PLENTY & PLENTY v PATTINSON & ANOR No. SCGRG-82-1230 [2001] SASC 42

Supreme Court of SA|2001-03-01|Before: Duggan J

Judgment No. [2001] SASC 42

PLENTY and PLENTY v PATTINSON and ROSS D HODBY and ASSOCIATES

2 The allegation against the first defendant, a valuer, is that he was negligent in overvaluing the property in a valuation relied upon by the plaintiffs when deciding whether to advance the loan. The broad allegation against the second defendant, a partnership, is that the partnership negligently recommended to the plaintiffs that they advance the loan to the third parties.

3 The plaintiffs issued proceedings in May 1982. The reasons why the matter has taken so long to come to trial are documented in previous judgments of this court. It is unnecessary to repeat that history in these reasons.

4 In their evidence at the trial the plaintiffs stated that in the early 1970's they accumulated capital by selling some farming properties in Western Australia. The amount involved was modest, but from then on the plaintiffs relied for their financial support on income derived from the investment of these funds. They came to South Australia to live and commenced investing by lending to borrowers who were seeking bridging finance. It is alleged by the plaintiffs that from time to time the second defendant introduced various borrowers to them. There is a dispute as to whether these introductions were made by the second defendant or another entity controlled by the partners of the first defendant. Later in these reasons I make a finding that the introductions were made by the second defendant which also recommended the loans, including the loan which is the subject of this litigation. I anticipate this finding for the purpose of this introduction.

5 Reference will be made shortly to the history of the relationship between the second defendant and the plaintiffs. However, it is appropriate at this stage to summarise the circumstances of the transaction with which this matter is concerned.

6 On 12 September 1978 Graham Besson and Paul Smith, purchased a property on Park Terrace, Salisbury for $105,000. At the time of purchase the improvements on the property comprised three shops which had been built in 1960 and a house. They intended to convert the property for use as a used car yard. The existing structures on the land were demolished and Besson and Smith constructed a two storey office and garage on the property. Various other improvements were made to the land including the laying of bitumen, the construction of a retaining wall and the installation of lights. Australian Guarantee Corporation Limited (AGC) agreed to finance the floor plan for the business and also provided finance for the purchase of the property. AGC held a registered first mortgage over the property.

7 The second defendant called Mr Smith as a witness. He said that after he secured an increase in the floor plan advance AGC asked him and Besson to obtain finance in respect of the real estate from another lender while AGC would continue to finance the floor plan. It was in the course of seeking this finance that either Smith or Besson or both contacted Mr Ross Hodby of Ross D Hodby and Associates. Mr Hodby was a land broker and the firm Ross D Hodby and Associates was also referred to on its letterhead as "Finance Brokers". It was alleged by the plaintiffs that the firm entertained enquiries from potential borrowers and lenders, particularly borrowers seeking short-term finance. The firm brokered the loan agreements and charged the borrowers a procuration fee calculated at the rate of one per cent of the amount of the loan.

8 In April 1979, the first defendant, Mr Pattinson, was asked to value the property. There is a question as to whether the request emanated from AGC or Mr Besson. For reasons which are discussed later in this judgment the issue of liability does not turn on this question. It is not in dispute that Mr Pattinson was aware at the time that the valuation was required for a loan application and that it might well be used in applications made to various lenders. He said he understood the premises were to continue in use as a car yard. He opened a file and consulted the government microfiche service available to his office and which records sales of properties. He then went to the site of the subject property and conferred with Mr Besson.

9 Mr Pattinson prepared a written valuation report in which he valued the property including the recent improvements at $185,000 as at 30 April 1979. It is the plaintiff's case that at the time of the valuation the value of the property and improvements was $127,500 and that Mr Pattinson acted negligently and in breach of his duty of care to the plaintiffs in preparing the report.

10 The second defendant provided the plaintiffs with a copy of the valuation report which was forwarded at the same time as a letter dated 22 May 1979 in which the second defendant brought the property to the attention of the plaintiffs. It is alleged that the second defendant recommended to the plaintiffs that they should lend monies to Besson and Smith when it knew, or should have known, that the valuation was incorrect and inaccurate and when the second defendant failed to make adequate enquiries about the credit worthiness of Besson and Smith.

11 On 7 June 1979 the plaintiffs advanced the sum of $123,000 to Besson and Smith, the loan being secured by a first mortgage over the car yard property. The term of the loan was for 12 months and the borrowers were required to pay 12 interest only monthly instalments of $1,332.50.

12 Besson and Smith subsequently defaulted under the mortgage when the payment due on 7 April 1980 was not forthcoming. The property was sold by the plaintiffs on 4 November 1981 pursuant to their powers under the mortgage. The net proceeds were approximately $99,000.

13 The particulars of loss and damage claimed in the Statement of Claim are:

to the date of sale (4th November 1981) $ 28,700.00

continuing, calculated to 30th June 2000 at $186,928.42

14 The subject property is 1079 square metres in area. It is situated on the corner of Park Terrace and Mawson Road, Salisbury. The frontage along Park Terrace is 26.82 metres and the depth along Mawson Road is 40.23 metres. Park Terrace is a main thoroughfare, but access from it was restricted at the time of the valuation. Vehicle access was possible from Park Terrace, but the vehicles had to be parked on the property and there were only four car parks at the front. Pedestrian access to the car yard from Park Terrace was difficult. However, car parking was available in a cul de sac which led off from Mawson Road at the rear of the property. There was no access to the site direct from Mawson Road. The general area in the vicinity of Park Terrace was a reasonably busy commercial and retail sector. However, in the view of Mr Brooke, a valuer who gave evidence for the plaintiffs, the property was not part of the most active retail and commercial district of the Salisbury City Centre.

15 Mr Pattinson gave evidence and expert valuers were called by the plaintiffs and Mr Pattinson to give evidence.

16 Mr Pattinson said in his report that the building on the property at the time of his valuation consisted of two storeys and that it was of double cavity brick construction with aluminium framed plate glass windows. He continued:

"The ground level section consists of a main office with feature dark brick walls carpeted floors, wall type air-conditioning and painted bond deck ceiling.

A toilet and shower room are also located on the ground floor and this area has been fully wall and floor tiled and has a modern vanity unit installed.

The remaining section of the ground floor area is used as a service come detailing area and this area has a concrete floor and large double doors provided. A skillion roof canopy extends from the main building extremity thus providing extra covered area. The upstairs area is one large office with sink provided and this area could be easily portioned off.

Again, this room is carpeted, has a painted ceiling, insulated roof and feature brick walls.

In conclusion a most attractive office improvement which could easily be adapted or incorporated in a larger retail/commercial type development."

He said in the report that the building was "most impressive".

17 Mr Pattinson's report comprises four pages. The first three pages are taken up with a description of the property. There follows a comment to the effect that the valuer considers the property to have a full and fair market rental value of $600-650 per week gross. The report then goes straight to the valuer's conclusion:

"A most impressive used car outlet having excellent location and the property has been fully developed to its maximum potential.

