Permanent Custodians Ltd v Keenhem Pty Ltd

District Court of NSW|2012-08-27

Judgment 1The plaintiff by amended statement of claim filed on 12 July 2012 seeks damages for losses incurred by the plaintiff, which carries on a business of providing loan funds, arising from the circumstances in which a valuation was negligently prepared by the fourth defendant. 2These proceedings are by way of assessment of damages only. Judgment was entered in favour of the plaintiff against the fourth defendant on 4 May 2012. 3Orders have also been made today as between the plaintiff and the second defendant as set out in the orders appearing at the end of this judgment. The remaining defendants were never served. 4The circumstances in which the fourth defendant was made aware of the claim for assessment of damages are set out in two affidavits of Samantha Anne Peterson sworn on 17 and 24 August 2012 (Exhibit A), enclosing copies of affidavits and a schedule of losses claimed. The fourth defendant has been kept fully informed of the nature and extent of the claim for damages against him. He has elected not to appear in court today, or to provide any evidence, expert or otherwise, by way of challenge to the assessment of damages proposed on behalf of the plaintiff. 5The circumstances leading to these proceedings may briefly be stated as follows. In or about June 2005, Simple Plans Pty Ltd, as trustee for the Rocky Rentals Trust, the borrower, applied to the plaintiff for a loan of $256,000, offering as security a property located at 268 Denham Street, Rockhampton in Queensland ("the property"), over which the plaintiff held a first registered mortgage (see paragraph 11 of the amended statement of claim). A valuation prepared by the first and second defendants in the sum of $320,000 was provided. On 12 July 2005, the plaintiff advanced $256,000 to the borrower in reliance upon this valuation. This valuation in fact contained serious deficiencies, only one of which was the description of the property as a five bedroom house when it was in fact a one bedroom (plus sleep-out) house. 6Then, in April 2006, the borrower applied to the plaintiff a second time, seeking an increase in the amount of the loan in the sum of $140,000, on the basis that such increase would remain secured by the property. The valuation of the fourth defendant for $495,000 was relied upon by the plaintiff. In fact, as the expert report of Brian Cox (Exhibit B) shows, this valuation was manifestly excessive. A true market valuation would have been $250,000 as at 30 March 2006 (page 34 of Mr Cox's report). The fourth defendant's valuation was replete with errors as to the features of the house and appropriate comparable sales, and consequently overstated the true market value of the property as at the date of valuation (30 March 2006). 7The full extent of the loss became realised when, on 23 October 2007, the borrower defaulted. Settlement of the sale of the secured property by the plaintiff, exercising its power of sale, occurred on 16 June 2009, when the property was sold for $310,000, resulting in net proceeds of $295,754.26. 8The damages sought in the amended statement of claim are claimed pursuant to s 52 Trade Practices Act 1974 (Cth), s 42 Fair Trading Act 1987 (NSW) and s 38 Fair Trading Act 1989 (Qld), and on common law principles. 9The plaintiff has provided a schedule of damages and a schedule of interest, which are set out below.

Schedule of damages 10This schedule is based on a "no transaction" case in respect of the second loan advance ($140,000 in May 2006). 11It is necessary to include as part of the damages calculation the earlier loan advance of $256,000 which was made by the plaintiff on 12 July 2005, plus the contractual interest on this sum, in order to: (a)Take into account the receipts by the plaintiff (repayments by borrower and the net sale proceeds) (b)Calculate the plaintiff's losses in respect of the Upstamp loan advance, which was made in reliance on the fourth defendant's valuation of 30 March 2006. 12The paragraph references below are to Nathan MacKay's affidavit sworn 28 June 2012. A. Original loan advance 12 July 2005 [paragraph 83] $256,000 Contractual Interest $95,113 ($351,113) Interest from 5 May 2006 (date of Upstamp) to settlement (16 June 2009) on total loan advance of $396,000 = $124,215.12 [paragraph 94] Original loan advance $256,000 [paragraph 83] Total loan advance $396,000 [paragraph 83] $124,215.12 x $256,000/$396,000 = $80,300.68 (interest relating to original loan advance only) Plus interest on original loan advance from 12 July 2005 to 4 May 2006 [paragraph 90] $14,832.44 B. The plaintiff received: Net proceeds of sale [paragraph 86] $295,754 Actual loan repayments by borrower [paragraph 85] $95,042 $390,796 C. The plaintiff therefore takes into account a credit of: ($39,683) D. The plaintiff lost: The Upstamp loan advance which would not have been made [paragraph 72(j)] $140,000 Interest on the Upstamp Loss of $140,000 from 5 May 2006 (Upstamp advance date) to 16 June 2009 (settlement date), calculated as set out in Schedule A. $42,368.21 Expenses and costs [paragraphs 87 and 90] $11,983 ($194,351.21) Total losses suffered by the plaintiff on No Transaction case as at 16 June 2009 D - C ($194,351.21 - $39,683) $154,668.21 Plus Pre-judgment interest (see Schedule of interest) $42,820.84 TOTAL $197,489.05

