Kayteal Pty Ltd v John Joseph Dignan & ors

Background 3On 19 April 2006, Ms Bsat's finance broker Lisa Farley, of FinanceDotCom, contacted Kayteal's sole director and shareholder, Ms Ruth Vincent, seeking a loan of $780,000 - being principal of $750,750 and prepaid interest of $29,250 - to be secured on four lots at Canley Vale. Ms Farley also forwarded to Ms Vincent a valuation for mortgage purposes of "No's 2-4 Pitt Street, Canley Vale", dated 13 April 2006, which had been prepared by Mr Dignan for another potential lender, and which ascribed a value of $1.2 million to the Canley Vale property. Ms Vincent told Ms Farley that she was happy to proceed, subject to her solicitors being happy with the requirements for settlement, and that the solicitors would prepare a letter of offer. 4On 20 April, at 9.50am, Ms Farley sent to Mr Bsat's solicitors, James Lahood & Associates, a "Schedule of requirements for vacant land for Victor Bsat for 2&4 Pitt St". A copy of this was also sent to Joanne Harb, a paralegal at the solicitors. The schedule specified the following:

1. Full title search.
2. Clear Section 47 (Land Tax) Certificate.
3. Section 149(2) & (5) (Zoning) Certificate.
4. Evidence of Payment of Council and Water Rates.
5. Sewer Mains Diagram.
6. Copy of any Lease or Agreement for Lease.
7. Public Liability Insurance Policy.
8. Copy Transfer (if property is being purchased).
9. RTA Certificate.
10. Evidence of production of certificate of Title at LPI NSW (if second or subsequent mortgage). 5On the same day, at 3.03pm, Ms Farley provided to the solicitors several of the requisite documents, which she had in turn received from Lahood. These included a copy of an earlier survey. This survey depicted a creek line running across the four lots, annotated "Both banks of creek extremely steep". The survey report noted: IN MY OPINION the shed erected thereon stands wholly on the subject land and does not encroach upon any adjoining property or street. The property is known and identified as No.2-4 Pitt Street, Canley Heights. No access to the property can be obtained from Pitt Street. Access can be gained from Salisbury Street between the bank of the creek and the south west corner of the property. Any land north of the creek, whose banks are sheer vertical for up to four metres, is inaccessible. 6Also included was a Council s 149 certificate, including "Flood Certificates" in respect of each of the four lots, which stated that the lots were "located within the Standard Flood identified in Council's Floodplain Management Policy. The Standard Flood is that area which is affected by the 100 year flood". 7Still on 20 April, at 3.59pm, the solicitors, on behalf of Kayteal, sent a letter to Mr Bsat, indicating that Kayteal was "prepared to consider making a loan to you on the following basis": Principal Sum $780,000.00 Term Three (3) months Interest Rate Higher Rate: 20% per annum Lower Rate: 15% per annum. Interest is to be paid in advance for the term of the loan. Security First registered mortgage over properties situated at 2-4 Pitt Street, Canley Vale. ... Legal Requirements As specified in the Schedule to this letter. These searches must be satisfactory to the lender in all respects. ... Valuation A current valuation of the property must be provided. The valuation must be: (a) Satisfactory to the Lender in all respects; and (b) addressed to Kayteal Pty Limited for first mortgage purposes. Financials A signed Statement of Assets and Liabilities must be provided. The Borrower's financial position must be satisfactory to our client.

Please note that this letter is not to be construed as a binding offer capable of acceptance and that the Lender reserves the right not to proceed with the proposed transaction at any time prior to settlement. ... 8The Schedule referred to in the letter specified the following:

1. Full title search.
2. Clear Section 47 (Land Tax) Certificate.
3. Section 149(2) & (5) (Zoning) Certificate.
4. Evidence of Payment of Council and Water Rates.
5. Sewer Mains Diagram.
6. Copy of any Lease or Agreement for lease.
7. Public Liability Insurance Policy noting the interest of the Lender.
8. RTA Certificate. 9On Friday 21 April, at 9.57am, Ms Harb sent an email to Ms Farley, observing that the outstanding issues were:
9. Evidence of Payment of council and water rates.
10. Public Liability Insurance Policy noting the interest of the lender.
11. RTA Certificates.
12. Valuation addressed to Kayteal Pty Limited.
13. Signed Statement of Assets and Liabilities. 10The valuation remained an issue, because the valuation initially provided was not addressed to Kayteal, but to an earlier potential financier. 11Later the same day, the solicitors forwarded to Lahood the draft security documentation, requesting that once duly executed it be returned, together with, inter alia :