THE FULL AND FAIR MARKET VALUE OF THE SUBJECT PROPERTY AS AS [sic] THE 29TH DAY OF APRIL 1979 IS CONSIDERED TO BE ONE HUNDRED AND EIGHTY-FIVE THOUSAND DOLLARS ($185,000-00)"

18 The basis upon which the valuation was made is not evident from the report. No indication is given as to how the range of $600-650 per week for the rental value was reached. Furthermore, no explanation is given as to how the value of the land and improvements were calculated and whether one method of valuation was used as a test for the calculation done by means of another method.

19 Mr Pattinson said in evidence that he adopted a summation method in order to determine the value and that he added the value of the land to the value of the improvements to arrive at the total figure of $185,000. He said he used the capitalisation of rental income figure as a check for the calculation by the summation method. The plaintiffs contend that Mr Pattinson used the capitalisation of rental method as the primary method.

20 If Mr Pattinson did use capitalisation of rental as the primary method, his calculations were made from a particularly flimsy starting point. He said he obtained the figure of $650 from Mr Besson who told him that three months previously someone had offered him that amount to rent the property. Mr Besson, as one of the potential borrowers, was by no means an independent party and it would appear that Mr Pattinson sought no further information in relation to the offer. In any event, a mere offer is not evidence of the appropriate level of rent. Nor did Mr Pattinson suggest that he made any other enquiries as to an appropriate rental. In these circumstances I think it was inappropriate for Mr Pattinson to say in his report "The valuer considers the subject property to have a full and fair market value of $600-$650 per week gross".

21 Mr Pattinson's file was tendered in evidence. It is apparent from his working papers on the file that he used the figure of $650 per week rent to arrive at gross annual rental return of $33,800. He then assumed a net rental figure per annum of $30,000. To this he applied a capitalisation percentage of 15 per cent to arrive at a capital value of $200,000. He made a deduction because of the risk of a car business and arrived at a final valuation figure of $185,000.

22 Mr Brooke said in evidence that a weekly rental estimate of $650 was too high. He said it was not an estimate of rental income which a valuer acting with reasonable care could have reached as at 30 April 1979. He said that a net rental value of $100 per square metre for the office building, $15.00 per square metre for the carport and an allowance of $6,500 for the rest of the site not occupied by buildings would have been appropriate. He said the yields on various properties to which he referred in evidence suggested a capitalisation rate of around 13.5 per cent was appropriate. Using these figures he arrived at a figure of $129,000 as being the market value of the property at the relevant time. This was not his primary method of assessing the value of the property, but he went through the exercise in response to a request from counsel for the plaintiffs.

23 I was impressed by Mr Brooke's evidence and the manner in which he explained his conclusions. The estimates which he used to calculate the value of the property were based on a wide ranging survey and not on the speculative basis employed by Mr Pattinson. In my view if the rent capitalisation method had been properly employed, whether as a primary method or as a check on another method, it would have produced a valuation at around the level determined by Mr Brooke.

24 I have referred to the assertion by Mr Pattinson that he relied primarily on the summation method. He placed a value of $125,000 on the land and allowed $60,000 for improvements. I agree with the observation of Mr White QC, for the plaintiffs, that in the working papers in his file Mr Pattinson has written these amounts over figures which originally indicated a value of $120,000 for the land and $65,000 for improvements.

25 There is no indication on the file as to how Mr Pattinson calculated the land value at $125,000. As I have pointed out, the property was purchased seven and a half months before this valuation for $105,000 and, at that stage, there were improvements on it comprising three shops and a house. Mr Pattinson did not refer to the purchase price of $105,000 in his report, nor did he refer to the fact that there were improvements on the property at the time of its purchase. There was no indication in the report as to why he considered that the property had increased in value by $20,000 in the months between its purchase by Besson and Smith and his valuation.

26 Mr Pattinson said in evidence that he calculated the land value from sales evidence obtained in relation to sales in the adjoining Salisbury area. He said this involved consideration of four main sales including the purchase of the subject property for $105,000. The other three sales were in relation to properties at 18 Salisbury Highway, Salisbury (Salisbury Toyota), 1 Church Street, Salisbury and 174 Commercial Road, Salisbury (Para Datsun). However, he did not make any allowance for the fact that there were improvements on the subject property at the time. He used as a starting figure the price of $105,000 and proceeded on the basis that this was land value. In my view some value should have been placed on these improvements when having regard to the purchase price of $105,000. Mr Brooke said that he understood the shops were erected in about 1960 and that they would be expected to have some residual utility at the time of valuation so that a vendor would expect to receive something for the buildings.

27 Mr Pattinson's evidence-in-chief on this topic continued as follows:

"Q Did you consider whether the price that they [Besson and Smith] paid for vacant land may have been excessive?

A I considered that the price they paid was fair and reasonable in line with the market of the day and, in fact, because of their location on the subject property and also the rear and side access, I considered by the time I had to do my valuation in April of '79, the way the market was going, that the $105,000 would have to be adjusted.

Q And when you say 'the way the market was going', are you speaking of the market generally or the market in Salisbury or something else?

A Well, the market generally all over was on the move, but this particular area of Salisbury was showing increases also.

Q So where did you go to from there, how did you proceed with your assessment?

A Well, I was faced with the three main sales that I used in determining the land value of this property, starting at (the) $105,000 point, I made an allowance of - I forget how much per square metre, to come up with 125, but it took into account the size of the Para Datsun sale, and I considered this property to be slightly better or quite a bit better than the Church Street property and I adjusted the figure by 20,000 to allow for those sales analyses and also the continuing increase in values between the date of valuation and the date of sale on the subject property."

28 In my view the probabilities are that, at the time of preparing his valuation, Mr Pattinson did not consider and compare the sales of any property with the subject property apart from premises at 3 Park Terrace, Salisbury. He said in evidence that he perused microfiche which was available in his office and he saw details relating to the other properties on the microfiche. However, as part of his office practice he used a proforma sheet to list the properties which might provide useful sales comparisons for valuation purposes in connection with a particular valuation. He placed one of these proforma sheets on his file, but the only property which he entered on the sheet was 3 Park Terrace, Salisbury. It is significant that neither on the proforma sheet, nor anywhere else in his file, did he refer to any of the other properties. He did not provide any reasonable explanation as to why he failed to record this information. Furthermore, it was not readily apparent from the microfiche information which was available for searching at that time whether the properties which he said he selected were commercial properties and I do not consider his explanations as to how he selected these properties as being satisfactory.

29 But, in any event, Mr Pattinson agreed that he did not carry out a detailed analysis of any of these properties. He did not, for example, calculate the price per square metre of any of the properties. There are no calculations on the file to indicate that any comparison was carried out and there was no discussion in the report of any such comparison.

30 These inadequacies in Mr Pattinson's valuation are particularly relevant in considering his assertion that the unimproved value of the land had increased from $105,000 to $125,000 in the space of seven and a half months. He said that one factor which influenced him in reaching this conclusion was the evidence of the sales of the various properties which he said he took into account. However all of these sales took place prior to the purchase of the property by Besson and Smith and in cross-examination he was unable to explain why any increase in value which they evidenced would not have been reflected in the price which Besson and Smith paid for the property. When asked to explain how he concluded that the market was still moving upwards after this sale he said it was "just a generalisation".

