LM Investment Management Limited (In Liquidation) (Receivers appointed) v BMT & Assoc Pty Limited

Supreme Court of NSW|2015-11-04|Before: Ball J

Introduction

The first plaintiff, LM Investment Management Limited (LMI), which is now in liquidation, was the responsible entity and trustee of the LM First Mortgage Income Fund (the Fund). The second plaintiff, The Trust Company (PTAL) Limited, formerly known as Permanent Trustee Australia Limited (PTAL), was the custodian of the Fund and its legal owner. In those capacities, LMI and PTAL entered into a loan agreement dated 6 July 2007 (the Loan Agreement) with Greystanes Projects Pty Limited (Greystanes) by which they agreed to lend Greystanes an amount of up to $23,335,000 in connection with the purchase by Greystanes of a property at the corner of Reconciliation and Picrite Roads, Greystanes and the development of a mixed warehouse and office complex on that property (the Development).
On 22 June 2007, Greystanes entered into a contract with Toro Constructions Pty Ltd (Toro) for the design and construction of the Development for the sum of $11,990,000 plus GST (the Building Contract).
Under the terms of the Loan Agreement, the loan was to be advanced upon request by Greystanes in stages (at PTAL's discretion) reflecting the value of the work that had been completed at the time the request was made. For the purpose of administering the Loan Agreement, LMI engaged the defendant, BMT & Assoc Pty Ltd (BMT), quantity surveyors, to prepare an assessment of each progress claim. In all, BMT provided 16 monthly progress reports in relation to progress payments requested by Greystanes.
In this proceeding, the plaintiffs claim that the reports prepared by BMT overvalued the work that had been done and, in particular, overvalued the following trades by the following amounts (exclusive of GST) as at the time progress report no 16 was prepared: Concrete $1,500,778 Roofing $125,610 Structural steelwork $348,113 Electrical $69,661 Subtotal $2,044,162 Margin at 4.5 percent: $91,987 Total $2,136,149

The plaintiffs claim that, in overvaluing the work by those amounts, BMT engaged in misleading and deceptive conduct in contravention of what was then s 52 of the Trade Practices Act 1974 (Cth). Alternatively, they claim that the overvaluation was in breach of the terms of the contract between LMI and BMT or a duty of care that BMT owed the plaintiffs. In each case, the plaintiffs claim as damages the difference between the amounts advanced and the amounts that BMT ought to have recommended on the basis that they would not have advanced the additional amounts but for BMT's recommendations.
Although both LMI and PTAL were plaintiffs in the proceeding and parties to the Loan Agreement, no distinction was drawn between them during the course of the hearing and it was not suggested that the claim by one might fail in circumstances where the claim by the other succeeded. In those circumstances, it is convenient generally to focus on the claim by LMI.
BMT's defences fall into three main categories.
First, it contends that its conduct did not cause the loss for which LMI sues. The loss was a failure to recover the money advanced. According to BMT, that loss was caused by the failure of Toro to complete the works or the failure of Greystanes to repay the loan or the failure of guarantors of the loan to meet their obligations under their guarantees (although this last contention was not pressed during the course of the hearing).
Second, BMT contends that LMI is not entitled to recover the amount claimed because: 1. the expert evidence in relation to the amount allegedly overpaid for concrete depends on a false assumption concerning the stage the concrete works had reached. Accepting the evidence given by the experts, once the correct assumption is adopted, the overpayment in respect of concrete was $999,748; 2. BMT should be given credit for amounts totalling $498,694 that were paid after Greystanes defaulted under the Loan Agreement; 3. BMT has not been given credit for retention moneys retained by LMI; 4. BMT has not been given credit for GST; 5. the claim is an apportionable claim and there are other concurrent wrongdoers who are liable to contribute to the loss; and 6. LMI was guilty of contributory negligence.
Third, BMT relies on a limitation defence.

Procedural issues

Before dealing with the substantive issues in the case, it is necessary to say something about the current pleadings.
In their original Technology and Construction List Statement, the plaintiffs pleaded in para 33 that in about late 2008 Toro terminated the Building Contract. They amended that pleading on 15 October 2015 to allege that in or about January 2009 Toro ceased work under the contract. On 19 October 2015, BMT filed a List Response to the amended List Statement. On the first day of the hearing the plaintiffs filed a motion seeking to strike out a number of the amendments in the List Response on the basis that they raised new issues that were not responsive to any of the amendments made by the plaintiffs and raised factual matters that LMI could not deal with in the time available.
The amendments to which the plaintiffs objected fell into two categories. First, BMT alleged that Toro was directed in January 2009 to cease work under the Building Contract, that apart from that direction, it was obliged, and ready, willing and able, to complete the work and that LMI approved, authorised or acquiesced in that direction. Consequently, BMT alleged that if the direction had not been given, the work would have been completed and there would have been no overpayment. As a result, any overpayment did not arise from the overvaluation of the work by BMT. BMT alleged that that amendment arose out of the allegation that Toro ceased work under the contract as opposed to the earlier allegation that Toro had terminated the Building Contract. I accepted that there was some force in that submission and, as a result, I indicated that, if the plaintiffs wished to persist with an allegation that Toro ceased work under the Building Contract (as opposed to terminating it), I would allow the amendments. As a result, the plaintiffs indicated that they would delete para 33 of the List Statement altogether. On that basis, I struck out the relevant paragraphs of the List Response. That still left remaining a general allegation in the List Response that the loss was caused by the failure of Toro to complete the work rather than the overvaluation of the work by BMT.
Second, BMT alleged that the persons who had guaranteed Greystanes' obligations under the Loan Agreement were concurrent wrongdoers who were liable to contribute to the plaintiffs' loss. The allegation was clearly not responsive to any allegations raised by the amended List Statement. It raised the question whether the guarantors were concurrent wrongdoers. More significantly, assuming that the guarantors were concurrent wrongdoers, it raised factual questions concerning their culpability in relation to the loss that would have required investigation. For that reason, I also struck out the paragraphs of the List Response raising those allegations. That still left remaining an allegation in the original List Statement that Greystanes was a concurrent wrongdoer who was liable to contribute to the loss for which BMT was said to be liable.

