Todd Hadley Pty Limited v Lake Maintenance

Consideration

1. It is desirable to commence the analysis with a consideration of the duty of care owed by a valuer providing a valuation for mortgage valuation purposes.
2. As Lord Templeman put the matter in Smith v Bush [1990] 1 AC 831 at 844; [1990] UKHL 1: "A valuer who values property as a security for a mortgage is liable either in contract or in tort to the mortgagee for any failure on the part of the valuer to exercise reasonable skill and care in the valuation. The valuer is liable in contract if he receives instructions from and is paid by the mortgagee. The valuer is liable in tort if he receives instructions from and is paid by the mortgagor but knows that the valuation is for the purpose of a mortgage and will be relied upon by the mortgagee."
3. As his Lordship pointed out, the duty owed by a valuer in such circumstances was recognised well prior to Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; [1963] 3 WLR 101: see, for example, Cann v Willson (1888) 39 ChD 39, per Chitty J.
4. There are a number of Australian decisions in which a duty of care has been found or assumed to have been owed by a valuer to a mortgagee lender or mortgage insurer, although it may be noted that the analysis by reference to which a duty has been held to exist differs from case to case, reflecting the common law's evolution with respect to the imposition of duties of care in relation to the recovery of pure economic loss. The decisions include Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25 at [58], [83], [116] (Kenny & Good); R & G Mortgages Pty Ltd v Ronald A Newton & Associates Pty Ltd (Supreme Court of Victoria, McDonald J, 4 July 1997, unrep); Plenty v Pattinson [2001] SASC 42 at [77]; Vero Lenders Mortgage Insurance Ltd v Taylor Byrne Pty Ltd [2006] FCA 1430; Kestrel Holdings Pty Ltd v APF Properties Pty Ltd (2009) 260 ALR 418; [2009] FCAFC 144 at [94]; Genworth Financial Mortgage Insurance Pty Ltd v Hodder Rook & Associates Pty Ltd [2010] NSWSC 1043; Ta Ho Ma Pty Ltd v Allen (1999) 47 NSWLR 1; [1999] NSWCA 202.
5. A valuation supplied for mortgage valuation purposes, in the words of Lord Hoffmann in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 at 211; [1996] 3 WLR 87 (Banque Bruxelles): "…tells the lender how much, at current values, he is likely to recover if he has to resort to his security. This enables him to decide what margin, if any, an advance of a given amount will allow for a fall in the market, reasonably foreseeable variance from the figure put forward by the valuer (a valuation is an estimate of the most probable figure which the property will fetch, not a prediction that it will fetch precisely that figure), accidental damage to the property and any other of the contingencies which may happen. The valuer will know that if he overestimates the value of the property, the lender's margin for all these purposes will be correspondingly less."
6. In a similar vein, it has been observed (A McGee, Limitation Periods (8th ed, 2018, Sweet & Maxwell) at 5.051) that: "… commercial lenders will normally not lend more than a certain percentage of the apparent value of the property. This cushion is required in order to provide a margin of error against the imprecision inherent in valuation, possible market fluctuations and the possible costs of proceedings to enforce the security."
7. A mortgage, of course, provides to the lender a range of rights and remedies on default, including the right to sue on the personal covenant, the right to possession (see Real Property Act 1900 (NSW) s 60), the right to improve the property and perfect the security, the right to accretions to and fruits of the mortgaged property, the power to lease, the right to appoint a receiver, the right to foreclose and the power of sale (see Real Property Act s 58): see generally, B Edgeworth, Butt's Land Law (7th ed, 2017, Thomson Reuters Australia) at [11.630]-[11.1570] (Butt). The exercise of a right of foreclosure will extinguish a right to sue on the personal covenant (Conveyancing Act 1919 (NSW) s 100), whereas a mortgagee who exercises a power of sale will still have a right to sue on the personal covenant: Rudge v Richens (1873) LR 8 CP 358; Commonwealth Bank of Australia v Buffett (1993) 114 ALR 245 at 252. In doing so, however, the mortgagee will have no rights superior to those of the mortgagor's other creditors (Butt at [11.1150]) and, subject to the terms of the mortgage, will have no entitlement to receive an indemnity for the costs of realising the debt.
