Vero Lenders v Taylor Byrne Pty Limited

Federal Court of Australia|2006-11-03|Before: Greenwood J

Introduction 1 In this action, the Applicant ('Vero') a mortgage insurer contends that acting in reliance upon a 'residential valuation and security assessment' dated 5 May 1999 undertaken by the Second Respondent valuer ('David Duffield') of a property situated at 30 Latreille Terrace, Brinsmead, Cairns, offered as security by a mortgagor for a loan, Vero issued a policy of lenders mortgage insurance to the mortgagee, Perpetual Trustees Victoria Limited ('Perpetual') in circumstances where the valuation and assessment had been completed and signed by David Duffield (as agent for the First Respondent ('Taylor Byrne')) in breach of a duty of care owed by the First and Second Respondents to the Applicant and in circumstances where particular conduct in connection with the preparation of the valuation involved a contravention of ss 52, and 53A of the Trade Practices Act 1974 (Cth) ('the Act'). 2 The Applicant contends that had each of the First and Second Respondents discharged a duty owed to the Applicant to exercise all reasonable care, skill and diligence as a competent valuer in preparing the valuation and security assessment; to describe the unusual features of the property including the unusual design of improvements to the property; to assign an appropriate risk rating to the property; to describe the unusual configuration of improvements to the property; and to record any deficiencies in the property detrimentally affecting the marketability of the property, Vero would not have issued the policy of insurance. 3 The Applicant also contends that the failure to adequately describe the unusual design of the property including its improvements, the assigning of a 'low' risk rating in respect of those improvements and the failure to state in the valuation that in order to achieve a sale of the property at or about the valuation a marketing period of up to 12 to 18 months was likely to be necessary, is the expression of conduct which was misleading or deceptive or likely to mislead or deceive Vero and constituted false or misleading representations concerning the nature of an interest in land and the characteristics of that land thus giving rise to contraventions of ss 52 and 53A of the Act. Although the Applicant contends that the Respondents owed a duty 'to describe any unusual features of the Property including the unusual design of improvements' and a duty to 'describe any unusual configuration of the Property's improvements', the Applicant contends in submissions that the duty was not one to describe the particular features of the improvements as 'unusual' but a duty to describe or identify the design feature thus placing the Applicant in a position to decide for itself whether those features or design characteristics were 'unusual'. 4 In addition, the Applicant contends that the Respondents did not have reasonable grounds for making the valuation and security assessment. 5 The Applicant further contends that in relying upon the valuation provided to it, the Applicant suffered loss and damage by ultimately paying Perpetual an amount of $96,733.17 on or about 13 September 2002 pursuant to the policy representing the loss suffered by the mortgagee arising out of the mortgagee's exercise of a power of sale of the subject property upon default by the mortgagor and suffered further loss and damage consisting of legal expenses incurred by the Applicant in seeking to recover that sum from the mortgagor pursuant to an assignment to Vero of the rights and interests of the mortgagee. The amount of those costs is $35,954.93 representing a total claim of $132,688.10. 6 The Applicant claims that sum from the First Respondent as damages for negligence or alternatively as compensation 'in whole … for the loss or damage' pursuant to s 87 of the Act. The Applicant claims that sum from the Second Respondent as damages for negligence. In final submissions, the Applicant sought leave to amend the Application and the relief sought by the Further Amended Statement of Claim to include a claim for damages pursuant to s 82 of the Act ([25] of the Applicant's closing submissions filed 4 January 2006). The application for leave is resisted by the Respondents. 7 The Applicant contends that the valuation and security assessment document must be read in conjunction with the Australian Property Institute (API) Residential Valuation and Security Assessment Pro-forma Supporting Memorandum ('Supporting Memorandum') dated 8 May 1998 which guides the valuer in the completion of the two page pro‑forma residential valuation and security assessment document. The content of the duty of care on the part of the valuer and the expression of a breach of that duty is, in part, informed by the Supporting Memorandum. 8 Put simply, the Applicant says that David Duffield ought to have disclosed in the valuation and security assessment document that the building on the site incorporated a design which limited access to four of the five bedrooms by means of an open‑air verandah and that each of those four bedrooms involved use of a shared separate bathroom with an adjoining bedroom. Such a design is said to be 'unusual' in that comparatively few houses exhibit such a design and the proper discharge of the duties owed to the Applicant necessarily required disclosure of these two design features. 9 Secondly, the Applicant says that David Duffield ought to have disclosed in the pro‑forma valuation report the circumstance that by reason of the unusual design features incorporated within the subject luxury house, it would necessarily take a lengthy period of time to secure a sale of the property within the limited field of buyers who might be interested in such a property and, more particularly, David Duffield ought to have disclosed that a marketing period of up to 12 to 18 months was likely to be necessary to secure a sale at the valuation price. Although I have described the Applicant's contention in this contextual way, the formulation of the breach of duty is not just that the property might require a longer marketing period than the orthodoxy of the Supporting Memorandum suggested but that 'a marketing period of up to 12 to 18 months was likely to be necessary'. 10 The contention is that had all these matters been disclosed, the Applicant would not have engaged in the transaction by issuing the policy and thus no risk would have been assumed at Vero at all. 11 The Respondents admit that they owed the Applicant a duty of care to exercise all reasonable care, skill and diligence as a competent valuer in preparing the valuation and security assessment. The Respondents also admit a duty of care owed to the Applicant to record in the valuation any deficiencies in the property that may detrimentally affect the property's marketability. The Respondents do not admit a duty to describe any unusual features of the property including the contended unusual design of the property's improvements. They say that these features are simply matters of professional opinion about which views might legitimately differ. Further, the Respondents say the Supporting Memorandum does not require disclosure of 'unusual' features and the assigning of a risk rating as part of the pro forma valuation report in large part depended upon the proper application and construction of the Supporting Memorandum. The Respondents also say that it is important to recognise that the improvements to the property were being valued by David Duffield consistent with its use by the mortgagor as a single residential dwelling. 12 The Respondents also contend that the insurer did not, upon proper analysis, rely upon the valuation because its officers elected to provide mortgage insurance to Perpetual prior to the receipt of the valuation report; that David Duffield undertook an inspection of the property and prepared a valuation report in a particular capacity on behalf of the First Respondent and in doing so did not assume a personal liability to the Applicant but rather acted at all relevant times in such a way as to give rise to a liability, if at all, in the First Respondent; and that the information disclosed in David Duffield's pro forma valuation report, assessed in conjunction with the Supporting Memorandum, conveyed sufficient information to the Applicant's officers that they ought to have either appreciated the character of the improvements or, alternatively, made further enquiry of David Duffield as to the improvements. Moreover, the failure to make such enquiry involves conduct on the part of the Applicant which has contributed to the loss now sought to be recovered from the Respondents and thus any award of damages or order for compensation ought to be reduced to the extent of the Applicant's contribution to its loss. 13 As to the conduct in contravention of s 52, the Respondents say that the content of or omissions in the valuation are simply matters going to an expression of professional opinion about which views might legitimately differ and a difference of opinion is not the expression of a breach of a duty of care. Nor can an expression of opinion, in such circumstances, it is said, constitute a misrepresentation. As to s 53A, the Respondents say that the representations, apart from any other matter, do not exhibit any relevant connection with 'an interest in land' or 'the characteristics of the land', in question. 14 At the commencement of the trial the Applicant elected to abandon a number of components of its case formulated in the Amended Statement of Claim. In the Amended Statement of Claim, the Applicant contended that the Respondents owed the Applicant a duty to ascertain the market value of the property, make sufficient and appropriate enquiries and investigations as to the value of comparable properties and to properly describe the use of the property. As to the question of breach, the Applicant had contended that the Respondents: failed to exercise due care, skill and diligence in assessing the market value of the property; ascertained a value that was not the market value; made insufficient or inappropriate enquiries as to value; and failed to record in the valuation that the marketability of the property was adversely affected by, first, there being no room to install a swimming pool and secondly, by the use of compressed fibrous cement in the construction of the house. The amendments abandoning these contentions are the subject of the Further Amended Statement of Claim filed on 8 December 2005. 15 The contentions, formally, now are these: Negligence 12. In providing the Valuation, the first and second respondents owed the applicant a duty of care to: (a) exercise all reasonable care, skills and diligence as a competent valuer in preparing the Valuation; (b) deleted; (c) deleted; (d) describe any unusual features of the Property including unusual design of the Property's improvements; (e) deleted; (f) assign an appropriate risk rating to the Property's improvements; (g) describe any unusual configuration of the Property's improvements that were not consistent with the Property being used as a residence; and (h) record any deficiencies in the Property that may detrimentally affect the Property's marketability. 13. In breach of the duty of care owed by the first and second respondents to the applicant, the first and second respondents at the time the Valuation was prepared: (a) deleted; (b) deleted; (c) failed to describe or failed to adequately describe the unusual design of the Property; (d) deleted; (e) assigned a "low" risk rating to the Property's improvements; and (f) deleted; (g) deleted; (h) failed to state to the effect that, in order to achieve a sale at or about the valuation recorded, a marketing period of up to 12 to 18 months was likely to be necessary.' 16 Corresponding amendments were made to those paragraphs of the Further Amended Statement of Claim pleading material facts in relation to contraventions of ss 52 and 53A. 17 Written objections to particular paragraphs of affidavits were exchanged between the parties. During the course of the trial, objections to evidence were dealt with as each witness was called and each affidavit tendered.

The Background Facts 18 I find the facts to be these. 19 On 19 April 1999, Cornitus Cats and Bethwyn Cats (the "borrower") completed an application form addressed to Residential Housing Corporation Pty Ltd trading as Resi Home Loans ('Resi') for a loan to re‑finance an existing house loan and for additional funds for investment, in a total amount of $400,000.00. The application document was lodged with Resi on 21 April 1999 and recites in the Assets and Liabilities Statement the residential property at 30 Latreille Terrace as one of the assets of the borrower at a value of $520,000.00. In another section of the same document, the 'estimated value' of the property is described as '$470,000.00+'. The Resi application document recites that the borrower has made an application for finance to Perpetual Trustees Victoria Limited and Permanent Custodians Limited ('Permanent') to be arranged by Resi. 20 On 22 April 1999, Resi submitted a proposal for lenders residential mortgage insurance ('L M insurance') to Royal & Sun Alliance Lenders Mortgage Insurance Limited ('Royal & Sun Alliance') now known as Vero Lenders Mortgage Insurance Limited, the Applicant. In these reasons, I will generally describe Royal & Sun Alliance as Vero. In the insurance proposal, the lender is described as Perpetual and the mortgage manager of the proposed loan on behalf of Perpetual is described as Interstar Securities Pty Ltd ('Interstar'). The proposal identifies a loan amount of $356,250.00 and recites that the 'loan application form, valuation/security assessment, all associated and supporting documents and details of further securities must be submitted with, and form part of, this proposal'. Plainly enough, the proposal document contemplates that a range of material and information will be assessed by the insurer in making a decision as to whether to accept the proposal and assume the risk. 21 From February 1998 to June 2000, Tome Zrilic was employed by Vero as an underwriter. Prior to 1998, Tome Zrilic had worked as a residential lending officer for a period of between two and four years at variously, Advance Bank, Commonwealth Bank and Aussie Home Loans and was responsible for approving residential housing loans. That role also involved the assessment of property valuations to ensure that the proposed security was acceptable from a lender's perspective and thus Tome Zrilic was familiar with the assessment of valuation reports. In 1999, Tome Zrilic was responsible for reviewing lenders mortgage insurance proposals put to Vero by or on behalf of Interstar. Often, such applications were submitted to Vero by a loan originator or loan arranger such as Resi. In the case of proposals made on behalf of Interstar, applications would often be submitted to Vero by Resi as the loan originator in circumstances where Interstar was acting as the manager of the loan application for Perpetual as the proposed lender and mortgagee. 22 In assessing a proposal for L M insurance, Tome Zrilic had regard to and was familiar with an important document prepared by the insurer described as the '1998 Lender's Mortgage Insurance Residential Credit Policy Manual for Prime Loans' ('the Policy Manual').

The Policy Manual 23 At the material time, the policy manual was just that. It contained the set of policies and key principles adopted by Vero against which judgments had to be made as to whether the proposal for L M insurance was acceptable. For example, the Policy Manual says the L M insurance policy was designed to provide indemnity to financial institutions such as Perpetual rather than individuals and no L M insurance policy would issue unsupported by acceptable real estate security in favour of the mortgagee. 24 The manual by section 1 (7 pages) sets out 17 partly qualified (in some cases) categories of acceptable sources of income available to a borrower to service the mortgage commitment and 15 categories of unacceptable sources of income. The manual also established ratios of the proportion of income that could be derived from particular categories of acceptable income presumably in order to ensure no over-dependence by the borrower on any one or two sources of income. 25 Section 2 A sets out a list of acceptable and unacceptable assets as the source of a borrower's minimum deposit obligation. 26 Section 2 B identifies a list of the categories of acceptable and unacceptable potential borrowers from the insured financial institution. For example, Australian residents, companies incorporated in Australia and Trustees are some of the acceptable borrowers; 'clubs, churches and Congregations' are not. Section 2 D sets out employment standards that must be achieved by the proposed borrower such as a minimum period of full time employment, permanent or part-time employment and other such matters. Section 2 E deals with the requirements relating to guarantors. Sections 3 A and 3 B deal with the categories of adverse credit risk and the range of credit checks to be undertaken concerning the proposed borrower from the financial institution. 27 Section 3 C sets out a matrix of the ten acceptable purposes for a loan the subject of the proposed L M insurance, the acceptable term of an interest only loan, the term of fully amortising loans and the percentage threshold of exposure the insurer is prepared to accept for each class of loan based upon a loan to value ratio described as an 'LVR'. For example, an 'owner occupied housing loan - Refinance only' is acceptable on an interest only basis for five years at 90% of LVR. Alternatively, a fully amortising loan at 95% of LVR may be taken over a 30 year period. Section 3 D sets out 14 unacceptable loan purposes. 28 Section 3 E1 sets out a schedule of 'acceptable single/individual residential security' that might be the subject of L M insurance and a schedule of unacceptable residential security. Acceptable security is identified as: 'Houses Units Flats Villas Duplexes Townhouses Vacant residential lands, standard allotment size Rural residential up to 8 ha (hectares) Apartments' 29 The schedule of unacceptable residential security recites 46 items. Included within those items are these: 'Unusually designed houses Bedsitters Studios/or studio type Luxury/penthouse apartments Luxury houses Motels/Hotels Resorts Hostels Boarding house Over capitalised houses' 30 Section 3 E2 sets out a schedule of factors affecting the proposed security that would require particular consideration in the context of the full merits of any application. Such factors include the affect of electricity pylons, noise affected property, country locations and prestige suburban areas. Section 3 F sets out the classes of acceptable and unacceptable land title offered as mortgage security in favour of the lender, the subject of the L M insurance proposal. 31 Section 3 G1 deals with valuations and includes these remarks: 'SECTION 3 G1 VALUATIONS · (Note that we always use the lesser of purchase price of market valuation) · Valuations are critical to the overall assessment of the proposal. · Valuations must be thoroughly read to ensure full compliance with our policy · The quality of the security you accept will impact on the severity of the claim. · Your assessment is critical to ensure our risk management is not affected by poor security (emphasis added) WHO? To be completed by a Registered valuer or lenders panel valuer as agreed by Credit Policy Manager PURPOSE · Establish realistic property value · Determine suitability of property for security · Advise condition of property VALUER CRITERIA · Independent from borrower and lender · Unrelated to marketer or agent for property · Professional ethics and professional indemnity held · Experienced in residential market · Minimum standards as set down by the institute' 32 Each valuation is required to state, among other things, the 'property identification, conditions of the property, location and limitations if applicable, known influences and future influences'. The valuation must not be older than three months at the time of settlement of the relevant transaction and must contain three comparable sales within the last six months of the valuation date. 33 On 28 April 1999 David Duffield notwithstanding that the letter was addressed to 'Geoff Duffield - Taylor Byrne', received a letter of instruction from Resi to provide a valuation of the property at 30 Latreille Terrace. In the letter of appointment Resi nominated an estimated value for the property of $520,000.00. The valuation dated 5 May 1999 undertaken by David Duffield and Taylor Byrne recognises the field of entities that might use the valuation and contains the following endorsement at page 2 of the document: 'LENDER-SPECIFIC INFORMATION This valuation is made at the express request of, and is prepared solely for the use of: Residential Housing Corporation, Perpetual Trustees Victoria Ltd, Interstar Securities Pty Ltd, Interstar Management Pty Ltd, Commercial Union Lenders Mortgage Insurance Corporation Ltd, G E Capital owned LMI Companies, MGICA Ltd, Royal & Sunalliance Lenders Mortgage Insurance Ltd.' [emphasis added] 34 At the time Mr Duffield undertook the valuation and prepared the residential valuation and security assessment, he had not been provided with nor instructed as to the elements of the Applicant's Policy Manual.

