REASONS FOR JUDGMENT
THE COURT:
1 This is an appeal from a judgment of a Judge ("the Judge") of the Court holding that a valuation made by Hann Nominees Pty Ltd ("the Valuer") was in breach of a duty of care owed by it to the National Australia Bank ("the Bank"), and ordering the Valuer to pay the Bank damages calculated in accordance with the judgment reduced by an amount of 20 per cent for contributory negligence.
2 The Valuer carried on business in 1990 as a valuer. In a valuation dated 6 August 1990 ("the Valuation"), addressed to the Bank, the Valuer assessed the market value of a parcel of land ("the Mortgaged land") owned by Dennis Dean Nominees Pty Limited ("the Borrower") in the sum of $1,164,600 as at 27 July 1990.
3 On 30 November 1990 the Bank permitted a draw down by the Borrower of the sum of $775,000 under a fixed term, fixed interest loan facility of $400,000 and a commercial bill facility of $375,000 on the security of a first mortgage of the Mortgaged land. The Bank claimed that in permitting the draw down it relied on the Valuation of the Mortgaged land. The Bank claimed that the Valuer owed the Bank a duty of care in relation to the preparation of the Valuation and that the Valuation was made in breach of that duty.
[2]
The Mortgaged land
4 As at 30 November 1990 the Borrower owned of a parcel of land situated south of Shepparton, Victoria. The parcel was irregular in shape and had frontages to:
· the Goulburn Valley Highway, also known as Melbourne Road;
· Midstar Court, a cul de sac giving access to some of the lots; and
· Kialla Lakes Drive.
5 In making the Valuation the Valuer applied what is referred to as a "Hypothetical or Notional Subdivision" or "Turner" method of valuation, so called because it was based on the approach considered by the High Court in Turner v Minister of Public Instruction (1956) 95 CLR 245 at 260ff. In applying this method land is notionally sub-divided into proposed lots of subdivision each of which is then separately valued. The valuation ascribed to the land, after appropriate deductions, is then taken to be the aggregate of the values attributed to each of the individual lots in the subdivision. Where part of the land to be valued is the site of an existing building, the valuation of the proposed lot of subdivision upon which the existing building is located is achieved by capitalising the rental value or net rental return of that building.
6 The notional subdivision adopted by the Valuer involved a subdivision of the Mortgaged land into 6 lots, together with a remainder lot, namely lot 7. Three of the lots, identified as lots 1, 2 and 4, had existing buildings erected on them.
7 The building on lot 1 was, at relevant times, leased to a business known as "Statewide Powder Coaters". That business was carried on by Mr Dennis Dean, the principal of the Borrower. The building was occupied by Mr Dean who paid a rent of $36,000 per annum or the equivalent of $97.50 per square metre. The building had an overall area of 355 square metres comprising 145 square metres brick office section in front of a 210 square metre workshop. This notional lot 1 had a frontage to a service road to the Melbourne Road of approximately 40 metres.
8 Lot 2 occupied an area to the east of lot 1 with access to Midstar Court. Two buildings were erected on lot 2. One was let at a rent of $11,500 per annum, which equated to $50 per square metre. The tenant of this building was known as "Ryans". There was no connection between Ryans and the Borrower. Lot 2 also contained what are known as "factoryettes" which were let for a total rent of $10,400 per annum or the equivalent of $32 per square metre.
9 The third lot on which an existing building was erected was lot 4. This was located at the southern end of the Mortgaged land adjacent to Kialla Lakes Drive. The building on lot 4 was also occupied by Mr Dean and was known as "Dean's Garage". The Valuation stated that this building had a market rental of $37,200 per annum, which was the equivalent of $80 per square metre.
10 The areas of lots 3, 5 and 6 in the notional subdivision were:
· lot 3 - 2,023 square metres;
· lot 5 - 2,240 square metres;
· lot 6 - 2,030 square metres.
11 The balance of the land, (lot 7) comprised two hectares. It was furthest away from Melbourne Road and was low-lying and prone to flooding. There were no buildings erected on lots 3, 5, 6 or 7.
12 After setting out descriptive material, most of which has been referred to above, the Valuer then set out the figures and details which disclose how the amount of $1,164,600 was arrived at. That part of the valuation is in these terms.
