Plaintiff v Defendant

2 The Bank had lent $11,800,000.00 ("the loan") to the first plaintiff ("Glodale") under a loan agreement ("the loan agreement") dated 19 September 2001. Part of the security for the loan was a mortgage of the Verandahs by the second plaintiff ("Boz One") and a mortgage of the Boathouse by the third plaintiff ("Boathouse Port Douglas"). Each of Boz One and Boathouse Port Douglas also gave the Bank fixed and floating charges over their respective assets. The main person through whom each of the plaintiffs acted at all times, and who gave evidence on their behalf, was Mr Rolfe.

3 Glodale defaulted under the loan agreement on 19 April 2002 and has been unable to remedy that default. Various attempts were made to sell the properties including the engagement in August 2003 of Mr McLeod of Belle Property Barrier Reef Pty Ltd ("Belle Property"), an estate agency in Port Douglas. On 29 November 2002 the plaintiffs and the Bank entered into an Asset Management Deed ("the Asset Management Deed") which was negotiated by the parties who were represented by solicitors. The Asset Management Deed permitted Boz One and Boathouse Port Douglas to sell their respective properties but they were unable to do so.

4 On 11 March 2003 the bank appointed Messrs Crosbie & McLellan as receivers and managers ("the receivers") for each of the Verandahs and the Boathouse. The receivers subsequently appointed Sutherland Farrelly Pty Ltd ("Sutherland Farrelly"), a Melbourne based company, and the Cairns estate agents Ray White to conduct a marketing campaign to sell the Verandahs and the Boathouse. On 29 April 2003 a letter was sent to interested parties informing them that the properties were going to be sold by tender and on 8 May 2003 tender documents ("the tender documents") were issued by Gadens as solicitors for the receivers.

5 On 10 June 2003 the receivers entered into a contract with a Mr Delios for the sale of the Verandahs for $4,330,000.00. On 12 June 2003 the receivers entered into a contract for the sale of the Boathouse with Our Stuff Pty Ltd ("Our Stuff") for $2,650,000.00. The two contracts of sale by the receivers were not, however, completed by them. Each of the properties had also been mortgaged to First Melbourne Capital Pty Ltd ("FMC"), as second mortgagee, to secure a loan not exceeding $1,000,000.00. The Bank received notice of that loan on 27 May 2003 although the loan had been signed (without the Bank's knowledge) on 18 October 2001. FMC refused to discharge its second mortgage over the two properties with the consequence of preventing the completion of the two sales by the receivers. The Bank thereupon served notices under s.84 of the PLA and in August 2003 completed the sales as contracting party in the capacity of mortgagee in possession. The proceeds of those sales were insufficient to meet the indebtedness claimed by the Bank against the plaintiffs, which is the subject of its counterclaim in this proceeding.

6 The claim against the Bank is essentially that the sales were not at market value. S.85(1) of the PLA imposes a duty upon the Bank "to take reasonable care to ensure that the [properties were] sold at the market value". S.420A(1) of the Corporations Act requires that the Bank take all reasonable care to sell the properties at not less than market value (if they had a market value) or otherwise at the best price that was reasonably obtainable. There was no dispute between the parties that the properties had a market value.

7 The claim that the Bank did not sell the properties at their market value concerned the method of sale which had been adopted. Each of the two properties were sold "in one line" rather than as individual sales of the apartments in the two blocks. The Boathouse was a unit development of approximately 2,000 square metres in area, consisting of 18 units of different sizes and numbers of rooms. The Verandahs is also a unit development of similar size consisting of 20 units. The two properties had each been offered for sale by the receivers as, respectively, combined lots "in one line" rather than as 38 individual apartments. The Bank adopted the contracts which were first made by the receivers as its own in August 2003.

8 The plaintiffs contend that the sales in one line did not, and could not, secure the market value of the two properties. The Bank contends that it was entitled to sell each of the two properties in one line and that the prices received from the sales on that basis were the market value.

