Genworth Financial Mortgage Insurance Pty Limited v Hodder Rook & Associates Pty Limited

Genworth Financial Mortgage Insurance Pty Limited v Hodder Rook & Associates Pty Limited - [2010] NSWSC 1043 - NSWSC 2010 case summary — Zoe

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In Minister of Environment v Petroccia (1982) 30 SASR 333 at 343, Wells J said that having identified the comparable sales 'they must be subjected to critical appraisal in the usual way before being put to direct use in the process of valuation'. Evidentiary matters 25 The evidence demonstrates that each of the valuations was expressly addressed to the "mortgage insurer" and each of the three reports state that the valuation can be relied on by GE which, in context, can be understood as a reference to Genworth. 26 I accept that there is nothing in the point taken by Hodder Rook that the Ashcroft valuation was attended by some lesser duty of care. 27 I accept that on the evidence and there was no requirement in the instructions that the valuation should be co-signed (the Ashcroft valuation instructions is at plaintiff's chronological bundle 2 (CB 2) p 345). 28 Nor is there any evidence of any internal Hodder Rook rule of which Genworth was made aware requiring two signatures. The instructions from the mortgage originator did not require two signatures. There was no internal Genworth guideline that a valuation would only be accepted it had two signatures. 29 The valuation was faxed to the mortgage originator (see p 357 CB 2). The finding is that the valuation was sent in the knowledge it would be relied on by the mortgage insurer in deciding whether to issue LMI a policy in relation to the loan. 30 The fact that Hodder Rook apparently were not paid for the Ashcroft valuation is irrelevant. That is a credit risk issue between Hodder Rook and the mortgage originator AMC Loans and does not impact on the existence or scope of the duty owed by Hodder Rook to Genworth. Reliance 31 The documentary and witness evidence demonstrates that in each case approval of the issue of a LMI policy was conditional on a satisfactory valuation, and the valuation was obtained and considered before the relevant transaction was approved. It is appropriate to treat with the valuations individually Cabramatta Valuation 32 The evidence revealed that the decision to issue a LMI policy to Permanent Custodians Limited in relation to the loan to Kin Oanh Nguyen and Quoc-Hoa Hau was made by Samantha Ashcroft and Paul Crick. 33 Samantha Ashcroft's evidence was set out in paragraphs 18 to 20 of her affidavit affirmed 25 November 2009 in the following terms:

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Q. And you answered that that was not something that you controlled. Can you explain what you looked at in terms of valuation evidence and what you relied upon when issuing the loan? A. With reliance to the acceptance of the policy in this case, because there were two, because there were multiple securities in this case, where the total LVR of the total - basically the total loan is over the total amount of the securities, so in that case we looked at both securities, whether they were both acceptable at the time, over the total loan amount which was 312 which then gave us a combined LVR of 80% as per the policy, that's how it was issued. In regards to the loans, the actual split, the loan splits, they're determined - the lender sends us - it says there's a loan split A and there's a loan split B, we don't actually - and then they tell us the loan purpose. They don't advise us which - what loan covers what security because of - they've submitted it requiring both securities to bring the loan within our policy. 42 Mr Crick's evidence was, in summary, that he had considered the valuations together as part of linked security offered for the loan. Mr Crick approved the transaction on the basis of a LVR of 80%. 43 There was no challenge to Mr Crick's evidence that he would not have approved the transaction if the valuation of the [ ] property had been $340,000. Ashcroft Valuation 44 The Ashcroft transaction was approved by Sunny Siddiqui and Emma Tattersall - neither of whom gave evidence. 45 Genworth's computer records record that Sunny Siddiqui approved the application "STV" (subject to valuation) on 5 January 2005 and Emma Tattersall noted on the computer system on 17 January 2005 "Rec'd acceptable val. Approved" (p 367 at CB 2). I accept that this is consistent with the documentary evidence that the valuation was sent to Genworth on 17 January 2005 (p 363 in CB 2). 46 Genworth acceptance advice sent out that day (p 368/ CB 2). 47 Ms Ashcroft gave evidence of what is likely to have occurred if the Ashcroft property had been valued at $340,000 at paragraphs 37 to 39 of her affidavit in the following terms:

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ii. The experts agreed that the most useful sales evidence was [ ], Ashcroft which was sold for $375,000 in September 2004 (four months prior to the valuation in January 2005). Mr Looby's view that the Parsons Street property was superior to the subject property because it was a corner site with dual occupancy potential was rational and not undermined in cross-examination (lines 44-50, T73, lines 1-8, T74). Mr Looby's view that the sale of [ ], Ashcroft set the upper limit of the acceptable range was logical and should be accepted. 72 A significant part of the cross-examination of Mr Looby directed to identifying discrepancies and, in some cases, minor errors in his reports. I accept however that the rational basis of Mr Looby's opinion that each of the Hodder Rook valuations were outside the acceptable range of opinion was not undermined. Mr Looby was plainly a very experienced valuer who understood, and discharged, his duty to the Court and did his best to assist the Court. Misleading Conduct 73 The claims for misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TPA) (and s 42 of the Fair Trading Act 1987 (NSW) (FTA) stand or fall with the negligence claims. 74 For the reasons set out above, Hodder Rook's misrepresented the value of the two properties to Genworth and its conduct contravened the legislation. Contributory Negligence 75 This allegation does not appear to have been pursued. The Genworth witnesses were not challenged about the steps taken to verify the employment of the borrowers and their ability to service the loans. Mitigation 76 This allegation does not appear to have been pursued. Genworth witnesses were not challenged about the steps taken in relation to the sales of the properties (by the lenders) or about any failure (alleged on the pleadings) to exercise rights of subrogation and pursue the borrowers on the balance of the loans outstanding at the dates of the sales of the properties by the lenders. Remoteness of Loss 77 This allegation would appear not to have been pursued, but Genworth's submissions on the issue in its written outline opening submissions are repeated. 78 Genworth contends and I accept that it is plain that a foreseeable and natural consequence of a valuation negligently overstating the value of the property is that there will be a heightened risk to the lender (and its mortgage insurer) of a shortfall on the sale of a property (see the principles explained in Kenny & Good v MGICA (1999) 199 CLR 413) [Gaudron J at 424-5 [16], [17], Kirby and Callinan JJ at 456 [116], 458 [12], 459 [124], see also McHugh J 439 [58]-[59] and Gummow J at 447 [83] and 449 [91] and [92]] 79 In truth the valuations prepared by Hodder Rook not only assessed the market value of the properties as at the date of the reports, but also provided an assessment of market risk based on a risk rating system of 1 to 5 (1-low, 2-low to medium, 3-medium, 4 medium to high and 5-high); the market risk categories being - "Market Segment Conditions", "Reduced Value next 2-3 years", "Local Economy Impact" and "Market Volatility." The valuations (to the extent they were addressed to the mortgage insurer) clearly were intended to enable the mortgage insurer to decide whether to enter into a LMI policy with the lender. Market Volatility or Fall in Market Value 80 Here again this allegation would appear not to have been pursued, but nonetheless the following may be said in relation to the allegation:

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