Relevant agreements

It is convenient to begin by describing the relevant agreements and setting out the terms on which the parties rely.

Loan Agreement

As I have said, the Loan Agreement was entered into on 6 July 2007. It was for a total amount of $23,335,000 that was repayable in full on 1 August 2009 or such other date as PTAL agreed. It permitted interest to be capitalised during the construction period of the project.
Clause 3.2 of the Loan Agreement dealt with progress payments under the agreement. It provides: That part of the Loan Amount relating to the Construction will be advanced by progress payments (called "draws") at the discretion of the Lender upon receipt by the Lender of a written request by the Borrower. Such written request must be signed by the Borrower and must specify or provide as the case may be: (a) the amount of the draw required; (b) the works or stage of the Construction that the draw relates to, and a statement to the effect that such works have been completed; (c) a certificate from the Quantity Surveyor appointed to the project and approved by the Lender which specifies the cost to complete the Construction and the timing; (d) to whom the draw is to be paid; (e) Full particulars of the Cost to Complete the Construction; (f) Full particulars of the Cost to Complete the Development; and (g) such other matters as the Lender may require from time to time. Each request for a draw must reflect the value of the works completed on the site of the Construction and may be subject to inspection by the Lender or a person appointed by the Lender (at the Borrower's cost) before any draw is made. The Lender shall be entitled to withdraw its approval to any Quantity Surveyor approved by it at any time.
Clause 5.4 provides that if PTAL determined at any time that the "Facility to Security Ratio" is exceeded then it could by notice in writing require Greystanes within seven days of the notice (at PTAL's option) to reduce the amount borrowed or increase the security. "Facility to Security Ratio" is defined to mean: the maximum acceptable ratio between the Money Secured [relevantly, the amount of the loan] and the GST exclusive value of the Principal Security determined by [PTAL] in its absolute discretion and expressed as a percentage as specified in Item 13. The "Principal Security" is defined to mean the land on which the Development was to be constructed. The percentage specified in Item 13 is 66.67 percent.
Clause 7.1(b) of the Loan Agreement provided that it was an event of default for Greystanes to fail to observe or perform any of the terms of the agreement. If an event of default occurred, PTAL was entitled, under cl 8.1, to demand repayment of the whole of the amount owing to it and exercise any rights it had under the securities taken by it.

Building Contract

The Building Contract was entered into on 22 June 2007 between Greystanes and Toro. Intercapital Consultants Pty Ltd were appointed as the principal's representative under the contract.
Clause 10 of the Building Contract provided for direct payment of Toro by PTAL "until the total amount that may become payable hereunder has been satisfied". Greystanes agreed that it would execute and give any authority or direction that may be necessary or expedient to give effect to that requirement. Clause 10(b) provides: Moneys received by the Contractor [that is, Toro], by virtue of this Clause, will be in satisfaction of or in reduction of moneys that may be due or may thereafter become due to the Contractor pursuant to Clause 35.
The contract contained provisions for variations and the granting of extensions of time. It also gave Toro, in cl 30, a right to suspend the works if a progress payment was not made within ten days of the payment becoming due under the contract.
Clause 35 deals with progress payments. It relevantly provides: 35.1 Time for Issuing Payment Claim Subject to clause 12, the Contractor must, by serving each payment claim upon the Principal's Representative, issue: (a) a payment claim to the Principal at the times stated in Schedule 19 and if Schedule 19 is blank then once per month; and (b) a final payment claim following issue of a Certificate of Practical Completion and within seven (7) days after expiration of the Defects Liability Period (or where there is more than one the last one to expire); 35.2 Amount of Payment Claim The amount due to the Contractor at the time of making of a payment claim shall be for the value of the work completed reduced by: (a) retention monies, if so provided by the Contract; and (b) amounts already paid to the Contractor; and (c) any monies due from the Contractor to the Principal; and (d) at the absolute discretion of the Principal any monies for which a sub-contractor of the Contractor has made a claim in relation to the works the subject of the Contract and has provided a court order and a statutory declaration that it remains unpaid; provided however that if the amount owing from the Principal to the Contractor is less than the amount owing from the Contractor to the Principal then the Principal shall be entitled to recover the balance from the retention monies and any security given by the Contractor. … 35.9 No Admission Payment of moneys by the Principal to the Contractor: (a) shall not be evidence of the value of work (unless an independent quantity surveyor appointed by the parties has issued a certificate confirming the value of the work to which the payment relates); or (b) an acknowledgment or admission of liability; or (c) an acknowledgement or admission that work has been executed satisfactorily. but shall be payment on account only.
Clause 36(a) provides: As security that the Contractor will carry out his obligations under this Contract, the Principal is entitled to retain ten percent (10%) of each progress payment until the sum retained is equal to five percent (5%) of the Contract Sum. The sums retained in accordance with this Clause will be known as the Retention Fund.