Tome Zrilic 35 The evidence of Tome Zrilic is that he has no specific recollection of receiving or processing the proposal for L M insurance submitted by Resi on or about 22 April 1999. He says that on average he received and processed approximately 20 to 30 proposals for L M insurance each day. Accordingly, Tome Zrilic has undertaken a process of examining the proposal document, the loan application, the valuation prepared by David Duffield and Taylor Byrne dated 5 May 1999 and a document described as a 'Residential Data Input Sheet' (R D Input Sheet) held by the insurer which is used to input data concerning the relevant transaction into the insurer's computer system. Based on Mr Zrilic's assessment of these documents, he says this in relation to both the usual practice he undertook consistent with the practice adopted by Vero in considering proposals for L M insurance and the documents he examined. 36 Approximately 40 percent of L M insurance approvals by Vero involved a 'pre-approval stage' followed by a 'final approval'. Pre-approval would occur without a valuation. A proposal for L M insurance was pre-approved on condition that the loan originator would later provide Vero with a valuation that was 'consistent with information about the proposed security put forward in the proposal'. If the valuation did not support the information supplied in the proposal or if the valuation suggested that the proposed property security was unacceptable, the proposal would be refused at the final approval stage. Pre-approval as a process was regarded as attractive to loan applicants as a proposed borrower would not incur the cost of a valuation of the proposed security until the lender's mortgage insurer was satisfied that the proposal was otherwise acceptable. 37 In relation to the R D Input Sheet, Mr Zrilic says the handwriting appearing on the document is largely his handwriting. The signature which appears next to the word 'Recommended' is his signature. Whilst Mr Zrilic has no specific recollection of completing the R D Input Sheet concerning the subject proposal, he says from examining the document that the likely course is that the security details in the boxes on the form were completed using information drawn from the proposal or the loan application. Mr Zrilic says it was his practice to check those details on the R D Input Sheet against the valuation once the valuation had been received by the insurer. 38 The column on the R D Input Sheet headed 'Value' contains an amount of '$475,000' and a date '5/5/99'. Mr Zrilic says that consistent with his practice and having regard to his own handwriting, he inserted the amount and the date by reference to the valuation. In addition, Mr Zrilic says that it was his practice to complete (that is, mark) the codes on the form to identify the policy type, security type and loan purpose which in this case are marked as codes 10 (owner occupied property), 42 (a residential house) and 08 (a refinancing transaction) respectively. Although Mr Zrilic cannot recall whether those codes were marked by reference to the valuation or the loan application, he says it was his practice to check and confirm those details against the valuation once the valuation was submitted to the insurer. Had the security proposed by the borrower been considered by Mr Zrilic to be 'poor or unacceptable', it was his practice to note on the R D Input Sheet that the security was 'Adverse'. Mr Zrilic says that such a judgment would be made by him based upon the description of the property set out in the valuation. Mr Zrilic might have considered the proposed security as poor or unacceptable having regard to the Policy Manual or 'for some other reason … from a lenders mortgage insurers perspective'. Mr Zrilic says that the amount nominated on the R D Input Sheet as the total loan was noted by him as $356,250 and the notations on the form next to the word 'Agency' (K28083) is a reference to Resi and the number noted against the term 'P/N' (901078) is a reference to the policy number. At the pre-approval stage a policy number would be allocated subject to final approval. 39 Mr Zrilic says that data input and policy issuing procedures adopted by the insurer meant that it was not possible for an L M insurance policy to issue without the valuation date and valuation amount appearing on the R D Input Sheet. Both the valuation date and the amount of the valuation were mandatory fields that had to be keyed into the insurers database in order to generate a policy. Mr Zrilic says that his practice was that once a proposal was pre-approved, he would inform the loan originator who would then be responsible for obtaining the valuation and referring a copy of it to the insurer. Mr Zrilic says that once the valuation was received it was his practice to read the valuation, consider whether the property described in the valuation was consistent with the pre-approved details contained on the R D Input Sheet and then complete the data input sheet.

Steven Ramage 40 Mr Steven Ramage was employed by Vero from March 1995 until June 2000. Steven Ramage commenced work with Vero as Victorian State Manager and was responsible for L M insurance policies issued in Victoria. In 1998 the insurer centralised underwriting nationally at Chatswood in New South Wales. Mr Ramage was transferred to Chatswood and assumed responsibility for underwriting on behalf of the insurer nationally. Mr Ramage had previously held positions in the banking industry as a lending officer responsible for housing and commercial lending for the State Bank of Victoria and as a business banking officer employed by the ANZ Banking Group Ltd. 41 In 1999 Mr Ramage supervised a team of five underwriters dealing with L M insurance proposals supported by residential mortgage security. Each underwriter was subject to a 'State exposure restriction' known as an 'SER'. If a loan exceeded a particular underwriter's SER (that is, the individual's SER), the underwriter had to obtain Mr Ramage's approval to proceed to issue an L M insurance policy. 42 Mr Ramage says that his signature appears on the R D Input Sheet next to the word 'Approved' at the bottom of the sheet. Mr Ramage, like Mr Zrilic, has no specific recollection of signing the R D Input Sheet for this transaction nor does Mr Ramage have any recollection of the L M insurance application by Interstar originated by Resi concerning the application by Cornitus and Bethwyn Cats. Mr Ramage says that since his signature appears on the R D Input Sheet it is likely that the loan exceeded Mr Zrilic's SER. Mr Zrilic's SER in May 1999 was $185,000. Mr Ramage also says that since the date adjacent to his signature, '29/4/99' pre-dates the valuation date on the R D Input Sheet it is likely that the application for L M insurance had been approved subject to a satisfactory valuation. Mr Ramage has no recollection of whether he read the valuation prior to 19 May 1999 which is the date on which the insurer issued a Cover Note. Mr Ramage says that the individual underwriter was not required to show him a copy of the valuation once a proposal had been pre-approved subject to a valuation even if the proposed loan exceeded the SER for the individual. Each officer or underwriter exercised a discretion as to whether the valuation provided to the insurer ought to be shown to Mr Ramage. Mr Ramage was often consulted when an underwriter had some cause for concern about the property security described in the valuation. 43 In reviewing the R D Input Sheet Mr Zrilic says that he would have inserted as the total loan amount an amount of $400,000.00 as the potential amount of the loan based on the application document. He then altered that amount by inserting the amount to be actually lent consistent with the LVR. Mr Zrilic says that he recommended a full approval of the proposal and endorsed and signed the proposal as approved on 19 May 1999 leading to the issue of Cover Note F28083 with an expiry date of 19 August 1999. The issue of the Cover Note bound Vero to issue a policy subject to the payment of a premium ($522.00). The policy in fact issued on 8 September 1999.

Conclusions 44 I accept the evidence of Mr Zrilic and Mr Ramage in relation to this sequence of events. Even though neither witness has a present independent recollection of the specific events, I accept that Vero's underwriting practices and policies and the extant documents establish that the course of events involved the submission of a proposal, a pre-approval of the proposal, the submission to Vero of a copy of a valuation undertaken by David Duffield and Taylor Byrne, an assessment of the valuation by Mr Zrilic, a recommendation of approval of the proposal by Mr Zrilic and an approval of the proposal by Mr Ramage leading to the issue of the Cover Note on 19 May and ultimately a policy of L M insurance on 8 September 1999. 45 In addition, the respondents contend that the applicant has not demonstrated reliance upon the valuation in any material way other than confirmation of the valuation amount. It was put to Mr Zrilic in cross-examination that he did not 'read' the valuation and he denied that proposition. I accept and find that Mr Zrilic read the valuation. I accept and find that Mr Ramage probably did not read the valuation but relied upon Mr Zrilic's assessment of it leading to Mr Zrilic's recommendation of approval. In reliance upon that recommendation, Mr Ramage approved the proposal as the amount of the loan exceeded the SER limit applicable to Mr Zrilic. 46 Importantly, the process of pre-approving and more particularly, finally approving applications for L M insurance is a core business process for Vero. The process is the subject of protocols and a prescriptive policy manual especially in relation to the insurer's approach to valuation. The policy manual sets out a wide range of policy positions in relation to each category of risk associated with issuing L M insurance policies. Mr Zrilic and Mr Ramage, (but in particular the underwriting officer dealing with the transaction, Mr Zrilic) are the defenders at the gate for the insurer in containing risk and exposure and in dealing with those things that the insurer considers attract a particular level of criticality in the approval process. They are experienced writers of L M insurance policies. They are astute to the requirements of the Policy Manual and the importance of the valuation process. They are experienced and informed readers of valuations and they are required to bring an enquiring mind to the assessment of a valuation and the role a valuation plays in the assumption of risk in relation to the particular transaction in question. 47 I find that Mr Zrilic read the valuation and in doing so was required to read it critically and thoroughly [31].

The Role of David Duffield 48 Mr David Duffield conducted an inspection of the property and prepared a valuation dated 5 May 1999 set out in a document described as an 'API Property PRO Pro-forma Report' (the 'Pro-forma Report'). The Pro-forma Report notes that 'This report is made in accordance with the Australian Property Institute (API) Residential Valuation and Security Assessment Pro-forma Supporting Memorandum dated 8 May 1998 and must be interpreted with that Memorandum'. In cross-examination, Mr Duffield accepted that a reader of the valuation would be an officer of a mortgage insurer and that, in this case, the valuation had been prepared for use of, among other persons, Royal & Sun Alliance and that it was Mr Duffield's expectation that an officer of that company would rely upon it in making a decision whether to grant insurance and, if so, the level of insurance risk the insurer might assume (transcript pages 164 and 165). In addition, Mr Duffield was asked these questions: 'And you realised, did you not, when you prepared and signed this valuation that you were taking personal responsibility for the statements in it? A - I am not sure I understand that question. You considered that you were responsible for the preparation of this valuation? A - Yes. You considered that the statements in it were your responsibility to make sure they were correct? A - Yes. And complete? A - Yes. And you understood that you were undertaking this valuation in your capacity - personal capacity as a registered valuer? A - Yes. And you were also undertaking it, as you understood it, in your capacity as an employee of Taylor Byrne as it was known at the time, Taylor Byrne Pty Ltd? A - No, Taylor Byrne Cairns Pty Ltd. Well, you realised that you were preparing it as the agent of Taylor Byrne Pty Ltd didn't you? A - Yes.' 49 Mr Duffield is the managing director of Taylor Byrne (Cairns) Pty Ltd. He completed an Associate Diploma in Real Estate Valuation in 1986 and became a registered urban valuer in 1987. Mr Duffield has been based in Cairns for his entire professional career and has had extensive experience in valuing property in the Cairns marketplace. From 1984 to March 1987 Mr Duffield was an assistant valuer in the Department of the Valuer General in Brisbane. In Mr Duffield's Curriculum Vitae he says that he joined the Cairns office of Taylor Byrne in March 1993 and became a director of the Taylor Byrne 'Cairns' entity in June 1996. Although Mr Duffield is a director of the Cairns entity, he acknowledges that he prepared the valuation as agent for the first respondent. The valuation is signed by Mr Duffield and simply bears the description 'Taylor Byrne'.