9 The evidence concerning the market value is that the two properties could secure different amounts if sold in one line or as individual apartments. That is not surprising because the potential market for the sale of entire apartment blocks is different from that of the sale of the individual apartments. Mr Quinn of Herron Todd White ("HTW") had provided valuations in December 2002 and had valued the total of the individual apartments of the Verandahs at $6.54 million and at $5.56 million in one line or on a forced sale. He valued the total of the individual apartments of the Boathouse at $4.86 million and at $4.131 million in one line or on a forced sale. A significant component of the difference in value between an in one line sale and a sale of the total of the individual apartments is that a prospective purchaser would look to buy the entire block at a price that would permit a resale of the individual apartments at a profit. Thus, the "in one line sale" price would reflect a "discount" from the gross sales of the individual apartments that would in effect secure to the purchaser the value of the "risk and profit" of subsequently selling the apartments individually. Mr Quinn assessed the "discount" for an in one line sale at 15% of the total value for gross sales of the individual units. Mr Eales, a Queensland valuer, similarly attributed 15% as the profit and risk component of a valuation in one line that would reduce the value otherwise attributable to the apartments upon a gross sale of them individually. A fundamental difference between the two methods of sale may thus be seen to be in the transfer of risk and profit to the "in one line" purchaser in return for the certainty to the vendor of sale of the entire lot: the purchaser assumes the risk of the individual sales for the potential benefit of profit which may be obtained, whilst the vendor is relieved of the risk of not securing that profit in return for the certainty of an immediate sale. In that way the two methods of sale (or valuation) may, in a perfect market, be seen as the one market value with a transfer of the element of risk and profit in return for its monetary evaluation.

10 A mortgagee's duty under s.85(1) of the PLA was considered by the High Court in Commercial and General Acceptance Ltd v Nixon[1]. The statutory duty when exercising a power of sale is not only to act in good faith but also to take reasonable care to ensure that the property is sold at the market value. Whether reasonable care has been exercised will doubtlessly vary from case to case and may perhaps be informed by the fact that a mortgagor will typically be a lender (and will have assumed the risks associated with lenders) rather than developers, entrepreneurs or owners with special attachments. Thus, what is reasonable from the point of view of a selling developer may not be reasonable from the point of view of a selling financier who has come into possession to sell as mortgagee. Indeed it may in certain cases be unreasonable and contrary to the best interests of any of the parties for a mortgagee to undertake activities when selling properties which are beyond the mortgagee's competence or which assume commercial risks that a lender may not be well placed to take or evaluate.

11 In my view the Bank in this case could elect to sell the properties "in one line" or in a "combined sale" of the apartments in the two blocks notwithstanding that a consequence was that sales on that basis would produce a lower monetary amount than if the apartments had been sold individually. In Irani v St George Bank Ltd[2] Whelan J considered the appropriateness of a combined sale in the context of s.420A of the Corporations Act. His Honour said:

1. Ross does reflect a different approach to the approach in Cooper & Allen's Contract. The Master of the Rolls in Cooper & Allen's Contract emphasised the need to obtain the best available price. Ross emphasised the uncertainties and the potential for abuse in combined sales. In the modern context, the reasoning in Cooper & Allen's Contract is more consistent with s 420A than is the reasoning in Ross. Where s 420A applies, the duty it provides for must prevail. The duty it provides for is very similar to the principle enunciated by the Master of the Rolls. In particular circumstances, s 420A might require a mortgagee to realise a secured property in a combined sale, provided, of course, it had the requisite power to do so.
2. It is necessary to distinguish between the question whether there is power to enter into a combined sale and the question whether it is prudent to do so. Ross is authority for the proposition that a mere power to sell a property under a mortgage does not authorise a combined sale with another property. But it is also authority for the proposition that such a power can be properly conferred by the mortgage instrument.
3. As to the prudence of a combined sale, the concerns raised in Ross and in Gesualdi are valid, but, if the power exists, the commercial prudence of each combined sale will have to be assessed on its own merits. Such an issue can also arise where there is only one security, as was the case in Midland Credit Ltd v Hallad Pty Ltd.
4. The Master of the Rolls' suggestion that where there is a combined sale, apportionment is the responsibility of the mortgagee, provided it is reasonable, is inconsistent with Commonwealth Bank of Australia v Duggan. The principle applied in Commonwealth Bank of Australia v Duggan is that, if challenged, the mortgagee must account under s 58(3) of the Real Property Act 1900 (NSW) (equally, under s 77(3) of the Transfer of Land Act 1958) in accordance with the apportionment as found by the court, regardless of any private arrangements or apportionments not involving the mortgagor or other affected parties. This approach does create the possibility of litigation, one of the concerns raised in Ross and Gesualdi, but it seems to me that the statutory obligation to account must require an accounting in accordance with the facts as found by the court, not on some other basis."[3]

