Hay Property Consultants Pty Ltd v Victorian Securities Corporation Limited
[2010] VSCA 247
•22 September 2010
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| HAY PROPERTY CONSULTANTS PTY LTD (ACN 006 368 985) PETER MACARTHUR HAY | S APCI 2009 3737 |
| Firstnamed Appellant Secondnamed Appellant | |
| v | |
| VICTORIAN SECURITIES CORPORATION LIMITED (ACN 004 496 208) | Firstnamed Respondent |
| AMIR BURZIC | Secondnamed Respondent |
| INDIRA BURZIC | Thirdnamed Respondent |
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| JUDGES | ASHLEY, NEAVE and HANSEN JJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 13 April 2010 |
| DATE OF JUDGMENT | 22 September 2010 |
| MEDIUM NEUTRAL CITATION | [2010] VSCA 247 |
| JUDGMENT APPEALED FROM | Victorian Securities Corporation Limited v Hay Property Consultants Pty Ltd & Ors (Unreported, County Court of Victoria, Judge Kennedy, 6 March 2009) |
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TRADE PRACTICES – Misleading and deceptive conduct – Loan made in reliance on valuer’s incorrect valuation – Subsequent property damage by unknown third party – Causation – Whether valuers liable for whole of lender’s loss or damage arising from entry into loan and property damage – Trade Practices Act 1974 (Cth), s 82 – Kenny & Good Pty Ltd v MGICA(1992) Limited (1999) 199 CLR 413; Henville v Walker (2001) 206 CLR 459, considered.
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Appearances: | Counsel | Solicitors |
| For the Appellants | Mr D G Collins SC with Mr D V Aghion | DLA Phillips Fox |
| For the Respondents | Mr S R Senathirajah | Hall & Wilcox |
ASHLEY JA
I agree with Neave JA for the reasons her Honour gives.
NEAVE JA:
Introduction
This is an appeal from a decision of a County Court judge, awarding damages to Victorian Securities Corporation Limited (the ‘lender’) for loss said to have been caused by a negligent over-valuation of properties at Hemmings Street, Dandenong (the ‘properties’) by the defendants, Hay Property Consultants Pty Ltd and its sole director and member, Peter Hay[1] (together, the ‘valuers’).
[1]It was alleged that Peter Hay had aided, abetted, counselled or procured or was a party to the company’s misleading conduct.
The facts giving rise to the appeal were as follows. The valuers forwarded a valuation to the lender indicating that the present market value of the properties had been assessed at $800,000 and that the properties were suitable security ‘up to a loan ratio of 65 per cent’ (that is, $520,000). On that basis, the lender lent $520,000 to Amir and Indira Burzic (the ‘borrowers’), the owners of the properties and the fourth and fifth defendants,[2] respectively, on the security of first mortgages over the properties.
[2]The third defendant, Craig Fitzgerald, was a valuer in the employ of Hay Property Consultants Pty Ltd; the proceeding against him was discontinued on the first day of the trial.
After the borrowers defaulted on loan repayments, the lender obtained a court order entitling it to take possession of the properties. However, before it did so, the properties were deliberately damaged by an unknown third party. The properties were sold for $380,000 plus GST on 14 December 2006, resulting in a loss to the lender.
The lender issued a proceeding in the County Court seeking damages for breach of contract and negligence, and for loss caused by the valuers’ misleading and deceptive conduct, contrary to s 52 of the Trade Practices Act 1974 (Cth) (‘TPA’) and/or s 9 of the Fair Trading Act 1999.
For the purpose of the proceeding it was agreed by the parties[3] that:
(a)the valuers owed the lender a duty to conduct the valuation ‘diligently, skilfully and not negligently’;[4]
(b)the properties were, in fact, only worth $575,000 at the time of the valuation;
(c)if the properties had not been valued at $800,000, the lender would not have made the loan;
(d)the diminution in value of the properties caused by the property damage was $215,000;[5] and
(e)the loss on sale totalled $170,601.74. This comprised the difference between the sale price and the amount lent, minus payments by the borrowers, plus costs of sale, legal costs and interest.[6]
[3]See Parties’ Joint Statement of Agreed Facts and Documents, Statement of Issues and a table setting out the parties’ analysis of loss.
[4]Parties’ Joint Statement of Agreed Facts and Documents.
[5]This amount was calculated by reference to the value of the property if it had not been damaged ($595,000) minus the actual sale price realised.
[6]See Victorian Securities Corporation Limited v Hay Properties Consultants Pty Ltd (Unreported, County Court of Victoria, Judge Kennedy, 6 March 2009) (‘Reasons’), [18].
The proceedings below
The trial judge was asked to resolve two questions. These were as follows:
(1)Are the [valuers] liable in law for the entire loss suffered by the [lender] or is the diminution in value to the subject properties, caused by the deliberate damage to the properties between 15 September and 23 October 2006, to be excluded?
…
(2)Do the proportionate liability provisions under Part VIA of the [TPA] or Part IVAA of the Wrongs Act 1958 operate to reduce or eliminate the [valuers’] liability to the [lender], on the ground that:
(a)[the borrowers] failed to repay the loan; or
(b)if proven as a question of fact, [the borrowers] breached the loan covenants at cls 6.02, 6.03 and 6.11(a), (e) or (i) of the Memorandum of Common Provisions?
If yes, determine the proportion of [the borrowers’] responsibility for the loss, and reduce or eliminate the liability of the [valuers] accordingly.
If no, enter judgment for the [lender] in the sum of $170,601.74 plus penalty interest from the date of commencement of the proceeding.
The use of the disjunctive ‘or’ in question 1 may, at first glance, render the question uncertain. In fact the parties’ agreed position, including on the calculation of the lender’s loss, makes it clear that the issue raised by question 1 is whether the amount of $215,000 (being the diminution of value caused by the deliberate damage) is to be excluded. If it is not excluded, the valuers are liable for the entire loss suffered by the lender, and question 2 would then be considered. If the amount of $215,000 is to be excluded, the question is answered ‘no’ which means the lender has suffered no loss and the claim is to be dismissed. On this agreed approach the judge did not have to calculate the lender’s loss as the parties had agreed the figures.
In relation to the first question, her Honour held that the decision of the High Court in Henville v Walker[7] applied. In that case an estate agent gave misleading advice on the marketability and likely sale price of units, to the appellants, who were considering buying land and building units for re-sale. The first appellant, an architect, substantially underestimated the cost of building the proposed units.[8]
[7](2001) 206 CLR 459 (‘Henville’).
[8]There were also losses arising out of other matters to which it is unnecessary to refer.
The combined effect of the agent’s misleading advice and the first appellant’s underestimation of costs was that the appellants predicted that the project would be profitable. However if either the sale price or the costs were wrong, ‘the result would have been to show that the project would not have been profitable, or at least would not have had a sufficient margin of profit to justify the risk, and the project would not have gone ahead’.[9] The appellants sought to recover the difference between the projected sale price and the amount realised on sale of the units from the agent.
[9](2001) 206 CLR 459, 467–8 (Gleeson CJ).
The Full Court of the Supreme Court of Western Australia had held that damages were not recoverable under s 82 of the TPA because the appellants’ loss was caused by the first appellant’s own negligence in under-estimating the costs of the project. Thus there was no causal connection between the agent’s misleading statement and the loss suffered when the units were sold. The High Court allowed the appeal against that decision, on the basis that s 82 of the TPA did not require the appellants to prove that the agent’s misleading advice was the sole cause of their loss.[10]
[10]Ibid 469 (Gleeson CJ), 480 (Gaudron J), 484 (McHugh J), 507 (Gummow J), 508–9] (Hayne J).