A Preliminary Question of Joint Liability 50 In preparing the valuation, Mr Duffield was undertaking professional tasks which gave rise to a duty to exercise all reasonable care, skill and diligence as a competent valuer in preparing the valuation and security assessment contained within the Pro-forma Report compiled in accordance with the Supporting Memorandum. A duty owed to the Applicant to exercise all reasonable care, skill and diligence as a competent valuer is admitted by the Respondents. However, the Respondents contend that because the valuation was completed by Mr Duffield for and on behalf of the First Respondent, Taylor Byrne, Mr Duffield did not assume personal responsibility for the valuation. The valuation was undertaken by Mr Duffield, it is said, in a particular capacity as agent for the First Respondent and thus any tortious liability subsists in the First Respondent to the exclusion of the Second Respondent. 51 The position, however, is this. 52 The First Respondent carried on the business of a valuer and held itself out to the Applicant as possessing skill and expertise in the valuation of land (paragraphs 1, 2 and 3 of the Further Amended Statement of Claim, admitted by the Respondents). Mr Duffield was the agent of the First Respondent for that purpose. Mr Duffield owed a duty to exercise all reasonable care, skill and diligence as a competent valuer. In undertaking the valuation, it is plain from the description of the lender specific information [32] that both Taylor Byrne by its agent, Mr Duffield, and Mr Duffield knew and understood that Royal and Sun Alliance was likely to rely upon the valuation in deciding whether to accept a proposal for mortgage insurance. Thus, a claim for economic loss in the absence of physical damage subsists as a recognised tort (Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529; Perre v Apand (1999) 198 CLR 180) both against the author of the negligent act and his principal as a function of a direct duty relationship (assuming breach causative of loss). As to a the liability arising upon a conscious assumption of responsibility for a task, see White v Jones [1995] 2 AC 207 at 294 per Lord Nolan and at 274-275 per Lord Browne-Wilkinson. The source of the duty owed by a valuer to a financier in the absence of contractual relations in circumstances where the valuer expected the financier would rely upon his valuation, has been described as 'equivalent to contract' (Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 at 434 and 446; Nocton v Lord Ashburton [1914] AC 932 at 972; Hedley Byrne & Co. Ltd v Heller & Partners Ltd [1964] AC 465 at 529-530). An element of the source of the duty may also be whether there is 'a complex of other factors [combining] to summon into existence a duty of care' between the valuer and the party seeking to establish a tortious liability arising out of reliance upon the valuation. That complex of factors is sometimes described as 'linking conduct'. (Interchase Corporation Limited (in liq) v Grosvenor Hill (Queensland) Pty Ltd (No. 3) (2003) 1 Qd.R 26 at 38, per McPherson JA [25]; Hill v Van Erp (1997) 188 CLR 159 at 234 per Gummow J). 53 The position is no different as between Mr Duffield and the Applicant as mortgage insurer, in the circumstances of this case. 54 Apart from a direct duty relationship, the First Respondent as the principal of Mr Duffield is vicariously liable for a tort committed by its agent in the course of or within the scope of the agency relationship. It is not contested by the Respondents that Mr Duffield was the agent of the First Respondent. In fact, it is the specific capacity of Mr Duffield which is relied upon as the foundation for a liability in the principal rather than the agent in the absence of evidence of an assumption of liability by the agent. 55 This notion seems accurately described as 'an inversion of the whole doctrine' of vicarious liability (Interchase v Grosvenor Hill [77], per McPherson JA). Vicarious liability arises where one person is held liable for the wrongful act or omission of another even, in some circumstances, if the specific act or omission was unknown to that other person at the time it occurred. Vicarious liability is imputed, for example, to an employer for the torts of an employee committed in the course of employment and to a principal where the agent commits a tort whilst acting in a representative capacity. An analysis of those things done by an employee or an agent that fall within the scope of employment or the representative capacity of the agent will often involve a consideration of 'functional, geographic and temporal elements' and a recognition that not everything done by the agent will be sufficiently connected with the duties and responsibilities the agent is appointed to discharge for his principal, as to be regarded within the scope of the agency. In that sense, an agent or employee may step outside the scope of the agency or employment and engage in a 'frolic' (Morris v C W Martin & Sons Ltd [1966] 1 QB 716 at 733 - 734). A question might arise as to whether the acts of the agent are to be regarded as sufficiently connected with 'authorised acts' within the representative capacity as to be modes, although perhaps improper modes, of undertaking authorised acts or whether the acts are truly 'independent acts' (State of New South Wales v Lepore & Anor (2003) 212 CLR 511 at 536 [42] per Gleeson CJ). 56 No such question arises in this case. 57 The proposition is that in the absence of an assumption of liability by the agent, only the principal is susceptible of tortious liability. However, where vicarious liability exists, the person who commits the tort and the person vicariously liable for the tort are regarded as joint tortfeasors (The Koursk (1924) 18 Ll L Rep 153; [1924] P 140). At page 155 of the authorised report, Scrutton LJ made this observation: 'Certain classes of persons seem clearly to be "joint tortfeasors". The agent who commits a tort within the scope of his employment for his principal, and the principal; the servant who commits a tort in the course of his employment, and his master; two persons who agree on common action, in the course of, and to further which, one of them commits a tort. These seem clearly joint tortfeasors; there is one tort committed by one of them on behalf of, or in concert with another.' 58 As to a discussion of the commission of a tort in furtherance of a common design, see also Credit Lyonnais v ECGD (1998) 1 Lloyd's Rep 19 at 35 per Stuart-Smith LJ. In Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574 their Honours Brennan CJ, Dawson and Toohey JJ at pp580, 581 recognised that when an agent commits a tort when acting within the scope of the agency or when a servant commits a tort in the course of employment, both the principal and agent or employer and employee are responsible for the same tort and are joint tortfeasors. The various Law Reform Acts of the states and territories have now abolished the rule that a cause of action against joint tortfeasors merges in a judgment obtained against one of them thus presenting a bar to action against other joint tortfeasors. An example of such legislation is s 6 of the Law Reform Act 1995 (Qld). 59 Vicarious liability is not a doctrine that posits a liability in the principal and operates to excuse or disqualify the liability of the agent for a tortious act or omission. 60 In this case, there is both a direct duty relationship established between the Applicant, Mr Duffield and Taylor Byrne, and a vicarious liability in Taylor Byrne derived from the commission of a negligent act (if proven) by Mr Duffield in the course of the agency relationship. In any event, it seems to me that Mr Duffield's evidence establishes a clear assumption of duty on his part which is not displaced in favour of his principal by force of his agency capacity. The content of the duty and the question of breach causative of loss is dealt with in these reasons.

The Pro-forma Report 61 The Pro-forma Report is divided into eight sections. The first section is a 'Property Summary' which identifies the property address, title details including site dimensions, site area, the relevant zoning instrument, a description of the main building, year of construction, car accommodation, the square metre area for living areas and outdoor areas, a statement as to the marketability of the property, the total site area and the current use of the property. In this case, Mr Duffield described the site dimensions as 'irregular'; the main building is described as 'dwelling with 5 bedrooms 5 bathrooms'. The car accommodation is described as '5 car carport'. The current use is described as 'single residential' and the marketability is described as 'Average'. 62 The second section is headed 'Risk Analysis' and that section deals with two topics. The first is 'Property Risk Ratings' and the second is 'Market Risk Ratings'. As to the Property Risk Ratings, that topic contains four categories of risk and they are: 'Location & Neighbourhood Land (incl planning, title) Environmental Issues Improvements' 63 As to the Market Risk Ratings, that topic contains four categories of market risk and they are: 'Reduced Value 2-3 yrs Market Volatility Local Economy Impact Market Segment Conditions' 64 In completing the risk analysis section of the Pro-forma Report, the valuer is required to attribute a rating which reflects the degree of risk to the insurer attributable to each category in respect of the property. The risk ratings are these '1 = Low, 2 = Low to Medium, 3 = Medium, 4* = Medium to High, 5* = High'. The asterisk directs the reader to this instruction '*MUST "comment" over page on any 4 or 5 Risk Ratings, or if three or more "3" Risk Ratings'. 65 In respect of the Property Risk Ratings, Mr Duffield attributed a risk rating of 2, 1, 1 and 1 in the order of the categories set out at [62] and a risk rating of 2, 2, 1 and 1 in the order of the categories set out at [63]. The method of presentation of the risk ratings also involved a graphic barcode depiction of the rating highlighted in black displaying the bar filled to the level of the relevant rating 1 to 5. 66 Section 3 is headed 'Valuation & Assessment Summary'. That section describes the interest valued ('Fee Simple vacant possession'), the value of the land and improvements, the rental value of the property unfurnished and the level of replacement insurance. Mr Duffield attributed a value of $125,000.00 to the land and $350,000.00 to the improvements constituting a "market value' of $475,000.00. 67 Section 4 contains a description of the 'Land' including the location, neighbourhood, site description and access and a description of the services available to the property. Mr Duffield described the location in this way 'The property is situated in the suburb of Brinsmead, being approximately 11 kms north-west of the city centre.' As to neighbourhood, Mr Duffield said: 'The subject property is located in an established neighbourhood which generally comprises dwellings of average quality.' As to site and access, Mr Duffield said: 'Steep sloping lot which rises from the street frontage. Vehicular access is direct.' 68 Section 5 contains a description of the 'Main Building' which deals with the topics of style, street appeal, main walls & roof, window frames, main interior linings, flooring, internal condition, a description of the accommodation, interior layout, a list of the PC items and a description of the fixtures and features of the property. Mr Duffield completed that section in this way: TOPIC DESCRIPTION Style Two storey Detached Street Appeal Average appeal Main Walls & Roof Rendered Masonry block/colourbond Window Frames Aluminium Main Interior Linings Plasterboard Flooring Concrete slab Internal Condition Very good External Condition Very good Accommodation 5 bedroom/s, 5 bathroom/s, lounge, dining, family room, games room, study, kitchen, bathroom, ensuite, separate toilet, laundry, patio, entry, Home Theatre Room Interior Layout Good PC Items 1.5 bowl sink, wall oven, hot plates, dishwasher, rangehood, hot water service, 5 shower recess, 5 vanity units, 5 toilets, 2 bowl tub, spa bath, air conditioning. Fixtures & Features 5 built-in robes, 1 linen, ceramic tiled flooring

69 Section 6 describes any ancillary improvements to the property and Mr Duffield noted in that section: 'Concrete driveway, retaining walls'. 70 Section 7 sets out information in relation to the topic of 'Sales Evidence & The Market'. In that section, Mr Duffield identified three properties, the sale date, price and features of each property which rendered those properties either inferior to, similar with or superior to the subject property. That section also contained these comments 'Level of Market Activity: Steady' and 'Recent Market Direction: Static'. 71 Section 8 contains any 'Additional Comments' the valuer may wish to make concerning the property and Mr Duffield made these comments: 'The subject property is a large modern designed dwelling which offers a good standard of accommodation. The property is on a semi elevated site which enjoys good views. However some finishing works are required to the dwelling and landscaping of the yard is also required. Our valuation has been assessed on the basis of the property in its present condition.' 72 The final section contains an endorsement setting out 'Lender - Specific Information' and those remarks are noted at [33]. Attached to the two page Pro-forma Report is a photograph of the allotment and residential dwelling looking towards the front of the structure.

The Supporting Memorandum 73 The Pro-forma Report is to be read in conjunction with the Supporting Memorandum which provides an explanation of the terms used in the Pro-forma Report and the approach recommended to the valuer in completing the Pro-forma Report. 74 Relevant aspects of the Supporting Memorandum are these (unless otherwise stated, the emphasis in bold is that adopted by the Supporting Memorandum): 'Pro-forma Supporting Memorandum Introduction (PP 1:1.0) Purpose PP 1:1.1 The purpose of this Supporting Memorandum is to provide an explanation of the … Pro-forma Report for mortgage purposes. Scope PP 1:1.2 … It is also for the guidance of Mortgage Clients and related third parties who rely on such reports, to acquaint them with: … the information the Valuer should provide in the report, the matters the Valuer may provide restricted comment on. Brief Report PP 1:1.5 It should be noted that the format is specifically designed for the purpose of providing a brief report on residential property for mortgage purposes only and is not designed for use for other purposes. Use Encouraged PP 1:1.6 The Institute encourages residential mortgage lenders and related third parties to require Valuers to use the Pro-forma Report. Necessary Detail PP 1:2.3 One of the purposes of the short form report however, is to facilitate an expedited cost effective report. Information which should be Provided in the Report (PP 1:3.0) Layout Designed to Facilitate Easy Checking PP 1:3.1 The Pro-forma Report layout intentionally has most of the key information, the risk analysis, valuation and assessments (and their certification) on the first page, while supporting information, data and comments follow. While this is primarily to facilitate easy checking by the … mortgage insurer, it is recommended that the whole report be read. The risk analysis on the front page with its graphic presentation particularly serves to draw immediate attention to any risks rated 'Medium to High' or 'High' and to appropriate comments later in the report. Property-Specific And Market Related Risks PP 1:3.2 It is particularly intended that the report will contain not just a current value assessment, but also sufficient and appropriate information to advise … any authorised mortgage insurer, of property-specific and market related risks associated with mortgage lending on the property. It is intended that this will not merely provide 'point in time' information but also forward looking advice to provide guidance to the client on the period of initial exposure. Brief Facts, Points And Concise Statements PP 1:3.3 As the report is a Pro-forma Report, it should present its information in brief pertinent facts, points and concise statements rather than elaborate detail. However, inherent and external features impacting significantly on the property should be adequately noted … Where required, the 'Comments' section can be expanded to cover less common properties and 'one off' situations. Information in Report PP 1:3.4 Information to be provided in the report under each main section's sub‑headings is outlined briefly below in those instances where some clarification may be warranted. Item Requirement 1. PROPERTY SUMMARY MAIN BUILDING Broad type classification, include ensuites MARKETABILITY A brief comment as an overall rating of the ease of sale of the property ie: how saleable is the property? If it is not in keeping with market expectations for the area, does it adversely impact on ease of sale? How do the inherent and external features of the property impact on its market appeal? Does it have features which could make the property harder than average to sell? Low ratings need to be explained in 'Additional Comments' (marketability in this instance is not intended to be a comment on the condition of the market).

RISK ANALYSIS Risk Analysis The Risk Analysis indicates the level of adverse impact each stated aspect has, or (based on information that is common knowledge and/or readily ascertainable in the market and reasonably foreseeable events), in the near future, might have on the property's value and marketability. Each risk rating is presented in a combined numerical and graphical format aimed at providing a bold, clear caution indicator to the lender. In the case of higher level ratings, it also provides an indicator of the presence of relevant comments in the 'Additional Comments' section on the following page. (emphasis added) … Risk Ratings Risk ratings focus on 4 property-specific aspects and 4 market-related aspects. Each of these aspects can involve consideration of a range of elements relative to it. Any other significant risks identified, which do not come under these aspects, should also be commented upon in 'Additional Comments'. … not a highly technical analysis It is not intended that the valuer would conduct a highly technical analysis. … level of adverse impact or risk It is accepted that each aspect is likely to have some possibility of adverse impact or risk, however low or nominal. Therefore, low or nominal adverse impacts or risks are rated as '1' and are graphically depicted as a short bar. High adverse impacts or high risks are rated as '5' and are graphically depicted as a long bar. The ratings are approximate only. Any Risk Ratings of 4 or 5 or the existence of three or more '3' risk ratings MUST BE EXPLAINED IN THE 'ADDITIONAL COMMENTS' Section. For the purpose of these reports, the risk rating reflects: · The level of adverse impact the stated aspect has upon the current value and/or marketability of the security property; and/or · The currently perceived level of adverse impact the stated aspect could have on the value or marketability of the security property within the initial 2-3 year period of a security. … adverse impact Adverse impact in relation to a property can arise from such things as: · Where it is and what it is near or not near; · What it does not provide but the market expects; · [Other identified factors] The number of possible factors would be extensive, so no attempt is made to list them all here. … extent of impact The extent of the impact needs to be seen in terms of the local market and the effects on marketability and value … The extent of their individual adverse impact can vary significantly, so no attempt is made in this memorandum to provide a standard grading for various impacts. … adverse and favourable impacts offset The rating adopted for each of the listed aspects requires a balanced overview for that aspect. Properties often have many beneficial features. Adverse impacts need to be weighed against strengths or favourable impacts under the same aspect. (emphasis added) … comment on high individual adverse impacts The valuer is not required to provide additional comment for overall ratings below '4'.However a comment would be warranted on a significant adverse impact (that individually would rate '4' or '5' but is off-set by strong beneficial impacts in the same aspect to produce an overall rating below '4'). … cumulative impacts While there can be offsets in the overall rating for an aspect heading such as the above, there may also be cumulative effects from several adverse impacts. … effect of higher level risk ratings Higher level Risk Ratings of 4 or 5 do not necessarily mean that a property is not suitable security, though they may influence the lenders' decision on the amount loaned or the LVR. Improvements This aspect refers to all improvements, whether the main building or ancillary improvements. For example, there may be evidence of old, minor white ant damage that justifies a pest report as a precaution. As a further example, a 1.8 metre high retaining wall beside an in-ground pool is badly cracked and has bowed out considerably. This has a significant adverse impact on the value of the property due to the cost to make good. Yet again, the improvements may not be in keeping with the expectation of the locality. This could increase the risk by reducing its marketability and increasing the selling period. Market Risk Ratings Reduced Value next 2-3 yrs This risk rating is an indication of the level of risk of this property reducing in value over the next 2-3 years. It is a forward looking summary rating taking into account aspects affecting, or likely to affect, the value of the property. Market Volatility This aspect reflects the risk of the market changing direction rapidly and having a significant adverse impact on the value of the property. While this will reflect historical performance, reasonably foreseeable events should also be taken into account if they are likely to change the pattern of volatility. Local Economy Impact This aspect reflects the extent to which a significant change in the local economy is impacting adversely and/or the risk that it may impact adversely on the value of the property in a 2-3 year time frame. Market Segment Conditions This aspect reflects the extent to which the condition of the market in this particular market segment is impacting or may impact adversely on the property.

