THE FACTS
7 Kestrel is a company owned by the Robinson family, including Mr Robinson. The Robinson family through Kestrel owned three farming properties on the north-west region of Tasmania. The three properties were known as Broadmoor, Lower Wilmot and Mannings Jetty Road (the three Robinson properties). For some time, the Robinson family had grown crops of pyrethrum on the three Robinson properties. They grew those crops under contracts to supply a company Botanical Resources Australia Pty Ltd (BRA), then engaged in the production of pyrethrum in Tasmania.
8 In August 1992, Richardson & Wrench (Tas) Pty Ltd valued Broadmoor for the Westpac Bank at $560,000. Its valuation identified approximately 52 hectares of cropping land, approximately 30 hectares of grazing slopes and flats, and the balance of the land comprised bush, dams and waste areas. Kestrel and the Robinsons had a copy of that valuation at material times.
9 In 1997, a finance broker instructed Mantach to value the three Robinson properties. The instruction was given on behalf of a legal firm which was a prospective mortgagee. Mantach duly provided valuations of Broadmoor and Lower Wilmot dated March 1997, following an inspection of the property by Brian Mantach (Mr Mantach), a principal of Mantach, on 14 March 1997 (the 1997 Mantach valuations). Mantach then valued Broadmoor at $1,022,000. Its report noted the instructions to establish the current fair market value of the property for mortgage security purposes, and that the instructions were on behalf of the Robinson family, and the proposed lender.
10 The 1997 Mantach valuation of Broadmoor (which was on two titles) included a description of title P0992 as having approximately 42 hectares of near level upper banks and gently sloping hillside, and the balance of the land in that title as steeper undulating land that remained as bush, and it described title P0993 as containing approximately 40 hectares of mostly near level banks and gently sloping land used for cropping purposes, with the remainder of that property being undulating in nature and containing bush. The 1997 Mantach valuation of Broadmoor noted that Broadmoor was then exclusively used for cropping purposes, and that:
[b]y scaling off a map and by discussions with the owners, there is [sic] approximately 82 ha of gently undulating banks and slopes that have been cleared and are used for cropping purposes. The remaining 40 ha of the property is bush.
The 1997 Mantach valuation at Broadmoor was based on 82 hectares of red cropping land at $10,000 per hectare, and 40 hectares of bush at $1,500 per hectare (making a total of $880,000), plus buildings and chattels valued at $142,000, to take the total valuation to $1,022,000.
11 The 1997 Mantach valuation of Lower Wilmot was also based on Mr Mantach's inspection of that property, on the same date he inspected Broadmoor. The 1997 Mantach valuation of Lower Wilmot was $753,000. It included a figure for 70 hectares of "cropping land" at $8,000 per hectare.
12 In July 1999, Mantach provided further valuations of Broadmoor and Lower Wilmot for mortgage lending purposes. In each of those valuations, the descriptions of cropping land and the values ascribed to it and to the overall value were the same as in the 1997 Mantach valuations. In November 1999, at the request of the Robinsons, Mantach "assigned" those valuations to the Commonwealth Bank of Australia. That is, Mantach made the valuations available to the bank for its use, apparently for security purposes.
13 It was also in 1999 that what became the Australian Pyrethrum Farms Joint Venture (the APF JV) was conceived.
14 The Robinson family began to consider developing a pyrethrum farming and manufacturing operation in opposition to BRA. They engaged a merchant banker, Mr Haydn Wright to advise on that proposal, and to explore the acquiring of investors.
15 Mr Wright in turn engaged Boyd Partners Ltd (Boyds), a Melbourne firm of corporate financial advisers and chartered accountants, to provide advice on the proposal. In about mid 2000, through Boyds, two potential external investors were identified, Andrew Cottrell and Gary Andriske. They were clients of Boyds.