As I explain below,[11] there was a difference of view between the majority (McHugh, Gummow and Hayne JJ) and the minority (Gleeson CJ and Gaudron J) as to whether the whole of the loss suffered on sale was caused by the agent’s misleading conduct or whether that loss should be limited to the difference between the amount of the valuation and the amount which would have been realised on sale if the valuation had been correct. On the latter view the loss attributable to the architect’s undervaluation of the costs of building the units was not recoverable.
[11]See [68]-[71] below.
Her Honour held, by analogy to the majority view in Henville, that the valuers were liable for the whole of the loss suffered by the lender on the sale of the properties, because their misleading and deceptive conduct was one of two operative causes of the lender’s loss:
… the contravening conduct in this case was a cause of the loss since the entire loss was brought about by the decision to lend the money which would not have occurred without the misrepresentation. On the agreed facts no amount would have been lent at all if the properties had been valued at less than $800,000.
Further the damage inflicted also contributed to the loss since the amount ultimately recovered was less by reason of the damage effected.
In my view therefore this is a case of concurrent causes.[12]
[12]Reasons, [37]-[39].
Her Honour said that Henville left open the possibility that, in rare cases, a supervening event might relieve a defendant from liability for misleading and deceptive conduct under s 82 of the TPA, but held that this was not such a case:
One of the fundamental purposes of the Act is to protect consumers from being induced to enter into agreements and transactions by false or misleading conduct. In my view that purpose is intended to prevent persons suffering detriment in circumstances of the kind that occurred in this case.[13]
[13]Reasons, [56].
Her Honour said that statements by the majority of the High Court in Henville cast doubt on the extent to which the common law concepts of remoteness and foreseeability applied when considering loss caused by misleading and deceptive conduct.[14] However even if these concepts were applicable, it was reasonably foreseeable that if the properties were negligently over-valued the lender might suffer a loss as a result of subsequent events. Thus her Honour considered that the result would not have been different under common law negligence principles, although she said it was unnecessary to consider this matter in detail.
[14]Her Honour referred to Henville (2001) 206 CLR 459, 489-90 (McHugh J), 510 (Hayne J) and to the dissenting judgment of Gaudron J (at 482) on this issue. Gleeson CJ, who also dissented on the extent of the recoverable loss, took a different view.
In answer to the second question, her Honour held that Part IVAA of the Wrongs Act 1958 and Part VIA of the TPA did not apply to limit the valuers’ liability to the extent of their own contribution to the loss.
It followed that the lender was entitled to judgment in the agreed amount of $170,601.74 plus interest.
The appeal
The grounds of appeal challenged both her Honour’s causation finding and her finding on the application of Part IVAA of the Wrongs Act1958. At the hearing however, counsel for the lender conceded that, because of procedural irregularities, the proportionate liability issue could not be argued on appeal. The valuers did not require reasons relating to that matter.
The remaining ground of appeal alleges that:
Her Honour erred in concluding that the damage to the subject property committed by persons unknown was not an intervening act, and that it did not break the chain of causation between the negligence of the appellants in overvaluing the subject property and the loss claimed by the first respondent.[15]
[15]Although reference is made to ‘negligence’, the appeal related to the lender’s statutory claim, which was the claim resolved in its favour. Any reference in this judgment to ‘the valuers’ negligence’ or the like is to be understood as a reference to the statutory claim, except where the context indicates otherwise.
As I have said, the trial judge was asked to resolve whether the valuers were liable for ‘the entire loss’ suffered by the lender, or only for a portion of it. Her Honour summarised the lender’s case and the valuers’ case as follows:
The [lender’s] case was that it was entitled to the entire amount lost on the transaction on the basis that it would not have agreed to provide [the borrowers] with any loan funds if the properties had been valued at less than $800,000.
The [valuers’] case was that the sum of $215,000 diminution of value of the property should be excluded.[16]
[16]Reasons, [8]-[9].
According to the valuers’ case at trial this meant that none of the loss on sale was attributable to the valuers’ misleading statement.[17]
[17]This is apparent from a page of calculations provided on the appeal which deducted $215,000 from the loss on re-sale resulting in a loss of minus $44,398.26 (ie there was no loss).
On appeal the valuers’ counsel again argued that the valuers were not liable for any part of the loss suffered on resale because the third party’s intervening acts broke the chain of causation between the valuers’ misleading statement and the loss suffered by the lender.
Counsel for the lender submitted that the whole loss on resale was recoverable, because if the lender had been aware that the properties were worth less than $800,000, it would not have made any loan to the borrowers. To put the submission another way, this was said to be a case in which the loss was caused by the valuer’s negligence because no transaction would have been entered into by the lender if the valuation had been correct.
The valuers’ submissions
Counsel for the valuers submitted that although the lender would not have lent any money to the borrowers if the properties had been valued at less than $800,000, there was no causal link between the lender’s loss and the valuers’ misleading statement. To attribute the loss suffered by the lender to the valuers’ misleading statement would be to fall into the error identified by Lord Hoffman in Banque Bruxelles Lambert SA v Eagle Star Insurance Ltd.[18] Lord Hoffman gave the example of a doctor who negligently told a patient that his knee was sufficiently fit to allow him to climb a mountain. The doctor could not be held liable if the patient died as the result of an avalanche, despite the fact that the man would not have climbed the mountain but for the doctor’s advice.
[18][1997] AC 191 (‘Banque Bruxelles’), 213. The case concerned three separate appeals to the House of Lords.
Similarly, the valuers should not have been held liable for the loss suffered on sale of the properties, because if they had not been damaged the properties would have sold for $595,000 and this amount would have been sufficient to cover the lender’s loss.
At common law, it was said, a person could only be held liable for failing to protect another from loss caused by a third party where there was a special relationship between the alleged tortfeasor and the third party, requiring the defendant to control the behaviour of the third party.[19] No such relationship existed in this case.
[19]Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254 (‘Modbury’), 266 (Gleeson CJ), 291-3 (Hayne J), 302 (Callinan J); Ashrafi Persian Trading Co Pty Ltdv Ashrafinia (‘Ashrafi’) (2002) ATR 81-636, 68,335 (Heydon JA, Mason P and Handley JA agreeing).
Counsel further submitted that the purpose of s 52 of the TPA was to protect people from loss caused by misleading and deceptive conduct, and that the question of causation should be determined in light of that purpose.[20] The damage caused by the criminal acts of a third party fell outside the scope of the harm against which the TPA provided protection. In Henville McHugh J explicitly recognised that:[21]
In exceptional cases, where an abnormal event supervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage.[22]
This case was said to be an example of such an exceptional case.
[20]See for example Travel Compensation Fund v Tambree (2005) 224 CLR 627 (‘Tambree’).
[21](2001) 206 CLR 459.
[22]Ibid 493.
The valuation referred to the unencumbered value of the properties and their suitability as security as at 17 December 2004. Valuations for mortgage purposes normally indicate an appropriate margin for fluctuations in the property market, and are not intended to cover the kind of losses which the lender sought to recover. Thus a loss which could not have been contemplated at the time the valuation was provided was not recoverable under the TPA.
Counsel submitted that the valuation related to the state of the properties at the time it was made and was not a warranty as to their future value. If the Court were to hold that the valuers were liable under the TPA for losses caused by the criminal acts of third parties, a negligent valuation could give rise to a liability for any unanticipated future loss, including a loss caused by a natural disaster or by unanticipated events which reduced the value of all properties in a neighbourhood.
The lender’s submissions
Counsel for the lender submitted that under s 82 of the TPA it was not necessary to show that the misleading and deceptive conduct constituted by the misrepresentation was the sole cause of the loss. The learned trial judge had correctly held that it was caused ‘by conduct’ of the valuers.