31 I have reached the firm conclusion that Mr Pattinson wrongly attributed an increase of $20,000 in the value of the subject property in the short time between the purchase by Besson and Smith and the date of his valuation. The evidence does not support any increase in value over this period.

32 Mr Pattinson said he placed particular reliance on the sale of the Para Datsun site at 174 Commercial Road, Salisbury. This property is situated on the corner of Commercial Road and John Street, Salisbury. It is 2017 square metres in area and was sold on 29 July 1977 for $200,000 or approximately $100 per square metre. By way of comparison, the subject property was purchased by Besson and Smith for a price equivalent to $97.32 per square metre.

33 The Para Datsun premises is on a prominent site with frontages to two major roads. It is now part of the Parabanks Shopping Centre. Both Mr Brooke and Mr Birgden, another valuer called by the plaintiffs, were of the view that the location of this property was reflected in the sale price. They were also of the view that a vehicle franchise was associated with the premises which would usually increase the value. It was not definitely established on the evidence that the premises were franchised, but I accept that this may have been a factor in the sale price. Regardless of this issue, I agree with the plaintiffs' experts that the sale of this property does not provide a particularly useful comparison. In saying this, I have not lost sight of the fact that, according to the evidence, larger properties usually sell for less per square metre than smaller properties.

34 The property at 1 Church Street, Salisbury was sold in December 1979 for $64,765 or $93.05 per square metre. However, this sale was after Mr Pattinson prepared his report. The last sale prior to his report was in January 1978 for $55,000 or $79.00 per square metre. Mr Pattinson said he thought this property was inferior to the subject property. He said the buildings were old and the location was not as good as the subject property in that it was on the fringe of the central Salisbury area. Mr Brooke pointed out that there was a Basket Range stone house on the property and that if $20,000 were allowed in the purchase price for the house in 1979, the value of the land would be reduced to $64.00 per square metre.

35 As for the property at 18 Salisbury Highway, Salisbury which was sold in September 1977 for the equivalent of $98.80 per square metre, Mr Pattinson said that this was a superior property in comparison with the subject property. The site is much busier and, at the time of sale, there were substantial improvements on the property. He said he regarded this property as being at the top of the market.

36 The next component of Mr Pattinson's valuation by means of the summation method is the value of the improvements made after the purchase by Besson and Smith. I have said that Mr Pattinson allowed $60,000 under this heading. Again, there was no adequate explanation in his written valuation as to how he arrived at this result.

37 In his evidence, Mr Pattinson said that he was told that the cost of the erection of the building was $26,000. He noted that in his file. He also made a note to the effect that he was told by Mr Besson that the cost of the retaining wall was $7,000. This left the lights, a brush fence and the bitumen paving. Mr Pattinson was vague as to how amounts for these remaining items were calculated and no reference is made in his file to the costs attributed to them apart from the total figure of $60,000 for all improvements. Mr Pattinson said he could not remember how he calculated these amounts, but he said that he probably used a cost analysis. He said:

"... I haven't got any notes on the file - but I presume that the brush fencing would have been a rate per metre and the bitumen paving would have been paving a rate per square metre and the lighting itself, I can't quite recall just how good the lighting was, so I can't recall at this point of time."

38 A little later in his evidence he said there was no great difficulty in estimating the cost of paving and he thinks he may have asked someone at a construction company or architect's office near to his offices about an estimate of the cost of this item.

39 Mr Brooke said that he consulted a 1979 update of Cordell's Building Cost Book, a recognised guide to building costs, for the purpose of calculating the cost of paving. These costs ranged from $4.80 per square metre for a two-coat bitumen seal sprayed to an existing base to $11.40 for a parking area pavement of asphaltic concrete 25 millimetres thick laid on a prepared base course including excavation. He said he chose a figure between the two and that he allowed approximately $10,000 for the parking and display area. The relevant area is 822 square metres.

40 Mr Smith, one of the purchasers, was called by the second defendant to give evidence. As stated elsewhere in these reasons, I found him to be a most unsatisfactory witness and his evidence on this particular topic was no exception. He said the cost of the building was $26,000 and the whole development cost was around $60,000. He gave an estimate of $10,000 for the cost of the retaining wall whereas Mr Pattinson said that Besson told him this item cost $7,000. He said backfill and rubble was necessary for the bitumen area and that the total cost of the bitumen was $10,000. He said the brush fence was $5,000. It was clear when the witness was giving evidence that he was not relying on any specific recollection of the amounts which were paid.

41 I accept as being far more reliable Mr Brooke's assessment that it is likely the cost of the improvements totalled approximately $40,000. This would result in the value of the property being $145,000 if the purchase price of $105,000 was taken as the value of the land. However, as will appear shortly, the expert witnesses called by the plaintiffs did not agree that the purchase price of $105,000 reflected the true value of the unimproved land.

42 I will summarise my conclusions concerning Mr Pattinson's evidence later, but at this stage it is convenient to consider in more detail the evidence of the other valuers who gave evidence before me. I have referred to some aspects of the evidence of Mr Brooke. Mr Brooke is the managing director of a company based in Adelaide which includes, as part of its specialisation, valuations of real estate. He has worked as a valuer since 1976.

43 The witness said that he considered that the capitalisation method was the most appropriate to use in this case. He said there were no directly comparable sales. Mr Brooke inspected the property and gave the following description in his written report:

"The property lies at the northern extremity of Mawson Road which leads from Brown Terrace which in turn connects with Park Terrace. It appears from the aerial photo that access to the property from Mawson Road was available but that Mawson Road did not join Park Terrace. Access to the property would also have been available from the west bound lane of Park Terrace. It is unlikely access was available from the east bound lane.

The aerial photo indicates the property was used as a caryard and the office referred to in Mr Pattinson's valuation had been constructed. Much of the commercial development which presently exists in the Salisbury business district immediately to the north of the subject property appears to have been established at about the date of Mr Pattinson's valuation. The area appears to have been a busy shopping and commercial area at that time judging by the number of cars in car parks adjacent to what are now retail premises.

It is my recollection that the Salisbury business district was a relatively active centre in 1979. Commercial activity in the Salisbury area was confined substantially to the city centre with residential development radiating from the centre. Much of the development to the north west of the city centre was constructed by the South Australian Housing Trust which built small local shopping centres throughout its developments at planned intervals. Development to the east and south of the city centre was generally modest and residential in character, again with local shopping centres constructed for the convenience of residents. Little commercial activity was established in residential areas surrounding Salisbury city centre."

44 Mr Brooke agreed with Mr Pattinson's measurement of the property and said it was about the size of a quarter-acre building block. He said the price paid for the block by Besson and Smith, namely $105,000, was equivalent to $97.32 per square metre. He said that, in his view, this was in excess of the value of the property at the time of purchase and he referred to various sales which are set out in the table below.

Property - The subject property; Sale price $105,000; Date of sale 12.09.78; Price per square metre 1,079 sq metres. Price per sq metre $97.32.

