By an Amended Statement of Claim filed on 9 July 2015, the plaintiff brings proceedings against the first and second defendants firstly in negligence, and secondly on the basis of misleading and deceptive conduct within the meaning of Section 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth). The proceedings arise out of a valuation of a property provided by the first defendant.
The second defendant is a director of the first defendant. He is a registered valuer and prepared the valuation in question.
Before proceeding with a summary of the evidence I should note that a perusal of the file indicates that neither defendant has played any active part in the proceedings on the various occasions on which they have previously come before the Court. Neither defendant has appeared before the court today. On one or more previous occasions a Ms Sharon Langshaw, who I am told is the daughter of the second defendant, has appeared before the Court in some "representative" capacity. I have had regard to the Affidavit of Service of Mr Mitchell, solicitor, of 26 August 2015. I am satisfied on the basis of that affidavit that the Amended Statement of Claim was served on the defendants. I am also satisfied that Ms Langshaw was advised of the fact that the proceedings were listed for hearing today. In those circumstances, the first and second defendants not having appeared, I am satisfied that it is appropriate to proceed to deal with the matter. In that regard, a Court Book has been tendered and marked exhibit A which contains the pleadings and the relevant affidavit material.
In addition, there is a further affidavit of Ian Burnham Mitchell of 10 September 2015 which was filed in Court. Having read the evidentiary material placed before me I am satisfied of the following facts.
In early February 2010 Mr Mitchell received an inquiry from Findley Holdings Pty Limited, on behalf of Wentworth Chalmers Pty Limited, as to the availability of funds to be secured by mortgage over five parcels of land at Cudal, near Orange, being Lots 4, 9, 10, 13 and 14 in Deposited Plan 1094619 (to which I will refer collectively as "the property"). At that time Mr Mitchell had a general authority from a number of persons, including the plaintiff, to act in respect of mortgage loan advances from time to time.
Having received that inquiry, Mr Mitchell received a valuation on 8 February 2010, which was dated 1 February 2010, in respect of the property. That valuation was provided by the first defendant but was prepared by the second defendant. I will return to that valuation in due course. It valued the property at $700,000.00.
Mr Mitchell was aware, from his previous experience, that the defendants provided valuations of country property within New South Wales for the use of solicitors. He was also aware that the defendants purported to specialise in providing valuations of country properties. He was also aware that the second defendant was a certified practising valuer.
It was Mr Mitchell's general practice not to recommend first mortgage advances if the loan/value ratio exceeded 65%. In respect of country properties, it was his general practice to further discount his recommendation by at least an additional 10%, to reflect the potentially greater delay in the sale of such properties by a mortgagee in possession in the event of default. Needless to say, in advising his clients, and in advising the plaintiff in the present matter, Mr Mitchell relied on the valuations of properties made by registered valuers which were provided to him. Specifically, he relied upon the valuation of the property provided by the first and second defendants in this case.
On 25 February 2010, Mr Mitchell was informed by Wentworth Chalmers that a first mortgage advance on the property of $312,500.00 was acceptable. He obtained instructions to advance a total sum of $312,500.00 from three parties, one of whom was the plaintiff. The mortgage advance was completed on 21 April 2010.
On 5 November 2012, Mr Mitchell received a request for a second mortgage advance over the property in the sum of $175,000.00. At that time he was provided with an updated valuation by the first defendant, prepared by the second defendant, which valued the property at $750,000.00. In advising the plaintiff in relation to the proposed second mortgage advance, Mr Mitchell had regard to the contents of that valuation. He relied upon it as being true and correct. Consistent with his practice, had the combined total of the first and proposed second mortgages on the property exceeded 65 per cent of the valuation he would have recommended that the plaintiff not make the further advance which had been sought. However in reliance upon the valuation, the second mortgage advance was made on 5 November 2012.
On 21 April 2013, the mortgagor defaulted in the payment of interest due under the mortgage. Proceedings for possession of the land, and payment of the moneys due for principal interest and costs, were commenced on 9 May 2013. Judgment in favour of the plaintiff was subsequently entered.
In October 2013, Mr Mitchell instructed an agent to sell the property on behalf of the plaintiff as mortgagee in possession. The agent indicated that in his opinion each of the individual lots making up the property would be likely to be sold for between $40,000.00 and $50,000.00 each at auction. An auction date of 23 November 2013 was set but no bids were received.
Ultimately a buyer for the property was secured for a sum of $150,000.00. A contract of sale was exchanged on 1 July 2015. Completion took place on 10 August 2015. On completion, the balance due to the plaintiff pursuant to the second mortgage, taking into account the principal sum and the interest, was of $236,250.00.