Builder's Side Deed

Also on 6 July 2007, Greystanes, Toro and the plaintiffs entered into a deed governing the exercise of rights under the Building Contract (the Builder's Side Deed).
Clause 4.1 of the deed provided that Greystanes and Toro would not relevantly do any of the matters set out in cl 4.2 except to the extent that PTAL otherwise consented in writing. Clause 4.2 of the deed provides: Subject to clause 5.1, [Greystanes and Toro] will not: (1) amend or vary, or consent to any amendment or variation of; (2) avoid, release, surrender, terminate, rescind, discharge (other than by performance) or accept the repudiation of; (3) expressly or impliedly waive, or extend or grant time or indulgence in respect of, any provision of or obligation under; (4) assign or novate any of its rights under; or (5) do or permit anything which would enable or give grounds to another party to do anything referred to in sub-paragraphs (1), (2) or (3) in relation to; the Building Contract.
Clause 5.1 provides: Borrower Except for a Permitted Variation, [Greystanes] agrees with [PTAL] that it will not request or carry out any Variation or do anything else which could result in a Variation, or otherwise vary the basis on which the Works will be carried out, without the prior written consent of [PTAL].
Clause 6.1 provides: Notice [Toro] must notify [PTAL] of any Default as soon as it becomes aware of it and must give [PTAL]: (1) a copy of any Default Notice at the same time as that Default Notice is served upon [Greystanes]; (2) at the same time they are issued to [Greystanes], copies of any other documents issued by [Toro] to [Greystanes] under the Building Contract relating to, or arising out of, any Default; and (3) details of any negotiations or discussions held by [Toro] with [Greystanes] in connection with any Default.

Consultancy agreement

LMI and BMT did not enter into a formal consultancy agreement. However, the terms on which BMT was engaged are set out in a letter dated 24 July 2007 from LMI to BMT, a quotation dated 26 July 2007 and an acceptance of that quotation by LMI on 1 August 2007.
The letter dated 24 July 2007 states that LMI is required to prepare monthly progress reports and that those monthly reports "will be the basis of [LMI] advances under first mortgage funding". The letter continues: BMT must assess the value of information provided by the Borrower and Contractor and, based on this assessment, provide an independent Estimate and monthly reports. The letter also states: The Estimate and monthly reports shall contain sections listed in the attached Reporting Requirements for Quantity Surveyors.
The quotation sets out the amounts BMT proposed to charge for preparing "an independent report for monitoring the cost to complete including all development costs" and "for preparation of progress payment assessments".
The quotation continues: BMT & Assoc Pty Ltd will visit the site as required (usually once a month or as stated in the head contract between the builder and developer). At each inspection, a representative of BMT & Assoc will be on-site for approximately 2 hours, taking photographic record and any necessary notes. • Financial Progress Claim assessment report will clearly define: • Costs to date; • Costs to complete; • Variations experienced and potential variations; • Expenditure against proposed time frame; and • Additional specific requirements of the financier.
LMI also claims that the consultancy agreement contains implied terms that BMT would: a measure the work executed accurately; b exercise vigilance in the valuation of variations or the checking of valuation of variations submitted to BMT; … d ensure that there was a reasonable basis in respect of any advice given by BMT; e perform its obligations under the BMT Contract with reasonable care and skill; f provide an independent assessment of completed work for each progress claim; g provide a payment schedule for any progress claim value put forward by Toro Constructions Pty Ltd that BMT disagreed with; … i monitor the progress claim items.