In Midland Credit Ltd v Hallad Pty Ltd[4] Hutley JA appeared to accept that a sale of properties "in one line" was an issue that could be justified in appropriate circumstances[5].

12 From the Bank's perspective the loan was in default, the debt was increasing rapidly and significantly, the owners had tried and failed to sell the apartments and a sale "in one line" had been in contemplation in negotiated agreements between the Bank and the Plaintiffs. The history of the loans of the properties and of the attempts to sell the properties from 19 April 2002 justified the Bank selling them in one line. The loans had been in default since 19 April 2002 with interest accruing by the end of 2002 and the first half of 2003 at a rate well in excess of $100,000 per month. There is no evidence of any prospect of the loan being repaid other than by the prompt sale of the properties. In August 2002 Mr McLeod from Belle Property had suggested a sale of the Verandahs in one line but had been unsuccessful then and in November or December 2002 when a "serious attempt" of sale was again made. Belle Property had been the agent retained by Mr Rolfe on behalf of the plaintiffs. The Asset Management Deed negotiated between the parties in late 2002 had permitted the sale of the properties by the plaintiffs and led to the HTW valuation by Mr Quinn contemplating sales in one line.

13 Mr Quinn's valuations in December 2002 were lower than those which had been made by his colleague at HTW in August 2001. The Bank's solicitors, Gadens, had suggested that a report by sought from Sutherland Farrelly on marketing and selling the properties. The expected realisable sale prices on an in one line basis indicated by Mr Sutherland were lower than those suggested by Mr Quinn but in any event, properly conducted, a sale in one line should have produced the market value of the properties in that market.

14 The Bank and its advisers were of the view that there were difficulties with selling the properties as individual apartments. One of those was the expectation of the time that it would take to sell the apartments individually. The facts were that there had been no concluded sales (despite attempts), that there was an expectation that individual sales might take 12 to 18 months, that the sales were uncertain as to amount or time, and that there may have been other problems which might have caused delay in sales.

15 Mr Sack and Mr Hirst were the two Bank officers mainly involved with the Glodale account and the decisions to realise the Bank's securities. Mr Sack was the bank manager for the Bank's Melbourne office at the time and Mr Hirst was the relationship manager of the Glodale account. Decisions for the Bank in relation to that account were made either by them or in conjunction with others on a credit committee of the Bank. Mr Sack gave evidence that he adopted both the recommendation of selling the properties in one line which had been made by Sutherland Farrelly and the endorsement of that method which had been given by the receivers. The matters which he, and (according to his evidence) the members of the credit committee of the Bank, considered convincing and supporting a sale in one line were:

a. the 6 to 18 month estimate by the HTW reports as the length of time for an individual apartment sale program;

b. the presumed (albeit unquantified and possibly erroneous) GST liability falling on the vendor arising from individual apartment sales;

c. the expectation that the cost of the receivers would be significantly increased from the length of time of an individual sales program;

e. the risk of being left with some apartments which might be hard to sell;

f. the increase in costs in making the apartments ready for sale;

g. the increasing general risk exposure to the Bank occasioned by a protracted sale program;

h. the uncertainties of the real estate market in conducting a protracted sales program;

i. the increasing interest liability on the Glodale account;

j. delays in commencing the sale program which were expected as a result of needing to rectify what was believed to be non-compliance with planning requirements (necessitating, as was thought, either rectification works or maintaining planning appeals); and,

k. potentially increased advertising fees for agents involved in an extended sales program for sales of individual units.