Property - 174 Commercial Road, Salisbury (Para Datsun); Sale price $200,000; Date of sale 09.07.77; Price per square metre 21,580 sq feet = 1994 sq metres. Price per sq metre $100.30.

Property - 1 Church Street, Salisbury; Sale price $45,000; Date of sale 04.11.77; Price per square metre 696 sq metres.

Property - 1 Church Street, Salisbury; Sale price $55,000; Date of sale 06.01.78; Price per square metre 696 sq metres.

Property - 1 Church Street, Salisbury; Sale price $64,765; Date of sale 12.1979; Price per square metre 696 sq metres. Price per sq metre for 1979 sale $93.05.

Property - 18 Salisbury Highway, Salisbury (Salisbury Toyota); Sale price $330,000; Date of sale 25.09.77; Price per sq metre 35,979 sq feet = 3,343 sq metres. Price per sq metre $98.80.

Property - Corner Fisher and Commercial Road, Salisbury; Sale price $250,000; Date of sale 8.1979; Price per square metre 4,860 sq metres. Price per sq metre $51.44.

Property - Corner Ferry and South Road, Edwardstown; Sale price $150,000; Date of sale 3.1978; Price per square metre 1,178 sq metres. Price per sq metre $127.33.

Property - Corner Anzac Highway and South Road, Ashford; Sale price $270,000; Date of sale 8.1978; Price per square metre 3,340 sq metres. Price per sq metre $78.48.

Property - Corner West Terrace and Waymouth Street, Adelaide; Sale price $240,000; Date of sale 6.1978; Price per square metre 1486 sq metres. Price per sq metre $161.50.

Property - 55-57 West Terrace, Adelaide; Sale price $420,000; Date of sale 6.1978; Price per sq metre 2,322 sq metres. Price per sq metre $180.87.

Property - Corner Gouger and Morphett Streets, Adelaide; Sale price $180,000; Date of sale 8.1978; Price per square metre 860 sq metres. Price per sq metre $209.30.

Property - 243 Unley Road, Malvern; Sale price $105,000; Date of sale 12.78; Price per square metre 781 sq metres. Price per sq metre $134.40.

45 The detailed comparisons of these properties are discussed in the evidence and it is unnecessary to repeat all the detail in these reasons.

46 Mr Brooke explained how he went about assessing the value of the subject property as at the date of Mr Pattinson's valuation by employing the capitalisation method. He said he looked at the rentals of various properties at the relevant time and calculated percentage yields derived from dividing the annual rental by the purchase price. These percentages were calculated in relation to commercial properties which included the property at the corner of Gouger and Morphett Streets, Adelaide (10.88 per cent) and 243 Unley Road, Malvern (12.38 per cent). Mr Brooke referred in his evidence to the rents paid for other commercial properties which confirmed his view that the rental assumed by Mr Pattinson was too high.

47 Mr Brooke said the yields which he used for comparison purposes suggest that a capitalisation rate of around 13.5% was appropriate. On this basis the market value of the property at the time of Mr Pattinson's valuation would have been approximately $129,000. He said that in his view an appropriate way to approach the rental value in this case was to allow a net rental value of $100 per square metre for the office building, $15.00 per square metre for the carport and an allowance of $6,500 per year for the balance of the site not occupied by buildings. This would produce a rental value of approximately $17,437 per annum. Mr Brooke said he adopted a yield of 13.5 per cent because, in his view, this was not a particularly favourable site for the location of a used car yard. It was remote from the retail area for pedestrians and it did not have easy access for motor vehicles. He said he considered that Salisbury was a less highly regarded area for the ownership of income earning properties than, for example, a property in the central business district or the properties from which he derived rental information. He said that in order for a valuer to employ the capitalisation of rental income approach it would be appropriate to enquire of agents in the area about rents being paid for properties and it would be necessary to determine rental values from office files and other sources. Mr Brooke pointed out that Mr Pattinson allowed approximately 10 per cent for expenses when calculating the annual rental. In Mr Brooke's opinion this allowance should have been between 15 per cent and 20 per cent.

48 Mr Brooke also valued the subject property by using the summation method incorporating a comparative sales analysis to determine the value of the undeveloped land component. This resulted in the following analysis in his report:

"The sale of the subject property indicates a premium was paid for the land when compared with other sales of land, particularly the property at the corner of Church and Wiltshire Streets which sold for $88.84 per square metre including improvements. [This is the property at 1 Church Street. It was agreed at the trial that this figure should be $93.05 per square metre.] The sale of the property at the corner of Fisher Street and Commercial Road was transacted at $51.44 per square metre improved. The property at the corner of Anzac Highway and South Road at Ashford is a highly visible site in a strong location and this sold for $78.49 per square metre improved.

By comparison, $97.31 per square metre was paid for the subject land.

In my opinion the 1978 sale of the subject property for $105,000 was in excess of the market value of the property.

Based on the Ashford sale it is my opinion the value of the site was no more than $85,000.

The cost to construct the improvements on the land is established to some extent by the information obtained from the council's files and corroborated by other information. These sources show the building cost to be $30,000. To this sum it would be reasonable to allow the cost of other improvements to the site including lighting and bitumen paving of the display yard to establish the cost of development. It is likely the replacement cost of the improvements would total around $40,000.

On the basis that the improvements added their full value to the property, its value was in the order of $125,000."

49 After taking all matters into account Mr Brooke valued the subject property at $127,500. I repeat my opinion that Mr Brooke was a reliable witness who was able to support his conclusions with sound reasoning. He was far more impressive as a witness than Mr Pattinson. In my view he has demonstrated that Mr Pattinson's assessment of the value of the property was clearly wrong.

50 The plaintiffs called Mr Birgden, a retired valuer, who became an associate of the Australian Institute of Valuers in 1967 and worked as a valuer from then until his semi-retirement in March 1982. Commencing in 1973 he undertook valuations of approximately 150 car yards.

51 In March1981 Mr Birgden was asked by the plaintiffs' then solicitors to provide a valuation of the subject property. He valued the property at $125,000 as at 27 March 1981. It was Mr Birgden's view that the price paid by Besson and Smith was the highest price yet paid for unimproved land to be used as a used car yard except for sites on West Terrace, Adelaide. He said that the subject land could not be considered in the same category as the West Terrace properties.

52 Mr Birgden was able to provide some useful information concerning used car yards, but his reports which were tendered were somewhat rambling and his method of assessment lacked the sort of detailed analysis to be found in Mr Brooke's reports and evidence.

53 It was Mr Birdgen's view that the car yard was badly sited. He referred to the difficulties of access. He said that it was too far removed from other car sites and made the point that potential customers preferred to visit and browse through car yards which were in the same location.

54 He said that bearing in mind what he saw as the shortcomings of the site, he thought the property was over capitalised. He said his view that the original purchase price of $105,000 was too much was based on his general knowledge of the market as opposed to reliance on particular sales. He valued the unimproved value of the land at $75,000 and the improvements at $50,000. The total value, therefore, was $125,000 as at 30 April 1979.

