Kenny & Good Pty Ltd v MGICA

High Court of Australia|1999-06-17|Before: Callinan JJ, Gaudron J, Lindgren J

High Court of Australia Gaudron, McHugh, Gummow, Kirby and Callinan JJ Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25

The appellants are real estate valuers who, for a fee, were engaged by Macquarie Bank Ltd (the Bank) to value a residential property (the property) in Hunters Hill, a harbourside suburb in Sydney. The valuation was required to enable a decision to be made as to the provision of mortgage finance to the owner, Beca Developments Pty Ltd (Beca). The Bank's request was for a valuation which "extended to include Permanent Custodians [and] MGICA Limited". The respondent to this appeal, MGICA (1992) Ltd (MGICA), was formerly MGICA Ltd.

It is not now in issue that the value of the property was less than stated by the appellants and that, on 18 April 1990, its true value, on an "as completed" basis, was of the order of $3.9 million to $4 million. In June 1991, Beca defaulted under the mortgage and, on 2 July 1991, Permanent Custodians entered into possession. On 6 January 1992, the property was sold for $2.65 million. It is not suggested that the property could have been sold earlier. Moreover, it is accepted that $2.65 million was its value when sold, there having been a fall in residential property values in Hunters Hill between April 1990 and January 1992.

In all, Permanent Custodians suffered a loss of $1,977,513.67. That sum was paid to it by MGICA as mortgage insurer. The question in this appeal is whether, having regard to the fall in property values, the appellants are liable for the total loss in respect of which MGICA indemnified Permanent Custodians. Before turning to that question, it is convenient to say something of the appellants' valuation report.

It was stated in the valuation report that the property was "suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3-5 years". The report also stated:

This Report and Valuation has been prepared for and under the instructions of our Client - Macquarie Bank Limited, as intending mortgagee.

may use and rely upon this report and valuation in the same manner as intended by Macquarie Bank Limited.

Notwithstanding the statement that the property was "suitable security for [the] investment of trust funds to the extent of 65% of [the] valuation for a term of 3-5 years", MGICA neither sued to obtain the benefit of that statement as a contractual warranty [1] nor complained of the representation embodied in it. Rather, it brought proceedings in the Federal Court of Australia complaining only of the valuation.

As to the circumstances in which a third party may sue to obtain the benefit of a contract, see, generally, Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107

In its application to the Federal Court, MGICA claimed that the appellants were negligent in making the valuation, were in breach of contract in failing to exercise due care and skill and were in breach of ss 52 and 53A of the Trade Practices Act 1974 Cth (the Act) and, also, of ss 42 and 45 of the Fair Trading Act 1987 NSW. Sections 52 and 53A of the Act respectively proscribe misleading or deceptive conduct by a corporation in trade or commerce [2] and false or misleading representations with respect to land by a corporation in trade or commerce [3] . Sections 42 and 45 of the Fair Trading Act proscribe the same conduct by an individual.

Section 52(1) of the Act provides: "A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." 2. Section 53A(1) of the Act relevantly provides: "A corporation shall not, in trade or commerce, in connexion with the sale or grant, or the possible sale or grant, of an interest in land or in connexion with the promotion by any means of the sale or grant of an interest in land: (b) make a false or misleading representation concerning the nature of the interest in the land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put or the existence or availability of facilities associated with the land."

At first instance, Lindgren J found that the appellants were negligent and that they had contravened s 52 of the Act and s 42 of the Fair Trading Act [4] . No finding was made on the claim for breach of contract, it being treated, it seems, as raising the same issues as the claim in negligence. His Honour also found that MGICA provided insurance in reliance upon the appellants' valuation and that, had the "as completed" valuation been less than $4.5 million, "MGICA would not have insured [the loan] at all" [5] .

MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 at 383 2. MGICA (1992) Ltd (1996) 140 ALR 313 at 364.

So far as concerns damages, his Honour held that the appellants were liable to MGICA for the whole of the loss in respect of which it indemnified Permanent Custodians. In so doing, he declined to follow the decision of the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [6] . It was held in that case that a valuer is liable to a lender in negligence only for "the consequences of the valuation being wrong" [7] , not the consequences of the lender entering into some loss-making transaction in reliance upon the valuation [8] .

[1997] AC 191. The decision is also known as South Australia Asset Management Corporation v York Montague Ltd . 2. Banque Bruxelles [1997] AC 191 at 222. 3. See also the recent House of Lords decision in Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190, in which this approach is affirmed.

The appellants appealed from the decision of Lindgren J to the Full Court of the Federal Court [9] . Their appeal was dismissed. They now appeal to this Court, arguing, as they did in the Full Court, that they are not liable for the full loss in respect of which MGICA indemnified Permanent Custodians, but only so much as constitutes "the consequences of the valuation being wrong".

Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 77 FCR 307

To understand the appellants' argument, it is necessary to say something of the expression "the consequences of the valuation being wrong". In Banque Bruxelles that expression was used to signify the difference between the value as represented and the actual value of the property in question. That can be seen by referring to the facts of two of the three appeals reported under that name, namely, South Australia Asset Management Corporation v York Montague Ltd and United Bank of Kuwait Plc v Prudential Property Services Ltd . In South Australia Asset Management the facts were these:

the lenders on 3 August 1990 advanced £11 m on a property valued at £15 m. May J found that the actual value at the time was £5 m. On 5 August 1994 the property was sold for £2,477,000. May J quantified the loss at £9,753,927.99 and deducted 25 per cent for the plaintiff's contributory negligence. [10] The verdict was not disturbed because, as Lord Hoffmann explained: The consequence of the valuation being wrong was that the plaintiffs had £10 m less security than they thought. If they had had this margin, they would have suffered no loss. [11] In United Bank of Kuwait the facts were as follows: the lenders on 19 October 1990 advanced £1.75 m on the security of a property valued by the defendants at £2.5 m. The judge found that the correct value was between £1.8 m and £1.85 m. It was sold in February 1992 for £950,000. Gage J quantified the lenders' loss (including unpaid interest) at £1,309,876.46 and awarded this sum as damages. [12] In the House of Lords, it was held that the damages "should have been limited to the consequences of the valuation being wrong, which were that the lenders had £700,000 or £650,000 less security than they thought." [13] 1. Banque Bruxelles [1997] AC 191 at 222. 2. Banque Bruxelles [1997] AC 191 at 222. 3. Banque Bruxelles [1997] AC 191 at 222. 4. Banque Bruxelles [1997] AC 191 at 222.

Were the Banque Bruxelles approach to be adopted in this case, damages would be limited to $1.5 million or $1.6 million, that being the difference between the valuation and the true value of the property. This notwithstanding, one possibility that emerged in argument in this Court was that the whole of the loss was to be treated as caused by market forces because the trial judge found that "[i]f the security had been realised immediately following the making of the advance the property would have been sold for $4 million or slightly less" [14] .

So far as concerns the claim in negligence, the notion that the entire loss sustained in this case is to be treated as caused by market forces assumes that the tort was complete when the loan was made. There is some basis in logic for that view because, as soon as the mortgage was taken by Permanent Custodians, it was less valuable than it would have been if the value of the property had been as stated. On that basis, however, the damages should be the difference in the value of the mortgage, not the loss that would arise in the event of a hypothetical sale on the day that the advance was made, which, in essence, is what is involved in the notion that, in this case, the entire loss is referable to market forces.

Where economic loss is said to have resulted from a transaction entered into in reliance upon negligent advice or information, the approach of this Court has not been confined to looking at the immediate situation brought about by entry into the transaction. That is because, as was pointed out in Wardley Australia Ltd v Western Australia [15] , "[w]ith economic loss, as with other forms of damage, there has to be some actual damage" and not simply "[p]rospective loss". And where a transaction involves benefits and burdens, "no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is "worse off than if he had not entered into the transaction" " [16] .

(1992) 175 CLR 514 at 527, per Mason CJ, Dawson, Gaudron and McHugh JJ. 2. Wardley (1992) 175 CLR 514 at 537, per Brennan J, referring to Toteff v Antonas (1952) 87 CLR 647 at 650, per Dixon J.

It was pointed out in Wardley that "[t]he kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected" [17] . Wardley was concerned with an action for damages for breach of s 52 of the Act. However, there is no reason in principle why the position should be any different in tort [18] .

Wardley (1992) 175 CLR 514 at 527, per Mason CJ, Dawson, Gaudron and McHugh JJ. 2. See Hawkins v Clayton (1988) 164 CLR 539 at 599-602, per Gaudron J.

The interest that a mortgage lender seeks to protect by obtaining a valuation of the proposed security is not simply an interest in having a margin of security over and above the mortgage debt. Rather, it is that, in the event of default, it should be able to recoup, by sale of the property, the amount owing under the mortgage. And that is also the interest of a mortgage insurer. It is the risk that recoupment might not be possible that calls the valuer's duty of care into existence. And it is the interest in recoupment that is infringed by breach of that duty. Moreover, the time that loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible. In the case of a mortgage transaction, that will occur when it is reasonably ascertainable that sale will result in a loss [19] . At the earliest it will be when default occurs and, at the latest, when the property is sold.

See Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 537, per Brennan J. See also Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [No 2] [1997] 1 WLR 1627 at 1634-1635[1998] 1 All ER 305 at 312, per Lord Nicholls of Birkenhead.

Once the interest which calls the valuer's duty of care into existence is identified as the interest of the mortgage lender in recouping what is due under the mortgage in the event of default, it is simply a matter of common sense to treat the loss arising from inability to recoup as flowing from breach of that duty, except to the extent that that inability is, in law, referable to the lender's own actions or some supervening event. At least that is so where, but for the negligent valuation, there would have been no mortgage transaction at all.

The appellants contend that to treat a valuation as causative of a subsequent transaction and, also, as causative of the loss arising from that transaction is to apply the "but for" test of causation - a test rejected as the exclusive test of causation in March v Stramare (E & MH) Pty Ltd [20] . They contend that the proper approach is that taken by the House of Lords in Banque Bruxelles and rely, in particular, on the statement that:

One of the problems most frequently encountered in the area of causation is imprecision of language [22] . When a person claims to have taken, or refrained from taking, a particular course of action in reliance upon another's representation, the critical question, assuming the representation is one that might reasonably be relied upon, is whether, but for that representation, he or she would have taken that action. In that context, "but for" does not signify a sine qua non or causative factor which, although necessary, is not sufficient to produce the result in question. Rather, it signifies the decisive consideration or one of the decisive considerations for taking the course of action in question. It was in the former sense that the "but for" test was rejected as the exclusive test of causation in March v Stramare [23] . In the sense of asking whether a representation is a decisive consideration, "but for" is always the test of reliance.

See the Introduction to Hart and Honoré's Causation in the Law, 2nd ed (1985), p 1, where the authors refer to "the uncertainties and confusions which continue to surround the legal use of causal language in spite of a vast juristic literature dedicated to its clarification" and to "[t]he images and metaphors, the fluid and indeterminate language, upon which both courts and textbook writers still fall back when deciding issues in causal terminology". See also March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 509, per Mason CJ. 2. (1991) 171 CLR 506 at 516, per Mason CJ; at 523, per Deane J.

Moreover, to identify the loss suffered by a person who has entered into a transaction in reliance upon another's advice as the whole of the loss flowing from that transaction, save to the extent that it is, in law, referable to his or her own actions or some supervening event, is not to apply the "but for" test of causation. That is because, in terms used in Banque Bruxelles, it does not have the consequence that a valuer is necessarily "responsible for all the consequences of that course of action" [24] .

As the valuation was a decisive consideration in MGICA's decision to insure the loan from Permanent Custodians to Beca, it is simply common sense to treat that transaction as resulting from the valuation [25] . And subject to a qualification shortly to be mentioned, once that is accepted, it is also common sense to hold a valuer responsible for the loss arising out of that transaction, save to the extent that it is attributable to some other cause.

See March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 515, per Mason CJ; at 522-523, per Deane J.

The qualification with respect to the responsibility of a valuer for loss resulting from a transaction entered into in reliance upon his or her valuation is that where a duty of care is superimposed on a contractual relationship, it is open to the parties to the contract to limit the scope of the duty or the legal consequences of its breach [26] . And the terms of a contract may, in some circumstances, limit the duty or the consequences of its breach even where, as here, that duty is owed to a person not a party to the contract [27] .

See Bryan v Maloney (1995) 182 CLR 609 at 621-622, per Mason CJ, Deane and Gaudron JJ. See also Central Trust Co v Rafuse [1986] 2 SCR 147 at 204-205 2. Hill v Van Erp (1997) 188 CLR 159 at 167, per Brennan CJ; at 196, per Gaudron J.

In the present case, it may well be that the contractual stipulation that the property was "suitable security for investment of trust funds to the extent of 65% of [the] valuation for a term of 3-5 years" operates to confine the appellants' liability to loss arising in the event of resale within five years and, then, to so much as is not referable to the loan exceeding 65 per cent of the valuation. However, that issue does not arise on the facts of this case. The only question is whether, in law, the loss or some part of the loss suffered by Permanent Custodians and indemnified by MGICA is referable to some cause other than the appellants' valuation.

It is not suggested that any part of the loss in this case is referable to the actions of Permanent Custodians, as might have been the case if, for example, it had advanced more than 65 per cent of the appellants' valuation. Rather, the only contention is that the fall in market value is, in law, to be treated as the cause of some or all of the loss suffered by Permanent Custodians and, hence, by MGICA. Before considering that question, it is convenient to make some further reference to the risk that brought the appellants' duty of care into existence.

As already indicated, the appellants came under a duty of care because of a foreseeable risk that, in the event of default, Permanent Custodians might not recoup the principal and interest then owing. A significant factor contributing to that risk - if not the most significant factor - was the foreseeable possibility of a decline in market value. In Chappel v Hart [28] , I pointed out that "[i]t is contrary to common sense to treat part of the risk which called [a] duty [of care] into existence as a supervening event breaking the chain of causation beginning with the breach of that duty". Subject to one qualification, it is also contrary to common sense to treat a factor contributing to the risk as a supervening cause of the loss suffered if that risk eventuates.

The qualification to the proposition that a factor contributing to a foreseeable risk of injury is not to be treated as a supervening cause if the risk eventuates is this: a person who negligently provides information or advice should not be held liable for loss that would have been suffered if the information or advice were correct. Thus, if some part of the loss suffered by Permanent Custodians would have been suffered even if the property were worth $5.5 million, the appellants cannot be held liable for it.

It may be that the approach taken by the House of Lords in Banque Bruxelles proceeds, at least in part, on the basis that, were the responsibility of a valuer not limited to "the consequences of the lender having too little security" [29] , he or she would be liable for loss that would have been sustained by reason of a fall in market value even if the valuation were correct. In this regard, it was said by Lord Hoffmann in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [No 2] [30] of the Banque Bruxelles approach:

It was accepted that the whole loss suffered by reason of the fall in the property market was, as a matter of causation, properly attributable to the lender having entered into the transaction and that, but for the negligent valuation, he would not have done so. It was not suggested that the possibility of a fall in the market was unforeseeable or that there was any other factor which negatived the causal connection between lending and losing the money. 1. Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [No 2] [1997] 1 WLR 1627 at 1638[1998] 1 All ER 305 at 316, per Lord Hoffmann, referring to the decision of the House of Lords in Banque Bruxelles. 2. [1997] 1 WLR 1627 at 1638; [1998] 1 All ER 305 at 316.

However, once it is accepted, as in my view it must be, that a valuer is not liable for loss that would have been sustained if the valuation were correct, it is contrary to the common sense approach required by March v Stramare to adopt the Banque Bruxelles approach either as to the identification of the duty of care owed by a valuer to a prospective lender or the identification of the economic loss suffered in consequence of breach of that duty.

It follows from what has been said that the appellants can resist liability for the whole of the loss suffered by Permanent Custodians and indemnified by MGICA only if some part of that loss would have been suffered if the valuation were correct. At no stage has there been any suggestion to that effect. Accordingly, the appellants are liable for the whole of the loss suffered by Permanent Custodians and indemnified by MGICA.

The present case is not one that calls for any analysis of causation for the purposes of an action for breach of s 52 of the Act, it being common ground that, if the appellants are liable in negligence for the whole of the loss suffered by Permanent Custodians and indemnified by MGICA, they are liable to the same extent in consequence of their breach of s 52 of the Act and of s 42 of the Fair Trading Act. However, damages may not always be the same [31] . It may be that a contractual provision that operates to limit tortious liability will not avail in an action based on breach of s 52 of the Act. Further, it is possible that liability under s 52 of the Act is limited neither by foreseeability [32] nor remoteness [33] .

See Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 2. See Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526, per Mason CJ, Dawson, Gaudron and McHugh JJ. 3. See Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 510, per McHugh, Hayne and Callinan JJ.

The question which the appellant [34] alleges arises for determination in this appeal is whether a real estate valuer, who negligently overvalues a property, should be held liable for the entirety of the loss suffered by the insurer of the mortgage, if the loss suffered is increased by a subsequent fall in the market. Essentially, the question is whether a negligent valuer should be liable for loss caused by a fall in the market.

There are two appellants. The first is Kenny & Good Pty Ltd which carried on business as a real estate valuer and consultant. The second appellant is the person who signed the valuation which gave rise to the action in these proceedings. It is convenient to refer to them as "the appellant".

The issue of principle which is said to arise is whether the liability of the valuer for a negligent valuation is determined exclusively by the scope of the duty of care or whether, in the case of a transaction entered into in reliance on a negligent valuation, the liability of the valuer extends to all reasonably foreseeable losses caused by entering into the transaction. The appellant contends that liability must focus on the scope of the duty. It relies on the reasoning of the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [35] which reversed the decision of the Court of Appeal in that case and a number of allied cases. The Court of Appeal had differentiated between a case where the lender would not have lent at all (the no-transaction case) and a case where the lender would have lent a lesser sum on the same security. In the former case, the Court of Appeal held that the aggrieved party can recover the entire loss, but in the latter case, that party can only recover the difference between the actual loss and the smaller loss that would have occurred if the reduced amount had been lent or insured. However, on appeal, the House of Lords rejected this approach. Their Lordships held that it is not sufficient to ask whether A owes B a duty of care; it is always necessary to determine the scope of the duty by reference to the kind of damage to B which A is under a duty to prevent. Lord Hoffmann, with whom the other members of the House agreed, thought that the principle laid down by the Court of Appeal offended common sense because it made a person responsible for consequences which, though in general terms foreseeable, did not appear to have a sufficient causal connection with the subject matter of the duty. His Lordship said [36] :

[A] person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.

