Jonstan Pty Limited v Nicholson - [2002] NSWSC 1043

CITATION: JONSTAN PTY LIMITED & ORS v NICHOLSON & ORS [2002] NSWSC 1043

FILE NUMBER(S): SC 20161 of 1998; 11657 of 1999

HEARING DATE(S): 3.12.01-10.12.01

JUDGMENT DATE: 8 November 2002

PARTIES :

Plaintiffs: Jonstan Pty Ltd; Nelarc Pty Ltd; Prefix Pty Ltd; William Dixon Suthers; John James Wiley
Defendants: Glenn William Nicholson; Robert William Norman; Gerrard John Sturgess; Stan Reilly; John Cummingham; Michael J Perkins t/as Hooton & Perkins;
Cross Defendants: Jonstan Pty Ltd; Nelarc Pty Ltd; Prefix Pty Ltd; William Dixon Suthers; John James Wiley; Michael J Perkins; George Pashalis; Hunt Pacific Finance Pty Ltd; Stan Reilly; John Cummingham

JUDGMENT OF: Hulme J at 1

COUNSEL : Plaintiffs: P Taylor SC with J White
Defendants: F Corsaro SC with I Roberts
R Darke SC with P Glissan

SOLICITORS:

CATCHWORDS: Negligence - misleading and deceptive conduct - solicitors - finance brokers

LEGISLATION CITED: Fair Trading Act;

DECISION: Orders deferred.

- 68 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

HULME J

Friday, 8 November 2002.

11657/99 & 20161/98

JONSTAN PTY LIMITED & 4 ORS v GLENN NICHOLSON & 5 ORS – 20161/98
JONSTAN PTY LIMITED AND 5 ORS v HUNT PACIFIC FINANCE PTY LIMITED - 11657/99

JUDGMENT

1 HIS HONOUR: These Reasons for Judgment are divided up into the following sections:

Introduction

2 Subject to one issue which, without prejudging, I can refer to as misnomer and which can be deferred for the moment, the Plaintiffs were mortgagees who lent a total of $840,000 on a contributory mortgage to a company Icon (NSW) Pty Limited (hereinafter referred to as “Icon”). Shortly after the transaction the mortgagee defaulted. The security over which the mortgage existed, a residence situate at 101A Wyndham Street, Alexandria and a second residence at 102/767 Anzac Parade, Maroubra was in due course realised but the proceeds were insufficient to repay all money owing under the mortgage.

3 Performance of the mortgagor’s obligations under the mortgage was guaranteed by Messrs Nicholson, Norman & Sturgess, the first 3 Defendants in proceedings 20161/1998. Messrs Nicholson and Norman did not appear and, at the beginning of the trial, were said to be bankrupt. There was no appearance by their trustee. An appearance was entered on behalf of Mr Sturgess but he did not appear at the hearing until its sixth day. By this stage counsel were addressing. Mr Sturgess said he had not known the hearing was on but was content for it to proceed. Following orders made on 18 May with it would seem the consent of Mr Sturgess’ solicitor, on 15 June 2001 the case had in fact been fixed for hearing. A Notice of Ceasing to Act was filed on 26 October 2001 by Mr Sturgess’ solicitor, Mr Gildea. An affidavit of Lisa Norris which was read records Mr Gildea having informed her that he told Mr Sturgess numerous times that the court case was on. I do not find it necessary to resolve this conflict.

4 The Plaintiffs were introduced to the transaction by the Sixth Defendant in those proceedings, Mr Perkins, a solicitor of Messrs Hooton & Perkins and he acted on behalf of the Plaintiffs in implementing it. The Plaintiffs claim that Mr Perkins (and an employee, Ms Eggleston) failed in their obligations and in particular failed to take reasonable care in investigating or assessing the capacity of Icon to meet its obligations under the loan and in ensuring that the value of the security afforded adequate protection for the money lent and interest thereon. It is also claimed that in advising the Plaintiffs about the transaction, the Sixth Defendant made numerous erroneous statements and was thus guilty of misleading and deceptive conduct.

5 The Fourth Defendant in those proceedings, a Mr Reilly who seems to have carried on business under the name RCR Valuations, was a valuer who had provided a valuation of each of the mortgaged properties. A copy of what purported to be each of those valuations was received by Messrs Hooton & Perkins and, together with other matters, relied on. Those 2 documents asserted greatly inflated values of the properties. An appearance was first entered on Mr Reilly’s behalf by Messrs Phillips Fox but that firm filed a Notice of Ceasing to Act on 14 December 1999. There was a further Notice of Appearance filed on or about 15 December 1999, a Defence filed on 23 February 2000 and a list of DCM Documents filed on 29 February 2000. Consent orders made on 18 May 2001 standing the matter over to 15 June 2001 for the fixing of a hearing date seem to have been signed by Mr Reilly’s solicitor. In her affidavit Ms Norris deposed to conversations with Mr Reilly’s solicitor in which the latter said that he had left voice mail messages for Mr Reilly letting Mr Reilly know the matter was on for hearing but did not know whether those messages had been received. Mr Reilly did not appear at the hearing.

6 The Fifth Defendant in those proceedings is a Mr Cunningham, the solicitor who acted for the mortgagor. Prior to settlement of the mortgage he gave an undertaking to produce “original Valuations”. He never did so.

7 The last party is Hunt Pacific Finance Pty Limited (hereinafter referred to as “Hunt”), a finance broker who acted for the mortgagor and provided, as part of an Application for Mortgage Finance, the copies of the further editions of the valuations on which Messrs Hooton & Perkins relied. Hunt is a Cross-Defendant to Mr Perkin’s Third Cross-Claim but not a Defendant in proceedings 20161/1998.

8 The Plaintiffs also instituted proceedings in the District Court against Mr Perkins and Hunt. These proceedings were transferred to this Court and became proceedings 11657/1999. In these proceedings there are 2 cross-claims. The proceedings were heard together and no issue was raised to suggest that evidence was not relevant to both. By reason of one claim or another, rights of all of the parties who appeared at the hearing – the Plaintiffs, Mr Perkins, Mr Cunningham and Hunt - fall for decision.