Schedule of interest 13The plaintiff seeks pre-judgment interest at the Court scale on the net capital and interest loss of $154,668.21 (the total loss noted above) from 16 June 2009 (date of settlement) to 27 August 2012, namely the sum of $42,820.84. 14The plaintiff relies on La Trobe Capital & Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd [2011] FCAFC 4 ("La Trobe") in this regard. The schedule of interest is as follows:

Schedule A Amount Outstanding (Pre Judgment) Start Date Through Date - (inclusive) Interest (p.a) Nos. of Days Daily Amount Interest Due $140,000.00 5/5/2006 31/12/2006 9.00% 241 $34.5205 $8,319.4521 $140,000.00 1/1/2007 5/3/2009 10.00% 795 $38.3562 $30,493.1507 $140,000.00 6/3/2009 16/6/2009 9.00% 103 $34.5205 $3,555.6164 Subtotal $42,368.2192

Amount Outstanding (Pre Judgment) Start Date Through Date - (inclusive) Interest (p.a) Nos. of Days Daily Amount Interest Due $154,668.21 17/6/2009 30/6/2009 9.00% 379 $38.1374 $14,454.0620 $154,668.21 1/7/2010 31/12/2010 8.50% 184 $36.0186 $6,627.4269 $154,668.21 1/1/2011 30/6/2011 8.75% 181 $37.0780 $6,711.1172 $154,668.21 1/7/2011 31/12/2011 8.75% 184 $37.0780 $6,822.3512 $154,668.21 1/1/2012 30/6/2012 8.25% 182 $34.9593 $6,362.5840 $154,668.21 1/7/2012 27/8/2012 7.50% 58 $31.7811 $1,843.3061 Subtotal $42,820.8474

15The nature of the quantum of damages which a secured lender may recover when monies had been lent in reliance upon a negligent valuation of the security is explained by Finkelstein J in La Trobe, supra. 16Mr Kalfas SC draws my attention to the affidavit of Nathan MacKay sworn on 28 June 2012 (Exhibit C) and submits that the loan would not have been made if the true position was known, namely that at the time that the amounts were advanced, the true value of the property was the value attested to by the expert witness Mr Cox, namely $250,000. The process by which a loan application is assessed to consider certain factors with the valuation before making a recommendation is set out in the affidavit of Mr MacKay. The circumstances in which the loan was first advanced on 12 July 2005 (for $256,000) and then increased by $140,000 on 5 May 2006 are causally related: c.f. Provident Capital Ltd v John Virtue Pty Ltd (No 2) [2012] NSWSC 319 at [159]-[164] ("Provident Capital").

Interest 17In La Trobe, supra, the court stated that the proper manner of approach is to award interest at a rate which would place the plaintiff in a position it would have been if the tortious conduct had not occurred: see Provident Capital, supra, at [211]. 18I accept the schedule provided by the plaintiff in this regard.

Conclusion 19I am satisfied that the plaintiff has established financial loss for the sum claimed (see the total figure in the schedule of damages set out above). 20Costs are discretionary, and normally follow the event. The fourth defendant is to pay the plaintiff's costs as agreed or assessed.

Orders 21Accordingly, I make orders as follows: As against the second defendant: Orders in accordance with the Consent Judgment filed in court today as follows: (1)Verdict for the second defendant. (2)Second defendant pay the plaintiff $35,000 in costs. As against the fourth defendant: (1)Fourth defendant (Michael Peter Murphy) called three times outside Court 13D at 10:09am - no response. (2)Judgment for the plaintiff against the fourth defendant in the sum of $197,489.05. (3)Fourth defendant pay the plaintiff's costs.

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: 28 August 2012

Trade Practices Act 1974(Cth)

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