Durkin v Pioneer Permanent Building Society Limited

Background 2 At all material times the first and second applicants carried on a farming business on property known as "Tori", owned by the first applicant. Prior to 23 April 2001 they were indebted to the first respondent in an amount in excess of $600,000 and had numerous other debts. On that date a Mr D B Quinlan, trading as "Quinlans", applied to the first respondent on their behalf for additional accommodation in the amount of $150,000. This accommodation was to meet replanting costs and to provide "carry on" finance. Mr Quinlan is a valuer. He submitted his valuation of "Tori", dated 11 and 12 March 2001, in which he valued the property at $1.6 million. In the letter of application he indicated that the amount already secured on the property (including moneys owed to the first respondent) was $820,000. He opined that the "fire sale value" of the property was $1.12 million, that is 70 per cent of its fair market value. This showed a net excess of "fire sale value" over secured debts of $300,000. At some stage, the amount of additional accommodation being sought was increased to $240,500, of which $160,500 was to be applied to clear other debts and $71,500, to meet interest payments until winter harvest funds became available, together with fees and charges. Such an advance would have increased the applicants' total indebtedness to the first respondent to $900,000. 3 On 23 May 2001 the first respondent wrote to the applicants, offering to increase their accommodation to a total of $900,000 upon the terms contained in an enclosed document. The offer was open for acceptance until 4.00 pm on 6 June 2001. Repayment was to be secured by a first mortgage over "Tori" and an existing crop lien. The terms of the loan were specified. The offer was subject to certain special conditions, including the following: Appraisals from two (2) rural real estate agents confirming the value advised by consultant. Should this value not be supported an independent (sic) valuation by a registered valuer will be required. 4 This condition is hereafter referred to as the "valuation condition". The "value advised by consultant" was that of Mr Quinlan. After the special conditions, the following words appeared: Please note that this is not a binding commitment by the Society until all special conditions have been satisfied. There were also certain riders described as "Outstanding Requirements". The first respondent's "commitment" was also conditional upon such requirements being satisfied. The conditional nature of the first respondent's commitment was stressed, both in the letter of 23 May and on the execution page of the enclosed document. It seems that the applicants signed the execution page on 25 May 2001. At some stage the first respondent indicated that the reason for requiring "arms length support" of Mr Quinlan's valuation was that "… the last two applications have been from you as the consultant and as valuer." 5 On 1 June 2001 the first respondent advised Quinlans: I refer to our recent conversation and advise that on receipt of sufficient funds to bring the account into order and on receipt of two property appraisals supporting the valuation supplied, as per our written terms and conditions, the Society should be in a position to fund the application within 14 - 21 days. 6 Thereafter funds were advanced by way of "carry on finance". It was contemplated that such finance "… will be repaid on settlement of the settlement of the additional funding approved". 