VALUATION & ASSESSMENTS SUMMARY Valuations The valuations are 'point in time' assessments relevant to the date of valuation (date of inspection). Real estate markets are dynamic and subject to change. However, several of the aspects under Market Risk Ratings heading should be helpful in indicating the 'Sustainability' of the assessed value level. Market Value A single figure amount is required for the market value in line with traditional valuation practice. The figure will normally be arrived at after consideration of several valuation approaches such as Sales Comparison and Summation. The market value assessed by the valuer relates to the market conditions existing at the date of valuation (which will normally be the date of inspection). Market value is defined as 'The estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgably, prudently and without compulsion'. Market Value does not envisage an indefinite marketing period, nor does it state a time period. It should reflect a typical marketing period for the class of property. (emphasis added) If a typical marketing period in any location appears to be more than three to four months, the Valuer should provide an estimate of the likely marketing period necessary to achieve the assessed 'Market Value'. In such circumstances, the valuer should also provide a statement of the dynamics of that market in the 'Additional Comments' section. Market Value should reflect the level of risk that would be apparent to 'knowledgeable' and 'prudent' parties. Valuer The valuer will be the person who inspects the subject property and makes the assessment. That person must be appropriately qualified and experienced in accordance with the current requirements of the Institute. Issued by This is included to address instances where a director of the valuation firm is required by the client to also sign the report. A person signing in this capacity is merely authenticating the report as from that firm. It should not be construed as endorsing or co‑signing the valuation.

MAIN BUILDING Style This comprises a two part description defining the building in terms of its number of levels and/or elevation and degree of attachment, eg. split level detached; two storey terrace; high rise part floor; high‑set multi‑level detached, etc.

SALE'S EVIDENCE & THE MARKET Market A brief note of the recent direction (and strength) of movement in prices.

ADDITIONAL COMMENTS Any Risk Ratings of '4', or '5' or the existence of three or more '3' Risk Ratings from Section 2 'Risk Analysis' MUST be explained here. Additional comments can be made about the content of other sections of the report but it should be comment that enhances or elaborates on what has already been provided and not merely repeats what has already been stated. This section can also be used to explain any unusual aspects that the format does not specifically address. It is the Valuer's responsibility to ensure that the client is adequately informed. A balanced view of the property and market should be presented. Adverse aspects should not be over‑emphasised nor should favourable features be exaggerated. Comments can be in either narrative or dot point form.'

75 The Applicant's contention is that Mr Duffield ought to have described two particular features of the improvements, that is, two particular features of the building as those features are 'unusual', reflect an unusual configuration of the property's improvements inconsistent with use of the property as a residence and the features represent deficiencies that may detrimentally affect the property's marketability. The Applicant says a marketing period of 12 to 18 months to realise a sale at the valuation price was likely to be necessary. The Applicant further says Mr Duffield's election to assign a low risk rating of 1 to the property's improvements is consistent with a failure to recognise and describe the two unusual features. 76 The Applicant says the exercise of reasonable care compels a description of these two features by a valuer acting prudently.

The Controversial Features 77 The two features are these. 78 The structure is a split level dwelling with 5 bedrooms and 5 bathrooms constructed on an allotment that slopes 'modestly to steeply upwards from road to rear and is relatively well elevated with views west'. The first level is entered from the back verandah (car parking is at the rear of the structure) by approximately six or seven stairs. The layout of the first level comprises an entry area, kitchen, study, dining and lounge areas and a master bedroom and ensuite which occupies one side of the first level to a width of approximately 5.4 metres in a structure 11.4 metres wide (left to right looking at the front elevation of the structure). A set of internal stairs connects the first level to the second, the layout of which comprises a family room, rumpus and games area and a television and home theatre area. Each level incorporates an extensive front verandah. 79 In order to access the second, third, fourth and fifth bedrooms, it is necessary to go to the entry area on level 1 adjacent to the master bedroom, step outside the entrance door onto the back entrance verandah, immediately turn left and commence walking up what appears from the plan to be three stairs of a covered stairway which are located immediately adjacent to the entry/exit door for level 1. 80 A further three or possibly four stairs as part of the covered stairway effect a right angle turn to provide access to a covered verandah approximately 1.8 metres wide. Access is gained to each bedroom from the verandah located along a wing or extension at the rear of the structure. The first unusual feature is said to be access to bedrooms 2‑5 by this means rather than by internal access contained within the structure itself. 81 The second unusual feature is said to be that bedrooms 2 and 3 share a bathroom and bedrooms 4 and 5 also share a bathroom. 82 In order to adduce evidence that from a valuation perspective, these two features are ones which ought to have been described in the Pro‑forma Report by a prudent valuer, the Applicant called expert evidence from Mr Paul Lowis.

Paul Lowis 83 Mr Lowis is a registered valuer having become registered on 24 January 2002. Mr Lowis is an associate member of the Australia Property Institute ('API') and holds a Bachelor of Business Degree from the University of Queensland with a major in 'Property Studies'. Mr Lowis gave evidence that he has extensive knowledge and experience of both the Cairns market and the preparation of valuations for mortgage lending purposes. Mr Lowis estimates that over the last five years, he has valued approximately 6,000 residential properties for mortgage security purposes using the API Pro‑forma Report. Mr Lowis says that approximately one third of these properties were located in Cairns or within close proximity of Cairns. Mr Lowis says that he travels from Townsville to Cairns every week and generally stays in Cairns for four days a week. Mr Lowis says that he has an extensive knowledge of the style of valuation required by the API pro‑forma valuation document completed by Mr Duffield on 5 May 1999. Mr Lowis also says that he has an understanding of the Supporting Memorandum 'to … what would be expected of a competent valuer'. In his affidavit sworn 23 March 2005, Mr Lowis said this: '11. I have been provided with a copy of the valuation prepared by the first respondent and second respondent dated 5 May 1999, a copy of which appears in annexure "E" (Valuation). 12. The Valuation fails to make any comment in relation to the Property's unusual design to the extent that access to four of the Property's bedrooms is via an open‑air veranda. 13. I would expect a prudent valuer using the Pro-forma Report to make reference to the Property's unusual layout, by inserting words such as "access to bedrooms 2-5 is via an open-air veranda".' 84 Mr Lowis inspected the property on 21 February 2005 and prepared two documents annexed to his affidavit, commenting upon the property. The first is a 'Property Design Report' dated 23 March 2005 and the second is a copy of a 'Valuation Report' prepared on the API Pro-forma Report format completed by Mr Lowis as if he was a valuer completing the document in May 1999 on instructions from a mortgagee. In other words, Mr Lowis has attempted to place himself in the shoes of Mr Duffield to prepare an API pro‑forma report which reflects a statement of Mr Lowis's view of a prudently prepared pro‑forma report. In the Property Design Report of 23 March 2005, Mr Lowis responded to the question, 'Does the Property have any unusual features or is the Property unusually designed?' in this way: 'In my experience, the design of the Property is unusual to the extent that access to bedrooms 2, 3, 4 and 5 is via an open-air veranda. This design is unusual for Cairns. Normally, bedrooms in a residential dwelling can be accessed without having to leave the interior and without having to use a passageway that is not enclosed. Further, the second unusual aspect of the Property's design is that bedrooms 2 and 3, and bedrooms 4 and 5 have access to a shared bathroom. The two design features detailed above are unusual for a residential dwelling, and more commonly seen in dormitories/bed & breakfast style accommodation.' 85 In response to the question, 'Should reference have been made to the unusual design when carrying out a valuation for mortgage security purposes?', Mr Lowis responded in this way: 'In my opinion, a competent valuer, retained during 1999 to carry out a valuation for mortgage security purposes should, when completing the Property PRO Residential Valuation and Security Assessment Pro‑forma Report for Mortgage Purposes (the Report involved) have made reference to access to bedrooms 2, 3, 4 and 5 being via an open‑air veranda. I reached this conclusion for the following reasons. (a) Requirements of the Supporting Memorandum The purpose of the [Pro‑forma Report format] and [Supporting Memorandum] is to provide an explanation of the Report. The Supporting Memorandum briefly outlines information to be provided in the Report where some clarification may be warranted. Page 15 of the Supporting Memorandum sets out some guidance on what matters a valuer may address under the Main Interior Linings heading. The Supporting Memorandum does not though provide any guidance in relation to the completion of the Interior Layout heading. Further, page 17 of the Supporting Memorandum does provide clarification on information that could be included under the Additional Comments heading, stating that the Additional Comments section "can also be used to explain any unusual aspects that the format does not specifically address". Accordingly, a competent valuer completing the Report should at the very least make reference to any unusual design or layout features under the "Additional Comments" heading, or in the alternative, under the Interior Layout heading.' [The emphasis is that of Mr Lowis] 86 Mr Lowis also supported his conclusion that access to bedrooms 2, 3, 4 and 5 via an open‑air verandah ought to have been disclosed on the basis that the design 'may have an adverse affect on how quickly the property could be sold'. Mr Lowis said this: 'The design of the Property is likely to limit the market of potential buyers. This is because the design may discourage some purchasers who prefer internal access to bedrooms. Having solely external access to bedrooms raises issues in regard go the security of the dwelling. In addition, access to the bedrooms is open to external weather conditions, which may not be an attractive feature to potential purchasers. Accordingly, the Property may remain on the market longer, since more time than normal is likely to be required to find a buyer. Sale price may also be affected, should the vendor not be prepared to place the Property on the market for a lengthy period of time. Since the valuation in this instance was for mortgage purposes a design feature of this nature should be brought to the attention of the mortgagee. It has been my experience that mortgagees often require prompt sales of property security.' 87 As to the question of the ability to sell the Property over the following three years, Mr Lowis said this: 'I am not able to express an opinion on how long the Property may need to remain on the market before a sale. This is a question that falls outside my relevant field of expertise being valuation and within the field of expertise of a real estate sale's agent involved in the marketing of residential property such as the subject in the Brinsmead/Cairns area.' 88 In completing the Pro‑forma Report format, Mr Lowis inserted these details. 89 As to Section 1, Property Summary, Mr Lowis described the main building as a 'dwelling with 5 bedroom/s, 5 bathroom/s'; the Zoning/Instrument - 'residential'; Marketability - 'fair'. Mr Duffield adopted the same description for the main building, described the site dimensions as irregular and identified the current use as single residential. Mr Duffield described the marketability as 'average'. 90 As to Section 2, Risk Analysis, Mr Lowis in addressing Property Risk Ratings allocated a Risk Rating of 1 (Low) to the topic of 'Location & Neighbourhood', ratings of 2 and 2 for 'Land' and 'Environmental Issues' and a rating of 1 for 'Improvements'. As to Location, Mr Duffield had nominated a higher risk than Mr Lowis and as to Land and Environmental Issues, Mr Duffield thought the risk was lower at 1 in each case. As to the risk to the insurer associated with the Improvements on the site, both Mr Lowis and Mr Duffield nominated a low risk of 1. 91 As to the Market Risk Ratings, Mr Lowis nominated a risk rating of 3 concerning 'Reduced Value next 2-3 years', a rating of 2 for 'Marketing Volatility', a rating of 3 for 'Local Economy Impact' and a rating of 2 for 'Market Segment Conditions'. Mr Duffield had nominated a risk rating of 2 for 'Reduced Value next 2 to 3 yrs'. Both Mr Duffield and Mr Lowis agreed as to the 'Market Volatility Risk', namely, a risk rating of 2. Mr Lowis and Mr Duffield disagreed as to the scale of the risk associated with 'Local Economy Impact' (a risk rating of 3 and 1 respectively). Mr Duffield thought 'Market Segment Conditions' presented a 'low' risk to the insurer whereas Mr Lowis took the view the risk was 'low to medium'. 92 As to Section 4, 'The Land', Mr Duffield had described the property as located in an established neighbourhood generally comprising dwellings of average quality. Mr Lowis suggested that the property 'is located in an established residential area with a good standard of housing. The subject property compares favourably with surrounding development and is situated in relatively close proximity to all major services including shopping, schooling and recreational facilities'. Mr Lowis described the site description as 'slopes moderately to steeply upwards from road' whereas Mr Duffield described the site as a 'steep sloping lot'. 93 As to Section 5, 'Main Building', Mr Lowis described the internal and external conditions as 'good' as opposed to the description adopted by Mr Duffield as 'very good'. Both valuers agree that the 'street appeal' was of 'average appeal'. Mr Lowis adopted a more descriptive position in relation to the 'interior layout' of the structure. Mr Lowis described the layout as 'open living floor plan with larger than average sized living areas and bedrooms. Access to bedrooms 2-5 is via an open air veranda'. Each valuer identified comprehensively the features of the accommodation in terms of 5 bedrooms, 5 bathrooms, kitchen, dining, lounge etc and the range of PC items. In Section 8, 'Additional Comments', Mr Lowis thought these comments were appropriate: 'The subject property comprises a good quality three storey five bedroom rendered masonry block and fibro dwelling with a double carport situated in an established residential area of Brinsmead. The dwelling is in good condition overall and appears to be well maintained. The dwelling is situated on a moderately to steeply sloping allotment which is well elevated and offers good views to the west.' 94 In formulating the model Pro‑forma Report, Mr Lowis did not make any reference to the second feature relied upon by the Applicant concerning the shared use of a single bathroom by bedrooms 2 and 3 and a shared bathroom use by bedrooms 4 and 5. Mr Lowis did not use the description 'unusual' or any particular synonym for unusual in describing the main building in section 1 or any aspect of the building in section 5. Nor did Mr Lowis make reference to 'unusual design features' in the 'Additional Comments' section of the model report. The question of 'access to bedrooms 2 - 5 via an open air veranda' is the feature Mr Lowis mentions and that matter is noted as a matter of 'interior layout'. 95 As to the description of the 'marketability' of the property, Mr Lowis agreed that 'fair' and 'average' are both 'very open words' and that 'fair', as a description of marketability, lies somewhere between 'bad' at the lowest end of the scale and 'good' at the top end of the scale. 96 Mr Lowis was taken to the reference to 'marketability' in the Supporting Memorandum which suggests the valuer should adopt a brief comment on marketability or, alternatively, incorporate comments in the 'Additional Comments' section if the property exhibits inherent or external features (which could make the property harder to sell) [74]. Mr Lowis accepted that his adoption of the description 'fair' suggested he had formed a view that there were no inherent design features of the property that made it difficult to sell. However, Mr Lowis said the word 'fair' as a comment on marketability was a word he ought not to have used because he was unaware of and had not studied the marketability of the property at the time of preparing the model valuation. Mr Lowis was taken to the possible difference in his mind between the notions of 'marketability' and 'saleability' and was asked to assume 'marketability' for the purposes of a Pro‑forma Report was a reference to a 'design feature' (which Mr Lowis had studied in order to prepare a report). Counsel for the Respondents put to Mr Lowis that had any particular design feature struck him as affecting marketability, he would have used the term 'bad' or 'good' in the model report. Mr Lowis responded that 'fair' was a 'fairly standard' 'rating' he would use and observed that the issues with the property may not have affected its saleability if the market was 'good'. Mr Lowis accepted that he was very familiar with the Supporting Memorandum, the Pro‑forma Report format and the terminology adopted by the report format. 97 As to the 'Property Risk Ratings', Mr Lowis considered that the appropriate risk rating derived from the 'Location and Neighbourhood' was 'low' (1) as the property is a 'hillside residential luxury property'. As to the risk to the insurer derived from the 'Improvements', Mr Lowis thought the risk was low (1) as did Mr Duffield. Mr Lowis was taken to that part of the Supporting Memorandum dealing with the recommended approach to the assessment of 'improvements' risk, namely, '… the improvements may not be in keeping with the expectation of the locality. This would increase the risk by reducing its marketability and increasing the selling period', and was asked whether he agreed that his assigning a rating of 1, as if doing so at 5 May 1999, meant there was nothing about the improvements that suggested features not in keeping with the locality. Mr Lowis agreed in part only. Mr Lowis's opinion was conditioned by this approach to assigning a risk rating: 'If the market at the time where this Property [is], was very buoyant, the actual issues may not be looked upon as harshly [as] in a slow market and I would have taken that into consideration when I was rating the Property and whether I thought that these features would affect the Property. I haven't done that research, so, again, it's not something that I can answer and that's why I don't agree in full with you.' 98 Mr Lowis explained that a rating of 1 assessed at March 2005 looking back to 5 May 1999, 'was probably more so a rating 1 because of the size of the Property and the size of the improvements and that it is a luxury home more so than market commentary of what its marketability is'. 99 Mr Lowis was asked the following questions. 'So you didn't feel, I suggest to you, when you completed this pro‑forma format that rating 1 was inappropriate … [having regard to the section of the Supporting Memorandum put to Mr Lowis] it was an appropriate rating at the time; isn't that so? A - Yes, well, that's what I felt was appropriate at the time. Would you agree with me then in respect of these property risk ratings that as between you and Mr Duffield there's really very little difference as to the ratings that you apply? A - No, there isn't. [Mr Lowis was interrupted and continued]. I think that if I went out and did the valuation when Mr Duffield did the valuation in 1999 that I would have probably have used similar risk ratings as to what he did or what I used. There's very little difference if you're filling out a form for a mortgage lender or mortgage insurance as between a rating 1 and a rating 2 as they apply? A - There's not an enormous amount of difference. Clearly not because the form says low and then low to medium. It's a very similar thing. It's a matter of professional judgment which rating you apply; isn't that so? A - Yes. And it's only when something sticks out for you in respect of, for example, the marketability of the property, that you would see fit to apply a higher rating such as to give a 4 or 5 which may or may not put on notice a mortgage insurer or mortgage lender that in respect of that aspect of the property there was a high risk. Do you agree? A - I agree. And, in fact, if we go over the market risk ratings that you have applied they are all below 4 and 5. Do you agree with that? A - Yes, I agree with that. I suggest to you, Mr Lowis, each of the writings that you wrote at that time all fall within the category in accordance with the description that there's a medium risk associated with those features. That's why you adopted them, isn't that so? A - That's so. And if there was something in respect of each of those ratings which caused you concern as a valuer, preparing this pro-forma report which you knew was going to be relied upon by a mortgage lender or mortgage insurer, you would have adopted a higher rating, as you said in relation to the property risk ratings, namely a 4 or a 5. Isn't that so? A - That should be the case. … I do disagree that there's - I mean obviously, you can see on the pro-forma that if there's more than three, 3 risk ratings, that there's - comments have to be made as to why. But your report doesn't contain, your pro-forma report, more than three, 3 risk ratings? A - That's right. And, in accordance with the supporting memorandum, therefore, as I read it, at least that means that you are not required to make specific comment in the comment section which appears at section 8. Is that your understanding, as well, of the requirements of the memorandum? A - Yes, well, obviously, you have to make comment if there's more than 3. And, again, in your assessment of this property, you didn't approach that requirement because you've only applied two ratings of 3? A - That's correct. And that is why, in the additional comment section, I suggest to you, that there's no mention of anything which would put the hypothetical mortgage insurer who was entitled to rely on this pro‑forma valuation on notice about some aspect affecting the security, or the insurance cover, that they were going to provide; do you agree? A - I agree. And, further, I suggest to you that if something had struck you when you inspected this property and you were preparing this report, that would cause you to say "look, putting myself in the shoes that Mr Duffield was in back in May 1999, this is what I would have informed the mortgage lender or mortgage insurer about", it was incumbent on you to state in your additional comments section, and yet your report doesn't. That must mean that your assessment of the property was that there was no real risk in respect of this particular property; isn't that so? A - That would appear so. Yes.' 100 As to the 'Market Risk Ratings', Mr Lowis adopted a rating of 3 (low to medium) as an indication of the risk of 'reduced value next 2-3 yrs' for the property assessed against a range of values that applied to luxury houses being the relevant tier or residential market segment in Cairns within which the property had to be assessed. Mr Lowis agreed that 'luxury houses' as a broad description of the tier of the market in Cairns in May 1999, reflected a range of values within a 'very broad price range' of $350,000 to $750,000. 101 The range of values for 'typical houses' below the luxury market segment in 1999 was $100,000 to $350,000. 102 Although Mr Lowis described the feature of concern to him as 'access to bedrooms 2‑5 is via an open‑veranda', Mr Lowis acknowledged that the structure incorporates a roof over the verandah. However, in the event of rain or wind, the verandah is exposed because it is not an enclosed verandah. Mr Lowis says that this is the 'real differentiated point'. 103 Mr Lowis was then taken to plans and photographs for a series of houses which the Respondents say are examples of houses in the luxury house market segment in Cairns that reflect similar but not identical features to the differentiated feature identified by Mr Lowis.