8. A mortgage granted to secure the repayment of a loan may be conceptualised as giving to the lender a chance and, depending on the lender's loan value ratio and tolerance for risk, a good chance of being able to recoup the loan from the sale of the mortgaged property, in the event of a borrower defaulting on the repayment of the loan. The chance is not, however, a guarantee, because the property market may move in such a way as to eliminate the cushion and erode the security which the mortgage was otherwise designed to afford. The chance is, nevertheless, extremely valuable: where the security proves inadequate, the lender is exposed to competition in relation to the recovery of the outstanding portion of the loan with the borrower's other creditors.
9. The value of the chance represented by the security will be affected by the competence of any underlying valuation of the security property. An incompetent over-valuation of the security property will diminish the value of the mortgage in the hands of the lender. Once a mortgaged property is sold, but some of the loan remains outstanding, the chance to recoup the balance of the loan from the property is necessarily lost.
10. In Kenny & Good at [16], Gaudron J observed that: "The interest that a mortgage lender seeks to protect by obtaining a valuation of the proposed security is not simply an interest in having a margin of security over and above the mortgage debt. Rather, it is that, in the event of default, it should be able to recoup, by sale of the property, the amount owing under the mortgage. And that is also the interest of a mortgage insurer. It is the risk that recoupment might not be possible that calls the [V]aluer's duty of care into existence. And it is the interest in recoupment that is infringed by breach of that duty. Moreover, the time that loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible. In the case of a mortgage transaction, that will occur when it is reasonably ascertainable that sale will result in a loss. At the earliest it will be when default occurs and, at the latest, when the property is sold." (footnote omitted, emphasis added).
11. Gaudron J cited as authority for the penultimate sentence the decision of Brennan J in Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 537; [1992] HCA 55 (Wardley), where his Honour had said: "The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is 'worse off than if he had not entered into the transaction'." (emphasis in original).
12. Kenny & Good was a case where a real estate valuer, Kenny & Good Pty Ltd, at the request of Macquarie Bank Ltd, valued a property under construction both as it stood and on completion. The valuation report provided that the lending institution Permanent Custodians Ltd (Permanent Custodians) and mortgage insurer MGICA (1992) Ltd (MGICA) "may" rely on the valuation. The valuation was significantly higher than the true value of the property at the time of the report. MGICA agreed to indemnify Permanent Custodians, and Permanent Custodians advanced a loan to the borrower. The borrower defaulted and the property was sold at a loss. The sale price was lower still than the true value of the property at the date of the valuation report, there having been a recent fall in the residential property market.
13. MGICA indemnified Permanent Custodians and proceeded to bring claims against Kenny & Good in tort for negligence, for breaches of ss 52 and 53A of the Trade Practices Act 1974 (Cth) and for breaches of ss 42 and 45 of the Fair Trading Act 1987 (NSW). The question before the High Court was whether Kenny & Good was liable for the whole of the loss sustained by MGICA, or whether the fall in the market could be regarded as some independent cause of the loss. As such, it may be observed that the observation of Gaudron J as set out at [48] above was strictly obiter.
14. Gaudron J was not the only judge in Kenny & Good, however, to consider the nature of the interest protected by the duty of care imposed upon a valuer conducting a valuation for mortgage security purposes, and the related question of when a cause of action against such a valuer arose. In this context, Gummow J observed (at [85]-[89]): "Mason CJ, Dawson, Gaudron and McHugh JJ in Wardley Australia Ltd v Western Australia considered the economic loss arising from conduct which contravened s 52 of the Trade Practices Act. Their Honours said: 'The kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected.' They went on to distinguish the detriment suffered by a person when first entering into an agreement relying on the negligent misrepresentation and the legal concept of 'loss or damage' which may manifest at a later time. These propositions apply with equal force to the tort of negligence and to this case. The above characterisation of MGICA's interest accords with both MGICA's commercial expectations and the nature of the risk being met by the valuation. MGICA's risk was not fixed at the time of the valuation. Rather, it varied during the life of the mortgage insurance. … MGICA's risk of non-payment 'crystallised' at the moment of realisation, when the relationship between the market value of the property and the moneys secured became fixed in the relevant sense. MGICA sustained an economic loss arising from the fall in the property market as a result of the valuation because the value of the property had been negligently overstated in circumstances where MGICA would not have entered into the transaction but for the valuation. The 'loss' which is recoverable was sustained at the time of default and not at the time of entering into the transaction." (footnotes omitted).
