Boase v Sullivan Commercial Pty Ltd trading as McGees Property

BETWEEN: TIMOTHY BOASE & JENNY LEE BOASE ATF THE BOASE FAMILY TRUST WITH TRUSTEE TIMOTHY BOASE AS THE REPRESENTATIVE PARTY

ANTHONY DAVID WALKER & OLIVIA JAYE WALKER ATF THE WALKER FAMILY TRUST

GARRY CHARLES HAWKES & WENDY JOY HAWKES ATF HAWKES FAMILY TRUST

MARIAN TSOKOS & PAUL ANTHONY & CHRISTINE PHILLIPS & ACHILLES KINGSLEY PHILLIPS

GEOFF & SANDRA BOSOTIN ATF THE BOSOTIN FAMILY TRUST

AND: SULLIVAN COMMERCIAL PTY LTD T/A MCGEES PROPERTY

JUDGE: MCKERRACHER J DATE OF ORDER: 17 May 2011 WHERE MADE: PERTH

1. The applicants' application for summary judgment be dismissed.
2. The applicants pay the costs of the respondents, to be taxed if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 240 of 2010

BETWEEN: TIMOTHY BOASE & JENNY LEE BOASE ATF THE BOASE FAMILY TRUST WITH TRUSTEE TIMOTHY BOASE AS THE REPRESENTATIVE PARTY

ANTHONY DAVID WALKER & OLIVIA JAYE WALKER ATF THE WALKER FAMILY TRUST

GARRY CHARLES HAWKES & WENDY JOY HAWKES ATF HAWKES FAMILY TRUST

MARIAN TSOKOS & PAUL ANTHONY & CHRISTINE PHILLIPS & ACHILLES KINGSLEY PHILLIPS

GEOFF & SANDRA BOSOTIN ATF THE BOSOTIN FAMILY TRUST

AND: SULLIVAN COMMERCIAL PTY LTD T/A MCGEES PROPERTY

JUDGE: MCKERRACHER J DATE: 17 May 2011 PLACE: PERTH

INTRODUCTION 1 As noted in Boase v Sullivan Commercial Pty Ltd trading as McGees Property [2010] FCA 1441 (Boase No 1) (at [3]-[12]), the applicants claim they are investors who provided funds for the acquisition of property at Baldivis, Western Australia (the Property). On 19 February 2007, they were invited to jointly invest in the Property by an Expression of Interest (EOI) sent to them by Frasers the Project Managers Pty Ltd (Frasers). Frasers project managed 'The Project at Baldivis Pty Ltd' (TPAB) which was incorporated in March 2007 as a vehicle for the applicants to acquire and develop the Property. The EOI contemplated that the Property would be subdivided into 40 single residential lots each with a purchase price of $80,000. To secure a lot, an applicant was to sign the EOI and return it to Frasers with a fee of $6,000. The applicants were to pay half the purchase price and TPAB was to apply for finance for the other half. TPAB applied to the Home Building Society (HBS). In the course of that exercise, HBS asked the first respondent (McGees), town planners, to provide a property valuation specifically addressing: the reasonableness of the timeframe with respect to achieving development approval and other necessary approvals; and whether the estimated period allowed for titles to issue and settle on the 40 lots appeared reasonable. 2 McGees advised in a valuation report dated 29 May 2007 (the Report) prepared by the second respondent, (Mr Srhoy) that it believed it was 'extremely subjective' commenting on whether the subject timetable was realistic or not. McGees recommended that the lender should adopt a conservative approach in regards to the length of time it would take for individual titles to be issued. 3 The main complaint raised by the applicants, however, is that McGees said that they believed September 2009 was a realistic timeframe for issue of individual titles over the subject lots (the Written Representations). 4 HBS declined to provide finance but subsequently it was secured from another lender, LaTrobe Financial Services. 5 In about June 2007, the applicants were specifically referred to a 10 page part of the Report by TPAB when making their decision about whether or not to purchase. 6 Settlement on the purchases occurred in August 2007. 7 The applicants plead that they relied on the Written Representations in deciding whether or not to proceed with the acquisition of the Property. They claim that if they had been told September 2009 was not a realistic timeframe for the issue of individual titles they would not have continued with the purchase of the Property. If they had been aware that Titles were not going to be available until 2015 they would have asked for a full refund of their $6,000 EOI fee. They understood that unless a purchase of land is for 'land banking' or other purposes unknown, then no lender would provide finance for a proposed subdivision when Titles would not be issued for another 8 years (2015). Both loan applications, to HBS and to LaTrobe Financial Services were for sub-division purposes. 8 In 2008 after the valuation had been given, McGees informed Frasers that there was no sewage available on the Property. On further inquiries it became apparent that the Water Corporation did not support the rezoning of the land from rural to residential and that sewage would not be made available prior to 2015. 9 In 2009, the Property was sold at a loss to the mortgagee on a mortgagee sale. There were no funds available to distribute to the individual applicants. 10 The applicants argue that the respondent property valuers provided an incomplete and inaccurate report which led them to purchase certain property in consequence of which they suffered loss and damage. 11 The applicants allege that McGees should have known that it was extremely unlikely the land would ever be rezoned. They claim that the provision of the Report was misleading and deceptive in trade and commerce in breach of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (WA) and was negligent.