"P F HANN & COMPANY
VALUERS & REAL ESTATE CONSULTANTS
SUBDIVISIONAL ANALYSIS DATE: JULY 1990
OWNER: DENNIS DEAN NOMINEES PTY LTD
PROPERTY: MELBOURNE RD KIALLA
CROWN DESCRIPTION: Lot A L/P 139345
PARISH: KIALLA
AREA: 2.684 HA
TIMINGS: - LEAD IN: 1.0 MONTHS SELLING: 3.0 MONTHS
DEVELOPMENT: 2.0 MONTHS TOTAL: 4.0 MONTHS
LOT 1 $388,900
LOT 2 $107,000
LOT 3 $80,000
LOT 4 $401,100
LOT 5 $85,000
LOT 6 $80,000
BALANCE $400,000
GROSS REALISATION7 LOTS @ AVERAGE$220,286 $1,542,000
Less SELLING EXPENSES
COMMISSION 7 LOTS @ $ 4,406 $30,840
LEGAL EXPENSES 7 LOTS @ $ 2,203 $15,420
TOTAL SELLING COSTS $46,260
NET REALISATION $1,495,740
PROFIT AND RISK 10.0% $135,976
FUNDS AVAILABLE FOR DEVELOPMENT $1,359,764
Less DEVELOPMENT COSTS
WATER $9,000
SEWERAGE RETICULATION $33,000
ROADWORKS (Midstar Crt) $22,000
ROADWORKS (Kialla Lakes Drive) $20,000
ELECTRICITY $10,000
PUBLIC OPEN SPACE $7,000
ENGINEERING & SURVEY FEES $15,000
CONTINGENCIES 3.00% $3,480
TOTAL DEVELOPMENT COSTS $119,480
INT ON DEVELOPMENT20.00% $3,485
ANNUAL COSTS 7 LOTS @ $ 145 $1,015
INT ON ANNUAL COSTS20.00% $34
TOTAL COSTS $124,014
AVERAGE COST PER LOT $17,716
FUNDS AVAILABLE FOR LAND PURCHASE $1,235,750
Less INTEREST ON LAND 17.00%
ADJUSTED FOR TIME 3.54% $42,269
Less rental income $17,042 $25,227
LEGAL & S/D PURCH 4.00% $45,903 $71,131
$1,164,619
SAY $1,164,600
CAPITALIZATION OF RENTAL
LOT 1
RENTAL
370.0 M2 @ $97.50 $36,100
% of G.R.
INSURANCE $600 1.66%
MAINTENANCE $500 1.39%
LAND TAX NIL 0.00%
TOTAL $1,100 3.05% $1,100
35,000
CAPITALISE @ 9% $388,889
MARKET VALUE SAY $388,900
LOT 2
RENTAL
230.0 M2 @ $50 $11.500
% of G.R.
INSURANCE $300 2.61%
MAINTENANCE $500 4.35%
LAND TAX NIL 0.00%
TOTAL$800 6.96% $800
$10,700
CAPITALISE @ 10% $107,000
MARKET VALUE SAY $107,000
LOT 4
RENTAL
464.5 M2 @ $80 $37,200
% of G.R.
INSURANCE $600 1.61%
MAINTENANCE $500 1.34%
LAND TAX NIL 0.00%
TOTAL$1,100 2.96% $1,100
$36,100
CAPITALISE @ 9% $401,111
MARKET VALUE SAY $401,100"
[3]
The judgment below
13 The Judge proceeded on the basis that it was not disputed that a valuer should seek to arrive at a valuation based on the highest and best use of the property to be valued. His Honour considered the evidence of several valuers. Mr Baylis and Mr Wheeler gave evidence on behalf of the Bank. Mr Hann and Mr Kensley gave evidence on behalf of the Valuer. Mr Hann is a director of the Valuer and he prepared the valuation on instructions from Mr Dennis Dean, who as mentioned was the occupier as well as the owner of lots 1 and 4. Mr O'Connell, a real estate agent, also gave evidence for the Valuer.
14 Although Messrs Baylis and Wheeler expressed some reservations about the appropriateness of the Turner method, the Judge did not regard the adoption of the Turner method by the Valuer as a breach of any duty of care owed by the Valuer to the Bank. However, several issues were also raised as to the exercise actually carried out in accordance with the Turner method by Mr Hann. His Honour concluded that several opinions and assessments formed or made by the Valuer in carrying out the Valuation were erroneous. These included:
· the figures adopted in respect of lots 1, 2 and 4 for rental income did not accurately reflect the correct market values for those lots;
· the capitalisation rates applied to lots 1, 2 and 4 did not accurately reflect the potential demand from prospective tenants for those lots;
· the figure of $400,000 attributed to lot 7 did not accurately reflect the value of that lot;
· the allowance made by the Valuer for the element of profit and risk of 10 per cent, and the estimate of the duration of the selling period, did not take proper account of the market at the relevant time.