14. Current valuation of the property addressed to Kayteal Pty Limited for first mortgage purposes.
15. Signed Statement of Assets and Liabilities of the Borrower. 12Still on 21 April, Ms Farley forwarded to the solicitors most of the outstanding requirements, including "Signed Asset and Liabilities for Victor Bsat", adding: I am sending the valuation by email when I receive it. ... 13Mr Bsat's financial statement indicated liabilities of $1,262,000 and assets (including Pitt St, Canley Vale at $1.2 million) of $2,523,000. 14Sometime on 20 or 21 April - after he had obtained the survey report and drainage diagram - Mr Caldwell, who had other reason to be in the neighbourhood, visited the vicinity of the security property, but was unable to locate it. 15The transaction was expected to settle on 24 April. That morning, at 11.03am, Ms Farley sent an email to Mr Caldwell of the solicitors, who had conduct of the matter, attaching Mr Dignan's valuation dated 24 April 2006. Except that it substituted Kayteal as instructing party, it was identical to his earlier valuation. The valuation date remained 13 April 2006. The invoice which accompanied it charged only for "Reassign valuation including GST", $250.00, which work was said to have been undertaken that day; I infer that all that was involved was the substitution of a different instructing party, and no further work. 16In the valuation, the heading shows the address of the property as 2-4 Pitt Street, Canley Vale. As the land was described a vacant, it is difficult to understand how it could be identified by a street number; but the survey had described a shed on the property as 2-4 Pitt Street. The title particulars refer to lots 16, 17, 18 and 19 in DP729, but omit reference to Sec 101 (of DP729). As DP729 comprises more than 100 sections, in each of which there is a lot 16, 17, 18 and 19, the identification of the correct section is an important matter. 17Under "Land Area", the valuation states: "450m 2 each lot approx". In fact, each lot was approximately 220m 2 . 18Under "Identification", it was stated: The property has been identified from Fairfield City Council records and from the dimensions noted on the deposited plan. From the measurements obtained, it would appear that the property conforms to the dimensions on the deposited plan. 19As observed above, the property did not in fact conform to the dimensions on the deposited plan. 20Under "Development" it was stated: "Nil" - although the survey had referred to a shed erected on the property. Marketability was said to be "Excellent". Risk analysis of the various relevant risks, on a five point scale, did not exceed "2 = low to medium". Comparable sales referred to were of lots of 320m 2 ($355,000 - said to be comparable), 670m 2 ($531,000 - said to be superior) and 1033m 2 ($550,000 - said to be superior). 21Under "Comments" appeared the following: The subject properties are in an excellent location, backing onto Reserve, walkway and overlooks Endeavour Sport Reserve. All of the lots are level and are ideal building blocks, with a minimum site costs. 22In fact, the lots were bisected by a steep creek line. 23Under "Securitisation requirement" the following was stated: Note: Any comments on these issues are based on observations on site and, where necessary, appropriate verbal enquiries without the benefit of searches, surveys etc. The valuer reserves the right to review the valuation and the report if the lender's searches reveal contrary conditions or matters not addressed therein.
16. Not subject to flooding or landslip. ... 24In fact, the flood certificates issued by Fairfield City Council and obtained by the solicitors from FinanceDotCom and Lahood, pursuant to their requirement for a s 149 certificate, revealed that the properties were subject to flooding in that they were located within the "Standard Flood". 25Forced Sale Marketability was said to be "Excellent". The valuation concluded: After consideration of the foregoing it is my opinion that an estimated market value for the subject properties known as No's 2 - 4 Pitt Street, Canley Vale. N.S.W. in deposited Plan 729, Lots: 16, 17, 18 and 19 to the sum of One Million Two Hundred Thousand Dollars. ($1,200,000.) on the 24 th Day of April, 2006. 26Upon receiving it, Mr Caldwell reviewed the valuation. He had previously observed that the earlier valuation had not referred to section 101, and again noted the omission of any reference to section 101 in the title particulars. He also noticed that the valuation referred to the subject properties as being "on level land facing south and at the end of Pitt Street", whereas the survey showed a creek with steep banks running through the property, and reported that there was poor access to parts of the property. Mr Caldwell did not, however, notice the other discrepancies to which reference has been made. 27At about midday, Mr Caldwell called Mr Dignan, drew his attention to the omission of reference to Section 101, the creek and the access issues apparent from the survey, and asked him to confirm the correct reference to title and that the property valued was part of Section 101 in DP729. The valuer said that he would look at the survey and get back to Mr Caldwell. At 12.19pm, Mr Caldwell faxed to the valuer a copy of the survey, which he subsequently - following an inquiry from Ms Farley - sent also to her. Mr Caldwell says that he also had a conversation with Ms Vincent in which he mentioned that the survey showed a creek running through the property and a problem with access to the rear, and that the reference to title was incomplete, explaining " I want to make sure that the valuer has valued the correct property and that his valuation stands ". 28At 1.44pm, Mr Caldwell also sent to Mr Dignan a copy of the drainage diagram, on which he had marked the relevant lots (16, 17, 18 and 19), encircled them, added the words "the subject site", and identified by name the street running down the western side of the property - Salisbury Street. 29In the course of the afternoon, Caldwell had a number of further telephone conversations with Mr Dignan, the detail of which he does not now recollect, save that Mr Dignan ultimately said that he had looked at the material sent, that the valuation related to the correct property, and that the valuation figure stood. At 3.50pm, Mr Dignan sent to Mr Caldwell a fax, as follows: Further to our numerous telephone conversations as at today's date, we confirm our original valuation dated the 24 th day of April, 2006 is correct, and we have valued lot's 16, 17, 18 and 19 at the end of Salisbury Street, Canley Vale and these are the correct lot's that have been inspected with an end value of $1,200,000. 