The Respondents' Examples of Similar Properties 104 Mr Duffield has identified 13 examples of such houses and they are:

5 Queenley Close, Edge Hill
23 Darkin Close, Smithfield
45 Kewarra Street, Kewarra Beach
10 Stratford Chase, Stratford
13 Possum Street, Trinity Beach
2 Lambus Street, Palm Cove
2 Orana Street, Red Peak
67 James Cook Drive, Kewarra Beach
5 Lockwood Close, Whitfield
13 Brinsmead Road, Freshwater
Lot 12, Gloucester Street, Whitfield
Lot 3, Cassowary Road, Freshwater
15 Woodlands Avenue, Edge Hill 105 Mr Cameron Harris, an expert called by the Respondents, identified 10 examples of houses he considers to be examples of houses in the luxury market segment in Cairns that reflect a similar feature to that identified by Mr Lowis, six of which are also on Mr Duffield's list.

Mr Harris's Examples of Similar Properties 106 Mr Harris identifies these examples:

2 Lambus Street, Palm Cove
5/7 Peacock Street, Trinity Beach
5 Hannah Close, Forest Gardens
5 Queenley Street, Edge Hill
4 Jumna Close, Edmonton
77 Rainforest Road, Edmonton
45 Kewarra Street, Kewarra Beach
Cnr Bellevue Crescent & 15 Woodlands Avenue, Edge Hill
4 Baron View Drive, Freshwater
10 Stratford Chase, Stratford 107 Mr Lowis was asked whether he had conducted inspections of the properties referred to in Mr Duffield's affidavit. Mr Lowis confirmed that he conducted an inspection of properties numbered 1, 2, 3, 6 and 13 identified at [104] all of which were roadside or kerbside inspections. Mr Lowis did not inspect the properties numbered 4, 8, 10, 11 and 12 at [104]. Mr Lowis inspected the properties numbered 2, 3, 5, 6 and 9 on the list identified by Mr Harris [106]. 108 Mr Lowis says that there are one or two properties within these examples that have similar features to the house at 30 Latreille Terrace. 109 As to No. 5 Queenley Close, Edge Hill, Mr Lowis considers the relevant patio access between the detached living area and the bedrooms to be much wider with a much wider roof than the subject property thus restricting rain and wind from invading the floor area of the patio. Further, because the bedrooms and living areas are built around the patio, the level of security is greater than the subject property. 110 As to No. 23 Darkin Close, Smithfield, Mr Lowis considered the property similar to the subject property with narrower verandahs. However, the plans were difficult for Mr Lowis to read. 111 As to No. 45 Kewarra Street, Kewarra Beach, Mr Lowis says the house plan exhibits narrow verandahs with access to bedrooms from the verandah. It is not clear to Mr Lowis from the plan whether there is also internal access to the bedrooms. However, Mr Lowis says that given that the verandahs are narrow, he assumes that the verandahs 'would be exposed to a degree probably as much as the subject property'. Mr Lowis says the plan exhibits a much bigger open patio area which would give protection from the elements. Mr Lowis says that the verandahs are similar but the access is 'certainly different' and therefore the house design is not one which is similar to the subject property. 112 As to No. 10 Stratford Chase, Stratford, Mr Lowis says that the floor plan reflects the use of breezeways in the patio area but, like the other floor plans, there is more protected access points from the separated living areas. Although there are detached areas, there will always be 'cover through to your detached areas'. Mr Lowis accepted that the floor plan reflected a similar design to the subject property in its use of detached living areas and bedroom areas. Access on the right hand side of bedroom 1 would be exposed to the elements having regard to the roof line of the structure. Access is provided to two further bedrooms from a main verandah which 'would quite possibly be exposed'. Mr Lowis says this house reflects a different type of design from the subject house notwithstanding its use of a breezeway, because the structure has dual access to bedrooms and areas with protection from the rain. Mr Lowis says that although there are some similarities there are differences as well. 113 As to No. 2 Lambus Street, Palm Cove, Mr Lowis says: 'The actual floor plan is quite similar [to the subject house] from what I can gather. The narrow veranda is 1.8 metres from what I can take from this plan on both sides of the bedrooms. That would be fairly similar to what the subject property is, however, … the verandas are built in a way with the arches that it would have more protection from the elements. However, I would assume that they would still have issues with it … There is detached living areas. The first bedroom I'd assume you wouldn't have too much difficulty with access via that veranda. … The others would have quite similar access to the subject property although you wouldn't be walking upstairs.' 114 As to No. 2 Orana Street, Red Peak, Mr Lowis says the house reflects detached living areas with walkways relatively well protected from the elements. The plan comprises 5 separate pavilions and pavilions 1, 2 and 5 seemed to be detached bedrooms. 115 As to No. 67 James Cook Drive, Kewarra Beach, Mr Lowis says the layout shows that bedrooms and living areas have access to patios, however, all access to bedrooms is by means of an internal living area. Mr Lowis says such a layout is entirely different to the subject property. 116 As to No. 5 Lockwood Close, Whitfield, Mr Lowis was unable to easily construe the plan but suggested that the plan reflected a two storey property with internal stairs providing clear internal access. 117 As to No. 13 Brinsmead Road, Freshwater, Mr Lowis took the view that this plan was different to the subject house because overall its bedrooms and living areas have access to verandahs and access to the bedrooms is by means of a gallery which Mr Lowis assumes to be a breezeway which would be covered and protected. 118 As to No. 12 Gloucester Street, Whitfield, Mr Lowis says access again appears to be via a hallway which runs to the left hand side of the bedrooms. The bedrooms have access to verandahs. Although the bedrooms exhibit verandah access, there is also a hallway which runs along the left hand side of the bedrooms which provides internal access and avoids the elements. Accordingly, Mr Lowis says this design is different to the design of the subject property. 119 As to Nos. 5 - 7 Peacock Street, Trinity Beach, Mr Lowis examined a photograph of the property. All that Mr Lowis can discern from the photograph is that the house exhibits a large patio area with a ceiling fan. No further comment is made. 120 As to No. 5 Hannah Close, Forest Gardens, Mr Lowis says the plans reveal a design for a house which utilises breezeways and open living areas. Access between the living areas and bedrooms is by means of a well covered and protected breezeway. That point of access is the only part of the dwelling which is exposed. All other access in either of the two detached living or bedroom areas is by internal access throughout. Access to a detached bedroom area includes a breezeway access but the access is well covered. Access to bedroom 2 is internal to the structure. So too is access to bedroom 1. Mr Lowis considers the plan for this house to be different to the subject house because of the covered access. 121 As to No. 77 Rainforest Road, Edmonton, Mr Lowis says that this design is different to the subject property. He says that from the lines on the plan it appears that most walkway areas are relatively well covered although some are not. Access to bedroom 1 on the plan appears to be by way of a covered walkway. The scale of the plan does not reveal the extent of the coverage. The roof line appears to be staggered. Bedrooms 2 and 3 appear to reflect a similar position. 122 In almost all cases, the point of differentiation between the house at 30 Latreille Terrace and the postulated examples of similarity is said to be either the internal and thus contained and enclosed access to bedrooms or in those cases of detached or split level structures where access to one or more bedrooms is by means of a patio, breezeway or verandah, that access feature is dimensionally greater than 1.8 - 2 metres and the extent of the roof coverage provides greater protection from the elements. Thus, the differentiating feature of access to bedrooms 2-5 by means of a covered but not enclosed verandah that is, in the relevant conditions, susceptible to rain and wind, is a design feature that, in Mr Lowis's opinion, 'should have been disclosed somewhere in the report. The bathrooms although an unusual feature, not as significant I guess as the access'. 123 The properties identified as numbers 4, 5 and 9 in Mr Harris's list at [106] had not been built as at 5 May 1999. 124 In considering each of the examples of design similarity relied upon by the Respondents, Mr Lowis was asked the following questions about the contextual characteristics of design evident in houses in Cairns in the luxury market segment: 'Would you agree as a proposition, Mr Lowis, that when we're talking about the luxury house market which is where 30 Latreille Terrace falls, based on your own testimony, that you would expect that you would have with each property, some design characteristics which can't be described as similar but they are rather individual design characteristics? A - Yes, it's more common. And what I suggest to you, that Mr Duffield was identifying in his reference to these plans was that this is an example of a similarity. He is not saying it is identical in terms of what you have identified as the deficiency in access in terms of 30 Latreille Terrace, would you agree with that? A - Yes. I would ask you whether you agree or disagree … with the evidence given in the affidavit by Mr Harris where it is said, "It is my opinion that property in the $350,000 to $750,000 price range in the Cairns region will often include differentiating features. Access via open decks, verandas and breezeways are not uncommon as they allow for airflow and cross breezes". Would you agree with that opinion? A - Yes. It's tropical North Queensland and it's a design feature which persons in the luxury house market would seek out. Is that not the case? A - Some would seek it out, yes.'