Counsel contended that this point was, in effect, conceded by the first ground of appeal, which alleged that the trial judge erred in concluding that the damage caused to the properties was ‘an intervening act’. The sole issue for decision was therefore whether the trial judge should have found that the effects of the negligent valuation had come to an end as a result of the criminal acts of third parties.
The presiding judge then asked counsel for the valuers whether it was implicit in the first ground of appeal that if the misleading statement made by the valuers was ‘a cause’ of the loss the appeal must fail. Counsel for the valuers did not concede that this was what the ground of appeal meant, but agreed that if this was its meaning, the appeal must necessarily fail.
Counsel for the lender submitted that the onus was on the valuers to prove that the damage suffered by the lender was a supervening act which broke the chain of causation between the valuers’ misrepresentation and the loss suffered by the lender. The damage to the mortgaged properties was not an abnormal intervening event, because it did not neutralise the operative effect of the valuers’ representation that the properties were adequate security for a loan up to $520,000. If the valuation had been correct the lender would not have suffered any loss on resale. The value of the properties if they had not been damaged would then have been $585,000,[23] an amount which would have been sufficient to discharge the indebtedness of the borrowers, which was $550,601.74 at the date of the sale. It was therefore the valuers’ misstatement as to the value of the properties that caused the loss.
[23]$585,000, being the purported $800,000 value of the property minus the damage of $215,000.
Counsel submitted that it was unnecessary for the valuer to foresee the precise cause of the loss in order for it to be reasonably foreseeable.[24] It was common practice and experience for loans made on the security of real property to be limited to 65 per cent of the value of the property in order to guard against any diminution in the value of the property. That diminution might arise for various reasons, including a decline in the property market, damage due to fire or flooding or lack of interest on the day of an auction. In light of the common practice and experience of valuers, counsel submitted that it would have been reasonably foreseeable that, if the valuation overstated the value of the properties, damage of this nature would occur.
[24]Henville (2001) 206 CLR 459, 504.
Counsel for the lender relied on the parties’ Joint Statement of Agreed Facts and Documents, which referred to two representations being made. The first representation related to the market value of the properties at the date of valuation and the second concerned the suitability of the properties to secure a loan with a loan to value ratio of 65 per cent. He submitted that the second representation was clearly a representation as to the future, and warranted that the properties would adequately secure the amount loaned in the event of a future default by the borrowers. As that representation was premised on a reduction in the value of the properties of up to $280,000,[25] the $215,000 diminution in value could not be characterised as an intervening event for which the valuers were not liable.
[25]Being 35 per cent of $800,000.
Was causation conceded?
I turn first to the lender’s submission that the valuers’ ground of appeal amounted to a concession that their misleading statements caused the lender’s loss, and that it therefore followed that they were liable for the loss on resale under s 82 of the TPA, unless the acts of the third parties were to be regarded as so exceptional as to amount to an intervening act.
That submission should be rejected. The issue raised by the ground of appeal reflects the manner in which the appeal was argued. It was common ground that if the property damage caused by the third parties did not break ‘the chain of causation’ between the valuers’ misleading representation as to the value of the subject properties and the loss suffered by the lender, the lender was entitled to recover damages for the whole of its loss. The question for this Court is whether there was a (legally relevant) causal connection between the valuers’ misleading representations and the lender’s loss, or whether the property damage was an
intervening act which relieved the valuers of legal liability for their misleading representations.[26]
[26]In Road Transport Authority v Royal (2008) 245 ALR 653 (‘Royal’) it was said by Gummow, Hayne and Heydon JJ (at 663) that ‘[d]iscussions about the effect of a novus actus interveniens necessarily assume that a breach of duty has been causative’. That appears to be a reference to factual, as opposed to legal, causation.
Determining causation at common law
I turn first to the general principles to be applied in resolving causation issues.
Common law causation principles are relevant, though not decisive, in applying s 82 of the TPA.[27] The authorities indicate that where the relevant loss has occurred following two separate negligent acts or events, the ‘but for’ approach is not to be treated as the exclusive test for determining legal liability.[28] Causation questions should be resolved by applying common sense and practical experience to the entirety of the evidence.[29]
[27]Henville (2001) 206 CLR 459, 489 (and the authorities cited therein by McHugh J), 470 (Gleeson CJ), 480 (Gaudron J). See also Kenny & Good Pty Ltd v MGICA(1992) Limited (1999) 199 CLR 413 (‘Kenny’), 424.[27]
[28]Marchv E and M H Stramare Pty Limited (1991) 171 CLR 506 (‘March’), 517 (Mason CJ), 522 (Deane J) 524 (Toohey J), 525 (Gaudron J). But see McHugh J (at 532) expressing a different view on the usefulness of the ‘but for’ test. McHugh J considered that ‘if the “but for” test is applied in “a practical common sense way” it enables the tribunal of fact … to give effect to value judgments concerning responsibility for damage’. However he also expressed concerns about the use of ‘common sense practical notions’ to determine legal liability. See also Bennett v Minister of Community Welfare (1992) 176 CLR 408, 412-13 (Mason CJ, Deane and Toohey JJ), 418-19 (Gaudron J); Medlin v State Government Insurance Commission (1995) 182 CLR 1 (‘Medlin’), 6-7 (Deane, Dawson, Toohey and Gaudron JJ ), 20 (McHugh J); Chappel v Hart (1998) 195 CLR 232 (‘Chappel’); Kenny (1999) 199 CLR 433, 425-6 (Gaudron J). See also Grainger v Williams [2009] WASCA 60 (‘Grainger’), [179] (McClure JA).
[29]See for example March (1991) 171 CLR 506, 515 (Mason CJ); Medlin (1995) 182 CLR 1, 6 (Deane, Dawson, Toohey and Gaudron JJ) 20 (McHugh J); Royal (2008) 249 ALR 674 (Kirby J). Cf Chappel (1998) 195 CLR 232, 256 (Gummow J); Allianz Australia Insurance Ltd v GSF Australia (2005) 221 CLR 568, 596-7 (Gummow, Hayne and Heydon JJ), cited in Tambree (2005) 224 CLR 627, 642-3 (Gummow and Hayne JJ).
Where the loss suffered was the very kind of loss likely to occur as a result of the defendant’s negligence, an intervening act of a third party which is also a factual cause of the loss will not necessarily relieve the defendant from liability. As Mason CJ said in March:[30]
The fact that the intervening action is deliberate or voluntary does not necessarily mean that the plaintiff’s injuries are not a consequence of the defendant’s negligent conduct. In some situations a defendant may come under a duty of care not to expose the plaintiff to a risk of injury arising from deliberate or voluntary conduct or even to guard against that risk: see Chomentowski v Red Garter Restaurant Ltd.[31] To deny recovery in these situations because the intervening action is deliberate or voluntary would be to deprive the duty of any content.
…
As a matter of both logic and common sense, it makes no sense to regard the negligence of the plaintiff or a third party as a superseding cause or novus actus interveniens when the defendant’s wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiff or a third party and that injury occurs in the ordinary course of things. In such a situation, the defendant’s negligence satisfies the ‘but for’ test and is properly to be regarded as a cause of the consequence because there is no reason in common sense, logic or policy for refusing to so regard it.[32]
[30](1991) 171 CLR 506.
[31](1970) 92 WN (NSW) 1070. See also Grainger [2009] WASCA 60, [181] (McClure JA).
[32]March (1991) 171 CLR 506, 517-19.
