Dhaliwal v Pade & Ors; Pade & v Florent & Ors; Florent v Pade & Ors [2003] NSWCA 16 (10 April 2003)

Last Updated: 16 April 2003

NEW SOUTH WALES COURT OF APPEAL

CITATION: Dhaliwal v Pade & ors;Pade & Anor v Florent & Ors;Florent v Pade & Ors [2003] NSWCA 16

FILE NUMBER(S):

41032 of 2001;

41048 of 2001;

40996 of 2001

HEARING DATE(S): 04/11/02, 05/11/02

JUDGMENT DATE: 10/04/2003

PARTIES:

Rajinder Dhaliwal v Barry Henderson Pade & Jeanette Pade & 3 Ors;

Barry Henderson Pade & Jeanette Pade v James Gordon Kearns

John Florent v Barry Henderson Pade & Jeanette Pade & 2 Ors

JUDGMENT OF: Meagher JA Handley JA Ipp JA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 2048 of 1998

LOWER COURT JUDICIAL OFFICER: Patten DCJ

COUNSEL:

Dhaliwal: G Curtin

Pade: D Davies SC & G Laughton

Florent: R A Campbell

Kearns: D Pritchard

Poynten: N/A

SOLICITORS:

Dhaliwal: Phillips Fox

Pade: E C Abernethy

Florent: Merrick Spicer & Associates

Kearns: Ebsworth & Ebsworth

Poynten: John Poynten

CATCHWORDS:

Relationship of solicitor and client - Return of documents at request of client - Non-compliance with client's instructions - Solicitor de son tort - Vicarious liability - Mitigation of damages - Onus on appellant to prove possibility and efficacy of mitigatory conduct - Doubtful litigation not required to be embarked upon.

LEGISLATION CITED:

Real Property Act 1900

DECISION:

1. Appeal No. 41032 of 2001 (Dhaliwal v Pade & Ors): Appeal dismissed, appellant to pay costs of respondents. 2. Appeal No. 41048 of 2001 (Pade & Anor v Kearns): Appeal dismissed, appellant to pay respondent's costs. 3. Appeal No. 40996 of 2001 (Florent v Pade & Anor): Appeal dismissed, appellant to pay costs of respondents.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 41032 of 2001

CA 41048 of 2001

CA 40996 of 2001

MEAGHER JA

HANDLEY JA

IPP JA

Thursday, 10 April 2003

RAJINDER DHALIWAL v PADE & Ors

PADE & Anor v FLORENT & Ors

FLORENT v PADE & Ors

FACTS

These were three appeals from a decision and verdict of Patten DCJ in the District Court of New South Wales, in favour of Mr and Mrs Pade against Mr Florent, an accountant, and Miss Dhaliwal, a solicitor.

In July 1992, Mr and Mrs Pade lent the sum of $360,000 to Lawnkin Pty Ltd (a subsidiary company of a corporate group called Nambucca Investments). They were advised by their accountant (Florent) to put that sum on mortgage with Nambucca Investments. The principal source of the mortgage was the debt of $360,000, although the Pades were prevailed upon to lend an additional $20,000, which sum was also intended to be secured by mortgage.

The mortgage transaction was conducted by the Pades' solicitor, who, it is presumed, handed a cheque to the representative of Nambucca Investments (Mr Poynten), and received in exchange a Mortgage in registrable form, together with one or more Certificates of Title.

Thereupon, Poynten offered to register the mortgage documents, and Pades instructed their solicitor to assent to this. Poynten gave an unconditional undertaking relevantly to stamp and register the documents appurtenant to the transaction, and to return the title documents to the mortgagors, the Pades.

The documents, despite regular enquiries from the Pades' solicitors, were never returned.

In 1994, the Pades were informed by Florent that it was proposed to sell Nambucca Investments to a New Zealand investor, and that it would be necessary, in order to facilitate the sale, for the Pades to sign a Discharge of Mortgage over the land secured by their mortgage. In return, the Pades were given an assurance that they would receive insurance bonds or equity shares.

The Pades received neither the moneys secured by the mortgage, or the promised bonds or shares. Nor did the representatives of Nambucca Investments comply with their request to return the signed Discharges of Mortgage, following a change of mind on the Pades' part.

