Bechara & Anor v Perpetual Trustees Aust Ltd & Ors A7/2000 [2000] HCATrans 218 (12 May 2000)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A4 of 2000

B e t w e e n -

ENNIO MICARONE and LINDA MICARONE

Applicants

and

PERPETUAL TRUSTEES AUSTRALIA LTD, CARMINE VINCE BELPERIO, WILLIAM ALBERT GEORGE MORRIS, CHRISTOPHER JOHN PEARCE and ALLEN GORDON FROST

Respondents

Office of the Registry

Adelaide No A7 of 2000

B e t w e e n -

JOSEPH BECHARA and DAAD BECHARA

Applicants

and

PERPETUAL TRUSTEES AUSTRALIA LTD, CARMINE VINCE BELPERIO, WILLIAM ALBERT GEORGE MORRIS, CHRISTOPHER JOHN PEARCE and ALLEN GORDON FROST

Respondents

Applications for special leave to appeal

GLEESON CJ

GAUDRON J

KIRBY J

TRANSCRIPT OF PROCEEDINGS

FROM ADELAIDE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 12 MAY 2000, AT 11.54 AM

Copyright in the High Court of Australia

____________________

MR J.L. GLISSAN, QC: If the Court please, I appear with my learned friends, MR N. NIARCHOS and MR F.C. BROHIER, for the Micarone applicants. (instructed by Niarchos & Co)

MR D.A. TRIM, QC: If the Court please, I appear with my learned friend, MR M. DURRANT, for the first respondent. (instructed by Kelly & Co)

MR P.A.R. SCRAGG: If the Court please, I appear for the fifth respondent. (instructed by Paul Richardson)

MR S.W. TILMOUTH, QC: If the Court pleases, I appear with my learned friend, MR G.A. STEVENS, for the Bechara applicants. (instructed by Mellor Olsson)

MR S. WALSH, QC: If the Court pleases, I should announce that I appear with my learned friend, MR M. J. LIEBICH, for the third, fourth and fifth respondents. (instructed by Thomson Playford)

GLEESON CJ: Yes, Mr Glissan.

MR GLISSAN: If the Court please. Your Honours, if it is convenient for the Court, we propose that I might argue those grounds relating to special disability and constructive knowledge and the last ground in our ground of appeal relating to costs and that Mr Tilmouth would deal with those grounds that related to the solicitor and his duty and the things that flowed from that and the certificates. Having said that, may I go immediately to those grounds in relation to special disability with the Court.

So far as the special leave questions are concerned they are set out at 422 of the application book. Your Honours, I hope to be able to take your Honours through this without reading any material at all from the books so far as this ground is concerned because what is thrown up, we would suggest, essentially raises a number of interrelated issues in relation to the questions of special disability and raises at least three issues of general importance which would justify a grant of special leave in this case.

KIRBY J: It just looks like a very factual case of another improvident transaction by people with a corporation from whom they borrowed money which, had the transaction been successful, they would have taken the advantage of, but it having not been successful, they are coming to courts to seek relief.

MR GLISSAN: We would answer that in two ways, your Honour. First - - -

KIRBY J: I say that in relation to the claim against Perpetual. I think the claim against the solicitor is in a different class.

MR GLISSAN: I understand that was what your Honour was directing that remark to. So far as issues of fact are concerned, this is really a Warren v Coombes sort of case. There is no fact as such that is in issue. It is a more a question of what inferences are to be drawn from the facts that were found and the distinction so far as that is concerned can be seen in what is said by both the trial judge and the Full Court in drawing different inferences from the factual material that was before the court. But there are three matters which distinguish this from an ordinary factual case, however that is looked at.

The first is the application by the Full Court of South Australia of the decision of the Full Court of the Federal Court in Tarzia. That was a case in which the Federal Court reformulation of principle which had been dealt with in this Court in Garcia and earlier in Amadio essentially restricts the operation of the equitable concept of unconscionability almost to nil.

Had the formulation that was adopted by the Federal Court and followed by the Full Court of South Australia been applied in either Amadio or Garcia, the plaintiffs in those cases would have failed and, indeed, even going back as far as Blomley v Ryan the reformulation excludes from operation all of those characteristics that the Full Court of the Federal Court said, and this Court following it, said are characteristics of other members of the community and so did not amount to a special disadvantage. That is something where there is a significant conflict between what has been said by this Court, particularly in Garcia and later in Leahy, and it raises starkly a possibility that courts will restrict the operation of unconscionability in a way that certainly this court never contemplated and which requires guidance.

GLEESON CJ: Where in the reasons for judgment of the Full Court of South Australia do we find the error on this point?

MR GLISSAN: While that is being turned up, your Honour, and I propose to answer that directly, but can I raise the other two points, or just flag the other two points that we want to propound and suggest that there is, perhaps, a fourth point as well. The second point is that one of the propositions acted on by the Full Court of South Australia was a proposition that imputed knowledge to the wife of the applicants, or the wives of the two applicants, on the basis of cultural deference. That is a matter which we say contains within it an ever greater heresy.

GLEESON CJ: Where do we find that?

MR GLISSAN: At 324 of the application book it deals with that at paragraph 591 of the judgment of Justice Debelle and Justice Wicks.

GAUDRON J: I do not see how you seek to use this. Whether it be cultural or not or whether it be something that sometimes happens in certain relationships, it does not seem to go to the question of undue influence, as such, nor does it, of its own, indicate special disability, does it?

GLEESON CJ: It might represent a convenient division of labour. Maybe the wife defers to her husband in relation to certain matters of business and maybe he defers to her in relation to decisions as to where the children will go to school.

MR GLISSAN: There was certainly no evidence to support that.

GLEESON CJ: But the way this - this paragraph is answering a process of reasoning by the trial judge, is it not?

MR GLISSAN: Yes.

GLEESON CJ: And, the key to the approach is in the middle of this paragraph where they say the wife cannot say, "Because I defer to my husband in relation to matters of finance, therefore nobody ever tells me about these things, I am under a special disability".

MR GLISSAN: But, your Honour, that raises the spectre of precisely what was the subject of consideration in cases like Yerkey v Jones, to go back that far.

GAUDRON J: Yes, but that was a case - Yerkey v Jones and later Garcia were cases in which one person in a relationship was making an improvident transaction for the benefit of another. In this particular relationship it is not the husband who is the beneficiary, he is as much victim as the wife. If you can say that she was used to deferring to her son, then you may get into special disability area.

