a reasonably competent solicitor, advise its client not to advance funds on the security where it was unable to ascertain the meaning of 'manufactured housing estate' as it was possible and foreseeable that the status of the estate would directly affect the value of the security".

[41] His Honour held that the failure by PWC so to advise Perpetual "led directly to Perpetual's loss". His Honour found that "without the certificate of title from PWC the settlement would not have gone ahead".

[42] His Honour found that Casey owed a duty of care to Perpetual which it breached when "first, [Mr Casey] failed to carry out adequate investigations to establish the true nature of the Lakeline development, including inquiries of the Local Council and secondly when he failed to qualify the valuation reports he prepared when he had doubts and concern as to the true nature of the Lakeline property such as to throw doubt on whether the houses formed part of the realty, knowing as he did or should have that the unqualified valuation reports would be relied upon by [Perpetual] when advancing mortgage monies for Lakeline development".

[43] As I have mentioned, His Honour apportioned liability as between PWC and Casey for the damages suffered by Perpetual in the ratio of 80% to PWC and 20% to Casey.

[44] His Honour dismissed PWC's claim that Perpetual was guilty of contributory negligence and dismissed the cross-claims against Interstar and Bettaway.

[45] PWC contended that Perpetual had failed to mitigate its damages in several respects. The judge accepted that Perpetual had failed to mitigate by not requiring the residents of the lots to pay the rentals owing by them to it. His Honour did not accept the other arguments that PWC advanced in regard to mitigation.

[46] His Honour made various costs orders, including ordering "[Casey] and [PWC] to pay [Perpetual's] costs of the proceedings ... in the proportion 20%/80% respectively" and Casey and PWC each to pay 50% of the costs of Interstar and Bettaway.

The issues on appeal

[47] The issues that arise in relation to PWC's appeal are as follows:

(a): PWC challenges the finding that any breach of duty on its part was causative of Perpetual's loss.
(b): PWC contends that Perpetual should have been found guilty of contributory negligence; alternatively, his Honour should have held that Interstar owed a duty of care to Perpetual which it had breached and Interstar should have been ordered to contribute to Perpetual's damages.
(c): The judge erred in holding that Perpetual did not fail to mitigate its loss in all the respects for which PWC contended.
(d): His Honour should have apportioned a greater liability to Casey than 20%.
(e): His Honour erred in ordering PWC to pay 80% of Perpetual's costs.
(f): His Honour erred in ordering that PWC pay 50% of Bettaway's costs.

[48] The issues that arise in relation to Casey's cross-appeal are as follows:

(a): Sorby DCJ erred in finding that the homes on the seven lots were not fixtures.
(b): His Honour erred in finding that Casey had breached the duty of care it owed Perpetual.
(c): His Honour erred in failing to take proper account of a Calderbank offer that Casey had made to PWC.

[49] By notice of contention, Perpetual submitted that the decision of Sorby DCJ should be affirmed on the ground that PWC and Casey had been guilty of misleading or deceptive conduct under s 52 of the Trade Practices Act. It is not necessary to deal with this argument.

The "threshold question"

[50] I have noted that Sorby DCJ described the issue as to whether, at the time of the mortgage, the homes on the seven mortgaged lots had become fixtures and part of the realty as the "threshold question". Casey (but not PWC) challenges his Honour's decision that this question must be answered in the negative (that is, the decision that the homes were not fixtures).

[51] In my opinion, however, it is not necessary to come to a final decision on this issue. This needs some explanation.

[52] The starting point is the acceptance by all parties that the issue is a "vexed question". That is to say, all parties accept that the question raises particularly difficult questions of mixed law and fact.

[53] PWC did not challenge Sorby DCJ's finding that PWC breached the duty of care it owed Perpetual by failing to advise it not to advance funds on the security in circumstances "where it was unable to ascertain the meaning of 'manufactured housing estate' as it was possible and foreseeable that the status of the estate would directly affect the value of the security". Mr Davies SC, who, together with Mr Young, appeared for PWC, accepted that PWC's breach of duty as found by his Honour was established by PWC's failure to advise Perpetual, in substance, of the vexed question.

[54] On the assumption that his Honour correctly held that Casey had doubts as to whether the homes formed part of the realty, once Casey accepts, as it does, that the latter issue was a vexed question, it is immaterial to the finding of breach of duty whether or not the manufactured homes had merged with the land. The point is that, if Mr Casey knew or should have known that the issue was so uncertain, or if he in fact had doubts as to whether the homes were fixtures, he breached his duty in issuing an unqualified valuation on the basis that the homes were part of the land.

[55] I would add that there is no appeal against the quantum of damages found by Sorby DCJ. Therefore, the question whether the homes are fixtures is not an issue that affects the issue of damages in this appeal.

[56] It remains relevant, however, to explain why the issue is a vexed question, as the circumstances that give rise to the uncertainty are capable of bearing on the relative responsibility of PWC and Casey for Perpetual's damages.

The test for whether an object has become affixed to land

[57] In May v Ceedive Pty Ltd [2006] NSWCA 369, Santow JA (with whom Mason P and Beazley JA agreed) said (at [65]):

[T]he intention which determines the question whether an object has, in law, become affixed to the land, or, to use the paraphrase emphasised in Elitestone Limited v Morris [1997] 1 WLR 687 at 690-1 and 693, become part and parcel of the land by affixation is at least predominantly, 'the objective intention of the person who brings the object onto the land and affixes it there'.

His Honour noted (at [67]) that the law "seeks an objective intention deduced from the surrounding circumstances including the degree of annexation".

[58] In N H Dunn Pty Ltd v L M Ericsson Pty Ltd (1979) 2 BPR 9241, Mahoney JA (at 9244 to 9245) pointed out that the ultimate fact to be proved was the objective intention that ought to be imputed or presumed from the circumstances of the case. Nevertheless, his Honour (at 9244) expressed the opinion that the actual or subjective intention of the parties as to the status of the item concerned was a relevant factor. He explained the rule in relation to intention as follows:

Whatever be the correct formulation of the fact to be proved in such disputes, it is not whether the owner of the chattel or any other person subjectively intended that it should or should not become part of the realty. Therefore a statement of the intention as to that particular matter is not a statement tending, as such, to prove the fact to be proved. But that intention, as such, is not necessarily irrelevant. Whether the question of whether chattels have become part of the realty is a question of fact ... or a conclusion of law, various matters have been seen as of assistance in the final determination of it. The period of time for which the chattel was to be in position, the degree of its annexation to the land, what was to be done with it, and the function to be served by its annexation, are all matters which have been seen to be relevant for this purpose.

Glass JA (at 9246) pointed out that the question whether a chattel has become part of the realty is to be determined by reference to all the circumstances which include the purpose of annexation and the mode of annexation. Although both of these factors are relevant, neither is conclusive.