HELD per Meagher JA (Ipp JA agreeing)

i. It is utmost importance that a solicitor obey, instantly and accurately, any demand made on him to return one of the client's documents, the only exception being when the former wishes to assert a lien (which is a consideration far removed from the present facts).

ii. It mattered not that the person requested to return (or secure the return) of the documents was Florent, the accountant. He, by his actions, put himself in the position of a solicitor de son tort.

iii. As to the question of vicarious liability, it mattered not whether Miss Dhaliwal knew about the transaction. As it was a transaction of the class which her employee (Poynten) customarily conducted, and in the absence of any evidence of a specific instruction from her to follow another course, it follows that she must be fixed with vicarious liability for the misbehaviour of her employee.

iv. The onus is on an appellant to prove that it was possible for the other party effectively to mitigate their damages. In this case it was possible, but its efficacy was far from clear. Any course of mitigatory conduct involving the imposition of a caveat would have resulted in an expensive litigation; in this case requiring examination of the provisions of s 43A of the Real Property Act 1900, and of the law of estoppel, the outcome of which would have been unclear.

HELD per Handley JA

The duty of an innocent party to mitigate his damages does not oblige him to embark on doubtful litigation: Pilkington v Wood [1953] Ch 770. Moreover, sufficient appears to demonstrate the doubtful and hazardous nature of the litigation which the Pades would have been required to embark upon.

ORDERS

i. That order (5) made by Patten DCJ should be amended by deleting the words "including those costs ordered to be paid by them to Mr Kearns";

ii. Appeal No. 41032 of 2001 (Dhaliwal v Pade & Ors):

Appeal dismissed, appellant to pay costs of respondents;

iii. Appeal No. 41048 of 2001 (Pade & Anor v Kearns):

Appeal dismissed, appellant to pay respondent's costs;

iv. Appeal No. 40996 of 2001 (Florent v Pade & Anor):

Appeal dismissed, appellant to pay costs of respondents.

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 41032 of 2001

CA 41048 of 2001

CA 40996 of 2001

MEAGHER JA

HANDLEY JA

IPP JA

Thursday, 10 April 2003

RAJINDER DHALIWAL v PADE & Ors

PADE & Anor v FLORENT & Ors

FLORENT v PADE & Ors

Judgment

1 MEAGHER JA: These are three appeals arising out of a judgment of Patten DCJ, who entered a verdict in favour of a Mr & Mrs Pade against Mr Florent, an accountant, and Miss Dhaliwal, a solicitor.

2 The facts are somewhat complicated. They deal with the incompetence, both legal and accounting, with which the affairs of Mr & Mrs Pade, a farmer and his wife, were treated in the 1996-2000 period. Those two persons were farmers in the Macksville area of New South Wales, who in July 1992 lent $360,000 to a company called Lawnkin Pty Ltd, one of a group of companies called Nambucca Investments, a subdivider and developer. (In this judgment, as in the judgment appealed from, and in the Court below, Nambucca Investments will be treated as if it were a single company, as there is no purpose in differentiating the various members of the group.)

3 Mr & Mrs Pade had been the owners of two farming properties in the area, and they sold one of them, in the course of winding down their affairs. That was the source of the $360,000.

4 They were advised to put this money on mortgage with Nambucca Investments by a Mr John Florent, their accountant. The mortgage was originally over the lands in Certificates of Title, folio identifiers 1/814495, 2/814495 and 5/810823. After various subdivisions and consolidations, and after some partial discharges of land, the execution of which was also recommended by Mr Florent, the land mortgaged ended up, by September 1994, as the land in Certificate of Title, folio identifier 72/832860.

5 As far as the mortgage documents were concerned, the principal source of the mortgage was the debt of $360,000, although Mr Florent had squeezed an additional $20,000 out of the Pades sometime in 1992 which it was intended be secured by mortgage. Interest on the mortgage was duly paid to the Pades until late 1994. The mortgage transaction was conducted on the Pades' behalf by their long-standing solicitor, Mr Abernethy. He, presumably, handed a cheque to the representative of Nambucca Investments who was a solicitor called Poynten and received a Memorandum of Mortgage in registrable form together with one or more Certificates of Title.