Factual background

Mr Tickner, who at the time managed LMI's Sydney office, was responsible for "introducing" to LMI the loan to Greystanes and in that capacity was the person at LMI who had primary responsibility for dealing with Greystanes. He gave evidence that LMI had in place a policy and procedures manual for loans to be made from the Fund that was revised from time to time. It appears to be accepted that the loan to Greystanes was made in accordance with that manual. Relevantly, the amount of the loan was based on a valuation prepared by Landsburys, who valued the land with development approval at $10,800,000 and the completed project at $35,000,000. In accordance with the policy and procedures manual, LMI was, in the case of a project loan, prepared to advance up to 66.67 percent of the final value of the project. That requirement was included in the Loan Agreement as cl 5.4. It was on that basis that LMI's credit committee ultimately approved a loan of $23,335,000 plus one month's interest on the approved loan limit.
LMI took security in the form of a real property mortgage over the land and a fixed and floating charge over Greystanes' assets. It also obtained guarantees from the directors of Greystanes.
Toro commenced construction on 20 August 2007. In accordance with the Building Contract, it issued progress claims on a monthly basis. Intercapital Consultants reviewed the progress claims and issued certificates certifying the amount payable in respect of the claim. BMT then reviewed the progress claim, the certificate in respect of the claim and the work that had been done and prepared a monthly progress report which set out the total estimated to complete the work and BMT's assessment of the value of the work done to date and the amount properly payable in respect of Toro's claim.
The loan was administered by an employee of LMI. That was Mr Finckh during the period July 2007 to February 2008, Mr Rollings from February 2008 to September 2008 and Mr Batcheldor from September 2008 to March 2009. It was not suggested that any of them were unsuitable to perform that role by reason of their training or experience.
In approving drawdown requests, each of Mr Finckh and Mr Rollings used a document described as a "PDC Checklist" on which they recorded information relevant to the decision whether to approve the request. Other documents were created as part of the approval process. However, it is not necessary to describe them. There is no suggestion that the processes that LMI had in place that were followed by Mr Finckh and Mr Rollings for the approval of a drawdown request were inadequate. The general procedure was that the loan officer would review the report prepared by BMT and information supplied by Greystanes in accordance with the Building Contract (which included the progress claim prepared by Toro and the certificate prepared by Intercapital Consultants) and complete the PDC Checklist stating that the material had been considered, answering a number of other questions relating to the progress of the project and setting out the amount of the drawdown that had been approved. The checklist was usually reviewed by another employee who also signed it.
Mr Batcheldor did not give evidence. He was responsible for considering the requests for drawdowns that were the subject of BMT's reports nos 11 to 16. In relation to the drawdown that was the subject of report no 11, Mr Batcheldor appears to have followed the same procedure followed by Mr Finckh and Mr Rollings. In particular, he completed a PDC Checklist. There is, however, no evidence that Mr Batcheldor completed checklists in respect of the other drawdown requests he considered. Nonetheless, it is apparent that the drawdowns approved by Mr Batcheldor corresponded to the amounts recommended by BMT.
The amount of each drawdown was calculated as the amount at which the work had been valued less the retention amount of 10 percent up until progress claim no 11, when the total retention amount of $629,475.00 (5 percent of a contract price of $12,589,500) was reached.
In the case of the each drawdown, LMI also advanced the amount claimed as GST. However, in accordance with a schedule of requirements that was attached to LMI's letter dated 28 June 2007 approving the loan, it advanced the full amount of GST on the first two monthly claims. On the third and following claims, it advanced the amount of GST claimed less the GST paid on the claim made two months previously. It may be inferred that LMI was prepared to fund the GST component of the project costs but required a credit corresponding to input tax credits to which Greystanes was entitled.
Mr Finckh says, and there is no reason to doubt, that on each occasion he reviewed the report prepared by BMT and incorporated information from it into the PDC Checklist. Mr Rollings gives evidence to the same effect. Both plainly relied on the reports prepared by BMT in completing the checklist and approving drawdowns. As I have said, Mr Batcheldor did not give evidence. However, the reports prepared by BMT were critical to the approval process. The amounts approved by Mr Batcheldor corresponded to the amounts recommended by BMT. It is to be inferred from those matters that Mr Batcheldor also relied on BMT's reports in approving the drawdowns approved by him.
Work proceeded on the project. However, it was delayed substantially, partly at least as a result of bad weather.
In accordance with the letter of offer in respect of the loan dated 28 June 2007, LMI was entitled to call for an annual re-valuation of the secured property. It obtained that valuation on 3 November 2008. That valuation indicated that the value of the project on completion had reduced to $31,414,152 exclusive of GST.
Prior to the revised valuation being received, Greystanes had made a further progress claim which was the subject of BMT's progress report no 13 dated 27 November 2008. That report recommended a total payment in respect of the relevant claim of $303,425 (including GST). Having regard to the reduction in the value of the project, the payment of that claim would have caused the loan to valuation ratio to exceed 66.67 percent by a substantial margin. For that reason, approval of the claim was referred to LMI's credit committee, which approved a payment of $189,711. That consisted of the amount recommended by BMT ($303,425 inclusive of GST) less GST for the month of September totaling $113,714.
Toro served a further payment claim on 27 November 2008 claiming an amount of $1,912,764.73. On 15 December 2008, BMT issued progress report no 14 recommending a payment of $274,837 in respect of that claim.
On 16 December 2008, Toro issued a notice pursuant to s 27 of the Building and Construction Industry Security of Payment Act 1999 (NSW) giving notice that it intended to suspend work if the amount of $1,912,764.73 was not paid in full.
By letter dated 18 December 2008, LMI gave notice to Greystanes requiring it to pay $1,049,629 to restore the Facility to Security Ratio to the amount specified in the Loan Agreement and gave notice that Greystanes was in default of the Builder's Side Deed and that it was required to pay Toro the sum of $1,912,764.73 to remedy the breach.
On 29 January 2009, Greystanes requested LMI to deposit $100,000 directly into Toro's account. That deposit was made the same day.
Following LMI's letter dated 18 December 2008, there were negotiations between LMI, Greystanes and Toro concerning the future of the Development. One proposal that was considered was suspending work on the Development for a period of twelve months in anticipation that the market would improve over that period of time. However, nothing came of those proposals.
In the meantime, BMT prepared two further payment reports. Report no 15 was dated 5 February 2009. It recommended payment of the amount of $273,726 that was claimed by Toro. Report no 16 was dated 19 March 2009. It did not recommend the payment of any amount because no further work had been undertaken since report no 15.
LMI made two further payments in respect of the Greystanes loan. One was made on 26 March 2009 for $250,000. The other was made on 23 April 2009 for $148,694.
On 24 April 2009 an adjudication certificate under the Building and Construction Industry Security of Payment Act 1999 was issued in favour of Toro against Greystanes in the amount of $1,424,104.60. Based on that certificate, on 8 May 2009 Toro registered a judgment in this court in the amount of $1,025,410.60.
No solution was found to enable the Development to proceed. On 28 April 2010, LMI sent notices of demand to Greystanes and the guarantors in relation to defaults under the Loan Agreement and eventually, on 14 September 2011, LMI took possession of the Development site as mortgagee in possession.
Subsequently on 8 June 2012, Greystanes was placed into liquidation. The land was sold on 30 May 2014 for $7,397,044.27.
The plaintiffs retained Mr Tony Makin as an expert quantity surveyor and BMT retained Mr David Radcliffe. The experts produced a joint report dated 29 September 2015. In that joint report, the experts agreed that as at 29 January 2009, which was the date of BMT's progress report no 15, BMT had overvalued the four trades by the amounts stated in [4] above. They also stated in their report that the information provided to them "does not enable them to provide a value for the work completed at the time of each individual progress report. Sufficient information is provided only to value the work at the point in time when the work stopped".
The experts also reached the following conclusions in relation to the question whether BMT performed its work in accordance with widely accepted competent professional practice: 36. The Experts agreed that BMT failed to perform its obligations in accordance with widely accepted competent professional practice in the valuation of the original budget in progress recommendations. 37. The site inspections, as evidenced by the site notes and record photographs, were carried out satisfactorily. However, the process of converting this information into a reasonable recommended payment was not completed satisfactorily, at least to the extent referred to in the four trades in questions 1 to 3 above. 38. BMT reported the status of delays satisfactorily. 39. BMT did not value any contract claims but reviewed a claim for delay and disruption cost and recommended that no payment be made. BMT recommend [sic] that more detail be requested from Toro and advised that the amount claimed did not form part of the agreed budget or cost to complete. 40. No evidence has been provided of any review of the value of variations but the incorporation of variations (assuming that the values were agreed by others) was carried out satisfactorily.
Following the preparation of the joint report, Mr Radcliffe prepared a supplementary report dated 17 November 2015 in which he expressed the opinion that if all the pre-cast panels that were to form the walls of warehouses 17 to 30 had been poured and were awaiting erection at the time work ceased, then the amount by which the claim for concrete had been overstated should be reduced by $501,030 to arrive at a figure of $999,748. Mr Makin agreed with that conclusion, but not with the assumption on which it was based. I return to this issue below.