15 His Honour accepted the evidence of the valuers called on behalf of the Bank in relation to these questions and concluded that a proper valuation of the subject property at the relevant time was $510,000. This figure was approximately half the figure arrived at by the Valuer. His Honour considered that that the amount of $1.164 million could not be defended as a figure which a reasonably skilled and prudent valuer could properly have arrived at. His Honour considered that the subject Valuation was a gross over valuation which afforded some evidence of negligence on the respondent's part and he referred to the observations of Lindgren J in MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 at 336.
16 It was not disputed that the Bank would not have lent more than 75 per cent of the true value of the Mortgaged land. His Honour concluded that if the Bank had been told that the true market value of the Mortgaged land was $510,000, it would not have allowed the draw down of $775,000 by the Borrower. When the Bank exercised its power of sale in respect of the Mortgaged land, the gross proceeds of sale eventually realised were $110,000. His Honour concluded that the Bank's loss by reason of the breach of duty by the Valuer comprised the principal and unpaid interest that was outstanding under the two facilities at the date of sale of 12 August 1992, together with unpaid rates, taxes and other statutory charges, auctioneer's commission, advertising and other expenses of the sale and legal expenses in connection with the sale, less the gross proceeds of $110,000. In making this determination, his Honour implicitly found the Bank relied on the opinions and information contained in the Valuation when permitting the draw down on 13 November 1990.
17 Other issues before the Judge that were not in issue in the appeal included questions of contributory negligence, causes of action under the Trade Practices Act 1974 (Cth) and the limitation period for bringing an action.
Grounds of appeal
Negligence
18 Essentially the Valuer's complaints under this head concern the approach adopted by the Judge in relation to his Honour's determination of the correct market value of the Mortgaged land and what constituted a proper valuation of the Mortgaged land. His Honour did not expressly set out how the figure of $510,000 was arrived at, but if one takes the individual determinations and rulings by his Honour it becomes reasonably apparent how the figure was arrived at.
19 In the Notice of Contention filed by the Bank there are a series of calculations made by reference to the findings of the Judge and these show how a final figure of $509,266 is made up. It is reasonable to infer that this figure was rounded up to the amount of $510,000.
20 Those particulars as set out in the Notice of Contention are as follows:
"PARTICULARS
[4]
Development 2 months Selling 2 years
Total 2 years
Lot 1 $160,000
Lot 2 $167,000
Lot 3 $80,000
Lot 4 $189,000
Lot 5 $85,000
Lot 6 $80,000
Balance $100,000
Gross Realization $861,000
Less selling and legal - 3% …
$86,000 x 0.03 $25,830
Net Realisation $835,170
Profit/Risk 20% ….
$835.170 = $695,975
1.2
Therefore P/R = $835,170 $139,195
= $695,975
$139,195
Funds available for Development $695,975
[5]
Less development costs … $199,480
Interest on development costs 20% by half total term
= $119,480 x .2 x 1yr = $23,896
… $2,030 $406
Annual costs 7 x $145 x 2 years
($145 annual costs …)
Interest on annual costs 20% $406
…
Total Costs $145,812
Funds available for land purchase $550,163
Less Interest on Land 17% …
$550,163 Land purchase cost $470,224
1.17 =
Interest = $550,163- $470,224 = $79,939
Less rental income 1 year $57,850 …
$22,089
Legal & SD on Land purchase 4% …
$470,244 x 0.04 = $18,808 $40,897
$509,266"
[6]
21 The essential complaint made by the Valuer is that in his reasons for judgment his Honour failed to make a finding that the assessment or judgment adopted by the Valuer in relation to each of these elements was not only wrong but was negligent. Rather, it is said his Honour simply adopted the views of other valuers in relation to the relevant elements saying, in effect, that he preferred those views rather than the views of the Valuer. The question to be determined on the issue of negligence, however, is whether the views adopted by the Valuer were views that a reasonable valuer exercising due skill and diligence could not have adopted in the sense that they are outside a reasonable range.
Causation
22 Mr Fidler, the officer of the Bank who tentatively approved the facilities on 13 September 1990, was unable to say whether the Bank had the Valuation at that time. However Mr Fidler did have the Valuation in his possession when a formal offer of the facilities, dated 11 October 1990, was sent from the Bank to the Borrower. His Honour concluded that it was open to the Bank to resile from that formal offer up to 30 November 1990, when the Bank permitted the draw down under the facilities. His Honour concluded that it followed from the absence of any resiling from the offer by 30 November 1990 that the Bank had relied on the Valuation by that time.