30At 3.57pm, following discussion with a partner, Mr Caldwell sent to Mr Dignan a further fax, as follows: We advise that our client requires your confirmation that the "as is" value of the property being lots 16, 17, 18 and 19 Section 101 in DP729 is $1,200,000.00 notwithstanding the existence of a creek running through the property as shown in the copy Survey Report faxed to you this morning, that the area to the north of the creek is inaccessible and that access to the property is not possible from Pitt Street. Please provide such confirmation by signing a copy of this fax and sending such confirmation to us by return fax as soon as possible. 31No response to this facsimile was received by Mr Caldwell, nor by anyone else at the solicitors, although it emerged - much later, in the course of discovery in these proceedings - that the valuer had sent a response instead to the broker, endorsed as follows: I confirm the above; and below Dated: 24/4/06 Signed: John Dignan The area to the south of the property is accessable from Salisbury Street and therefore is not access denied. 32Unaware of that response, Mr Caldwell reviewed the matter, and concluded that the verbal and written confirmations he had received from Mr Dignan established that the valuation was of the correct property and had taken into account all relevant features; accordingly, it was not necessary to obtain further information from the valuer. Mr Caldwell also thought it unlikely that Mr Dignan would agree that there was any need for further confirmation. 33Mr Caldwell then had a further telephone conversation with Ms Vincent - he believes probably late on 24 April - to the following effect: CALDWELL: The valuer has confirmed that he has valued the right property and that his valuation stands. His written confirmation is not exactly in the words I would have liked but it does the job. I don't think we will get anything further from him other than that he will repeat what he has said so far. I am satisfied that the valuation is ok . VINCENT: Fine, I'll arrange the funds. 34The transaction did not settle that day - presumably it was by now too late. The following day was Anzac Day, and the transaction was completed on Wednesday 26 April.

Kayteal's complaints 35Kayteal alleges that the solicitors were negligent in allowing the transaction to be completed without:

• advising Kayteal that Mr Bsat's statement of assets and liabilities statement showed assets as being unencumbered, when they were encumbered by borrowings known to the solicitors;
• advising Kayteal that Mr Bsat's financial circumstances were such that he had insufficient capacity to service the loan in accordance with its terms;
• making the searches and inquiries requisite to identify the security property; and
• investigating and ascertaining that the valuation was not of the security properties, but of other properties and - as the case developed - advising the client of matters discovered or discoverable from inquiries which might suggest that the valuation was unreliable.

Lenders' solicitors' duty of care in connection with valuations 36A solicitor's duty is ordinarily confined to matters within the scope of the lender's interest that the solicitor was engaged to protect, which appears from the retainer [ Nationwide Building Society v Balmer Radmore [1999] PNLR 606; [1999] All ER (D) 95]. In the case of a lending transaction, the interest which the solicitor is ordinarily engaged to serve is obtaining a valid and enforceable security. Thus, a solicitor acting for a lender must use reasonable care to ensure that the client obtains a legally efficacious security, including that there is no prior encumbrance of which the client was unaware [ Whiteman v Hawkins (1878) 4 C.P.D. 13]. Ordinarily, this does not extend to advising on the value - as opposed to the enforceability and priority - of the proposed security. But generally, a solicitor has an implied obligation to pass on information obtained during the course of investigating title which might cause the lender to doubt the correctness of the valuation, or the borrower's bona fides - though not (unless specifically instructed or assumed) merely its creditworthiness [ Nationwide Building Society v Balmer Radmore ]. Thus, if, in the course of investigating title, the solicitor discovers facts that suggest that the value of the security is insufficient, or otherwise cast doubt on the accuracy or reliability of the valuation, then - regardless of the terms of the retainer - the solicitor ought to draw this to the attention of the client, at least if a reasonably competent solicitor would regard the information as such as might cause the lender to doubt the correctness of the valuation, or some other ingredient of the lending decision [ Mortgage Express Ltd v Bowerman & Partners [1996] 2 All ER 836; Bank of East Asia v Shepherd & Wedderburn [1995] SLT 1074; Mortgage Funding Corporation v Tisdell Nelson Nari & Co [1998] PNLR 81]. 37On the other hand, where otherwise detailed instructions do not require the state of account of the existing mortgage, and the subject matter does not relate to title or adequacy of the security, there is no duty to report the existence of arrears on and default under an existing mortgage [ National Home Loans Corporation plc v Giffen Couch & Archer [1998] 1 WLR 207; [1997] 3 All ER 808]. Nor is a lender's solicitor obliged to disclose information - acquired in confidence before the commencement of the retainer by the lender - in respect of the borrower's poor financial status [ Omega Trust Company Ltd v Wright Sun & Pepper (No 2) [1998] PNLR 337]. Whether the solicitor is required to investigate the borrower's financial position depends on the terms of the retainer [ White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164, [128]]. 38In my view, these authorities establish the following relevant propositions:

• Absent specific instructions, the scope of a lender's solicitor's responsibility includes the legal efficacy of the security, but not its value, nor the creditworthiness of the borrower;