MR GLISSAN: What we would want to put about it is this, that the general principle is that each of these individuals, the four parents, have to be looked at each individually to determine whether or not each is under a special disability. It is no answer to answering that test to say that because of the relationship between the husband and the wife and the fact that the wife deferred to the husband that she was not under a special disability where the evidence establishes, as the evidence does here, extremely limited capacity.

GLEESON CJ: Would it be materially different if instead of saying "the wife deferred to the husband" you said, "the wife left it to the husband to worry about matters like that"?

MR GLISSAN: If the wife simply abandoned it to the husband, that would be one thing. If the wife deferred to the husband because of the marital relationship, that is another thing. That is the Yerkey v Jones principle, the wife deferred.

GAUDRON J: Yes, but that is where she is deferring to her husband - Yerkey v Jones -who is getting the benefit of the transaction and she is getting none.

MR GLISSAN: I understand that distinction.

GAUDRON J: Now, to say that she deferred to her husband in this situation does not seem to me to constitute of itself special disability. What it means really is if the husband had said, "We are not going ahead with it" she would have agreed. If he had said, "Well, we are going ahead with it" she would have said, "Very well".

MR GLISSAN: Can I go back to Yerkey v Jones for a minute and just think back to what Justice Dixon said in that case about the marital relationship which was along the lines of, "There is a remaining equitable presumption of an invalidating tendency in the marriage relationship".

GAUDRON J: That was in relation to a guarantee, also, was it not?

MR GLISSAN: Yes, it was in relation to a guarantee.

GAUDRON J: It seems to me if there is one thing that is odd about this matter is that so many of the judges - not that I think this helps you - but it is that this matter has been approached almost as if they were dealing with a guarantee instead of a re-financing by way of new mortgage.

MR GLISSAN: There is a sound reason in the facts for that, of course.

GAUDRON J: Yes, I understand that, but the considerations applicable in a guarantee case, where there is no benefit at all, are not necessarily exactly the same as in an improvident dealing case where there is some benefit. Now, it cannot be denied, at least so far as Perpetual Trustee are concerned, there was some benefit to at least the Micarones.

MR GLISSAN: Let me try to gain some comfort from Tarzia, the case that I earlier raised with your Honour in a critical sense. That was a case where the Full Court of the Federal Court considered a movement by a lender in terms of unconscionability to obtain the benefit of a direct mortgage rather than a guarantee, because it was always the lender's intention that should there need to be enforcement of the security, it would have the benefit of the direct mortgage rather than the guarantee, and the court said in the context that in that case, that was a matter which might, in a proper case, give rise to, I think as they put it, "a cause of action", but certainly an inference of unconscionability.

That is precisely the situation that obtains here on the factual material that was found by all of the judges. What happened was that the initial situation was that there was a guarantee, that the refinancing was a translation from a guarantee to a mortgage and that there was a significant detriment, although that does not appear from the judgment of the majority in the decision itself, but in the later consideration of the Frost matter.

There were three in number alterations because of that. The first was the primary liability. The second was that where before each of the guarantors had been liable for only that which they guaranteed, by the refinancing each of them became liable for the whole of the amount advanced. The third was that where before as guarantors they had only been liable on default, as principal borrowers they became liable not only for the principal debt but for the interest on a continuing basis. So that those three additional disadvantages came to them, although there was no concomitant advantage to be found.

GAUDRON J: Well, some advantage in the reduction in the interest payments.

MR GLISSAN: But they were not liable for the interest in relation to the earlier loans. They were merely guarantors. So that that is an illusory benefit. It was an additional benefit, the reduction of interest.

KIRBY J: Is not the real benefit that they were helping their son-in-law? I mean, it is a little bit unreal if we have to pretend that family support is not a factor in these matters. It obviously was in this case.

MR GLISSAN: No, indeed. It would be foolish to suggest anything to the contrary. But that does not necessarily mean that the transaction, because there is an additional factor in the matter, is one which is not unconscionable or is not tainted with the matters that are raised.

KIRBY J: No, but it takes away the suggestion that this was just some harebrained scheme that they were going into and talked into by a financier. It is not the case. This is always the problem I have in this area. People will take the benefit of it and it all goes right, as it normally does, and when it goes wrong they rush along to courts and spend a lot of money trying to get themselves into categories which are designed to be truly exceptional.

MR GLISSAN: I understand what your Honour is saying - - -

KIRBY J: Otherwise we just completely undo financial probity and responsibility but more importantly, as the commentaries on this point out, the economic independence of individuals in our society.

MR GLISSAN: As, indeed, I think your Honour said in the judgment in Leahy. But if I can try to deal with that in this way, it does not deprive the transaction of the need to be transparently within the conscience of the lender. That is really the proposition at bottom and for the factors that I hope to identify, the first being the Tarzia point that the ground rules are changed by that decision if it is followed. The second, that the deferral proposition is in fact a heresy because, regardless of the factual differences from Yerkey v Jones, the relationship with the husband is still one of trust and confidence. It is still one of emotional dependence.

Whatever expression that the court has used before is applied to it, applies here. It is not merely a case of abandonment and because there is evidence from each of the wives in the transcript that, had they been independently advised of the improvidence of the transaction and that they might have lost their house, they would not have gone ahead, they would not have signed.

GLEESON CJ: So they do not defer to their husbands.

MR GLISSON: Your Honour, I am not challenging the fact that was found by the Full Court, I am challenging the logical reasoning that attends it. The Full Court found deference to the husband. What I complain about is that that was used not as an invalidating tendency, to use the Dixon formulation from Yerkey v Jones, but it was used, rather, to infect the wife with the knowledge of the husband and to validate a transaction which would otherwise have been regarded as inappropriate or suspect. That cannot be right. That cannot be a proposition that is acceptable to the Court.

The next aspect of the matter is, how does that proposition - if I can put this rhetorical question - how does that proposition, deferral to the husband, stand with the need identified in the cases, Garcia and the like, to satisfy the need that the parties have knowledge and understanding or, rather, demonstrate no knowledge and understanding of the nature of the transaction.