15. Earlier in his decision, Gummow J observed that MGICA's cause of action in negligence accrued when the damage to its interest was sustained: at [84]. Its interest had been described by his Honour as "that, in the event of default, the mortgagee would have the capacity to recover the amount secured by realising its security and without calling upon the insurance. To the extent that MGICA recouped to the mortgagee the moneys secured by the mortgage, it would have an interest in the security by way of subrogation": at [82]. As to precisely when this cause of action accrued, Gummow J said that it was "at the earliest, when the mortgagor defaulted and certainly when the property was sold": at [84]. To that extent, his Honour's judgment bears a close affinity with that of Gaudron J and, in particular, the important passage reproduced at [48] above and, specifically, the final sentence of that passage.
16. In Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 (Hunt & Hunt), the High Court considered whether a lender's claim for professional negligence against a firm of solicitors was an apportionable claim within the meaning of s 35(1) of the Civil Liability Act 2002 (NSW), the alleged concurrent wrongdoers being Messrs Caradonna and Flammia who had forged and falsely witnessed signatures on loan and mortgage documents. French CJ, Hayne and Kiefel JJ said (at [24]-[26]): "In the identification of the damage or loss that is the subject of the claim, it is necessary to bear in mind that damage is not to be equated with what is ultimately awarded by the court, which is to say the 'damages' which are claimed by way of compensation and which are assessed and awarded for each aspect of the damage suffered by a plaintiff. Damage, properly understood, is the injury and other foreseeable consequences suffered by a plaintiff. In the context of economic loss, loss or damage may be understood as the harm suffered to a plaintiff's economic interests. It has already been observed that the Civil Liability Act equates 'harm' with damage to property and economic loss which results from a failure to exercise reasonable care and skill. Mitchell Morgan's pleading does not expressly state the loss and damage it claims to have suffered. However, it claims that the loss and damage is continuing and that it has lost the sum advanced, together with interest and other expenses. Taken together this might suggest that Mitchell Morgan claims to be unable to recover those monies. In Hawkins v Clayton, Gaudron J pointed out that in an action for negligence causing economic loss it will almost always be necessary to identify, with some precision, the interest infringed by the negligent act. In that case, it was necessary to identify the interest in order to answer the question as to when the cause of action accrued. Its identification is also necessary for a proper understanding of the harm suffered and for the determination of what acts or omissions may be said to have caused that damage. As her Honour observed, economic loss may take many forms. In Wardley Australia Ltd v Western Australia, it was said that the kind of economic loss which is sustained, as well as the time when it is sustained, depends upon the nature of the interest infringed and in some cases, perhaps, upon the nature of the interference to which it is subjected. An interest which is the subject of economic loss need not be derived from proprietary rights or obligations governed by the general law. The interest infringed may be in the value of property or its physical condition. Thus in The Commonwealth v Cornwell, the respondent's interest was an entitlement conferred by federal statute to participate in a Commonwealth superannuation fund. An economic interest must be something the loss or invasion of which is compensable by a sum of money. One such interest identified in the cases is a lender's interest in the recovery of monies advanced." (footnotes omitted, emphasis added).
17. In support of the final sentence of this passage, their Honours cited Hawkins v Clayton (1988) 164 CLR 539 at 601; [1988] HCA 15; Wardley at 533 and Kenny & Good at [16]. Their Honours then (at [27]) devoted a full paragraph to Kenny & Good, stating as follows: "One of the issues in Kenny & Good Pty Ltd v MGICA (1992) Ltd concerned the economic loss suffered by a lender in consequence of a negligent property valuation of the proposed security for the loan. Gaudron J pointed out that the interest of the lender which it had sought to protect by obtaining the valuation was that, in the event of default, the lender should be able to recover the amount owing under the mortgage by the sale of the property. It would follow that the harm to the lender's economic interest as a consequence of the negligent valuation was the lender's inability to recover that sum." (footnotes omitted).
18. It may also be noted that, although in dissent in Hunt & Hunt, Bell and Gageler JJ also cited [16] of Gaudron J's decision in Kenny & Good, stating (at [99]) that: "… It has been pointed out that in such a case: the interest that a mortgagee seeks to protect by obtaining a valuation 'is that, in the event of default, [the mortgagee] should be able to recoup, by sale of the property, the amount owing under the mortgage'; 'the risk that recoupment might not be possible ... calls the valuer's duty of care into existence'; 'it is the interest in recoupment that is infringed by breach of that duty'; and the time at which 'loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible'." (footnote omitted).