• However, a solicitor is bound to report to the client matters discovered - or that ought to have been discovered - in the course of investigating title and preparing for completion, that a reasonably competent solicitor would regard as such as might cause the lender to doubt the correctness of the valuation, or some other ingredient of the lending decision. 39In Scholes v Brook (1891) 63 LT 837, the mortgagee's solicitors noticed a wide difference in the prices previously paid for the property at different times, and pointed this out to the valuers, who nonetheless adhered to their opinion - which they were ultimately found to have considerably over-estimated, without due skill and care. The solicitors did not mention the price discrepancies to their client. Romer J, as he then was, said at 837-838: The effect of the evidence in this case is, that the money was advanced by the plaintiff on the footing of [the valuers'] valuation, and that the solicitors were employed to do the ordinary legal work. In my judgment, the solicitors did their duty in the matter ; there was no default in the legal work ; that is admitted. But it is said that they were guilty of default towards the plaintiff because, having ascertained the existence of some striking differences in the price paid for the property, they ought to have called the attention of the plaintiff to it. In my judgment, knowing as they did that what the plaintiff relied on was [the valuers'] valuation, knowing that she would be guided by that in carrying out the transaction, they did what they ought to have done in calling [the valuer's] attention to the discrepancies ; and, when they had obtained from him a statement that, notwithstanding those discrepancies, his valuation still stood unaffected, they discharged their duty, and were guilty of no negligence. 40Significant features of Scholes v Brook included: (1) that the concern pertained to a matter primarily within the specialist expertise of a valuer, namely the analysis of sales evidence, as distinct from information affecting title or arising from searches that affected assumptions referred to in the valuation; and (2) that the solicitor knew that the client would rely on the valuer in respect of matters of valuation, and not only said nothing of his concerns to the client, but also said nothing positive to the client about the valuation. 41It is a solicitor's duty to consult with the client on all questions of doubt which do not fall within the express or implied discretion left to the solicitor, and to keep the client informed to such extent as may reasonably be necessary according to the same criteria [ Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch. 384, 434-5]. Scholes v Brook shows that, in some circumstances, it may suffice to resolve doubts about a valuation by obtaining confirmation from the valuer, ultimately that will be influenced by the nature and subject matter of the doubts or concerns, whether the client is solely reliant on the valuer on questions of valuation or whether the solicitor has or assumes some active role in that respect, and whether after inquiry of the valuer there remained, or ought to have remained, concerns that a reasonably competent solicitor would regard as such as might cause the lender to doubt the correctness of the valuation, or some other ingredient of the lending decision. 42Against that background, I turn to Kayteal's specific complaints, referred to above. 43As to the first and second, which pertain to alleged failures to advise as to Mr Bsat's creditworthiness generally, or in respect of properties other than the security properties, it was submitted, for Kayteal, that in this instance the retainer imported an obligation to ascertain Mr Bsat's financial position and capacity to service the loan. This obligation was said to arise from the combination of a prior course of dealings in respect of loan and mortgage transactions, and the terms of the loan offer, and to be accentuated by the circumstance that Kayteal was an inexperienced lender. As to the prior course of dealings, Ms Vincent had dealt with Mr Caldwell since about 2004 (when he was at a predecessor firm). Mr Caldwell had acted for Kayteal on seven prior transactions, but in most of them Kayteal had been one of multiple lenders. In those matters, Mr Caldwell had prepared the terms of the loan offer - which typically provided that the loan was subject to receipt of a satisfactory full title search, section 149 certificate, valuation report of the security, and signed statement of assets and liabilities of the borrower. As to the terms of the letter of offer, the plaintiff relied on the circumstance that it stipulated for a signed statement of assets and liabilities, for title searches, and for a valuation "satisfactory to the Lender in all respects". 44Instructing a solicitor to require a potential borrower to provide such information - at the client's request, to inform the client's commercial lending decision - does not import an obligation on the solicitor to investigate their correctness or sufficiency. Stipulating for title searches is an ordinary part of ensuring the legal efficacy of a mortgage transaction, within the ordinary scope of a solicitor's duty when acting for a mortgagee. Stipulating for a valuation satisfactory to the lender does not make the solicitor responsible for the accuracy of the valuation. It does not extend the solicitor's duty with respect to any valuation. It may be accepted that solicitors who - whether on instructions or of their own motion - stipulate for such documents, would reasonably be expected to see that they are provided (or if not, that there is sufficient reason to waive the requirement), and to read them so as to ascertain whether they contain anything that should be drawn to the client's attention, and/or pass them on to the client for instructions. Thus, if a financial statement shows a prima facie inability to repay the loan, that might well warrant being drawn to the client's attention. But if on the face of the statement there is no manifest problem, then - absent specific instructions - the solicitor is not obliged to interrogate the borrower about the financial statement, or seek supporting evidence (such as tax returns, bank statements and the like). 45While letters of offer prepared or settled by Mr Caldwell typically required borrowers to provide a valuation, and occasionally a signed statement of assets and liabilities, it was Mr Caldwell's practice to read the valuations and forward them to the client (if it did not already have them), so that the client could consider them and address any issues identified as a result of them; ultimately, it was the client who decided whether the issues had been sufficiently addressed to justify the commercial decision to lend. Assuming that the evidence reveals a sufficient number of transactions to establish a course of dealing, that the inclusion or exclusion of a joint lender made no difference, and that the merger of Mr Caldwell's former firm with Home Wilkinson Lowry also made no difference, such course of dealing simply does not establish that the solicitor was, in any transaction, responsible for investigating and establishing the financial position of the borrower, or the value of the security property. Further, I do not accept that Kayteal, with seven completed loan transactions having a total turnover of about $2.5 million, was an inexperienced lender. 