9 However, as was recognised at the commencement of the hearing, the claims made in each set of proceedings were not all the same. An application for consolidation was made and opposed and I deferred ruling on it. It is convenient to further defer the matter until I give some consideration to the competing claims.

The Plaintiffs’ Involvement

10 The First Plaintiff is Jonstan Pty Limited. One of its directors is a Dr Buckley. Jonstan entered into the transaction after conversations between Dr Buckley on the one hand and Mr Perkins and Ms Eggleston, on the other and the provision of documents by one or both of these latter persons. Dr Buckley said that in an early conversation Mr Perkins informed him that:-

“The applicants are established car retailers proposing to diversify into the security business. There will be three guarantors and the company has two new contracts to generate income, a security contract with State Rail yielding $500,000 per annum and secondly a contract with Divisional Security Services worth more than $140,000 per annum. The cash flow involved will enable the company to establish its new security arm quickly with funds from a reliable source like State Rail, quite apart form the viability of the rest of the business.”

11 Soon after Dr Buckley received a letter of 15 August 1997 and enclosed with it a Mortgage Proposal containing more details of the transaction. In the first of these there were statements to the following effect:-

That the principal of the proposed loan was $840,000;

That the loan to value (of the security) ratio was 67%;

That “the applicant Icon (NSW) Pty Limited runs a car retailing business. The client has recently acquired a security business which entails two large contracts. … We enclose herewith details of the contracts with Divisional Security Services (contract in excess of $140,000 per annum) and letter from State Rail Authority. Icon (NSW) Pty Limited have indicated that the income from the State Rail Authority will be approximately $500,000 per annum.”

12 In the Mortgage Proposal, it was said that “the total funds advanced under this mortgage shall be secured by a registered first mortgage over … 101a Wyndham St, Alexandria and 102/767 Anzac Parade, Maroubra. The estimated value of the security at the date of the mortgage advance will be at least $1,250,000 and will be evidenced by Formal Valuations.” On behalf of Jonstan, Dr Buckley signed the mortgage proposal and by doing so “authorise(d) and instructe(d) you (Hooton & Perkins) to invest on my/our behalf the sum of $150,000 for a period of 1 year on the … terms and conditions set out”.

13 On inquiry, Dr Buckley was informed by Mr Perkins that the latter had the valuations of the 2 properties mentioned in the immediately preceding paragraph. Dr Buckley relied on Mr Perkins’ firm to make any necessary enquiries in relation to the transaction and also relied on the value attributed to the properties.

14 The sole director of the Second Plaintiff, Nelarc Pty Limited, a Mr Cooksey, gave evidence which, apart from the terms of the conversation, was along similar lines to that of Dr Buckley to which I have referred. With a similar qualification, so did a director of Prefix Pty Limited, the third Plaintiff, a Mr Hooten. Mr Hooten had been a member of the firm of Hooton & Perkins, but was not so at the time of the transactions the subject of these proceedings. (I shall hereafter refer to the companies mentioned as “Nelarc” and “Prefix”.)

15 The Fourth Plaintiff also gave evidence along similar lines to that provided by Mr Cooksey. On behalf of the Fifth Plaintiff, an affidavit of his Attorney was read. It showed the exchange with Messrs Hooton & Perkins of copies of the documents sent to or by Dr Buckley. There was no express statement of reliance by the Fifth Plaintiff on the information provided by Hooton & Perkins but the terms and history of the exchange of documents leads me to draw the inference of similar reliance.

16 There was also evidence given by or on behalf of the Plaintiffs as to their interest in, and receipt of information as to the capacity of the borrower or guarantors to service the loan. Mr Buckley said that the ability of the borrower to service the loan was important to him.

17 Mr Buckley said that the details of the 2 contracts referred to in the letter of 15 August were not enclosed and when he raised that with Mr Perkins the latter said “I am sorry about that. However, I do have details of the contracts here”. Mr Buckley went on to say that he understood from reading the letter of 15 August and what Mr Perkins had said that “Icon was branching in to a new security business having secured two contacts, one of which was with State Rail and was to produce income of $500,000 per annum and the two contracts would produce a total income of $640,000 per annum. Mr Buckley said that the existence of the two contracts was a significant consideration in his decision for Jonstan to advance the loan funds and that he relied on Hooton & Perkins to make any necessary enquiries and the he believed that Mr Perkins had the contracts referred to.

18 Mr Cooksey said that in transactions such as that here he placed importance upon the employment and finances of the applicant and the purposes of the loan. He said that in this case he checked the finances of the applicants, by which I infer he intended to refer to Icon and the guarantors, insofar as they were evidenced by documents received, and relied on Hooton & Perkins to make any necessary enquiries as to the viability of the loan.

19 Mr Hooton said that it was his practice to be interested in documents such as profit and loss statements evidencing the mortgagor’s ability to repay. In the instant case he said that he was not in a position to verify the financial information provided and assumed this had been done by Hooton & Perkins. He “assumed that, as in the past they had carried out all the necessary investigation of the mortgage application”. Mr Suthers said that when a loan was mooted, it was his practice to ask Ms Eggleston “What sort of business is it? Is it financially sound? What sort of security is being offered?” He said that relevant to his decision to invest were a summary of the type of business and estimated cash flow of the borrower. He could not check whether the information provided by Hooton & Perkins was accurate and relied on that organisation to make that check.

20 In resistance to this evidence, it was suggested that the Plaintiff’s could have done more themselves by way of pursuing the topic of the capacity of Icon or its guarantors to service the loan. I accept they could have. I think also that on one view the evidence seems to suggest that Hooton & Perkins were believed or assumed to have carried out the work of auditors or bloodhounds investigating the truth of any financial information received from a potential borrower. I would need more evidence to be persuaded that this was what was thought or that Hooton & Perkins obligations were so onerous. On the other hand, I have no doubt that some verification of information received as to income and possibly other indications of ability to service any loan would have been expected, such as for example, the obtaining of, in the case of an individual, tax returns, tax assessments, or group certificates, and in the case of a company, profit and loss statements and a balance sheet, with some reasonable indications of authenticity.