[59] In Palumberi v Palumberi (1986) NSW ConvR 55-287, Kearney J, after canvassing the relevant cases, said at 56,672:

It would seem from the perusal of these and other authorities in the field that there has been a perceptible decline in the comparative importance of the degree or mode of annexation, with a tendency to greater emphasis being placed upon the purpose or object of annexation, or, putting it another way, the intention with which the item is placed upon land. This shift has involved the greater reliance upon the individual surrounding circumstances of the case in question as distinct from any attempt to seek to apply some simple rules or some automatic solution ... [N]o standard solution is to be derived from [the decided] cases which, upon ultimate analysis, are found to turn upon their individual facts.

[60] In Eon Metals NL v Commissioner of State Taxation (WA ) (1991) 91 ATC 4841, I accepted that the authorities supported Kearney J's observation as to the modern "tendency to greater emphasis being placed upon the purpose or object of annexation, or putting it another way, the intention with which the item is placed upon land".

[61] The manufactured homes attached to the seven lots in issue in this case were fixed by hoop-iron strapping to brick piers and were connected to electricity and water services. As Sorby DCJ pointed out:

Photographs of the homes in evidence show that [sic] car-ports, verandas, bull-nose roofing, fencing (in some cases brick), plants/foliage and other improvements to the homes.

These matters tend to support an inference that the homes were intended to be fixtures. But, there are factors that tend in the opposite direction. These factors concern the intention with which the homes were placed upon the land, and the effect of the legislation governing manufactured homes installed on manufactured home estates (Lakeline Estate -- for reasons that I later give -- being such an estate).

The relevant legislation

[62] Section 68 of the Local Government Act 1993 (NSW) prohibits without prior approval a person from operating a manufactured home estate and from installing a manufactured home, moveable dwelling or associated structure on land. The dictionary to the Local Government Act defines a "manufactured home estate" as "land on which manufactured homes are, or are to be, erected". The dictionary defines a "manufactured home" as a self-contained dwelling (that includes at least one kitchen, bathroom, bedroom and living area and that also includes toilet and laundry facilities) that comprises one or more major sections and that is not a registrable vehicle within the meaning of the Road Transport (Vehicle Registration) Act 1997 (NSW). "Associated structures" are included as part of the dwelling that falls within the definition of a manufactured home. An "associated structure" is defined as including "a carport, garage, shed, pergola, verandah or other structure designed to enhance the amenity of a moveable dwelling and attached to or integrated with, or located on the same site as, the dwelling concerned". A "moveable dwelling" is defined to include "a manufactured home".

[63] In 1995, the Local Government (Manufactured Home Estates and Manufactured Homes) Regulation was made. The Regulation, amongst other things, established standards for the design and construction of manufactured homes and for their siting. It also provided for the factors to be considered by a council before it grants approval to operate a manufactured home estate. The Regulation distinguished between the erection of buildings (cl 33(2)) and the installation of manufactured homes (Div 4 of Pt 4). The dictionary to the Regulation defined "installation" in relation to a manufactured home as "the process of connecting together the major sections of the manufactured home, and any associated structures forming part of the manufactured home, and attaching them to footings".

[64] In March 1999, the Residential Parks Act 1998 (NSW) came into force. Section 5(1) of the Act provides:

(1)

This Act applies to residential tenancy agreements under which:

(a): the residential premises consist of a residential site, or a moveable dwelling on a residential site, and
(b): the resident occupies the residential premises as the resident's principal place of residence, and
(c): in the case of an agreement entered into after the commencement of this section, the resident has the approval of the park owner or park manager to occupy the premises as the resident's principal place of residence.

[65] A "residential park" is defined by s 3(1) to include "a manufactured home estate (that is, land on which manufactured homes have been, or are to be placed)". "Manufactured homes" and "moveable dwellings" bear, in effect, the same meanings as they do under the Local Government Act. The Residential Parks Act defines a "relocatable home", save for exceptions that are not presently relevant, as a "moveable dwelling".

[66] Section 8 of the Residential Parks Act provides that regulations may be made that prescribe a standard form of residential tenancy agreement. Section 9(1) provides that if a standard form of residential tenancy agreement is prescribed, the residential tenancy agreement entered into must be in, or to the effect of, the form. Subject to certain exceptions, s 9(2) provides that a residential tenancy agreement for which a standard form is prescribed is void to the extent to which it is not in, or to the effect of, the form.

[67] In 1999, the Residential Parks Regulation 1999 (NSW) was made. Clause 7 of this regulation provided for a standard form of residential tenancy agreement. I pause to note that the forged leases were not in the form required by the legislation.

[68] The Residential Parks Act contemplates that residential premises, the subject of a residential tenancy agreement, may consist of a moveable dwelling, not owned by the resident, and installed on a residential site (s 22(1)). Section 26 contemplates that a residential tenancy agreement may apply to residential premises that consist of a moveable dwelling (that belongs to the park owner) installed on a residential site.

[69] On the other hand, by s 23(1), a residential tenancy agreement may apply to a residential site only. The Act contemplates that in that event there may be a moveable dwelling on the site, occupied by a resident (s 23(1)(b), (c), (d) and (h)) -- and not owned by the park owner (as the residential tenancy agreement applies only to the residential site, and not the moveable dwelling).

[70] Section 27(1) contemplates that a residential tenancy agreement may apply to residential premises that consist of a residential site on which a moveable dwelling belonging to a resident is located.

[71] Section 80(1) provides:

It is a term of every residential tenancy agreement under which the residential premises consist of a residential site only that the resident is entitled to sell the relocatable home or other moveable dwelling installed on the residential site to which the agreement relates while the dwelling is in place on the residential site, unless the residential tenancy agreement expressly provides that on-site sales are prohibited.

[72] Section 82(1) provides:

A residential tenancy agreement under which the residential premises consist of a residential site only may set out any restrictions on the sale of a relocatable home or other moveable dwelling while it is installed on the residential site. Any other such restriction that the park owner purports to impose is unenforceable.

[73] Section 82(2) provides that "[a] park owner must not interfere with the sale, by a resident of the residential park, of a moveable dwelling while it is installed on a residential site."

[74] Section 84(1) provides that "[a] park owner and a resident may agree that a moveable dwelling will remain installed on the residential site after the residential tenancy agreement ends". Section 84(2) provides that "[a] purchaser of the moveable dwelling or the former resident cannot be made liable for the payment of a premium for the making of such an agreement."

[75] Section 127 provides that a park owner under a residential site agreement may require the resident to relocate to a different residential site. Section 127(3) provides that a resident who so relocates is entitled to be paid compensation by the park owner. Section 128(1) provides that failing agreement between the resident and the park owner, the amount of compensation that a resident is entitled to be paid by reason of a re-location is to be fixed by an order of the Consumer, Trader and Tenancy Tribunal. Section 128(3) provides that, in fixing the amounts of compensation, the Tribunal must have regard to a number of matters, including the reasonable costs of removing the dwelling from the old residential site (s 128(3)(a)), the reasonable costs of transporting the dwelling to the new residential site (s 128(3)(b)) and the reasonable costs of installing the dwelling at the new residential site (s 128(3)(c)). I reiterate that a manufactured home (as defined by the Act) forms part of the definition of a "moveable dwelling".