6 Mr Poynten then asked Mr Abernethy if he could register the mortgage documents "as I have some other plans to register at the same time. It will be a large bundle of documents and I want to keep them together." The Pades instructed Mr Abernethy to accept this proposal. On 6 July 1992 Mr Abernethy received a letter from Mr Poynten which, inter alia, said "Please accept the mortgages and return them to the writer so that we may stamp them and register them for which we give our unconditional undertaking." On 10 July 1992, on settlement of the mortgage transaction, Mr Poynten gave a more formal undertaking to Mr Abernethy in these terms:

"Re: Lawnkin Pty Limited & B and J Pade

We refer to the above matter and settlement this day, and hereby give our unconditional undertaking to stamp documents, register the relevant discharges and withdrawal of caveat and return to you the title documents with your clients registered as first mortgagees and a caveat following to Nambucca Investments Pty Limited.

We give our unqualified undertaking to answer any requisitions, to complete documents, have them executed and do whatever is necessary to effect the settlement and the title in your clients names.

We give our further unqualified undertaking that we will produce to you no later than Wednesday of next week an up-to-date valuation from North Coast Valuation Service.

7 Almost inevitably, Mr Poynten did not honour his undertaking. So on 22 December 1992, Mr Abernethy wrote to Mr Poynten as follows:

"Re: Pade loan to Lawnkin Pty Limited

I refer to my letter of the 27th August last and telephone and personal discussions thereafter and note that I still do not appear to have received the duly registered Mortgage & Title Deeds. I would remind you of your undertaking on settlement. Kindly let me have the same by return as the non-delivery of the same are causing difficulties and in the event of the documents not being produced I will have no alternative but to take the matter further."

By February 1993 the documents were still not in Mr Abernethy's hands, and this state of affairs continued until at least 8 September 1993 when he sent this missive to Mr Poynten:

"Re: Pade Loan to Lawnkin Pty Limited

I refer to my letter of the 22nd December last and note that I have still not received the documents referred to therein nor have I received payment of my account. An account rendered is enclosed herewith.

As your client is now in breach of its obligations the matter is to be referred to my clients along with the advice for enforcement of their rights."

8 Sometime afterwards, Mr Abernethy received a telephone message from Mr Poynten who transmitted the intelligence that he, Mr Poynten, was now acting for Mr & Mrs Pade and had instructions to retain the title deeds on their behalf. As one would expect, Mr Poynten is now in gaol.

9 Shortly thereafter there occurred a meeting of Mr & Mrs Pade with their accountant Mr Florent. It is a somewhat curious event, and, for the purposes of this case, a rather important one. Rather than attempt to summarise it, I shall quote Mrs Pade's description of it:

"In late August or early September, 1994, we had an appointment with Florent at his office at 4.00 pm to discuss our Tax. I particularly remember this appointment as at 5pm he sent his secretary home which was unusual. While we were there we had the following conversation:

Florent: "Before you leave, I have some forms for both to sign, it is very important.

After we had finished talking about our Tax, the conversation continued as follows:

Florent: "Nambucca Investments is to be sold to Jim Kearns from New Zealand. We have been to New Zealand to check it out. He has plenty of money, one and a half times what Nambucca is worth. The matter of the sale is confidential and I must ask you not to mention it to anyone. We need you to sign a release for the title deeds secured by your mortgage. The release will be given to Jim Kearns to be put in safe keeping until the sale has gone through. You will then be given Insurance Bonds or Equity Shares in return for the mortgage."

Jan: "What are Insurance Bonds or Equity Shares?"

Florent: "They are the same as Bank Bonds. There is no way you can personally lose on it. They are all guaranteed equitable group Insurance Bonds which is a New Zealand Company. I have been to New Zealand and checked out the company and it's OK."

Jan: "Are you sure it's safe, have you checked it enough?"

Florent: "Guaranteed, it's one and a half times the size of Nambucca Investments and there is plenty of capital. You will get extra interest."

Jan: "I am not happy about it, we won't sign the form."

Florent: "It's important for you to sign. There is no risk. I am your financial adviser and Accountant and most of all, a family friend, I will safe guard your investment."

Jan: "No, I am not happy."

Florent: "You are the only ones who have not signed, you are stopping the transaction from going through between Kearns and Nambucca Investments. You are holding up the sale. Everyone else has agreed, the Directors are happy, the investors (he mentioned the names of some prominent local people including John Smith, Searle and others) have agreed. It's up to you."