21 I should add that in this area also, there was no express statement of reliance by the Fifth Plaintiff but I would infer reliance on significant features of the documentation received.

Events 28 July to 20 August 1997

22 Hooton & Perkins’ involvement commenced on or about 28 July 1997. There was conversation that day between Ms Eggleston and one or both of Leanne Bright and Mr Tilley of Hunt. On 29 July Ms Bright faxed an Application for Mortgage Finance seeking a loan of $162,000 for 2 months but also said,

“I have done a submission based on the interim funds required however, as discussed with Adam, if you wish, TO DO THE ENTIRE AMOUNT MATCHING THE RATE FROM Elliot Tuthill’s, then please feel free to assess the lot. Could you please let me know if you can assist as soon as possible as the client has left this until the last minute and it has now become a matter of some urgency.”

23 It is unnecessary to pursue the question of whether the proposal accurately matched what had been discussed on the previous day. The Application proposed as security second mortgages over 2 properties. The Security was described as:-

$300,000

$375,000

$295,000

TOTAL AVAILABLE SECURITY

$655,000

24 The document went on to say that “As per the attached offer letter … Elliott Tuthill have agreed to take out this facility when funds are available to them in September …” and that the Applicants’ Assets and Liabilities Statements were attached. There were then summarised statements purporting to show the situation of Messrs Nicholson, Norman and Sturgess. In the case of Mr Nicholson, his statement included reference to the property at Wyndham St as an asset worth $675,000 and in the case of Mr Norman, his statement referred to a “House/Unit” as an asset worth $575,000.

25 Also included in the fax were what purported to be valuation reports relating to the above-mentioned properties. The documents suffered the usual disadvantages of faxed copies but appeared to be on the letterhead of RCR Valuations, for which a phone number of 9716 5421 was given, and to bear Mr Reilly’s signature. The documents recorded that the date of inspection of the properties had been 6 June 1997, that this was done on instructions from Elliot and Harvey, solicitors of Nerang, Queensland, and the valuer’s task was to determine the market value for mortgage purposes. The document dealing with 101A Wyndham St, Alexandria represented the market value of the property to be $675,000 and its insurance replacement and reinstatement value to be $420,000. That dealing with 102/767 Anzac Parade Maroubra represented its value to be $575,000.

26 Both documents included summaries of what which appeared to be details of comparable sales. In the case of the Wyndham Ave Valuation the sales purported to be of 8 properties at Buckland St, Alexandria, Lawrence St, Alexandria, Bourke St, Redfern, (2 properties), George St, Redfern, Great Buckingham St, Redfern, South Dowling St Redfern and Stanley St, Redfern. In the case of the Anzac Ave property, 3 properties were mentioned, at Gale Rd, Maroubra, Marine Parade, Maroubra and Mons Ave, Redfern. However to a substantial degree, particularly relating to price and land area, the details of the comparable sales were indecipherable. So were most of the street numbers.

27 Also attached was a copy of a letter from Elliot Tuthill, solicitors, of Cronulla, representing itself to be a “Loan Approval Offer and Schedule of terms, conditions and requirements”. The combined effect of the document and its annexed terms was that the loan amount would be the lesser of $810,000 or 66% of valuation. The annexed terms provided that the mortgagor was to arrange for a valuation by a valuer nominated by Elliot Tuthill. The letter itself said that provision of a signed copy of the letter and its annexures, certain information and a cheque would constitute instructions for Elliot Tuthill to order a valuation. The partial similarity in the names Elliot Tuthill and Elliot and Harvey seems to have created no, or no significant, confusion to the parties.

28 It should also be noted that of the 30 faxed pages which Hunt sent to Hooton & Perkins on 29 July, the purported valuation reports constituted pages 16 to 26. A second fax heading on the top of those pages shows them to have come, as pages 4 to14, in a fax from Neave Real Estate on 23 July 1997. The financial statements concerning Messrs Norman and Sturgess seem to have also been faxed from that organisation on another occasion.

29 Neave Real Estate was an organisation with which a Mr Ern Manley, a person to whom further reference will be made, seems to have had some association, at least to the extent of using its fax machine.

30 Messrs Hooton & Perkins were not interested in second mortgages but saw no fundamental objection to their clients participating in the lending of the amount Messrs Elliot Tuthill were prepared to advance - $810,000. They sent a fax on 31 July saying that money was available but that they needed further details before a letter of offer could be sent. One of the things said to be required was “Valuations addressed to Hooton & Perkins.” If it be relevant – and I think it is not - Ms Eggleston’s intention in using these words was that she wished the copy valuations which had been received to be re-addressed to Hooton & Perkins, in order that that firm could rely on them.

31 Further correspondence, to much of which it is unnecessary to refer, ensued. However it does reveal an increase in the agreed loan amount to $840,000 and pressure on the part of the borrowers to have the transaction completed quickly. In a letter of 7 August addressed to “Icon Pty Limited, c/- The Manager, Hunt Pacific Marine Finance Pty Limited” Hooton & Perkins said that approval of the loan in principle was subject to:-

“Up to date Valuation Reports, including rental valuation of the properties by a Registered Valuer (addressed to our firm and the proposed mortgagees) of the Mortgagees choosing.”

32 In a letter of 11 August to Mr Cunningham, Messrs Hooton & Perkins confirmed their clients’ approval in principle of the first mortgage advance. However Mr Cunningham was advised:-

“We note that the Valuation Reports in respect of 101A Wyndham Street, Alexandria and 102/767 Anzac Parade, Maroubra of RCR Valuations dated 6th June, 1997 is addressed to Elliott & Harvey Solicitors. Prior to settlement we will require the valuations to be addressed to Hooton & Perkins and the proposed Mortgagees.”