Duty and breach

BMT admits that it was an implied term of the consultancy agreement that it would perform its obligations under the agreement with reasonable care and skill and that it would provide an independent assessment of completed work for each progress claim. It does not admit any of the other implied terms pleaded by the plaintiffs, but it is difficult to see how those implied terms add anything to the admitted ones.
There can be little doubt that BMT also owed LMI a duty of care in connection with the preparation of the reports. Mr Hicks, who appeared for BMT, submitted that BMT had not admitted that it owed LMI a duty of care because LMI had failed to plead or particularise or otherwise assert vulnerability. However, it is doubtful that LMI was required to plead that it was vulnerable in the relevant sense. What it had to do was plead the facts which gave rise to a duty of care. As the plurality pointed out in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at [23] "vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed". There is a question whether vulnerability in the relevant sense encompasses concepts of assumption of responsibility and known reliance and whether vulnerability of the plaintiff to the defendant's conduct is critical for the existence of a duty of care to avoid pure economic loss. In Perre v Apand Pty Ltd [999] HCA 36; (1999) 198 CLR 180 at [125], for example, McHugh J said: … reliance and assumption of responsibility are merely indicators of the plaintiff's vulnerability to harm from the defendant's conduct, and it is the concept of vulnerability rather than these evidentiary indicators which is the relevant criterion for determining whether a duty of care exists. Whether that is correct or not, the assumption of responsibility and known reliance may play an important role in determining whether a duty of care to avoid pure economic loss exists: see Woolcock at [24].
In the present case, BMT was a firm of expert quantity surveyors. It was engaged by LMI for the express purpose of providing advice in relation to matters that fell within its area of expertise. It was engaged on terms that made it clear that LMI would rely on its advice in approving drawdowns. It is plain that in those circumstances it owed LMI a duty of care to avoid economic loss arising from the advice that it gave: see, for example, L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225.
Having regard to the conclusions of the expert quantity surveyors in this case, there can be little doubt that BMT breached the contractual and tortious duties that it owed LMI.
Mr Hicks also accepted that, on the basis of the expert evidence, BMT contravened s 52 of the Trade Practices Act.

Causation

In Australia, it is well established that where a lender advances money on the basis of a negligent valuation or misleading or deceptive conduct, the lender is entitled to recover the difference between what was lent and what would have been lent on the true value of the property. If the transaction would not have proceeded at all, generally speaking, the lender is entitled to recover the whole loss that it suffers from the transaction: see Kenny & Good Pty Limited v MGICA (1992) Limited [1999] HCA 25; (1999) 199 CLR 413.
Mr Hicks submitted that that principle had no application to this case for two reasons. First, in this case, the money was advanced at monthly intervals against the value of work that was ongoing. To the extent that Toro was overpaid in any particular month that payment was made on account of future work. Consequently, it could not be said that a loss was suffered in relation to each particular advance since Toro remained obliged to perform the work in respect of which the advance had been made and Greystanes remained obliged to permit it to do so. That conclusion is reinforced by the fact that there is no evidence that in any particular month the amount recommended for payment by BMT was excessive. Second, work on the Development ceased following the global financial crisis. At that time, LMI was in a position to require Toro to complete the works but instead it elected to abandon the project. Any loss it suffered arose from that election.
I do not accept these submissions. Even if it is not possible to determine which particular progress payments were overvalued, it is apparent from the expert evidence that taken as a whole the work was overvalued. It is equally apparent that LMI would not have advanced more than the amount recommended by BMT. It is difficult to see why LMI should not be entitled to recover the difference between the amount it advanced and the amount that it would have advanced if it had been given the correct advice, even if it is not possible to tie the amount over-advanced to particular monthly reports. It is possible that if the earlier reports overvalued the work with the result that LMI would have advanced less than it did if those reports had been accurate, work on the Development would have come to an end earlier than it did. However, LMI did not seek to put its damages claim on that basis, and had it done so the likelihood is that its damages would have been greater.
It is difficult to understand Mr Hicks's second point. It is apparent that work ceased because LMI was not prepared to advance further moneys in circumstances where it had no obligation to do so, Greystanes did not have the funds to complete the Development itself and Toro was not prepared to do further work without being paid. Those circumstances may have been brought about, at least in part, by the global financial crisis. However, it is difficult to see why a decline in the market, and the consequent inability to complete the Development, was not one of the possible risks of the project that the valuations undertaken by BMT were designed to protect LMI against; and consistently with the approach taken by the High Court in Kenny & Good Pty Limited v MGICA (1992) Limited it is difficult to see why LMI should not be entitled to recover the full loss it suffered as a result of those circumstances. It is true that LMI could have completed the Development itself or sought to sell it in its then current state earlier than it did. But those points do not establish that the loss it claims was not suffered as a consequence of BMT's advice. They may have formed the basis of an allegation that LMI failed to mitigate its loss. However, no such allegation is made.