[76] The Regulation provides for a standard form of residential site agreement where the tenancy is for a term of three years or less (see Sch 1) and a standard form where the tenancy is for a term exceeding three years (see Sch 2). Clause 13 of the standard form for a term of three years or less differentiates in cll 13.6 and 13.7 between a residential site and any moveable dwelling on the site. A like distinction is made when cll 18 and 20 are read together. Clause 11 of the notes to the form in Sch 1 to the Regulation entitles the resident to sell a moveable dwelling he or she owns save under specified circumstances. Clause 11(2) of the notes provides that the resident may, with the park owner's consent, sell a moveable dwelling the resident owns (while the dwelling is in place on the site). By cl 2 of the standard form of residential site agreement relating to a tenancy for a term exceeding three years (see Sch 2), the clauses to which I have referred (applicable to a tenancy for a term of three years or less) are regarded as incorporated in that agreement.

[77] There can be no doubt that the legislative scheme relating to manufactured homes installed on manufactured home estates accepts that a manufactured home is a moveable dwelling and may be owned by a person other than the owner of the estate (that is, the land on which the manufactured home is installed). The legislative scheme further contemplates that where the owner of the manufactured home is not the owner of the estate, the owner of the home may sell and even relocate the manufactured home.

[78] Whether the scheme, by legislative force, prevents manufactured homes merging with the land on which they are installed, is not as clear. The proposition is at least strongly arguable.

[79] The Residential Parks Act commenced, save for certain provisions that are not presently relevant, on 1 March 1999.

[80] The Residential Parks Amendment (Statutory Review) Act 2005 (NSW) inserted a new s 85A in the Residential Parks Act. Section 85A reads:

(1): A moveable dwelling situated on a residential site is not, for any purpose, to be regarded as a fixture, regardless of the manner in which it is attached to the land.
(2): This section does not apply to a moveable dwelling that is owned by the park owner.

[81] Ms Adamson SC, who, together with Ms Horvath, appeared for Casey, submitted that the insertion of s 85A was an indication that, prior to its insertion, the legislative scheme did not intend to have the effect set out in s 85 A. On the other hand, it is plainly arguable that s 85A was inserted into the Residential Parks Act merely for the purposes of clarification. The Second Reading Speech is not conclusive on this issue.

[82] All counsel accepted that, prior to the insertion of s 85A, the question whether the Residential Parks Act read with the Residential Parks Regulation, by legislative force, precluded a moveable dwelling situated on a manufactured home estate from becoming a fixture, regardless of the manner in which it was attached to the land, is a difficult and vexed question that cannot readily be resolved. I am content to adopt this description of the position and, for reasons that I have given, it is not necessary to come to a final view on the issue.

The reference to the legislation in the parties' residential site agreements

[83] The argument that, by the force of the legislation alone, merger of the manufactured homes with the land on Lakeline Estate was precluded, is reinforced by the residential site agreements entered into between Lakeline and the residents. By those agreements, the parties agreed to be bound by the legislation and thereby incorporated the nomenclature contained in the legislation and the other relevant provisions thereof as part of their consensual contractual arrangements.

[84] The homes on lots 2, 3, 5 and 6 were constructed before November 1999. The home on lot 8 appears to have been constructed early in 2000. The home on lot 110 appears to have been constructed in 1999 and it can be inferred that the home on lot 111 was constructed in the same year.

[85] I have mentioned that St George constructed all the homes (in sections) and the residents on each of the seven lots purchased their homes from St George (although the homes at the time of purchase were already installed on Lakeline Estate). Each resident entered into a standard form contract for the sale of a manufactured home with St George when purchasing his or her manufactured home.

[86] Clause 6 of the standard form contract so entered into provided:

On completion, the title of the manufactured home shall pass to the purchaser ...

Clause 9 provided:

On completion the purchaser agrees to enter into a standard form Residential Site Agreement as prescribed by the Residential Tenancies (Moveable Dwellings) Regulation 1995 (a copy of which is annexed hereto) with Lakeline Properties NSW Pty Limited and this contract is subject to and conditional upon the vendor arranging for such site agreement to be available to enter into. In the event that the site agreement is not available to enter into, then the purchaser shall be entitled to rescind this Contract.

[87] The residential site agreements entered into record that they are standard form residential site agreements under the Regulation. They contain several references to the Residential Parks Act and it is plain that the parties to them accepted that that Act would apply to their occupation of their homes and their residence on Lakeline Estate.

[88] The residential site agreements entered into impliedly accept that the residential site, the subject of each such agreement, is part of a residential park within the meaning of the Residential Parks Act. The lessor is referred to as the "park owner" and the agreement requires the park owner to give the resident a copy of a book "Residential Park Living" which "explains the resident's rights and obligations under this agreement". The Act applies to residential parks (see s 5 and the definitions in s 3(1) of "residential park", "residential site", "manufactured home estate" and "moveable dwelling") and Lakeline Estate falls within the definition of a residential park and a manufactured home estate.

[89] It is to be inferred from these circumstances that when St George installed the manufactured homes on the estate with the concurrence of Lakeline, both St George and Lakeline did so with the intention that the homes be sold to persons who intended to become residents of the Lakeline Estate. That is to say, the homes were installed with the intention that they would be moveable dwellings within the meaning of the Residential Parks Act.

[90] The existence of such an intention on the part of those involved in the affixing of the homes to the land means that it is at least reasonably arguable, by reason of that intention alone, that the homes did not become fixtures.

Was PWC's breach of duty causative of Perpetual's loss?

[91] The starting point for consideration of PWC's argument that the breach as found by the trial judge did not cause Perpetual's loss is the precise finding his Honour made as to PWC's breach. The finding (unchallenged) was that PWC, negligently, failed to advise Perpetual not to advance funds on the security of the mortgage when it was unable to ascertain the meaning of "manufactured home estate". His Honour explained that "it was possible and foreseeable" that the "status" of the property as a manufactured home estate "would directly affect the value of the security".

[92] There was ample evidence that justified this finding, which must be understood in the context of that evidence.

[93] There was a consensus between the solicitors who gave expert evidence concerning the duties of a solicitor charged with acting for a mortgagee in a mortgage lending transaction such as the one that involved Perpetual and Lakeline. The evidence was epitomised by that given by Mr Francis, the partner of PWC whose task it was to supervise transactions of this kind.

[94] Mr Francis accepted that it was standard procedure for a solicitor acting for a mortgagee to search the title to the land mortgaged. He accepted that the existence of "the management statement and development contract of the neighbourhood scheme filed with the neighbourhood plan" would have been apparent had a proper title search been carried out. He accepted that, if he (and by inference, a reasonably competent solicitor) had searched Lakeline's title (to the Lakeline Estate) he would have learnt that the Lakeline Estate was a manufactured home estate. Had Mr Francis known this, he would have thought to himself, "I wonder whether the homes form part of the land or not". He accepted that this would have caused him to make careful inquiry about this question. The import of this evidence, as a whole, is that Mr Francis accepted that a reasonably competent solicitor would have done the same.