Jan: "We're still not happy, we will see our Solicitor."

Florent: "It is not necessary, if anything should go wrong Jim Kearns could be sued as he has a solicitor's Indemnity Policy to cover wrongdoing."

Jan: "All right."

Florent then produced two, what seemed to me to be standard forms with typing on and blank spaces that had to be completed. None of the blank spaces had been completed. The conversation continued.

Barry: "Why do we have to sign two forms and not just one."

Florent: "Just in case I do not fill it in right."

Jan: "I have a bad gut feeling about this, you are selling us out."

Despite our misgivings, we signed the forms in Florent's presence but he did not witness our signatures at that time. Annexed and marked "E" is a copy of a discharge of Mortgage form bearing our signature but which did not contain any handwriting or the signature of any witnesses at the time when we signed that form.

Florent: "You will get Equity Bonds in return. I will personally deliver these papers to Kearns tomorrow morning as I have to go to Sydney for a meeting with Kearns. I won't let them out of my briefcase or out of my sight. They will be locked away."

Jan: "Can we have a solicitor check what is being done?"

Florent: "Poynten set it up and gave me the forms for you to sign, I will give him a ring to see if where you are signing is correct."

There was a phone in the office in which we were sitting but Florent left the office for a short time and then returned and said "Everything is OK. I will take the forms to Sydney tomorrow, give them to Jim Kearns, put them in safe keeping and return with your Equity Shares which are the same as Government Shares - very safe."

As we were leaving, Florent said "This must be confidential, no-one outside this office must know, only us three. I will lock the forms in my briefcase."

10 His Honour accepted the accuracy of this account. Mr Florent's account was rather different, but his Honour disbelieved it insofar as it was.

11 The curious will notice about this transaction: (a) Mr & Mrs Pade were told to discharge their mortgages, without being offered the alternative of keeping them alive, (b) Mr Florent prevented the Pades from discussing the transaction with their lawyer, (c) Mr Florent assigned them to a new solicitor Mr Kearns, (d) the Pades were promised "insurance bonds" or "equity shares", neither of which were they ever given, (e) Mr Florent asked for two forms of discharge to be executed, (f) Mr Florent gave an extraordinary reason for (e), (g) conveniently, Mr Florent's secretary was absent, (h) Mr Florent, rather than use the telephone in front of him on the desk, went outside to make a telephone call (if, indeed, he did make a telephone call), and (i) Mr Florent admonished the Pades to keep confidential whatever he told them.

12 The day after this interview, the Pades decided to recapture their discharge of mortgage forms. What happened on this occasion is again described in an affidavit by Mrs Pade:

"I telephoned Florent the next morning and said "I'm sorry, but we have changed our minds, we don't want to go ahead with the release of the land, we want the forms back we signed yesterday. The conversation then continued:

Florent: "Too late, I've sent them to Kearns last night."

Jan: "You said you were going to Sydney this morning with the forms. You said you would not let them out of your sight, how could you have done this."

Florent: "I changed my mind".

Jan: "We want the forms back."

Florent: "They are safe in Kearns' safe, he's a Solicitor and Director of Nambucca. You have to start trusting us. If you can't trust your Accountant and Solicitor, who can you trust."

Jan: "You guaranteed to bring back Equity Bonds when you handed over the form"

Florent: "You will get them when the deal goes through."

Jan: "I want the forms back. You get in touch with Kearns and have him send them back to us." I then hung up."

This account, which was believed by the judge, is eloquent testimony to the mendacity of Mr Florent. The sentence "Too late, I've sent them to Kearns last night" could not possibly be true - otherwise they would arrive after Mr Florent; and, of course, if true, would be a breach of promise.

13 It hardly needs saying, but the documents were not returned at that time.

14 It is of utmost importance that a solicitor obeys, instantly and accurately, any demand by a client made on him to return one of the client's documents. The only exception is when he wishes to assert a lien, a consideration which is remote from the present facts. And, in the present case, Mr Florent, an accountant, put himself in the position of a solicitor de son tort. Learned senior counsel for Mr Florent, Mr Campbell QC, could not proffer any intelligible explanation for Mr Florent's behaviour in this regard. It required great fortitude for Mr Campbell to attack his Honour's findings on his client's credibility, but it was a fruitless fortitude.