What stage had the concrete works reached?

The contention that the concrete panel walls for warehouses 17 to 30 had been fabricated and were ready to be erected rests primarily on an email dated 25 August 2010 from Mr Mariani, who was employed by Intercapital Consultants, to Mr Batcheldor and the failure of LMI to call Mr Batcheldor to rebut any inference that can be drawn from that email. The email was concerned with the question of what could be done to make the (uncompleted) Development more attractive to a potential buyer. In that email, Mr Mariani relevantly said: Pls refer to attached drawing which shows the layout of the development with relevant statistics. For your information, warehouse Nos. 1 to 16 have been erected without roof sheeting and for warehouse Nos. 17 to 30 the factory slab has been poured and the concrete wall panels have been poured waiting to be lifted. I've had a long look at what we can do and, essentially, in my opinion we only have two choices in making some larger units, namely:- 1 - "Punch Holes" in the walls (rear or adjoining) of the existing layout for warehouse Nos. 17 to 30 The development was designed so that selected units could be "merged" by "punching holes" in the warehouse walls. The units that can be "merged" are the units that have the same Finished Floor Level (FFL). This is very easy to do (both in cost and practice) if a purchaser wants a larger unit. 2 - Completely "trashing" what has been done and making new applications with Council.
In my opinion, this email does not establish that all the wall panels had been poured. The email was written approximately 18 months after work on the Development ceased. It is consistent with only some of the panels having been poured; and the reference to "punching holes" is likely to be a reference to a change in the design, rather than a change in construction. The plaintiffs are in liquidation and Mr Batcheldor is no longer employed by LMI. At most, all that could be inferred from the fact that he was not called by the plaintiffs is that he has no recollection now of the stage the work on the Development had reached. On the other hand, BMT served a statement from Mr Mariani but chose not to call him. It may be inferred from that that Mr Mariani has no recollection of panels having been poured. The likelihood is that because of their size and weight the panels would have been poured on site. That conclusion is consistent with Toro's quotation dated 21 June 2007 which describes the scope of works in relation to the wall panels as "Construction of 150 ml, thick concrete wall panels, to be constructed On the factory floors on site". There is photographic evidence that a small number of panels were on site at the time of BMT's last report and that those panels remained on site when it was inspected by Mr Makin. But there is no evidence that any other panels were poured either on site or off site.
It follows that, in accordance with the joint report of the experts, BMT overvalued the work in respect of concrete by $1,500,778.

Payments following defaults under the Loan Agreement

BMT seeks to attach significance to these payments in two ways. In its written submissions, it contended that the overpayments were not caused by any breach of duty on the part of BMT. LMI chose to make the payments notwithstanding that there had been a default by Greystanes. In oral submissions, on the other hand, Mr Hicks contended that the payments made on 26 March 2009 and 23 April 2009 were not made under the Loan Agreement but were made in order to obtain a release from Toro of its rights under the Building Contract. That submission was said to be supported by the fact that no amount in respect of GST was deducted from those payments.
The oral submissions made by Mr Hicks are not consistent with the documentary evidence relating to the payments. It is plain that those payments were made as advances due under the Loan Agreement in accordance with the recommendations contained in BMT's reports. The amount recommended for payment in respect of claim no 14 by BMT (exclusive of GST) was $249,852 and the amount recommended for payment in respect of claim no 15 by BMT (exclusive of GST) was $248,842. The payments made on 29 January 2009, 26 March 2009 and 23 April 2009 total the total of those two amounts. Moreover, the payment of $148,694.00 was described in LMI's internal records requesting the payment as "Final payment of construction payments". Mr Tickner, who was in charge of the Sydney office and responsible for the loan to Greystanes gave evidence. It was not suggested to him in cross-examination that the payments in question were made for some other purpose. It is true that LMI deducted the amount of GST payable in respect of the actual payments rather than the GST that had been advanced as part of previous drawdowns. But that cannot change the character of the payments.
It is difficult to follow BMT's alternative submission. There is no evidence to suggest that LMI appreciated at the time the advances were made that BMT had overvalued the work. Mr Tickner was not cross-examined on why LMI made the advances despite the default by Greystanes, but presumably they were made because Toro, so far as LMI was aware, had completed the work that was the subject of the drawdown requests and the requests had been approved by BMT to the extent of the advances. It is difficult to see why BMT should not be liable for those advances even if LMI was not under a legal obligation to make them. In addition, BMT's complaint that LMI should not have made the last three advances does not sit easily with its complaint that it did not do more to enable the Development to be completed. The last three advances were made at a time when LMI was investigating whether there was some means by which the Development could be completed. It might be expected that in those circumstances it would pay to Toro directly amounts that BMT had concluded were owed to it. In doing so, it preserved the possibility of insisting on Toro completing the building work if a means could be found to pay its costs of doing so.