7 As to the two appraisals, Mr R H Leonard of Leonard & Devine, a firm of real estate agents trading under the name "Raine & Horne", advised by letter dated 7 June 2001 that: If the blocks are sold individually a price of $380 per acre is achievable. This is based on recent sale price(s) of properties adjoining and in the area. 'Tori' is a quality piece of cultivation country having excellent soil types. 8 Mr G B Gunning, a registered valuer, by letter dated 12 June 2001, said: 'TORI', is one of the better properties in the Bungunya district, being predominantly cultivation land and of good soft soil. … I consider that the property, if offered today, would attract a sale price of between $380 and $400 per acre. 9 Mr Leonard's valuation showed a total value of about $1,456,540 ($380 x 3833) and Mr Gunning's, a value between that figure and about $1,533,200 ($400 x 3833). Other evidence suggests that the former's appraisal included improvements and that the latter's did not. 10 On 26 June 2001 the first respondent wrote to the applicants as follows: We refer to the appraisals of the value of your property that have been supplied to the Society and advise that these values have fallen short of that advised in the valuation supplied by Quinlan's of $1,600,000. The Society has determined that as per the conditions listed in the letter of Terms and Conditions a fresh valuation is required. We have instructed a valuer based in Toowoomba, Doug Knight, to contact you (to) arrange a suitable time to call and inspect the property. He advises that he should be able to call next week commencing 2nd July 2001. 11 Similar information was conveyed to Quinlans by a letter bearing the same date. In its instructions to Mr Knight, the first respondent asked him to value: Ÿ the "Current Local Market Value"; Ÿ the "Forced Sale Value"; and Ÿ the "Land & Buildings". The purpose of the valuation was said to be "Mortgage Security Purposes". 12 It seems that Mr Quinlan and/or the applicants became concerned at the possible delay inherent in this process. Mr Quinlan informed the first respondent that the applicants had an immediate need for funds. The first respondent agreed to advance $44,100 to pay identified creditors. Mr Quinlan said that this was not sufficient to meet the applicants' immediate needs. On 3 July 2001 Mr Knight valued the property with improvements at $1.35 million and for "forced sale", at $1.15 million. The valuation was forwarded to Mr Quinlan on 13 July 2001. On 24 July the first respondent wrote to the applicants, withdrawing the offer of finance. In that letter Mr McIntosh, the first respondent's Business/Rural Loans Officer, observed: Specifically, the valuation obtained as a condition of the offer, did not attain a sufficient level that would allow the Society to lend the funds requested under its lending guidelines. 13 It is the applicants' case that these guidelines permitted lending of up to 60 per cent of valuation. They claim that Mr Quinlan had previously been told that the first respondent would lend up to 65 or 70 per cent of the value of a rural property. The applicants now sue the first respondent, Jeffrey David Dodds (the principal of the firm of valuers which employed Mr Knight) and Mr Knight. I am presently concerned only with the proceedings against the first respondent. The applicants seek damages for breach of contract, negligence and for misleading or deceptive conduct and/or unconscionable conduct contrary to the Trade Practices Act 1974 (Cth) (the "Trade Practices Act").