David Duffield 125 Mr Duffield says in his affidavit sworn 20 October 2005 that the feature identified by Mr Lowis 'does not mean the house was of unusual design'. Access to bedrooms 2 - 5 is 'fully covered and the verandahs and stairs are part of the overall design of the dwelling and are thus incorporated into its structure rather than being "added on"'. Further, Mr Duffield says '… the change in level between the living area and the bedroom area is only half a level and accordingly the stairs connecting those two arrears are relatively short'. Mr Duffield says: '13. In my opinion, the access to 4 of the properties 5 bedrooms via the veranda was not unusual having regard to the design of other residential properties in the Cairns region making it unnecessary to specifically state [in the Pro-forma Report] that this type of access was "unusual"'. 126 Mr Duffield then identifies the 13 properties which he says exhibit features similar in design to that of the subject property. 127 As to some of the examples of similar houses, Mr Duffield said or accepted this: (a) As to 5 Queenley Close, Edge Hill, Mr Duffield accepts that the bedrooms are on the same level and not simply accessible by an external verandah. In that respect, the design is different to Latreille Terrace but that difference is, in my Duffield's view, 'not necessarily a substantially important difference'. Mr Duffield says that although not a similar design as the subject house, 'it's in a similar market segment'. (b) As to 23 Darkin Close, Smithfield, the property has a large swimming pool, waterfall, 6 bedrooms, is highset and some of the bedrooms are separate from the living room although not in a separate wing. No access to bedrooms is reached by a verandah; (c) As to 45 Kewarra Street, Kewarra Beach, there are 4 bedrooms although none of those bedrooms is in a separate wing. There is no access by a verandah. (d) In terms of access to bedrooms, properties (a), (b) and (c) are all 'relatively standard' with 'nothing particularly different from most houses in Cairns'. (e) As to the question of access design generally, Mr Duffield was asked: 'Mr Duffield, have you seen many houses in the Cairns region which have such access only to bedrooms? A - I don' recall a large number, no, but it's not an unremarkable feature, so it's not something that I would remember particularly. It is a remarkable feature, is it not, Mr Duffield? It's a feature that is very rare in Cairns, in your experience? A - Not particularly, no. Well, you've sworn that you consider these to be similar designs. I'm putting to you that a house designed in the manner I've described is a very different - of a very different design to the Latreille Terrace house? A - Well I guess those houses are included to show different design characteristics, not to be completely identical. Would you agree that the fact that 4 of the 5 bedrooms in the Latreille Terrace house are accessible only by an external veranda is a feature which strongly distinguishes this house from most houses in the Cairns region? A - No. You would agree that it's not a conventional design, wouldn't you? A - Yes. Does that not mean that it's an unusual design in your opinion? A - Sorry. I'm asking for your opinion. If it's not a conventional design does that not mean in your opinion that it's an unusual design? A - No, because an unusual design, to use your description previously, would be a flying saucer. I valued houses that I considered unusual that are, you know, built like a rocket ship or a fibreglass dome. That's what I would consider unusual.' 128 Mr Duffield accepted in cross‑examination that: (a) as a generality, the design characteristics of a house have an effect upon the ease of sale of a property and that any detrimental or adverse effect of a design feature ought to be drawn to the attention of the mortgagee or mortgage insurer when giving a valuation; (b) that there would be a smaller number of people in the market for houses in the price range $400,000 to $500,000 in Cairns in 1999 'who would like the feature of a house that has only external access to 4 out of 5 bedrooms on the one hand, than people who would prefer to have internal access to their bedroom'; (c) the market for such a house is 'a smaller market than would be available for the sale of a house that had internal access to all of the bedrooms'; (d) although it is harder to sell a house into a smaller market, 'price' will remain an important matter in determining ease of sale within the price range $400,000 at $500,000. Price will affect the size of the market, among other factors. 129 Mr Duffield accepts in a qualified way that 'a limitation on the market is adverse in the sense that it's a smaller market into which you can sell the house'. Mr Duffield says that if the limitation in the size of the market as a consequence of the design feature has an adverse effect to the extent of adversely affecting the marketability of the property, the mortgage insurer would, in Mr Duffield's view, expect 'to want to know about it'. 130 However, Mr Duffield does not accept that the design feature of external access to 4 of the 5 bedrooms via a verandah effects the ease with which such a house might be sold although he concedes 'it may do' but says that it is 'not likely to do so'. Even though there may be fewer buyers seeking such a house, Mr Duffield says it is 'not necessarily' harder to sell such a house. 131 Mr Duffield in further cross‑examination, (a) did not accept that the subject house in 1999 would 'take some time to sell' at a price of $475,000; (b) contended that the value of $475,000 was assessed by him 'on the basis of the supporting memorandum which sets out a marketing period of 3-4 months'; (c) disagreed that 'it would have taken 12-18 months to sell the house at that time'; (d) disagreed that a long marketing campaign would have been necessary to sell the house at $475,000; (e) accepted that in 1999 houses in the range $475,000 to $520,000 were in the same market segment; (f) accepted that the 'turnover' for houses in 1999 within Brinsmead in the range $475,000 - $520,000 was limited and there was 'a smaller number of them'; (g) accepted that if, it would be more likely in 1999 to take more than 3-4 months to sell the subject house at $475,000, that circumstance should be pointed out in a valuation; (h) accepted that a mortgage insurer reading Mr Duffield's valuation in May 1999 would be expected to assume that a marketing period of no more than 3-4 months would be necessary in order to sell the house at a price of $475,000; (i) rejected the contention that a shared bathroom between bedrooms 2 and 3 and a shared bathroom between bedrooms 4 and 5 was an unusual feature. 132 Mr Duffield contends that a multiplicity of factors determine whether a house is a luxury house and those factors include the size of the property, the location, fittings, layout and outlook.