Retention moneys

The issue in relation to retention moneys arises in this way. It is the plaintiffs' case that Toro was overpaid as a result of the overvaluation of its work by BMT. However, in accordance with the Building Contract, Toro was not paid the retention amount of $624,754. Accordingly, any claimed overpayment must be reduced by that amount or at least the proportion of that amount that relates to the four trades said to have been overvalued. Or, to put the point slightly differently, the total value of the work performed by Toro as certified by BMT was $8,630,430 (excluding GST). However, the amount advanced by LMI consisted of that amount less the retention amount of $624,454. In fact, the value of the work performed by Toro as agreed by the experts was $6,586,268. As a result, LMI advanced $8,005,676 (that is, $8,630,430 less $624,754). Consequently, it advanced $8,005,676 and got $6,586,268 worth of work. It is the difference between those two figures ($1,419,408) that represents the amount of its loss.
In my opinion, this contention confuses the amount paid and payable under the Building Contract, or the value of the work done under the Building Contract, with the amount advanced by LMI. LMI's damages are calculated as the difference between the amount it advanced and the amount it would have advanced if the work had not been overvalued by BMT. In each case, the amount advanced would have excluded the retention moneys. On the figures referred to in the previous paragraph, LMI actually advanced $8,005,676. If it had been given the correct advice by BMT, it would have advanced $5,961,514. It is the difference between those two amounts that represents its loss. The fact that the value of the actual work performed by Toro was greater than that (because it had not been paid for part of the work) or the fact that Toro may have, in the events that have happened, some right under the Building Contract to recover from Greystanes all or some part of the retention moneys is irrelevant to the amount that would have been advanced by LMI if BMT had not breached the duties it owed. Consequently, it is irrelevant to the calculation of damages.

GST

As I have said, LMI in effect deducted GST from the payments in respect of progress claims nos 14 and 15 - that is, it paid the GST exclusive amounts recommended by BMT in respect of those claims. It did not, however, deduct the GST component of progress claims nos 12 (which was $18,647) or 13 (which was $27,584). BMT submits that it should not be liable for the GST amounts it could have deducted but did not, since the failure to recover those amounts arose from LMI's own conduct rather than any breach by BMT.
This submission suffers from the same flaw as a number of BMT's earlier submissions. Damages are to be assessed by comparing the amount LMI advanced with the amount that it would have advanced if BMT had been given the correct advice. The fact that LMI might have chosen to advance a lesser amount for other reasons but did not do so is not to the point, except to the extent that it might be said that LMI failed to mitigate its loss (an allegation that is not made). In the present case, LMI deducted from the last two claims that it paid GST in respect of the amount of those claims rather than GST that had been advanced in respect of earlier claims. There is no reason to think that it would have acted any differently in relation to GST had it known that BMT had over-valued the claims. Consequently, there is no reason to reduce the amount of its claim by the amount of GST it could have deducted from the advance it made but did not.