SUMMARY JUDGMENT MOTION 12 In Boase No 1 the amended statement of claim was struck out. It was re-amended. The applicants now seek summary judgment against the respondents for the entirety of their claim following the filing of the amended pleading. 13 The applicants point to the fact that the respondents' valuation report contained, in the Executive Summary section at the front of the Valuation, the words '[w]e recommend the subject property as suitable security for mortgage finance purposes based on a realistic lending ratio reflecting current market conditions'. They argue that commonsense suggests that any reasonable valuer would expect that third parties who may live in the completed subdivision would place significant reliance on the accuracy and validity of the valuation. As persons capable and entitled to purchase a lot in a subdivision anywhere in Australia, they are in a class of persons for whom McGee's valuation was prepared. They submit that McGees are 'estopped' from any reliance on a disclaimer contained in the final valuation report as to do so would be unconscionable. 14 The applicants allege that they were misled and deceived by the incompetent valuation. They claim that they did receive and in part relied upon the extracted ten pages which was sent to them by Frasers as project manager of TPAB. 15 In addition, on the claim in negligence, they contend that it is 'absolutely obvious' that if the valuation had been competent and reported accurately that titles would not be available until at least 2015, that a value of $3,100,000 on the land could never have been arrived at by the respondents. They argue that the respondents were never in possession of any reasonable grounds or evidence to formally advise the Home Building Society that September 2009 was a realistic timeframe for the issue of individual titles over the subject lots. At the heart of the common law claim by the applicants is that McGees failed to make sufficient inquiries for the purposes of their valuation and failed to take into account, amongst other things, whether or not various statutory conditions were required 16 In the course of the hearing of the motion, Mr Boase drew attention to a number of additional factors including that: HBS indicated in correspondence that its policy was, in effect, that it expected prospective purchasers to be seeing the valuation. The respondents, however, say that the applicants did not fall within the category of prospective purchasers. At that stage, the only prospective purchaser was the main party with whom the applicants were then dealing, namely, Frasers. Mr Boase also argues that because the applicants indirectly paid for the valuation, they were the contracting party. But even if not the contracting party, the 'representations' could still be relied upon by the applicants, he says. I pointed out to Mr Boase that this may be so but there would need to be evidence of actual reliance by each of the applicants. There is not at this stage. Mr Boase then drew attention to suggested shortcomings in the valuation. Mr Boase made submissions about the evidence which he said showed failure to properly enquire by the valuer etc. To this I pointed out that it would usually be necessary to have expert valuers give evidence at trial so that those suggested shortcomings could be properly tested. There would be no proper basis for me at this stage to reach a conclusion that the valuer had not done his job properly. To this, Mr Boase argued that not only was the valuation clearly wrong but that despite all the opportunity to do so, the valuer had not adduced any evidence on which it could possibly be concluded that he had a reasonable basis for the expression of belief which constituted the representation as to a future matter (namely, the September 2009 availability of individual titles and their resulting value). He said that on proper analysis of the valuer's affidavit, all he talks about is his belief but he has done nothing to show that the belief was reasonable. I pointed out to Mr Boase that it was ultimately for me to conclude what was reasonable and what was not but, again, most probably on the basis of resolving competing expert evidence. Mr Boase relied on evidence in affidavits from a Mr Kroll who made it clear that the Water Corporation at all times was opposed to the subdivision and had been for a number of years and that such view was well known. It was clear, however, as I pointed out to him, that there was no evidence to show that that valuer had been informed of that particular opinion or should have been aware of it. Again, this came back to the expert evidence point. 17 In supplementary submissions, the applicants criticise suggested inadequacies in the affidavit of Mr Srhoy pointing out that he obtained his valuer's licence only two years prior to the valuation and had conducted approximately ten valuations for residential purposes but did not indicate how many were in the locality of Baldivis, Western Australia, was unable to recall the names of people spoken with or the detail of inquiries made or the reasons and basis for beliefs formed. Additional submissions suggest that, not only is there no basis for the beliefs expressed but that there is overwhelming evidence that the beliefs were not correct, they were 'rooted in error, misunderstanding of the MRS amendment process amongst other things'.