55 It was Mr Birgden's view that there would have been commercial value in the shops and house on the property at the time of purchase by Besson and Smith so that the amount which they paid did not represent the unimproved land price. He was quite definite in expressing the view that Besson and Smith had paid some amount for the value of the improvements which were on the land when they purchased it. In Mr Birgden's view the improvements would not have added value to the land equivalent to their cost because they were not suitable for used car premises. Mr Birgden provided an addendum to his reports which set out details of a number of sales of used car yards.

56 Mr Birgden explained that he looked at the subject property on 14 May 1979 when providing a valuation for AGC in relation to premises known as "Bonanza Caravan and Motor Centre". He said he did not get out of his car, but made a "kerb side valuation". In the report which he made at that time he said:

"The title is subject to a mortgage to Australian Guarantee Corporation Ltd and subsequent to purchase, the new caryard now on the land was established. The site is now wholly bitumen-paved, well fenced, with floodlights along the frontage and a new 2-storey red clay brick office has been erected at the rear. Making a very rough estimate, I should think that the cost of the development now on the site could have been in the $80,000 bracket or more. If this is a correct observation, then the all-up cost of the developed site should have been in the $185,000 bracket, i.e. 11,616 sq.ft. @ $15.92 a sq. ft. (improved).

Maybe that somebody would be prepared to pay in excess of that figure in the future, although it must be pointed out that these premises are not dealership premises." (emphasis in original report)

57 Mr Birgden said that when he later looked at the property more closely for the purpose of valuing it he realised that his first impression was quite unrealistic.

58 I have said that Mr Birgden's methods of valuation were not as scientific as those of Mr Brooke. However Mr Birgden did have extensive knowledge of used car premises with respect to both value and the way in which they operated. I am prepared to act on Mr Brooke's evidence without any further support, but I nevertheless think that Mr Birgden's evidence does provide further support for the views expressed by Mr Brooke.

59 Mr Pattinson called Mr Wood, a valuer, to give evidence. Mr Wood obtained a degree of bachelor of applied science in valuation from the SA Institute of Technology in 1981. He was self-employed as a valuer from 1984 to 1998. He has experience in both residential and commercial valuation. Although he inspected the property in 1998, his report relies heavily on the information and the valuations of the other valuers who gave evidence in the case as the basis for his own assessment.

60 Mr Wood's opinion of the value of the property as at 30 April 1979 is summarised in the following passage of his report dated 31 March 1998:

* The only valuer to take into consideration the subject sale at $105,000 was Pattinson. I am surprised the other valuers merely discarded the sale! I understand the sale was at 'arm's length' and suggest that that sale would be adopted by the market and other valuers as a 'comparable sale' when subsequently valuing commercial/retail property in the Salisbury area.

* The sales relied upon by the other valuers were of larger premises, non comparable locations, or were inferior.

* The growth in sale price of the Church Street property tends to indicate that all valuers should accept that the subject would also grow in value.

* I would rely on the following sales in my assessment;

2. 1 Church St Salisbury at $8.25 per sq.ft. - inferior location

3. 60 (or was it No. 1174??) Commercial Rd - at $9.26 per sq.ft. - similar location.

Two storey office - 106 sq.m. @ $300 per sq.m. $ 31,800

61 Mr Wood was of the opinion that the Church Street and Commercial Road sales supported the view that the unimproved land value was $105,000. He was asked about the possibility of an increase in the value of the land from the date of purchase by Besson and Smith to the date of the valuation by Mr Pattinson:

"Q Did you address the issue that's to whether there could have been any increase in that period of time?

A Going back 18 years at the time, I dare to say it's very difficult with any feeling of surety to say there's any growth over a short period of time of some six months. No, I accepted that the $105,000 was the land value at the time of the valuation."

62 Mr Wood allowed $31,800 for the construction of the office building and said that the first time he was aware that an owner of the building had claimed $26,000 was spent on the construction was while giving evidence. Mr Wood also said that he assumed that the buildings on the site at the time of the sale to Besson and Smith added no value to the property. He agreed that he knew nothing about the buildings.

63 According to the witness he changed his mind about the value of the property when, after providing his report, he was informed that an option to purchase had been given in relation to the property on 26 June 1980. I will deal with that aspect shortly.

64 It is relevant to note in the first place that his original valuation of $159,050 is significantly lower than Mr Pattinson's valuation of $185,000. It is also not without significance that the plaintiffs were prepared to lend $123,000 on the basis that it was approximately two-thirds of the valuation. If the two-thirds rule were applied to Mr Wood's initial valuation, the limit of the loan would have been $106,033 which is a little over $7,000 more than the mortgagee sale realised. Again, if Mr Wood's valuation is reduced by substituting $26,000 for the construction of the office instead of $31,800 which he allowed, his valuation would be reduced to $153,250, two-thirds of which is $102,000.

65 However that may be, for reasons which I have already given I think the unimproved value of the land was less than $105,000. I rely on Mr Brooke's evidence which I prefer over the evidence given by Mr Wood and Mr Pattinson and I also think there is room for the view that some value attached to the buildings on the land at the time of purchase.

66 I have referred to an option to purchase being given in relation to the subject land. Evidence was led that on 26 June 1980 Besson and Smith, in consideration of the sum of $1,000, gave an option to purchase the subject property to a real estate agent acting for an undisclosed purchaser. The option was to purchase the land for $175,000.

67 At the time the option to purchase was first raised at the trial, little was known of the circumstances surrounding it. However, later in the trial, the file of the Salisbury council which dealt with the option to purchase was tendered.

68 It appears from the file that the Department of Further Education was interested in relocating the Salisbury branch of the Elizabeth Community Centre. At the instance of the Minister of Education options to purchase were obtained in relation to a number of properties in the area of the proposed site, including the subject property.

69 In the result, the option to purchase was not exercised. Nothing is known of any of the negotiations between the owners of the subject property on the one hand and the agents for the government on the other except that it would appear that the price offered was raised from $150,000 to $175,000 in the course of negotiations. It is unknown whether the government acted on a valuation or, indeed, whether they were shown Mr Pattinson's valuation.

70 I admitted the evidence of the option on the basis that it may have been of some potential relevance. However, I am now satisfied that the evidence has no probative value in establishing the true value of the subject property.

71 In McDonald v The Deputy Federal Commissioner of Land Tax for New South Wales [1915] HCA 54; (1915) 20 CLR 231 the High Court held that a mere offer to purchase at a particular price was inadmissible as evidence of value. Isaacs J, reading the judgment of the court, said (239):

"It is true that from a logical standpoint, a bonâ fide offer of £1,000 is just as good evidence the moment before acceptance as the moment after. Why, then, should one be received, and the other rejected? The answer is found in the same principle, namely, the better service to justice on the whole.

When the matter has reached the point of a concluded contract, there has been a definite concrete fact established, which not only evidences value, but to some extent helps to create or modify it. Where an owner has actually parted with his land for a fixed sum and a buyer has parted with his money for the land, a clear event has arisen, which, based on the ordinary instincts and impulses of human nature, indicates a consensus of opinion between two adverse parties in the community respecting the value of similar lands. Some advantage to justice is therefore manifestly possible from considering it, and the law presumes that up to that point the disadvantages of having to undertake the collateral inquiries as to comparison do not outweigh the possible advantages.