15 One of the two forms of discharge of mortgage was remitted by a Sydney solicitor, Mr Fitzgerald, to Mr Kearns on 2 March 1995; it was handed by Mr Kearns to Mr Florent on 8 March 1995, and was delivered by Mr Florent to Mrs Pade sometime after 28 March 1995, following which it was destroyed. How it ever got into the hands of either of those gentlemen is another story.

16 That story, so far as the evidence is concerned, depends on inferences drawn from various accounts of the meeting held on 29 September 1994. The business of the meeting was, apparently, the merger of the Equitable and the Nambucca Groups. On behalf of Nambucca there were present Mr Florent, a Mr Phillip Hall, a Mr Les Hall and a Mr Hilton Searle. On behalf of Equitable there were present a Mr Damian Parkes (now in gaol), a Mr Ian Harris and Mr Kearns. (It is of marginal interest to note that Mr Parkes was said to represent Equitable, although he is also said to be the controller of Austwide, which was part of the Nambucca Group.) Little that took place at the meeting was of direct relevance to the Pades. But two matters were. One was a letter, prepared spontaneously, signed by Mr Searle and addressed to Mr Kearns. It read:

"I hereby appoint you to act as solicitor for the Nambucca Investments Group on Acquisition of the Nambucca Group by the Equitable Group.

In addition, you are also instructed to act as Solicitor for Mr B H Pade & Mrs J Pade on release of the mortgage on the Lawnkin Pty Limited and you are to ensure that they are to receive the sum of $380,000 on discharge."

It is common ground that Mr Kearns endorsed on the letter "receipt of instruction acknowledged", signed it, and dated it "Sep 29/94".

17 The other concerned the fate of the two discharge of mortgage forms. According to Mr Florent, he handed both forms to Mr Kearns. That both forms were handed over is also the evidence of Mr Ian Harris, Mr Phillip Hall and (to some extent) Mr Fitzgerald. On the other hand, Mr Kearns was adamant that Mr Florent handed him only one form. Neither Mr Searle nor Mr Parkes gave evidence on the point. None of this evidence was very satisfactory, but his Honour found that Mr Kearn's evidence was to be preferred, and since it was based, largely but not entirely, on demeanour I do not think his Honour's decision on this point should be reversed.

18 In any event, either one form or both of two forms was or were taken to the offices of a Sydney solicitor, Mr Fitzgerald. Mr Kearns apparently thought (if he thought at all) that nothing in his newly-acquired status as the Pades' solicitor prevented him from delegating his office to Mr Fitzgerald.

19 The relevant details of what happened in the next three months are somewhat unclear. However it seems that by 18 November 1994 the National Australia Bank, the incoming mortgagee, without whose co-operation the Equitable-Nambucca merger could not take place, had in its hands the Certificate of Title to the Pades' land (i.e. the land on which the Pades had a mortgage), a duly completed discharge of mortgage, and the mortgage itself. Notwithstanding that they were received in 1994, the Bank did not lodge them for registration until 1996. These documents reached the Bank from Mr Fitzgerald, apparently at the instigation of Mr Parkes (possibly via Mr Kearns), whom Mr Fitzgerald regarded as his client. Mr Poynten, in whose hands the Certificate of Title was last observed, must have delivered it to Mr Fitzgerald in the same way.

20 It goes without saying that the Pades never received either their initial $360,000, nor their subsequent $20,000, nor their promised bonds or shares.

21 In these circumstances, his Honour entered a verdict of $380,000 against Mr Florent. He has appealed. As I have already indicated, that appeal must fail. He was liable to the Pades on a number of bases, but suffice it to point to one: his failure to comply with his clients' instructions to return the discharge of mortgage forms the day after they were signed. If his clients' instructions had been obeyed, they would not have been deprived of their security. Mr Florent's appeal should therefore be dismissed with costs.

22 His Honour found that Mr Kearns should have a verdict in his favour. No case against him was proved. On appeal, the Pades tried to reverse this finding. They argued that he should also have been visited with an adverse verdict. Their argument may be summarized as follows (and I quote from their written submissions):

"Mr Kearns received the discharges of mortgage for the purpose of ensuring that the mortgage was duly discharged and the Pades receiving the $380,000 to which they were entitled. Mr Kearns accepted that those were his instructions. He failed to carry out those instructions and he failed to ensure that documents which could thwart those instructions were kept safely by him or his agents."