46I therefore do not accept that the solicitors were obliged to advise as to Mr Bsat's creditworthiness. The requirement to obtain a statement of assets and liabilities, and a valuation, was to inform Kayteal's commercial lending decision. It did not require the solicitors to evaluate the borrower's creditworthiness. Ms Vincent's prime concern was the value of the security, as distinct from the capacity to service the loan. The requisite statement, searches and valuation were provided. There was nothing in the statement of assets and liabilities to require further inquiry by the solicitors. And the evidence does not establish that - save in respect of the value of the security property - Mr Bsat's financial position was other than as represented in his statement of assets and liabilities. 47As to the third complaint, which pertains to conducting searches and inquiries to identify the security property, the solicitors obtained - albeit, it would seem, from the borrower's solicitors - the requisite searches to identify the security properties, and took a legally efficacious mortgage over it. While they did not obtain a copy of the Deposited Plan, as in my view a prudent solicitor would have, that did not impede their obtaining a legally efficacious mortgage, and - as explained below - would not have revealed that the valuation was of the incorrect properties, although it would have highlighted the importance of confirming that the valuation referred to lots in Section 101, as distinct from in some other section of the Deposited Plan. There was no relevant or causative failure on the part of the solicitors in this respect. 48It is the fourth complaint - which pertains to investigating and determining that the valuation was not of the security properties, but of other properties, and advising the client of matters which might suggest that bthe valuation was unreliable - that is the nub of the case. As explained above, the solicitors were not under a duty to determine the correctness of the valuation, which was the valuer's responsibility. But having stipulated for a satisfactory valuation of the security property, it could reasonably be expected that the solicitors would read the valuation, check that the property described in the valuation corresponds with the property over which the mortgage security is being taken, and draw to the client's attention any information of which they became aware - or ought to have become aware - that might have suggested to the client that the valuation was not reliable. 49In my view, the solicitor was bound to read the valuation (as Mr Caldwell says, and I accept, he did, "from cover to cover"), and the information obtained in response to inquiries of the borrower, the broker and searches, to see inter alia whether there was anything in them that ought to be drawn to the client's attention. Otherwise, what utility is there in making the inquiries and searches at all? Mr Caldwell adverted to the following apparent deficiencies or discrepancies with respect to the valuation:

Kayteal's loss and damages 59Although Ms Vincent was not deterred by those discrepancies which were mentioned to her, the flood risk and its potential impact on the valuation was not mentioned, and she was reassured by Mr Caldwell's expressed satisfaction that the valuation was in order. The final conversation between Mr Caldwell and Ms Vincent is redolent with reliance. I am satisfied that she would not have authorised the advance of funds had Mr Caldwell said that the discrepancies in the valuation had not been satisfactorily explained, let alone that the valuation could not be relied on because of the caveat in respect of flooding. Had it been known or suspected that the property valued was not the security property, or was affected by flooding, Kayteal would not have proceeded to make the loan. 60The applicable measure of damages is the difference between Kayteal's position which obtains in the events which have happened, and that which would have obtained but for the solicitors' negligence. This means that the judgment obtained by Kayteal against Bsat - which is based not on the difference in Kayteal's position, but on Mr Bsat's contractual obligation under the loan, does not provide the starting point. 61Had the loan not been made, Kayteal would have retained the funds, at least at conventional interest rates. (Although there was some evidence that Kayteal made short-term loans at very high rates, there is insufficient evidence to evaluate the chances that it would have done so, and in respect of how much of the principal; moreover, one would also have to take into account the risk of loss on high-risk loans. Accordingly, Court rates provide an appropriate proxy for the interest that Kayteal would have derived). Thus, rather than paying $750,750 to Mr Bsat - which is now irrecoverable - it would have retained that sum, with interest, which for five years at (say) 10% would amount to $375,375. It stands to recover the true value of the property - namely $52,000 - less costs of realisation $4,560, net $47,430. 62It is known that Mr Bsat is a bankrupt. There was no evidence at trial of the status of his bankrupt estate. But the court must do the best it can, and some idea of Mr Bsat's position can be gained from his statement of assets and liabilities which - if the Canley Vale properties are excluded - indicates assets of $1,323,000 and liabilities of $1,262,250, a surplus of $61,000. If one adds his liability to Kayteal under the judgment, of $914,616, that produces liabilities of $2,176,866. Of those liabilities, $1,262,000 are apparently secured and would be paid in full out of the available assets, leaving unsecured creditors with $914,866 to be satisfied out of the remaining assets of (less than) $61,000, indicating a maximum dividend (before costs of administration) of $0.067 in the dollar. However, provision for costs of administration and realisation would reduce that to practically nothing. I am therefore prepared to conclude that there will be no significant dividend for creditors. I have not had to rely on the letter from the trustee in bankruptcy, belatedly sought to be tendered after trial, to reach this conclusion 63Accordingly, the measure of Kayteal's loss as at April 2011 is $1,078,685.