In that case the High Court held that a defendant’s negligence in parking his truck in the middle of the road was a material cause of the injuries suffered by the plaintiff, whose consumption of alcohol had affected his ability to judge speed and distance, and his co-ordination and reaction time. Similarly in Chappel, Gaudron J remarked that ‘it is contrary to common sense to treat a factor contributing to the risk as a supervening cause of the loss suffered if that risk eventuates’.[33]
[33](1998) 195 CLR 232, 240. In that case a majority of the High Court held that a doctor who had failed to warn a patient undergoing throat surgery that there was a risk of damage to her pharyngeal nerves and loss of her voice, was liable for injury occurring after her oesophagus was perforated and infection set in, because if the patient had received that warning she would not have had surgery at that time. This was held to be the case even though it was inevitable that the patient would have to have had throat surgery at some time in the future. See also Medlin (1995) 182 CLR 1.
The legal context giving rise to the causation issue must also be taken into account in deciding whether the acts of the defendant were the cause of the loss suffered by the plaintiff. As McHugh J said in Henville:[34]
[34](2001) 206 CLR 459.
More than once in recent years, judges have pointed out that the issue of causation cannot be divorced from the legal framework that gives rise to the
cause of action.[35] In Barnes v Hay,[36] Mahoney JA said:
‘[T]he determination of a causal question involves, in my opinion, a normative decision as to whether, for the purposes of the case, the precedent act for which the defendant is responsible should be seen as causal of the plaintiff’s loss. And, in my opinion, that evaluation is made, not by a “test” or “guide” such as the “but for” test, but by a functional evaluation of the relationship and the purposes and policy of the relevant part of the law.’
…
In some situations, the legal framework may require a finding that, despite a causal connection in a physical sense between the breach and damage, no causal connection exists for legal purposes. In other situations, the legal framework may require a finding that a causal connection exists even though no more appears than that the damage followed after breach of a legal norm.[37]
[35]Environment Agency v Empress Car Co (Arbertillery) Ltd [1999] 2 AC 22, 29; Chappel (1998) 195 CLR 232, 255.
[36](1988) 12 NSWLR 337, 353. See also Liesbosch Dredger (Owners of) v Owners of SS Edison [1933] AC 449, 460 (Lord Wright); National Insurance Co of New Zealand Ltd v Espagne (1961) 105 CLR 569, 592 (Windeyer J); Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 (‘Alexander’), 350-1 (McHugh JA); Ricochet Pty Ltd v Equity Trustees Executors and Agency Co Ltd (1993) 41 FCR 229, 235.
[37](2001) 206 CLR 459, 491. Gummow J agreed with the reasons of Mc Hugh J. See also I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 (‘I & L Securities’), 135 (McHugh J).
In the case of s 82 of the TPA, that legal framework includes the broad purposes of the Act. In Henville[38] Mc Hugh J said:
This Court’s decision in Wardley Australia Ltd v Western Australia[39] established that the term ‘by’ in s 82 invokes the common law concept of causation. In Wardley, Mason CJ, Dawson and Gaudron JJ and I said:[40]
‘The statutory cause of action arises when the plaintiff suffers loss or damage “by” contravening conduct of another person. “By” is a curious word to use. ... But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramare (E & M H) Pty Ltd,[41] except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act. Had Parliament intended to say something else, it would have been natural and easy to have said so.’
But this does not mean that common law conceptions of causation should be rigidly applied without regard to the terms or objects of the Act. Section 82 now applies to the contravention of any provision of Pt IV, IVB or V, or s 51AC of the Act … In Marks v GIO Australia Holdings Ltd, Hayne and Callinan JJ and I pointed out that the section can apply to many different kinds of cases, not just those where a breach of s 52 is alleged.[42] Moreover, the objects of the Act indicate that a court should strive to apply s 82 in a way that promotes competition and fair trading and protects consumers.[43] The width of the potential application of s 82 and the objects of the Act tell against a narrow, inflexible construction of the section.[44] No doubt in most cases, applying common law conceptions of causation will be sufficient to answer the issues posed by s 82 in its application to contraventions of the Act. But care must be taken to avoid a mechanical application of those conceptions to issues arising under the section …
The common law concept of causation recognises that conduct that infringes a legal norm may be causally connected with the sustaining of loss or damage even though other factors may have contributed to the loss or damage.[45] Every event is the product of a number of conditions that have combined to produce the event ... Out of the many conditions that combine to produce loss or damage to a person, the common law is concerned with determining only whether some breach of a legal norm was so significant that, as a matter of common sense, it should be regarded as a cause of damage.[46]
[38](2001) 206 CLR 459.
[39](1992) 175 CLR 514 (‘Wardley’).
[40]Ibid 525.
[41](1991) 171 CLR 506.
[42](1998) 196 CLR 494, 509. See also Gummow J (at 528).
[43]Section 2 of the Act states that the objective of the Act is ‘to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection’.
[44]Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 515 (McHugh, Hayne and Callinan JJ), 528-9 (Gummow J) where his Honour referred to statements of Lockhart J in Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526, 529-30, to the effect that there was a need for flexibility in the rules laid down regarding s 82.
[45]Grant v Sun Shipping Co Ltd [1948] AC 549, 563; Gould v Vaggelas (1985) 157 CLR 215, 236, 250-1; March (1991) 171 CLR 506, 513; Medlin (1995) 182 CLR 1, 7.
[46](2001) 206 CLR 459, 489-90.
Authorities on causation
Both counsel cited various authorities to support their submissions. Decisions on causation are, of course, dependent on their particular facts[47] and are not determinative of the issue which arises in this case. For that reason it is unnecessary to refer to all of the authorities upon which counsel relied.
[47]Royal (2008) 245 ALR 653, 674 (Kirby J).
Counsel for the valuers cited Lamb v Camden London Borough Council,[48] where the English Court of Appeal held that a municipal council was not liable for damage caused by the occupation of squatters who moved in after the council’s workers had negligently damaged a water main and caused the premises to be flooded. He also cited Duncan & Weller Pty Ltd v Mendelson,[49] where damage caused by vandalism and deterioration of property was excluded from the common law damages awarded for a negligent valuation of the cost of units which were to be completed after the loan was made.[50]
[48][1981] 1 QB 625 (‘Lamb’).
[49][1989] VR 386 (‘Duncan & Weller’). In that case the issue was whether a valuer who had provided a correct valuation of the property if units being built on it were completed but had negligently under-estimated the completion costs was liable to the mortgagee for the difference between the amount of the loan secured on the property and the amount realised on sale. This Court held that he was liable only for the loss attributable to the under-valuation of the completion of the buildings. Additional costs caused by vandalism appear to have been excluded without any discussion of the issue. It is to be noted however that in Duncan & Weller, Kaye J (at 391) and possibly Southwell J (at 398) appear to have regarded Baxter v Gapp (FW) & Co Ltd [1939] 2 KB 271 (‘Baxter’) as correctly decided, but distinguishable. In Duncan & Weller it was inferred from the trial judge’s finding that the moneys would have been lent if the mortgagee had been informed of the correct cost of the units, but that an amount would have been retained from the loan sufficient to cover the cost of the work to be done: see Kaye J (at 389). By contrast, in Baxter, where there would have been no transaction but for the valuers’ negligence, it was held that the plaintiff was entitled to recover the actual loss suffered, rather than the difference between the real value of the property at the date of valuation and the amount of the valuation. No issue of novus actus interveniens arose in Baxter. The treatment of Baxter and other ‘no transaction’ cases in subsequent English authorities is discussed below at [51]-[55].