19. Their Honours concluded at [99] by stating that: "The harm caused to the mortgagee by the negligent valuation lies in the inadequacy of its security in the event of non-payment of the loan by the borrower. The non-payment of the loan by the borrower may be the event which crystallises the loss but non-payment of the loan by the borrower does not cause the inadequacy of the security." (footnote omitted).
20. Mr McCulloch SC, who appeared for the Valuer, called in aid all of these passages in support of the argument that any cause of action which Lake Maintenance had against the Valuer accrued, at the latest, by the time of the sale of the mortgaged property, and that this was irrespective of whether or not the balance of the moneys owing could still be recovered from the borrower under the personal covenant.
21. By contrast, Dr Birch maintained that: 1. the causes of action did not accrue until it became "reasonably ascertainable" that the borrower could not repay the debt pursuant to the personal covenant; 2. the mere act of default that had triggered the power of sale did not mean that the borrower was insolvent and would be unable to pay the balance of the debt - the debtor might, for example, be asset rich and simply need some time to liquidate assets in a sufficient amount to discharge the outstanding debt; 3. As such, the point at which it may become "reasonably ascertainable" that the borrower would not be able to repay the loan may not occur until some stage after the sale of the mortgaged property, and no loss giving rise to a cause of action against the Valuer would be suffered until that point in time; 4. the passages from Kenny & Good and Hunt & Hunt relied upon by the Valuer do not address the argument, because they appear to assume that the borrower was insolvent or unable to pay and honour the personal covenant when, it was submitted, that was not necessarily so in the present case. Ironically, both parties sought to support their respective cases by reference to the same authorities, namely Wardley, Kenny & Good, Hunt & Hunt and Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627; [1997] UKHL 53 (Nykredit).
22. The concept of "reasonably ascertainable" which lay at the heart of Dr Birch's argument appears to derive from that passage of Brennan J's judgment in Wardley at 537,extracted at [49] above. The term was also employed by Gaudron J in Kenny & Good at [16]. It should immediately be said, however, that Gaudron J was suggesting in Kenny & Good that loss or damage may be reasonably ascertainable (and thus a cause of action may accrue) prior to the sale of the mortgaged property, as opposed to only at the time of sale. An example of this may occur where, for example, the valuer's negligence comprises a failure to detect a defect in the building, such as the presence of asbestos, which was so profound that it became reasonably ascertainable, even prior to the time of sale, that the property was so defective that it would not allow a mortgagee to recover the moneys advanced against the property.
23. Similarly in Nykredit, which was the sequel to Banque Bruxelles and which also involved a claim against a valuer who had provided a valuation for mortgage security purposes, the House of Lords treated the sale of the mortgaged property as crystallising the lender's loss, meaning that the cause of action against the valuer in that case must necessarily have arisen by that time.
24. Dr Birch sought to rely upon the following passage from the speech of Lord Nicholls in Nykredit (at 1631-1632): "For what, then, is the valuer liable? The valuer is liable for the adverse consequences, flowing from entering into the transaction, which are attributable to the deficiency in the valuation. This principle of liability, easier to formulate than to apply, has next to be translated into practical terms. As to this, the basic comparison remains in point, as the means of identifying whether the lender has suffered any loss in consequence of entering into the transaction. If he has not, then currently he has no cause of action against the valuer. The deficiency in security has, in practice, caused him no damage. However, if the basic comparison throws up a loss, then it is necessary to inquire further and see what part of the loss is the consequence of the deficiency in the security. Typically, the answer to this further inquiry will correspond with the amount of the loss as shown by the basic comparison, for the lender would not have entered into the transaction had he been properly advised, but limited to the extent of the overvaluation. This was the measure applied in the present case. Nykredit suffered a loss, including unpaid interest, of over £3m. Of this loss the amount attributable to Erdman's incorrect valuation was £1.4m., being the extent of the over-valuation. The basic comparison gives rise to issues of fact. The moment at which the comparison first reveals a loss will depend on the facts of each case. Such difficulties as there may be are evidential and practical difficulties, not difficulties in principle. Ascribing a value to the borrower's covenant should not be unduly troublesome. A comparable exercise regarding lessees' covenants is a routine matter when valuing property. Sometimes the comparison will reveal a loss from the inception of the loan transaction. The borrower may be a company with no other assets, its sole business may comprise redeveloping and reselling the property, and for repayment the lender may be looking solely to his security. In such a case, if the property is worth less than the amount of the loan, relevant and measurable loss will be sustained at once. In other cases the borrower's covenant may have value, and until there is default the lender may presently sustain no loss even though the security is worth less than the amount of the loan. Conversely, in some cases there may be no loss even when the borrower defaults. A borrower may default after a while but when he does so, despite the overvaluation, the security may still be adequate. It should be acknowledged at once that, to greater or lesser extent, quantification of the lender's loss is bound to be less certain, and therefore less satisfactory, if the quantification exercise is carried out before, rather than after, the security is ultimately sold. This consideration weighed heavily with the High Court of Australia in Wardley Australia Ltd. v. State of Western Australia (1992) 175 C.L.R. 514. But the difficulties of assessment at the earlier stage do not seem to me to lead to the conclusion that at the earlier stage the lender has suffered no measurable loss and has no cause of action, and that it is only when the assessment becomes more straightforward or final that loss first arises and with it the cause of action. Indeed, for the cause of action to arise only when the lender realises his security would be a highly unattractive proposition. It would mean that, however obvious it may be that the lender will not recover his money, he cannot start proceedings. He must wait until he manages to sell the property, a process which may be protracted. This would be a surprising stance for the law to take." (emphasis added).