23 The Valuer submits that this conclusion was unsupported by the evidence. The Bank has the onus of establishing the causal connection between the alleged breach of duty and the loss or damage. The Valuer says that the Bank failed to discharge this onus of demonstrating that the relevant officer of the Bank did in fact rely on the Valuation in making the decision to offer the facilities or in permitting draw down under the facilities.
24 The Borrowers defaulted in the performance of its obligations under the facilities granted by the Bank in mid-1991. It is said that at that time it would have been open to the Bank to enforce its security in respect of the Mortgaged land. There is no evidence as to what would have been the result of exercising the power of sale at that time had this been done.
25 The Bank did not exercise its power of sale or attempt to enforce its security at that time. Rather it entered into what were said to be new arrangements with the Borrowers. The Valuer contends that those new arrangements entailed a notional repayment of the facilities then outstanding and a fresh draw down. Thus, it is said, the Bank suffered no loss by reason of its reliance upon the Valuation, assuming it did so rely, in permitting draw down under the original facilities on 30 November 1990. The Valuer also contends that there was no evidence that the Bank, in entering into the new arrangements in 1991, relied on the Valuation.
[7]
Negligence of valuer - principles
26 Because a valuation does not admit of a precise conclusion, competent and careful valuers may properly differ as to a particular figure. Therefore difference of result does not necessarily mean that a valuer has been negligent. However where a valuer determines a figure which is outside a range of values which could properly be arrived at by a competent valuer the courts have taken the view that such an over-valuation affords some evidence of negligence on the valuer's part.
27 In Baxter v FW Gapp & Co Ltd [1939] 2 AllER 752 at 758 du Parcq LJ said:
"It is of course quite clear that the mere fact that there is an over evaluation does not of itself show negligence … Gross over valuation, unless explained may be strong evidence either of negligence or of incompetence. I have no doubt that there was in this case gross over valuation, and one looks to see whether or not there is any explanation of it, and whether it can be seen that the defendant has failed to take any steps which he ought to have taken or to pay regard to matters to which he ought to have paid regard."
28 These observations were applied by Clarke J in Trade Credits Ltd v Baillieu Knight Frank (NSW) Pty Ltd (1985) Aust Torts Reports 80-757 and both cases were referred to and applied by Lindgren J in MGICA (supra).
29 The relevant principles were also considered by the English Court of Appeal in Merrivale Moore plc v Strutt & Parker [1999] 2 EGLR 171 at 176-177 where Buxton LJ (with whom Nourse LJ agreed) pointed out that a finding that a valuation fell outside a reasonable range or "bracket" is not of itself sufficient to establish negligence but it substantially eases the task of the Court in deciding whether a valuer has been negligent. His Lordship was not prepared to hold in general terms that the adducing of evidence to the effect that the valuation is outside a reasonable range or bracket is a necessary precondition to a finding of negligence on the part of a valuer. He considered it may be open to a Judge, in a suitable case, to hold that a valuation figure is so far removed from what is the true value of the property that it could be regarded as a valuation that was outside the limits open to a competent valuer without specific professional evidence being given of what those limits were.
[8]
Was the Valuation negligent
30 Essentially the Valuer appealed on the basis that the Judge, while making his own choice between the valuers' conclusions on various elements, did not express clear conclusions as to whether the opinions formed and acted upon by Mr Hann were reasonable or were opinions that could be held by a valuer exercising due skill and diligence. In order to consider this question it is necessary to turn to the four central matters determined by his Honour.
[9]
Rental Values
31 This issue arises particularly in relation to the three hypothetical lots on which buildings are constructed, namely, lots 1, 2 and 4. In the Valuation, Mr Hann adopted the rentals as follows:
Rate Per Square Total Annual Rent
Lot No. Metre
Lot 1 $97.50 $36,100
Lot 2 $50.00 $11,500
Lot 4 $80.00 $37,200
[10]
32 Mr Hann adopted the rates indicated above on the basis of the rent actually being paid at the relevant time. However in relation to Lots 1 and 4 the occupier/rent payer was not at arm's length from the Borrower. The position was that the buildings on lots 1 and 4 were occupied by Mr Dean or entities associated with him and those occupiers are the rent payers. His Honour found there was no material available to the Valuer that could reasonably have supported the rates of $97.50 and $80 per square metre respectively, other than the rents being paid by the occupiers. There was, however, considerable material available to the Valuer in relation to comparable properties, set out in his Honour's judgment, which indicates that the highest rental being paid at the relevant time for comparable premises was no more than $72.53 per square metre.