[95] Mr Francis accepted that at no time in his career had he ever given a qualified certificate that the property being offered as security had good and marketable title. He said that in practice, before issuing the certificate, he would discuss the matter with his client. Mr Francis said that had a proper search been done and the relevant documents that would have then been revealed been examined, he would have done two things, namely:

I would have a detailed advice and I would have certified subject to qualifications.

[96] The "detailed advice" to which Mr Francis referred was advice as to the legal consequences of the Lakeline Estate being a manufactured home estate, and the bearing that those consequences would have had on the property to be secured. At the very least, the advice that PWC should have given Perpetual was that it was a vexed question whether the legislation applicable, by force of law, precluded manufactured homes (movable dwellings) on a manufactured home estate (whoever was the purchaser or owner of such homes) from becoming fixtures on the estate.

[97] The basic argument advanced by PWC in relation to causation was that "Interstar and Perpetual would still have proceeded with the loans if PWC had informed them that the lots were part of a manufactured housing estate". This argument rested largely on the fact that on 11 August 2000 (before PWC issued its final set of SCATs) Mr Mobilia of Interstar telephoned Mr Casey who advised him that he, Mr Casey, had doubts as to whether the homes on the seven lots had merged with the land. According to PWC, notwithstanding this knowledge, Perpetual proceeded with the loan. That is because, on PWC's argument, Perpetual relied on the Casey valuations and not on anything PWC had done.

[98] The circumstances bearing on this telephone conversation need to be recounted. Before doing so, however, I would draw attention to the fact that on the judge's unchallenged findings, the breach went further than merely failing to inform Perpetual that the lots were part of a manufactured home estate and, indeed, that it was uncertain whether or not the homes had merged with the land. I reiterate that the judge's finding, in effect, was that PWC should have advised Perpetual not to advance funds on the security of the mortgage when it was unable to ascertain the meaning of "manufactured home estate" (such an estate being capable of directly affecting the value of the security). I reiterate that, in the circumstances, the advice should have involved an explanation of the vexed question, as Mr Francis tacitly accepted. That explanation, as I have attempted to make clear, should have involved a warning that the effect of the legislation might be to preclude, as a matter of law, the homes on the estate becoming fixtures.

[99] I turn now to the detail of the conversations on which PWC relies.

[100] On 10 August 2000, Mr Mobilia learnt that Casey had not sent its original valuation reports to Interstar. This was an important factor for Mr Mobilia. Perpetual's practice was not to settle a loan transaction without receipt of the original valuation reports. For that reason, Mr Mobilia telephoned Mr Casey the next day (11 August 2000) to find out why Casey had not provided the original valuations and to point out the significance of them.

[101] In the telephone conversation of 11 August 2000, Mr Casey told Mr Mobilia that he was "holding back the originals" (of the valuations) because he wanted to "check some more things about the title". Mr Casey said:

I have doubts whether the structures erected are merged with the land.

Mr Mobilia replied:

Can you tell me whether they have or not. Without your sign-off, the loans cannot proceed.

Mr Casey replied that he had "some concerns". He said that he was not sure whether the houses formed part of the property. He said that it was an unusual property and a prefabricated estate. He said that he was awaiting copies of the leases and reiterated that he had doubts as to whether the houses had merged with the land. Mr Mobilia responded:

If you cannot confirm that the houses form part of the land we will be unable to proceed with the loan.

Mr Casey replied that he was unable to give Mr Mobilia an answer at that time.

[102] In cross-examination, Mr Mobilia said that he understood from the conversation that Lakeline was an estate that comprised prefabricated moveable homes. This was a matter of concern to him; his concern related to the identity of the person who had title to the land.

[103] On 11 August 2000, as a result of the conversation between Mr Mobilia and Mr Casey that day, Interstar instructed PWC to cancel the settlement of the loan that had been scheduled. Interstar did this by sending an email to PWC, noting that a problem with the valuation reports had "just arisen" and stating:

The Valuer has some issues he is concerned about and will not issue the Original Valuation. The Originator has advised that settlement be postponed until this issue is resolved. We will inform you when this file can proceed to settlement.

[104] Interstar did not inform PWC of the doubts that Mr Casey had communicated to it about the merger of the homes with the land.

[105] On 14 August 2000, Mr Mobilia received an email from a Ms Massaria of Bettaway. The email stated:

I have just spoken to the valuer who has the gentleman in his office at present with the lease documents. Once he has perused the documents he will send a short note verifying that all is in order which I will onforward to yourselves ...

[106] This email was a reference to a meeting that Mr Casey was having at the time with Mr Varianis, a valuer employed by Lakeline. At that meeting Mr Varianis gave Mr Casey the forged leases.

[107] On 15 August 2000, Mr Mobilia received a fax from Mrs Tracey Pollard of Bettaway stating:

Attached is the report from the valuer confirming all is OK on the properties.

[108] The "report from the valuer" was also dated 15 August 2000. It consisted of a fax from Mr Casey to Mrs Pollard. In that fax Mr Casey informed Mrs Pollard that he had been provided with copies of leases on six of the seven lots. The fax went on to state:

The leases are standard form residential tenancy agreements and these have many indications that the property under tenancy includes the residences.

The rental amounts also support this contention.

The copies of leases contain signatures of the landlord and tenants.

I am faxing a full copy of one of the leases (Lot 2) and all of the pages containing the signatures.

There are no indications from these leases that the residences are not owned by Lakeline Properties (NSW) Pty Limited.

[109] I pause to note that the leases were not standard form residential site agreements in accordance with the 1999 Regulation. This fact could have been ascertained by carefully researching the relevant legislation.

[110] On 15 August 2000, Interstar requested PWC to provide new SCATs to enable settlement to occur and PWC provided these to Perpetual in unqualified terms. On the judge's findings, it was at this point that PWC should have advised Perpetual not to advance funds on the security of the mortgage as it was unable to ascertain the meaning of manufactured home estate. PWC gave no such advice and issued fresh SCATs in unqualified terms. At about the same time Casey released the original valuations. Perpetual acted on the SCATs and the original valuations and advanced the $500,000 to Lakeline.

[111] Mr Davies submitted that all PWC was required to tell Interstar (or Perpetual) to discharge its duty of care was that "a manufactured housing estate was an estate where houses are built off the land, brought onto the land, and might sit there on piers and may or may not become part of the land". Mr Davies submitted that Mr Mobilia's evidence makes it clear that he understood all these matters, in any event. There was nothing more, it was suggested, that Perpetual could have learnt from PWC, had it fulfilled its duty, that it did not know already. Mr Davies argued that Mr Mobilia, knowing that there was a difficulty with the question whether the homes were fixtures, was content to rely on what Mr Casey told him. On this basis, Mr Davies submitted that Perpetual obtained independent satisfaction as to whether the homes were fixtures and did not rely on anything that PWC did.