25. Whilst it is correct that Lord Nicholls contemplated in the ante-penultimate paragraph of the passage extracted above that there may be no loss even when the borrower defaults, this was not said to be because there may be a prospect of recovering under the personal covenant notwithstanding the default. Rather it was because, depending on the amount of the loan, the negligently overvalued property may still yield a sufficient sum on sale to mean that the borrower was able to draw on the security to recoup the sum advanced and secured.
26. In a similar vein to Lord Nicholls, Lord Hoffmann said in Nykredit (at 1639): "There may be cases in which it is possible to demonstrate that such loss is suffered immediately upon the loan being made. The lender may be able to show that the rights which he has acquired as lender are worth less in the open market than they would have been if the security had not been overvalued. But I think that this would be difficult to prove in a case in which the lender's personal covenant still appears good and interest payments are being duly made. On the other hand, loss will easily be demonstrable if the borrower has defaulted, so that the lender's recovery has become dependent upon the realisation of his security and that security is inadequate." (emphasis added).
27. Each of the other Law Lords agreed with both Lord Nicholls and Lord Hoffmann.
28. Lord Hoffmann, like Lord Nicholls, treated the default which triggered the right of sale of the mortgaged property as the latest point in time at which the cause of action for negligence could have arisen. The default meant that the interest of the lender as mortgagee, which it was the duty of the valuer to protect by a competent valuation, was in play.
29. As has also been seen, Gaudron and Gummow JJ in Kenny & Good were both clear that the relevant cause of action would have certainly accrued by the time of the sale following on a default. Neither Kenny & Good nor Nykredit contemplate that the cause of action against a negligent valuer may arise after sale because of the possibility that the defaulting borrower may yet honour, albeit belatedly, his, her or its personal covenant under the mortgage. Indeed, the following observation by Lord Nicholls in Nykredit (at 1633) is quite contrary to such a contention: "It is not necessary, in order to achieve a sensible and fair result, to go so far as asserting that the plaintiff has no cause of action, and hence may not issue a writ, until the assessment can be made with the degree of precision that accompanies a realisation of the security. Further, within the bounds of sense and reasonableness the policy of the law should be to advance, rather than retard, the accrual of a cause of action. This is especially so if the law provides parallel causes of action in contract and in tort in respect of the same conduct. The disparity between the time when these parallel causes of action arise should be smaller, rather than greater." In the present case, of course, there was no contractual relationship between Lake Maintenance and the Valuer, the Valuer having been retained by the borrower, but if there had been, any cause of action in "contractual negligence" would have accrued at the time of the valuation.
30. The key to the present case lies, in my opinion, in focusing upon the nature of the interest infringed. This starting point does not depend upon the obiter observations of Gaudron and Gummow JJ in Kenny & Good, highly persuasive though they are. Rather, it derives directly from the joint judgment of Mason CJ, Dawson, Gaudron and McHugh JJ in Wardley to which Gummow J referred in the extract of his judgment in Kenny & Good, set out at [52] above. That passage linked the timing of the accrual of the cause of action to the nature of the interest infringed. The same point was made by the majority in Hunt & Hunt: see [54] above.