The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to insure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong. (Emphasis in original.)

[1997] AC 191. This appeal consisted of three cases in which similar points were raised and determined. 2. Banque Bruxelles [1997] AC 191 at 214.

Subsequently, in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [No 2] [37] , Lord Hoffmann said that in Banque Bruxelles the House had:

[I]dentified the duty as being in respect of any loss which the lender might suffer by reason of the security which had been valued being worth less than the sum which the valuer had advised. The principle approved by the House was that the valuer owes no duty of care to the lender in respect of his entering into the transaction as such and that it is therefore insufficient, for the purpose of establishing liability on the part of the valuer, to prove that the lender is worse off than he would have been if he had not lent the money at all. What he must show is that he is worse off as a lender than he would have been if the security had been worth what the valuer said The valuer does not warrant the accuracy of his valuation and the lender cannot therefore complain that he would have made more profit if the valuation had been correct. 1. [1997] 1 WLR 1627 at 1638; [1998] 1 All ER 305 at 316.

It is important to emphasise that this is a consequence of the limited way in which the House defined the valuer's duty of care and has nothing to do with questions of causation or any limit or "cap" imposed upon damages which would otherwise be recoverable. It was accepted that the whole loss suffered by reason of the fall in the property market was, as a matter of causation, properly attributable to the lender having entered into the transaction and that, but for the negligent valuation, he would not have done so. It was not suggested that the possibility of a fall in the market was unforeseeable or that there was any other factor which negatived the causal connection between lending and losing the money. [39] As will later appear, the facts of this case make this appeal an unsatisfactory basis for determining the question of principle which is said to arise. But in any event I do not think that the question turns on choosing between the scope of duty and the reasonable foreseeability of loss approaches. Both approaches are relevant. In my view, where a person has agreed to value property and, as a result of the agreement, a person to whom the valuer owes a duty of care has suffered loss, the proper approach is to apply the principles of contract law in assessing damages. Furthermore, that is the proper approach whether the plaintiff was a contracting party or merely a person for whose benefit the valuation was made. Speaking generally, the valuer is liable only for such losses as a reasonable person would regard as flowing naturally from the negligent valuation or which are of a kind that should have been within the valuer's contemplation. In the absence of a contrary undertaking or special circumstances, the aggrieved party cannot recover any part of the difference between the true value of the property and the price recovered at the time of the sale. The aggrieved party's damages are confined to the difference between the price paid for the property and the price that would have been paid on the basis of a true valuation together with such expenses and other losses that were sufficiently likely to result from the breach of duty to make it proper to hold that they flowed naturally from the breach of duty or that they were within the reasonable contemplation of the parties to the valuation contract or arrangement. In the case of money lent on a valuation, the damages are confined to the difference between what was lent and what would have been lent on the true value of the property together with such expenses and other losses that were sufficiently likely to result from the breach of duty to make it proper to hold that they flowed naturally from the breach of duty or that they were within the reasonable contemplation of the parties to the contract or arrangement. In either case, losses do not include the consequences of subsequent market declines. 1. Nykredit [1997] 1 WLR 1627 at 1638[1998] 1 All ER 305 at 316 2. See also Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190 at 208-210, per Lord Hobhouse; at 212-214, per Lord Millett.

The appellant, a real estate valuer, entered into a contract with Macquarie Bank Ltd to value a residential property. The Bank required the valuation for the purpose of determining whether to provide mortgage finance to the owner of the property, Beca Developments Pty Ltd. The respondent MGICA (1992) Ltd, and Permanent Custodians Ltd, were named in the contract as being persons to which the valuation was "extended to include".

The appellant performed the valuation while building work on the property was still in progress. It assessed the value of the property as at 18 April 1990 as $5.35 million and as at the date of completion as $5.5 million. However, the value of the property as at 18 April 1990 was less than that stated by the appellant. As at that date, its true value on an "as completed" basis was $3.9 million to $4 million.

In May 1990, Permanent Custodians, as mortgagee, lent $3.575 million to Beca Developments, being 65 per cent of the valuation of the property on completion. The loan was secured by a first mortgage and insured by MGICA. In June 1991, Beca Developments defaulted under the mortgage. On 2 July 1991, Permanent Custodians entered into possession. On 6 January 1992, the property was sold for $2.65 million. The appellant accepts that the property could not have been sold earlier and that its value when sold was $2.65 million because of a substantial drop in residential property values between April 1990 and January 1992. As a result of lending money to the mortgagor, Permanent Custodians suffered a loss in the order of $2 million. It was indemnified by MGICA in its capacity as mortgage insurer.

The contract between the appellant and the Bank contained the following statements:

We understand our report and valuation is required for mortgage consideration purposes by Macquarie Bank Limited, as intending mortgagee.

may use and rely upon this report and valuation in the same manner as intended by Macquarie Bank Limited.

We recommend the property as suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3-5 years, provided that an additional amount may be safely advanced in the event that mortgage protection insurance is effected, and this valuation can also be relied upon by any of the following mortgage insurers -

We acknowledge that this Report and Valuation has been prepared for mortgage purposes and do not disclaim any liability to any subrogated, transferred or assigned interests in any mortgage created as a direct consequence of this report and valuation

In proceedings heard in the Federal Court [40] , MGICA alleged that the appellant had contravened ss 52 and 53A of the Trade Practices Act 1974 Cth and ss 42 and 45 of the Fair Trading Act 1987 NSW. It also pleaded a breach of obligations of reasonable care, skill and diligence and competence arising under the general law and as implied terms of the respondent's contract of retainer. MGICA pleaded the contractual obligation on the basis that the Bank entered into the contract as agent for MGICA as principal or, if MGICA was not a party principal, that the valuation was for MGICA's benefit and was entitled to sue upon the contract made between the Bank and the appellant. Lindgren J, the learned trial judge, did not deal with MGICA's contentions based on contract and they do not arise on appeal. Furthermore, MGICA did not at any time seek to sue for the breach of a contractual warranty that the property was "suitable security for investment of trust funds to the extent of 65% of [the] valuation for a term of 3-5 years".

MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313

Lindgren J held that the valuation provided by the appellant was negligent and that the appellant had also contravened s 52 of the Trade Practices Act and s 42 of the Fair Trading Act [41] . No finding was made on the contractual claim [42] . His Honour held that MGICA had provided insurance in reliance on the appellant's valuation and that, if MGICA had known that the correct on completion value was $4.5 million, then "MGICA would not have insured [the loan] at all" [43] . As a result, his Honour held that the appellant was liable for the whole of the loss of MGICA which was the amount it had indemnified Permanent Custodians [44] .

MGICA (1992) Ltd (1996) 140 ALR 313 at 383. 2. MGICA (1992) Ltd (1996) 140 ALR 313 at 357. 3. MGICA (1992) Ltd (1996) 140 ALR 313 at 364. 4. MGICA (1992) Ltd (1996) 140 ALR 313 at 383.

Lindgren J declined to follow the reasoning in Banque Bruxelles [45] . He said [46] :

At base, their Lordships have redefined the valuer's duty in a manner which purports to foreclose questions of causation, remoteness and measure of damages, which have, at least conventionally, been treated as distinct from the formulation of duty. In my opinion, the valuer's duty is a duty to exercise an appropriate level of care and skill in arriving at, and reporting, an opinion as to market value which will be, after allowing for the degree of latitude called for by the nature of the subject matter and by the process and nature of valuation, safe to be relied on by the intending mortgagee or mortgage insurer.

Unlike their Lordships, but like the English Court of Appeal, I think that the starting point must, as a matter of principle, be to identify the legal wrong done and to inquire what the loss-sufferer's position would have been if that wrong had not been done This is so in both contractual and tortious contexts, although the nature of the wrong done differs as between the two. In the case of contract, the wrong would not have occurred if the contract had not been breached; a tortious wrong on the other hand would not have occurred if the tortious act or omission had not occurred. To take a different starting point from these seems to me to be, with respect, radically novel

In my view, in a no-transaction case such as the present one, a mortgagee's or mortgage insurer's loss arising from a fall in the market value of the security is not too remote a consequence of a valuer's negligence to be properly compensable by an award of damages. According to the approach taken by the House of Lords, such loss is to be compensated for but subject to a limit, namely the extent to which the valuation was wrong

[1997] AC 191. 2. MGICA (1992) Ltd (1996) 140 ALR 313 at 371-372.

The appellant appealed to the Full Federal Court [47] on the sole ground that his Honour erred in not applying the decision of the House of Lords in Banque Bruxelles [48] . The Full Court rejected the appeal. Pursuant to the grant of special leave, the appellant has appealed to this Court contending that it is not liable for the full loss but only so much as constitutes "the consequences of the valuation being wrong".

Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 77 FCR 307 2. [1997] AC 191.

Where a valuer owes a duty of care to an aggrieved party in respect of a valuation, the duty of the valuer is to take reasonable care to protect that person from financial loss in relying on the valuation. But what losses? If the plaintiff is a party to the contract with the valuer, the loss for which the valuer is responsible is determined in accordance with the principles of the law of contract. Whether the loss is recoverable depends on the terms of the arrangement between the parties and the surrounding circumstances. Furthermore, these principles should apply when the plaintiff is not a contracting party but a free rider on the contract. In such a situation, the duty owed by the valuer to the third party is "equivalent to contract" [49] . In the free rider case, the defendant's duty to the third party plaintiff arises out of the defendant's assumption of responsibility. If consideration had been given for the undertaking of responsibility, the principles for assessing damages in contract would apply. Where the circumstances are equivalent to a contractual arrangement, I can see no reason why the contractual principles should not apply to the case.

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 529-530, per Lord Devlin; Spring v Guardian Assurance Plc [1995] 2 AC 296 at 324, per Lord Goff; Hill v Van Erp (1997) 188 CLR 159 at 233, per Gummow J.

The relevant principle then is that formulated by Alderson B in Hadley v Baxendale [50] :

Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. 1. (1854) 9 Ex 341 at 354 [156 ER 145 at 151].

In C Czarnikow Ltd v Koufos [51] Lord Reid elaborated on this principle when he said:

The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation. This passage was referred to with approval by Gibbs J in Wenham v Ella [52] and by Wilson, Deane and Dawson JJ in Burns v MAN Automotive (Aust) Pty Ltd [53] . 1. [1969] 1 AC 350 at 385. 2. (1972) 127 CLR 454 at 471-472. 3. (1986) 161 CLR 653 at 667.

Ordinarily, the parties to a valuation contract will understand that the valuer's opinion concerning the property is an opinion as to its current value, that is to say, the value at or about the time of the making of the report. If the valuer has performed his or her task negligently, and the person seeking the valuation has relied on it and subsequently suffered loss, it does not follow that the valuer is necessarily responsible for the whole of the loss suffered by the aggrieved party. That will depend upon the circumstances of the case. As Lord Keith of Kinkel pointed out in Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [54] :

Liability for losses arising from a fall in the market

Whether a valuer is liable for a subsequent decline in the market will depend on the terms of the valuation arrangement. Ordinarily, however, the valuer will not be liable for the monetary difference between true value of the property and any lesser price obtained because of a market decline, notwithstanding that declines in market values are reasonably foreseeable in a general way. The reason for this conclusion is that, in so far as a decline in the market was reasonably foreseeable, it will already be factored into the assessment of the true value of property as at the date of valuation. In so far as the market decline was not reasonably foreseeable, any loss arising from the decline must be regarded as outside the contemplation of the parties to the valuation arrangement and not recoverable in an action for negligence or breach of contract.

Value is determined by forming an opinion as to what a willing purchaser will pay and a not unwilling vendor will receive for the property [55] . In determining that value, there must be attributed to the parties a knowledge of all matters that affect its value. Those matters will include the predicted impact of future events as well as the experience of the past and the rates of return on other investments. As Isaacs J pointed out in Spencer v The Commonwealth [56] :

We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property. (Emphasis added.) 1. Spencer v The Commonwealth (1907) 5 CLR 418 2. (1907) 5 CLR 418 at 441.

The market for the property is, therefore, assumed to be an efficient market in which buyers and sellers have access to all currently available information that affects the property.

New information concerning properties becomes reflected in the prices which buyers are willing to pay for those properties. How quickly that occurs will depend on the efficiency of the market. But sooner or later the price will reflect the present value of the future prospects of a property. Many factors influence the movement of the property market, and even more factors can influence the market for a particular property. No doubt the market for property in Australia is not as volatile as other markets, such as the share and commodity markets. Nevertheless, the prices paid for properties go down as well as up. Bear markets exist in respect of property as well as shares.

In Australia, the fiscal policies of the federal government and the monetary policies of the Reserve Bank are the factors which are most likely to bring about a decline or increase in the price that a willing buyer will pay for a property. Directly or indirectly, they influence incomes, demand, output, the money supply, bank and institutional lending and interest rates. The availability of credit and the level of interest rates in particular can dramatically affect supply and demand for, and, consequently, the value of, properties. If interest rates are expected to rise or credit is expected to be tightened, the demand for properties will decline. Consequently, savvy buyers and sellers are continually attempting to predict the future course of events that affect the supply and demand for properties because in turn those events will affect the prices that properties will bring. Present value, therefore, cannot be divorced from future prospects. If rational buyers believe that there is a real risk that property prices will decline from the prices paid yesterday, they will not be prepared to pay the same prices today. In so far as the risk of a general decline in prices is reasonably foreseeable, the market will factor that risk into the value of properties. The true value of a property on a particular day therefore reflects the likelihood of any risk that the price for the property in the reasonably foreseeable future will rise or fall on what it would have fetched the day before.

Absent a special arrangement with the valuer, it seems inherently unfair to make a negligent valuer liable for the difference between the true value of the property and any lesser price which is obtained for it at the time of the sale because of a decline in market prices. In so far as the events which brought about the lesser price were reasonably foreseeable, they are already factored into the true value. In so far as those events were not reasonably foreseeable, principle requires that the valuer should not be liable for the impact of those events. Of course, it is unlikely that, even where the relevant events were reasonably foreseeable, the price obtainable at the time of sale will coincide with the quantification of the risk at the time of valuation. But in principle that cannot matter. To the extent that the risk of the relevant occurrence was reasonably foreseeable and the probability of its occurrence assessable, they are reflected in the value of the property. To hold the negligent valuer liable for the difference between the price received on sale and the true value, as well as the difference between the price paid on purchase and the true value, would be to make the valuer liable for a "loss" which in the real world was not reasonably foreseeable or within the reasonable contemplation of the parties. To hold the valuer liable for such a "loss" would be to hold him or her to a standard of knowledge greater than that of any other market participant including the relevant buyer or lender.

Furthermore, I do not think that the fact that the aggrieved party would not have entered into the loss-making transaction but for the negligent valuation is a sufficient ground for holding the valuer liable for the difference between the true value and sale price. The issue is not one of causation but whether the loss caused by the breach is too remote to be recoverable. In principle, the valuer is only liable for losses of a kind that were sufficiently likely to result from the breach of duty to make it proper to hold that the loss flowed naturally from the breach or that are of a kind that should have been within his or her reasonable contemplation. The valuer is not liable for every loss that flows from his or her breach of duty. Although it is true in one sense that losses from general market declines are within the reasonable contemplation of the parties to a valuation contract or arrangement, I do not think that the notion of reasonable contemplation of loss extends to such generalisations concerning the course of future events.

Many kinds of loss or damage that are reasonably foreseeable in a general way are outside the area of recoverability in the law of torts and the law of contract. Thus, it is reasonably foreseeable and within the reasonable contemplation of the parties that a property, the subject of a negligent valuation, may be damaged by fire or other natural disaster. Yet unless there is something which indicates that this property is subject to the risk of fire or natural disaster over and above that of properties generally, no one would suggest that the buyer can recover the loss from the valuer on the ground that but for the negligent valuation the property would not have been purchased. Similarly, in the case of losses from general market declines, the area of recovery should not extend to those losses arising from events causing a decline in property prices if the risk of those events occurring could not be reasonably foreseen and quantified at the time of valuation.

Valuation cases differ from other cases in that the true value of the property takes account of all factors that were reasonably foreseeable at the time of breach of duty. The risk of a market decline, so far as it was reasonably foreseeable, is already factored into the true value. It is true that, at particular stages of bull markets, the risk of any market decline may be thought so unlikely that the "true value" will reflect the overconfident belief that demand will continue and prices will continue to rise or at least remain stable. Consequently, the value of properties, as they are then perceived, may not carry any discount for the risk of a market decline. If so, any loss caused by the subsequent market decline must be regarded as not being within the reasonable contemplation of the parties at the time that the valuation contract or arrangement was made. Moreover, it is at least arguable that, where the market has got the real value of a property wrong because it could not reasonably foresee the events that caused the market decline, it is unfair to attribute the whole loss to the valuer and award the aggrieved party compensation based on such a "true value". In such a case, with the benefit of hindsight, it can be seen that the property was in truth overvalued by the market at the time of valuation. In Banque Bruxelles [57] , Lord Hoffmann thought that a duty "which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties". I think that there is much force in this statement.

For these reasons, which of course differ from those given by Lord Hoffmann in Banque Bruxelles, I would conclude that, in the absence of a special arrangement or special circumstances, the aggrieved party cannot recover any part of the difference between the value of the property at the time of valuation, as determined by the principles of valuation, and the price recovered at the time of the sale. The aggrieved party's damages are confined to the difference between the price paid for the property and the price that would have been paid on the basis of a true valuation together with such expenses and other losses that were sufficiently likely to result from the breach of duty to make it proper to hold that they flowed naturally from the breach of duty or that are within the reasonable contemplation of the parties to the valuation contract or arrangement. In the case of money lent on a valuation, the damages are confined to the difference between what was lent and what would have been lent on the true value of the property together with such expenses and other losses that were sufficiently likely to result from the breach of duty to make it proper to hold that they flowed naturally from the breach of duty or that were within the reasonable contemplation of the parties to the contract or arrangement. In either case, losses do not include the consequences of actual market declines.