But if the negotiations do not end in a concluded bargain, the field is at once open to a multitude of other considerations before the same point of opinion is reached. Excursions into the realm of collateral circumstances would be endless. They would so add to the cost, delay and uncertainty of litigation as on the whole to render a great disservice to the cause of justice. The Court might have to inquire whether the owner or the other party really terminated the negotiations, and, if so, for what reason. Had either of the parties discovered the true worth of the property or been misinformed by some means as to its real value? Did the owner mistrust the ability of the purchaser, or did the latter find an adverse claimant to the property, or did his circumstances change, or was there a personal quarrel? Or did he learn of a still better bargain? Or, again, was the offer a sham on either side, or both sides? Such inquiries would render litigation intolerable, and defeat the purpose for which they were permitted.

Consequently, though the logical relevance may be the same when once the fact of a real firm offer is reached, whether it be accepted or not, yet to reach that point in the latter case is practically in such a different position in relation to the true function and aim of Courts of Justice, as to be placed legally in a different position also. The exception in favour of the indirect evidence ends where it fails to serve with advantage, and the line of demarcation is drawn at actual contract. This is in accord with the vast weight of authority, and finds support in text-books such as Best on Evidence (secs. 92 and 93); Wigmore (secs 443-444), and Halsbury's Laws of England (vol. XIII., par. 625)."

See also ETSA v O'Leary (1986) 43 SASR 26 at 28; Public Trustee v Brock [1922] SAStRp 11; [1922] SASR 51).

72 There is no reason to distinguish the creation of an option to purchase in the circumstances disclosed in the present case from the type of offer discussed in the above cases. The fact that the transaction was not consummated gives rise to the same difficulties discussed in McDonald's case. Even if the sale had taken place, there would remain the important consideration that the government was seeking offers to purchase from a number of landowners as part of its project and, in these exceptional circumstances, it would be inappropriate to rule out the possibility of a premium being placed on the price offered.

73 Mr Wood said that when he was advised of the option to purchase he increased his estimate of the value of the land to $168,000. He said he did not raise his assessment to $175,000 because he was not fully confident of all the circumstances of the transaction. However, he based what confidence he had in the relevance of the option to purchase on his understanding that local councils are careful in spending money. In this case the council was to be reimbursed by the government for amounts outlaid in relation to the options for purchase. All this demonstrates the highly speculative nature of the evidence and underlines the reasons why such evidence is generally inadmissible.

74 In my view, Mr Wood's approach to the valuation of the subject property was somewhat shallow and his report consisted mainly of a commentary on the reports of the other valuers. Furthermore, for the reasons which I have given, it was inappropriate for him to attach any significance to the option to purchase.

75 I have already commented on the reliability of the evidence of Mr Brooke. I have no hesitation in preferring his evidence over that of Mr Pattinson and Mr Wood. In my view he provided an accurate valuation of the property as at 30 April 1979. His evidence received support from Mr Birgden. In making this assessment I have borne in mind the well founded submission by Mr Howard, for the first defendant, that it is important to exercise caution in assessing valuations made a considerable time after Mr Pattinson's valuation and that there is a risk of using the benefit of hindsight. However, these considerations have not lessened my confidence in the expert evidence called by the plaintiffs. I have also considered Mr Smith's praise for this site as a used car yard, but I found him to be a most unreliable witness and his evidence did nothing to diminish the criticisms of the site which were made by Mr Brooke and Mr Birgden. I find that as at 30 April 1979 the market value of the subject property was $127,500.

76 Although he did not concede the point, Mr Howard, for Mr Pattinson, did not advance any argument against the plaintiffs' contention that his client owed a duty of care to the plaintiffs in the circumstances. Mr Pattinson suggested in evidence that his client for the purpose of providing the valuation was AGC. He said someone from AGC (he could not remember who) asked him to prepare the valuation. However, it is clear that the valuation was intended for potential lenders other than AGC and that it was to be used by Besson and Smith to assist them in applying for finance. The valuation stated that it was "REQUESTED BY: M.G. Besson". According to Mr Pattinson, Besson paid for the report. Mr Pattinson's file was opened in the name of the Salisbury Motor Company. There is no reference on the file to AGC and the Salisbury Motor Company is referred to as "new client". I find that the report was prepared for Besson and Smith.

77 In any event, it is beyond doubt that Mr Pattinson was aware of the purpose of the report, namely, that it would be used to assist in obtaining finance for the car yard. I find that he was also aware that the valuation could be used in applications for a loan to a variety of lenders and not just AGC. The evidence establishes that Mr Pattinson held himself out as an expert valuer of land and that he provided advice knowing that it would be communicated to potential lenders such as the plaintiffs and that it was very likely that they would rely on his opinions for the purpose of deciding whether to advance funds and, if so, the amount which they were prepared to advance. In these circumstances he was placed under a duty of care to the plaintiffs (Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 249-252).

78 I accept the evidence of the plaintiffs that they did place considerable reliance on the valuation of Mr Pattinson in deciding whether to advance the finance and the extent to which they would provide such finance.

79 I also find that the plaintiffs suffered loss by reason of relying on the valuation and advancing the finance. The fact that the proceeds of the mortgagee sale amounted to only $99,000 so that there was a shortfall when compared with the amount advanced is sufficient to establish this requirement.

80 The question remains whether there was a breach of the duty of care owed by Mr Pattinson to the plaintiffs. The plaintiffs have submitted that no competent valuer exercising the care and skill which is usual among valuers would have valued the property as highly as Mr Pattinson and, further, that he grossly over valued the property.

81 Mr Pattinson was under a duty to the plaintiffs to exercise the standard of care and skill ordinarily exercised by professional valuers of residential property. It is appropriate to bear in mind that the valuation of property is not an exact science and a valuation figure may vary either way to a certain extent without negligence on the part of the valuer. Furthermore, a valuer is not liable in negligence simply by reason of an over-valuation. However, gross over-valuation, unless explained, provides some evidence of negligence (MGICA (1992) Ltd v Kenny & Good Pty Ltd [1996] FCA 766; (1996) 140 ALR 313 at 335) and the difference in the valuation may be so excessive as itself to bespeak negligence (the MGICA case; Hann Nominees Pty Ltd v National Australia Bank Ltd [2000] FCA 454 para 150.)

82 In Hann Nominees Pty Ltd v National Australia Bank Ltd the Full Court of the Federal Court made the following observations (paras 26-29):

"26 Because a valuation does not admit of a precise conclusion, competent and careful valuers may properly differ as to a particular figure. Therefore difference of result does not necessarily mean that a valuer has been negligent. However where a valuer determines a figure which is outside a range of values which could properly be arrived at by a competent valuer the courts have taken the view that such an over-valuation affords some evidence of negligence on the valuer's part.