16 Counsel for the plaintiffs cross examined closely about each of the matters which were taken into account by the Bank in adopting the decision to sell in one line and, with the benefit of hindsight, it may be that each of the matters which were seen as a problem was not as large or significant as it may have appeared at the time. In Florgale Uniforms Pty Ltd v Orders[6] Dodds-Streeton J said in the context of s.420A of the Corporations Act:

"[410] A breach of s 420A is not established merely because market value (where it exists) or the best price reasonably obtainable is not achieved. Rather, a breach of s 420A requires, in terms, a failure by the receiver to take all reasonable care to sell the property for not less than market value or the best price that is reasonably obtainable having regard to the circumstances existing when the property is sold."

"[442] The expert evidence establishes that the exercise of all reasonable care by a receiver would entail a process of selecting the method of realising the highest net return, by considering the different available means of sale and weighing the prices likely to be achieved against the likely costs and expenses entailed and the relative risks of the various methods in all the circumstances. The process is informed by the objective of securing the best possible return for the secured creditor, subject to the obligations imposed by general law doctrines and s 420A. It necessarily involves the exercise of judgment, taking into account all the relevant variables and circumstances of the particular case. It does not depend on matters of price or revenue alone, or any single factor in isolation.

[443] In my opinion, the process of evaluating and balancing the competing costs and benefits and the associated risks of various methods of sale will not, in every case, require a formal comparative analysis or documented calculations. All will depend on the circumstances of the individual case, including the scale of the receivership, the value and nature of the property involved, the receiver's expertise in relation to the type of property, relevant expert advice, the advice or input of proprietors and staff, the trading history and marketing of the company, including during the receivership, and other relevant variables in a realistic commercial context."

Whether the process of evaluation described by her Honour has been undertaken is to be judged from the point of view of commercial people in the position of the Bank and its advisers and not by reference to the artificial rigours of forensic testing in court. Messrs Sack and Hirst, and their advisers, honestly held the views they did and, more importantly, in all the circumstances at the time held them reasonably. The general prospects which they faced at the time made it sensible to sell quickly and thereby to minimise the risks of further loss to all.

17 In that regard Mr Hirst was questioned closely about the Bank's lack of a detailed analysis of the costs and benefits of undertaking steps to overcome the various perceived problems with individual sales. He did, however, undertake a risk analysis, albeit one undertaken in broad terms, in which he took into account the continuing increase in the debt and the expected receipts from sales. The analysis may not have been as sophisticated as it could have been but it pointed to the desirability that the increasing debt be stopped quickly in the context of a loan which was by then long in default and with unsuccessful attempts to sell the properties by the plaintiffs.

18 A conclusion that the Bank could elect to sell the properties "in one line" does not however, end the matter. The next issue is whether the conduct of the sales on that basis was appropriate to secure the market value of a sale "in one line". On 5 May 2003 Mr Quinn of HTW wrote to the Bank for the attention of Mr Hirst saying:

"We refer to the above mentioned valuations that were undertaken by our office in August 2001 and subsequently in December 2002.

We are of the understanding the properties are now mortgagee in possession and are being marketed for sale on an "in one line basis".

We have been approached by several purchasers since the marketing has commenced. We wish to raise our concerns with you. These purchasers have indicated to us they will be able to buy the properties in one line at figures at well below what we consider to be achievable. All purchasers that have contacted us to date are simply looking to purchase the property mortgagee in possession at a heavily discounted price (which they have been given advice from a southern selling agent that they may achieve) and then simply sell on the units for a profit. This indicates to us that they marketing of the properties has not been properly directed. Heavily discounted sales may not extinguish all existing debt levels. We are of the view that sales on an individual basis by local Port Douglas agents, would achieve value levels consistent with our gross realisations as per our previous reports.

We understand that no local Port Douglas agents are involved in selling the properties. It would appear that a Cairns based agent and a Melbourne based agency are selling the properties in conjunction. The Port Douglas unit market is a specialised market and we would consider that local agents who have established contacts would be able to better market such properties and achieve a better result through marketing the individual units as opposed to an "in one line" sale.

We are not in a position to understand the debt levels associated with these properties or the clients overall portfolio situation, but we consider it prudent to bring these matters to your attention so that you have the best opportunity to fulfil your obligations in selling the properties. Please contact us if you require assistance in further marketing of the properties."