The appellant's liability extended to the loss arising from the market decline

The valuation in the present case is the product of a contract between the valuer and the Bank. MGICA was not a party to that contract. However, the scope of the duty of care which the appellant owed to MGICA is identical with the contractual duty which the appellant owed to the Bank and which is to be deduced from the terms of the contractual arrangement entered into by those parties. That is because the contract specifically contemplated MGICA as a party which was entitled to rely on the valuation.

As I indicated earlier, the terms of the valuation make this case a poor vehicle to determine the correctness of the principle for which the appellant contends. First, the relevant statement in the report of the appellant was essentially concerned with the safety of a loan investment. The valuation of the property, although an essential step in determining the safety of the loan, was incidental to the principal purpose of the report. Second, the valuation did not provide, expressly or inferentially, that the valuer's opinion was limited to the value of the property as at the date of the report or on a specified day. It is true that the report valued the property at approximately $5.5 million as at the completion date of the building contract. However, the relevant clause of the report recommended "the property as suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3-5 years". Furthermore, the appellant's report stated that an additional amount could safely be advanced on the property "in the event that mortgage protection insurance is effected".

The appellant was therefore warranting that, for a period of up to five years, an amount of not less than 65 per cent of $5.5 million, that is to say $3.575 million, could be safely lent on the property and that the lender would be able to recover that sum together with interest accrued on that sum at any time during that period. Inferentially, the report also warranted that the property would maintain a value of not less than $3.575 million together with the amount of outstanding interest on a loan on that sum. Since the mortgage had to secure an even higher amount if mortgage protection insurance was effected, it is clear that the appellant was inferentially warranting that, for the five year period, the value of the mortgaged property would be in excess of $3.575 million and certainly well in excess of the sum of $2.65 million which it brought when sold in January 1992.

In these circumstances, the appellant is liable for the whole of the respondent's losses even if the case be regarded as one concerned with a negligent valuation rather than one concerned with a negligent statement that a sale of the property during the next five years would return an amount sufficient to recover over $3.575 million and the amount of outstanding interest on that sum. The appellant's valuation represented that the property would have sufficient value to enable a lender to recover that sum and interest at any time during the next five years. Given the finding of breach of duty - which is not subject to appeal in this Court - the loss which the respondent suffered flowed directly and naturally from the negligent representation contained in the appellant's valuation.

The appellant sought to rely on statements made by Dixon J in Potts v Miller [58] to support its claim that its liability was limited to the difference between the moneys lent pursuant to the valuation and the true value of the property at the time of the valuation. But once the true nature of the appellant's representation concerning the valuation is properly understood, those statements have no bearing on the present case.

The first appellant (Kenny & Good) carried on business as a real estate valuer and property consultant. The second appellant (Mr Kenny) was its principal. I refer to the appellants together as "the valuers".

Under instructions from its client, Macquarie Bank Ltd (the Bank), Kenny & Good, on 19 April 1990, delivered a written report and valuation, comprising fifteen pages and annexures, of freehold property being a "prestige residence" at Hunters Hill, a suburb of Sydney (the Report). The Report was issued by Mr Kenny and he was the only individual through whom Kenny & Good acted. On the first page, under the heading " Purpose of Valuation ", the document stated:

We understand our report and valuation is required for mortgage consideration purposes by Macquarie Bank Limited, as intending mortgagee.

may use and rely upon this report and valuation in the same manner as intended by Macquarie Bank Limited. 1. The respondent, now named MGICA (1992) Ltd (MGICA). A statement to similar effect appeared on pp 12 and 15. On p 14, under the heading " Suitability for Mortgage Purposes ", it stated: We recommend the property as suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3-5 years, provided that an additional amount may be safely advanced in the event that mortgage protection insurance is effected, and this valuation can also be relied upon by any of the following mortgage insurers - The inclusion of these statements had been a requirement of the Bank in its formal written instructions of 17 April. The valuers had been instructed to value the freehold interest, with vacant possession, both on an "as is" and "on completion" basis because there was current building work at the site. The valuers gave $5.5 million as the current fair market value "on completion" and $5.35 million as the current fair market value on an "as is" basis and it may be accepted in this Court that the valuers did so without exercising proper care and skill. 1. The respondent, now named MGICA (1992) Ltd (MGICA).

MGICA used the valuation as the basis for agreeing to insure a mortgage under which $3.575 million was advanced on security of the property. At the beginning of the second year of the advance, in June 1991, the mortgagor defaulted in payment of interest. Thereafter, the mortgagee took possession. Subsequently, on 6 January 1992, the mortgagor, with the consent of the mortgagee and MGICA, contracted to sell the property for $2.65 million. On 27 March 1992, the mortgagee made a claim on MGICA under its policy for $1,977,513.67. This was arrived at by deducting the gross proceeds of sale of $2.65 million from the sum of $4,627,513.67. This larger sum comprised various elements, including unpaid principal of $3.575 million and unpaid interest of some $500,000.

It is now accepted that, on 18 April 1990, the true value of the property on an "as completed" basis was in the order of $3.9-4 million, that, after a general decline in property values, $2.65 million was its value when sold and that it could not have been sold earlier. The appellants did not press a "defence" to the damages claimed of failure to mitigate loss. The amount of $3.575 million advanced by the mortgagee to the mortgagor had been 65 per cent of the valuation of the property on an "on completion" basis.

In the action which it brought in the Federal Court against the valuers, MGICA did not seek to rely upon Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [60] to obtain, as a contractual warranty, the benefit of the statement in the Report that the property was suitable for the investment of trust funds to the extent of 65 per cent of the valuation for a term of three to five years. Nor did it seek to found any action in negligence or for contravention of s 52 of the Trade Practices Act 1974 Cth in respect of the representation conveyed by that statement. The proceedings in the Federal Court were founded upon the inadequate valuation.

The various claims under statute and common law which were put forward and their fate at the trial before Lindgren J are detailed in the judgment of Gaudron J.

Lindgren J found contraventions of both s 52 of the Trade Practices Act and s 42 of the Fair Trading Act 1987 NSW. It may be conceded that the provisions of the State legislation operate concurrently with those of Pts V and VI of the Trade Practices Act [61] and that, in the present case, all the claims were elements in the one constitutional "matter" in respect of which jurisdiction was conferred upon the Federal Court by s 86 of the Trade Practices Act. The result was that, in addition to its common law rights, MGICA had the benefit of the requirement that the valuers observe both Commonwealth and State statutory norms of conduct in preparing the Report. However, that did not mean that the Federal Court was obliged to decide claims additional to those arising from contravention of s 52, whether arising under State statute law or common law. The Federal Court is not obliged to decide such additional claims where it is pointless to do so, for example where those claims provide no basis for wider or more effective relief than the primary federal claim and where, if the primary claim fails, the other claims also must fail [62] .

See s 75 of the Trade Practices Act and R v Credit Tribunal; Ex parte General Motors Acceptance Corporation (1977) 137 CLR 545cf Wallis v Downard-Pickford (North Queensland) Pty Ltd (1994) 179 CLR 388 2. See the observations of Deane and Fitzgerald JJ in Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 2 TPR 48 at 75-7742 ALR 177 at 205-206.

However, in this Court, the valuers directed attention primarily to attacking the award against them on the successful claim for negligence in the preparation of the valuation. It was common ground that, if the valuers are liable to MGICA on that footing, they are liable in the same measure under s 82 of the Trade Practices Act and s 68 of the Fair Trading Act in respect of contraventions respectively of s 52 of the Trade Practices Act and s 42 of the State legislation. It is unnecessary to determine whether the assumptions which lie beneath that common ground are correct.

The primary judge held that MGICA acted in reliance upon the valuation in the Report by providing insurance and that it would not have done so at all if the "as completed" valuation supplied by the valuers had been substantially less than $5.5 million, as it should have been. It was not the case that the only consequence of the negligence had been to cause MGICA to provide insurance for a greater cover than that which it otherwise would have been prepared to provide.

Lindgren J held that the valuers were liable to MGICA for all the loss it suffered from having entered into the transaction, with account taken of the subsequent decline in property market values. The loss was not confined to the difference between the valuation supplied and the then true value. In so deciding, the primary judge, as did the Full Court, declined to treat the outcome as dictated by the reasoning of the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [63] . The scope of the duty established in that litigation did not extend to protecting a lender against a loss which would have been a consequence of the transaction, even if the representation as to value had been accurate.

Two grounds of error were raised in the notice of appeal from the judgment of the Full Court of the Federal Court [64] :

Their Honours were in error in not applying the decision of the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [65] .

That Their Honours were in error in not applying Potts v Miller [66] so as to exclude from any damages recoverable by the respondent those damages which resulted from a fall in the market subsequent to the valuation.

It is convenient to approach the matter first by indicating the reasoning which, in accordance with the authorities previously understood in this Court, directed the result reached in the Federal Court on the negligence claim. 1. Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 77 FCR 307 2. [1997] AC 191. 3. (1940) 64 CLR 282.