27 In Baxter v FW Gapp & Co Ltd [1939] 2 AllER 752 at 758 du Parcq LJ said:

'It is of course quite clear that the mere fact that there is an over evaluation does not of itself show negligence. Gross over-valuation, unless explained may be strong evidence either of negligence or of incompetence. I have no doubt that there was in this case gross over-valuation, and one looks to see whether or not there is any explanation of it, and whether it can be seen that the defendant has failed to take any steps which he ought to have taken or to pay regard to matters to which he ought to have paid regard.'

28 These observations were applied by Clarke J in Trade Credits Ltd v Baillieu Knight Frank (NSW) Pty Ltd (1985) Aust Torts Reports 80-757 and both cases were referred to an applied by Lindgren J in MGICA (1992) Ltd v Kenny & Good Pty Ltd [1996] FCA 766; (1996) 140 ALR 313 at 336.

29 The relevant principles were also considered by the English Court of Appeal in Merrivale Moore PLC v Strutt & Parker [1999] 2 EGLR 171 at 176-177 where Buxton LJ (with whom Nourse LJ agreed) pointed out that a finding that a valuation fell outside a reasonable range or 'bracket' is not of itself sufficient to establish negligence but it substantially eases the task of the Court in deciding whether a valuer has been negligent. His Lordship was not prepared to hold in general terms that the adducing of evidence to the effect that the valuation is outside a reasonable range or bracket is a necessary precondition to a finding of negligence on the part of a valuer. He considered it may be open to a Judge, in a suitable case, to hold that a valuation figure is so far removed from what is the true value of the property that it could be regarded as a valuation that was outside the limits open to a competent valuer without specific professional evidence being given of what those limits were."

83 In the present case I am of the opinion that there was a gross over-valuation. I have found that the correct value of the property at the relevant time was $127,500. Mr Pattinson valued it at $185,000, 45 per cent higher than the correct value. The reasons for this over-valuation are apparent from the evidence. If Mr Pattinson's file is any indication, the valuation appears to have been prepared in a perfunctory fashion. There is no record of a number of important steps, including a comparison of other properties and the basis upon which the summation method was performed.

84 I have pointed out that it was inappropriate to take into account, without further and adequate consideration or enquiry, the rental amount which, according to Mr Pattinson, Besson said he was offered for the property. No allowance was made for the buildings which were on the property at the time it was purchased by Besson and Smith. There appears to have been no basis for the estimated increase in the value of the unimproved land from the time of purchase to the time of valuation.

85 In my opinion, this is a case in which gross over-valuation is sufficient in itself to indicate negligence. However, there are other indications of negligence. I am satisfied that no reasonable valuer would have valued the property at such a high figure. I find that Mr Pattinson was in breach of his duty of care to the plaintiffs.

86 I have said that the broad allegation against the second defendant is that it negligently recommended to the plaintiffs that they advance the loan to Besson and Smith. It is claimed that the second defendant was negligent in its unqualified acceptance and use of Mr Pattinson's valuation when dealing with the plaintiffs and in its failure to make any assessment of the credit worthiness of the borrowers. The particulars of negligence are set out in para 19 of the Statement of Claim:

"The second named defendant was negligent in the carrying out of its duties as agent of the plaintiffs.

The second named defendant by its servant, agent or employee Tyrrell was negligent in that it:-

(a) Knew or ought to have known that the said report was inaccurate in its assessment of the market value of the said property;

(b) Knew or ought to have known that the true market value of the said property as at the 29th day of April 1979 was not greater than $125,000.00;

(c) Knew or ought to have known that the first named defendant had no or no sufficient evidence available to him or at all to support a valuation of the said property at $185,000.00;

(d) Failed to consider properly or at all the accuracy of the assessment of the said report of the first named defendant;

(e) Knew or ought to have known that the said property was inadequate and insufficient security for the purposes of the said loan of $123,000.00;

(f) Failed to enquire properly or at all as to the experience and further, or alternatively, the competence of the first named defendant;

(g) Failed to exercise any or any proper care in ascertaining either the market value of the said property or its suitability as security for the purposes of the said loan of $123,000.00;

(h) Failed to compare the estimated value of $185,000.00 with the sum of $105,000.00 paid by the said Graham John Besson and Paul Leon Smith for the said property on 22 August 1978 or, in the alternative, failed to draw the attention of the plaintiffs to that comparison;

(i) Failed to make any assessment, or in the alternative, any adequate assessment of the ability of the said Graham John Besson and Paul Leon Smith to pay an amount of $1,332.50 by way of interest each month;

(j) Failed to make any investigation, or in the alternative, any adequate investigation of the ability of the said Graham John Besson and Paul Leon Smith to repay to the plaintiffs the sum of $123,000.00 on the 7th day of June 1980 and/or in the alternative on the 7th day of June 1981;

(k) Failed to make any enquiry, or in the alternative, any sufficient enquiry to ascertain that the valuation of the first defendant had been prepared independently of the said Graham John Besson and Paul Leon Smith;

(l) Failed to make any, or in the alternative, any sufficient enquiry as to the indebtedness of the said Graham John Besson and Paul Leon Smith to A.G.C. (Advances) Ltd. and, or in the alternative, failed to provide any information to the plaintiffs as to the extent of that indebtedness."

87 The second defendant, Ross D Hodby & Associates is a partnership. Mr Ross Hodby gave evidence. He said he was licensed as a land broker in 1958. After working as an employed land broker, he commenced to practise on his own account in 1968. For a few years he practised under his own name. He then registered the name Ross D Hodby & Associates and, for a time, was the sole proprietor of the business.

88 In about 1971, Mr Ross Hodby's brother, Mr Dean Hodby, came to work for him. Eventually, Mr Dean Hodby qualified as a land broker and a partnership was formed comprising Mr Ross Hodby, Mr Dean Hodby and their respective wives. They traded under the name Ross D Hodby & Associates. Mr Dean Hodby left the partnership in 1980.

89 Mr Ross Hodby said that in late 1975 or early 1976 the business was split into two entities. Over a period of time Ross D Hodby & Associates had built up a finance broking business and a new entity, Archer Finance Brokers was created for the purpose of providing two income earning entities, Ross D Hodby & Associates for the land broking business and Archer Finance Brokers for the finance broking business. Archer Finance Brokers was owned by Hodby Nominees Pty Ltd as trustee for the Ross Hodby and Dean Hodby family trusts. This structure was put in place for income tax purposes.

90 Mr Ross Hodby said that from 1977 onwards two employees, Michael Tyrrell and Dianne Hunter, worked for Archer Finance Brokers. Sandra Baldwinson, worked on the land broking side and was employed by Ross D Hodby & Associates. The wives of the Hodby brothers were nominal employees of Ross D Hodby & Associates. Dianne Hunter has since married and she gave evidence under her married surname of Rackus. However, she is referred to throughout the correspondence and much of the evidence by her maiden name and I will refer to her by that name in these reasons.

91 Whatever the internal arrangements might have been, dictated as they were by tax considerations, there is ample evidence that the finance broking business was conducted by Ross D Hodby & Associates. Advertisements inviting the public to use the finance broking services were in the name of Ross D Hodby & Associates. All relevant correspondence for the finance broking business, except for letters forwarding cheques to clients, were in the name of Ross D Hodby & Associates. At the time relevant to this matter Mr Tyrrell, who was involved exclusively in the finance broking business, was described on the letterhead of Ross D Hodby & Associates as an associate of that firm.