31. The nature of the interest infringed was, relevantly, the ability to "recoup" from the proceeds of sale the moneys advanced by way of loan. At the time of sale, it was plain that Lake Maintenance had suffered harm or, to paraphrase Brennan J in Wardley at 537, was "worse off than if [it] had not entered into the transaction". Thereafter Lake Maintenance could no longer look to the property to recover its debt. Any subsequent recovery from the borrower would have to be brought to account, but the prospect or possibility of such recovery did not stand in the way of an action being brought against the Valuer then and there. The cause of action had accrued.
32. If it were the case that the borrower was still solvent but Lake Maintenance had not sued it, it may have been open to the Valuer to contend that there had been a failure to mitigate the loss sued upon, or possibly to raise a proportionate liability defence consistent with the decision in Hunt & Hunt. But neither of these potential defences would mean that the cause of action had not accrued. They would be germane only to matters of quantum.
33. Whether or not any failure to mitigate defence, upon which the Valuer would bear the onus, would be sustainable would depend upon whether it could be shown that Lake Maintenance had acted unreasonably in not pursuing the borrower: see London and South of England Building Society v Stone [1983] 1 WLR 1242; [1983] 3 All ER 105 (Stone). In that case, Stephenson LJ said (at 1262-1263) that: "What the valuer is contending is that the lenders ought to have done something and that must, in my opinion, be an assertion that they should have mitigated the damage flowing from the worthlessness of the security. They should have had recourse to what Devlin J. regarded as another item of security than the mortgaged property, but surely a security in a different sense not by itself securing a loan, namely the borrowers' contractual obligation under the first covenant in the deed. If, as I think and the judge thought, that is only available to the valuer as mitigation, the valuer must prove it was reasonable and when the court has to decide that question of fact, the lenders' conduct in not taking steps to reduce the loss will not be weighed in nice scales at the instance of the party who has occasioned the loss: see what Lord Macmillan said of the plaintiff's conduct in taking positive steps to reduce his loss in Banco de Portugal v. Waterlow & Sons Ltd. [1932] A.C. 452, 506." (emphasis added). Stephenson LJ did not regard the prospect of the lender recovering from the borrower under the personal covenant as a matter "available" to the defendant valuer to sustain an argument that the lender had suffered no loss, or that its cause of action against the valuer had not yet accrued.
34. The position is put even more strongly by the editors of Clerk & Lindsell on Torts (22nd ed, 2018, Sweet & Maxwell) at 10-192 (Clerk & Lindsell): "In any case of over-valuation of mortgaged property, the mortgagee is expected to mitigate his loss by realising his security providently and in good time once the borrower has defaulted. In so far as he fails to do so, and property values subsequently decline, this further loss is borne by him alone. However, the limits to the duty to mitigate are important. In particular, it now seems that despite some contrary authority the mortgagee is under no duty to mitigate by proceeding against the mortgagor personally, or against any other security available to him, and that the availability of such a remedy does not affect the sum payable by the defendant. This is because of the principle that it does not lie in the mouth of a defendant liable for a loss to argue that the claimant ought to have looked elsewhere in order to recoup it." (footnotes omitted, emphasis added).
35. The "contrary authority" referred to in this passage was the Court of Appeal's decision in Stone. The authority relied upon by the editors of Clerk & Lindsell for the proposition that, in England at least, there is not even a duty to mitigate was Peters v East Midlands Strategic Health Authority [2010] QB 48; [2009] ECWA Civ 145 (Peters) where Dyson LJ, as his Lordship then was, in delivering the judgment of the Court of Appeal, said (at [53]-[54]): "We can see no reason in policy or principle which requires us to hold that a claimant who wishes to opt for self-funding and damages in preference to reliance on the statutory obligations of a public authority should not be entitled to do so as a matter of right. The claimant has suffered loss which has been caused by the wrongdoing of the defendants. She is entitled to have that loss made good, so far as this is possible, by the provision of accommodation and care. There is no dispute as to what that should be and the council currently arranges for its provision at The Spinnies. The only issue is whether the defendant wrongdoers or the council and the PCT should pay for it in the future. It is difficult to see on what basis the present case can in principle be distinguished from the case where a claimant has a right of action against more than one wrongdoer or a case such as The Liverpool (No 2) [1963] P 64 where a claimant has a right of action against a wrongdoer and an innocent party. In The Liverpool (No 2), those two cases were treated alike. In our judgment, the present case should be treated in the same way. It is true that in the present case, the claimant's right against the council is the statutory right to receive accommodation and care. But the fact that there is a statutory right in the claimant to have his or her loss made good in kind, rather than by payment of compensation, is not a sufficient reason for treating the cases differently."