33 A very detailed response to this letter ignored the issue of Valuation Reports.

34 The topic of the original valuations was revisited on a number of later occasions. At one stage Ms Eggleston asked Mr Cunningham if he had them. He said “No. They are with the broker.” Soon after, Ms Eggleston made a similar inquiry of Ms Bright. Her reply, on some date before 20 August, was that she thought they were with Ern Manly or the borrower’s solicitor. On 20 August Ms Eggleston received a copy of a letter signed by Mr Reilly, referring to the valuations of 101A Wyndham Street, Alexandria and 102/767 Anzac Parade Maroubra, dated 6 June 1997 and saying that he would allow the Plaintiffs to use and rely on the reports. There are a number of versions of this document and it seems that one was faxed to Mr Cunningham at 1457 hours on 20 August and a copy handed over on settlement. (It may be that the description of these documents, Exhibits G and H, when their admission into evidence on 6 December 2001 was recorded, is reversed.) However it does not seem to me necessary to explore the topic further beyond noting that I regard Ms Eggleston’s evidence relating to the topic, despite some inconsistency, as completely honest. I also accept that she had no reason to believe and did not believe that there was more than one valuation by Mr Reilly of each property. She also expected to receive the original valuation document relating to each of them.

35 On 20 August Ms Eggleston received a phone call from Mr Cunningham. In paragraph 29 of her affidavit of 20 June 2001, she attributes to Mr Cunningham the words:-

“I am sorry Lyn, I have only a photocopy of the insurance and I am endeavouring to source the original valuations. Is there any way we can settle today if I give you an undertaking to provide the original?”

36 On passing this information and request on to Mr Perkins, the latter said that he wanted an undertaking in writing prior to settlement if settlement was to occur that day. Ms Eggleston then drafted a letter which, so far as presently material, reads:-

“We note that settlement of this matter is anticipated to take place today at 3pm at the National Bank of Australia.

We confirm that the following matters will be required to be satisfied on settlement:

1. We require an Undertaking that the original Valuations will be supplied.

2. We require the copy Valuations to be addressed to : Hooton & Perkins and the proposed Mortgagees and written evidence to this effect from the Valuer.”

3. …”

37 Two undertakings concerning insurance and one relating to an authority to pay were also stipulated for. The letter was faxed to Mr Cunningham at 1349 hours on that day.

38 At the settlement conference but prior to settlement occurring Mr Cunningham produced a letter in the terms set out below. Ms Eggleston telephoned Mr Perkins and read the letter to him. Mr Perkins said that he was satisfied and to go ahead with settlement and this occurred. The terms of the letter were:-

“We refer to the above matter and in consideration of you settling this matter we undertake as follows:

2. That within thirty days the insurance over 101A Wyndham Street, Alexandria will be increased to $420,000.00 as set out in the valuation, and the full names of the mortgagees will be inserted in the policy.

3. That all insurances over the Strata unit will be evidenced by Certificates of Currency issued by the respective Insurance Companies within thirty days.

4. That Authority to pay and undertaking to be completed by G J Sturgess within seven days.

Please find enclosed Certificate of Solicitor for Glen Nicholson duly completed.

Please find enclosed our updated Direction to Pay.”

39 In cross-examination by Mr Glissan as to a conversation on the day before settlement, she said that the following conversation seemed correct:-

“We may not be able to get the original valuations to you in time, would you accept an undertaking from my client to deliver the valuations to you after settlement?’

40 Mr Glissan did not draw the witness’ attention to the difference between the two versions so I did. The witness then said that she had no recall of the words “from my clients” being used by Mr Cunningham.

41 I should record that Mr Cunningham said that the source of his belief that the original valuations were with the broker was Mr Nicholson and that he received authorisation or confirmation that he could give the undertaking from Mr Manley who appeared to Mr Cunningham to have some authority in Icon. I accept this evidence.

42 For his part, Mr Perkins said that he considered Mr Cunningham’s undertaking to be a personal undertaking given by a solicitor. He thought that, in order to be able to give it, Mr Cunningham must have been satisfied that the original valuations were with Hunt. Mr Perkins assumed that Mr Cunningham had been satisfied to that fact through obtaining Hunt’s confirmation that they held the original valuations.

43 A further matter which Mr Perkins had seen as needing attention was the financial situation of ICON and the ability of it and those who were going to guarantee the loan to service it. This was the subject of a number of documents, a topic of cross-examination and a basis advanced for a finding of default on the part of Messrs Hooton & Perkins.

44 Included with the application on 29 July 1997 were what purported to be copies of Icon’s accounts for the year 30 June 1996. They showed, in round figures, total and net assets of, respectively, $14,700 and $8,400, operating revenue of $297,000, and operating profit after tax of $8,400. The major expenses were commissions of $39,800 and directors’ salaries of $189,800. The background of Icon was said to be “an insurance firm which also runs a car retailing business. The clients have only recently acquired a security business which entails two large contracts. At this stage this new venture has consumed all available capital and requires further capital input to allow the performance required under these two new contracts.”

45 In their facsimile of 31 July to Hunt advising that $810,000 was available, Hooton & Perkins included the following as matters needed before they could deliver a letter of offer:-

“1 Satisfactory evidence must be produced that business aspect and loan is outside the consumer credit code.

2 Draft accounts to 30th June, 1997 and cash flow projection to 30th June, 1998 with outline business plan of the company

3 Statement of personal income for each guarantor and copy last two tax returns/assessments.

4 Substantiation of cash injection to Business and Business purpose of loan by company.

5 The initial financial accounts submitted… do not disclose the ability to service the proposed loan. Please provide substantiation of the company’s ability to service the proposed loan.

6 We will require:-

46 On 5 August Hunt replied by forwarding, on the letterhead of Icon, a letter from Mr Nicholson to the effect that 2 years earlier his partners borrowed $595,000 against their properties at Maroubra and Alexandria to finance their business set-up costs and said that the money was used to lend out, purchase business equipment and used to buy stock for a used vehicle yard. The letter asserted that “The purpose of the further borrowing is to set up a security control room in connection with a security sub-contract with Divisional Security Services and to purchase vehicles and additional work from their contractors.” Mr Nicholson said that the security sub-contact was worth in excess of $140,000 per annum and “we are contracted to the State Rail Authority starting September to supply security services – work which would bring in an extra $550,000 per annum. An accompanying letter from Divisional Security Services confirmed that Icon was contracted to supply services to a value of $234,000 per annum.