Proportionate liability of solicitors 64(NSW) Civil Liability Act 2002, Pt IV, relevantly provides as follows: 34 Application of Part (1) This Part applies to the following claims ( apportionable claims ): (a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury, (b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1987 for a contravention of section 42 of that Act (as in force before its repeal by the Fair Trading Amendment (Australian Consumer Law) Act 2010 ) or under the Australian Consumer Law (NSW) for a contravention of section 18 of that Law. (1A) For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind). (2) In this Part, a concurrent wrongdoer , in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim. (3) For the purposes of this Part, apportionable claims are limited to those claims specified in subsection (1). (4) For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or died. (5) (Repealed) ... 35 Proportionate liability for apportionable claims (1) In any proceedings involving an apportionable claim: (a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and (b) the court may give judgment against the defendant for not more than that amount. (2) If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim: (a) liability for the apportionable claim is to be determined in accordance with the provisions of this Part, and (b) liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant. (3) In apportioning responsibility between defendants in the proceedings: (a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law, and (b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings. (4) This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings. (5) A reference in this Part to a defendant in proceedings includes any person joined as a defendant or other party in the proceedings (except as a plaintiff) whether joined under this Part, under rules of court or otherwise. 65Kayteal's claim against the solicitors is one for economic loss in an action for damages arising from a failure to take reasonable care, and is therefore an "apportionable claim" for the purposes of Civil Liability Act , Pt IV [s 34(1)(a)]. If the solicitors are "concurrent wrongdoers" in relation to that claim, their liability is limited to that amount that reflects the portion of Kayteal's loss that the court considers just having regard to the extent of its responsibility for the loss [ Civil Liability Act, s 35(1)]. The solicitors contend that, if they are liable at all, they are concurrent wrongdoers (within the meaning of s 34(2)) with Mr Dignan, Dignan Real Estate, Mr Bsat and FinanceDotCom, and that their proportionate responsibility is in the order of 5%. 66In identifying "concurrent wrongdoers", a central concept is that of a single apportionable claim , which directs attention to claims in respect of the same loss or damage - even if the claims are based on more than one cause of action [ Civil Liability Act, s 34(1)(a)]. Relevantly, that is the loss or damage identified above - the difference between Kayteal's position which obtains in the events which have happened, and that which would have obtained but for the solicitors' negligence, namely that the loan had not been made and Kayteal retained the funds at conventional interest rates. That loss was attributable to the lending decision, so acts and omissions that influenced the lending decision were causative of the same loss, and those who committed such acts and/or omissions are concurrent wrongdoers in respect of it. 67Although Kayteal disputed it, Mr Bsat was a concurrent wrongdoer - not by reason of failure to repay the loan, which at least arguably is not the same loss and damage - but because he influenced the lending decision by misrepresenting his financial position (including the value of the security property) through his statement of assets and liabilities, and by tendering the erroneous valuation on which Kayteal relied. 68Kayteal accepted that Mr Dignan and/or his company were concurrent wrongdoers, having negligently failed to identify the property valued with the security property. 69FinanceDotCom conveyed to Kayteal, in Ms Farley's email to Ms Vincent of 19 April 2006, the misleading statement that the properties were worth $1.2 million. But I would not accept that FinanceDotCom did any more than pass on information provided to it by or on behalf of Mr Bsat, without itself adopting it [ cf Yorke v Lucas (1985) 158 CLR 661, 666]. I am therefore unpersuaded that FinanceDotCom engaged, or was involved, in misleading or deceptive conduct in that respect. Moreover, even if FinanceDotCom were responsible for any such representation, I do not accept that it was causative of Kayteal's relevant loss: Kayteal insisted on a signed statement of assets and liabilities from Mr Bsat, and a new valuation addressed to itself. It did not and would not have made its decision to lend based on FinanceDotCom's representation. 70Accordingly, the concurrent wrongdoers between whom responsibility must be apportioned are (1) the solicitors, (2) the valuers, and (3) the borrower, Mr Bsat. 71In determining the relative responsibility of concurrent wrongdoers for a loss, it is necessary to compare the blameworthiness and causative potency of the conduct of each of them [ Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187, [50]-[53]]. Relevant factors include, but are not limited to, which of the wrongdoers was more actively engaged in the activity causing loss, and which was more able effectively to prevent the loss [ Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463, [93]-[97]]. Although allowance should be made for the circumstance that the responsibility of one wrongdoer may be relatively increased if it was engaged by the plaintiff specifically for the purpose of guarding against the potential wrongdoing of another (such as a fraudster), there must nonetheless still be a reduction in the liability of the first, as the fraudster is on any view a concurrent wrongdoer, and the fraudster's responsibility may well exceed that of the solicitor. Thus in Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60, Hoeben J apportioned liability 90% to the fraudster and 10% to the solicitor. An almost identical result was reached by Bryson AJ in Chandra v Perpetual Trustees Victoria Ltd (2007) 13 BPR 25,259. And in Ve lla v Permanent Mortgages Pty Ltd [2008] NSWSC 505, [571]-[600], Young CJ in Eq (as his Honour then was) apportioned responsibility 72.5% to the principal fraudster (Caradonna), 15% to a solicitor who had falsely witnessed a signature (Flammia), and 12.5% to the negligent solicitors - even though a purpose of engaging solicitors was to guard against the conduct of the fraudster]. As Young CJ in Eq said (at [593]-[595]), it would be wrong simply to say that those cases almost compel subsequent courts to reach the same apportionment in similar cases; but they do provide much needed guidance. 