Breach of contract 14 It is not clear to me that a binding agreement was ever concluded. The express stipulation that the first respondent was not to be bound until such time as the special conditions and outstanding requirements had been satisfied suggests otherwise. The applicants' position is that there was a contract, the performance of which was subject to conditions. For present purposes, I will assume that view to be correct. 15 The amended statement of claim (filed on 27 February 2003) pleads: Ÿ the application of 23 April; Ÿ the offer of 23 May; Ÿ that at all material times the first respondent was "… made aware by Quinlan of the urgency of the need for additional funding and the narrow window of time available as to enable the Applicants to maximise crop growing opportunity on 'Tori' "; Ÿ that the applicants accepted the offer on 25 May; Ÿ that a binding agreement came into existence, which agreement is described in the pleading as "the Loan Contract"; and Ÿ the special conditions. 16 Paragraphs 9, 10 and 11 of the pleading are as follows: 9. By letter on or about 1 June 2001 the First Respondent advised, upon receipt of the two appraisals, that it would settle the Loan Contract within 14 - 21 days. 10. In compliance with the Special Conditions, the Applicants caused R H Leonard of Raine & Horne St George and G B Gunning of Bruce Gunning & Associates Moree to provide appraisals of 'Tori' … both of whom, within an acceptable range, supported the Quinlan Valuation. 11. Affirming the Loan Contract, by letter dated 19 June 2001, the First Respondent notified Quinlan so as to allay creditors' concerns: Particulars 'I refer to our earlier conversation and confirm that the carry on finance required will be repaid on settlement of the additional funding approved.' 17 These paragraphs contain a number of misleading implications. Paragraph 9 implies that the first respondent had, following receipt of the two appraisals, advised that it would proceed with the loan. However the letter was written before the relevant appraisals were prepared. Further, the letter made it clear that the first respondent would advance the relevant funds only upon "… receipt of two property appraisals supporting the valuation supplied …". It did not indicate either that supporting appraisals had been received or that the requirement for them had been waived. Paragraph 10 implicitly asserts performance of the condition requiring supporting appraisals. The special condition required that both appraisals "confirm" or "support" the value advised by Mr Quinlan. Support "within an acceptable range" was not contemplated. Paragraph 11 asserts that by the letter of 19 June the first respondent in some way "affirmed" the loan contract with knowledge of the appraisals. However the letter dealt only with the payment of carry-on finance. Clearly, it was written (and the funds advanced) in the context of the first respondent's requirement for compliance with the valuation condition. On the same day, Mr McIntosh (who wrote the letter) sent a fax to Mr Quinlan, enquiring as to when the appraisals would be "forwarded for our file". Mr McIntosh swears, in par 8 of his affidavit filed on 24 January 2003, that he in fact received the appraisals on 20 June 2001. 18 It is then pleaded that the first respondent: Ÿ became dissatisfied with the Quinlan valuation and the appraisals; Ÿ elected to engage the second respondent to value "Tori"; and Ÿ again affirmed the loan contract by facsimile dated 29 June 2001 in which it agreed to pay certain creditors prior to settlement of the loan. 19 The fax of 29 June 2001, from Mr McIntosh to Mr Quinlan, was as follows: Sorry for the delay. The Society has approved $44,100 (sic) to pay Esanda and Caterpillar as per the amounts noted on the list of creditors as at 23/4/01. The funds can be drawn from the account 448552 S26 using the cheque book that the clients have. Please ring me with any questions. 20 Mr Quinlan replied on the same day: Many thanks. But I am afraid not enough to get Tom out of trouble. Since last list of creditors others have matured. Will ring you. 21 The reference in the pleading to affirmation should probably be to waiver. It seems to be suggested that the first respondent was indicating a willingness to make the advance notwithstanding the apparently unsatisfactory appraisals. The first respondent had agreed to provide limited "carry on finance" pending resolution of the valuation issue. The fax of 29 June re-affirmed that intention. It cannot be construed as "affirming" the loan contract despite the problem with the valuation or waiving the valuation condition. 22 It is alleged that the first respondent breached the loan contract by purporting, in a letter dated 24 July 2001, to terminate it. In that letter the first respondent said: Specifically, the valuation obtained as a condition of the offer, did not attain a sufficient level that would allow the Society to lend the funds requested under its lending guidelines. 23 It is then pleaded that: Ÿ "The lending guidelines formed no part of the Loan Contract and were not made known to the Applicants or Quinlan, who was informed by McIntosh in or about early May of 2001 that the First Respondent often went up to 65% or 70% of value on rural property"; Ÿ it was an implied term of the loan contract that the first respondent would act reasonably and honestly in the performance of the contract and the special conditions; and Ÿ it did not do so. 24 Particulars of such failure are: Ÿ the request for an independent valuation; Ÿ giving allegedly defective instructions to the second respondent as to the valuation; Ÿ requesting a "forced sale" valuation without including a time frame for such sale; Ÿ not instructing the second respondent "… to include the economics of 'Tori' so as to interpret income streams that could be derived …" therefrom; and Ÿ terminating the loan contract. 