47 Financial statements for Icon for the 6 months to 31 December 1996 were also included. They showed, in round figures, total and net assets of, respectively, $35,600 and $31,700, operating revenue of $219,500, and operating profit before tax of $23,300. The major expenses were commissions of $22,000 and directors’ salaries of $136,500.

48 On 6 August Hunt also forwarded what were said to be taxation returns for the directors. Mr Sturgess’ returns for the years ended 30 June 1996 and 1997 showed respectively gross incomes from Icon of $143,100 and $136,800 and negligible expenses. Mr Nicholson’s return for the year ending 30 June 1995 showed an income from a business of $139,600: That to 30 June 1996 showed a gross income from Icon of $95,200. Mr Norman’s return for the years ending 30 June 1995 and 1996 showed as the significant items, income of $45,786 and $52,430 from the Police Service. It might be observed that the income paid to Messrs Sturgess and Nicholson from Icon in the year ending 30 June 1996, totalling $238,300 approximates, but exceeds, the total ($229,600) of commissions ($39,800) and directors’ salaries ($189,800) recorded in the Icon accounts for that year.

49 On 6 August Ms Eggleston gave some attention to the ability to service the loan. Figures from the latest tax returns of the guarantors were listed and added yielding a total of $278,971. Interest at 8% on $810,000 was calculated to be $64,800 which was then multiplied by 3. The document concluded:-

“1. We need preliminary business figures up to 30th June 1997.

2. Also confirmation from accountants of each director, Norman and Nicholson that their tax will be similar to their 1996 return or higher.

3. Copy of contract or tender with State Rail Authority.”

50 On 6 August also Hunt forwarded letters from the State Rail Authority concerning Icon’s contract with State Rail and one from Mr Grego. All the letter from State Rail said was:-

“PROVISION OF A PANEL FOR THE PROVISION OF SECURITY SERVICES DURING A 2 YEAR PERIOD

State Rail Authority acknowledges that I.S.P.N. Icon Security Protection Network is to be contracted to our panel as part of our security force in the Sydney Metropolitan area commencing on 30th June 1997.

We will be in contact with you shortly to advise you of our orientation day in August for all our new contractors.”

51 The letter from Mr Grego said:-

“Based on information given to me by the directors and contracts gained by the security division and the start up of a second hand motor dealership, the company revenue for the 1997/98 tax year will be greatly increased compared to the turnover for the last two tax years.

The Directors… will also receive personal incomes well in excess of those for the last two tax years.”

52 In the letter of 7 August addressed to Icon, Hooton & Perkins said that they wished substantiation that the borrowings being refinanced were business borrowings of Icon and had been expended in relation to the business of the company. On the same day the company’s accountant, Mr Grego replied confirming “that the original borrowings taken against the two properties that Mr Robert Norman and Mr Glen Nicholson were for the purposes of starting up the company and getting business capital” (sic).

Events prior to 28 July 1997

53 There are a number of documents and events which pre-date the involvement of Hooton & Perkins to which it is also necessary to refer.

54 One document is a fax of 22 April 1997 from Mr Nicholson to Mr Ern Manley. Mr Manley seems to have been a financial and business consultant. The terms of the fax show that Mr Nicholson was seeking a business loan for $125,000 for 2 years. He said “I need this money urgently …”. Mr Nicholson included, as part of the fax, supporting documentation including his own assessment of the value of his home at 101A Wyndham St, Alexandria – on one page $420,000 and on another $425,000. It would appear that at some stage Mr Nicholson agreed to pay $14,500 as Mr Manley’s fee.

55 Shortly thereafter, Mr Manley passed on these document to Mr Tilley of Hunt. On 24 April 1997 Mr Tilley prepared a draft of an application for mortgage finance on behalf of Mr Nicholson. In it Mr Nicholson’s assets and liabilities were stated respectively to be $528,000 and $334,000, figures appearing in Mr Nicholson’s own statement forwarded to Hunt by Mr Manley. The $528,000 reflects a value for 101A Wyndham St of $420,000. A file note suggests the completed application was, on 1 May 1997 sent by Hunt to a Mr Steve Devlin, an officer of St George Bank. Some days later there was some notification or consideration of the requirements of that bank. On 21 May, Mr Devlin, by fax, asked whether the application was proceeding. Some information was supplied on 3 June and then on 13 June, Ms Bright wrote:-

“Steve, attached is a valuation that the client had completed himself. Hope this alleviates your concerns about the valuation stacking up.”

56 Mr Tilley said that the reference to “client had completed himself” meant “had instructed the valuer himself”. The valuation attached was of 101A Wyndham Street, Alexandria. It had been received on that or the previous day from Mr Ern Manley and bears a fax machine notation as having been transmitted from Arispel Pty Ltd.

57 The body of the 3 pages consisting of what I may call the valuation itself generally followed the same terms as those contained in the document which was later submitted to Messrs Hooton & Perkins. However a comparison of the documents shows other differences. The document received by Hunt on 12 or 13 June – see Exhibit 6 - attributed a market value of $440,000 and an “Insurance Replacement and Reinstatement Estimate Value” of $200,000 to the property. As I have said, that received by Hooton & Perkins – see Exhibit 1 - showed corresponding values of $675,000 and $420,000. In the document received by Hunt on 12 or 13 June, the spacing of lines on the pages entitled “CERTIFICATE OF VALUATION” is closer, the signature “Stan Reilly” is smaller and almost horizontal whereas in the copy received by Hooton & Perkins the signature is relatively larger, angled up and takes a different form. In the document received by Hunt on 12 or 13 June, the telephone and fax numbers in the letterhead on the page headed “VALUATION REPORT”, are 9319 6112 and 9319 7959 whereas those in the document received by Hooton & Perkins are 9716 5421 and 9798 4673.