GLEESON CJ: Mr Glisson, as a matter of principle, would it make any difference if the reason the wives left the decision on this matter to their husbands was not cultural, but it was because they were going on an overseas trip and were too busy to attend to the matter themselves. If that had happened and they had said, "We will leave it to you to decide this, we will go along with whatever you decide. We are going away on a trip.", what would be the consequence of that in terms of attributing to them knowledge that the husbands had?

MR GLISSON: I suppose you could put an even worse case, if they had given the husbands a power of attorney which bound them. They had not revoked it when they became aware of it. I mean - - -

KIRBY J: Yes, but it seems a little unreal in a family situation.

MR GLISSON: Oh, yes, not impossible to imagine. There has to be - - -

GLEESON CJ: What I am saying is they could have had any one of a number of reasons that some people might have thought would be very good reasons for leaving it to their husbands to make the decision about whether this transaction would be entered into.

MR GLISSON: Is there a difference between leaving it to their husbands to make the decision, and a determination which was the determination made in the Full Court, that they were infected with their husband's knowledge? It - - -

GAUDRON J: I am not too sure that that is really how it was approached, Mr Glisson. To say that they left it to their husbands to decide is one thing. But there was clear evidence here that they had been advised of exactly what they said. To say that they left it to the husbands does not mean to say either they did not understand what was happening or that their will was overborne. They were advised, and they were advised that they could lose their homes. That was the evidence.

MR GLISSON: That raises a question that relates to the nature of the solicitor's advice and the advice that was given, and that is something that I would prefer to let Mr Tilmouth to deal with, if I May.

GAUDRON J: Yes, but to say that they left it to their husbands, as such, neither establishes their inability to comprehend or to give real consent or informed consent, nor does it say anything about undue influence. You have to go beyond that.

MR GLISSON: There is a combination of factors in this case that, of course, clearly establish that there was a degree of undue influence proceeding from other sources. That raises the other question that really is an important issue for consideration in this case, and that is where there is both undue influence and an element of unconscionability proceeding from the knowledge which infects the lender - and there was some considerable body of that which I will touch on briefly, if I am permitted - - -

GLEESON CJ: No, your time has come to an end, Mr Glisson, but complete what you were saying about this particular point.

MR GLISSON: What I was saying, your Honour, was this: that the combination of those matters of unconscionability and undue influence, the two in tandem, raise an important issue as to how the Court should approach the two elements of it, which we say were confused here by the Full Court.

GLEESON CJ: Thank you, Mr Glisson. Just before you sit down, I want to get one thing clear about the position of the parties. Your argument was aimed, really, at Perpetual, I think?

MR GLISSON: Yes.

GLEESON CJ: Mr Tilmouth's argument is going to be aimed at the solicitors.

MR GLISSON: Yes.

GLEESON CJ: Now, you succeeded against Mr Scragg's client, is that right?

MR GLISSON: Yes.

GLEESON CJ: So there is no live issue?

MR GLISSON: Yes, there is one live issue.

GLEESON CJ: Costs?

MR GLISSON: Costs. But those costs are whether or not the parties were entitled to obtain a sort of Sanderson order in relation to the costs of pursuing the failed action.

KIRBY J: We would not normally get involved in a thing like that, unless the whole matter were being brought up, would we?

MR GLISSAN: That is exactly so.

KIRBY J: What if we were to consider that there was a special leave point in the point against the solicitors, that is to say, Mr Belperio? Does Mr Scragg's client, Mr Frost, come up at that point, or not?

MR GLISSAN: Yes, he does.

KIRBY J: Well, perhaps we can think about that later.

MR GLISSAN: If the Court pleases.

GLEESON CJ: Thank you. Mr Tilmouth.

MR TILMOUTH: If the Court pleases, my submissions address two issues and that relates to the duty of care and the question of causation. We succeeded before the trial judge, of course, on those; two judges in the Full Court were against us, one was with us.

Your Honours, in our submission, it is important to understand exactly what the trial judge found in this case and without reading my analysis, the following analysis begins from page 74 of the first volume. What his Honour found, if the Court pleases, was that the solicitor in this case, Mr Belperio, quite apart from the legal duty, assumed a duty to be role of legal adviser, and that appears at page 74 line 43, and it is an important first step, in my submission, that there was an assumption of responsibility. The only question is the ambit of that assumption. More than that, if the Court pleases, several lines down - - -

GAUDRON J: Well, the real question is the content of the duty of care, is it not?

MR TILMOUTH: Precisely, and our point is, your Honours, if the majority is to be accepted, there is really no effective content of the duty left, because what the majority did was, they regarded the duty as confined to the certificate which was given. That certificate was designed, of course, to protect Prudential. That certificate did not, of itself, protect in any realistic way the applicants in this case.

KIRBY J: Yes, but you seem to want to turn solicitors into financial advisers, which is what they are not competent to be, or trained to be.

MR TILMOUTH: No, if the Court pleases. Although McNamara's Case suggests, and the extract is at page 76, the general duty of care extends further than just ensuring - page 76, your Honours, in the second half of the page - extends further than simply advising on the terms of the guarantee. That is about line 36, and involves advice about the prudence of the transaction, line 35, or the wisdom, line 44. What, in the end result, if the Court pleases, his Honour did, after referring to Hawkins v Clayton and Tarzia, and so on, is came to his conclusion at page 79. Now, could I read this passage, if the Court pleases, because - I am sorry to do so, but it is important both on the causation issue as well as the primary finding of negligence, this is really where it all crystallises. Page 79, the third line, his Honour held:

In my view Mr Belperio was under a duty of care by reason of the relationship of proximity which arose when he assumed the responsibility to give legal advice appropriate to the situation.

And that was to look after the interests of the parents, was his exact finding, at page 74.

GAUDRON J: Yes, but it is all very well to say, to look after; you have to say by what means.

MR TILMOUTH: The means were, your Honour, at line 16:

At the very least I think that a solicitor in Mr Belperio's position should have told the plaintiffs that he would not witness the execution of the documents until they had the opportunity to go away and receive independent legal advice on the insurance policy and other financial matters.

KIRBY J: Is that consistent with what Chief Justice King said in McNamara?

MR TILMOUTH: No, it does not go that far, I accept that, but what his Honour - - -

GAUDRON J: Why could he refuse to execute, refuse to witness? I mean, I can understand a duty of care which says, I advise you not to sign these documents until you have gone and had proper advice with respect of the insurance claim, but I cannot understand the refusal to witness.