16 Messrs Cottrell and Andriske subsequently made several visits to Tasmania and had discussions with Mr Robinson. They came to the view that "red soil" was preferable to acquire because it had better drainage properties, even though apparently alternative soil was cheaper and could be operated quite profitably. At that time, it was not specifically contemplated that Broadmoor, Lower Wilmot or Mannings Jetty Road would become land of the proposed joint venture. In the course of one of their trips to Tasmania, Messrs Cottrell and Andriske inspected a number of farming properties in the north-west region of Tasmania, including Broadmoor and Lower Wilmot. They were told by Mr Robinson that the price of red cropping land was about $7,000 per hectare, but that Broadmoor and Lower Wilmot were worth more.
17 By about November 2000, the various parties were committed in principle to the proposed joint venture. At about that time, it was also agreed that the three Robinson properties would be purchased by the joint venture.
18 A corporate and trust structure collectively called the APF JV was proposed. The APF JV informally comprised Mr Robinson and his brother Christopher Robinson, Mr Wright, Messrs Cottrell and Andriske, and Mr Andrew Youl, another farmer (or their respective trust and corporate vehicles). The proposed vehicle for the acquisition of the three Robinson properties was APF.
19 Broadly speaking, the scheme of the joint venture was that the Robinsons would run operations under the overall direction of Mr Youl, and that Messrs Cottrell and Andriske would provide the equity capital. In the longer term, further property acquisitions were contemplated. Arrangements were made to import a particular pyrethrum seed from the USA.
20 Following the agreement in principle, on 5 December 2000, APF and APF Investments Pty Ltd (APF Investments) were incorporated. Mr Wright became the sole director of APF and Mr McLeod, an officer of Boyds, the sole director of APF Investments. It is not necessary to refer to the detailed trust arrangements. The simplified structure of the joint venture involved an operating company called Australian Pyrethrum Farms Pty Ltd (APF Farms), with A Class shares held by APF Investments (the Cottrell and Andriske interests) on a 50/50 basis and B Class shares held by Australian Bio-Pharmaceuticals Pty Ltd (ABP), incorporated on 24 November 1999 (shares divided between the Robinsons and Messrs Wright, Youl and a Mr Blair). Holders of the B Class shares were not entitled to a share of profits until the return on investments to APF Investments reached 25%. ABP had a deferred interest contingent on APF Investments obtaining a 25% return. APF Farms was to lease the properties from APF, again via various trust structures holding beneficial interests, shared between APF Investments and ABP, with ABP again having a deferred interest contingent on APF Investments obtaining a 25% return.
21 At a meeting in November 2000, at the office of Boyds in Melbourne, the individuals concerned in the APF JV realised that the purchased seed was shortly to arrive and that it was desirable to plant it as soon as possible. The participants at that meeting included Mr Robinson and his brother and Messrs Cottrell and Andriske. Those present recognised that the three Robinson properties were the only ones which could be ready in time to put the seed in. The discussion turned to how to acquire access to those properties. It was agreed that the APF JV (through APF) would buy the three Robinson properties, subject to the homestead on Broadmoor being somehow retained by Mr Robinson for his use. As noted, it was anticipated that those three properties would be just the beginning of a number of properties to be acquired over the following year or so. Those present could not agree on a price for the three Robinson properties. It was agreed to get two valuations of the three Robinson properties and to take the median figure between the two valuations of each property to fix the price to be paid by APF for the three Robinson properties.
22 On 29 November 2000, Boyds wrote to Mantach requesting a valuation of the three properties. That request was in the following terms (formal parts omitted):
REQUEST FOR VALUATION IN RELATION TO THE FOLLOWING PROPERTIES:
q P.2600 Mannings Jetty Road, North Motton,
q P 0992 & P 0993 Broadmoor RA 403 Preston Main Road,
q UPI Nos. 1155-1159 Wilmot Road, Lower Wilmot.
We hereby instruct Mantach Whitmore Valuations to prepare a formal valuation of the freehold interest in the above properties.
We require the following issues to be considered in performing this assignment:
q The valuations is [sic] to be carried out in accordance with the definition of Market Value as defined by the International Assets Standards Committee;
q The valuation should be based on an arms length market valuation;
q The valuation reports must be signed by the undertaking Valuer and any other person duly required in relation to the Firm's Professional Indemnity Insurance;
q We require full disclosure of the Valuation Methodology including calculations, rationale and any assumptions; and
q The valuation is urgent and must be completed without delay.