[112] In my opinion, however, for the reasons I have already given, the argument so advanced does not undermine Sorby DCJ's finding of causation leading from the breach found by his Honour. PWC would not have discharged its duty of care had it merely told Mr Mobilia what constituted a manufactured home estate and that the houses on the estate "may or may not become part of the land". Sorby DCJ's unchallenged findings mean that PWC should have gone further; PWC should have advised Perpetual not to make the loan as it was unable to ascertain the legal implications of the Lakeline Estate being a manufactured home estate. Thus, the argument meets neither the express finding that PWC had a positive duty to advise Perpetual not to advance funds on the security of the mortgage when it was unable to ascertain the meaning of manufactured home estate, nor the implicit finding that PWC should have advised Perpetual of the vexed question and its implications as regards the security.

[113] The judge's findings as to PWC's breaches of duty also bear on the causative effect of the SCATs. The evidence makes it clear that Interstar (acting for Perpetual) required up-to-date and unqualified SCATs before settlement could occur. Sorby DCJ found that without the SCATs from PWC the settlement would not have gone ahead. There is no appeal from this finding.

[114] In the circumstances known to both PWC and Interstar, PWC was intending to advance the money under the mortgage on the assumption that the homes on the lots had merged with the land. The SCATs, in certifying that the mortgagor had "good and marketable title to the property", certified that Lakeline had good and marketable title to the land and the homes on it. This compounds the causative effect of PWC's breach of duty in failing to advise Perpetual that it should not advance funds because PWC was unable to understand the meaning of "manufactured home estate".

[115] Mr Davies made various submissions about the scope of PWC's retainer and submitted that PWC did "not have to chase every rabbit down every burrow". He sought, in some way, to submit that, because of the limited scope of the retainer, the judge's finding on causation was wrong. I am, however, unable to discern how the scope of the retainer can affect the judge's findings as to breach of duty in the light of the fact that those findings are not challenged.

[116] Accordingly, I would not uphold PWC's submissions in regard to causation.

Contributory negligence and the position of Interstar

[117] PWC submitted that Sorby DCJ ought to have found either that Perpetual was guilty of contributory negligence or that Interstar should be ordered to make a contribution as a joint tortfeasor to the damages suffered by Perpetual. PWC accepted that no distinction should be made between any contributory negligence on the part of Perpetual and any liability on the part of Interstar to contribute (as the same individuals acted for Interstar and Perpetual in the relevant transaction).

[118] Sorby DCJ noted a submission PWC made that a prudent lender should not lend money to a borrower without satisfying itself as to:

(a): the borrower's financial strength;
(b): the purpose of the loan;
(c): the capacity of the borrower to make the interest or instalment payments under the loan;
(d): the capacity of the borrower to repay the loan capital;
(e): the same matters covered in (a), (c) and (d) in relation to the proposed guarantors mutatis mutandis;
(f): the value of any security offered.

[119] Perpetual had established guidelines for itself in relation to the matters set out in (a) to (e) above and PWC contended that Perpetual had failed to comply with its own guidelines in those respects.

[120] Mr Davies accepted that, on the assumption that the homes on the lots merged with the land, the value of the security was adequate. He accepted that the percentage of the loan against value was "perfectly OK". He said that the loan was about 46% of the value.

[121] PWC certified to Perpetual that Lakeline had good and marketable title to the property to be mortgaged on the basis that the property included the land and the homes on it. Perpetual, reasonably, was entitled to rely on PWC's certification.

[122] Casey released the original valuations of the land to Perpetual knowing that Perpetual would only proceed with the loan on receipt of the original valuations. Casey had previously expressed doubts as to whether the homes had merged with the land. A reasonable inference to be drawn from Casey's subsequent release of the original valuations is that it was satisfied that merger had been effected.

[123] Perpetual had retained PWC and Casey, in effect, to protect itself from problems of the kind that in fact arose with the mortgaged property. PWC and Casey were professionals in their respective fields. In my view, Perpetual could not be said to be guilty of contributory negligence because they relied on PWC and Casey without taking further steps to check on the certificates that PWC had issued and the valuations that Casey had provided.

[124] I turn now to PWC's arguments based on Perpetual's own guidelines which PWC submitted Perpetual had not complied with. Whether there had been compliance was in dispute. Interstar had obtained a statement from the guarantors as to their financial position, but apparently not a statutory declaration as the guidelines required. I shall assume that there was non-compliance with the guidelines.

[125] PWC led no expert evidence bearing on the contention that Perpetual was contributorily negligent in not following its guidelines. There was no expert evidence, for example, as to whether it was bad lending practice to make a loan such as was made in the present case without complying fully with the matters referred to in [104] (a) to (e) above.

[126] In the absence of such expert evidence, and in the light of the fact that the security provided, on reasonable grounds, was thought by Perpetual to be more than adequate to cover the loan, I would not hold that there was any contributory negligence on Perpetual's part.

[127] In Joslyn v Berryman (2003) 214 CLR 552, McHugh J said (at 558, [16]):

At common law, a plaintiff is guilty of contributory negligence when the plaintiff exposes himself or herself to a risk of injury which might reasonably have been foreseen and avoided and suffers an injury within the class of risk to which the plaintiff was exposed.

[128] I am not persuaded that Perpetual, by not following its guidelines, exposed itself to a risk of injury that might reasonably have been foreseen. The amount of security that Perpetual reasonably believed had been obtained meant that any loss arising out of the inability of Lakeline to repay the loan was not foreseeable. The comments I have made under this heading in relation to the alleged contributory negligence of Perpetual apply equally to the alleged negligence of Interstar.

[129] I would not uphold the appeal in relation to contributory negligence on the part of Perpetual or the asserted negligence of Interstar.

Casey's breach of the duty of care it owed Perpetual

[130] I reiterate that Sorby DCJ found that Casey had breached the duty of care it owed Perpetual in two respects. The first was that Casey failed to carry out adequate investigations to establish the true nature of the "Lakeline Development". Secondly, Casey failed to qualify its valuations despite Mr Casey having doubts and concerns as to whether the houses on the lots formed part of the realty.

[131] Casey's notice of appeal does not challenge the finding of breach arising out of its failure to make adequate investigations (the first ground of negligence referred to in the previous paragraph). Ms Adamson on Casey's behalf, however, argued the issue (without objection) and Mr Newlinds SC, who, together with Mr Newton, appeared for Perpetual and Interstar, responded to her arguments. I shall, therefore, (later) deal with the arguments raised.

[132] In regard to the challenge to the finding of breach based on Casey's failure to qualify its valuations, despite Mr Casey's existing doubts and concern, Ms Adamson submitted that those doubts and concerns were allayed by three factors. The first was that Mr Casey was influenced by "[p]hysical inspection (and in particular the size of the house, the means of annexation, the difficulty of relocation, the attachment to services: indeed all the things that impressed Mobilia and which meant that he regarded the houses as appropriate security ... )." The second was the forged leases and the fact that the "rental amount was commensurate with Lakeline's ownership of land and house". The third was that, although Mr Casey was aware of an ownership dispute with a resident, Mr Gilbey, Mr Gilbey's case was in a special category because his house was on the property before Lakeline purchased the land.