CONSIDERATION 18 Power to award summary judgment in favour of an applicant is set out in s 31A(1) of the Federal Court of Australia Act 1976 (Cth) which provides as follows: 31A Summary judgment (1) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is prosecuting the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding. 19 The Court must always exercise its powers of summary disposal with caution: Spencer v The Commonwealth (2010) 241 CLR 118 (at [24]) per French CJ with whom Gummow J agreed. In determining the applicants' motion, the Court must ultimately consider whether there are any 'real', as opposed to 'fanciful', issues of fact or law that require proper determination at trial: Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499 (at [37]) per Sundberg J. 20 Where evidence has an ambivalent character, there is a 'reasonable prospect' within the meaning of s 31A(1)(b) and the matter should proceed to trial: Boston Commercial Services Pty Ltd v GE Capital Finance A/asia Pty Ltd (2006) 236 ALR 720 (at [45]) per Rares J.

The claim 21 The applicants rely on the following passage from the respondents' valuation in support of their contention that the respondents engaged in misleading or deceptive conduct: As per our instruction, we have also been asked to comment on the development timeline for the proposed development of the subject property. We have appended the relevant development timetable to this report. The subject development timetable indicates that individual titles on the property will be issued by March 2009. We believe it is extremely subjective commenting on whether the subject timetable is realistic or not, and we recommend that the lender adopts a conservative approach in regards to the length of time it would take for individual titles to be issued. In light of the above comments, we believe that September 2009 is a realistic timeframe for the issue of individual titles over the subject lots. (emphasis added) (the Statement) 22 The respondents contend that the Statement was, at its highest, nothing more than a statement of their opinion (hence, the prefacing words 'we believe'). 23 Statements of opinion are not misleading or deceptive merely because they prove, with the benefit of hindsight, to be inaccurate: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 (at 88) per Bowen, Lockhart, Fitzgerald JJ. 24 The proceedings cannot be disposed of without a proper examination of the bases for the opinion expressed by the respondents. That requires the production and testing of evidence as to the bases for the respondents' opinion. 25 The respondents have adduced some evidence and foreshadowed they will adduce more evidence as to the steps undertaken by Mr Srhoy in carrying out his valuation of the Property and in expressing the opinion which he did within the Report. 26 The respondents argue that the belief expressed in the valuation report was based upon reasonable grounds. As to this they say that the evidence shows that: 1. In January 2007, the Western Australian Planning Commission (WAPC) had released its Metropolitan Region Scheme Amendment Report recommending that land incorporating the Property be re-zoned from 'Rural' to 'Urban'. The City of Rockingham had approved the proposed re-zoning. Where servicing constraints are evident, the WAPC either does not initiate a re-zoning proposal or proposes that the zoning be changed from 'Rural' to 'Urban Deferred'. The proposal to re-zone to 'Urban' in this case suggests the WAPC was satisfied the land could be serviced. 2. Frasers had stated in their EOI brochure that it was expected that titles would issue in January 2009. In a development timetable they revised that estimate to March 2009. The respondents built in some additional conservatism to Frasers' statements. 3. Mr Srhoy undertook detailed investigations into sales of adjacent comparable sites which fully support the valuation of $3,100,000 as at 10 May 2007. These established that the market was buoyant and had fully factored in a belief by developers and investors that the recommended re-zoning would occur. 4. To the extent, if any, that the Water Corporation's attitude to development and installation of sewer infrastructure was ascertainable at the time of the valuation (to which the evidence of Mr Kroll was adduced), it was not in any event a necessary bar to development. There was no guarantee that such an attitude would prevail and prevent the re-zoning and subsequent development occurring. 27 The respondents further submit, in answer to the applicants' motion for summary judgment, that the Statement is far from unambiguous in its terms. As to this: 1. At section 8 of the Report, the respondents stated that the Property was zoned as 'Rural'. 2. The respondents prefaced their comments in sections 8.1, 11.3 and 17.2 of the Report in terms of should the land be re-zoned. 3. Section 17.1 of the Report (fifteenth paragraph) states the Property was in the process of being re-zoned. 4. Section 17.2 of the Report states any comment on the timing of issue of titles is extremely subjective and it is recommended that the addressee of the Report adopt a conservative approach. The final paragraph of this section again reiterated the uncertainty of the re-zoning from 'Rural' to 'Urban'. 5. In section 18.4 of the Report a threat to the development of the Property is identified, namely, the rezoning of the Property to 'Urban' failing to get through the process of the WAPC. 28 The Report also sets out in sections 8, 17.1, 17.2 and 18.1 the bases of the respondents' statement of opinion. 29 The respondents argue that in light of this ambiguity: 1. It is open to interpretation whether the Report made any representation as to the existence or reasonableness of: 1.1 any opinion as to when titles would in fact issue; or 1.2 the bases of the opinion presented (beyond those contained within the Report). 2. There are reasonable prospects of the respondents successfully defending the proceedings. 3. The matter should proceed to trial. 30 As to the argument based in negligence, the respondents point out that it is necessary for the applicants to prove that the respondents knew, or ought reasonably to have known, that: 1. The information or advice would be communicated to the applicants, either individually or as a member of an identified class; 2. The information or advice would be so communicated for a purpose that would be very likely to lead the applicants to enter into a transaction that the applicants do enter into; and 3. That it would be very likely that the applicants would enter into such a transaction and thereby risk the incurring of economic loss if the Statement should be untrue or the advice should be unsound. Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 (at 252) per Brennan CJ (see also APF Properties Pty Ltd v Kestrel Holdings Pty Ltd [2006] FCA 1080). 