Prior to undertaking the assignment, would you please provide an indication of your fee for our approval together with the proposed completion date.
Should you have any queries or require any further information, please do not hesitate to contact us.
On 29 November 2000, Boyds also gave instructions to Harrison in similar terms.
23 On 9 January 2001, Harrison wrote to Boyds advising of valuations of $820,000 for Broadmoor, and $575,000 for Lower Wilmot, stating that full valuations would follow.
24 On 15 January 2001, Mantach wrote to Boyds stating that Mr Mantach had inspected the three Robinson properties and that the three valuations requested were being prepared. Valuation figures were then given as follows:
Broadmoor $1,040,000
Lower Wilmot $753,000
Mannings Jetty Road $400,000
The letter stated that there were on Broadmoor:
[a]bout 82 hectares of …land [which] comprises good red basalt type soils that are very suitable for intensive cropping purposes. The balance comprises land that was until recently bush but which has now been pushed and partly cleared.
That letter also said that Lower Wilmot had "about 70 hectares of good cropping land".
25 The timing of the next step is said to be significant. On 16 January 2001, Mr Robinson faxed a copy of a document called the "Agtech Report" to Mantach. The covering letter said:
Dear Brian,
Please find attached a report by Agtech on our properties.
Yours faithfully,
Nic
26 The Agtech Report was dated 15 January 2001. It purported to have come from a firm called Agtech Rural & Horticultural Consultants and to have been prepared for "potential joint venture partners of Australian pyrethrum farms (APF Ltd)". It was in fact prepared by Mr Robinson.
27 The Agtech Report included statements that Broadmoor had 80 hectares of cropping land and 40 hectares of bush, and that Lower Wilmot had 80 hectares of cropping land and 66 hectares of bush and pasture. It also made comments about matters such as soils, weed control, irrigation systems and yield projections. It asserted that Agtech specialised in giving advice to agricultural businesses in the north-west region of Tasmania and had "extensive experience in the agricultural and horticultural industry".
28 On 18 January 2001, Mr Wright emailed Boyds, saying that discussions with the shareholders of ABP had the view that the three Robinson properties would be sold to APF for $2,300,000 "unless reasonable argument can be shown to the contrary". That was a little in excess of $100,000 more than the total of the three anticipated Mantach valuations.
29 Later in January, Mantach sent its formal valuations of the three Robinsons properties to Boyds (the 2001 Mantach valuations). They were accompanied with a compliments slip in the following terms:
With Compliments
To: J J McLeod
Enclosed please find the Valuation Report as requested for your client,
Robinson
Thank you for your instructions in this matter.
Regards
Brian Mantach
The words underlined were handwritten.
30 The 2001 Mantach valuations, dated January 2001, represented that the value of Broadmoor was $1,040,000 and that Broadmoor had 82 hectares of cropping land available. They also represented that the value of Lower Wilmot was $753,000 and that Lower Wilmot had 70 hectares of cropping land available.
31 It is apparent that the Broadmoor valuation prepared by Mantach in January 2001 was largely based on its earlier 1997 Mantach valuation. Under the heading "Client and Instructions" the report stated:
My instructions are to prepare a formal valuation of the freehold interest in the property. Instructions have been issued by Boyd Partners Limited.
32 The 1997 Mantach valuation of Broadmoor described the Broadmoor land in the following terms:
Description
P 0992 comprises approximately 42 ha of near level upper banks and gently sloping hillside ranging from the 150 metre contour down to the 100 metre contour. Kerrison Creek runs through this land forming a permanent water supply. The balance land in this title is steeper undulating land that remains as bush.
P 0993 contains approximately 40 ha of mostly near level banks and gentle slopes that is [sic] used for cropping purposes with the remainder of the property being undulating in nature and containing bush. The soils on the cleared land are red basalt in nature, mostly stone free and very suitable for cropping purposes. The area has an average rainfall of around 37 inches and predominant land use in the area, apart from cropping in its various forms is for dairying, fat lambs and beef cattle.