[133] In addition, Ms Adamson submitted:

Mr Casey may have been wrong in his opinion that the houses merged with the land, because the operation of the Residential Parks Act may well be that they couldn't have. But in circumstances where he is retained as a valuer and there is no expert evidence to say he should have been aware of the Residential Parks Act, then he would not have been negligent for not appreciating or realising that the houses did not become part of the land.

[134] It is convenient to deal firstly with the ground directed to the failure to qualify the valuation reports.

[135] In this regard, the judge found:

[Mr Casey] failed to qualify the valuation reports he prepared when he had doubts and concern as to the true nature of the Lakeline property such as to throw doubt on whether the houses formed part of the realty ...

Mr Newlinds submitted that these words constitute a finding by Sorby DCJ that Mr Casey had doubts and concern as to the true nature of the Lakeline property at the time Casey released its original valuations to Perpetual. His Honour's judgment as a whole bears out this submission. There is certainly a body of compelling evidence from Mr Casey himself that supports such a finding.

[136] At the outset, it is to be noted that Mr Casey well knew of the importance of the release of his original valuations and that Perpetual would rely on them in making the loan to Lakeline. He knew that, by releasing the original valuations, he was certifying that the properties had the values stated therein. He knew that, without the original valuation reports, Perpetual would not settle the loan. He knew that if the houses were not fixtures his valuations would, inevitably, be wrong.

[137] Mr Casey stated in para 118 of an affidavit tendered as part of his examination in chief:

I do not recall exactly what transpired after I had provided the valuations to Bettaway in June 2000, however in view of my knowledge of a previous dispute arising between tenants within the estate and Maples/Lakeline, together with the comments from Andrews regarding the integrity of Maples, I recall that I had some residual reservations about whether the houses were fixtures, notwithstanding my view, based on my inspection, that they were and the solicitor's opinion with which I had been provided ... My reservations did not arise from the inspection or anything else I knew about the properties, but rather from what Andrews had told me ... and my knowledge of the previous dispute with the tenants.

In this paragraph, Mr Casey may have been referring to his "residual reservations" before he saw the forged leases.

[138] I reiterate that, in their telephone conversation of 11 August 2000, Mr Casey told Mr Mobilia that he was holding back the original valuations because he wanted to "check some more things about the title". He told Mr Mobilia that he had "doubts whether the structures erected are merged with the land." He said that he was not sure whether the houses formed part of the property and remarked that it was an unusual property and a prefabricated estate. He told Mr Mobilia, in effect, that he could not, at that time, confirm that the houses formed part of the land. He said that he had "requested copies of leases which may shed some light of [sic] the issue."

[139] By reason of Mr Casey's doubts as to the legal status of the homes on the seven lots he had asked Mr Varianis, of Lakeline, to obtain the leases for him. In cross-examination Mr Casey acknowledged that he could have got the leases from the tenants. He did not attempt to do so.

[140] Mr Casey received copies of the leases on 14 August 2000. Thereafter, on the same day, Mr Casey testified that he rang Bettaway and spoke to Mrs Pollard. Mrs Pollard disputed this call. Mr Casey made a file note of his conversation with Mrs Pollard and asked a Casey employee to witness the note. The file note reads, relevantly:

... the leases were indicators of the ownership of the improvements but not guarantees ... [A]s a valuer I was not in a position to guarantee the ownership of the improvements or their merger with the land. It would need to be decided by them. She said she understood this.

[141] Sorby DCJ held that Mr Casey did not speak to Mrs Pollard on 14 August 2000 as he alleged. This finding is not challenged.

[142] On 15 August 2000, Mr Casey wrote to Bettaway. The relevant part of this letter is set out in [94] above. I repeat that in that letter Mr Casey stated "[t]here are no indications from these leases that the residences are not owned by Lakeline Properties (NSW) Pty Ltd".

[143] Mr Casey was cross-examined about his file note of the conversation that he said that he had had with Mrs Pollard on 14 August 2000. By the time of that alleged conversation, Mr Casey had seen the forged leases. He accepted that "the heart" of the conversation was his statement that he could not guarantee that the land had merged with the building. He explained:

I believed that I didn't have the capacity to decide whether or not that was the case, even though to me everything pointed to them being part of the land.

[144] Mr Casey agreed that, on 14 August 2000, after he had examined the forged leases, he was still not sure that the houses had merged with the land. At that stage, his concerns about whether the land had merged with the buildings were so great that, according to him, he was moved to telephone Bettaway to tell them that despite having seen the leases he could not guarantee that the land had merged with the building.

[145] Later, in cross-examination, Mr Casey asserted that when he released the valuations he "totally believed" that the houses were part of the land, but his Honour did not believe this statement which was in sharp contrast to other evidence he had given. There is no appeal against this finding.

[146] The fact is that Mr Casey's doubts were sufficiently grave to cause him, on his version, to telephone Bettaway and inform them of his concerns. He regarded the matter as so important that he made a file note of the telephone conversation and had it witnessed by another. In this context, it is not to the point that Sorby DCJ was not persuaded that the conversation asserted by Mr Casey had in fact taken place. Mr Casey's evidence about it is dramatic testimony of his understanding of the problems with the security proffered by Lakeline and his recognition of the importance of making these problems known to the lender.

[147] In my view, Sorby DCJ's finding that Casey breached its duty of care, in these circumstances, by not qualifying his original valuations when he released them, is unassailable.

[148] The other breach found by Sorby DCJ is that Casey failed to carry out adequate investigations to establish the true nature of the Lakeline development. In my opinion, the criticisms of this finding must fail in the light of the serious doubts that Mr Casey confessed he had at the time he had released his original valuations.

[149] His own admitted understanding of the position overrides any general impression he might have obtained from a physical inspection of the houses (from the outside) and examining the forged leases.

[150] There was evidence that Mr Casey knew that residents other than Mr Gilbey contended that they owned their homes. But, in the overall context, I do not think that this is an issue of substance. There is little benefit in arguing that Mr Casey's concerns were allayed when he himself says that they were not.

[151] There is a considerable body of expert evidence to the effect that, in the circumstances that obtained, Mr Casey should have made inquiries from the local council's town planner. The inquiries should have been as to the nature of the Lakeline Estate and as to whether the town planner knew of any potential problems with it. Had Mr Casey made such inquiries he would at least have learned that Lakeline Estate was a manufactured home estate. Mr Casey did not know what that meant. A valuer, acting reasonably in that situation, would, in my opinion, have made further inquiries as to the implications of the Estate being a manufactured home estate. The expert evidence supports such a finding. Had Mr Casey done this he would have discovered, at least, that the legal situation tended to confirm the doubts he already held.

[152] Accordingly, in my view, Sorby DCJ has not been shown to have been wrong in finding that Mr Casey was negligent in failing to make further investigations concerning the question whether the homes had become fixtures on the land.