[50]Ibid 388-9, 392, 398. In written submissions counsel cited Modbury (2000) 205 CLR 254, where it was held that a landowner who had turned off lights in a shopping centre at 10 pm was not liable to an employee in one of the shops who was injured following a criminal assault in the car park, shortly after the lights were turned off. The court (Gleeson CJ, Gaudron, Hayne and Callinan JJ, Kirby J dissenting) held that a landowner’s duty of care as an occupier did not extend to protecting the employee from such criminal conduct. Gleeson CJ (at 269) and Callinan J (at 302) also held that the landowner’s conduct was not a legally relevant cause of the employee’s injuries. Counsel also cited the decision of the New South Wales Court of Appeal in Ashrafi (2002) ATR 81-636, in which a company was held not to be liable for injuries suffered by the plaintiff in an assault which occurred when an assailant struck her on the head with an iron bar through a small gap in a window in the ground floor bedroom where she was sleeping. It was held that the defendant did not have a duty of care to protect the plaintiff from the criminal acts of a third party and even if such a duty was owed, it had not been breached. Causation was not considered.
Counsel for the valuers also relied on the decision of the New South Wales Court of Appeal in Alexander.[51] In that case the plaintiffs sought damages for breach of an audit contract occurring in 1971. If the auditors had qualified the 1971 accounts, the trustees for debenture holders would have put the company into receivership at that time. The company continued trading for an additional three years, and by 1974 had made very substantial losses. The majority of the court[52] held that there was no causal relationship between the auditor’s breach and the continuation of trading after 1971. McHugh JA considered that even if there was a causal link, external economic factors broke the chain of causation between the auditors’ breach of contract and the losses attributable to trading in the years after 1971.[53]
[51](1987) 9 NSWLR 310.
[52]Mahoney and McHugh JJA, Glass JA dissenting.
[53](1987) 9 NSWLR 310, 362. See also Mallesons Stephen Jaques v Trenorth Ltd [1999] 1 VR 77, where solicitors for a vendor negligently prepared answers to requisitions on title which omitted reference to the vendor’s agreement with a tenant varying the terms of the lease. The vendor’s fraud in deliberately failing to correct the draft answers was held to ‘break the chain of causation’ between the solicitors’ negligence and the loss suffered by the purchaser. The purchasers recovered damages in deceit against the vendor, who brought third party proceedings against the solicitors, claiming that the damages for which they had been held liable were caused by the solicitors’ negligence. The Court of Appeal held that the cause of the loss was the deliberate act of the vendor, or alternatively that if the solicitor’s negligence was a ‘link in the chain of causation’ it was severed by the deliberate act of the vendor.
The valuers also relied on the Full Federal Court’s decision in Collins Marrickville Pty v Henjo Investments Pty Ltd[54] where it was held that a vendor of a restaurant was not liable under s 82 of the TPA, for trading losses suffered by the plaintiff, which would have occurred independently of the vendor’s misrepresentation about the number of seats in the restaurant.
[54](1987) ATPR 40-822 (‘Collins Marrickville’).
Counsel for the lender submitted that the decisions relied upon by the valuers were distinguishable from the facts of this case. The basis of the English Court of Appeal’s decision in Lamb[55] was not that the plaintiff had failed to prove causation, but that the damage caused by the vandals, following the damage to the water main, was not a foreseeable consequence of the negligence and was therefore too remote.[56] In Duncan & Weller[57] there was no argument as to whether the negligent valuer was liable for damage caused by vandalism and deterioration of the premises. The causation issue in Alexander[58] did not concern the effect of s 82 of the TPA and preceded the High Court’s decision in Henville. Collins Marrickville was also decided before Henville.[59]
[55][1981] 1 QB 625.
[56]Further, it was not a decision on the effect of s 82 of the TPA.
[57][1989] VR 386.
[58](1987) 9 NSWLR 310.
[59]It may be noted that Wilcox J applied Potts v Miller (1940) 64 CLR 282, 297-9 (Dixon J), which was not applied by the High Court in Henville.
For the reasons advanced by counsel for the lender I consider that these authorities provide limited assistance in deciding the issue which arises here.[60]
[60]Note however the comments in n 49 above relating to the Full Court’s apparent acceptance in Duncan & Weller [1989] VR 386 of the correctness of Baxter [1939] 2 KB 271
Counsel for the lender also relied on the decisions of the High Court in Kenny;[61] Henville,[62] I & L Securities[63] and Tambree[64] in support of the trial judge’s decision that the lender’s loss was caused ‘by conduct of’ the valuers. Before examining those cases I briefly refer to some English authorities which have considered the measure of damages payable by a negligent valuer of property.
[61](1998) 199 CLR 413. See also the similar comments in Tambree (2005) 224 CLR 627, 639-40 (Gleeson CJ), 642 (Gummow and Hayne JJ), 652 (Kirby J).
[62](2001) 206 CLR 459.
[63](2002) 210 CLR 109.
[64](2005) 224 CLR 627.
Brief overview of some English cases
Prior to the decision of the House of Lords in Banque Bruxelles,[65] English authority differentiated between cases in which no loan would have been made but for the negligent valuation (described by the Court of Appeal in Banque Bruxelles as ‘no transaction’ cases) and cases in which a smaller loan would have been made if the valuation had been correct (‘lower amount’ cases). In the ‘no transaction’ cases, damages were assessed by reference to the total amount lent, plus the costs of realising the security following the borrower’s default and minus the proceeds of
realisation.[66] In the ‘lower amount’ cases the measure of damages was the difference between the amount lent and the amount which would have been lent if the valuation had been correct, plus costs of realising the security.
[65][1997] 2 AC 191 The case is described by its title in the Court of Appeal. See Victorian WorkCover Authority v Wilson (2004) 10 VR 298, 306, n 12.
[66]See for example Baxter [1939] 2 KB 271. See also London and South Building Society v Stone [1983] 1 WLR 1242. Part of the loss in that case was caused by subsidence of the property, after the loan had been made. However the valuer had negligently failed to detect signs of the problem. In Swingcastle Ltd v Gibson [1991] 2 AC 223 (‘Swingcastle’), Lord Lowry who delivered the main opinion of the House of Lords does not appear to have regarded Baxter as incorrect, but held that the lender was not entitled to the contractual rate of interest between the date of the default and sale of the property. Baxter was also followed in Australia in a ‘no transaction’ case: see Trade Credits Ltd v Baillieu Knight Frank(NSW) Pty Ltd (1985) 12 NSWLR 670. In that case Clarke J (as he then was) took the same approach to damages covering penalty rate interest as was later taken in Swingcastle. The plaintiff was held to be entitled to the interest it would have earned by normal investment of the funds.
It will be noted that in this case, no loan would have been made if the property had been valued at less than $800,000. Thus at first sight the ‘no transaction’ cases appear to support the lender’s claim for the whole amount of the loss suffered. However none of the English authorities to which I have referred concern the situation where part of the loss is (factually) caused by the criminal acts of a third party.[67]
[67]Note also Banque Keyser Ullman (SA) v Skandia (UK) Insurance Co Ltd [1991] 2 AC 223. That case raised issues of duty and breach, but not causation, and did not involve any supervening criminal act after the loans were made.
In Banque Bruxelles[68] five lenders suffered loss as the result of negligent valuations. It was accepted that the loans would not have been made but for the negligent valuations. (That is, these were ‘no transaction’ cases.) The question for determination was whether losses caused by deterioration in the property market were recoverable. The Court of Appeal held that the lenders were entitled to recover the difference between the sum lent plus interest and the net sum recovered, from the negligent valuers.
[68][1997] AC 191.
Two of the defendant valuers appealed from the Court of Appeal to the House of Lords and a third appealed directly from the decision of the trial judge. They submitted that they should not be liable for the loss attributable to the fall in the market. All three appeals succeeded.