MR TILMOUTH: Well, if the Court pleases, the first thing is, as the Court knows as well, on all counts, the problem for this solicitor was there was a conflict of interest, not as between the applicants, but because the certificates were signed - although the certificates required them to be advised independently, by the way - but the real conflict arose because those who primarily stood to benefit, ie, the children, were present on this occasion, and that was a feature of McNamara and it was important, of course, in Amadio.

MR KING: But your answer to Justice Gaudron's question is that that would be enough for you; that even as Justice Duggan has, as it were, stated it a little too broadly, that it would be enough for you if the duty of the solicitor was to say, not that I will not do what you want to do, but to caution, to caution strongly and to say that they should not sign it until they got proper financial advice.

MR TILMOUTH: Yes, that is right. More than that, if the Court pleases, under Powell v Powell the duty of the solicitor in a conflict situation was to desist. In this case, he should have said, "Until you get legal advice on the question of the payment of this insurance money for the fire" - which was the subject of litigation - "unless you get advice from those people about whether this four hundred will be realised, I will not sign. And unless you get some advice on the financial problems in this matter, I am not prepared to sign either". As Justice Duggan held, these problems were barely below the surface. The probabilities are, in our submission - - -

GAUDRON J: I think Mr Micarone had, in fact, asked twice about the - "what about the insurance claim?".

MR TILMOUTH: He had. More than that - - -

GAUDRON J: So he actually sought advice in that respect.

MR TILMOUTH: Exactly. More than that, the Micarones in particular had sought some kind of situation whereby, as soon as the insurance moneys were revealed, that they would be applied to their responsibilities under this new transaction. But in any event, a proper structuring of these loans surely would have been, and advice could have been, and perhaps should have been given, in our submission, that those insurance moneys had to be applied in the first instance to these obligations. Because one of the primary driving forces of the refinancing was, of course, the representations which were false, that $400,000 was just around the corner on the insurance claim.

KIRBY J: I suppose looking from the point of view of special leave, because of statutes and because of common law decisions, the giving of these certificates is now quite a common feature of the Australian financial scene.

MR TILMOUTH: It is. And, with respect, the question raises important questions for the duties of solicitors and their scope, the scope of their duty. Can I point out while I am on 79 as well that his Honour made reference to the causation issue which, of course, is my second point. Could I just read on from line 21 to make another point of liability:

In the result, I have reached the conclusion that Mr Belperio, although he acted with the best of intentions.....was negligent in failing to provide essential advice which was called for in the circumstances.

His Honour particularised that in the passage I read.

The failure to give the advice was causative in the sense explained in March v Stramare and I am of the view that the plaintiffs' claim against Mr Belperio has been made out.

The next point to make, your Honour, is to go to page 82 and say this: not only would it have been proper to advise not to proceed without getting this advice that I have suggested, in fact the solicitor did give that advice a little later. This is at page 82 at line 20. This is a finding accepted by all four judges. This is line 20 on page 82:

Mr Belperio said the conversation with Mr McLeod -

McLeod was a solicitor, I think, for Prudential, but on the other side of the line -

confirmed his view that the families would be adversely affected in their settlement negotiations. He said he then rang Tony Bechara and advised him not to proceed. He also rang Marisa and gave her the same advice.

These are the two children, but they are not the married couple's.

He told her to advise all the others. He made a note of these telephone attendances. It must be noted, however, that he did not give advice directly to the plaintiffs and relied instead on a message being conveyed by a person who might reasonably have been regarded by Mr Belperio has having an interest in the document being executed.

If the Court pleases, that is important both on liability and causation. It is important on liability because whatever else the duty was up to that point, he formed the view that the transaction should not proceed. He was acting for the parents, not the people he rang. The people he rang had the greater benefit in the outcome of the transaction. But instead of communicating directly with each of the applicant parents, whose interests he had already set out to protect in the primary duty, he had resolved it should not go ahead, but the very thing he could do to make most effective the discharge of his duty, namely to advise them affirmatively or positively, as Justice Deane said in Hawkins v Clayton, was not done. In our submission, that touches very directly both his legal liability and the question of causation. This matter could have been resolved by his discharge of the duty as Justice Duggan found, by telling the four parents, "Do not do it".

KIRBY J: But what do we do if we get to a view that there was a failure to give the proper advice to the proper person but that even if they had not received that advice, that they were so determined to help their family that they would have gone ahead with it anyway?

MR TILMOUTH: Well, that is a question of causation, of course, or reliance and causation.

GAUDRON J: If you were accepted on the duty of care, it might mean that there has to be a retrial of the causation issue, might it? In cases like this you really cannot divorce causation from the content of the duty.

MR TILMOUTH: Yes, that is true.

GAUDRON J: And if one came to a different - you see, one can well see how Justice Duggan found causation on the basis of a duty not to witness the execution.

MR TILMOUTH: Yes, but - - -

GAUDRON J: And if one found a duty of care to have passed on the advice that was passed on to Marisa two days later, there is no finding that supports you on causation.

MR TILMOUTH: Well, the finding is at page 79, which I read.

GAUDRON J: Yes, but that is a different - - -

MR TILMOUTH: Yes. Can I go to that issue, if the Court pleases, and leave the primary liability and go to where the Full Court dealt with the issue in the second book at 371. Now, in my submission, the operative part is at 371 line 20. Their Honours refer in para 704 to the finding that his Honour made and the reference to March v Stramare, which is the passage at 79 that I have read, and then they say this at line 20:

But that conclusion says nothing about what advice should have been given.

And can I pause there to say, of course, his Honour did, in fact, say what advice should have been given: "I will not sign this until you get the independent legal advice in the two areas of concern: finance and insurance." But they go on:

It also fails to examine whether, if properly advised, the plaintiffs would have acted differently, a matter on which there was a complete - and in the circumstances of this case a significant - lack of evidence.

And they then examine the issue and draw the same conclusion at 373. Now, that was wrong, if the Court pleases. That ruling was wrong, in my submission, not only because it flies against the findings that Justice Duggan made at 79 but also because, first of all, there was evidence of reliance, and that may be found summarised by Justice Olsson in volume 1 at 253 to 254. Justice Olsson is dealing with this very submission at line 25 paragraph 328:

There are several answers to that contention.