Mr Hirst forwarded this letter to Mr Sutherland of Sutherland Farrelly who at the time had been given the task by the receivers to sell the property. On 16 May Mr Sutherland wrote to Mr Crosbie and in that letter responded to the matters which had been raised in Mr Quinn's letter.

19 Mr Quinn's letter questioned primarily the desirability of selling the units individually rather than in one line, but it did sound a caution that even on an in one line basis it might have been prudent to reassess the marketing strategy which had been adopted. Mr Sutherland's response of 16 May may have provided some explanations but showed no re-evaluation of whether the marketing strategy which had been embarked upon needed re-evaluation or change. That is, there was no evaluation about whether the market price on an in one line sale was being compromised by the way in which the sales were being marketed or whether the market price for an in one line sale could be better secured by any change in marketing.

20 The evidence tendered for the plaintiffs, which I accept, is that it would have been better for the marketing and sales to have involved a local Port Douglas estate agent. Mr Sutherland had no prior direct experience in selling properties in Port Douglas. That, of itself, may not have been essential in the sale of properties in a national market in which potential purchasers from the southern states might have formed the largest pool of interested parties. It is clear, however, that some connection with the location of the properties was necessary. Whilst Mr Sutherland inspected the property, he spent only 36 hours in Port Douglas doing so and he neither spoke to many agents whilst there nor did he speak to Mr McLeod of Belle Property despite knowing that Mr McLeod had previously been marketing the properties and may, therefore, have had useful experience to pass on. Mr Sutherland elected to appoint a Cairns agent to sell the properties rather than one in Port Douglas. The reason for this was said (in his letter of 16 May) to be because Cairns was "the more substantial settlement" but that explanation seems unconvincing if the potential market is likely to be in another place altogether (the southern states) and the subject of the potential sale was in Port Douglas. Mr Sutherland expressed some concerns about the independence of the agents in Port Douglas, but those concerns seem unlikely to depress a sale price considering that Mr Sutherland and his firm had continuing supervision of the sale process together with the receivers: it is hard to see how a lack of independence (if there was any) could have depressed a sale price expected from an in one line sale to a possible southern purchaser by an independent receiver under the watchful supervision of Mr Sutherland.

21 The tender documents were not calculated to obtain the best price for the properties. It contained much information prejudicial to the value of the properties without containing the contextual information that would give a full picture of the perceived problems. A difference of views, for example, about the ability to use recreation rooms as bedrooms was presented in a way that was likely (according to Mr Eales, whose evidence based upon years of experience I accept) to have a disproportionately detrimental effect upon the market without putting the alternative views. The inclusion in the tender documents of material concerning a dispute with Mr Davis was also incomplete without giving details of a release which he had given.

22 Other steps in the way the properties were marketed were not directed to ensuring that the market price was obtained. The "closure" of the recreation rooms may have been done to prevent potential purchasers from thinking that the rooms were being represented as "bedrooms" (contrary to the planning conditions of the local council) but, since the rooms were part of the sale, the closure of them would not seem a sound step to enhance the market value of what was being sold. What was not done was to explain the council's planning requirement or seek variation of it or even to leave the rooms open but with an explanation of what seems to be a widespread practice that planning restrictions are effectively overcome by describing a room as a "study" when not authorised as a "bedroom".

23 Various other problems with the properties seem also to be either overstated in significance or if not overstated were not fully explained, or fixed if possible. The "illegal" decking and the landscaping non-compliance were neither rectified nor were steps taken either to determine what was needed to rectify the non-compliance or to quantify the cost of compliance. An "issue" about potential difficulty of access to the Boathouse was emphasised although the evidence of both Mr Quinn and Mr Eales, which I accept, was that the practical inconvenience of access was not significant enough to affect value. The fire safety description for the properties as "high risk" is capable of differing significance and, if only for adequate disclosure purposes, might have been more informatively described. The Boathouse may have been purchased by Boathouse Port Douglas from previous receivers but a description of it as having a "troubled history" is hardly relevant to its then present and expected future unless the unspecified events of the past were identified and continued to have real impact. If not, the description is likely to create a negative impression that is unwarranted.