36. By analogy, this decision would treat a lender who had received a negligent valuation, and whose borrower had defaulted, as having independent concurrent causes of action against both the borrower and the valuer. The decision may be taken as authority for the proposition that it is not open to either the valuer or the defaulting borrower to contend that no loss has been caused by it (and thus no cause of action has accrued) because of an outstanding right of recourse against the other. This is an application of the principle that where there are two parties who both may be liable, a plaintiff may choose to recover from whichever liable party it so wishes: see Peters at [41]; Marlborough District Council v Altimarloch Joint Venture Ltd [2012] 2 NZLR 726 at [201]; [2012] NZSC 11 (Marlborough).
37. The decision in The Liverpool (No 2) [1963] P 64; [1960] 3 WLR 597, referred to by Dyson LJ in Peters, was a decision of the English Court of Appeal. Handley JA cited it when referring to the "general principle that a party with remedies against two or more persons for the same loss may pursue any or all of those remedies in whatever order he pleases, subject to giving credit for any recoveries provided that in total they do not exceed his loss": Bebonis v Angelos (2003) 56 NSWLR 127 at 133; [2003] NSWCA 13 at [32]. The qualification to this statement by reference to the principle against double recovery also supplies an answer to Lake Maintenance's submission at para 58 that: "The relevance of the personal covenants may be tested in a further way. If recovery under the personal covenants is not relevant to ascertaining whether a plaintiff has suffered loss or damage, this would seem to inevitably suggest that a plaintiff could make recovery against a valuer where there was a deficiency on the sale of the valued property even while making good the entire deficiency on the personal covenants of the borrower. Such an outcome would be contrary to the very indemnity principle underpinning the award of damages for tort."
38. Any recovery by the lender of the debt after the accrual of the cause of action against the valuer may not be res inter alios acta or collateral: see Swynson Ltd v Lowick Rose llp (in liq) [2018] AC 313; [2017] UKSC 32 at [11]-[13]; but cf. Howkins & Harrison v Tyler [2001] PNLR 27; [2000] 7 WLUK 296 (Howkins) in which the English Court of Appeal held that the damage suffered as a result of a negligent valuation for mortgage security purposes was not the same damage as that constituted by the non-payment of the debt by the borrower under the mortgage for the purposes of s 1(1) of the Civil Liability (Contribution) Act 1978 (UK). If the damage was not the same, it is difficult to see how the ascertainability of the impossibility of repayment of the borrower's debt could affect the time at which the different damage caused by the valuer's alleged negligence occurred.
39. One important point to note about Howkins is that, even though it was held that subsequent recovery of some or all of the debt related to a different type of damage, it was also held that that posited recovery would affect the lender's entitlement pro tanto to retain damages earlier recovered from the negligent valuer: see [19]-[21] per Sir Richard Scott VC. This was a matter that would go to quantum. Critically for present purposes, however, the posited subsequent recovery against the borrower did not mean that the lender's cause of action against the negligent Valuer for a different type of damage had not accrued at an earlier point in time.
40. Conceptualising a mortgagee's power of sale as involving a valuable commercial opportunity (see [46]-[47] above) may facilitate or reinforce the analysis because, as Hodgson JA observed in Cassis v Kalfus [2001] NSWCA 460 at [76], by reference to Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4: "[I]f one can characterise an economic disadvantage suffered by a plaintiff as involving the loss of a commercial opportunity which has some value, then that will be enough to constitute actual damage and to complete a cause of action (Sellars). However, if the economic disadvantage is no more than a contingency for future loss, then, unless and until the contingency occurs, there is no damage and no cause of action (Wardley)."
41. In the present case, Lake Maintenance suffered an economic disadvantage when the secured property proved inadequate, upon its sale, to recoup the totality of the loan. This "economic disadvantage" was in no way a "contingency for future loss". In this context, the observations of Young AJA in Khoury v Coffey Projects (Australia) Pty Ltd [2015] NSWSC 591 at [26]-[27] may be recalled: "There has grown up the idea in some quarters after Wardley that whenever one can find the hint of some contingent liability that the cause of action only accrues when all chances that might affect the amount of the loss have played out. This is a misreading of the authorities. It is noteworthy that in Highup Pty Ltd v Gubas [2014] FCA 1170; (2014) 226 FCR 541 at 552 [67] Buchanan J said: 'I am not able to accept the bald submission, unsupported by reference to authority, that a mere demand raises a contingent liability...' As noted earlier Deane J in Wardley made it quite clear that there was no general rule that applied and that one must look at each of the situations to see when the cause of action accrued."