58 Both documents seem to refer to the same comparable sales although the document first received by Hunt also contains in readable form the street numbers of those properties. The details of prices and land areas of the comparable sales, although not perfect, are also generally readable whereas those on the version received by Hooton & Perkins are not.

59 The application to St George Bank was refused. A note of 16 June from Hunt to Mr Manley records that fact and that “Deal has been submitted twice before with different explanations” – information apparently obtained from Mr Devlin.

60 On 19 June Hunt submitted another application on behalf of Mr Nicholson to a Mr Bleier, of Bleier Corporation and who was also described as the mortgage manager of Kremnizers a well known firm of solicitors and source of mortgage finance. The principal sought was $340,000 at an interest rate of 8.25%. The value of the property offered as security was described as

“Subject to Licenced Valuation – but (say) valuation – owner’s estimate - $425,000”.

61 Twenty-two pages were submitted as part of this application. Although in the application the reference to the security includes the words “Owner’s estimate $425,000” and the Schedule of Annexures contains no reference to the valuation and also, according to Mr Tilley, he had asked and been told that Kremnizers would not accept Mr Reilly’s valuation, Mr Tilley’s reconstruction of the 22 pages persuades me that a copy of the valuation of 101A Wyndham St, received by Hunt on 12 or 13 June, was probably sent to Mr Bleier. To submit it would have been in accordance with Hunt’s usual practice when they were in possession of a recent valuation.

62 By a copy of a letter dated 25 June, from R L Kremnizer & Co to Mr Beier, Hunt were advised of the approval of an application for finance by Icon in sums of $276,000 on first mortgage and $63,000 on second mortgage at a much higher interest rate over 101A Wyndham Street, Alexandria. It would seem that, in the interim, an application by Icon had been submitted in replacement of that on behalf of Mr Nicholson.

63 Kremnizer’s approval was communicated by Hunt to Mr Manley but never taken up. That there was no interest in it was formally communicated to Mr Bleier by Hunt on 16 July.

64 Meanwhile on 25 June 1997, Hunt had received a copy of a valuation of the property 102/767 Anzac Parade, Maroubra, again apparently faxed from Arispel Pty Ltd. The value was said to be $390,000 and the valuation purports to have been made on the 6 June on the instructions of a Bob Newman.

65 Prior to this, according to Mr Tilley, he had had a conversation with Mr Manley to the following effect:-

“Manley: I am faxing you a valuation for Nicholson’s property at Alexandria. However, Nicholson is not happy with the valuation and says that it does not take account of a re-zoning for the area. He is dealing with the valuer on this issue and it is likely that a revised valuation will be provided.

Tilley: That’s Okay. Let me have the latest valuation as soon as it becomes available.”

66 Some time between 16 and 22 July there was a conversation between Mr Manley and Mr Tilley in which the former advised that his clients had received approval of a $810,000 loan from another source but the money was not available immediately. Then, it would seem from the fax notation on the top, on 22 July the copy of the letter from Elliot Tuthill was faxed by Mr Manley to Hunt, accompanied by incomplete copies of the valuations of the 2 properties. On 23 July complete copies of the purported valuations were sent by Mr Manley to Hunt. It was copies of these versions that Hunt sent to Hooton & Perkins on 29 July.

67 The prices of the comparable sales shown in the versions of the valuation reports received on 22 and 23 July and those in the reports received earlier by Hunt are:-

101A Wyndham St, Alexandria

22-23 July

12-13 June

9 Stanley St $415,000

102/767 Anzac Parade, Maroubra

22-23 July

25 June

68 The blanks in the above tables indicate figures it is impossible to read. A number of the other figures in the copies sent on 22-23 July are difficult to read. However, there was no difficulty in reading the valuation figures themselves – to recapitulate, in the July documents $675,00 and $575,000 and, in those received by Hunt in June, $440,000 and $390,000.

69 Unsurprisingly, Mr Tilley was cross-examined about the changes in the valuations and his knowledge of, and approach to, them. He said that generally he and Ms Bright were there – presumably at Hunt’s office - together, Ms Bright working under his supervision. It is to be inferred from his evidence that he generally saw the final version of Applications for Finance. He agreed that he was familiar with the application to St George at the time it was submitted. As I have said, he drafted it.

70 Mr Tilley said that on about 13 June (when the first copy of a valuation seems to have been received by Hunt) he was aware of its receipt but had not read it. He said that he had never undertaken a scrutiny of the contents of the first valuation documents that came from RCR because “we did not believe they would ever be relied upon”. Asked who told him that he wasn’t to rely on the valuation he replied, “Well, we never heard of the valuer and I never heard of anybody who accepted his valuations”. He sent “it”, “more or less to give a description of the property and an indication of the value”.

71 Mr Tilley would concede only that he “possibly” looked at the valuation to see what the value was prior to asking Kremnizers if they would accept it and said that he could not recall seeing the valuation prior to the application to Mr Bleier.

72 Mr Tilley conceded that he used the figures in the revised valuation in the course of drafting the application that went to Hooton & Perkins. He said that when he saw the increase in value he did not look to see what the explanation might be, adding “It was a valuation we were not to rely upon”. He knew the increase in the value of the Alexandria property was large. At one stage he said that he did not compare the version received on 23 July with the earlier versions because that was not the firm’s normal practice. He said that it was not unusual for a valuer to alter his opinion, sometimes markedly (though he agreed that it would be exceptional for a valuer to markedly alter his opinion on the basis of no change in his information). That the valuation had increased attracted no suspicion in his mind.

73 I should record also evidence from Mr Tilley that at some time prior to the subject transaction, Ms Eggleston had said, “We will only advance funds if we have a valuation addressed to us by one of the valuers on our list. We don’t accept valuations from just anyone. It must be from one of our approved valuers”. In oral evidence, Mr Tilley said that “there may not have been a list but there was certainly approved valuers that we (sic) used”. He said he was told by Ms Eggleston that Hooton & Perkins would do their own valuation. In her affidavit Ms Eggleston denied that there was any such panel of valuers albeit there were valuers who were regularly used. In cross-examination, she agreed that the firm had preferred valuers it would use but did accept certain valuations by others. Mr Perkins accepted that the firm had a list of preferred valuers.