24 The sale price received in those circumstances does not satisfy the duty found either in s.85(1) of the PLA or s.420A of the Corporations Act. That is, that the Bank did not take reasonable steps to ensure that the two properties were sold at the market value and did not take all reasonable care to sell them at not less than their market value. The Bank, having decided (directly, indirectly or by adoption) to sell the properties in one line ought to have taken steps to ensure that the sale prices would be at the properties' market value of a sale on that basis. Instead, they relied upon a process of sale that had the effect of depressing the value and reducing the interest in the market (although the interest had plainly been strong).

25 The evidence of market value of the properties as at August 2003 is primarily that given by Mr Quinn supplemented, perhaps, by that of Mr Eales. Mr Quinn's valuations in December 2002 on an in one line basis for the Verandahs was $5,563,250.00 and for the Boathouse was $4,131,000.00. The former was sold by the Bank for $4,330,000.00 and the latter for $2,650,000.00.

26 Various objections were made to the valuations of Mr Quinn and Mr Eales. In part the valuations are said to have misdescribed the properties (for example, the description of the number of rooms that could be used as bedrooms) and in part because they were said to fail the test in Makita v Sprowles[7]. In the case of the valuation by Mr Eales it was also said to be retrospective as to the value in January 2003 and after an inspection in only October 2005. Each witness was tested closely about the values they gave and each maintained his opinion when attention was drawn to possible complaints about description; that is, that what was asserted in the context of forensic trial to be misdescription was not considered material by the valuers to change their assessed values. Mr Eales emphasised the significance of floor space in reaching his conclusion and both he and Mr Quinn discounted the significance in the market of the inability to describe a room as a bedroom by reason of town planning restrictions.

27 The passages from Makita relied upon were those at paragraphs 85 and 87-90 in which Heydon JA said:

"[85] In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of "specialised knowledge"; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be "wholly or substantially based on the witness's expert knowledge"; so far as the opinion is based on facts "observed" by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on "assumed" or "accepted" facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v The Queen (at 428 [41]), on "a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise".

[87] There is no doubt about Professor Morton's authority, experience, qualifications and skill. It is also the case that Professor Morton's report is quite lengthy and detailed. But, given that the court is not obliged to take the opinion of an expert as conclusive even though no other expert is called to contradict it, can it be said that Professor Morton's report goes beyond a series of oracular pronouncements? Does it usurp the function of the trier of fact? More vitally, did it furnish the trial judge with the necessary scientific criteria for testing the accuracy of its conclusions? Did it enable him to form his own independent judgment by applying the criteria furnished to the facts proved? Was it intelligible, convincing and tested? Did it go beyond a bare ipse dixit? Did it contain within itself materials which could have convinced the trial judge of its fundamental soundness?

[88] It is significant that the trial judge himself did not identify any scientific criteria within the report for testing the accuracy of its conclusions. The trial judge summarised Professor Morton's evidence (at [125]-[134]) and accepted his conclusions (at [203]-[204]). But he did not analyse Professor Morton's conclusions. Perhaps he did not feel the need to do so, in view of the fact that no expert was called in opposition to Professor Morton, and in view of the fact that the cross-examination of Professor Morton was not lengthy. However, it remains the case that the trial judge did no more than accept the conclusions as they were stated.

[89] In the course of argument on the appeal, attention tended to be directed to particular aspects of Professor Morton's evidence in isolation. Though Professor Morton's views often go to ultimate issues, they are not on that ground inadmissible: Evidence Act, s 80. However, even though Professor Morton's evidence was uncontradicted, the trial judge was not bound to accept it, and nor is this Court, particularly where it was on ultimate issues: Brodie v Singleton Shire Council [2001] HCA 29; (2001) 75 ALJR 992 at 1060 [355]; [2001] HCA 29; 180 ALR 145 at 240 [355], per Callinan J. Counsel for the plaintiff correctly said that an assessment of the merits of Professor Morton's evidence called for consideration of it in detail and as a whole.