31 The respondents submit that there are real questions of fact to be tried in this regard, as: 1. The respondents did not provide the applicants with a copy of the Report. The extracts of the Report provided by the applicants were provided by Frasers without the respondents' knowledge or consent. 2. The applicants did not, in any event, receive an entire copy of the Report. Extracts only of the Report were provided to the applicants by Frasers. 3. The respondents clearly articulated in the 'required addressing clause' (at 3 of the Report): 3.1 To whom the Report was issued. 3.2 Who could rely upon the Report. 4. The applicants would have been aware of the disclaimer in the Report. 5. The applicants could have commissioned their own valuation or analysis of the likely timeframe for settlement. They were in no sense vulnerable to the work of the respondents. 6. The applicants did not retain the respondents to prepare the valuation. 7. The applicants had no communication at all with the respondents. 8. The respondents had no knowledge or means of knowledge of the existence of the applicants save as the members of an indeterminate class. 9. The valuation report contained an express statement that it was to be used: … only of the party to whom it is addressed [HBS] and for no other purpose. No responsibility is accepted to any other party who may rely on the whole or any part of the content of this valuation. 32 The respondents further submit that a finding of negligence requires a consideration of the investigations where were undertaken by Mr Srhoy in preparing the valuation. This is ultimately a matter for trial. These arguments, in my view, are all sound. 33 The respondents further argue that even if the Report did contain misleading representations as alleged, the applicants have not established that they have suffered any loss as a result of those representations. 34 The applicants propound three separate chains of causation: 1. That they were provided with an extract from the respondents' valuation by Frasers and that, in reliance upon the representations contained within the Report, they chose not to withdraw from their investment in the Property. 2. That the financier of the investment, La Trobe Financial (La Trobe), relied upon the valuation in extending finance (and that, had this not occurred, the investment would not have proceeded). 3. Had the original recipients of the Report, HBS, been made aware that the titles to the Property would not be available until 2015, they would have advised Frasers, who would in turn have advised the applicants, who would not have chosen to proceed with their investment in the Property. 35 The applicants allege that, ultimately, the Property was sold in 2009 and there were no funds available to distribute to any of the applicants. 36 However, the shortcomings at present in the applicants' claim are that they have not provided any pleading or evidence to support these allegations. In particular, the respondents argue that there is no information as to: 1. when the applicants entered into their respective investments in the Property; 2. whether La Trobe read or relied upon the valuation when approving the TPAB loan application; 3. what events transpired between the applicants entering into the investment and the sale of the Property in 2009; or 4. how it is said that the applicants could have withdrawn from their investment in the Property. 37 The respondents submit that there are reasonable prospects of successfully defending the proceedings. 38 Significantly also, in my view, there is a real question as to whether all the applicants did, as a matter of fact, rely upon the respondents' valuation when deciding to continue with their investment. There is no individual evidence to support the conclusion that they did. In contrast: 1. The Report is addressed to HBS. 2. The purpose of the valuation is stated at page 1 of the Report to be for 'Mortgage Lending Security'. 3. The Report states in section 21 at page 16 that the Report may only be used by the party to whom it is addressed and for no other purpose. It also states that no responsibility is accepted to any other party who may rely on the whole or part of the content of the Report. 4. The Report was supplied, in part only, to the applicants by Frasers and not the respondents. 39 I can say that for the preceding reasons alone, the applicants' claim for summary judgment is quite misconceived and must be dismissed. 40 Nevertheless, I will for completeness, record the additional arguments advanced by the respondents. It is unnecessary for present purposes for me to determine whether weight should be given to those arguments or not, especially at the ultimate determination of the matter at trial. However, in recording those arguments, the applicants may take it that I presently consider they are arguments to which the applicants may benefit from considering. 41 The respondents also argue that if the applicants did suffer the alleged losses, those losses were suffered as a result of their own decision to continue with the investment in circumstances where they were not bound to do so. As to this: 1. The contract between the first applicant and TPAB (the only such contract discovered) was expressly conditional upon a new title being issued in respect of the Property and the first applicant acquiring a lot in the Property by 31 March 2009. 2. If a title was not issued and the first applicant had not acquired the lot by that date, the contract would be at an end and: 2.1 TPAB would immediately sell the Property on the open market at a fair market price; and 2.2 The project management fees and other incidental costs would be deducted from the sale price; and 2.3 The balance of the sale proceeds would be divided equally between the 40 investors in the Property. 3. The applicants accept that they were aware from at least 30 January 2008 that no sewer would be available for the Property until 2015. 4. The Property was sold by way of a mortgagee sale on 16 October 2009. 5. The applicants took no steps to enforce their claimed rights under the contract of sale. 42 It is open to argument, the respondents say, whether the applicants were able to withdraw from their investment as alleged. In this regard: 1. The applicants, by 15 April 2007, had each executed an 'Expression of Interest' and paid a $6,000 EOI fee. 2. The first applicant on, 23 June 2007, entered into a contract with TPAB for the purchase of a lot in the Property. It was a term of that contract that the first applicant pay a deposit of $43,000, to be held by Brook & Co Solicitor Trust Account, within three days of executing the contract. 3. The offer of a refund, upon which the applicants ground their claim, was made by Frasers. 43 There is a question as to whether Frasers had the legal capacity to, and in fact would have, provided the applicants with the refund. In those circumstances, the respondents say, it is not appropriate for the proceedings to be disposed of summarily.