And it was the very point there was no evidence:

The first is that it is factually inaccurate. Whilst it is true that neither of the male plaintiffs appear to have been directly examined or cross-examined on that topic, the issue was touched upon in the evidence of both female plaintiffs.

Mrs Micarone testified that had Belperio advised that the documents ought not to have been signed she would not have signed them; and that, had he said that other independent advice ought to be procured, she would have taken that advice.

Over on the next page, your Honours, at 254 paragraph 333 line 14:

Similarly, the question also arise in the course of the evidence given by Mrs Bechara.

She testified that, had she understood from what Belperio had said to her that she was at risk of losing her house, she would not have signed.

Now, that must be part of the evidence which underpinned the finding at page 79 by Justice Duggan. Now, the point to be made here as well, if the Court pleases, is it only needed one of these four applicants to say no and the whole transaction would have been aborted. It needed the four of them to make it work. So, in my submission - - -

KIRBY J: This is a bit inconsistent with Mr Glissan's argument. He presents them as pliant, obedient to their husbands, and you present them as valiant people who will make their own decisions.

MR TILMOUTH: It may be that I have, with respect, one further advantage - that is the evidence on which the trial judge based a finding.

KIRBY J: Yes, but many judges have said that self-serving sort of evidence is not as powerful as the logic of the case.

MR TILMOUTH: No, and that leads to the next point, of course, without reading it, your Honours, at 254 and follows. Justice Olsson said in any event clearly reliance can be inferred in this case. I do not want to go into details. I will explain in a minute why that is so anyway, but reliance could be inferred, Van Erp and those cases.

GAUDRON J: Was there evidence from Mr Belperio as to his explanation of the significance of the insurance claim to their liability under these mortgages?

MR TILMOUTH: I cannot answer that offhand.

GAUDRON J: He seems not to. It seems to have only been two days later that he realised that - - -

MR TILMOUTH: What happened, your Honours, was that the certificate was sought as a condition by the way of Perpetual, so if the certificate was never executed, that also would have avoided the transaction because it was a condition precedent. But what gave rise to Mr Belperio's change of heart and the affirmative advice not to proceed, was a further condition, and this was the first extension condition, that they had to pay at least $70,000, within 60 days I think it was, as part of the proceeds from the insurance claim, and that led Mr Belperio to ring up and say, "Look, do not do it. Tell your parents".

But as it turned out, that condition was the first act of default on this very transaction. So, the very trigger on which Mr Belperio had resolved to ring the - - -

GAUDRON J: That is what I say. In some respects, it seems to me that this case - perhaps because of the way it was presented, but the case against the solicitor does not necessarily grapple with what the duty of care was. I mean, having asked about the insurance claim, as they did, then finding this special condition, it seems to me not to have been enough to say, "If you want more information about the insurance claim, go and talk to that lawyer". But if you put it on that basis, your causation has not necessarily been determined.

MR TILMOUTH: I do not want to be mistaken, if the Court pleases. I am putting it at the moment on the minimum argument for the applicants. Of course, we would say that the duty involved the improvidence but not in the financial sense. His Honour at first instance said it did not require detailed advice on either finances or the insurance issue. The insurance issue, of course, was a legal issue. It would be easy to make an inquiry of the lawyers handling it: "Where is the claim going? What is it worth? How much is being claimed?" As it turned out, your Honours, the 400,000 was never even claimed in the case. So, a bare inquiry, a minimum inquiry, would have revealed that flaw immediately.

The third error, if I can go back to their Honours, the majority in the Full Court on causation, was, of course, that in their analysis of the reliance and causation issue, they completely overlooked the affirmative advice that Belperio gave not to proceed, as I have already outlined. I have already made the point, I think, but this was the fourth point, that the independent advice that should have been given or sought would have quickly revealed the problem and the probabilities are very strong that it would have avoided the transactions.

The fifth matter, your Honours, is that the certificates should not have been given not only because there was a duty to advise independently but they were also, as I said, a condition of the loan on Perpetual's side, but more importantly, if the Court pleases, having decided to ring up the children and say, "Do not go ahead, tell your parents", he did not do one act to countermand or retrieve the certificates. From our side, he did nothing to speak to his actual clients. But another effective discharge of his duty was simply to get on to the lawyers for the other side of Perpetual and say, "I withdraw the certificates". The standard of care - he embraced that duty, the standard was easy of discharge, but he did not even take that very basic step.

The sixth point, I think I made this in another context, was, of course, there was nothing to protect the interests of these applicants in the structure of the transaction to ensure that the moneys from the insurance policies were first applied to the liability and, as I have already pointed out, that the seventh matter is, the very reason that led Mr Belperio to ring up and say "Do not go ahead" was the very reason that caused the first act of default. So, its causal relationship with the primary negligence is very proximate and most immediate, in our submission.

Your Honours, I did not finish what I wanted to say on primary liability but, in the end, our submission would have been that there is a credible line of authority, McNamara, Tarzia, Gellert v Bellamy, and Credit Lyonnais, which sees that in appropriate circumstances the solicitor should at least give advice to get independent advice in those areas where you are not qualified, such as finances, and that was not done in this case. And in this case the improvidence was so close to the surface that some perfunctory advice should have been given about the obvious improvidences of the transaction. That did not mean that this solicitor had to give financial advice, but Justice Duggan never said he had to. If the Court pleases.

GLEESON CJ: Thank you, Mr Tilmouth. Mr Trim, you are representing Perpetual?

MR TRIM: Yes, your Honour.

GLEESON CJ: We do not need to hear you.

MR TRIM: Thank you.

GLEESON CJ: Mr Walsh.

MR WALSH: Thank you, your Honours. If the Court pleases, the actions of Belperio on 15 December 1992 which was a critical focus of the trial, not what we are here today about, the McLeod issue, but the focus was always on the question of the advice that was not given according to the plaintiffs at the meeting of 15 December 1992. His Honour rejected the assertion that there was no advice, and it is in the context of the assertion that there was no advice at all, that one plaintiff only, Mrs Micarone, made the comment, not Mrs Bechara, Mrs Micarone only, made a comment that "If I have been advised about the document, maybe I might not sign it".