Lord Hoffman rejected the distinction between ‘no transaction’ cases and ‘lower amount ’ cases.[69] He said that the measure of damages was to be determined by reference to the kind of loss which fell within the scope of the valuer’s duty of care.[70] The damages recoverable for a negligent overvaluation of property for mortgage purposes should be limited to losses caused by the valuation being wrong. The normal measure of damages was therefore the difference between the amount lent and the amount which would have been lent if the valuation had been correct.[71]
[69][1997] AC 191, 218.
[70]At 218.
[71]Ibid 214 (Lord Hoffman). Note that his Lordship differentiated between cases of negligent over-valuation and cases where there was a warranty that the information was accurate. In the latter situation he said that the plaintiff would be entitled to damages calculated on the basis that the information was correct (see 216). He also left open whether the measure of damages for fraud would be different.
I now turn to relevant Australian authorities.
Kenny
Kenny was a ‘no transaction’ case[72] in which the relevant question for determination was whether valuers who had negligently over-valued property for mortgage purposes should be held liable for the whole of the loss suffered by a mortgage insurer, which had indemnified the mortgagee on the basis of the incorrect valuation. At first instance,[73] Lindgren J declined to follow the House of Lords in Banque Bruxelles[74] and held that the mortgage insurer was entitled to recover the whole of the loss suffered on the sale of the property, although a fall in market values occurring after the date of the negligent valuation had contributed to that loss. In his view ‘the “pure fall in the market loss” sustained by [the plaintiff] is “sufficiently linked to the breach of the particular duty [by the valuers] to merit recovery in all the circumstances”’.[75] However he acknowledged that, even in a no-transaction case:
financial loss suffered by a mortgagee or mortgage insurer as a result of a mortgaged property’s being destroyed or damaged by fire, earthquake or vandalism, would be a class of loss too remote from the range of losses which might foreseeably be suffered if a valuer providing a valuation report did not exercise due care and skill, to be the subject of an award of damages against the valuer.[76]
[72](1998) 199 CLR 413.
[73](1996) 140 ALR 313.
[74]Ibid 373.
[75]Ibid 370.
[76]Ibid 374.
In the High Court,[77] counsel for the valuers cited Potts v Miller[78] as authority for the proposition that a purchaser who acquires property as the result of a defendant’s deceit is not entitled to recover damages for any subsequent decline in the value of the property, but can only recover the difference between the amount paid for the property and what it was actually worth. Counsel for the mortgage insurer argued that the Court should not follow the House of Lords decision in Banque Bruxelles.
[77](1998) 199 CLR 413. See also the similar comments in Tambree (2005) 224 CLR 627, 639-40 (Gleeson CJ), 642 (Gummow and Hayne JJ) 652 (Kirby J).
[78](1940) 64 CLR 282, 297 (Dixon J).
Gaudron J declined to follow Banque Bruxelles and held that the mortgage insurer was entitled to recover the amount which the mortgagee lost as a result of the breach of the duty. This was the case even though part of the loss was caused by an external factor – the decline in the market value of the property. Gaudron J said that:
It was pointed out in Wardley that ‘[t]he kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected’.[79] Wardley was concerned with an action for damages for breach of s 52 of the Act. However, there is no reason in principle why the position should be any different in tort.[80]
The interest that a mortgage lender seeks to protect by obtaining a valuation of the proposed security is not simply an interest in having a margin of security over and above the mortgage debt. Rather, it is that, in the event of default, it should be able to recoup, by sale of the property, the amount owing under the mortgage. And that is also the interest of a mortgage insurer. It is the risk that recoupment might not be possible that calls the valuer’s duty of care into existence. And it is the interest in recoupment that is infringed by breach of that duty. Moreover, the time that loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible. In the case of a mortgage transaction, that will occur when it is reasonably ascertainable that sale will result in a loss.[81] At the earliest it will be when default occurs and, at the latest, when the property is sold.
Once the interest which calls the valuer’s duty of care into existence is identified as the interest of the mortgage lender in recouping what is due under the mortgage in the event of default, it is simply a matter of common sense to treat the loss arising from inability to recoup as flowing from breach of that duty, except to the extent that that inability is, in law, referable to the lender’s own actions or some supervening event. At least that is so where, but for the negligent valuation, there would have been no mortgage transaction at all.
…
As the valuation was the decisive consideration in MGICA’s decision to insure the loan … it is simply common sense to treat that transaction as resulting from the valuation.[82] And subject to a qualification [which is not relevant here] it is also common sense to hold a valuer responsible for the loss arising out of that transaction, save to the extent that it is attributable to some other cause.[83] [emphasis added]
[79]Wardley (1992) 175 CLR 514, 527 (Mason CJ, Dawson, Gaudron and McHugh JJ).
[80]See Hawkins v Clayton (1988) 164 CLR 539, 599-602 (Gaudron J).
[81]See Wardley (1992) 175 CLR 514, 537 (Brennan J). See also Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627, 1634-5 (Lord Nicholls of Birkenhead).
[82]See March (1991) 171 CLR 506, 515 (Mason CJ), 522-3 (Deane J).
[83](1998) 199 CLR 413, 424-6.
Her Honour agreed with the view expressed by Lindgren J at first instance that some losses occurring after a negligent valuation had occurred would not be recoverable by the lender. She said:
if some part of the loss [suffered by the mortgagee] would have been suffered even if the property were worth [the $5.5 million for which the property had been negligently valued], [the valuers] could not be held liable for it.[84]
[84]Ibid 427.
McHugh J held that where there was a contract between a valuer and a prospective mortgagee, the assessment of damages should be based on contractual principles. Whether a valuer was liable for a decline in the value of the property caused by market forces depended on the terms of the contract.[85] Ordinarily damages would be limited to the difference between what was lent and what would have been lent on the true value of the property, together with expenses and other losses that naturally flowed from the breach of duty or were within the reasonable contemplation of the parties. In such circumstances, the valuer would not be liable for a loss caused by a fall in the property market.[86]
[85]Ibid 434. Although there was no contract between the valuers and the mortgage insurer, he treated the duty they were owed as if it were the same as the duty arising under the contract.
[86]Ibid 431.
However McHugh J considered that the facts of Kenny took it outside the operation of that general principle, because the valuers’ report recommended the property as suitable security for investment of trust funds to the extent of 65 per cent of the valuation for a period of three to five years. In these circumstances, the respondent had warranted that 65 per cent of the valuation could be safely lent. Even if this were not the case, the valuers had represented that the properties would provide sufficient security for the lender to recover its loan at any time during the next five years. The loss suffered by the lender flowed naturally from that misrepresentation.
Gummow J also held that the valuers were liable for the loss caused by the fall in market value of the property, because their advice to the mortgagee was not limited to the adequacy of the security at the time the loan was made, but indicated that it was adequate security for 65 per cent of the loan for three to five years. Although that advice was contained in a contract with the Bank, that contract explicitly provided that the mortgage insurer was entitled to rely on it.[87] Regardless of the decision of the House of Lords in Banque Bruxelles, in this case the mortgage insurer’s cause of action accrued when it sustained damage to its interest, which was at the earliest on the date of default and certainly on sale of the property:[88]
MGICA sustained an economic loss arising from a fall in the property market as a result of the valuation because the value of the property had been negligently overstated in circumstances where MGICA would not have entered into the transaction but for the valuation …[89]
[87]Thus the relationship was one ‘equivalent to contract’ giving rise to a duty of care under Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.
[88](1998) 199 CLR 413, 447.
[89]Ibid 448.
Because it was common ground between the parties that the measure of damages would be the same whether the mortgage insurer’s claim was based on negligence or was awarded under s 82 of the TPA, Gummow J did not consider this issue.[90]
[90]Ibid 443.