Except for one thing, I find this argument wholly convincing. The problem with it is that it is inconsistent with his Honour's findings that only one discharge of mortgage form was handed to Mr Kearns, and that that form was returned to the Pades. An alternative submission on appeal was that Mr Kearns delegated his duties to Mr Fitzgerald, who certainly had two discharge of mortgage forms. However, since this case had never been made at trial, we refused to grant leave to argue it on appeal.

23 The next appeal which arises is that of Miss Rajinder Dhaliwal, who was herself not an active participant in the events in question, but was found to be vicariously liable for the breach (or breaches) of duty by Mr Poynten. This requires some consideration. It has already been demonstrated that, when the original mortgage was executed, the title deeds slipped into the possession of Mr Poynten (despite the best endeavours of Mr Abernethy). Shortly after this happened, on 8 January 1993 the Pades wrote a letter to Mr Poynten which, omitting formal parts, read as follows:

"re: Mortgage with Lawnkin Pty Limited

Would you please ensure that the above mortgage is registered and deliver a copy of the mortgage to us for our records and we would request an explanation of the nature of the mortgage to us."

Despite these instructions, the mortgage and title deeds ended up in the Bank's possession on 18 November 1994. On 4 July 1994 Miss Dhaliwal became the principal of a firm called "Poynten Dhaliwal", Mr Poynten acting as consultant. Neither Miss Dhaliwal nor Mr Poynten condescended to give evidence before his Honour. However, in these circumstances we can readily infer that the documents went into the possession of the new firm, and that (which nobody seemed to deny) Mr Poynten was employed by Miss Dhaliwal from early September to late November 1994. It was in this period that the documents were forwarded to the Bank, which was pressing for delivery of its mortgage. His Honour inferred that they probably travelled from Mr Poynten to Mr Fitzgerald (on the instructions of Mr Parkes), and thence to the Bank. There is, therefore, just sufficient evidence to infer that, in the relevant period, Mr Poynten tortiously permitted the documents to leave his possession and, more probably than not, this happened when he was employed by Miss Dhaliwal.

24 Whether Miss Dhaliwal knew about the transaction or not, it was a transaction of the class which Mr Poynten customarily conducted. There is certainly no evidence that Miss Dhaliwal ever specifically forbade him to part with the documents contrary to his clients' instructions. She is therefore stuck with vicarious liability for his misbehaviour.

25 There are two defences to the verdicts against Mr Florent and Miss Dhaliwal which were raised below and repeated before us. The first is that the Pades were guilty of contributory negligence. This seems, with respect, to be a ludicrous proposition. How it can be said in circumstances as complicated as these in this trial that two farmers who were robbed silly by a group of accountants, solicitors and financiers should reasonably have protected themselves I simply cannot understand.

26 The second is that, during the long period between the Bank's obtaining the vital documents (about 18 November 1994) and their registration of the discharge of Mortgage (December 1996), the Pades should have mitigated their damages. They could have done this, so it was submitted, by lodging caveats against the titles to the land. The onus, of course, would be on the appellants to prove that such a course would have been both possible and effective. Possible it certainly would have been, but it is far from clear that it would have been effective. The Bank would not, one surmises, have simply acquiesced in the caveat. It would have sought its removal by court action. That in turn would have necessitated an examination of the provisions of s43A of the Real Property Act 1900, and also of some of the tentacles of the law of estoppel, at no inconsiderable expense. This defence must fail.

27 The orders which his Honour made included the following:

1. Verdict and judgment for Mr & Mrs Pade against Mr Florent and Ms Dhaliwal in the sum of $623,554 inclusive of interest.

2. Verdict and judgment for Mr Kearns.

3. Order, pursuant to Sec 5 of the Law Reform (Miscellaneous Provisions) Act 1946 that, as between themselves, Mr Florent and Ms Dhaliwal contribute equally to the verdict against them.

4. Order that Mr and Mrs Pade pay the costs of Mr Kearns.

5. Order that Mr Florent and Ms Dhaliwal pay the costs of Mr & Mrs Pade including those costs ordered to be paid by them to Mr Kearns.