42. Wardley was a very different case to the present, involving, as it did, an indemnity granted by the State of Western Australia to the National Australia Bank in respect of a bill facility granted to Rothwells Ltd. Notions of contingent loss are far more intelligible in the context of such a commercial arrangement; they are not readily transposed to liability for breach of a duty of care.
43. Treating the Valuer's liability in the present case as "contingent" is not, in my opinion, apposite. As Bell and Gageler JJ observed in Hunt & Hunt (at [99]): "[t]he non-payment of the loan by the borrower may be the event which crystallises the loss but non-payment of the loan by the borrower does not cause the inadequacy of the security."
44. As has been noted above, the argument relied upon by Dr Birch seems, with respect, to seek to transpose Gaudron J's view in Kenny & Good, that the existence of a loss may be "reasonably ascertainable" in a given case well prior to the sale of a mortgaged property (with the consequence that a limitation period will run from that point), to a period after the default which triggers the mortgagee's right of sale. Apart from the fact that a full reading of her Honour's reasons does not support that interpretation, one consequence of this argument is that Lake Maintenance could not have sued the Valuer for negligence, however gross, until it was "reasonably ascertainable" that the borrower was unable (not simply unlikely) to meet its obligations under the loan, notwithstanding a breach of covenant which had triggered the power of sale under the mortgage.
45. It was submitted, and I accept, that this would be a most problematic basis for identifying the date of accrual of a cause of action against a third party such as a valuer. It would require an assessment to be made of the value of the borrower's personal covenant, and could give rise to satellite litigation between the lender and the valuer as to a third party borrower's wherewithal at a particular point in time in order to determine when a cause of action against the valuer accrued. That is not attractive.
46. The test contended for is also inconsistent with the observation of Lord Nicholls in Nykredit at 1633, cited at [67] above, namely that "within the bounds of sense and reasonableness the policy of the law should be to advance, rather than retard, the accrual of a cause of action".
47. For completeness, two further arguments advanced by Dr Birch should be noted. The first was by reference to the decision of Tipping J in Marlborough, in which his Honour said that a "negligent valuer does not cause any ultimate loss to the lender unless and until the actual value of the security, together with the actual value of the borrower's personal covenant, are shown to be less than the amount owing to the lender": at [112]. Tipping J was one of five justices sitting in Marlborough. His Honour, in the passage relied upon, was simply stating his understanding of Nykredit. His Honour's judgment did not take into account the matters referred to in [61]-[67] above and, in any event, did not on this issue attract the support of any other member of the Supreme Court of New Zealand.
48. Moreover, notwithstanding his application of his understanding of Nykredit to the facts in Marlborough, on the question of when the cause of action in negligence against the Council arose, Tipping J identified this as having occurred at the time when Altimarloch Joint Venture Ltd committed to the contract to acquire the rural property that had been the subject of the Council's negligent representation: at [122]. Tipping J's ultimate (minority) conclusion that "[t]he Council's negligence caused the purchaser no loss" (at [123]) did not mean that no cause of action had accrued, but simply that, because of another recovery against the vendor of the property, no damages were recoverable. Marlborough does not assist, in my opinion, on the question of when the cause of action in the present case accrued.
49. The second matter to be noted is that reference was made to a number of decisions at first instance, including the decision of Davies J in Ross v Cook [2009] NSWSC 671 and Ball J in LM Investment Management Limited (In Liquidation) (Receivers Appointed) v BMT & Assoc Pty Limited (No. 2) [2016] NSWSC 317, where there is some discussion of the key passages from Kenny & Good that have been considered above.
50. To the extent that it was suggested by Dr Birch that the discussion in those cases of the point of principle supported the arguments advanced by Lake Maintenance, I do not agree. The question, in any event, is for this Court to determine, guided by High Court authority and considerations of fundamental principles.
51. For all of the above reasons, I would answer the separate question in the affirmative. It follows that Lake Maintenance should pay the Valuer's costs of the hearing of the separate question.
52. It should also follow that the proceedings be dismissed with costs. An order to this effect will be made but this order will be stayed for 14 days to permit Lake Maintenance to seek to vary an order for the dismissal of the proceedings with costs, if so advised.
53. BASTEN JA: I agree with the President.
54. MACFARLAN JA: I agree with Bell P.

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