25 The third and fourth "particulars" appear to be particulars of the second particular. It is alleged that the applicants accepted the first respondent's repudiation of the loan contract, the repudiation being the withdrawal of the offer of finance. 26 This aspect of the pleading suggests that the first respondent: Ÿ wrongfully terminated an existing agreement; and Ÿ contrary to an implied term, did not act reasonably and honestly in its conduct pursuant to the agreement, including the termination of it. 27 It seems also to be implied that Mr Knight's valuation was not the valuation contemplated by the loan contract, either because the appraisals satisfied the valuation condition (by supporting the Quinlan valuation "within an acceptable range") or because of the "defective" instructions given to Mr Knight and the approach he adopted pursuant thereto. 28 These legal subtleties are designed to conceal the fundamental strength of the first respondent's position. The suggestion that the appraisals had only to support the valuation "within an acceptable range" is inconsistent with the plain meaning of the valuation condition. Appraisals "supporting" or "confirming" the valuation were required. It cannot be said that the differences between the appraisals and the Quinlan valuation were so small as to be of no consequence. In those circumstances, a further valuation was necessary. Although the valuation condition did not say so expressly, its clear meaning is that the second valuation had to support the Quinlan valuation if the loan was to proceed. It did not do so. 29 The allegation of "defective instructions" implies a contractual obligation to give instructions which were not defective. Such an obligation did not appear in any of the relevant documents. Instructions to valuers to value identified properties are commonplace events. It is not immediately obvious that any detailed instructions were necessary. The deficiencies are said to have lain in requesting a "forced sale" valuation without including a timeframe for such sale and in not instructing Mr Knight to include "… the economics of 'Tori' so as to interpret income streams that could be derived … ." therefrom. As to the "forced sale" valuation, there can be no misconduct in merely requesting such a valuation. Mr Knight was also asked to fix the market value. Mr Quinlan had, himself, fixed both a market value and a "fire sale" value in his letter of 23 April 2001. The latter was lower than Mr Knight's "forced sale" value. However Mr McIntosh has sworn that he relied upon the market value fixed by Mr Knight, not the "forced sale" value. Indeed, it is not pleaded that the first respondent acted upon the "forced sale" value, nor is there any evidence to that effect. There is nothing in this point. 30 As to the "economics" of the property, the expression conveys no meaning. The special condition contained no guidance as to how the valuation should be performed, implying that it was to be performed according to good valuation practice. The usual approach to such an exercise is well-established and is often described by adopting the words of Isaacs J in Spencer v The Commonwealthof Australia (1907) 5 CLR 418 at 440-441 as follows: … the all important fact … is the opinion regarding the fair price of the land, which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted. … To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property. Such an approach necessarily recognizes and assesses the capacity of the land to be used for commercial purposes such as farming. However that aspect is not necessarily, or usually, considered by reference to projected income. In assessing value by reference to comparable sales of land suitable for the same use as, and otherwise comparable with the subject land, such use and the return therefrom is taken into account. It may be that the applicants' point is that Mr Knight ought to have considered their cash flow position. That would no doubt be relevant to the first respondent's decision as to whether to make the advance, but it had nothing to do with the valuation. 31 Finally, on the contract question, I should return to the lending guidelines. No doubt because of the terms of Mr McIntosh's letter of 24 July, the applicants assert that the decision to withdraw the offer was based upon the 60 per cent figure rather than the 65 - 70 per cent figure. It is not alleged that either figure was incorporated into the loan contract. However it is implied that the first respondent's termination of the contract was unlawful because it was based upon the fact that the loan sought exceeded 60 per cent of the value of the property. That fact, by itself, would not have justified the first respondent in terminating the contract. However the fact that the Quinlan valuation was not supported was a ground for so doing. The first respondent is entitled to rely on that ground even if it previously relied on some other ground. See Shepherd v Felt and Textilers of Australia Ltd (1931) 45 CLR 359 at 371, 373 and 378. 32 The applicants' case in contract depends upon their demonstrating: Ÿ a contractual obligation upon the first respondent to advance moneys; and Ÿ unjustifiable failure to do so. 33 Assuming the first proposition in favour of the applicants, there can be no doubt that any such obligation was conditional upon the valuation condition being satisfied. It was not. There is no basis for attributing that outcome to any breach of contract or other misconduct by the first respondent. The claim in contract must fail.