33 Mr Baylis, called by the Bank, stated his opinion that although the area of Shepparton around Benalla Road was much more desirable than the area in which the Mortgaged land was located, and that the average rental for industrial property in the area around Benalla Road was between $43 and $44 per square metre. Mr Baylis also considered the rentals obtained from properties located north of the Mortgaged land, adjacent to Melbourne Road, which returned rents of $41 to $47.50 per square metre. Mr Wheeler gave evidence that mirrored the evidence of Mr Baylis concerning the market rents for lots 1, 2 and 4. He also drew on many of the same properties as Mr Baylis as evidence of comparable sales. The market rents which Mr Wheeler attributed to lots 1, 2 and 4 were in the range of $30-$35 per square metre.
34 His Honour accepted the evidence of Messrs Baylis and Wheeler that the net market rents attributed to lots 1 and 4 were excessive. His Honour preferred the rents referred to by Mr Baylis, namely $17,050 for lot 1 and $20,000 for lot 4, to those adopted by Mr Hann, $36,000 for lot 1 and $37,200 for lot 4. Mr Hann's figures were in the order of double those of Mr Baylis.
35 In relation to the capitalisation rates adopted, again the Judge preferred Mr Baylis' capitalisation rate of ten per cent for lots 1 and 4 and 11 per cent for lot 2. These compared to Mr Hann's rate of nine per cent for lots 1 and 4 and ten per cent for lot 2. Assuming that the rates adopted by the Valuer could have been adopted by a reasonable valuer exercising due skill and diligence, the values that would be arrived at on the basis of the rentals adopted by Mr Baylis and accepted by his Honour would have been:
· lot 1 - Rental values of $17,050 capitalised at 9% - $189,444
· lot 4 - Rental values of $20,000 capitalised at 9% - $222,222
36 These values are to be contrasted with those arrived at by the Valuer of $388,900 and $401,100 respectively, a difference of $378,334.
37 In relation to lot 2, the Valuer overlooked that the buildings comprising the "factoryettes", had a market rental value of $10,400. When that rent is capitalised at Mr Hann's rate of ten per cent the capitalised value for lot 2 would be $211,000 as distinct from the value of $107,000 arrived at by the Valuer. Accordingly, there was an under valuation of about $104,000. If that sum is deducted from the excessive valuation of lots 1 and 4 ($378,334) there is still an excessive valuation in relation to lots 1, 2 and 4 of $274,334 in aggregate.
38 The determination by his Honour is clearly enough a finding that the aggregate value attributed to lots 1, 2 and 4 overall was grossly excessive. This involves a finding that no reasonable valuer exercising due skill and diligence could have arrived at that value. His Honour, however, does not specify the maximum value that a reasonable valuer, exercising due skill and diligence, could have attributed to lots 1, 2 and 4 taken together.
39 His Honour found that the values attributed by the Valuer to notional lots 3, 5 and 6, which have no buildings or improvements, were "reasonable". Therefore the figure in the Valuer's calculation for "gross realisation" in respect of lots 1 to 6 was excessive, quite apart from any question of the value attributed to lot 7. His Honour's reasons are, in our view, to be understood as a conclusion that no reasonable valuer exercising due skill and diligence would have arrived at a gross value for lots 1 to 6 inclusive of greater than $867,666 whereas the Valuer arrived at a total valuation for those lots 1 to 6 of $1,142,000, a $274,334 excessive valuation on these lots alone.
[11]
Capitalisation Rates
40 It was Mr Baylis' view that a capitalisation rate of 10 per cent rather than 9 per cent "would have more accurately reflected the demand for lot 1". Similarly in relation to lot 2, Mr Baylis considered that the capitalisation rate should have been 11 per cent and not the 10 per cent attributed by the Valuation. His Honour accepted Mr Baylis' evidence as to the appropriate capitalisation rates to be applied in assessing the valuation of lots 1, 2 and 4 and noted that this evidence substantially accorded with the evidence of Mr Wheeler.
41 His Honour, however, made no finding that the capitalisation rates were excessive, or outside the range. In other words, there is no finding that no reasonable valuer acting with due skill and diligence could have arrived at the capitalisation rates adopted by the Valuer. There is only a small difference between the capitalisation rate accepted as appropriate by the Judge, and that used by Mr Hann. Accordingly, without an express finding by the Judge, it is not possible to infer from this difference alone that the capitalisation rates used by the Valuer were negligently chosen.