Under the heading "Site Improvements" there appeared the following:
The property is now exclusively used for cropping purposes. By scaling off a map and by discussions with the owners, there is [sic] approximately 82 ha of gently undulating banks and slopes that have been cleared and are used for cropping purposes. The remaining 40 ha of the property is bush. The boundary is fenced with standard post and wire fencing plus there is some internal fencing of a similar nature. A gravel roadway provides access through the property.
[Emphasis added.]
33 That description was repeated in the 2001 Mantach valuation of Broadmoor except that the italicised sentence was replaced with the following:
The remaining 40 ha of the property was bush much of which has recently been cleared.
34 Also by way of contrast with the 2001 Mantach valuation of Broadmoor, the 1997 Mantach valuation of Broadmoor recorded the instructions to "establish the current fair market value of the property for mortgage security purposes" and it identified the source of the instructions as a finance broker on behalf of the Robinson family, and the name of the proposed lender.
35 The 2001 Mantach valuation of Broadmoor then discussed seven comparable sales, showing brief details of improvements, cropping areas and price and another nine sales noted in more summary form. Under the heading "Summation Valuation", figures were attributed to various improvements including 82 hectares of "Red cropping land at $9,500 per hectare".
36 That valuation also had a heading "Qualifications and Assumptions". Relevantly for present purposes, it said that, while the valuer had "taken every reasonable care both during our inspection of the property and in making relevant enquiries, we have not undertaken or requested" a number of enquiries and searches including soil surveys. It also added:
We state that this report is for the use only of the party to whom it is addressed and for no other purpose, and no responsibility is accepted to any third party for the whole or part of its contents.
37 The 2001 Mantach valuation of Lower Wilmot was for the same figure as the 1997 Mantach valuation of Lower Wilmot. The qualifications and assumptions set out in the Broadmoor valuation, referred to above, were also included in the Lower Wilmot valuation.
38 Clearly, the average of the two valuations of Mantach and Harrison was not acceptable to Kestrel and Mr Robinson, despite the apparent agreement. On 25 January 2001, Mr Wright on behalf of Kestrel and Mr Robinson wrote to Boyds criticising the valuations and suggesting a total consideration for the three Robinson properties of $2,300,000, and inviting agreement at such a price. The letter also enclosed a document described as a "separate analysis" provided by Christopher Robinson which asserted that the appropriate value was some $2,838,420, to put in context the claim for $2,300,000 which (it was said a few days later by email) was needed by Mr Robinson to pay out family with reimbursement to investors at subdivision. No agreement on that total price was reached.
39 Shortly after that, the seed previously ordered arrived in Australia, although it was detained in quarantine for a time. There was then a little delay whilst BRA (the entity on whose behalf the Robinsons had previously been growing pyrethrum) agreed to the eradication of their plants from the Robinsons' properties.
40 On 27 March 2001 a Shareholders Agreement was executed. The parties included ABP (the Robinson, Wright and Youl interests), APF Investments (the Cottrell and Andriske interests) and APF Farms. The recitals included statements to the effect that the first stage of the project comprised an initial planting of 400 hectares of pyrethrum in 2001, that the parties intended to expand the project "on a prudent basis" to at least 1000 hectares, and that APF Investments agreed to fund a minimum level of 1000 hectares.
41 On 27 April 2001, a meeting of the Board of APF was held. At that time, the seeds previously held in quarantine were about to be released. It was resolved by APF to sign the purchase contracts. Contracts of sale were exchanged shortly thereafter on 11 May 2001 with Messrs Cottrell and Andriske named as purchasers. Subsequently, they nominated APF as the purchaser. The purchase price for each property was the amount of the valuation by Mantach for each property in the 2001 Mantach valuations.
42 The Broadmoor contract contained a clause for the sale back of the homestead on Broadmoor upon terms which do not need to be further discussed. It was that matter which led to the joinder at first instance of Robinson Investment. It may be noted that between 28 November 2001 and 29 August 2003 negotiations on that matter took place and eventually led to the lease of an area called the homestead block, of approximately 1.67 hectares, from the Broadmoor property for a term of 99 years to the Robinson interests.