As I have previously noted, the valuation valued the property at $750,000.00. That valuation was expressly directed to Mr Mitchell. The defendants must have known, in those circumstances, that Mr Mitchell would rely on it. The valuation set out a number of sales of other properties which were said to be comparable and valued each individual lot as follows:
1. Lot 4, $150,000.00;
2. Lot 9, $150,000.00;
3. Lot 10, $150,000.00;
4. Lot 13, 145,000.00; and
5. Lot 14, $155,000.00.
6. Total - $750,000.00.
In support of her case, the plaintiff relies on the expert evidence of Ryan Stewart, an expert valuer. Mr Stewart swore an affidavit of 30 April 2015 to which he annexed a report. In the opinion of Mr Stewart, the second defendant's approach to the valuation, which involved valuing individual lots so as to yield an aggregate sum, was deficient, and was not the practice which would be expected to be adopted by a competent expert valuer. Mr Stewart indicated that the valuation had been assessed by assuming the sale of the properties in one line or in other words, assessing the market value of the lots in the one development, assuming a single transaction for the sale of all lots, to the one buyer. Mr Stewart pointed out that the "sale in one line market value" was not the sum or aggregate of the value of the individual lots, but the value of the individual components of the property. He pointed out that a valuation, on the basis of a sale in one line, necessarily incorporated a discount to reflect the costs incurred in realising the proceeds from the sale of the individual properties, or the price a prospective purchaser would pay for the multiple properties in one line potentially as an investment or a development proposition.
Mr Stewart conducted an analysis of the comparable sales which were included in the valuation provided by the first and second defendants. The analysis carried out by Mr Stewart indicated an underlying land value in a range of $35,000.00 to $150,000.00. In the opinion of Mr Stewart, a competent expert valuer should have undertaken such analysis in a way which determined the underlying land value, and should have searched for more directly comparable sales of vacant land within the township of Cudal from which to make a considered and direct assessment. It was his opinion that in failing to do so, the first and second defendants had not acted reasonably in preparing and providing the valuation in question. He also pointed out that in respect of the some of the comparable sales which were relied upon to support the valuation at which the second defendant arrived, a number of the folio identifier numbers were incorrect.
In the opinion of Mr Stewart, the land value of the property as at 25 October 2012 was $280,000.00. The market value as at 17 April 2015 was $135,000.00.
The essence of the plaintiff's claim in negligence is that a valuer owes a duty of care to exercise reasonable care and skill in preparing a valuation and that such duty of care was owed by both defendants in respect of the valuation which is the subject of the present case. Clearly, given that the valuation was expressly directed to Mr Mitchell, the first and second defendants knew (or ought to have known) that the representations contained in it would be relied upon. It is clear from the affidavit of Mr Mitchell that he relied upon the valuation in order to advise the plaintiff: Kenny and Good Pty Limited v MGICA [1999] HCA 25; (1999) 199 CLR 413 at [83] per Gummow J.
A valuation of property may not admit of a precise conclusion. Even valuers who are competent and careful may reach different conclusions as to a particular figure. It follows that a difference in valuation in this case as between the defendants and Mr Stewart, may not necessarily mean (of itself) that the defendants were negligent. Equally however, where there is evidence that a valuer determines a figure which is outside a range of values which could properly be arrived at by a competent valuer, Courts have taken the view that an overvaluation may afford some evidence of negligence: Hann Nominees Pty Limited v National Australia Bank Ltd [2000] FCA 454 at [26] per the Court (Tamberlin, Sundberg and Emmett JJ). Similarly, a finding that a valuation falls outside a range may not, of itself, be sufficient to establish negligence. However, where there is evidence that a valuation does fall outside such a range, such evidence eases (at least to some degree) the task of the Court in determining whether or not negligence has been established. It may be open to conclude, in an appropriate case, that a figure is so far removed from the true value of the property, that it could be regarded as a valuation which was outside the limits which were open to a competent valuer. This may be so even without specific professional evidence being given of what those limits were, although in the present case, there is such evidence in the form of the expert opinion of Mr Stewart: Merivale Moore Plc v Strutt & Parker [1999] 2 EGLR 171 at 176-177.
In the present case, there is a substantial gap between the valuations ascribed by Mr Stewart to the property, and that ascribed by the second defendant. I am mindful of the fact that the valuation of land by trained, competent and careful professionals may, for the reasons that I have outlined, not admit of precise conclusion. Equally however, the Courts have approached the matter by adopting a range of 10% to 15% of the true figure and being one within which a valuation may not be negligent: see Adwell Holdings Pty Limited v Smith [2003] NSWCA 103 at [9]. It will be apparent from the summary of the evidence that I have given that even if one takes a figure of 15% as representing the outer limit of appropriate bracket or range, the valuation of the property in this case fell substantially outside such a range.
In those circumstances, and on the evidence that I have outlined, I am satisfied that the first and second defendants were each negligent. Having reached that conclusion, it is unnecessary for me to express a view about the alternative case brought by the plaintiff, based on misleading and deceptive conduct. However, on the basis of the evidence, as I have outlined it and for the same reasons, I am satisfied that the valuation was misleading and deceptive. In signing the valuation the second defendant aided and abetted the first defendant's actions. It is evident from 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 acted negligently as they did, and had they not provided false and misleading information.
For all of those reasons, I am satisfied that the plaintiff has made out her case on the basis of both causes of action against each of the defendants. For those reasons I make the following orders:
1. Judgment is entered in favour of the plaintiff against the first and second defendants in the sum of $236,250.00.
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