Kirby and Callinan JJ declined to formulate general principles for the quantification of damages following a negligent valuation of property,[91] but held that on the particular facts of this case the mortgage insurer was entitled to recover the difference between the valuation and the sale price. Unlike McHugh and Gummow JJ they did not base their conclusion on the valuers’ statement that the property provided adequate security for 65 per cent of the loan for three to five years. Instead they emphasized that the valuation was not provided simply for the purpose of enabling the lender to decide how much should be lent on the security of the property, but (in the case of the lender) for the purposes of deciding whether to lend money at all and (in the case of the mortgage insurer) for the purpose of deciding whether it would insure the loan.[92] Thus as a matter of commonsense the negligent valuation caused the mortgage insurer to insure the loan.[93] It was assumed that a similar result applied at common law and under s 52 of the TPA.[94] Their Honours noted that:
Obviously, the true value of properties may fluctuate and be affected by events for which the valuer may not be responsible.[95]
[91]Ibid 458.
[92]Ibid 456.
[93]Ibid 457.
[94]Ibid 461.
[95]Ibid 458.
In this case, as in Kenny, the mortgagee would not have made the loan at all if the properties had been correctly valued. Although all members of the court in Kenny, except McHugh J, considered that, at least in a ‘no transaction’ case, a negligent valuer would normally be liable for the actual loss suffered by the lender, the case is not authority for the proposition that a negligent valuer would be liable for all losses however caused. As Gummow J said:
Other possible contingencies which may affect the value of the property may not be reasonably foreseen by the negligent party, or may be too remote or not caused by the act of negligence. Losses arising from such contingencies would not be recoverable.[96]
[96]Ibid 449.
Henville
As I have explained above, the majority of the High Court in Henville held that financial loss on the sale of the home units was caused by the estate agents misleading advice as to the prospective value of the units, in circumstances where the prospective purchasers of the property had underestimated building costs. All members of the High Court considered that the appellants’ own negligence did not prevent s 82 applying and that they were entitled to damages for their loss.[97] In Gleeson CJ’s words:
Negligence on the part of the victim of a contravention [of s 52] is not a bar to an action under s 82 unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage … There was no warrant for a conclusion that the negligence of the appellants in relation to the feasibility study was the sole cause of the decision to undertake the project.[98]
[97]This was accepted by the dissentients, Gleeson CJ (at 466) and Gaudron J (at 478).
[98](2001) 206 CLR 459, 468-9.
The issue on which the court divided was whether the appellants were entitled to the damages for the difference between the amount actually realised on sale of the units and the amount which would have been realised on sale if the estate agent’s predicted price for the units had been correct (as the trial judge had held),[99] or whether all of the losses suffered by the appellants as a result of the land development were recoverable. The trial judge held that the misleading statement had not caused the loss attributable to the architect’s under-estimation of costs.
[99]The trial judge had also excluded some other costs not attributable to the appellant’s fault cost estimates.
In the High Court, Gleeson CJ said that because the property had only been purchased for the purposes of development, the effect of the misleading conduct went beyond causing the appellants to buy the property for more than it was worth, so that damages under s 82 should not be limited to the difference between the price paid for the asset and its value at the time of the purchase. However he considered that the trial judge had correctly found that the loss caused by the misleading statement was confined to the difference between the amount which would have been realised on sale if the valuation had been correct, and the amount for which it was actually sold:[100]
Neither the purpose of the statute or the justice of the case requires that, having made representations which, in combination with the erroneous cost estimates of the appellants, induced the appellants to enter into the development project, the respondents should be required to underwrite all the losses, regardless of how they came to be incurred.[101]
[100]The trial judge, Anderson J had held that, on the particular facts of the case, this would not overcompensate the appellants, even though some part of their losses was caused by extraneous factors other than their under-estimation of the costs of building the units.
[101](2001) 206 CLR 459, 474.
Gaudron J reached the same conclusion, albeit for different reasons than those of Gleeson CJ. Her Honour said that
under s 82(1) of the Act, it is for the person whose contravening conduct materially contributed to the loss or damage to establish what component of that loss or damage is referable to some act or event other than his or her contravening conduct and not for the person who suffers loss or damage to establish the precise component or components referable to that conduct.[102]
On the facts of the case the real estate agents had not discharged that onus.
[102]Ibid 483.
McHugh J said that the doctrine of contributory negligence had no relevance to the assessment of damages under s 82, and that the loss recoverable was to be determined by reference to the question of causation. He held that the appellants would have been entitled to recover the entire loss they had suffered as a consequence of altering their position in reliance on the estate agent’s advice, even though part of that loss was attributable to the architect’s underestimation of the costs of the project.[103] Mr Henville had entered into the project because he believed the project would make a profit of about $100,000.[104] The appellants would not have embarked on the project but for the misleading statements by the estate agent that there was a market for high quality units in the area and that such units would sell for $250,000 to $280,000 each. The estate agent’s misleading statement remained operative until the loss was incurred when the units were sold.
[103]Because the appellants claimed no more than the amount awarded by the trial judge, McHugh J said that that award should be reinstated.
[104](2001) 206 CLR 459, 494.
In oral argument in this case counsel for the lender relied upon the passage in McHugh J’s reasons stating that:
If the defendant’s breach has ‘materially contributed’ to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.[105]
[105]Ibid 493 (citation omitted).
Counsel contended that in this case the lender would not have made any loan, if the valuers had not told them that the properties were worth $800,000. Thus the statement materially contributed to the lender’s loss. This was not an exceptional case of the kind to which McHugh J referred.
In Henville Hayne J said that s 82 of the TPA required only that the contravening conduct be ‘a cause’ of the loss. Like McHugh J he considered that the appellants’ contributory negligence was not relevant in assessing damages under the section and that the misleading statement had caused the whole of the appellants’ loss. He acknowledged that:
There may be cases where some of the loss suffered by a person following – and I use the word ‘following’ in a neutral sense – the conduct of another in contravention of the Act may not be loss suffered by that person by the contravening conduct.[106]
[106]Ibid 510.
Counsel for the lender submitted that this was a stronger case than Henville because unlike the appellants in Henville, the lender did not contribute to its own loss. I do not consider that this is a stronger case for that reason.
It is consistent with the objects of the TPA to hold that the negligence of a plaintiff will not normally relieve a defendant from liability for loss under s 82 of the TPA. That rationale does not apply where loss is caused by the acts of third parties following a breach of the TPA. The policy considerations which underpin the TPA do not require the Court to take the view that a valuer who misrepresents the value of property is to be held liable for all losses which happen to occur after the making of a misrepresentation.
Henville is also consistent with the subsequent decision of the High Court in I & L Securities[107] that damages under s 82 of the TPA cannot be reduced by the contributory negligence of the plaintiff.
[107](2002) 210 CLR 109.
In I & L Securities, a majority of the High Court held that the financier, which had lent money on the basis of an incorrect valuation, was entitled to recover the whole of its loss on resale, although it had negligently failed to make any enquiries into the owner’s capacity to service the loan.
The arguments in the case concerned the effect of ss 82 and 87 of the TPA and whether the loss suffered by the financier could be reduced because of the financier’s own negligence. The court acknowledged that in applying s 82 the question may arise whether the conduct of the defendant was ‘a cause’ (though not necessarily the sole cause) of the loss, or whether the relevant loss was caused by some other event or factor.[108] McHugh J said that:
For the purpose of s 82, it is irrelevant that the conduct of [a claimant] was a cause of its loss unless the court can find that the loss or damage suffered is divisible into parts, and the [conduct of the person contravening the TPA] did not cause one or more of those parts.[109]
[108](2002) 210 CLR 109, 117, 119 (Gleeson CJ), 130 (Gaudron, Gummow and Hayne JJ), 132 (McHugh J), 177-8 (Callinan J).