Apportionment between PWC and Casey

[153] Sorby DCJ said:

In weighing the blameworthiness between PWC and [Casey], I consider that the central issue from which all the problems and subsequent litigation flowed was the vexed problem of whether or not the relevant houses on the estate were fixtures or not. This is essentially a legal problem. Mr Casey is not a lawyer whatever 'doubts' he may have had about the Lakeline Estate and the status of the houses located there. In my opinion the primary responsibility in determining the status of the estate for mortgage lending purposes rested with PWC. The issue of title was fundamental as to whether [Perpetual] would advance monies by way of mortgage on the properties. It was a question of determination by PWC. Some 'blameworthiness' does however attach to Mr Casey for not carrying out inspections of the properties or qualifying his valuations when he developed 'doubts'. I attach [sic] liability of 80% PWC and 20% [Casey].

[154] In Wynbergen v Hoyts Corporation Pty Ltd (1997) 72 ALJR 65, Hayne J (with whom Gaudron, McHugh, Gummow and Kirby JJ agreed) said (at 68):

No doubt the making of the apportionment which the legislation requires involves comparison of the culpability of the parties, ie, the degree to which each has departed from the standard of what is reasonable, but that is not the only element to be considered. Regard must be had to the 'relative importance of the acts of the parties in causing the damage' and it is 'the whole conduct of each negligent party in relation to the circumstances of the accident which must be subjected to comparative examination'.

[155] In considering the "relative importance of the acts of the parties in causing the damage" (sometimes referred to as the "causal potency" of the parties' respective conduct), I do not think that it can be gainsaid that the breaches by PWC and Casey were of equal significance in causing the harm Perpetual suffered. Perpetual relied on PWC's unqualified SCATs and PWC's omission to advise that there was any problem with the security. In addition, Perpetual also relied on the release by Casey of its original unqualified valuation reports. Had the SCATs been qualified (or not provided), or had PWC advised Perpetual of the uncertainties attendant upon the ownership of the manufactured homes, or had the valuation reports been qualified (or not released), Perpetual would not have lent Lakeline the $500,000. The causal potency of the breaches by PWC and the breaches by Casey was the same.

[156] When dealing with the issue of blameworthiness, his Honour attached primary responsibility to PWC because, he said, "the vexed problem of whether or not the relevant houses on the estate were fixtures or not" was "essentially a legal problem". While that may be so, Mr Casey knew that there were serious doubts as to whether the houses were fixtures and had he carried out reasonable investigations into the issue those doubts would have been confirmed. Reasonable investigations did not necessarily involve giving or taking legal advice. Discussions with the council and, indeed with the tenants, would have revealed the existence of real problems concerning the ownership of the homes. Accordingly, in my opinion, his Honour erred in his approach to the decision he took on apportionment and this Court is required, afresh, to exercise its discretion in regard to that issue.

[157] In my opinion, no distinction of substance can be detected in the culpability of PWC on the one hand and that of Casey on the other. The root cause of PWC's breaches of duty were the failures of the paralegals employed by it to carry out a proper title search, to detect that the Lakeline Estate was a manufactured home estate, to appreciate the significance of that fact, and to draw that fact to the attention of Mr Francis or some other suitably qualified solicitor. The root causes of Casey's breaches were Mr Casey's failures to qualify his valuations, to withhold them in the light of his serious doubts as to the ownership of the homes, and to carry out reasonable investigations into the issue. In my opinion, the culpability of PWC and Casey, albeit involving different breaches, is more or less equal.

[158] It follows, in my opinion, that the damages for which each of PWC and Casey is liable to Perpetual should be apportioned equally between the two of them.

Mitigation

[159] Sorby DCJ noted that PWC submitted that Perpetual had failed to mitigate its damages "because of its indolence and conduct" once a receiver was appointed and Lakeline defaulted in February 2001. His Honour said that the essence of PWC's submission was:

(a): Perpetual should have taken possession of the rents relating to the residents;
(b): Perpetual should have sold the land sooner;
(c): Perpetual should have sold the houses;
(d): Perpetual should have sold the land and/or houses for more than it did.

[160] His Honour upheld PWC's argument concerning earlier possession of the rentals and made an allowance for that in his assessment of the judgment sum. No appeal arises from that.

[161] In the present proceedings, PWC submits that his Honour erred in not upholding its arguments in relation to the points referred to in [145] (b) and (d).

[162] On 12 February 2001, receivers were appointed to Lakeline. On 14 February 2001, Lakeline defaulted on its loan repayments and made no further payments to Perpetual. Some three-and-a-half years later, on 26 August 2004, Perpetual sold the seven mortgaged lots after exchanging contracts on 3 June 2004. The lots were sold "in one line", that is, as a group.

[163] Mr Davies submitted that Perpetual should have sold the lots earlier, should have taken advice from an expert estate agent or a valuer, and should have sold the lots individually. He submitted that had these steps been taken the lots would have achieved a higher price than that which was in fact obtained. Thus, he argued, firstly, that had the lots been sold earlier, interest (which was allowed as damages in the computation of the judgment sum), would have been saved; and, secondly, had the lots been sold individually a higher price would have been obtained.

[164] Sorby DCJ accepted that in the relevant period after Lakeline had defaulted, "there was a great deal of confusion as to the status of the manufactured homes". Residents of the homes had threatened legal proceedings and Perpetual had sought and obtained legal advice. In addition, the residents were elderly people and Sorby DCJ observed:

[T]hat was something that obviously weighed on [Perpetual's] mind in considering the best options.

[165] Lakeline Estate was described by an expert witness as a "stigmatised estate" and, over the relevant period, lots on the estate seemed to be difficult to sell and the market price of the lots were lower than the market generally. There was evidence that the surrounding property market, "as a rule of thumb doubled from 2000 to 2005 during the normal property market boom that we have all experienced". The property on Lakeline Estate, however, did not alter significantly in value over the relevant period.

[166] No evidence was led as to the perception the market had, at the relevant time, as to whether lots on Lakeline Estate would be likely to rise or fall or remain stationary.

[167] There undoubtedly appears to have been an unusual delay on the part of Perpetual in selling the lots, but the circumstances as I have described them were unusual. Sorby DCJ said in this regard:

Overall, I am not convinced that the time taken to sell the properties, given the history of the estate, the number of significant legal issues hanging over the properties together with the interests of the elderly tenants, constitute 'delay' in selling the properties.

I am not persuaded that his Honour was wrong in this conclusion.

[168] Sorby DCJ said:

There was no evidence to justify the assertion of PWC that the land was ultimately sold under value.

I do not understand this factual finding (which is to be understood as relating to a sale in one line) to be challenged. Rather, it is said that Perpetual should have sold the lots individually rather than as a group. Particularly in the light of the stigma that apparently attached to the Lakeline Estate and the lack of compelling evidence that the lots could readily have been sold individually at substantially higher prices than were in fact realised, I am not persuaded that Perpetual acted unreasonably in selling the lots as it did. I would not uphold PWC's argument on mitigation.