[12]
Lot 7 - residual lot
42 His Honour noted that there was a significant discrepancy between the evidence of Mr Hann and Mr Kensley on the one hand and Messrs Baylis and Wheeler on the other, as to the market value of lot 7. Mr Kensley accepted that a correct valuation would be within 25 per cent of the assessment by the Valuer of $400,000. From that evidence, his Honour drew an inference that Mr Kensley regarded a "prudent, but not unduly conservative, assessment" as being approximately $300,000.
43 His Honour noted that Mr Baylis originally valued lot 7 at only $25,000 and Mr Wheeler assessed it at $100,000. On this point His Honour said:
"[U]pon a correct application of the Turner method lot 7 should have been valued as a separate lot on the proposed plan of subdivision while taking into account its relevant characteristics. It was common ground that lot 7 would require filling and had no direct access to Melbourne Road. On the other hand, it had an area of approximately two hectares. The impression which I retain from all the evidence is that Wheeler's assessment is to be preferred and the market value which should have been ascribed to lot 7 at the relevant time was $100,000."
44 While there is no express finding there that no reasonable valuer exercising due skill and diligence could have arrived at a valuation for lot 7 of $400,000, it is apparent from his Honour's ultimate conclusion as to the true value of the subject property that in the case of lot 7 a discrepancy of the order of three to four times the valuation determined by his Honour would not be defensible as a figure which a reasonably skilled and prudent valuer could properly have arrived at. His Honour accepted in making his final determination that a valuation of double the value found by him indicated negligence. Accordingly, on reading his Honour's judgment as a whole, it is implicit that in accepting the evidence of Mr Wheeler and finding that lot 7 would only realise a gross figure of $100,000, the figure of $400,000 determined by Mr Hann was outside a reasonable range.
45 As counsel for the Valuer pointed out his Honour accepted valuations of $80,000 and $85,000 for lots 5 and 6 which have areas of 2,240 square metres and 2,030 square metres respectively. Lot 7 is an in globo parcel and is in the order of 2 hectares. There is, on the face of it, a marked imbalance between the values accepted by his Honour for lots 5 and 6 and lot 7 arising from the difference in size. The evidence indicates that some expenditure for filling would be required to overcome the possibility of flooding on lot 7 but that this was a relatively small amount in the order of $35,000. However, in his evidence in relation to lot 7, Mr Wheeler pointed to the general lack of market demand for industrial lots in the Shepparton area and to the declining industrial market as evidenced by three other industrial subdivisions in Shepparton, at Grant Court, Solar City and Benalla Road. He also referred to the fact that lot 7 was flood prone and needed fill and that it had limited access. After considering the evidence as to the value of this lot his Honour preferred and accepted the evidence of Mr Wheeler. In so doing he had the decided advantage of seeing the experts give evidence and of assessing their comparative expertise in relation to the value of lot 7, and it was open to his Honour to accept Mr Wheeler's evidence.
[13]
Profit and Risk
46 In accordance with the principles ordained by the Turner method, the Valuer made deductions from the gross projected realisation for the notional selling costs that would be incurred in developing the Mortgaged land in accordance with the notional plan of subdivision. The Valuer then deducted 10 per cent for what he referred to as "profit and risk", leaving a figure for "funds available for development". A further deduction was then made, in accordance with the principles applicable to the Turner method, for the costs to be incurred in the development of the plan of subdivision. The relevant question is whether the deduction of 10 per cent was an appropriate one to make.
47 Mr Baylis considered that it was appropriate to deduct between 20 per cent and 25 per cent for "profit and risk" rather than 10 per cent. Further Mr Baylis' view was that it would take two years to complete the development and sale of the subdivision. The Valuer had estimated this would take four months. Mr Wheeler regarded an allowance for profit and risk in the valuation of 20 per cent as appropriate. His Honour accepted the evidence of Mr Baylis that it would take two years to complete the development and concluded that the period of four months allowed by the Valuer for the development and sale of the proposed lots was "unrealistically short". Consequently, his Honour found the 10 per cent deducted for "profit and risk" by the Valuer was "conservative" and he accepted the allowance of 20 per cent suggested by Mr Wheeler. There was, however, no specific finding that the 10 per cent profit and risk factor was outside a range which valuers might consider reasonable.
48 Although his Honour made no express finding that no reasonable valuer exercising due skill and diligence would have adopted a four month selling period, the selling period given by Mr Baylis and accepted by his Honour was more than five times the period estimated by the Valuer. In these circumstances when his Honour spoke of the Valuer's fears being "unrealistically short" he must be taken to have meant that it was outside a reasonable range. Although, in the final analysis, the differences in profit and risk factor do not reflect a large difference in dollar terms, the extent to which the selling period was over-estimated lends support to the ultimate conclusion of his Honour that the Valuer was negligent.
