By an amended statement of claim filed on 9 July 2015 the plaintiff seeks damages against the first defendant, Rural Valuations Pty Limited and the second defendant, Anthony Richard O'Dea. Mr O'Dea is a director of the first defendant and prepared the relevant valuation.
Before dealing with the facts of the matter I should note that a perusal of the file indicates that neither defendant has taken much, if any, interest in the proceedings since they were commenced. At one point Mr O'Dea's daughter, Ms Sharon Langshaw, appeared before the Court, purportedly on Mr O'Dea's behalf. Ms Langshaw has not appeared before the Court today. There has been no appearance for, or on behalf of, either defendant.
In an affidavit of 26 August 2015 the plaintiff's solicitor, Mr Mitchell, stated that on 17 July 2015 he forwarded to Ms Langshaw, by email, a letter advising that the proceedings had been set down for hearing today. That notification was given by Mr Mitchell pursuant to a direction made by the Registrar.
I am satisfied in all of the circumstances that both defendants are on notice of the fact that the matter was to be heard today. I should also note, lest there be any doubt about it, that the same affidavit of Mr Mitchell establishes that the amended statement of claim was served on the defendants and annexes a letter of 9 July 2015 to Ms Langshaw enclosing a sealed copy of the amended statement of claim.
A Court Book has been tendered which is marked Exhibit A and contains the pleadings as well as a number of affidavits. I am satisfied of the following facts based on that affidavit material.
In 2012 Mr Mitchell, the plaintiff's solicitor, had a general authority from the plaintiff to act for her in respect of loan advances to be secured by mortgage. On 4 December 2012 Mr Mitchell received an inquiry from Findley Holdings Pty Limited, a principal shareholder in the Canberra Corporation, as to the availability of funds for an advance to be secured over a property known as Lot 3 in Deposited Plan 1135607. The property was located at Cudal in western New South Wales.
Mr Mitchell received a valuation of the property dated 7 November 2012. That valuation was an update of a previous valuation which had been provided by the first defendant and prepared by the second defendant in October 2011. That valuation, to which I will return, confirmed the value of the property at $310,000.00. Mr Mitchell was aware, from previous dealings, that the defendants carried on a practice of preparing and providing valuations of property in country New South Wales. Mr Mitchell was also aware that the second defendant was a certified practising valuer.
It was, and remains, Mr Mitchell's general practice not to recommend a first mortgage advances to a client if the loan/value ratio exceeds 65%. In respect of country properties his general practice was, and remains, to further discount such recommendation by at least 10% to reflect the potentially greater difficulty in a mortgagee seeking to sell such a property in the event of default.
Needless to say, in advising his clients Mr Mitchell relies (and he relied in this case) on the valuation of the property which had been provided to him. The valuation is annexed to Mr Mitchell's affidavit of 17 October 2014. It appraised the market value property at $310,000.00 as at 7 November 2012. The valuation was directed to Mr Mitchell for his use. The property was described, in part, as a fully developed parcel of land of 4002 square metres upon which there was, at the time, a concrete-based three-bedroom residence under construction. There are photographs appearing within the valuation. Although the photographs themselves are not particularly clear they do not, in my observation, show the partial construction of any dwelling. In arriving at his valuation Mr O'Dea set out (at page 6) a number of what he regarded as comparable sales of properties within the area.
On 5 December 2012 based upon the valuation, Mr Mitchell sought instructions from the plaintiff for an advance of $160,000.00 secured by the first mortgage on the property. In advising the plaintiff, Mr Mitchell took into account the contents of the valuation and relied upon it as being correct. The loan was settled on 21 December 2012.
On 21 April 2013 the mortgagor defaulted in payment of interest due under the mortgage and proceedings for possession of the land and payment of monies due were commenced. Judgment in those proceedings was given on 21 June 2013.
On 25 October 2013 Mr Mitchell instructed an agent to sell the property on behalf of the plaintiff as mortgagee in possession. When he did so, the agent indicated that the property could reasonably be expected to sell for between $60,000.00 and $70,000.00 at auction, substantially short of the valuation of $310,000.00. A reserve price of $80,000.00 was set for the purposes of an auction on 23 November 2013. No bids were received. On 1 July 2015 a contract was exchanged at a sale price of $35,000.00. Completion of that sale took place on 10 August 2015.
As at the date of completion of the sale, the balance due to the plaintiff pursuant to the advances, after deducting the amount received on completion and allowing for interest and the net proceeds of the sale, totalled $176,386.51. That appears in the affidavit of Mr Mitchell of 10 September 2015 which was filed in Court today.
The case brought by the plaintiff against the defendants is firstly a case in negligence. A case of misleading and deceptive conduct within the meaning of s 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) is also pleaded.