72Mr Bsat was the borrower, and the beneficiary of the advance. He must have known that the valuation (and thus his statement of assets and liabilities) was erroneous, as he had purchased the property only two months earlier for $52,000. His misrepresentation must have been intentional, and was for his benefit. 73The valuers were primarily responsible for valuation, and for identifying the security property as the property valued. They armed Mr Bsat with the erroneous valuation which enabled him to mislead Kayteal (and the solicitors). They inexplicably valued the wrong property, and then failed to heed the solicitors' attempts to draw their attention to the discrepancies, which ought to have prompted the most cavalier of valuers to rethink and recheck. While not intentional, their negligence was gross and their responsibility not much less than that of Mr Bsat. 74The solicitors ought to have been more vigilant to see that the valuation corresponded with the security property. They ought to have identified that the valuation was seriously undermined by the flooding caveat. They ought not have been satisfied with the responses they received from Mr Dignan. But they at least drew some (but not all) of the apparent problems to the attention of Mr Dignan, and sought to have him review his valuation. Compared to the others, their responsibility is relatively slight, although it is exacerbated by the circumstance that a fundamental purpose of their engagement was to ensure that appropriate protections were in place, and that detection of the flood affectation was in their primary area of responsibility. 75In my view, Mr Bsat's responsibility is 47.5%, Mr Dignan's 40%, and the solicitors' 12.5%.

Solicitors' cross-claim against valuer 76The solicitors cross-claim against Mr Dignan for indemnity, on the footing that any liability they may have to Kayteal was caused by Dignan's misleading and deceptive conduct, and negligence, in making the representations contained in the valuation, and in the confirmation facsimile. Because this claim is an unliquidated demand not arising from contract etc, it is not a provable debt, so that (CTH) Bankruptcy Act , s 58(3), does not stay proceedings in respect of it. 77Insofar as the cross-claim is brought in negligence, I am unpersuaded that Mr Dignan owed any duty of care to the solicitors: he was engaged by their client, Kayteal, and his duty was to Kayteal; the solicitors were mere agents in that respect. 78Insofar as the cross-claim is brought under the (NSW) Fair Trading Act , the absence of such a relationship does not preclude liability - it is sufficient that the cross-claimant have suffered loss or damage by conduct of a person that is in contravention of the relevant provision [ Fair Trading Act, s 68]. Ordinarily, that involves notions of reliance. Whatever might have been the position before apportionment, I am unpersuaded that the solicitors' liability to Kayteal, reduced as it is under the apportionment legislation to that which reflects their own responsibility, was caused by Dignan's misleading and deceptive conduct. In my view, they incurred that liability not because they relied on the valuer's misrepresentations, but because they failed to take sufficient measures to ascertain, or to warn their client, that the valuation was dubious or unreliable. 79In any event, it seems to me that, having reduced the solicitors' liability by apportionment, it would be wrong in principle to allow them to recover their reduced liability from the valuers, who are themselves concurrent wrongdoers in respect of the plaintiff's claim. The legislation provides that a defendant against whom judgment is given as a concurrent wrongdoer in relation to an apportionable claim cannot be required to contribute to any damages or contribution recovered from another concurrent wrongdoer, or to indemnify any such wrongdoer [ Civil Liability Act , s 36] and that a any person who was a party to previously concluded proceedings in respect of an apportionable claim is not to be joined as a defendant in further proceedings (against other concurrent wrongdoers) in respect of that claim [ Civil Liability Act , s 38]. Thus the solicitors could not be required to give contribution or indemnity in respect of any other concurrent wrongdoer's liability to Kayteal. However, the legislation does not - at least explicitly - make corresponding provision in favour of other concurrent wrongdoers: there is no equivalent provision prohibiting a defendant against whom judgment is given as a concurrent wrongdoer from bringing proceedings for contribution or indemnity against any other concurrent wrongdoer not previously sued - notwithstanding that it has had that concurrent wrongdoer's responsibility for the loss brought to account for its own benefit through an apportionment defence. 80Nonetheless, I have concluded that - except in respect of "excluded concurrent wrongdoers", the legislation has that effect. The primary reason for this conclusion is to be found in s 34A, which provides as follows: 34A Certain concurrent wrongdoers not to have benefit of apportionment (1) Nothing in this Part operates to limit the liability of a concurrent wrongdoer (an excluded concurrent wrongdoer ) in proceedings involving an apportionable claim if: (a) the concurrent wrongdoer intended to cause the economic loss or damage to property that is the subject of the claim, or ( b) the concurrent wrongdoer fraudulently caused the economic loss or damage to property that is the subject of the claim, or (c) the civil liability of the concurrent wrongdoer was otherwise of a kind excluded from the operation of this Part by section 3B. (2) The liability of an excluded concurrent wrongdoer is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant. (3) The liability of any other concurrent wrongdoer who is not an excluded concurrent wrongdoer is to be determined in accordance with the provisions of this Part. 81As Mr Bsat, for example, would be an "excluded concurrent wrongdoer", his liability "in proceedings involving an apportionable claim" would be determined without regard to the apportionment legislation. However, there is nothing to suggest that Mr Dignan is an "excluded concurrent wrongdoer" - the cross-claim does not assert intentional or fraudulent wrongdoing - so his liability in such proceedings must be determined "in accordance with the provisions of this Part". 