Negligence 34 It is alleged that the first respondent: Ÿ owed a duty of care to the applicants to "… give appropriate and complete instructions to the Second Respondent so as to determine the fair market value of 'Tori' "; and Ÿ negligently gave inappropriate or incomplete instructions in requesting a "forced sale" valuation without instructions as to a timeframe and in not directing Mr Knight to consider the economics of "Tori". 35 I have already dealt with these matters. There is no allegation that the first respondent acted upon the "forced sale" valuation, nor any evidence that it did so. As to the "economics" point, I have explained that the valuation took the matter into account. 36 It is also alleged that the first respondent: Ÿ owed a duty to the applicants to take note of Mr Quinlan's dissatisfaction with the second respondent's valuation; and Ÿ acted "negligently, or with reckless indifference" in failing to act upon such dissatisfaction. 37 This argument overlooks the fact that the valuation condition was designed to ensure that there was support for Mr Quinlan's valuation. It cannot be seriously suggested that the first respondent was obliged to neglect the valuation of a valuer of its choice, obtained pursuant to that condition, simply because Mr Quinlan did not agree with it. The first respondent acted in accordance with the valuation condition. It had no duty to do more than that. The claim in negligence must fail.

Trade Practices Act - Misleading or deceptive conduct 38 The thrust of this claim is that the applicants relied upon certain statements allegedly made by, or on behalf of the first respondent as to the prospects of their receiving funding and so did not prosecute an application for funding made to another financial institution. This is said to have had particular significance having regard to the plea that the first respondent was made aware by Mr Quinlan of the applicants' urgent need for funds and the "narrow window of time available" in order to enable the applicants to "maximise crop growing opportunity". The relevant conduct is said to have been: Ÿ representations to Mr Quinlan between 9 and 23 May 2001 that the first respondent would provide ongoing working capital to the applicants in order to enable them to pay creditors, provide for the current year's crop and as ongoing capital; Ÿ representations that the first respondent would lend up to 65 or 70 per cent of the value of a rural property; Ÿ representations allegedly made to the applicants in the "Loan Approval" that the first respondent would advance funds in accordance with the conditions set out therein; Ÿ oral assurances made from 23 May to 13 July 2001 that the first respondent would settle the "Loan Approval" within twenty-one days; Ÿ letter dated 1 June 2001 advising that on receipt of the two appraisals it would settle the loan contract within fourteen to twenty-one days; and Ÿ the letter of 19 June 2001. 39 As to statements allegedly made prior to 23 May 2001, it is inconceivable that the applicants continued to act in reliance upon them after receiving the letter of 23 May and enclosed conditions. The basis there set out, upon which funding would be available, was apparently acceptable to them. There has been no suggestion that it was in any way inconsistent with statements made prior thereto or that the applicants would have had any claim against the first respondent had finance been available on those terms. As to the representations concerning borrowing up to 65 or 70 per cent of value, it is difficult to see how they can have any significance given the letter of 23 May and the enclosed conditions. There is no reference to any percentage of a valuation. The only requirement is that Mr Quinlan's valuation be "supported". Whether or not the first respondent lent up to 60 per cent of the value of available security or 65 to 70 per cent of such value, its position as set out in the letter of 23 May and the enclosed offer was the basis upon which the parties acted after that date. Any loss must have been as a result of reliance upon that offer and not upon any previously stated position. As to the representations allegedly to be found in the "Loan Approval", that is presumably a reference to the terms and conditions included with the letter of 23 May. Any representation as to the availability of funds was subject to the conditions there prescribed, including the valuation condition. 40 The pleading implies that oral assertions allegedly made between 23 May and 13 July, that the first respondent would settle the loan within twenty-one days, constituted waiver of the valuation condition. It has not been pleaded that the bank waived such condition. There is every reason to believe that it did not do so. The letter of 1 June made it clear that the first respondent was still awaiting the appraisals, as did the fax of 19 June. The letter of 26 June demonstrates that the first respondent was still insisting upon the condition. Although the first respondent may have been willing to offer limited assistance in advance of the condition being satisfied, there is no evidence suggesting waiver of it. Any oral statements must be understood in that context. There is no suggestion that the first respondent made statements which led the applicants to believe that the position was other than as appears from the correspondence. I can see no basis for claiming that any such statement by, or on behalf of the first respondent led to any loss by the applicants. 41 There is no basis for a claim pursuant to s 52. It is not necessary to consider the operation of s 51A.