Now, she was advised about the document. She was rejected - her evidence was rejected about that - and so there was no causation issue, and the majority were clearly correct in concluding at the end of the day that no causation had been demonstrated at all in a case that required it because it was not, as it no longer is asserted, it would seem, because no argument is put, a question of a breach of a fiduciary duty, but as pleaded it was a question of a breach of a duty of care in tort.

There were three periods leading up to the signing of the document on 15 December that the majority found were important periods in terms of Mr Belperio's advice and his knowledge of some of the factors that had occurred at that time. First, there was a period between the purchase of the business in 1991 up until the time of what we call the first refinance in mid-1992. And in that period of time, both Mr Micarone and Mr Bechara had been off to the Commonwealth Bank to see if they could get refinancing, because they realised that they were already at that point of time in trouble. Demands were being made with respect to the securities. That then led to the refinancing in mid-1992 which then was the subject of advice from various persons such as the financier, Mr Hartley, who advised about the nature of the documents and advised about the fact that they were entering into serious financial transactions, obviously.

They had advice in respect to some of the legal documents. In respect of others, they did go off to a Justice of the Peace. They had advice from, ostensibly at least, a qualified accountant on matters of finance, namely, the accountant Mr Frost. At the time that they made their decision to commit themselves irretrievably to trying to reopen the business, namely, that being the only way they could salvage the position, they made a conscious decision to enter into security documents in mid-1992 which, between the two families, who had then become inextricably entangled, was a - - -

KIRBY J: These are very strong arguments on the issue of causation. But if you do not get the duty clear and right, then you have not addressed yourselves correctly to the issue of what might have happened if the correct duty had been determined and discharged. And there is, after all, as Justice Olsson points out, the affirmative statement by two of the wives, admittedly a bit self-serving, that had they only been told that their homes were at risk, they would not have gone on with the transaction. So, it just seems to me that the points you are raising are important and very arguable but they do not really knock out what is suggested to be a serious duty on the part of the solicitor, which is of general importance because of the commonality of these certificates and, therefore, deserving of the attention of this Court.

MR WALSH: But that, of course, assumes that the issue with respect to causation was a live issue and that the evidence amounted to what was asserted - - -

KIRBY J: Justice Olsson thought it was and ,on a different basis, Justice Duggan thought it was.

MR WALSH: Justice Duggan never addressed that particular issue.

KIRBY J: It is true, because he took a different view about what the duty was, a view with which I agree with Justice Gaudron's comment. I think he overstated what the duty was.

MR WALSH: But the majority accepted our proposition, namely that that did not amount to satisfactory answers of reliance and reason being, as I stated earlier, that the answer of Mrs Micarone only that she might not have signed it had the document been explained to her on the 15th.

KIRBY J: One is enough, as Mr Tilmouth says. One is enough, to get a determined spouse saying, "I am not going to sign this and that is it."

GAUDRON J: One thing is explained - - -

MR WALSH: It was explained, that is the answer.

GAUDRON J: Yes, the general nature was explained. What does not seem to have been explained, and there was no evidence to suggest that there was any explanation given, (a) with respect to this condition that required repayment from the insurance monies and, in circumstances in which he was asked about the insurance claim, no advice was given about that.

MR WALSH: The insurance claim was an important factor to them but is a red herring, in our respectful submission, in the context of this case. The reason is that what had happened was that there had been a solicitor acting in the insurance claim, a solicitor called Mahony that is referred to in the reasons. In August of 1992, before the critical transaction of the 15th, a new solicitor had been appointed, Mr Scragg. There was no evidence to suggest, as far as Mr Belperio knew, that they had not had advice with respect to the insurance claim. He told them in mid-1992, "Go away and get insurance advice, I cannot advise you about insurance matters", and there was a finding that he did tell them that. What happened on 15 December 1992 was no more than just Mr Micarone asking his opinion about the insurance claim, not in the context of saying - - -

GAUDRON J: But which could have at least elicited the response, "If you are worried about the insurance claim, do not sign this until you have gone and checked that out".

MR WALSH: But the effect of what he said was that, "I cannot advise you as previously". There had been no indication at that point of time that Mr Micarone understood - rather had received advice and really asking Mr Belperio.

GAUDRON J: I think you are missing the point of what I am saying to you.

MR WALSH: I am sorry, I will endeavour to answer - - -

GAUDRON J: They were not asking for advice about the insurance claim. What they were asking, on one view, at least, what the advice was required was, because of the total interdependence of the claim and the conditions and, in fact, that was the reason why it should have been said, "If you are worried about the insurance claim, do not sign this mortgage until you have advice about it".

MR WALSH: But if he had - his advice was tantamount to them on that day, "Do not sign these documents". So that would then put him in a position where he would have to be saying, "Well, I am going to refuse to sign".

GAUDRON J: No, you put him in a situation of a complete conflict of interest, that is what it did, and on that day, when he had them all together, he was in a situation that was very awkward for him, at best.

MR WALSH: In our respectful submission, given the background to the circumstances of the case, Mr Belperio, when he went there that day at their request to sign the documents, gave them advice which they did not want, but gave it to them anyway, was under no duty at that point of time, given what had happened previously, to advise with respect to matters of finance, with Mr Frost being the person giving that advice, and in respect of the insurance claim because other solicitors were providing that advice and was he then to say, "Well, I refuse to sign this and be negligent", because if he had not signed it, the houses might have been sold up from under these plaintiffs the very next week because they had not entered into re-finance?

They knew that the only hope for them, of course, was the insurance claim, that is so. They had access to advice with respect to the insurance claim, that was critical. They knew that if they did not sign that document they would lose their homes. They made a conscious decision. They all said they had made up their minds. They had had advice from numerous sources, Mr Finnimore as to what the transactions were; they had had advice from Mr Frost. For all Mr Belperio knew, they had had advice from solicitors acting in respect of the insurance claim.

Now, when the content of the duty of care is looked at in that situation, we say that the majority were clearly correct in reaching the conclusion that it was inevitable that what they said was true. They were there to sign the documents no matter what because they had no choice. If they did not, they lost their homes. If they did, what were the benefits to them? The benefits that the majority found existed to them at that time were along these lines, that they knew there was insufficient income to meet repayments of existing loans, therefore that had to be addressed.