Cameron Harris 133 The Respondents called evidence from Mr Cameron Harris. 134 Mr Harris is a director of KF Cairns Pty Ltd trading as Knight Frank Cairns. At or about 10 March 1999, KF Cairns Pty Ltd was known as MGW Pty Ltd trading as Knight Frank NQ. Mr Harris completed an Associate Diploma in Real Estate Valuation in 1991 and became a registered urban valuer in 1992. Mr Harris completed a Bachelor of Applied Science (Property Economics) at the Queensland University of Technology in 1994. Mr Harris has been based in Cairns since March 1995. Mr Harris says that he has considered the opinion expressed by Mr Lowis in his statement dated 23 March 2005 and disagrees with it. Mr Harris says in his affidavit sworn 3 November 2005 this: '8. In my opinion, the access to 4 of the property's 5 bedrooms via the veranda was not unusual having regard to the design of other residential properties in the Cairns region. Further, in my opinion, it was not necessary for the valuer who completed the valuation for mortgage security purposes on 4 May 1999 to specifically state in his report that this type of access was "unusual". … 10. Annexed to this affidavit and marked "CH6" is a schedule of residential properties (including floor plans) in the Cairns region which have similar or broadly equivalent designs in terms of access to bedrooms and which fall roughly within the same sector of the residential property market as the property. It is my opinion that property in the $350,000 to $750,000 price range in the Cairns region will often include differentiating features. Access via open decks, verandas and breezeways are not uncommon as they allow for airflow and cross breezes.' 135 Mr Harris says that he attended the subject property on or about 8 March 2001 and conducted an inspection. Mr Harris annexes to his affidavit a copy of a valuation dated 8 March 2001 arising out of that inspection. Mr Harris also annexes to his affidavit a copy of a valuation dated 10 March 1999 which Mr Harris deposes to in these terms: '4. On a date prior to 10 March 1999, Matthew Pullos, a valuer at Knight Frank NQ was instructed to prepare a valuation for CR & BJ Cats for mortgage security purposes of their property at 30 Latreille Terrace, Brinsmead Glen ("the Property"). I signed a copy of this valuation in my capacity as a director of MGW Pty Ltd trading as Knight Frank NQ. Annexed to this affidavit and marked "CH2" is a copy of the valuation dated 10 March 1999.' 136 In the valuation dated 10 March 1999, Mr Pullos says 'it is our opinion that the current market value of the subject property for mortgage security purposes is the sum of $520,000'. The valuation is signed by Mr Pullos as a registered valuer and by Mr Harris as a director of Knight Frank NQ. At paragraph 1.3 of the valuation, the author says: 'This valuation represents our opinion of value at the date of valuation. It must be recognised that the real estate market fluctuates with internal and external influences and should be reviewed at regular intervals. The opinion of value expressed in this report has been arrived at by the prime signatory acting as a valuer in accordance with instructions given'. The author of the report in Section 2 sets out the details of property searches, description, tenure, easements, land area, dimensions and the existing zoning. In Section 2, the author identifies site details which at Section 3.5 include a physical description of the property in these terms: 'The subject property is slightly irregular in shape, above road level with a moderate to steep slope to the rear boundary. The allotment is elevated with extensive views to the west across the Brinsmead Valley'. In Section 4, the author describes the 'improvement' details and describes the building layout in these terms: 'Erected on the property is an extensive hardi‑flex and granosite dwelling approximately one year old with a steel frame and substantial masonry block piers to the front. The building comprises five bedrooms, ensuite, four bathrooms, games room, movie room, lounge, kitchen/dining room, study and a triple garage/laundry beneath the sleeping quarters. Extensive verandahs provide outdoor living and entertainment areas'. Section 4 also contains a description of the fittings and fixtures. Having reached a conclusion as to the value of the property of $520,000, the author makes these comments at Section 5.6: 'The market in this price range within Brinsmead is very limited. This market is more active for established residences in the area of Edge Hill and Whitfield. However, Latreille Terrace and Hearle Close have developed into "exclusive addresses" given the location and available views. Consequently, we believe that should the property be put to market an extended marketing period of 12 to 18 months would be expected to achieve a fair sale price.' 137 The valuation exhibits a certificate signed by Mr Pullos and Mr Harris which asserts that 'we assess the current market value …' at $520,000. 138 On 8 March 2001, Mr Harris prepared a valuation of the subject property on behalf of the owners, CR & DJ Cats. The valuation also contains a statement that the expression of value in the report has been arrived at by the prime signatory. At Section 4.1, the building layout is described in these terms: 'The subject property is improved with a highset dwelling comprising five bedrooms, five bathrooms, open plan dining/kitchen area, separate lounge, study, ensuite, five bay garage, laundry and games room. There are large scalloped verandahs along the front of the dwelling on two levels, a rear balcony and a rear verandah overlooking the parking garage area. Other improvements include a steep exposed aggregate driveway and rendered block retaining walls'. 139 At Section 5 of the report, the valuation methodology is described in these terms: '5.1 Method In assessing the value of the subject property, we have taken into account recent sales of prestige residences as well as the value of land costs and improvements. The market value is assessed on a selling period for this type of property which would expect to be longer than normal and it is assumed that the vendor will not be forced into selling the property over a short period of time due to financial or other pressures. The subject property would be considered one of the more prestigious properties within the Cairns region. Under normal circumstances, the most suitable method of assessing the value of this type of property is by means of the direct Comparison Approach which compares the property directly to recent sales of similar properties within the general locality. Although this method has relevance in the valuation of prestige residences such as the subject, the assessment of market value is determined to a large extent by the timing of any sale, the length of any selling period and a small number of prospective purchasers. To achieve a successful sale of prestige residences, an "element of luck" is often necessary to locate a specific buyer at the time of marketing who can afford to pay in this price range. Sales often occur on emotion, where price is not a wholly determining factor. It is sometimes the case that such a purchase may not be considered prudent by the market as the added value of improvements and the land may not equal the purchase price.' 140 Mr Harris determined a value of $475,000 and expressed these comments at Section 5.5: '5.5 Valuation Calculations The Cairns residential market has been subdued over the last 12 to 18 months. Typically we have seen a large number of properties put to the market for sale, conversely the level of demand in the market place has been subdued. Therefore, the vendors keen to sell have needed to be realistic in order to meet the market and values on an overall basis have generally moved downwards. In the exclusive residential market we have seen a number of sales occur within the last 12 months with the majority of activity occurring in the $400,000 to $600,000 range with the exception of a $1,250,000 sale. We would consider the subject property due to the extensive nature of improvements to figure prominently in the executive residential market. Buyers within this $500,000 market look for four bedrooms, multiple bathrooms, car accommodation and other improvements such as inground swimming pools. In consideration of the sales, the subject property while being a large dwelling has limited useable land area and is situated in Brinsmead, a suburb more known for first and second home buyers. We have assessed a current market value for the subject property of $475,000. [emphasis from the report] 141 Neither Mr Pullos in his report of 10 March 1999 nor Mr Harris in the report of 8 March 2001 make reference to a design feature inherent in the structure that bedrooms 2‑5 are accessible via an open‑air verandah and that such a feature is unusual. 142 However, the Applicant seeks to rely upon these reports as evidence in its case on the basis that the reports represent material put in evidence by the Respondents which contain admissions against interest in these respects. First, as to the report dated 10 March 1999 approximately two months prior to Mr Duffield's valuation on 5 May 1999, Mr Pullos expressed an opinion as a qualified and professional valuer that should the property be put to the market for sale, an extended marketing period of between 12 and 18 months would be expected, to achieve a fair sale price. Thus, the Respondents are said to have admitted that such a period of marketing would be necessary, in effect, in May 1999 and a valuer conducting a valuation on 5 May 1999 ought to have made reference to the extended marketing period. Secondly, the report dated 8 March 2001 recognises that in order to achieve a sale of the subject residence, 'an "element of luck" to locate a specific buyer is often necessary'. Similarly, the Applicant contends that the Respondents have made an admission against interest by introducing the report into evidence thus recognising that an element of luck would be required in securing a sale of the subject property and no reference is made by Mr Duffield in his report to any 'element of luck' in securing a sale. 143 It seems to me that there are real difficulties with these propositions. 144 The report dated 8 March 2001 is a valuation prepared one year and 10 months after the valuation prepared by Mr Duffield on 5 May 1999. It seems to me that the observations concerning 'an element of luck' in relation to prestige residences is an expression of opinion which contextualises the conjunction or circumstances, market conditions and trends within the Cairns market for prestige properties at the moment in time when the report was prepared. To the extent that the Respondents have sought to rely upon the document, it contains an expression of opinion, apparently embraced by Mr Harris by annexing the report to his affidavit, that in order to achieve a sale at the valuation price as determined on 8 March 2001, a number of factors would need to be considered carefully including timing of the sale, the length of the selling period, overall movements in the price for prestige properties within the Cairns market as reflected in any evident trend and an element of luck in attracting a buyer with a disposition to acquire the particular property at the nominated price drawn to the catchment for prestige properties by reason of a particular marketing campaign adopted by the vendor. 145 In relation to the valuation report dated 10 March 1999 undertaken by Mr Pullos and signed by Mr Harris, it seems to me that the observations concerning the need for an extended marketing period of 12 to 18 months have a necessary inter‑dependence with the price or value determined by the valuer. Mr Pullos says, in effect, that the appropriate point of intersection between a willing but not anxious vendor and a willing but not anxious buyer acting prudently is $520,000 which is $45,000 more than the value Mr Duffield ascribed to the property eight weeks later. The opinion Mr Pullos puts is that because Latreille Terrace had developed into an exclusive address having regard to its location and available views (outlook), an extended marketing period of 12 to 18 months would be expected by Mr Pullos to achieve a fair sale price should the property be put to the market. I infer that Mr Pullos means by the phrase 'put to the market', a notion of put to the market at the price he has determined as the value of the property. The term 'fair sale price' might contain within it some degree of ambiguity but presumably when Mr Pullos speaks of a 'fair sale price' he means a sale price which reflects his view of fair value, namely, $520,000 or perhaps a price which represents a slight concessional discount from that value but which is a sufficiently small discount such that the vendor achieves a price which approximates very closely the true and fair value Mr Pullos had determined. 146 Mr Pullos was not called to give evidence concerning his report. The report is put in evidence by Mr Harris. 147 It seems to me that the statements in the valuations cannot be admissions by the Respondents that the subject property valued at $475,000 on 5 May 1999 would have required an extended marketing period of 12 to 18 months to achieve that value or that at 5 May 1999 an element of luck would be required to find a buyer for the subject property at $475,000. 148 Mr Harris was cross‑examined as to these matters and in many respects Mr Harris's evidence is unsatisfactory. Ultimately, Mr Harris's frank and direct answers to propositions put to him by counsel for the Applicant suggest to me that he answered the questions put to him in a way which reflected genuinely held views on his part. The evidence, however, is unsatisfactory in these respects. Mr Harris was called as an independent expert in order to assist the court in reaching a conclusion on the questions in issue by exercising the privilege of expressing an 'opinion' on matters within his expertise. In relation to the report dated 10 March 1999, annexed to Mr Harris's own affidavit, Mr Harris gave evidence‑in‑chief that he considered the comment that an extended marketing period of 12 to 18 months would be expected to achieve a fair sale price, was a comment that he now considered to be incorrect. Mr Harris accepted, in cross‑examination, that his evidence now was that 'a value of that property was - the figure stated there [$520,000] - based upon an inappropriate sales period'. 149 Mr Harris was asked these questions. 'And you were prepared to let your company put out a report - endorse a report - which you considered to be incorrect? A - On that comment I would agree with that. [Mr Harris may have said 'wouldn't' in answer to this question.] You exhibited this to your affidavit, didn't you? A - Correct. You didn't say anywhere in your affidavit that you disagreed with this in any respect, did you? A - The issue was only raised on Tuesday evening … before that, I did not have any time to respond to that. Mr Harris, when you exhibited this valuation to your affidavit, you did so to tell the court that this was a valuation with which you agreed? A - This is a valuation which we prepared through our office in March 1999. And if you disagreed with any aspect of that valuation, you would have said so wouldn't you, in your affidavit? A - As I said before, on Tuesday night, it was not something that I - before Tuesday afternoon, it wasn't something that had been raised. Regardless of whether you thought it was an issue in the proceeding, if you considered any part of this valuation to be incorrect, you would have said so in your affidavit to this court, would you not? A - You should have. And you didn't, because you wanted the court to think that this was a correct valuation in all respect, didn't you? A - I can't go back and change it. You could have qualified it …? A - The valuation was prepared by a valuer working for me. You wanted the court to think that this was a valuation which was correct in all respects, didn't you? A - Yes. You wanted the court to think that this valuation was correct, and that you agreed with it, because you thought it supported the Respondents' case? A - Yes, yes. And you see your task as supporting the Respondents' case in this case, don't you? A - I see myself as an expert witness in this matter. You see your task as supporting the Respondents' case. A - Yes. In this proceeding? A - Yes. Did you give consideration to [the practice direction of the court] before you swore this affidavit? A - Yes I did. Were you given a copy of that practice direction? A - No, I was not. Did you already have one? A - Yes, I did. Did you check that practice direction? A - Yes, I did. So despite that practice direction, you consider yourself to be giving evidence to support the Respondents' case? A - That is correct.' 150 Obviously enough, that approach to giving evidence on the part of an expert witness is essentially unsatisfactory. In making these observations, I am conscious of the comments of Allsop J in Evans Deacon Pty Ltd v Sebel Furniture Pty Ltd [2003] FCA 171 at [676], the remarks of Gleeson CJ in H G v The Queen (1999) 197 CLR 414 at [39] to [43] and the observations of the Australian Competition Tribunal per Goldberg J (President), Mr Latta and Professor Round in Qantas Airways Limited [2004] ACompT 9 at [212] to [227]. The observations of the Australian Competition Tribunal on the use of expert evidence and particularly the role of the expert ought usefully be provided to any expert seeking to give evidence in court proceedings. 151 As to the relationship between the nominated value of $520,000 and the sales period [148], Mr Harris said in evidence‑in‑chief that: '… if the property had been discounted or at a lower level, a selling period of a shorter period would have been more appropriate'. Mr Harris said that if he was carrying out a retrospective valuation at March 1999: '…we would certainly be looking at a reduction in the value of the property and a reduction in the selling period as stipulated in the supporting memorandum of the API handbook to, you know, mortgage residential valuations. Considering a valuation, say, of in the range 470, 475, you know, I would think that would be an appropriate selling period, of the three to four months as specified in the memorandum'. 152 Mr Harris was asked these questions by counsel for the Applicant: 'Now you said you hadn't actually looked at the comparables in this valuation [the valuation dated 10 March 1999]? A - In March 1999, no. And? A - As in inspecting those properties, no. Now, you haven't, in the last few months or for the purpose of preparing this affidavit, looked at comparable sales in 1999? A - No, I have not. And you haven't assessed sales of properties in 1999? A - No I have not. So, you are not in a position now to say what the value of this property was in 1999, are you? A - Yes, I am. In 1999, I was doing residential valuation full-time, and I was inspecting various properties. I have not inspected, for the purposes of this valuation, these six valuation sales but I'm aware of a number of these properties in relation to other work that I undertook at that point in time. You have not done an analysis of the comparable sales in 1999, have you? Of this particular property? A - No, I haven't. And in order to value a property, to properly put a value on property, it's the practice of valuers, such as yourself, is it not, to look at recent sales of comparable properties? A - Correct. You haven't done that task? A - Not in relation to this property. You are not in a position, are you, to say what the value of the property was in March 1999? A - No. So your evidence that a value of this property at $450,000 to $470,000 was appropriate, assuming a three to four month selling period in March 1999, has no basis, does it? A - It goes back to the point you made before in relation to time and value, the longer the time, the shorter the period. But you haven't done the analysis, have you, Mr Harris? A - That is correct. Yes? A - That is correct. So it has no basis, has it, the evidence? A - No, I have not sat down and assessed the value of the property. No, it has no basis that evidence, does it? A - But at the time of this valuation, I was actively in the market. Yes or no, it has no basis? A - No. 153 Accordingly, Mr Harris's expert evidence that the subject property at a value of between $450,000 and $475,000 would in March 1999 have required a selling period of between three and four months is not based upon any method. There is no hypothecation of an opinion with testing of that hypothesis by reference to relevant data and verification of the hypothesis leading to an objectively robust conclusion. The opinion is simply speculation. 154 Accordingly, having regard to all of these matters, the opinions expressed by Mr Harris on the matters in issue, properly the subject of expert evidence, must be treated with considerable caution. 155 As to the later valuation of 8 March 2001, Mr Harris said a longer than normal marketing period of up to six months may have been required to achieve a sale at $475,000 because 'the market, at that time, had slowed sufficiently where the rate of sale in the Cairns market was requiring a longer [period] than what would be ordinarily accepted out of the supporting memorandum. That three to four months is not written to be the absolute sale period'. 156 As a matter of generality, Mr Harris accepted that in the period 1999 to 2001 properties in the higher market ranges would require a longer selling period than properties in lower price ranges and, generally, a longer period than three to four months. Further, if the valuer formed a view that a particular property would take more than three to four months to sell, that view should be stated in an API Pro‑forma report. Mr Harris accepted that if the house being sold was, in his view, a prestige property, he would say that in the valuation and he would expect a valuer to do so. Mr Harris accepted that as a general proposition, properties classified as prestige residences required an element of luck and a longer sales period to achieve a price within the prestige property price range. 157 As to the specific house at 30 Latreille Terrace, Mr Harris was tested as to his opinion that 'four of the five bedrooms could only be accessed by external verandahs and stairs was not unusual in the context of the design of the house' and was asked to explain the reference to 'in the context of the design of the house'. Mr Harris expressed the foundation for his view in these terms: 'The house - the design of that house was such that it was designed to be constructed on an elevated - steeply sloping elevated allotment with views across the Baron Valley. It was such that it provided for a split‑level two ‑ the main body of the resident was a two‑storey residence with the bedroom being attached to that part of the - bedrooms two to five being attached to that with interconnecting walkways and covered verandahs and I, in my professional opinion, have no problem with the design of that property, for the typography in which it sat and the location, in where it was in Latreille Terrace.' 158 Mr Harris was taken to the 10 examples of similar houses identified by him, seven of which existed at the time of the valuation in May 1999. The proposition was put to him that the house at 30 Latreille Terrace reflected differences in design of substance from the identified similar houses on the basis that the only access to four of the five bedrooms in the subject house is via an external verandah approximately two metres wide. Mr Harris accepted that the design feature represented a design difference but the question of whether it was a difference of substance was a matter of opinion. Mr Harris also accepted, in general terms, that a house with such a design feature would be less secure than one where access to the bedrooms was by way of internal access from within the structure. Mr Harris observed that the subject bedrooms contained security screens and grills. 159 Mr Harris accepted that most houses in Cairns are designed with internal access to bedrooms even if there is also external access. Mr Harris did not accept that it would be harder to sell a prestige house with only external access to four of the five bedrooms than to sell a prestige house with internal access to all the bedrooms. Further, Mr Harris did not accept that a mortgagee or mortgage insurer reading Mr Duffield's valuation of 5 May 1999 would reasonably read it as descriptive of a house that was a 'dwelling of average quality'. Mr Harris said he reached that conclusion 'because it has five bedrooms and five bathrooms and it is 395 square metres of living area'. Mr Harris contended that, '… if you were reading the valuation under "main building" and read that it had five bedrooms and five bathrooms, I think if you knew that in that area the general house was a three or four bedroom house, then you would ask the question'. 160 Mr Harris was tested in relation to the comments in his affidavit sworn on 3 November 2005 in response to the opinion of Mr Lowis and particularly Mr Lowis's opinion that as at May 1999 the subject property 'may remain on the market longer in the sense of more time than would be normal'. Mr Harris accepted that he had read the affidavit of Mr Lowis carefully and had not expressed any disagreement in his affidavit with that part of the opinion of Mr Lowis. Mr Harris described Mr Lowis's comment as 'generic' and accepted, when put to him, that he agreed with it. 161 Mr Zrilic says in a supplementary affidavit sworn 29 November 2005 that had the valuation by Mr Duffield recorded that an element of luck was necessary to achieve a sale of the property because it was a prestige property, he would have marked the R D Input sheet 'Adverse' and rejected the L M Insurance proposal.