[14]
Conclusion as to Valuation Questions
49 It is clear that his Honour formed a firm view that, in relation to the four matters analysed above, the Valuer had arrived at erroneous assessments. Although the Judge made no express finding on the point, his reasons should be understood as a finding that the aggregate value attributed to lots 1, 2, 4 and 7 were outside a reasonable range. The Judge clearly concluded that the total aggregate value attributed to lots 1 to 7 was grossly excessive.
50 It is also clear that his Honour made the implicit finding that no reasonable valuer would have arrived at a gross realisation figure, for the purposes of a valuation in accordance with the Turner method, greater than $967,666. Applying essentially the same methodology as the Valuer, but inserting the new figures for the market value of lots 1, 2, 4 and 7, the value that a non-negligent valuer would have reached would not have exceeded $694,309. Thus even if there may be some ambiguity as to the calculations used by his Honour that led to his figure of $510,000, there was, in substance, a finding that anything in excess of $694,309 could not be defended as a figure that a reasonably skilled and prudent valuer could properly have arrived at. There was, therefore, a breach of duty by the Valuer.
[15]
Reliance
51 The Valuer contended that in approving the facilities, and in permitting draw down under them, the Bank had not relied on the Valuation. The Judge held otherwise and found that, in the absence of any resiling from the offers made in the letter of 11 October 1990, the Bank had relied upon the Valuation by 30 November 1990 when draw down took place.
52 The thrust of the Valuer's contention was that an inference should have been drawn that the Bank relied on an earlier valuation of the Mortgaged land, made as at 8 November 1988, that was in the possession of the Bank. That valuation was addressed to Sandhurst Trustees, the lender whose indebtedness was repaid when the Bank's facilities were drawn down.
53 Mr Fidler, the manager of the Bendigo branch of the Bank, gave evidence that he was told that Sandhurst Trustees, because they are a trustee company, would only lend up to 66 per cent of a sworn valuation of land offered as security. Mr Fidler had a discussion or discussions with Mr Dean about the prospect of the Bank re-financing the loans from Sandhurst Trustees. When the proposal was referred to Mr Fidler he took it to his regional office and went through the proposal with the regional manager. At that stage Mr Fidler had the valuation addressed to Sandhurst Nominees. In fact the Valuer was also the author of that valuation.
54 The regional manager told Mr Fidler that the Bank would have to have a valuation addressed to the Bank for the valuation to be of any worth to it. Mr Fidler then had a conversation with Mr Dean on the telephone and explained to him that, whilst the Bank had a sworn valuation, it was addressed to Sandhurst Nominees and the Bank would need a fresh valuation addressed to the Bank. Mr Dean indicated that he would arrange that. An application for a line of credit was then completed.
55 Mr Fidler was first asked in cross-examination about the valuation addressed to Sandhurst Nominees bearing the date 21 November 1988. The following was then put to him:
"… the only valuation that you had before there was any decision to approve was the valuation as at November 1988 is that right? And the one we have just been discussing is that right?"
It appears that the witness was cut off before he completed his answer. The response was:
"That is the one that…".
56 No further question was put to him by the cross-examiner at that stage.
57 In the course of re-examination Mr Fidler was taken to a copy of the Valuation. He was asked if he knew when he received it and said that he could not say. He said that there was nothing there to indicate when he received it. However he was then asked the following question:
"Is that the valuation that was supplied to the Bank in response to the statement about which you gave evidence this morning that you made to Mr Dean saying the Bank would require a valuation addressed to it before approving the loan?"
Such a question in re-examination may well have been rejected had there been objection taken. However no objection was taken and Mr Fidler answered "Yes". The following exchange then took place:
"Is that the valuation that was in your possession before the loan was approved in the letter to which we have just referred which was 11 October 1990? - Yes"
58 The Judge, following objection by counsel for the Valuer, gave the re-examiner leave to ask Mr Fidler further questions. Further cross-examination was also permitted in the course of which the following exchange took place between counsel for the Valuer and Mr Fidler:
"Now, the valuation whilst dated 6 August 1990 I can tell you was one prepared initially at 6 August 1990 for Sandhurst and was, it appears, altered then to provide its direction to the National Bank. I take it you cannot recall whether the readdressed one was received by the National Bank before or after the loan agreements which were signed, it appears, on 11 October 1990, it is the matter of offer and so on? - If I hadn't received it, it would have had to have been a condition of the loan approval letter.