They knew that refinance offers substantially lower interest rates, very substantially lower interest rates, which might allow them to be able to meet the interest rates until such time as the insurance claim was heard in the courts. They knew that if they did not refinance, they would lose their homes. The refinance would also provide moneys to fight the insurance claim. They were already liable for a sum which approximated the value of their homes and they knew that they were responsible once they signed the Perpetual document and that if things went badly, and they conceded this, they might end up going bankrupt, they conceded that, they had made up their mind they were going to sign the document and none of them wanted or expected advice from Mr Belperio, but he gave it to them. He gave the advice, he told them not to sign it, he warned them that banks never lose, he told them what the document meant and what the obligation was, the fact that if they did sign this document the bank could go against any one of them without having to go against the others at the same time. He explained the documents. All of that was accepted by the learned trial judge, and in the - - -

KIRBY J: A very important factor in that equation is the fact that the debt was already approximately the debt that would involve the loss of their home.

MR WALSH: Absolutely.

KIRBY J: So that your contention is that, though the issue raised may be seen as important and though we might have reservations about the duty, that the causation issue is so overwhelmingly strong that this is not an appropriate vehicle to examine that issue?

MR WALSH: Indeed, and we say that strongly; we say that that is so evident on the finding of facts made by the - - -

KIRBY J: Because what we would have to do, it seems to me, is send it back for retrial, which itself is not a very happy prospect; retrial only as between them and the solicitor, but that itself would take some time and the marginal utility of doing that has to be measured against the marginal cost.

MR WALSH: Yes, and there may be other issues which the solicitor would have wanted to raise with the financier possibly, but putting that aside, the fact - - -

KIRBY J: It leaves the state of authority in South Australia in a position which, with respect, I think is very strongly arguably incorrect, and that is what solicitors will be conforming to.

MR WALSH: Yes. Tarzia's Case, of course, puts McNamara's Case into prospective, or seeks to do so, and where it makes it clear that really you look at each individual case on its own facts, and that must be so, because what we are concerned about with respect to the duty of solicitors is, in truth, a question of a standard of care. Because they owe a duty, the standard is, well what must they do? The answer to that question, what must they do, depends on the facts and circumstances of the individual case, and thus you can have cases where it might be found that there was a particular duty to do something, give some admonition or otherwise, or some warning, but in another case it might not exist, because it will depend upon the circumstances of the case.

This case is so powerfully in favour of the conclusion on the facts with respect to causation, that these people would have proceeded - - -

GAUDRON J: But they ended up losing more than their homes.

MR WALSH: They gained the benefits of the transaction.

GAUDRON J: Certainly they gained some benefits, but - - -

KIRBY J: Hollow gains.

MR WALSH: The gains were - - -

GAUDRON J: Certainly there were some gains, but they assumed a greater liability than they were already under.

MR WALSH: But the greater liability was increasing it from the $500,000-odd to the $640,000, yes, we accept that. The gains, however, were the fact that it gave them the opportunity to fight the insurance claim. The gain was also the fact that it gave them the opportunity to keep their homes at that point of time and not lose them, and again was the fact that, in effect - well, I suppose, they are the two major gains to them, but they had an additional gain of the very significant reduction in interest and Mr Bechara, for example, and no doubt the others, discussed the issue of the interest; it was a very powerful and important reason for doing what they were doing.

And so, really, with respect, it comes down to this at the end of the day, that whilst there are some important issues, it might be said, in the context of solicitors, because of the duty of care and possibly a more onerous duty being upon solicitors than really should exist, at least depending on the circumstances of the case, the fact of the matter is this is not a suitable vehicle by any means. It is just not the right vehicle for attracting a debate about that topic when one considers the issues of causation are so powerful.

In our respectful submission, that probably is a complete answer to the case. I should say that when we get to issues of causation the issue of causation that was even faintly dealt with by Mrs Micarone, for example, but in a context that we had put, that was faintly dealt with. It was not dealt with in any other context and it is only in respect of the 15 December meeting, and of course, that is why the learned trial judge was left with a dilemma of not being able to make a specific conclusion, "Well, look, I can find that there was causation in fact". He could not find that. He knew that they were likely to go ahead with those documents and that is the inference to be drawn from the finding that he did make and the observation he did make. He knew that they were likely to go ahead with those documents because they said they wanted to. They had no choice, as they saw.

That echoes the evidence of all the witnesses, including Mrs Micarone, including Mrs Bechara. The evidence echoes the fact that they believed, rightly so, that they would lose their homes if they did not at least take this lifeline, as it were, that was being offered to them at that point of time. On the other hand, receiving advice that was available to them from an accountant, ostensibly, as it turned out badly, but ostensibly accounting advice as to financial issues, access to legal advice with respect to a claim that was being brought by other solicitors on their behalf and in circumstances where Mr and Mrs Bechara had spoken to the earlier solicitor - that was not Miss Di Manno - and what more should be included into the duty of care on the part of Mr Belperio, in those circumstances, and with the request that he got on that day than what he did. In our respectful submission, that is the answer. If the Court pleases.

GLEESON CJ: Thank you, Mr Walsh. Yes, Mr Scragg.

MR SCRAGG: I only propose to address you on the question of costs. That is still a live issue. It is my submission that the logic of the Full Court at page 396 of the case is difficult to fault.

KIRBY J: Can I ask you, does what happens in your case depend on the outcome of the application in relation to the solicitors, Mr Belperio, because it is a Bullock order they are after, is it now?

MR SCRAGG: Yes. I do not think it makes any effect to the original judgment because, if they are successful on the appeal in respect of that matter, they would have an order for costs which would run in favour of the plaintiffs. That, in my understanding of the situation, does not really affect our situation.

KIRBY J: And, would that include your costs?

MR SCRAGG: No, I would not expect it would. What I am assuming is the tripartite division of costs which has already occurred. What is sought to be attacked is that tripartite division and we simply say that applies. If they are successful they would recover two-thirds of their costs, presumably, or whatever other costs flow from a reconsideration of that matter. If they are unsuccessful there is no need, ultimately, on appeal, to disturb the existing orders made by the court on the question of costs.

KIRBY J: I interrupted you when you were going to take us to a passage in the Full Court.

MR SCRAGG: Yes, your Honour. At page 396 of the Full Court it deals with the consideration of Bullock and Sanderson orders. It is my submission, essentially, that there is a four-fold test, all probably neatly defined in the judgment, which is the fourth of authorities which is Lackersteen v Jones (No 2) simply saying, at page 449, where the court promulgated a test that:

It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant.