82In my view, this has the consequence that a defendant against whom judgment has been given as a concurrent wrongdoer, who has succeeded in having its liability reduced by apportionment by implicating other concurrent wrongdoers, cannot thereafter sue those other concurrent wrongdoers for contribution or indemnity, except in the case of an "excluded concurrent wrongdoer". Otherwise, a concurrent wrongdoer could take the benefit of apportionment, yet not its burden; there would be a risk of unjust enrichment of such a concurrent wrongdoer, and of inconsistent results. 83In my view, the cross-claim against Mr Dignan is, or is part of, "proceedings involving an apportionable claim", because the loss or damage that founds it is the solicitors' share of the loss or damage suffered by Kayteal as a result of its lending decision. Accordingly, Mr Dignan's overall liability must be determined in accordance with the above apportionment. It would be inconsistent with that to permit the solicitors to recover contribution or indemnity from him in respect of their apportioned share of the loss to which all contributed, and thus - despite their partial responsibility - effectively leave them with no liability at all. 84Barrett J reached a not dissimilar conclusion - that contribution and indemnity was not available between concurrent wrongdoers where Civil Liability Act, Pt IV, applied, as a result of s 36 - in Reinhold v NSW Lotteries (at [84]-[87]]. And my conclusion is not inconsistent with the result reached by Young CJ in Eq in Vella , where the negligent solicitors were held entitled to recover from Mr Flammia the damages they were required to pay the plaintiff: Mr Flammia's wrongdoing was intentional and fraudulent, so he was an "excluded concurrent wrongdoer". 85For those reasons, the first cross-claim will be dismissed.

Conclusion 86For the foregoing reasons, I have reached the following conclusions: 87Although, absent specific instructions, the scope of a lender's solicitor's responsibility includes the legal efficacy of the security, but not its value, nor the creditworthiness of the borrower, a solicitor is bound to report to the client matters discovered - or that ought to have been discovered - in the course of investigating title and preparing for completion, that a reasonably competent solicitor would regard as such as might cause the lender to doubt the correctness of the valuation, or some other ingredient of the lending decision. 88In the circumstances of this case, by assuring Ms Vincent that the valuation was "okay", instead of advising that the valuer had not sufficiently addressed the solicitor's concerns and moreover had assumed that the land was not subject to flooding when the Council certificate revealed it to be within the Standard Flood, the solicitors were in breach of the duty of care that they owed to Kayteal. It was insufficient to obtain confirmation from the valuer that he had valued the correct property and that the valuation stood, because: first , Mr Caldwell did not identify and draw to the valuer's attention at least one very significant matter revealed by his inquiries, of which he ought to have been aware, and which potentially invalidated the valuation, namely that the property was subject to flooding, which called for the valuation to be reviewed; secondly , Mr Dignan's responses to Mr Caldwell did not reconcile or explain the apparent discrepancies; and thirdly, this case is quite different from Scholes v Brook in that (1) the relevant concerns did not pertain to matters primarily within the valuer's expertise, such as the analysis of comparable sales, but to the identification and affectation of the property; (2) a reasonably prudent solicitor could not have been satisfied with the responses received in the absence of explanation and in the presence of multiple discrepancies such as should have raised the index of suspicion; (3) it was the solicitor's responsibility to confirm whether any assumption in the valuation - relevantly, that pertaining to flood exposure - was vitiated by information obtained from searches and inquiries, and he did not do so; and (4) far from knowing that the client would rely solely on the valuer and saying nothing to her on the topic, the solicitor positively undertook to confirm the reliability of the valuation and did so in circumstances where her reliance on his confirmation was manifest. 89The measure of Kayteal's loss as at April 2011 is $1,078,685. 90Kayteal's claim being an apportionable claim, the respective responsibility of the concurrent wrongdoers is, as to Mr Bsat 47.5%, as to the Dignan interests 40%, and as to the solicitors 12.5%. 91Accordingly, Kayteal is entitled to judgment against the solicitors for 12.5% of $1,078,685, which is $134,835. 92Kayteal's cross-claim against Mr Dignan is, or is part of, "proceedings involving an apportionable claim". Mr Dignan's overall liability must be determined in accordance with the above apportionment. It would be inconsistent with that to permit the solicitors to recover contribution or indemnity from him in respect of their apportioned share of the loss. The first cross-claim should be dismissed. 93On the plaintiff's claim against the third defendants, I give judgment that the third defendants pay the plaintiff $134,835. 94On the first cross-claim, I give judgment for the cross-defendant John Joseph Dignan. 95The solicitors requested an opportunity to be heard on costs after judgment, so I shall make directions for submissions in that respect.

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