The costs of the trial

[169] PWC submits that Sorby DCJ erred in two respects in the costs orders he made, namely, in ordering that Perpetual's costs of the trial be paid as to 80% by PWC and 20% by Casey, and in ordering that PWC pay 50% of Bettaway's costs of the second, third and fourth cross-claims.

[170] His Honour's decision that PWC should pay 80% and Casey 20% of the costs was based on the apportionment that his Honour found should apply between the two of them. I have expressed the opinion that his Honour erred in regard to apportionment and Perpetual's damages should be apportioned equally between PWC and Casey. Thus, it falls to this Court to exercise afresh the discretion that arises in connection with the liability of these two parties, between themselves, for the costs of Perpetual.

[171] There have been cases where costs orders in favour of a plaintiff against two or more joint tortfeasors have been made in accordance with the proportion in which the joint tortfeasors have been found to be responsible for the plaintiff's damages. There is no principle of law that requires this to be done. An order for costs remains within the general discretion of the court. Thus, in many cases, while the apportionment of liability between joint tortfeasors for the plaintiff's loss has been regarded as a relevant factor, costs orders as between the joint tortfeasors have been made on different bases.

[172] I do not think that any material distinction can be drawn (from the point of view of determining liability for costs) between the issues at trial on which PWC and Casey, respectively, succeeded and failed. In the circumstances I propose that the liability of PWC and Casey for Perpetual's costs of the trial be borne in equal proportions.

[173] I have noted that Sorby DCJ ordered that PWC pay 50% of Bettaway's costs of the second, third and fourth cross-claims. His Honour ordered Casey to pay the remaining 50%.

[174] In the notice of appeal the relevant ground was that the judge erred in ordering that PWC pay 50% of Bettaway's costs, and the order sought was that Casey pay the costs. Bettaway was not a party to the appeal, and the order in its favour could not be disturbed. The appeal in this respect was, in substance, that the judge should have ordered that Casey pay to PWC the costs which PWC had to pay to Bettaway. PWC's submissions were to that effect: in its written submissions it said that it "did the prudent thing and joined Bettaway", and relied on Besterman v British Motor Cab Co Ltd [1914] 3 KB 181, a Bullock order case. Casey's written submissions did not directly respond to this. The oral submissions of PWC and Casey were concerned with the reasonableness of PWC's conduct. It is appropriate to treat the matter on a Bullock order basis.

[175] The claims against Bettaway came about in the following way. Casey, initially, cross-claimed for a contribution against Bettaway. It alleged that Bettaway was a joint tortfeasor in regard to Perpetual's claim. Casey's cause of action against Bettaway was based on the telephone conversation between Mr Casey and Mrs Pollard on 14 August 2000. I have observed that his Honour was not persuaded that that conversation occurred as Mr Casey asserted.

[176] After Casey had brought its cross-claim against Bettaway, PWC obtained discovery of the file note made by Mr Casey, witnessed by a Casey employee, of the telephone conversation between Mr Casey and Mrs Pollard. On the strength of that file note, PWC brought a cross-claim for a contribution against Bettaway (like Casey, alleging that Bettaway was a joint tortfeasor). PWC did this, as his Honour noted, "as some type of precaution".

[177] During the trial, PWC led no evidence against Bettaway, did not cross-examine Bettaway's witnesses and, in submissions, took a neutral stance in regard to the telephone conversation of 14 August 2000. PWC merely submitted that in the event that the trial judge preferred the evidence of Mr Casey, it adopted Casey's submissions.

[178] The cross-claims against Bettaway failed simply because his Honour was not persuaded that the telephone conversation between Mr Casey and Mrs Pollard occurred as Mr Casey alleged.

[179] I accept, as Mr Davies submitted, that PWC was in no position to make a judgment about what was and what was not said between Mr Casey and Mrs Pollard. PWC was, reasonably, in a state of uncertainty as to whether Bettaway was a joint tortfeasor or not. That uncertainty arose from the fact that PWC was not able to judge the veracity of the claim Casey had made about the telephone conversation between Mr Casey and Mrs Pollard. In my opinion, in the light of Casey's cross-claim against Bettaway, it was reasonable for PWC to take the precaution of following suit by suing Bettaway, as a cross-defendant, in the proceedings and relying on Casey's assertion as to what was said between Mr Casey and Mrs Pollard. Further, PWC acted reasonably in the way it conducted the proceedings to the extent that they involved Bettaway.

[180] In these circumstances, it seems to me that the trial judge erred in requiring PWC to pay 50% of the costs of the cross-claims.

[181] Order 15 made by Sorby DCJ is in the following terms:

With respect to the Second and Third Cross-Claims against Bettaway and the Fourth Cross-Claim by Bettaway:

15.1 [PWC] to pay 50% of such costs on a party and party basis.

15.2 [Casey] to pay 50% of such costs on a party and party basis.

[182] In the circumstances I consider that an order should be made that Casey should pay to PWC any costs that PWC is required by O 15 to pay Bettaway.

[183] Casey advanced a number of arguments in regard to costs based on a Calderbank offer that had been made to PWC on 31 May 2005. In the light of the order that I propose apportioning responsibility for Perpetual's damages equally as between PWC and Casey, the arguments based on the Calderbank offer fall away.

The costs of the appeal

[184] As PWC fails in its appeal against Perpetual and Interstar, it should be ordered to pay the costs of appeal of those two parties.

[185] Casey's cross-appeal is against Perpetual alone. Casey fails in that cross-appeal and should be ordered to pay Perpetual's costs of the cross-appeal.

[186] PWC succeeds in its appeal against Casey in regard to the apportionment of liability and the costs involving the cross-claims against Bettaway, and Casey should pay PWC's costs of the appeal insofar as they relate to those issues.

Summary

[187] Accordingly, I propose the following orders:

(a): PWC's appeal against Casey in regard to the apportionment of liability between PWC and Casey for Perpetual's damages is upheld.
(b): The orders made by the trial judge in relation to the apportionment of liability (Os 6 and 8 of the orders made on 28 March 2006) are set aside.
(c): The liability of PWC and Casey, as between themselves, for their liability to Perpetual in respect of the verdict and judgment sum, including interest thereon, as set out in O 1 of the orders made on 28 March 2006, is apportioned equally (that is, 50/50).
(d): Order 11 of the orders made on 28 March 2006 is set aside.
(e): The liability of PWC and Casey, as between themselves, for their liability to Perpetual, in respect of the costs of the proceedings below, is apportioned equally (that is, 50/50).
(f): Casey is ordered to pay to PWC any costs that PWC is required by O 15 (of the orders made on 28 March 2006) to pay Bettaway.
(g): Save as set out above, PWC's appeal is dismissed.
(h): Casey's cross-appeal is dismissed.
(i): PWC is ordered to pay the costs of appeal of Perpetual and Interstar.
(j): Casey is ordered to pay Perpetual's costs of the cross-appeal.
(k): Casey is ordered to pay PWC's costs of the appeal insofar as they relate to the apportionment issue and the costs involving the cross-claims against Bettaway.

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