Conclusions 162 Mr Lowis rests his opinion that a competent valuer in May 1999 ought to have made reference to the two controversial features on the grounds that they are unusual, the Supporting Memorandum either requires or suggests disclosure of 'unusual aspects', the two features are likely to limit the market and may discourage some purchasers and, therefore, the property may remain on the market longer than the period recommended by the Supporting Memorandum. 163 Mr Duffield and Mr Harris contend that neither feature is unusual. 164 As to the second feature of a shared bathroom between bedrooms one and two and a shared bathroom between bedrooms three and four, Mr Lowis did not disclose the feature in his model report, described the feature as 'not as significant, I guess as the access' and identified the point of real differentiation as the access to the bedrooms by an open‑air verandah. 165 I accept the evidence of Mr Duffield that such a feature is not unusual and I find that there was no duty to disclose that feature. 166 As to the access feature, the Supporting Memorandum contemplates a 'brief report' to facilitate an 'expedited cost effective report' to advise a mortgage insurer of 'sufficient and appropriate' information of property specific and market related risks ([74], 1:1.5, 1:2.3). Inherent or external features that have a 'significant impact' on the property should be adequately noted ([74], 1:3.2). Where such an impact arises, the 'Additional Comments' section of the report might be utilised to so note the feature ([74], 1:3.3). The Property Summary directs the reader to 'marketability' which takes up the notion of an overall initial assessment of how inherent and external features of the property might impact upon 'market appeal' or make the property harder to sell ([74], Item 1, Marketability). The numerical and graphic risk assessment is designed to provide a 'bold, clear caution indicator' of the presence of 'relevant comments in the Additional Comments' section ([74], Item 2, Risk Analysis). Moreover, any other specific risks identified by the valuer which do not 'come under these aspects should also be commented upon in Additional Comments' ([74], Risk Ratings). Should a valuer consider that a particular feature exhibits a risk to the insurer of 4 or 5 the valuer must explain the perceived level of adverse impact the particular aspect or feature could have on either 'value' or 'marketability' within the initial 2-3 years of the security/insurance ([74], level of adverse impact or risk). The Supporting Memorandum recognises that the 'extent' of the adverse impact 'may vary significantly' and the rating therefore requires a 'balanced overview for that aspect' ([74], extent/adverse/favourable impacts). Some aspects of improvements may affect the risk assumed by the mortgagee or insurer because they may give rise to 'make good obligations' or increase the risk by 'reducing' the marketability and 'increasing' the selling period ([74], Improvements). The Supporting Memorandum reflects the relationship between the 'value', ie. a 'single figure amount' and the typical or orthodox marketing period for the class property. If more than three or four months is likely, that fact should be noted, an estimate of the likely period made and a comment incorporated in the report on the 'dynamics of the market' in the Additional Comments section ([74], 3, Valuation & Assessments Summary). 167 Having regard to that framework, Mr Lowis described the marketability of the property as 'fair', considered the risk derived from the access feature, as a function of improvements, to be 'low', chose not to elevate the rating beyond 1 in a way which would provide a 'bold, clear, caution indicator' to the reader of the presence of relevant comments in the 'Additional Comments' section directing the mind of the reader to the risk implications of the access feature, elected not to describe the feature in the Additional Comments section as unusual or an unusual design feature and elected not to provide any explanation of the feature as any 'other significant risk'. In evidence [99], Mr Lowis accepted that a rating of 1 concerning the improvements was not inappropriate, that the risk associated with the nominated features was no greater than a medium risk and that had any feature of the improvements struck him as a feature of importance he thought ought to have been drawn to the attention of the insurer at the relevant time, it was incumbent upon him to draw attention to that matter in the 'Additional Comments' section of his model report and he had not done so. Mr Lowis accepted that, in consequence, his election not to draw attention to the feature in the Additional Comments section of the model report meant, in his assessment of the property, that there was no real risk, to an insurer, in respect of the property. 168 It seems to me that whatever the true character of the access feature criticised by Mr Lowis may be, the evidence of Mr Lowis ultimately is that the feature was not sufficiently significant that it warranted the adoption of a bold, clear caution indicator, the adoption of an elevated risk rating or a clear warning or commentary in the Additional Comments section of the model report. In fact, the access feature presented no real risk to the insurer. Although Mr Lowis expressed the view in his statement that 'a competent valuer completing the report should at the very least make reference to any unusual design or layout features under the "Additional Comments" heading, or in the alternative, under the Interior Layout heading', the reference to access to bedrooms 2-5 via an open air verandah was not perceived by Mr Lowis, for the purposes of the model report, to give rise to anything other than the lowest level of "improvements" risk or represent a feature of sufficient prominence that it represented a pronounced risk to the insurer for the purposes of the Risk Analysis section of the model report. Although I generally accept the evidence of Mr Lowis and accept that as an expert witness Mr Lowis was conscientiously seeking to assist the Court on the range of matters in issue falling within the scope of Mr Lowis's expert opinion, I am not satisfied having regard to the framework of the Supporting Memorandum and the evidence of Mr Lowis that the Applicant has established that the Respondents owed a duty to the Applicant to incorporate within the Pro‑forma Report a description of the access feature criticised by Mr Lowis in the words suggested by Mr Lowis, namely, 'access to bedrooms 2-5 is via an open air verandah' or at all. 169 As to the question of whether the access feature is 'unusual' or 'an unusual design feature', I accept the evidence of Mr Duffield that such a feature is not unusual. Although I have expressed caution and reservation concerning reliance upon the opinions expressed by Mr Harris, Mr Lowis agreed with the opinion expressed by Mr Harris that property in the price range $350,000 to $750,000 in Cairns will often include differentiating features and that access via open decks, verandahs and breezeways are not uncommon as they allow for airflow and cross breezes. Mr Lowis also accepted that in tropical North Queensland, the access design feature criticised as unusual by Mr Lowis is one which some persons in the luxury house market would seek out. Although it is true that the examples of similarly designed houses identified by Mr Duffield and Mr Harris do not reflect features which are identical with the access feature criticised by Mr Lowis, I accept that in the luxury or prestige market segment in Cairns there are examples of structures which incorporate verandah, patio or breezeway access to bedrooms as a feature of design although distinguished by the specific architectural expression of the feature. 170 The Applicant contends that the breach of duty on the part of the Respondents was not that they failed to describe the access feature as unusual or a feature reflecting unusual design but that they simply failed to describe the feature thus preventing the Applicant from forming its own view as to whether the feature was 'unusual' for the purposes of the application of the Policy Manual [29]. There seems to me to be circularity in this formulation of the breach of duty. The duty owed by the valuer in preparing the valuation, conditioned by the Supporting Memorandum, was to describe those features which adequately informed the Applicant as to the relevant risks, derived from those features, rated according to the directions and guidance given by the Supporting Memorandum. The feature did not attract a risk rating of 2, 3, 4 or 5 as a function of improvements, from Mr Lowis. It was accorded a rating of 1 by Mr Lowis, the lowest risk rating. In other words, Mr Duffield was not likely to describe the access feature in the Pro‑forma Report unless the feature was unusual and, if unusual, the valuer would be expected to describe the access feature as unusual. However, Mr Lowis in formulating the model report chose not to describe the feature as unusual nor elevate the risk rating in respect of the feature or address remarks as to the unusual nature of the feature in his 'Additional Comments'. 171 I find, as indicated in these reasons, that the feature is not unusual. Although I have expressed reservation in placing reliance upon the evidence of Mr Harris, I accept his opinion as corroboration of Mr Duffield's opinion that the feature is not unusual. 172 Accordingly, I find that there was no duty on the part of the Respondents to describe the access feature. The evidence does not establish that the feature is unusual or represents an unusual configuration of the improvements to the property or represents an unusual design of improvements to the property. 173 I also find that there was no duty on the part of the Respondents to comment upon the improvements identified by Mr Lowis on the contended footing that the improvements were not consistent with the property being used as a residence. Mr Duffield conducted a valuation of the property on the footing that the property was an integrated structure used as a residential dwelling. At the date of the valuation, Cornitus and Bethwyn Cats were using the house as a residential dwelling. The Pro‑forma Report makes it plain on its face that the document was prepared on that basis. 174 Accordingly, I am not satisfied that the Applicant has established that the Respondents, in undertaking the valuation, breached any duties owed to the Applicant arising out of a failure to describe the access feature or in assigning a low risk rating to the improvements to the property. 175 The Applicant also contends that the Respondents, in breach of a duty to exercise all reasonable care, skill and diligence as a competent valuer in preparing the valuation and in breach of a duty to record any deficiencies in the property that may detrimentally affect the property's marketability, failed to state that a marketing period of up to 12 to 18 months was likely to be necessary in order to achieve a sale of the subject property at or about the valuation of $475,000. 176 Mr Lowis has given no evidence to that effect. 177 Mr Lowis says that, in his opinion, the access feature is likely to limit the market of potential buyers, discourage some purchasers and thus the property 'may remain on the market longer'. In his statement dated 23 March 2005, Mr Lowis says that he is not able to express an opinion as to how long the property may need to remain on the market before a sale might be effected. Mr Lowis in his 'Additional Comments' in the model report, did not draw attention to any aspect of the property that suggested to him that a period of more than three to four months would be required to achieve the market value. Although Mr Lowis was not asked to and did not insert a 'single figure amount' in his model report and thus ascribe a market value to the property, the immediate question is (accepting Mr Duffield's value of $475,000 which is not under challenge), whether prudent practice required Mr Duffield to draw attention to the access feature as one which might detrimentally affect the marketability of the property. The 'particular' contention is that a very extensive period of 12 to 18 months would be required in order to achieve a sale at or about Mr Duffield's single figure value. 178 Mr Lowis, in addressing the approach to the term 'marketability' in Section 1 of his model report, suggested that he ought not to have referred to the term 'fair' in the context of marketability because he was unaware of and had not studied the marketability of the property at the time of preparing the model report. Mr Lowis was asked by counsel for the respondents to focus on the notion that marketability in Section 1 was directed to a design feature which might affect marketability rather than saleability or comparative sales and, in effect, buyer substitution possibilities. Nevertheless, it seems to me difficult for Mr Lowis to express an opinion concerning whether the property might remain on the market longer than the period suggested by the Supporting Memorandum by reason of the access feature, in the absence of a careful analysis of market circumstances at the time. Whilst it is true that Mr Duffield accepts that there would be a smaller number of people in the market for prestige houses in Cairns in 1999 who would prefer a house exhibiting the particular access feature and that the market for such a house is a smaller market than would be available for a house exhibiting internal access to all the bedrooms, Mr Duffield does not accept that the feature will affect the ease of sale of such a house although he accepts 'it may do' but 'is not likely to do so' and says that it is 'not necessarily' harder to sell such a house. 179 On the question of the marketability of the property and whether the property might have taken a longer period than the typical marketing period suggested by the Supporting Memorandum, I accept the evidence of Mr Duffield. 180 I find that the contention that a marketing period of 12 to 18 months was likely to be necessary in order to achieve a sale of the subject property at or about the valuation recorded by Mr Duffield on 5 May 1999, is not made out. The question of whether in May 1999 a marketing period of greater than the typical marketing period of three to four months suggested by the Supporting Memorandum might be required in respect of the subject property, was a question to be determined as a matter of professional opinion about which legitimate differences of opinion might arise. I have found that there was no duty cast upon the Respondents to describe the access feature in the Pro-forma Report and nor was the feature unusual. To the extent that the failure to describe in the Pro-forma Report any aspect of a contended difficulty in the marketability of the property is said to derive from a failure to describe an unusual feature, an unusual configuration of the improvements or a deficiency of design, the contention is not made out. 181 For the reasons indicated at [143], [144] and [145], the statements relied upon by the Applicant contained in the valuations, although not authored by but signed organisationally by Mr Harris, are not admissions of the material fact in issue. I am not satisfied that the Applicant has established the breach pleaded at par 13(h) of the Further Amended Statement of Claim. 182 Having regard to these findings, the conduct of Mr Duffield as agent on behalf of the First Respondent did not result in conduct which was misleading or deceptive or likely to mislead or deceive the Applicant in contravention of s 52 of the Act nor conduct which constituted a false or misleading representation concerning the nature of an interest in land or the characteristics of the land in contravention of s 53A. 183 In determining whether the conduct of the Respondents in formulating the Pro‑forma Report involved conduct in contravention of ss 52 or 53A, it is important to remember that in assessing and reading the valuation by Mr Duffield, Mr Tome Zrilic was a skilled addressee as was Mr Steven Ramage [46] although Mr Ramage did not read the report. I find that the Pro-forma Report read by Tome Zrilic conveyed sufficient information together with a photograph of the property to make it plain that the property was a luxury house or at least one exhibiting sufficient features of distinction that it must have been apparent to Mr Zrilic that the improvements to the property were substantial and very likely to place the property in the band of houses falling within the luxury market segment in Cairns. No enquiry was made of Mr Duffield by Mr Zrilic concerning any aspect of the report. Mr Ramage conceded in evidence that a property exhibiting five bathrooms, five shower recesses, five toilets, air conditioning and a home theatre room would be 'probably different' from a usual house and although 'unusual', 'not unusual to a great extent'. In explaining the phrase 'not unusual to a great extent', Mr Ramage said that such features 'wouldn't be the norm'. It seems to me that that evidence is consistent with a recognition that an informed reader, reading the Pro‑forma Report of Mr Duffield thoroughly and critically, consistent with the requirements of the Policy Manual [31], was not likely to be misled as to the extent or character of the improvements to the property. As to the question of whether the property would require the extended marketing period contended, I have accepted the evidence of Mr Duffield and have found that the Applicant's contention is not made out. In any event, the question of whether the subject property might have required an extended marketing period is properly a matter of opinion and I accept that Mr Duffield had a reasonable basis for the opinion. 184 Although I have found that the Applicant's case is not made out, I find that the damages suffered by the Applicant are those identified at [5]. 185 Accordingly, I propose to dismiss the application. 186 The Respondents contend that in the event that they engaged in a breach of duty owed to the Applicant, the amount of the Applicant's claim ought to be reduced by the extent to which the Applicant contributed to the loss. The Applicant claims the amount identified at [5] from the First Respondent as damages for negligence or, alternatively, as compensation pursuant to s 87 of the Act. Since the formulation of the amount of the compensation claim for the purposes of s 87 is the same formulation of loss for the purposes of an amended claim pursuant to s 82 of the Act and involves the same factual forensic analysis, I propose to give leave to the Applicant to amend the Application and Further Amended Statement of Claim to introduce a claim for damages pursuant to s 82. A claim for damages pursuant to s 82(1) arising out of a contravention of s 52, is susceptible of reduction pursuant to s 82(1B) in circumstances where the applicant suffered the loss or damage as a result partly of the applicant's failure to take reasonable care in the circumstances contemplated by s 82(1B)(b)(ii) and (c). However, that susceptibility only arises in respect of a cause of action in the applicant arising after 26 July 2004 (I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 per Gleeson CJ, Gaudron, McHugh, Gummow and Callinan JJ; CLERP Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004, Act No. 103 of 2004, s 3 & sch. 3 [5]; Government Gazette GN28, 14.7.04, p2157; sch. 12). In this case, the Applicant's cause of action arose no later than 13 September 2002 when the Applicant paid the claim made by the mortgagee. Section 82(1B) has no application to a claim for compensation pursuant to s 87 nor to a claim for damages pursuant to s 82(1) arising out of a contravention of s 53A. Accordingly, had a contravention of ss 52 or 53A of the Act been found, such a claim would not be susceptible of reduction under s 82(1B). A separate question might arise as to whether the exercise of the power conferred upon the Court by s 87 carries with it, in terms, a power to reduce the amount of the compensation having regard to the conduct of the applicant. The power conferred is one to order compensation in circumstances where the Court considers that the relevant order will compensate an applicant in whole or in part for the loss or damage or will prevent or reduce the loss or damage. 187 As to the claim against the First and Second Respondents for damages for negligence, such a claim would be susceptible of reduction by reason of s 10, Law Reform Act 1995 (Qld) which is in these terms: '10. Apportionment of liability in case of contributory negligence (1) If a person (the "claimant") suffers damage partly because of the claimant's failure to take reasonable care ("contributory negligence") and partly because of the wrong of someone else - (a) a claim in relation to the damage is not defeated because of the claimant's contributory negligence; and (b) the damages recoverable for the wrong are to be reduced to the extent the court considers just and equitable having regard to the claimant's share in the responsibility for the damage.' 188 Two things should be noted. First, since I have found that the Respondents did not owe a duty to the Applicant to describe the two controversial features, did not breach a duty owed to the Applicant and did not engage in conduct in contravention of the Act, it is not necessary to further consider the question of whether the Applicant contributed to a loss arising out of a 'wrong' on the part of Respondents. Secondly, had a contravention of the Act been found, the question would not be alive for the purposes of s 82 of the Act in any event. Had a breach of duty owed to the Applicant been found and no contravention of the Act, the question would then be alive. No such finding has been made.

I certify that the preceding one hundred and eighty eight (188) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Associate: Dated: 3 November 2006 Counsel for the Applicant: Mr K A Barlow

Solicitor for the Applicant: Mr J Bates, Gadens Lawyers

Date of Hearing: 7, 8 and 9 December 2005

Trade Practices Act 1974(Cth)

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