Damages
205In case I am wrong in finding that the defendants were not negligent in preparing the valuation, that the valuation did not cause the loss, and that Provident Capital was not entitled to rely on the valuation, I turn to consider the damages claimed by Provident Capital.
206While Provident Capital achieved a sale on the property of approximately $12.5M on 22 November 2008, it says that this was after substantial demolition works and the commencement of other works it was obliged to expend funds on in order to carry out this work.
207So far as the recovery expenses are concerned, there does not appear to be a dispute that they were reasonably incurred. The buildings on the property had to be demolished to keep the development application in force. This had to be done before the property could be sold. Nor, it appears, is there any dispute that the sum of $7.8M was lent to MMT and that interest accrued at 18 percent for 12 months ($1.404M) and legal costs of $25,000 were incurred. The sum of $10,405,965 is not in dispute. What is in issue is whether Provident Capital should be compensated for the loss of the use of the moneys loaned to MMT.
208Provident Capital sought to satisfy the Court that had the defendants not negligently valued the property, the loan would not have been written and that instead of lending to MMT, Provident Capital would have loaned the money to another borrower. It sought to demonstrate that lending to another borrower would have likely resulted in a loan without default, by referring to its rate of default on loans in 2005/2006 of 0.1 percent.
209Provident Capital's claim for damages is for loss of commercial opportunity. In support it referred to Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332, where the High Court considered this type of claim for damages. At 349 Mason CJ, Dawson, Toohey and Gaudron JJ discussed the way in which contract law recognises that a loss of an opportunity is compensable. Where a claim is made for the loss of a commercial opportunity, the Court must, before it awards damages in respect of such a claim, be satisfied on the balance of probabilities that a commercial opportunity of some value was lost. Once that is done the Court assesses the value of the opportunity by reference to the degree of probabilities or possibilities (at 355 per Mason CJ, Dawson, Toohey and Gaudron JJ; at 368 per Brennan J (as his Honour then was)). In Sellars v Adelaide Petroleum NL, the High Court held that the trial judge was correct to make an award of damages in favour of the applicant for the loss of an opportunity to proceed with an alternative commercial transaction that had a 40 percent chance of proceeding to settlement.
210In Tabet v Gett [2010] HCA 12; (2010) 240 CLR 537, Kiefel J (with whom Hayne and Bell JJ agreed) referred to Sellars v Adelaide Petroleum NL and said (at 581 [124]) that if providing an opportunity provides a substantial and not merely a speculative prospect of acquiring a benefit, it can be regarded as of value and therefore as loss or damage.
211Further, in the recent Full Federal Court decision of La Trobe Capital & Mortgage Corporation Limited v Hay Property Consultants Pty Ltd [2011] FCAFC 4 the Court stated that the proper manner of approach is to award interest at a rate which would place Provident Capital in the position it would have been in if the tortious conduct had not occurred. That is, affording Provident Capital a rate of interest on the funds it would not have lent to MMT reflecting Provident Capital's normal return from the investment of its funds for the three years that it was without it. Provident Capital says that if it had invested moneys in February 2004 on a first mortgage security for a period of three years it would have obtained an average return of 14.19 percent. This rate reflects a figure between 17.25 percent (the higher rate on the loan) and 11.15 percent (the lower rate on the loan).
212Provident Capital submitted that the way in which Provident Capital's funds are managed meant that the monies set aside to lend to the borrower in this transaction would have been lent very swiftly to another borrower.
213Their claim for damages entails:
Net funds loaned $7,149,720 TB 1130 - 1136
Recovery expenses: $3,256,244 TB 771, 890, 891, 954, 989 - 990, 100 - 1007, 1008, 1116 - 1120, 1130 - 1136
Sub total $10,405,965
Foregone income at 14.19% on net funds loaned $3,495,956 (3 years, capitalized annually)
TB 745, 970, 972, 1014, 1026, 1028, 1070, 1071, 1073
Foregone income at 14.19% on recovery expenses $462,061 (1 year, capitalized annually)
TB 745, 970, 972, 1014, 1026, 1028, 1070, 1071, 1073
Total cost: $14,363,982
Less recovery: $12,506,720 TB 1046 - 1048
Net amount: $1,857,262
Plus court interest $566,248.65 Civil Procedure Act (NSW) 2005 s 100
Total claimed $2,423,510.65