6. Exhibits may be returned.

28 In view of his Honour's findings on Mr Kearns and the principles which govern the making of Bullock or Sanderson orders (see Gould v Vaggelas (1984) 159 CLR 215, 229-30) there was no basis for the second part of order 5. That order should therefore be amended by deleting the words "including those costs ordered to be paid by them to Mr Kearns".

29 In addition, the following orders should be made, as to the appeals:

1. Appeal No. 41032 of 2001 (Dhaliwal v Pade & Ors): Appeal dismissed, appellant to pay costs of respondents.

2. Appeal No. 41048 of 2001 (Pade & Anor v Kearns): Appeal dismissed, appellant to pay respondent's costs.

3. Appeal No. 40996 of 2001 (Florent v Pade & Anor): Appeal dismissed, appellant to pay costs of respondents.

30 HANDLEY JA: In this appeal I have had the benefit of reading the reasons for judgment of Meagher JA in draft form. I agree with his Honour's reasons and with the orders he has proposed but will add some brief supplementary reasons of my own on the issue of mitigation.

31 The National Australia Bank obtained the certificate of title to the land mortgaged to the Pades and the signed discharge of their mortgage on or about 18 November 1994 and on the security of these documents it made a cash advance to Nambucca Investments, the registered proprietor. The Bank acted in good faith and received those documents without notice of the frauds perpetrated on the Pades or their outstanding loan. It did not register the discharge of the Pades' mortgage until December 1996 and until then the Pades remained registered proprietors of their mortgage. During this period therefore their proprietary interest was legal and the Bank's merely equitable. In these circumstances counsel for Miss Dhaliwal submitted that the Pades should have lodged a caveat to prevent the Bank registering its mortgage and by failing to do so they had failed to mitigate their damage.

32 The Pades had authorised Mr Poynton, a solicitor, to act for them and to have possession of their mortgage and the certificate of title [Meagher JA par 8]. In August or September 1994 they executed discharges of their mortgage which they delivered to Mr Florent, who was authorised to deliver them to Mr Kearns to enable the latter to discharge the mortgage in return for the equity bonds promised by Mr Florent [Meagher JA par 9].

33 The Pades by signing and delivering the discharges of mortgage to Mr Florent for delivery to Mr Kearns authorised their use for the purpose of obtaining the equity bonds. They may have revoked that authority but they had already armed Florent with the power to hand the documents to Mr Kearns and they failed to do anything effective to get the documents back, or to communicate the revocation of their authority to Mr Kearns.

34 The Pades had thus armed Kearns with the power to represent to others, and in particular to the Bank, that the Pades had authorised the discharge of their mortgage without requiring repayment of the mortgage advance with the natural assumption that it had already been repaid. In such circumstances they were liable to be estopped by their conduct from disputing the authority of the person holding the discharge of their mortgage: Barry v Heider [1914] HCA 79; (1914) 19 CLR 197, Abigail v Lapin [1934] AC 491.

35 Possession of the discharge of mortgage alone would not have enabled the frauds to be consummated because the Bank would require delivery of the certificate of title as well. Unfortunately the Pades had entrusted this, and their mortgage, to Mr Poynton, who released these documents without obtaining his clients' instructions in circumstances which have not been explored. In the result they came into the possession of Kearns who was then able to deliver them to the Bank. It is not clear that the Pades were guilty of negligence in leaving these documents in the hands of Mr Poynton and that issue has not been tried. However negligence by the holder of the legal interest may result in that interest being postponed to a later equitable interest acquired in good faith without notice. Walker v Linom [1907] 2 Ch 104.

36 It is not necessary to decide that the Pades' legal interest as mortgagees would have been postponed to the equitable interest of the Bank if that question had been litigated before the Bank's mortgage was registered. The Pades could have lodged a caveat at any time prior to December 1996 to prevent registration of the Bank's mortgage, but there is no reason to think that the Bank would have been prepared to surrender without litigation. Sufficient appears to demonstrate the doubtful and hazardous nature of any litigation which the Pades may have been advised to embark upon to establish their priority over the Bank. The duty of an innocent party to mitigate his damages does not oblige him to embark on doubtful litigation: Pilkington v Wood [1953] Ch 770. In my judgment therefore the damages awarded to the Pades do not have to be reduced because of any failure by them to mitigate their loss.

37 I agree with the orders proposed by Meagher JA.

38 IPP JA: I agree with Meagher JA.

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LAST UPDATED: 16/04/2003