We cannot argue against that. There is obviously a possibility of an action against the successful defendants.

The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other.

That is where we would say that any attempt to impose an order upon us of the other successful defendants fails because the cause of action, as it stands against the other defendants, is entirely different from the cause of action against ourselves. That was alluded to by the Full Court in the page that I have referred your Honour to. The other criteria that we say is of assistance to us is:

While it is essential to find that the plaintiff has acted reasonably and properly that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion.

It is our submission that there is nothing that has been done by Mr Frost which would have incited an uncertainty or created something which would require proceedings to be brought against the other defendants in order to determine whether or not a claim against him would be successful or otherwise.

The claim against him was based on misrepresentation. There was pre-trial discovery. All the facts were known. It is either an A or B scenario, which is often the case in these situations.

GLEESON CJ: Yes, we do not need to hear you further, thank you, Mr Scragg. Mr Tilmouth, is there anything you want to say in reply?

MR TILMOUTH: Just quickly, if the Court pleases. Your Honours, Mr Frost was Tony Bechara's accountant, and that is clear from the trial findings at page 12 and so on. The solicitor himself gave evidence that he was not sure of Frost's position, so it was not as if he had reasonably assumed that Frost was an independent adviser at all and, in fact, the solicitor also conceded that maybe he should have forced them to get independent accounting advice. So he alerted to the problem of whether or not Frost was truly independent but did nothing to resolve it.

On the issue of causation, your Honours, this question of the liability before and after this loan seems important. In round figures, your Honours, the Becharas were liable for their independent - whether they are guarantees or mortgages, for the moment assume that they are personally liable to the full - were about 192,000 and the Micarones for 290,000, about 420,000 all up. The reason why Mr Walsh gets a figure of 500,000 is that there was a further loan to Tony and Amelia Bechara which was an independent loan of the applicants. So our primary liability before this Perpetual loan was 420,000.

Now, it went up to 640 and it become joint and several. Beforehand the 420 was divided 192,000 to the Becharas in round figures and 290,000 to the Micarones, on which they were not primarily liable in any event to service the interest. They only became liable to service interest in default and - - -

KIRBY J: But what is suggested that would have stopped them going into it was the loss of the home.

MR TILMOUTH: Yes.

KIRBY J: Mrs Bechara said that in terms, I think.

MR TILMOUTH: That is right.

KIRBY J: The point that has been put to us is that they had virtually already lost their home and therefore that could not have been a relevant factor.

MR TILMOUTH: No, if the Court pleases. If the 202,000 which was ultimately realised on the insurance claim was applied immediately against the applicants' initial liabilities, their situation is likely to be quite different and, in our submission, it should not be taken as read that they would necessarily have lost their homes. In any event, if their primary liability was 420, if you took 202,000 off that, you are a lot better off than they are at the moment of 640,000 jointly and severally, and that is a substantial difference on any view.

Finally, your Honours, on the causation issue, in my submission, a complete answer is - and I adopt what Justice Olsson said at 257:

Had this not been so, plain common sense indicates that no properly advised party would have been likely to have substantially worsened their situation by submitting themselves to greater levels of exposure in a situation of ever increasing risk. It was not a matter of having no choice -

this is 257, your Honours, at the bottom -

A properly informed choice would have been to crystallise one's loss as it stood, on a damage control basis, instead of worsening the situation. This was so at both the first and second refinancing stages. One important potential strategy would have been ensuring that the proceeds of the fire claim were appropriately applied towards satisfaction of existing liabilities.

So our situation, your Honours, on our submission has risen on a bare basis from 220,000 to 640,000 and it did not follow at all that we would lose the homes. In the final judgment on the issue of damages, at 383 the Full Court found that:

Mr and Mrs Bechara are not, therefore, entitled to be reimbursed by Frost in the sum of $42,000.

That was the original liability, as I understand it, but the point is at the moment - what has been put to the Court is they really were not much worse off at all, but that is not true and it does not necessarily follow that they would completely lose their houses. Also that is not the position, in our submission.

GLEESON CJ: Mr Glissan, did you want to add anything on the question of costs?

MR GLISSAN: No, only one thing. I would simply refer the Court to two passages of transcript. The passage at 383 that has just been referred to by Mr Tilmouth and at 387 line 30, the Court will find reference to interest claimed and at about line 37 it refers to:

The extent to which the Micarones and Becharas are entitled to be compensated for interest after April 1994 is, we think, affected by their decision to institute proceedings to contest the liability to Perpetual. As they have failed in that litigation, they are not entitled to be compensated for interest -

Taken in the context of the submission we make in the written submissions, and I do not want to go over that, the commencement of litigation against Perpetual was reasonable. They ought in the ordinary course of events be entitled to recover costs of those proceedings and the interest lost by those proceedings against Frost. That is the claim that is made. If the Court pleases.

GLEESON CJ: Thank you. We will adjourn for a short time to consider the course we will take in this matter.

AT 1.06 PM SHORT ADJOURNMENT

UPON RESUMING AT 1.09 PM:

GLEESON CJ: In relation to the applications for special leave to appeal against the judgments in favour of the first respondent and the fifth respondent, the Court is of the view that no question of principle arises which would warrant a grant of special leave to appeal. In relation to the applications for special leave to appeal against the remaining respondents, the Court is of the view that, having regard to the evidence and findings on the issue of causation, this is not a suitable vehicle for considering the question of principle sought to be agitated by the applicants. In the result, all applications for special leave to appeal are dismissed.

Can you resist orders for costs?

MR TILMOUTH: No, if the Court pleases.

GLEESON CJ: Dismissed with costs.

MR TRIM: Can I be heard on the question of costs briefly, your Honour, in respect of Perpetual's claim for costs? Perpetual's claim is for solicitor/client costs in conformity with the decision of the Full Court, solicitor/own client costs. The reasons of the Full Court are to be found at page 394 of volume II of the application book.

KIRBY J: Yes, but that is in the Full Court. You are now in this Court. We apply our own rules.

MR TRIM: Yes, but I am saying in conformity with the application for the same reasons that persuaded the Full Court that an order for solicitor/own client costs should be made, we make an application in respect of the costs of the applications.

GLEESON CJ: No, we are not prepared to grant that. The orders will be as I have announced.

AT 1.11 PM THE MATTER WAS CONCLUDED