In support of those causes of action the plaintiff has relied upon an affidavit of Mr Ryan Stewart of 30 April 2015. Mr Stewart is a valuer and has prepared his affidavit as an expert witness. In Mr Stewart's opinion there were a number of shortcomings in the approach taken by the second defendant in preparing the valuation of the property. He noted, in particular, an apportionment of the value, referable to improvements on completion of $205,000.00 and a land component of $105,000.00. In his opinion there was insufficient evidence for the valuation to be prepared on this basis.
Mr Stewart also pointed out that there was no detail provided within the valuation regarding either the size of the proposed dwelling which was said to be under construction, the extent of accommodation it provided, the construction materials, or the features on completion. He also noted that the comparable sales information which was provided within the valuation was listed by reference to purchase price and land area, but that there was an absence of description of comparable properties provided. There was also no analysis of the components which were said to be comparable to the property which was the subject of the valuation.
Mr Stewart also observed that the valuation appeared to have been undertaken on a "direct comparison" approach, whereby the property was compared with sales of comparable properties and where adjustments were made to reflect points of difference. Although Mr Stewart accepted that such an approach was the most appropriate method for valuation of the property, he expressed the opinion that the lack of detailed sales analysis, the statement of incorrect land areas of comparable sales, and the minimal description which was given of existing improvements, highlighted an improper approach which had led to the adoption of a value which was above actual market levels. In the opinion of Mr Stewart, those matters did not reflect reasonable conduct on the part of an expert valuer.
In his report Mr Stewart carried out an analysis of the sales evidence contained within the valuation. The effect of his analysis was that each of the properties in question had, in his opinion, a land value which was substantially less than that which was ascribed by the second defendant. Ultimately, Mr Stewart expressed the view that as at November 2012 (that being the date of the valuation) the value of the property was $70,000.00 as opposed to $310,000.00. He concluded that the market value of the property as at 17 April 2015 was $35,000.00.
The plaintiff submits, and I accept, that a valuer owes a duty of care to exercise reasonable care and skill in preparing a valuation which relates to a particular property. Clearly, on the evidence, Mr Mitchell relied upon the valuation of the property for the purposes of advising the plaintiff. I conclude from his affidavit that Mr Mitchell would not have advised the plaintiff as he did, had the valuation not been in the terms that it was. Moreover, in circumstances where the valuation was specifically directed to Mr Mitchell, I am satisfied that the defendants knew or ought to have known that the representations contained in it would be relied upon by Mr Mitchell and/or the plaintiff: see generally Kenny and Good Pty Limited v MGICA [1995] HCA 25; 199 CLR 413 at [83] per Gummow J.
On the evidence before me, and in light of the opinion of Mr Stewart, the valuation ascribed to the property is substantially outside the range which could properly have been arrived at by a competent valuer. There is authority for the proposition that an overvaluation to that extent provides some evidence of negligence on the part of the person or persons who performed the valuation: Hann Nominees Pty Limited v National Australia Bank Ltd [2000] FCA 454 at [26] per the Court (Tamberlin, Sundberg and Emmett JJ).
Merely because a valuation falls outside a range may not of itself be sufficient to establish negligence. However, it has been observed that evidence of that kind substantially eases the task of the Court in determining whether a valuer has in fact been negligent. In the present case the valuation is so far removed from the true value of the property that I am satisfied that the defendants were negligent in preparing and providing it. In that regard, I have taken into account the evidence of Mr Stewart as to what were, in his opinion, the various shortcomings in the methodology adopted in the preparation of the valuation: see generally Merivale Moore Plc v Strutt & Parker [1999] 2 EGLR 171 at 176-177.
I am mindful of the fact that a valuation of land, even when carried out by a trained, competent and careful professional, is one which may not admit of a precise conclusion. Courts have adopted a figure in a range of 10-15% of the true figure as constituting an area or a range within which a valuation may not be negligent: Adwell Holdings Pty Limited v Smith [2003] NSWCA 103 at [9]. Of course it remains the case that the provision of such a valuation within that range can still be negligent in a given case. The more important observation in the present case is that even if one were to apply that range, the valuation ascribed to the property by the second defendant was way beyond it. I am satisfied, in all of those circumstances, that the first and second defendants were each negligent.
Having reached that conclusion it is strictly unnecessary to express a view as to the alternative case brought by the plaintiff. However I am satisfied, on the evidence that I have outlined, that the valuation in question was misleading and deceptive. I am also satisfied, based on the evidence of Mr Mitchell to which I have referred, that the plaintiff would not have loaned the funds had the first and second defendants not been negligent in the way in which I have found them to be.
Accordingly and for those reasons I am satisfied on the evidence before me that the plaintiff's case has been proved. Accordingly, I make the following orders:
1. Judgment is entered for the plaintiff against each of the first and second defendants in the sum of $176,386.51.
2. The first and second defendants are to pay the plaintiff's costs as agreed or assessed.
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Decision last updated: 23 September 2015