Proportionate liability

BMT contends that LMI's claim is an apportionable claim within the meaning of s 34 of the Civil Liability Act 2002 (NSW) and s 87CB(1) of the Trade Practices Act 1974 (Cth) (as it then was), that Greystanes was a concurrent wrongdoer within the meaning of those provisions and that consequently BMT's liability is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of its responsibility for that damage or loss.
It is convenient to focus on the provisions of the Civil Liability Act. The relevant provisions of the Trade Practices Act do not raise different issues.
The relevant sections are ss 34 and 35. Insofar as they are material, they provide: 34 Application of Part (1) This Part applies to the following claims (apportionable claims): (a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury, (b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1987 for a contravention of section 42 of that Act (as in force before its repeal by the Fair Trading Amendment (Australian Consumer Law) Act 2010) or under the Australian Consumer Law (NSW) for a contravention of section 18 of that Law. (1A) For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind). (2) In this Part, a concurrent wrongdoer, in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim. (3) … … 35 Proportionate liability for apportionable claims (1) In any proceedings involving an apportionable claim: (a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and (b) the court may give judgment against the defendant for not more than that amount. … (3) In apportioning responsibility between defendants in the proceedings: (a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law, and (b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings. …
Relying on the decision in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613, BMT submits that the loss and damage LMI suffered as a consequence of BMT's conduct was the failure to recover the amount it advanced on the faith of BMT's advice. That was the same loss and damage LMI suffered as a consequence of Greystanes' failure to repay the loan. Consequently, the claim was an apportionable one and BMT's liability should be limited to the amount that reflects its responsibility for the loss and damage. According to BMT, an appropriate amount is ten percent of the amount claimed.
The requirement that the loss and damage be the same is a necessary condition for the claim to be an apportionable one. However, it is not sufficient. In order for a claim to be an apportionable one it must relevantly also be a claim for economic loss "in an action for damages … arising from a failure to take reasonable care". And in order for the liability of the defendant to be reduced, the defendant must be a "concurrent wrongdoer". In order for a defendant to be a concurrent wrongdoer there must be at least one other concurrent wrongdoer - that is, at least one other person in relation to the apportionable claim whose acts or omissions caused independently or jointly the damage or loss that is the subject of the claim.
Although the legislation is not entirely clear, each person who is said to be a concurrent wrongdoer must be a person against whom a claim is or could be made for economic loss in an action for damages arising from a failure to take reasonable care. It is plain from s 34(1) that Part 4 of the Act is only concerned with apportionable claims. Consequently, when s 34(2) defines a "concurrent wrongdoer" by reference to a claim, it must be doing so by reference to an apportionable claim, with the result that a concurrent wrongdoer is a person relevantly who caused damage or loss that is the subject of a claim for economic loss arising from a failure to take reasonable care. That conclusion is consistent with the fact that the court is required to apportion the claim having regard to the defendant's responsibility for the damage or loss and the comparative responsibility of other concurrent wrongdoers. The word "responsibility" encompasses evaluative notions concerned with the degree to which each party's failure to take reasonable care caused the loss. If a concurrent wrongdoer was simply a person who contributed to the loss, whether as a result of a failure to take reasonable care or not, then it is difficult to see why s 35 uses the word "responsibility". It would have made more sense for the section to require the court to limit the defendant's liability to the amount it considers just having regard to the extent to which the defendant caused the loss.
Any other conclusion would have the odd result that X could be a concurrent wrongdoer with Y in circumstances where Y was not a concurrent wrongdoer with X. For example, take a simple case in which a lender lends money on the basis of a negligent valuation and is unable to recover that money because the borrower is unable to repay it. If the lender were to sue the borrower, that claim would not be an apportionable one since there was no claim for economic loss arising from a failure to take reasonable care. The claim is simply a claim to recover a debt. Consequently, the borrower could not seek to have its liability reduced on the basis that it was a concurrent wrongdoer with the valuer. On the other hand, if the valuer were sued, the claim would be an apportionable claim. If anyone who was liable in respect of that claim were a concurrent wrongdoer, the valuer would be a concurrent wrongdoer with the lender and could have its liability reduced - presumably taking into account the borrower's responsibility for the loss. It is difficult to believe that that is what was intended by the legislation.
The conclusion of the previous paragraphs is consistent with the decision in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613. In that case, Mitchell Morgan lent money on security of real property. The loan was obtained as a result of the borrower's fraud and the fraud of the borrower's cousin, a solicitor, who falsely certified that he had identified the true owner of the property over which Mitchell Morgan took security and witnessed that person's signature on the loan documentation and mortgage, when in fact that person's signature had been forged by the fraudster borrower. The loan agreement was held to be void because of the forgery, with the result that the mortgage secured nothing. Mitchell Morgan sued its solicitors claiming that they were negligent in failing to draft a mortgage that included a covenant to repay a specific amount. The question before the High Court was whether the two fraudsters were concurrent wrongdoers with Mitchell Morgan's solicitors. That question turned on whether the claim against them was in respect of the same loss. A majority held that it was. That loss was the inability of Mitchell Morgan to recover the moneys advanced. The solicitors and fraudsters each materially contributed to that loss: see [2013] HCA 10; (2013) 247 CLR 613 at [9]. But it was plain in that case that the claim available against each of the solicitors and fraudsters was a claim for economic loss arising from a failure to take reasonable care. The majority specifically left open the question whether a claim in debt was a claim for loss or damage: at [42].
In my opinion, in the present case, Greystanes was not a concurrent wrongdoer because it was not liable in respect of an apportionable claim. It was liable in an action for debt that did not depend on establishing a failure on its part to take reasonable care. It simply depended on a failure to repay the money that was lent.

Contributory negligence

BMT pleads that LMI was guilty of contributory negligence, although no submissions were advanced by BMT in support of that allegation and it is difficult to know to what extent, if at all, the allegation is pressed.
It is pleaded that LMI was guilty of contributory negligence in two broad respects. First, it ignored BMT's repeated warnings concerning the delays in the project that were likely to lead to increased costs. Second, it failed to take any steps either to ensure that the Development was completed or recover the amount owing to it.
There is no merit in an allegation of contributory negligence of the first type. The allegation appears to be that LMI was guilty of contributory negligence in advancing further funds because, acting reasonably, it ought to have appreciated that because of the delays there would be cost overruns, with the result that it would not be able to recover the amount it lent. There are, however, a number of problems with that allegation. First, it was not put to any of LMI's witnesses. Second, there is no evidence to establish that the delays caused cost overruns, what those overruns were and how they affected Greystanes' ability to complete the Development and LMI's ability to recover its loan. Third, BMT was aware of the delays. Nonetheless it recommended the payments in question. It is difficult to see why LMI was guilty of contributory negligence in accepting those recommendations.
As to allegations concerning LMI's failure to take steps to complete the Development or recover its loans, those allegations do not appear to be allegations of contributory negligence. Rather, they are allegations that LMI failed to mitigate its loss. There is no evidence, and BMT makes no submissions, concerning what else LMI could have done that would have improved its position. As a result, the allegations go nowhere.

Limitation defence

In relation to BMT's limitation defence, it is not disputed that the limitation period is six years from the time the relevant cause of action accrued. In the case of the claim in negligence and the claim based on s 52 of the Trade Practices Act that was when the damages were sustained. The damages were sustained when it became apparent that LMI would not be able to recover the amounts that it had overpaid: see Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514. At the earliest that was in early 2009, when Toro ceased work and it became apparent that the overpayments could not be set-off against amounts payable to Toro in respect of future work. The proceeding was commenced on 2 December 2013. It follows that the limitation period in respect of the claims in negligence and under s 52 of the Trade Practices Act had not expired.

Orders

There should be judgment in favour of the plaintiffs substantially for the amount that they claim plus interest. If the parties can agree on the precise amount, I will make the necessary orders in chambers. If not, the matter should be relisted by contacting my Associate to deal will any outstanding issues.
The plaintiffs have been successful. In the normal course of events, they should have their costs. However, before making that order I will give the parties an opportunity to be heard on costs if they wish to be. If not, I will make an order for costs at the same time as I make other orders disposing of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 December 2015

Trade Practices Act 1974(Cth)s 52

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