This was a claim for economic loss by reason of negligent misstatement. There is now a body of authority in this area but, as the cases show, to identify the presence of a duty of care is to no point without there also being a specification of its content. For this, an examination of the facts will be essential. The facts in the present case do not bespeak a duty of care in a category where the scope and content of the duty is settled. As an example of such a case, in Sutherland Shire Council v Heyman [67] , Gibbs CJ said:

[N]o trial judge need inquire for himself whether one motorist on the highway owes a duty to another to avoid causing injury to the person or property of the latter, or what is the scope of that duty. 1. (1985) 157 CLR 424 at 441-442.

Banque Bruxelles is now treated in England (and, it would appear, in New Zealand [68] ) as specifying a duty of care with a settled and limited scope, which applies where the plaintiff has provided funds or other financial accommodation on security of property, against a negligent valuation thereof by the defendant. If that position was not necessarily established by Banque Bruxelles itself, that was the interpretation of it given by Lord Nicholls of Birkenhead and Lord Hoffmann in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [No 2] [69] . In particular, Lord Hoffmann said that in Banque Bruxelles the House of Lords had [70] :

identified the duty as being in respect of any loss which the lender might suffer by reason of the security which had been valued being worth less than the sum which the valuer had advised. The principle approved by the House was that the valuer owes no duty of care to the lender in respect of his entering into the transaction as such and that it is therefore insufficient, for the purpose of establishing liability on the part of the valuer, to prove that the lender is worse off than he would have been if he had not lent the money at all. What he must show is that he is worse off as a lender than he would have been if the security had been worth what the valuer said The valuer does not warrant the accuracy of his valuation and the lender cannot therefore complain that he would have made more profit if the valuation had been correct

Passages to the same effect are found in the speeches of Lord Hobhouse of Woodborough and Lord Millett in Platform Home Loans Ltd v Oyston Shipways Ltd [71] . 1. See Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 at 682-683 2. [1997] 1 WLR 1627 at 1631-1632, 1638; [1998] 1 All ER 305 at 309, 316. 3. Nykredit [1997] 1 WLR 1627 at 1638[1998] 1 All ER 305 at 316 4. [2000] 2 AC 190 at 208-210, 212-214.

Lindgren J correctly observed of Banque Bruxelles that [72] :

[a]t base, their Lordships have redefined the valuer's duty in a manner which purports to foreclose questions of causation, remoteness and measure of damages, which have, at least conventionally, been treated as distinct from the formulation of duty. 1. MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 at 371

Further, in England, the duty has been formulated at some level of abstraction from any particular facts. In Australia, in accordance with authority in this Court, the determination in such a case as this of the existence and scope of a duty of care requires scrutiny of the precise relationship between the relevant parties. In Sutherland Shire Council v Heyman [73] , Gibbs CJ adopted the following passage from the speech of Lord Keith of Kinkel in Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [74] :

The true question in each case is whether the particular defendant owed to the particular plaintiff a duty of care having the scope which is contended for, and whether he was in breach of that duty with consequent loss to the plaintiff. A relationship of proximity in Lord Atkin's sense must exist before any duty of care can arise, but the scope of the duty must depend on all the circumstances of the case. Gibbs CJ said [75] : In deciding whether the necessary relationship exists, and the scope of the duty which it creates, it is necessary for the court to examine closely all the circumstances that throw light on the nature of the relationship between the parties. 1. (1985) 157 CLR 424 at 441. 2. [1985] AC 210 at 240. 3. Heyman (1985) 157 CLR 424 at 441

The scope of liability for negligence finds its genesis but not its exhaustive definition in the formulation of the duty of care. This rudimentary proposition puts into relief the legal issues which are consequential, namely causation, remoteness and the measure of damages. The duty specifies a standard which may or may not impose an obligation or obligations upon the plaintiff. It is the presence of the obligation which, when breached, founds the basis for an inquiry into the remaining legal issues. That inquiry isolates those consequences of a breach to which legal liability will attach [76] .

Shaddock (L) & Associates Pty Ltd v Parramatta City Council [No 1] (1981) 150 CLR 225 at 237, 255; Chappel v Hart (1998) 195 CLR 232 at 254-257

In the present case, the passages from the Report which are set out earlier in these reasons are of crucial importance. They indicate not only an awareness on the part of the valuers that their valuation was provided for reliance upon it by mortgage insurers, including MGICA by name, but an acceptance of that situation. In such a situation, the expression "equivalent to contract" has real force [77] . Further, the engagement of the valuers was not limited to advising MGICA or the Bank as to the adequacy of the security at the time when the loan was to be made. Reliance was not placed upon them only for the current value of the security when the advance was made, so that MGICA and the mortgagee would have taken on themselves the risk of a fall in the market value of the property. Such seems to have been the position in at least one of the appeals before the House of Lords in Banque Bruxelles [78] . However, in his speech, Lord Hoffmann said [79] :

But there is one common element which everyone accepts. In each case the valuer was required to provide an estimate of the price which the property might reasonably be expected to fetch if sold in the open market at the date of the valuation. I accept McHugh J's analysis of that which, in the ordinary situation and in the absence of a special arrangement or particular circumstances, is to be factored into a valuation provided in answer to an engagement to value property at the date of the valuation. As his Honour points out, his analysis differs from that in Banque Bruxelles. 1. See Hill v Van Erp (1997) 188 CLR 159 at 233 Spring v Guardian Assurance Plc [1995] 2 AC 296 at 324 2. See the argument of counsel in the Nykredit appeal, Banque Bruxelles [1997] AC 191 at 199. 3. Banque Bruxelles [1997] AC 191 at 211.

The present case is not such an ordinary situation. The valuation was supplied pursuant to a contract with the Bank, but the contract identified MGICA as entitled to rely on the valuation. This is a case in which the proposition "equivalent to contract" [80] has real force when formulating the duty of care with respect to the negligent preparation of the valuation.

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 529-530 Hill v Van Erp (1997) 188 CLR 159 at 233

Further, the appellants furnished the valuation on the footing that an investment of trust funds to the extent of 65 per cent of the valuation would be suitable for a term of three to five years, the difference between the valuation and 65 per cent thereof providing a safeguard or "cushion" against losses upon enforcement of the security. The interest of MGICA was that, in the event of default, the mortgagee would have the capacity to recover the amount secured by realising its security and without calling upon the insurance. To the extent that MGICA recouped to the mortgagee the moneys secured by the mortgage, it would have an interest in the security by way of subrogation.

In this case, MGICA relied upon the valuers to exercise reasonable care and skill in providing the valuation. The relationship of reliance was particularly close in that but for the valuation MGICA would not have acted to its detriment in entering into the mortgage insurance transaction. Further, given the text of their Report, the valuers knew, or ought to have known, that their representations would be relied upon by MGICA.

This case also bears a temporal aspect which apparently differs from that assumed in Banque Bruxelles. Whatever may have been the situation upon the facts of the various appeals in Banque Bruxelles, the cause of action of MGICA in negligence accrued when the damage to its interest (as indicated above) was sustained. This was, at the earliest, when the mortgagor defaulted [81] , and certainly when the property was sold.

It may be noted that in Nykredit , "the borrower had defaulted at once", a point made by Simon Brown LJ in Byrne v Hall Pain & Foster [1999] 1 WLR 1849 at 1856[1999] 2 All ER 400 at 407

Mason CJ, Dawson, Gaudron and McHugh JJ in Wardley Australia Ltd v Western Australia [82] considered the economic loss arising from conduct which contravened s 52 of the Trade Practices Act. Their Honours said [83] :

The kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected. 1. (1992) 175 CLR 514. 2. Wardley (1992) 175 CLR 514 at 527

They went on to distinguish the detriment suffered by a person when first entering into an agreement relying on the negligent misrepresentation and the legal concept of "loss or damage" which may manifest at a later time. These propositions apply with equal force to the tort of negligence and to this case.

The above characterisation of MGICA's interest accords with both MGICA's commercial expectations and the nature of the risk being met by the valuation. MGICA's risk was not fixed at the time of the valuation. Rather, it varied during the life of the mortgage insurance. The terms of the Report reveal that the valuation, in conjunction with MGICA's policy of not insuring more than 65 per cent of the value of a property, was designed to guard against a part of this risk, namely a fall in the property market. The Report specifically provided that the property was a "suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3-5 years". The suitability of the property for loan investment, and for the provision of mortgage insurance in respect of that loan, was not fixed at the time of investment. Rather, the representation extended for a future period of three to five years.

Further, the primary judge found that, at the date of valuation, Mr Kenny should have appreciated, if he did not do so, that the market for the property was "fragile" or "vulnerable" and that a further fall in the market for it was "on the cards". Moreover, each of the parties knew that the market value of the property would fluctuate from time to time and that changes in the property's market value over time might, according to when default and realisation occurred, cause the lender and the mortgage insurer to suffer greater loss or to escape the suffering of loss. Whether a valuer reasonably appreciates [84] the nature of the mortgage insurer's or lender's risk being met by the valuation is a matter which may be dispositive in other cases. However, it cannot be disputed in this case.