So it is your belief, is it…? - Because on the security schedule here and as has always been the case, as requested by the assistant regional manager who approved it, I was to hold a report and professional valuation held for mortgage purposes addressed to NAB …"
59 The initial indication from Mr Fidler to the Borrower that the Bank would approve the facilities was dated 14 September 1990 relevantly provided as follows:
"We are pleased to offer finance for Mr Dean's property development on the following basis:-
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$400,000 - Fixed Term Interest Rate. Expires 30/9/93.
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$375,000 - Commercial Bank Bill. Expires 30/9/91.
Prior to proceeding the following will be required:-
A) Approved copy of Plan of Subdivision.
B) Receipt of 1990 financials (to be held by 31/10/90).
C) Trust Deed to be perused by our State Securities Department.
D) Memorandum and Articles of Association to be perused to confirm borrowing powers etc.
A formal letter of offer will issue on receipt of the above, which will detail interest rates and terms."
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It is significant that no mention was made of a valuation as a condition of proceeding with the loans. That could indicate that the Bank already had a valuation which it regarded as satisfactory.
60 On 11 October 1990, Mr Fidler wrote again to the Borrower saying relevantly as follows:
"We advise details of the arranged finance below:-
We attach Letter of Offer for Fixed Rate/Fixed Term Facility in duplicate for sealing where indicated on the last page of the offer.
…"
61 A printed form of "Letter of Offer" was attached to Mr Fidler's letter of 11 October 1990.
62 In the light of the answers given by Mr Fidler in the course of oral evidence, there was clearly evidence from which an inference could be drawn that the Bank had the Valuation prior to making any commitment to lend and prior to permitting any draw down under the facilities. While there may be no express evidence of reliance as such, the evidence of Mr Fidler is almost unequivocal in confirming that, but for the existence of the Valuation, he would not have permitted draw down.
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Renewal
63 On 30 September 1991 Mr Fidler prepared an "Application for Line of Credit - Commercial" addressed to the regional manager of the Bank. The applicant named was the Borrower. The document showed existing limits as $775,000 which the Borrower sought to extend for two years. It also showed that the Bank had securities comprising a registered mortgage over land valued at $1,163,750 and that the Bank value of that land was $931,000.
64 The application contained the following narrative:
"Purpose - Original facilities were approved to take over finance from Sandhurst Trustees. These were to have been cleared from sale of land involved in commercial subdivision. However, due to depressed markets the blocks have not been offered for sale, and obligants now wish to extend current facilities for up to two years in order to provide improved options/chances of quitting properties at a higher value than would presently be achievable.
Amount - remains unchanged, with no further borrowings being proposed.
Security - we currently hold 1st R/M over commercial land only, as facilities were originally approved on this basis.
Directors are of the opinion that as nothing has changed since original approval, in regard to security/facilities, they are unwilling to provide an RMD as would be normally required.
Collaterall - Land held as our security comprises approx. 52% of balance sheet asset value (land $957,000 / Total assets $1,846,000)…"
65 The application terminated with the following:
"Renewal of facilities recommended in view of preceding comments, and profit earnt [sic] by branch of around $15,000 pa."
66 A further document also dated 30 September 1991 entitled "Internal Memo - Lending" was also sent by Mr Fidler to the regional office. It began:
"WE FORWARD FILE INO DENNIS DEAN NOMINEES PTY. LTD. SEEKING RENEWAL OF EXISTING BANK BILL FACILITY TO 11/11/91.
MANAGER WENT TO SHEPPARTON TO INTERVIEW DEAN AND THE FOLLOWING HAS REVEALED:
THE PROPERTY IS NOT YET IN SUBDIVISION STAGE.
ORIGINALLY DEAN WAS TO SELL A BLOCK TO REDUCE/CLEAR OUR COMMERCIAL BILL. DUE TO THE PROPERTY DOWN TURN THIS HAS NOT BEEN PROCEEDED WITH AND DEAN NOW REQUESTS THAT $375,000 - BE ALLOWED TO EXTEND FOR ANOTHER TWO YEARS.
THIS REQUEST IS MAINLY DUE TO DEAN WANTING TO CONCENTRATE ON HIS BUSINESS…"
67 The contention of the Valuer that there was no loss from the original reliance because of repayment in connection with the new arrangements entered into in 1991 has no substance. There was in fact no repayment, either actual or notional, of either of the facilities that had been drawn down in November 1990. One of them, the commercial bill, was extended and the other, the fixed term loan, had not fallen due at that time.
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CONCLUSION
68 In the light of the foregoing, the appeal should be dismissed with costs.
I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Tamberlin, Sundberg and Emmett JJ .
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Counsel for the Respondent: G H Garde QC
A Schlicht