74 Mr Tilley also said that his clients had asked him to ask Hooton & Perkins if Mr Reilly’s valuations were acceptable. He informed Ms Eggleston that he had received valuations from Mr Reilly in amounts totalling $1.25M and Ms Eggleston told him that Hooton & Perkins had not dealt previously with Mr Reilly. Mr Tilley told her that he also had not previously heard of the valuer and he was told that the valuations were not acceptable. Mr Tilley agreed that he had recounted no such conversation in his affidavit. Ms Eggleston denied that she had ever discussed Mr Reilly with Mr Tilley.

75 I have previously referred to 2 letters Hooton & Perkins wrote, one of 31 July was addressed to Leanne Bright and one of 7 August addressed to Icon, c/- the Manager of Hunt. Mr Tilley said that he saw the second. Given his involvement in the application, it is a reasonable inference he saw the first. The first said that the sum of $810,000 was available but Hooton & Perkins needed, inter alia, “Valuations to be addressed to Hooton & Perkins” before they could deliver a letter of offer. The second advised that:-

“We advise the loan in principal (sic) has been approved subject to receipt of the following:

1. Payment of loan establishment and management fee of $3,750 of which $1,250 must be paid upon acceptance and return of this acceptance letter. …

Up to date Valuation Report, including rental valuation of the properties by a Registered Valuer (addressed to our firm and the proposed mortgagees) of the Mortgagees choosing. …”

76 Mr Tilley did nothing by way of response to these references to valuations and he did not believe Ms Bright did anything in relation to the first. He was not asked whether she did anything in response to the valuation report reference in the second letter but there is no evidence to suggest she did. He maintained that he did not think for one minute that it was likely Hooton & Perkins would proceed to settlement without getting a separate valuation themselves.

77 He would not agree that he believed Mr Nicholson had talked the values up but acknowledged that Mr Nicholson had talked to the valuer and had the properties revalued. In the course of being questioned as to the reasons for change, Mr Tilley said that there were other issues beside zoning but said he could not remember what they were. He was never given any reason for the revision of the valuation of the Maroubra property.

78 Mr Tilley said that, although at the time of submitting the earlier applications to St George and Mr Bleier, he thought that the figures used for value were appropriate he believed the more recent valuation was the correct one to use when approaching Hooton & Perkins. Mr Tilley said that a broker had to rely on what he was provided with. He just took it for granted, and did not have a positive belief, that what he was supplied with was correct.

79 He decided that the only valuation information that would be provided to Hooton & Perkins was the later valuations. and agreed he did not disclose to Hooton & Perkins Mr Nicholson’s own valuation of his property.

80 Mr Tilley also said that the reason for submitting the RCR valuations was that they were for another valuer’s use in obtaining details of the property under consideration and to provide some indication of comparable sales.

81 Hunt’s fee for the obtaining of the loan for Icon was 1% of the funds originally sought - $8,100. Mr Tilley agreed that part of a mortgage broker’s expertise was in sourcing funds and liasing with solicitors. The latter included “making sure loans settle, see if there is any outstanding requirements that need to be followed up on”. He agreed that if there was an established relationship with a solicitor, there were elements of familiarity, trust and reliance involved. This reliance extended to expecting Hunt to submit loan applications which, subject to their own searches, fulfilled solicitors’ requirements. He acknowledged that solicitors to whom he provided information would expect from Hunt information which could be treated at face value. Although he maintained that the RCR valuations were not to be relied on he did agree that he would not expect any other valuation to be obtained by Hooton & Perkins before the firm gave an indicative acceptance or rejection. He knew it would assist the loan approval process or, in his words, an indicative loan offer, to provide whatever information was available about valuation.

82 In fact the evidence as to prior dealings between Hunt and Hooton & Perkins was limited. In their affidavits, Mr Perkins said nothing about it, Ms Eggleston said that “from approximately 1994 until 1998” the firm had dealt with a mortgage broker called Hunt …” and Mr Tilley said that, “As at May 1997, Hunt Pacific had procured several mortgage advances via Hooton & Perkins, Solicitors”.

83 There was some expansion of this in oral evidence. Mr Tilley said that there would have been a maximum of 10 applications over 3 years, only about 5 of which would have proceeded to the settlement stage. He agreed in cross-examination that there could possibly have been one transaction a month with half proceeding to settlement. Neither Mr Perkins or Ms Eggleston put figures on the extent of dealings. Ms Eggleston said that on several occasions a Mr Welsh of Hunt had asked whether the firm would accept loans without financials and been told “No”. Mr Perkins said that Mr Welsh had previously indicated that Hunt wanted to be able to effect transactions quickly and asked if Hooton & Perkins would accept valuations obtained by borrowers. Mr Welsh had been told that Hooton & Perkins would not, and would only accept valuations obtained by other lenders and

“they would have to be – we would have to contact the valuer and make sure that they could be relied upon by our clients in every case and so I had simply - I simply had assumed that‘s what I was seeing here, that Hunt Pacific had used valuations obtained by lenders to obtain the relevant consents that the valuation that those lenders had relied upon would be presented for my consideration.”

84 Mr Tilley was not asked whether he had been made aware, by Mr Welsh or otherwise, that valuations on the instructions of would-be borrowers were not acceptable. Neither did Mr Perkins nor Ms Eggleston gave evidence of saying anything to this effect to Mr Tilley.

85 Mr Perkins also agreed that, as a result inter alia of his conversations with Mr Welsh, he felt that he could rely on Hunt Pacific to submit accurate information and “to submit valuations that only accorded with their honest belief that they were valuations that could properly and accurately be relied upon.”