See San Sebastian Pty Ltd v The Minister Administering Environmental Planning & Assessment Act 1979 (NSW) (1986) 162 CLR 340 at 353, 355-358; cf Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 at 212

MGICA's risk of non-payment "crystallised" at the moment of realisation, when the relationship between the market value of the property and the moneys secured became fixed in the relevant sense. MGICA sustained an economic loss arising from the fall in the property market as a result of the valuation because the value of the property had been negligently overstated in circumstances where MGICA would not have entered into the transaction but for the valuation. The "loss" which is recoverable was sustained at the time of default and not at the time of entering into the transaction.

In Rabadan v Gale [85] , Salmon J considered a similar situation. The third defendant, the plaintiff's former solicitors, had negligently drafted a lease. They had failed to execute the plaintiff's instructions to draw a lease allowing her to undertake certain modifications to the leased dwelling. On a strike-out application, the question was whether the action was statute barred. This presented the issue, "[w]hen could the plaintiff first sue [in tort]?" [86] . Turning to the common law rule that a cause of action in tort only accrues when both the breach and damage have occurred, Salmon J determined the first moment of damage. Following Wardley , his Honour held that the loss could not have been quantified at the time of entering the lease as a contingency had yet to be fulfilled. This was the possibility that the plaintiff could have obtained consent to the modifications from her fellow lessees in the dwelling.

[1996] 3 NZLR 220. 2. Rabadan v Gale [1996] 3 NZLR 220 at 222

In the present case, the contingency to be fulfilled was the state of the property market at the time of default. If the realised market value of the property had equalled or exceeded the sum secured, because the property had been sold into a buoyant property market, or, as in this case, if the property market had only slightly fallen, no recoverable "loss" would have arisen. The contingency would have fortuitously operated to the benefit of the valuer, the party at fault. Moreover, on the facts of this case, the more accurate the valuation had been, the greater the absolute margin or buffer that the valuers would have received in a falling market. MGICA had a fixed policy of lending no more than 65 per cent of the value of the property.

In this way, the temporal question is resolved in a fashion which imposes on the negligent party both the benefit and the burden of the contingency. Other possible contingencies which may affect the value of the property may not reasonably be foreseen by the negligent party [87] , or may be too remote from or not caused by the act of negligence. Losses arising from such contingencies would not be recoverable. The party which is not at fault should not carry the burden of a contingency when that party has no control over it, in circumstances where the contingency is not remote and is reasonably foreseeable by the party at fault and where the legal wrong, in this case careless representations, induces the faultless party to expose itself to the contingency. In Hodgkinson v Simms [88] , La Forest J stated:

From a policy perspective it is simply unjust to place the risk of market fluctuations on a plaintiff who would not have entered into a given transaction but for the defendant's wrongful conduct. I agree. 1. March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 510 2. [1994] 3 SCR 377 at 452.

For their second ground of appeal, the valuers rely upon the fraudulent misrepresentation case of Potts v Miller [89] and other decisions in that field. I agree with what Kirby and Callinan JJ say on that aspect of the appeal.

The issue which the appellant sought to argue in this case was whether a negligent valuer was answerable in damages for all of the losses suffered by a lender's insurer following the making of a loan that proved imprudent, or whether the damages recoverable excluded losses resulting from a general fall in the market. As will appear, the appeal did not provide a suitable occasion to explore large questions of general principle. The respondent defended the judgment in its favour principally on the basis of the terms in which the appellant undertook to provide its valuation. The respondent is entitled to succeed on that basis.

Kenny & Good Pty Ltd (the appellant [90] ) was asked by a potential lender to the owner to value "for mortgage purposes" a property upon which the completion of a valuable residence at Hunters Hill in Sydney was imminent. The request, in writing with which the appellant complied, included the following:

Please note that the valuation must be addressed to Macquarie Bank Limited (MBL) and be extended to include Permanent Trustee, Permanent Custodians, MGICA Limited and MGICA Securities Limited, and that the appropriate trustee clause must be included as follows: In residential valuations, please provide details of properties used for comparison while confirming your value by the summation approach.

In all valuations, please insert the following clauses and in commercial and industrial valuations ensure to compare capitalisation rates and confirm your value by the summation approach:

(a) internally inspected the property described in this report, or

(b) inspected the plans and specifications described in this report.

I acknowledge that this valuation is prepared for mortgage purposes, and do not disclaim any liability to any subrogated, transferred or assigned interests in any mortgage created as a direct consequence of this valuation.

I believe the current market valuation with vacant possession to be as follows:

Value of Site $ Value Site and improvements excluding chattels $ Estimated rental value per week $ Recommended insurable value $

There was a second appellant, Mr Kenny, who was principal of Kenny & Good Pty Ltd. However, he took no separate part in the proceedings and it is convenient to describe the corporate valuer as the appellant.

The appellant provided a report and valuation (the valuation) on 19 April 1990. In it the appellant stated explicitly the purpose of the valuation. That statement on p 12 of the report appears in the reasons of other members of the Court as does the statement on p 14 under the heading " Suitability for Mortgage Purposes ". We will not repeat those provisions. The appellant valued the property as at 18 April 1990 at $5.35 million and $5.5 million on completion.

In accordance with these warranties the lender Permanent Custodians Ltd (PCL) duly lent $3.575 m (65 per cent of the value on completion). MGICA Ltd (the respondent) insured the loan.

On 7 June 1991, the borrower defaulted in making an interest payment. The lender entered into possession of the property on 2 July 1991. A mortgagee's sale was effected on 6 January 1992 for $2.65 m. The lender claimed from the respondent its shortfall under the insurance policy, namely $1,977,513.67. That sum was paid in full by 22 April 1992. The respondent then sued the appellant to recover damages.

The primary judge, Lindgren J, found that the true value of the property at the date of the valuation was about $4 m "as completed" [91] . His Honour also found that, had the security been realised immediately following the making of the advance, the property would have been sold for $4 m or thereabouts: accordingly, had the property been sold then there would have been no loss.

MGICA (1992) Ltd v Kenny & Good (1996) 140 ALR 313 at 366

There was a further important finding by the trial judge that the respondent would not have provided mortgage insurance in respect of PCL's advance of $3.575 m if the valuation had been less than $5.5 m [92] .

MGICA (1992) Ltd v Kenny & Good (1996) 140 ALR 313 at 363

The respondent's proceedings were brought in negligence and for breaches of ss 52 and 53A of the Trade Practices Act 1974 Cth and ss 42 and 45 of the Fair Trading Act 1987 NSW. There was no allegation that the advice that a loan of 65 per cent of valuation would be a secure investment for three to five years was a misleading representation made in breach of s 51A of the Trade Practices Act. Indeed, that possibility played no part in the conduct of the trial or the appeal.

The trial judge found for the respondent in negligence. He also found that the appellant had contravened s 52 of the Trade Practices Act. The misleading representation which his Honour found was that the fair market value of the property "as completed" as at 18 April 1990 was $5,500,000 [93] . He therefore ordered that judgment be entered in favour of the respondent in the sum paid out to the lender together with interest and the greater part of its costs.

The only ground pursued in the appeal to the Full Court of the Federal Court (Wilcox, Branson and Sackville JJ) [94] was that the primary judge was in error in not applying the decision of the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [95] . Banque Bruxelles is the title given in the reports to three cases in which similar points were raised and determined by the House of Lords. To understand the appellant's ground of appeal it is necessary to refer to some passages in the principal speech delivered in that case.

Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 77 FCR 307 2. [1997] AC 191.

In Banque Bruxelles [96] Lord Hoffmann with whom the other Law Lords agreed said:

a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.

The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong.

[1997] AC 191 at 214 (emphasis in original). See also now Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [No 2] [1997] 1 WLR 1627 at 1631, 1638; [1998] 1 All ER 305 at 309, 316 and Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190 at 208, 212-214.

Of one of the three cases, United Bank of Kuwait Plc v Prudential Property Services Ltd [97] , Lord Hoffmann said:

the lenders on 19 October 1990 advanced £1.75m on the security of a property valued by the defendants at £2.5m. The judge found that the correct value was between £1.8m and £1.85m. It was sold in February 1992 for £950,000. Gage J quantified the lenders' loss (including unpaid interest) at £1,309,876.46 and awarded this sum as damages.

In my view the damages should have been limited to the consequences of the valuation being wrong, which were that the lenders had £700,000 or £650,000 less security than they thought. The plaintiffs say that the situation produced by the overvaluation was not merely that they had less security but also that there was a greater risk of default. But the valuer was not asked to advise on the risk of default, which would depend upon a number of matters outside his knowledge, including the personal resources of the borrower. The greater risk of default, if such there was, is only another reason why the lender, if he had known the true facts, would not have entered into the particular transaction. But that does not affect the scope of the valuer's duty.

I would therefore allow the appeal and reduce the damages to the difference between the valuation and the correct value.

In another of the cases, South Australia Asset Management Corporation v York Montague Ltd [98] , in which the lenders had advanced £11m on property valued at £15m but which the trial judge found was then worth only £5m; and which was sold for £2.477m, Lord Hoffmann said:

The consequence of the valuation being wrong was that the plaintiffs had £10m less security than they thought. If they had had this margin, they would have suffered no loss. The whole loss was therefore within the scope of the defendants' duty. 1. [1997] AC 191 at 222.