43 There was then a further delay due to a problem with potential contamination to a seed bank from the seeds provided.
44 Ultimately the contracts were settled on 30 August 2001. Finance through the Bank of Melbourne (subsequently taken over by the Westpac Bank) had been confirmed. On 2 July 2001, that bank had emailed Mantach stating that it wished to rely upon the 2001 Mantach valuations addressed to Boyds "for mortgage purposes relating to proposed Pyrethrum farming". As it had previously done, Mantach agreed that the valuation reports it had provided to Boyds in January 2001 were to be "assigned" to the bank to be used and relied on for mortgage lending purposes. Mantach said the valuations were still confirmed as current. Because, it said, the reports were then assigned to the bank "for the same client", no fee would be charged.
45 APF purchased the three Robinson properties for the total sum of $2,193,000 made up as follows:
Broadmoor $1,040,000
Lower Wilmot $753,000
Mannings Jetty Road $400,000
The purchase was partly financed by a commercial bill facility of $1.5 m from the Bank of Melbourne.
46 By the end of 2003, the project was in trouble. The anticipated expansion of the joint venture had not occurred. A major factor in the collapse of the APF JV was the collapse of the market for pyrethrum. It is not necessary to go into the reasons for that. There were also management disputes. In early June 2004, APF resolved to put the three Robinson properties on the market.
47 An experienced real estate agent in Ulverstone, Mr Medwin, was retained as agent for the sale. He was an agent who, the primary judge accepted, had accumulated very specific knowledge about the north-west region of Tasmania. He had been familiar with the three Robinson properties for many years. He inspected the properties.
48 Mr Medwin, in the course of an inspection of Broadmoor in July 2004, had cause to query the claim from Christopher Robinson that it was a 300 acre property with 160 acres presently planted to crops. He could not see that there were 160 acres (64.7 hectares) being cropped. He procured a copy of the paddock plan and crop rotation plans, together with aerial maps of the property and the Tasmap 1:25,000 map (the Tasmap). He also made inquiries of the water licence detail, as he had a rule of thumb that one hectare of cropping land would require a licence for 1 ML (1 million litres) of water. The Broadmoor water licence was for 43 ML. He concluded that it had 40 hectares of land capable of being used for cropping purposes.
49 Mr Medwin also inspected the Lower Wilmot property on the same occasion. After similar inquiries, he estimated the total area for cropping land was 52 hectares.
50 He then submitted a marketing plan suggesting that Broadmoor had 40 hectares of prime cropping land in a sought after area and that Lower Wilmot held 52 hectares of prime cropping land. Upon his recommendation, the two properties were offered by sale by auction. After that time, he received a copy of the 2001 Mantach valuations. He firmly disagreed with them in terms of the land area available for cropping and in terms of the value. During the course of his sales campaign, he said there was a lot of interest in Broadmoor, but that Lower Wilmot did not attract the same amount of interest because it was not in a prime cropping area, was further inland and was relatively isolated.
51 The auctions of the three Robinson properties were conducted on 10 August 2004. Mannings Jetty Road sold at auction at or about the reserve price ($400,000). Lower Wilmot was passed in; it sold shortly after the auction for $450,000, after negotiations with the only bidder. That again was about its reserve price. There was no bidding for Broadmoor and it was not sold at that time.
52 There were certain contested facts at hearing upon which the primary judge made findings and upon which now it is appropriate to proceed. They relate to dealings between the Robinsons and Mantach, and the process by which Mantach came to make the 2001 Mantach valuations of Broadmoor and Lower Wilmot.
53 On 14 March 1997, for the purposes of the 1997 Mantach valuations, Mr Mantach inspected both Broadmoor and Lower Wilmot. He made a file note that he was told by Mr Robinson that Broadmoor had about "200 ac cleared". That is, that Mr Robinson told him that 200 acres of the property had been cleared. That is approximately 81 hectares. He was also told by Mr Robinson that all the cleared land was used for cropping purposes. On the same occasion, Mr Robinson told him that there were about 70 hectares of cropping land at Lower Wilmot.