No evidence of loss 44 The respondents also argue that the applicants have provided no evidence of their losses and in those circumstances submit that there is a real question of fact to be tried.

Proportionate liability 45 Finally, the respondents make the point that it is clear from the applicants' own pleading and submissions that representations were made by Frasers in relation to: 1. the timing of the issuing of titles to lots in the Property; 2. the availability of services to the Property, including the availability of a sewer; and 3. the returns expected on the applicants' investment in the Property. 46 There is therefore, they say, a question to be tried and which requires further investigation by the respondents in relation to whether Frasers bears a proportionate liability for this claim in accordance with s 87CD TPA and Pt 1F of the Civil Liability Act 2002 (WA).

CONCLUSION 47 For reasons indicated above, without needing to consider all of the arguments advanced by the respondents (and properly advanced), the applicants' motion for summary judgment will be dismissed with costs. 48 In a recent directions hearing, Mr Boase expressed disappointment that the applicants' claim was not proceeding more swiftly and that the applicants did not have the benefit of judgment. 49 In addition to observing the caution with which the summary disposal or proceedings should be exercised, it is clear that the respondents have raised a number of valid points which require careful consideration by the applicants. It may be that ultimately the applicants can succeed to some degree. I express no view on that prospect whatsoever, but it can certainly not be said at this stage that they are entitled to summary judgment. As Mr Boase represents a significant number of applicants, it may well be a worthwhile investment for the applicants to seek the benefit of professional legal advice in relation to both the applicants' claim and also in relation to the contentions raised by the respondents. I have also indicated that as soon as appears to be reasonable, having regard to some of the matters raised in these reasons, this is a claim which would benefit from mediation and I propose to so order in the not too distant future. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.