The Full Court of the Federal Court concluded that the test of causation applied by Lord Hoffmann was different from the test which had been propounded by this Court. Their Honours said [99] :

Causation is an issue of fact. The issue is not to be resolved by the application of a particular formula, such as the "but-for" test, but in accordance with commonsense and experience [100] . The "but-for" test, while retaining an important role as a negative criterion which will commonly exclude causation if not satisfied, is inadequate as a comprehensive positive test [101] . Reasonable foreseeability is not a test of causation. Rather, reasonable foreseeability marks the limits beyond which the wrongdoer will not be held responsible for damage resulting from the wrongful act [102] . There is no occasion to consider reasonable foreseeability unless and until it appears that the negligent act or omission has caused the damage complained of [103] . If, however, the class or character of damage suffered by the applicant was not the reasonably foreseeable consequence of the respondent's negligent act or omission, the respondent is not liable to the applicant [104] . If the applicant suffers both foreseeable and unforeseeable classes of loss, recovery is available only for the foreseeable class of loss [105] . 1. Kenny & Good (1997) 77 FCR 307 at 323. 2. March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 515-516, per Mason CJ; Medlin v State Government Insurance Commission (1995) 182 CLR 1 at 6, per Deane, Dawson, Toohey and Gaudron JJ. See now the discussion in Chappel v Hart (1998) 195 CLR 232 3. Medlin v State Government Insurance Commission (1995) 182 CLR 1 at 6 4. Chapman v Hearse (1961) 106 CLR 112 at 122 March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 510 5. Chapman v Hearse (1961) 106 CLR 112 at 122 Richards v Victoria [1969] VR 136 at 143 6. Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound) [1961] AC 388 at 425 7. Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound) [1961] AC 388 at 425-426

The Full Court therefore held that on the proper application of the test applicable in this country, the claim for the full loss recoverable in this case was available in consequence of the appellant's negligence.

With respect to the damages recoverable for breach of s 52 of the Trade Practices Act the Full Court relied upon a passage from the joint reasons of Mason CJ, Dawson, Toohey and McHugh JJ in Wardley Australia Ltd v Western Australia [106] :

The measure of damages recoverable under s 82(1) can only be fully ascertained after a thorough analysis of those provisions in Pts IV and V of the Act for contravention of which the statutory cause of action may be maintained. But the common law measure of damages will in many cases be an appropriate guide, though it will always be necessary to look to the provisions of the Act with a view to ascertaining the existence of any relevant legislative intention. In a case such as the present, it may safely be assumed that the plaintiff is entitled to recover "a sum representing the prejudice or disadvantage [the plaintiff] has suffered in consequence of his altering his position under the inducement" [107] of the misleading conduct or "the actual damage directly flowing from" [108] that conduct, to take up and adapt well-known statements of the measure of damage applicable in an action of deceit. Whether the condition of foreseeability, applicable to claims for consequential damages in cases of negligent misrepresentation inducing the purchase of property [109] , would apply to a claim for consequential damages under s 82(1) is a question that may be put to one side for present purposes. 1. (1992) 175 CLR 514 at 526. 2. Toteff v Antonas (1952) 87 CLR 647 at 650 3. South Australia v Johnson (1982) 42 ALR 161 at 170 4. South Australia v Johnson (1982) 42 ALR 161 at 170

The Full Court accordingly held that the prejudice or disadvantage suffered by the respondent by reason of the misleading valuation extended to all losses, including any attributable to the decline in the property market [110] . It therefore dismissed the appeal, confirming the judgment entered by the primary judge. From that order, the appellant, by special leave, has now appealed to this Court.

The appellant's grounds of appeal claimed that the Full Court had erred in: 1. not applying the decision of the House of Lords in Banque Bruxelles; and 2. not applying Potts v Miller [111] so as to exclude from any damages recoverable by the respondent those damages which resulted from a fall in the market subsequent to the valuation.

The appellant submitted that, in addressing the claim in negligence, the starting point involved ascertaining precisely the duty of care owed by a valuer in the position of the appellant to a client in the position of the respondent [112] . It was not sufficient that a breach of duty of some kind could be shown. Nor was the liability of the respondent to other persons determinative of the liability of the valuer to it. In every case, that liability would depend on the ascertainment of the particular duty which the party alleged to be negligent owed to the party claiming loss. So much may be accepted.

Johnson v Perez (1988) 166 CLR 351 at 380, per Deane J; Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 at 211

It was submitted that, in the present case, the appellant had been asked to carry out a valuation of the property to establish the current fair market value of the property on two specified bases being "as is" and "on completion" at the date of the valuation. In these circumstances, the appellant argued that it was no part of the valuer's retainer or duty to say anything at all about what might happen to the value after that date, or what might happen in the property market generally thereafter.

To formulate the instructions given in such terms would be to understate, and even to distort those actually given to the appellant. The instructions received by the appellant required, and the appellant acknowledged, that the valuation was "for mortgage purposes". It was made in circumstances in which the appellant was well aware that the respondent would wish to lend up to 65 per cent of the valuation on the same basis as a trustee might safely invest trust funds to that extent in such an investment.

The instructions, and the terms in which they were complied with, and the valuation provided, all give content to the duty of care in this case, as they will in most, if not all, such cases. The purpose of the valuation (clearly conveyed by the instructions) was not simply to give a valuation in order to enable the lender to decide how much to lend, but to decide whether to lend at all. Indeed, in practice, there will be few cases in which the valuation does not have some relevance for the decision whether or not to lend. For example, a lender might wish to make a comparison between what a potential borrower has expended or has claimed to expend on a property, with the valuation independently made of it by an expert. Such a comparison (taken with other information) might give an insight into the financial capacity of a borrower to service the loan, and into the prudence of the borrower, both being matters relevant to the question of whether to lend at all.

The respondent, as insurer, had to make decisions of the same kind, not only as to the limit of the insurance which it was prepared to offer, but also as to whether to insure or not. In this regard, the respondent had the benefit of an express and unchallenged finding of the primary judge. This was [113] :

[the respondent] would not have provided mortgage insurance if a valuation in an amount of less than $4.5 million, let alone of the order of only $3.9 million to $4 million, had been provided. 1. MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 at 364

In Chappel v Hart [114] , McHugh J summarised in a short passage the approach which the decisions of this Court dictate to questions of causation:

In March [115] this Court specifically rejected the "but for" test as the exclusive test of factual causation. Instead the Court preferred the same common sense view of causation which it had expressed in its decision in Fitzgerald v Penn [116] . There, the Court said that the question is to be determined by asking "whether a particular act or omission can fairly and properly be considered a cause of the accident" [117] . As a natural consequence of the rejection of the "but for" test as the sole determinant of causation, the Court has refused to regard the concept of remoteness of damage as the appropriate mechanism for determining the extent to which policy considerations should limit the consequences of causation-in-fact [118] . Consequently, value judgments and policy as well as our "experience of the "constant conjunction" or "regular sequence" of pairs of events in nature" [119] are regarded as central to the common law's conception of causation. Although McHugh J was in dissent in that case, his Honour's summary reflects the conclusions reached by the majority on this issue [120] . 1. (1998) 195 CLR 232 at 243. 2. March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 3. (1954) 91 CLR 268. 4. Fitzgerald v Penn (1954) 91 CLR 268 at 276 5. Bennett v Minister of Community Welfare (1992) 176 CLR 408 at 412-413: "In the realm of negligence, causation is essentially a question of fact, to be resolved as a matter of common sense: Fitzgerald v Penn (1954) 91 CLR 268 at 277-278, per Dixon CJ, Fullagar and Kitto JJ; March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 515, per Mason CJ; at 522-523, per Deane J. In resolving that question, the "but for" test, applied as a negative criterion of causation, has an important role to play but it is not a comprehensive and exclusive test of causation; value judgments and policy considerations necessarily intrude: March v Stramare (E & MH) Pty Ltd ." 6. Hart and Honoré, Causation in the Law, 2nd ed (1985), p 14. 7. Chappel v Hart (1998) 195 CLR 232 at 238-239, per Gaudron J; at 255-256, per Gummow J; at 268-270, per Kirby J.

The facts of this case not only satisfy a "but for" test but also the other tests referred to in Chappel v Hart [121] . Here, the valuation (given negligently) caused the respondent to insure the loan, and to suffer the loss arising from that insurance. The negligence of the valuer was directly productive of the making of the insurance contract. The obligation to perform, and the performance of that contract by the respondent therefore caused the respondent to suffer the loss, by making the whole of the payment that it then made. Common sense confirms that conclusion. To use the language of Lord Nicholls of Birkenhead in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [No 2] [122] , this was not a case in which the respondent sought to hold the appellant "liable for consequences which would have arisen even if the advice [valuation] had been correct". In this case had the valuation been a correct one, there would have been no loss suffered by the respondent, for, as found by the primary judge, it would not then have provided the mortgage insurance at all.

(1998) 195 CLR 232. 2. [1997] 1 WLR 1627 at 1631; [1998] 1 All ER 305 at 309.

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