[90] The first problem in Professor Morton's evidence is that it is difficult to gather, either from Professor Morton's report or from his cross-examination, what significance the coefficients of friction had in his thinking. He said that a minimum value of 0.4 for the dynamic coefficient of friction of a surface when tested with 4S rubber was set as a minimum value by AS3661.1:1993. He did not annex or exhibit that standard, and the standard is not in evidence on any basis, so that it is not possible to assess the context of that item of information passed on by Professor Morton or the reasoning underlying it. It is possible for one expert to adopt statements made in scientific works as part of his or her own testimony, but bare references to particular propositions carry no weight unless their basis is explained."

It was submitted that the requirements in these observations were not met in the present case because neither Mr Quinn nor Mr Eales was able to make a link between the in one line valuation and each or any of the particular apartments in either block.

28 The observations in Makita do not, in my view, impose the obligation asserted. It is plain that each valuer treated an in one line basis of sale as resulting in a straight line discount across all of the apartments primarily for the risk and profit which a buyer on the in one line basis would need for the resale to be profitable. A reading of either valuation leaves a reader in no doubt about the process undertaken or the basis upon which it was undertaken.

29 Of those two valuations I prefer that of Mr Quinn which was done without the benefit of hindsight and in the expectation of a possible sale in one line at a time proximate to the actual sales by the Bank. At the hearing Mr Eales gave additional evidence that in his opinion the market had risen between January 2003 and August 2003 by about 5%. The cross-examination of Mr Eales on this point left me in considerable doubt about the confidence that could be attached to this broad conclusion. The sales upon which the increased value was estimated was not so clearly comparable to the Verandahs and the Boathouse to be compelling, and some of the apartments in the Verandahs sold after August 2003 at amounts around or less than the individual valuation for the particular apartment made by Mr Eales as at January 2003. In those circumstances there is not a sufficiently secure foundation to apply an increase in the valuation made by Mr Quinn by reference to a broad market increase in the valuations made by Mr Eales when giving evidence at the hearing.

30 There were also some valuations of the management rights potentially attaching to each of the properties. I have no doubt that the rights of management were capable of separate dealing and separate valuation, however, the in one line sales and valuations are inconsistent with a separate dealing with the management rights leading to an additional amount of damage.

31 The result in relation to the plaintiffs' case is that they are entitled to an award of damages to the extent that the amounts for which the properties were sold was less than their market value. I calculate this amount to be $2,714,250.00, being $1,233,250.00 in respect of Verandahs and $1,481,000.00 in respect of the Boathouse as at the respective dates of completion and settlement of their sales. I have made no reduction of these amounts to take account of the impact, if any, of GST. There was some debate about whether the valuations should, or should not, have taken into account GST. The evidence concerning the incidence of GST was unsatisfactory and insufficient to form a view that there was GST liability. It seems that Mr Eales would have reduced his valuations if the vendors (that is, if the second and third plaintiffs) were liable for GST but was told that no GST was payable by them. My acceptance of the valuations made by Mr Quinn leaves open whether GST will be payable by the plaintiffs upon the award in this proceeding but that is not a matter which I need to consider.

32 The amount I award as damages exceeds the counterclaim of $462,544.10. The Bank relied upon a certificate of indebtedness dated 8 April 2005 and clause 14.7 of the loan agreement. It also relied upon bank statements and a summary of transactions prepared for this litigation and referred to by Mr Hirst when giving evidence. I doubt that the letter adds much to the Bank's case although either the bank statements or the certificate with clause 14.7 of the loan agreement make out its claim sufficient for an order. The amount of any such order, however, is clearly less than any in favour of the plaintiffs.

33 In the result the plaintiffs are entitled to an order in an amount of $2,714,250.00 but reduced by the amount of the debt outstanding on the loan. The net amount will require re-calculation and I invite the parties to make submissions on the form of order to give affect to these reasons and on orders as to the cost of the proceedings.

[1] [1981] HCA 70; (1981) 152 CLR 491.

[2] [2005] VSC 403; On appeal [2007] VSCA 33.

[3] [2005] VSC 403 at [170]; aff'd [2007] VSCA 33 at [40].

[6] (2004) VR 54.

[7] [2001] NSWCA 305; (2001) 52 NSWLR 705.