Trade Practices Act - Unconscionable conduct 42 Whatever the ambit of operation of s 51AA of the Trade Practices Act, the decision of the Full Court in Hurley v McDonald's Australia Ltd (2000) ATPR 41,741 at 40,585 makes it clear that: For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated … . Whatever 'unconscionable' means in sections 51AB and 51AC, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable … . The various synonyms used in relation to the term 'unconscionable' import a pejorative moral judgment … . 43 Although the Court was there addressing ss 51AB and 51AC, the observations seems equally apposite to s 51AA. In the present case it is alleged that: Ÿ the applicants were financially in need; Ÿ the applicants and the first respondent were in unequal bargaining positions; Ÿ the first respondent took unconscientious advantage of the applicants in terminating the loan contract in circumstances where it knew or ought to have known that the applicants would not be able to enforce any rights they may have had and would suffer loss; Ÿ in so terminating the loan contract the first respondent showed no regard for conscience; and Ÿ such conduct was irreconcilable with what could be regarded as right or reasonable in all the circumstances given that the first respondent knew that the applicants had obtained an alternative loan approval and that funding was urgently required. 44 Equitable intervention on the ground of unconscionable conduct is not available on the case as pleaded. Such relief has generally been granted in cases in which a disadvantaged party has bargained away some right or other benefit in circumstances which suggest exploitation of such disadvantage by the other party. In The Commercial Bank of Australia Limited v Amadio & Anor (1983) 151 CLR 447 at 462 Mason J said: It is made plain enough, especially by Fullager J. (in Blomley v Ryan (1956) 99 CLR 362 at 405), that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition … (or) circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party. 45 This passage was quoted with apparent approval by all members of the Court in Bridgewater & Ors v Leahy & Ors (1998) 194 CLR 457 and has more recently again been endorsed by the High Court in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd & Ors [2003] HCA 18. The applicants plead that the "termination" of the loan contract was unconscionable. In other words, it was unconscionable for the respondent to refuse to advance funds upon the ground that the second valuation did not support the Quinlan valuation. That conduct involved no bargaining so that no question of disadvantage or judgment or exploitation could have arisen. The applicants have not sought to set aside the original loan contract. Rather, they seek to enforce it, or at least to claim damages for alleged breach of it. This claim is completely misconceived. It is more akin to a claim for relief against forfeiture than to any notion of unconscionability. 46 In any event, it is clear from the decision of the High Court in Berbatis that the present applicants cannot rely upon unconscionability as a basis for relief in this case. The thrust of the applicants' claim is that they were disadvantaged because they were in need of financial assistance and the first respondent had money. As Gleeson CJ said in Berbatis at [11]: "A person is not in a position of relevant disadvantage, constitutional, situational, or otherwise, simply because of inequality of bargaining power. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests." 47 People who seek loans are often in financial difficulty. That factor cannot, by itself, be sufficient to render the conduct of any other party, in dealing with such a potential borrower, unconscionable. In any event, there is no basis for concluding that the applicants were disadvantaged so as to be unable to make a judgment about their best interests; nor is there any basis for suggesting that the first respondent unconscientiously took advantage of any such weakness. There is no cause of action pursuant to s 51AA.

Orders 48 It follows that the statement of claim as amended on 27 February 2003 must be struck out as against the first respondent. I will hear submissions as to costs and other orders.

I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.

Associate: Dated: 9 May 2003 Counsel for the First and Second Applicants: Mr R Clark

Solicitor for the First and Second Applicants: Hemming and Hart

Counsel for the First Respondent: Mr P Hack SC

Solicitor for the First Respondent Clayton Utz

Solicitor for the Second and Third Respondents: Phillips Fox

Date of Hearing: 7 March 2003

Date of Judgment: 9 May 2003