92 In the present matter, the plaintiffs wrote to Ross D Hodby & Associates for investment advice and responses to that request were given in the name of Ross D Hodby & Associates. I find that, in relation to this transaction, the plaintiffs dealt with Ross D Hodby & Associates. If this is not so, there is abundant evidence to justify a finding that Ross D Hodby & Associates are estopped from denying this fact. However, such a finding is unnecessary. It is clear from the evidence that there was an advantage in continuing to do business as Ross D Hodby & Associates because of the profile which that name had achieved. I also accept the evidence of Mr and Mrs Plenty that they attached no significance to the fact that they received cheques from Archer Finance Brokers from time to time. They assumed at all times that they were dealing with Ross D Hodby & Associates which was the fact of the matter.

93 The finance broking business conducted by Ross D Hodby & Associates flourished because of the difficulty which borrowers encountered at this time in obtaining immediate finance from banking institutions. Bridging finance was required in many cases and this presented investors with an opportunity to invest in short term first mortgage finance. Clients such as the Plentys were able to invest and then reinvest as previously invested monies became available.

94 The procedure commenced with an application by a borrower to Ross D Hodby & Associates. The property put forward as security for the loan was usually inspected by Mr Tyrrell. In the transactions referred to in the evidence, which include previous loans by the plaintiffs through Ross D Hodby & Associates, details relating to the properties and the borrowers would usually be given to the potential lenders. It is the plaintiffs' case that Ross D Hodby & Associates recommended investments, although it was acknowledged that it was up to the lenders to make a decision as to whether they would provide the finance in a particular transaction.

95 The plaintiffs commenced lending money on first mortgage through Ross D Hodby & Associates in October 1974. They followed up with approximately 12 other loan transactions through the same broker until the last which took place in July 1979. I will refer later to the nature of the relationship and course of dealing between the plaintiffs and Ross D Hodby & Associates, but at this stage it is convenient to confine attention to the subject transaction and the events more closely connected with it. Suffice to say that it emerges from the evidence that on previous occasions the second defendant recommended various loan applications to the plaintiffs as being suitable for investment purposes.

96 The plaintiffs wrote to Ross D Hodby & Associates on 16 May 1979 as follows:

"Please be advised that we have $80,000? available for first mortgage property.

97 Then in a letter which is undated, but which, it is agreed, was written on 22 May 1979, Mr Tyrrell on behalf of Ross D Hodby & Associates, wrote to Mr Plenty in the following terms:

"Further to your letter of 16th May, 1979, I enclose a copy of a Licensed Valuation and photograph of a possible First Mortgage Investment.

Please note that on all Commercial lending we insist on an independent Valuation. In this case the Valuation is for $185000.00 and we have agreed to a First Mortgage advance of $120000.00 which is under two thirds of the Valuation.

The property is situated at Park Terrace, Salisbury and is trading as 'Salisbury Motor Company'. As you will note the property is not in a Company Name but in the Personal Names of the Company Directors. The term of the Mortgage is for two (2) years at an interest rate of 13%.

All further details pertinent to the investment are contained in the Valuation.

If this proposition is suitable to you, kindly advise the undersigned as Settlement is planned for the 31st May, 1979."

98 The valuation enclosed was that of Mr Pattinson. Mrs Plenty said that she read the valuation and took note of the fact that it was prepared by a licensed valuer. She said that the letter led her to believe that the valuation was independent.

99 On 22 May 1979 Mr Tyrrell sent a letter to a Mr Emery which was almost identical to that sent to the plaintiffs on the same day, but with the following paragraph added:

"Please note, that we have another client who is interested in investing between $60000.00 and $80000.00 on this property so if you wish to invest could you please also advise the amount."

100 I agree with Mr White's submission that Mr Tyrrell could not have known the attitude of Mr and Mrs Plenty at the time he sent the letter to Mr Emery. I agree with the further submission that this is indicative of a desire on Mr Tyrrell's part to promote the loan at the expense of accuracy.

101 Mrs Plenty said that she and her husband thought the matter over on the weekend which followed and they decided to visit Adelaide on the Monday when they had some documents to take to Ms Hunter. They said they spoke to Ms Hunter and asked her about the Salisbury property. She said she would get Mr Tyrrell and he came out and spoke to the plaintiffs. She recounted the conversation in her evidence:

"Syd [Mr Plenty] asked Mr Tyrrell whether he could tell us anything more about the property, and what the situation of the property was. Mr Tyrrell conveyed to us that - he said 'I have never seen such a good property. If I had the money, I would be putting my money into the property'. He said 'I have inspected the books, the tax papers, and it's a very, very good business'. He also said that he couldn't recommend any other property as highly as he could this one."

102 Mrs Plenty said that she and her husband told Mr Tyrrell they were interested in the property and would like to have some more time to think about it. Her evidence continued:

"Q At the time that you went to that office, what was the amount of money that you had in mind lending?

Q Was that the largest sum of money you had ever lent on a single property before?

Q Was that fact of significance to you at the time?

A Yes. We thought that we should think about it a bit more than we had with some of the others.

Q Was there any other information that you sought from Mr Tyrrell?

A We left it that we would get back to him after we had thought about it.

Q Was there anything in the discussion at that time about whether you would be the sole lender or a joint lender, or any other arrangement of lending?

A He did say to us that, obviously, with the $80,000, we would be the biggest lender but there would be others that would be lending the rest of the 120,000 that they would be requiring."

103 Mrs Plenty said that Mr Tyrrell rang Mr Plenty on about four or five occasions after this discussion. Eventually she and Mr Plenty decided to lend the entire amount of $120,000 because they thought they would have more control over the investment. They conveyed that advice to Mr Tyrrell who asked if the amount could be increased to $123,000. They decided that this could be arranged.

104 Mr Plenty said he read the letter written on 22 May 1979 and the valuation which was enclosed with it. He said he attached weight to the fact that the letter stated the valuation was independent. He stated that he understood from the letter that Ross D Hodby & Associates were recommending the proposition. He said he also relied on the statement that the borrowers would be individuals and, as he understood it, personally responsible. He said it was of some relevance to him that the valuer was licensed.

105 According to Mr Plenty he and his wife did not come to an immediate decision on whether to advance funds. He said he and his wife went to Adelaide the following week. They spoke to Dianne Hunter and said they would like some further information. She said she would get Mr Tyrrell and they spoke to him. He was asked about the conversation:

"A Well, we were asking and wanting to know what - how the business was run and the amount of money and the capabilities and so on of them being able to make the monthly payments and also in respect of the valuation and the security of the property.

Q Can you tell his Honour what you asked about the valuation and security of the property?

A I can't recall the exact conversation, but it was simply in regard to the value of how it would be presented and also the earning capacities and so on of the borrowers and how that side of it was running.

Q Can you recall what he said to you about the earning capacity of the borrowers?

At a glance

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Judgment (289 paragraphs)

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Cases Cited (5)