[109]Ibid 132. See also McHugh J’s approval (at 137) of the reasons of Hodgson J in Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565, 575.
Once it was determined that the loss was caused by the contravening conduct, that loss must be treated as indivisible.
The decision in I & LSecurities that the whole of the financiers’ loss was caused by its entry into the loan transaction was consistent with the majority view in Henville. In both cases the negligence of the victim of the misleading statement was held not to have broken the chain of causation between the original breach of the TPA and the subsequent loss.[110] I & L Securities has nothing to say about the situation in which some of the loss is caused solely by the criminal conduct of a third party.
[110]See Gaudron, Gummow and Hayne JJ’s remarks on this issue (at 129).
Tambree[111] is also distinguishable from the facts of this case. In Tambree an accountant and an auditor negligently made misleading statements about the financial affairs of a travel agent in 1997 and 1998, knowing the statements were to be submitted to the Travel Compensation Fund. The purpose of submitting the accounts was to permit the travel agent to maintain participation in the Fund, which was, in turn, a condition of holding a travel agents’ licence. On 23 February 1999 the travel agent’s licence was terminated, making it illegal for the agent to continue trading.
[111](2005) 224 CLR 627.
Despite the termination of the licence, the business operated for another two months, until it was closed by the New South Wales Department of Fair Trading. The Fund compensated customers for losses incurred, including losses sustained between February and April 1999, when the travel agent was operating illegally. It then brought proceedings to recover its loss from the accountant and the auditor under the Fair Trading Act1987 (NSW), the relevant terms of which were the same as those of s 82 of the TPA.
The High Court held that the New South Wales Court of Appeal had wrongly held that the loss incurred by customers was not caused by the accountant and auditors’ misleading statement. It held that the entire amount of the loss sustained by the Fund was recoverable because the illegal operation of the business after February 1999 had not severed the chain of causation. All members of the court considered that the resolution of causation questions required examination of the context, including the statutory context, in which they arose. As Gleeson CJ observed:
Section 68 of the Fair Trading Act, in its application to a contravention of s 42, gives rise to the same questions as does s 82 of the Trade Practices Act 1974 (Cth) in its application to a contravention of s 52 of that Act. In recent cases, this Court has pointed out that, in deciding whether loss or damage is ‘by’ misleading or deceptive conduct, and assessing the amount of the loss that is to be so characterised, it is in the purpose of the statute, as related to the circumstances of a particular case, that the answer to the question of causation is to be found.
…
Misrepresentation will rarely be the sole cause of loss. If, in reliance on information, a person acts, or fails to act, in a certain manner, the loss or damage may flow directly from the act or omission, and only indirectly from the making of the representation. Where the reliance involves undertaking a risk, and information is provided for the purpose of inducing such reliance, then if misleading or deceptive conduct takes the form of participating in providing false information, and the very risk against which protection is sought materialises, it is consistent with the purpose of the statute to treat the loss as resulting from the misleading conduct.[112]
[112]Ibid 639, 640 (citations omitted). See also Gummow and Hayne JJ (at 642), Kirby J (at 652).
As in Henville and I & LSecurities, the decision that the misleading statements of the auditor and accountant caused the customers’ loss (and hence the loss indemnified by the Fund) was consistent with the object of consumer protection. The defendant’s misleading statements were made specifically in order to maintain the agent’s participation in the Fund and its licence to trade.
Conclusion
In my opinion the lender was not entitled to damages under s 82 of the TPA for the loss in value of the properties resulting from the criminal acts of third parties. The loss on resale was not an indivisible loss which was caused by the misleading representations by the valuers, but comprised two separate and distinct types of loss, one of which was attributable to the fact that the properties were damaged by third parties. I have reached that conclusion for the following reasons.
First, although the lender would not have made the loan but for the valuers’ misrepresentations, the satisfaction of the ‘but for test’ is not sufficient to establish that the loss was caused ‘by’ the negligent conduct of the valuers. Although Alexander[113] concerned causation at common law, the example discussed by Mahoney JA is apposite to the situation arising in this case. In a factual sense the lender would not have suffered any loss if it had not entered into the transaction with the borrowers. However:
If a defendant promises to direct me where I should go and, at a cross-roads, directs me to the left road rather than the right road, what happens to me on the left road is, in a sense, the result of what the defendant has done. If I slip on that road, if it collapses under me, or if, because I am there, a car driving down that road and not down the right road strikes me, my loss is, in a sense, the result of the fact that I have been directed to the left road and not the right road.
But, in my opinion, it is not everything which is a result in this broad sense which is accepted as a result for this purpose in the law. Thus, if, being on the left road, I slip and fall, the fact alone that it was the defendant’s direction, in breach of contract, which put me there will not, without more, make the defendant liable for my broken leg. I say ‘without more’: if there be added to the breach the fact that, for example, the left road was known to be dangerous in that respect I may, of course, be liable. But, in relation to losses of that kind, the fact that the breach has initiated one train of events rather than another is not, or at least may not, be sufficient in itself. It is necessary, to determine whether there is a causal relationship, to look more closely at the breach and what (to use a neutral term) flowed from it.[114]
[113](1987) 9 NSWLR 310.
[114]Ibid 333-4.
True it is that the lender would not have suffered any loss if it had not made the loan. But the misrepresentations simply initiated a train of events, commencing with the making of the loan, and did not create a legally causal relationship between the loss caused by the damage to the properties and the making of the loan. The criminal damage could have occurred regardless of the valuers’ negligent misstatement.
Secondly, as I have previously said, the legal context in which the right to recover damages arises must be taken into account in resolving causation issues. The purpose and policy of the TPA does not require a negligent valuer to be held liable for loss caused by the criminal acts of third parties, except in circumstances where the original breach increased the risk that those acts would occur. The damage suffered was not within the scope of the protection conferred by the TPA.
Thirdly, none of the authorities to which the Court was referred supports the lender’s claim for the whole of its loss. Although a broad approach has been taken to causation under s 82 of the TPA, the case law does not require valuers to be treated as insurers of the loan with liability for all losses which occur after a negligent misstatement of the value of the property is made. The reference to the 65 per cent loan to value ratio in this case was not an undertaking that the properties would continue to be adequate security for the loan even if they were subsequently damaged by third parties. This would mean that a valuer who makes a misleading representation as to the value of the property would be liable for any occurrence, no matter how unusual, which later reduced its value. Such an approach would go well beyond the objects of the TPA.
Fourthly, this is an example of an abnormal event intervening between the breach and the damage which breaks the chain of causation between the misleading representation and the loss suffered as the result of the subsequent criminal acts. The dicta in Henville, to which I have referred above, (and also in Australian cases concerning causation at common law) support the view that the valuers should not be held liable for the loss caused by the criminal acts of third parties.
Finally, I note that in the context of common law negligence, where a defendant’s negligence is followed by subsequent criminal acts, courts have been reluctant to hold that the defendant is liable for harm caused by those acts. Liability may be denied by holding that the defendant does not owe a duty to the victim to prevent the harm suffered, or by holding that the damage was not a legally relevant cause of the harm or was too remote. In some cases a defendant has been held liable
for the subsequent acts of a third party because his or her negligence creates the risk that the latter act may occur. That principle does not apply in this case. The overvaluation did not increase the risk that a third party would damage the properties.
For these reasons I consider that the appeal should be allowed and judgment entered for the appellants with costs, subject to any costs submissions counsel may wish to make.
HANSEN JA:
I agree with Neave JA.
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