54 Mr Mantach then used a scale rule to calculate the amount of cleared land shown on the Tasmap for Broadmoor and Lower Wilmot. This process produced, in the case of Lower Wilmot, a cleared area of 70 hectares (consistent with what Mr Robinson had told him) but a cleared area of 68 hectares only in relation to Broadmoor. He telephoned Mr Robinson to discuss the discrepancy. He was told by Mr Robinson that they had done some clearing at the edge of the bush since the time the Tasmap had been prepared in about 1992, and that accounted for the difference. Mr Robinson had told him that all cleared land was used for cropping purposes. That information is recorded in the 1997 Mantach valuation of Broadmoor.
55 The primary judge accepted Mr Mantach's evidence about those discussions with Mr Robinson.
56 The primary judge observed that the ordinary meaning conveyed by the description of Broadmoor and Lower Wilmot in the 1997 Mantach valuations (and in the 2001 Mantach valuations) was that the two sources of information: scaling off a map and discussions with the owner, produced the one consistent result.
57 The primary judge also found, again accepting Mr Mantach's evidence, that Mr Mantach had relied on what he had been told by Mr Robinson in 1997, and that his reliance on that information continued through until he had completed the 2001 Mantach valuations, and further that he had relied upon the Agtech Report in reaching the 2001 Mantach valuations. His Honour described the Agtech Report as playing "a comparatively minor confirmatory role", but was not information ignored by Mr Mantach.
58 The primary judge concluded that Mr Mantach was entitled to rely on what Mr Robinson had told him, but not to the exclusion of making his own inquiries because the circumstances warranted the making of independent inquiries. The amount of croppable land was far and away the most important factor in deciding the value of the two properties. It is an objectively discernable fact. His Honour noted that owners seeking valuations are not "objective, disinterested bystanders" so that it should not take much to put a reasonably competent valuer on an inquiry as to what an owner tells that valuer about croppable areas. In this instance, the discrepancy between what Mr Mantach was told and what appeared on the Tasmap should have sounded a warning. So too should the gratuitous provision of the Agtech Report, which his Honour said was "highly suspicious". It had no address. It was not signed. It had a significant misspelling in various parts of it of the name Agtech. Moreover, as the primary judge found, Mr Mantach had no basis for arriving at the croppable area of 82 hectares for Broadmoor being neither the figure of 81 hectares conveyed by Mr Robinson, nor the figure of 80 hectares mentioned in the Agtech Report. Mr Mantach was unable to explain how he came to apportion that 82 hectares as between the two property titles constituting Broadmoor as to 40 and 42 hectares respectively. His Honour also found that Mr Mantach should not have equated all cleared land with croppable land just on Mr Robinson's say so. He considered that the discrepancy which Mr Mantach had discovered in relation to Broadmoor should have put him on inquiry either to obtain a consultant's report or to recommend that his client obtain one to precisely identify the area of croppable land on the two properties.
59 The primary judge specifically found that Mantach did rely on the Agtech Report, even though it reached Mr Mantach after he had sent his letter of 15 January 2001 indicating his valuation estimates of the three Robinson properties, and even though the Agtech Report identified 80 hectares of croppable land on Lower Wilmot, and even though Mr Mantach had previously made an estimate of 70 hectares to which he adhered. He thought the figure in the Agtech Report (80 hectares) was "broadly consistent" with his own figure of 82 hectares for Broadmoor. We note also that subsequently, in the middle of 2004, Mr Mantach was asked to indicate the foundation for his assessment of croppable land on Broadmoor and Lower Wilmot. His letter of 19 July 2004 in response, inter alia, identified the Agtech Report. That particular evidence was of course only admissible against Mantach, and not against Kestrel or Mr Robinson.
60 Clearly, as his Honour found, the Agtech Report was false and misleading. His Honour ultimately found that the croppable land on Broadmoor was 45 hectares only and the croppable area on Lower Wilmot was 60.2 hectares. He also found that the Agtech Report was false and misleading because it was put forward by Mr Robinson as coming from an independent consultant, although Mr Robinson acknowledged through his counsel that he was the author of that document.