86 It is appropriate also that I make some general remarks about Mr Tilley. He was an unimpressive witness. Both by the content of his evidence and the overall impression Mr Tilley gave, I formed the view that he was evasive and tried to distance himself as far as possible from having had knowledge of events or detail. Extreme examples of the latter were when he said he did not know whether Mr Devlin would be concerned if a valuation was an under-estimate and a number of answers he gave to the effect that he did not know that the client had arranged the valuation received by Hunt on 13 June for the purpose of supporting his loan application. Of course, it would not be surprising if Mr Tilley were ignorant of some of the details about which he was questioned but I find it impossible to accept that he was as ignorant of matters as he maintained. Except for matters to which I expressly advert, whenever Mr Tilley’s evidence is in conflict with that of Mr Perkins or Ms Eggleston, I reject it.

87 Reference may also be made to a passage in the fax covering the Application for Mortgage Finance when submitted to Hooton & Perkins on 29 July. Although the document was signed by Ms Bright, Mr Tilley saw it before it was sent. The passage was:

“Could you please let me know if you can assist as soon as possible as the client has left this until the last minute and it has now become a matter of some urgency.”

88 The client had not left the matter until the last minute. The client had been trying unsuccessfully to obtain a loan since at least April. The statement was a lie.

89 Before I leave this section of these Reasons, it is appropriate to indicate my views on a number of the primary factual issues which arise. Although it is not unlikely that at some stage Mr Tilley was informed that Hooton & Perkins had a list, panel or group of registered valuers they preferred to use, I do not accept that he was told anything to the effect that Hooton & Perkins would not rely on valuations by Mr Reilly. I am persuaded by Ms Eggleston’s evidence that he was not.

90 I am also persuaded that Hunt were made aware that Hooton & Perkins intended to rely on Mr Reilly’s valuations. Although the letter of 31 July to which I have referred suggests that they may, the letter of 7 August in its reference to “Registered Valuer … of the Mortgagees choosing” suggests that they had not yet accepted Mr Reilly as an appropriate valuer to use. On the other hand, they did not ask for a valuation fee and, despite what Mr Tilley said, I am not persuaded that he regarded the “loan establishment and management fee” as covering any valuation fee. The next relevant letter from Hooton & Perkins, that of 14 August and wherein Hooton & Perkins indicated that they required the valuations addressed to Elliott and Harvey to be re-addressed to Hooton & Perkins, went to Mr Cunningham and there is no evidence Mr Tilley saw it or became aware of its contents. However, shortly before 20 August, Ms Eggleston enquired of Ms Bright as to the whereabouts of the original valuations – a clear indication that reliance on them was not only contemplated but, given the time of the request, intended. In evidence Mr Perkins firmly rejected that suggestion that he had never communicated to Hunt his intention to rely on the Reilly valuations and not obtain his own. I do not doubt that Mr Perkins was being honest at the time of this answer but, given that despite its obvious relevance, Mr Perkins had not deposed to any such conversation with Hunt, I am not inclined to rely on this answer as providing positive evidence that he did tell Hunt.

91 I do not accept Mr Tilley’s evidence suggesting that he had little knowledge of the valuations he received prior to 22 or 23 July. His business was to obtain loans for his clients. A valuation might well provide an argument he could use to increase chances of that occurring and logic inspires the conclusion that, in his own interests, he would pay reasonable attention to such documents. His concession that he knew the increase in the valuation of the Alexandria property also indicates that he had paid sufficient attention to the earlier valuation of that property to be aware of the large increase. Logic suggests he would have taken the same approach to, and been aware of, the large increase in value of the Anzac Parade property.

92 It does not follow that Mr Tilley was aware of the changes in the values attributed to the comparable sales. He is not a valuer. Commonly he would not be in any position to disagree with what any valuer said and there would be no virtue in him seeking to analyse any list of comparable sales. In the instant case the increased values given in later documents were calculated to increase the chances of a loan being obtained and Hunt’s commission being earned. I incline to the view that there was not obviously anything for Mr Tilley to gain by any close examination of the competing valuations except satisfying curiosity as to the explanation for the increase. Certainly I do not feel able to come affirmatively to the conclusion that Mr Tilley did make any such examination. I suspect his attitude was that, given the recent valuations were favourable, he was content to rely on them, without worrying about their reliability.

Mr Reilly

93 As I have said, Mr Reilly did not appear at the hearing. There was no evidence from him except such as incidentally appeared from documents tendered by other parties. Because copies of what purport to be RCR Valuations of the properties may bear on the responsibility for what has occurred, it is convenient to summarise these. Those which appear in Exhibit C, which seems to be a comprehensive bundle in this regard, and relate to 101A Wyndham St, Alexandria are:-

(i) That commencing at p18 came from Phillips Fox. It stated the value to be $340,000 and the Insurance Replacement and Reinstatement value to be $200,000. The document contained as the RCR Valuations phone number, 9391 6112, said that instructions were received from Glen Nicholson and that its author would allow Hooton & Perkins to use it. The signature was large and sloping. The comparable sales listed were the same 8 as in the copies of the valuations of 101A Wyndham Street previously referred to. The prices said to have been obtained were those in the copy valuation received by Hunt on 12 June.

(ii) That commencing at p27 came from Phillips Fox. It stated the value to be $340,000 and the Insurance and Replacement Value $200,000. The document contained, as the phone number of RCR Valuations, 9391 6112, said that instructions were received from Glen Nicholson and that its author would allow Hooton & Perkins to use it. The signature was large and sloping. The comparable sales listed had addresses of 35 Alexander St, 7 Dudley St, 97 Renwick St, 53 Buttor St, 101 Wyndham St, another in Wyndham St, and others at 56 and 97 Wyndham St. Some of the pages in the judge’s copy of the exhibit bear an indecipherable fax notation (apart from the Phillips Fox notation).

(iii) That commencing at p33 came from Hunt. It stated the value to be $440,000 and the Insurance and Replacement Value $200,000. The document contained the phone number 9391 6112, said that instructions were received from Glen Nicholson and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was small and horizontal and the properties and prices included in the list of comparable sales were those referred to in paragraph (i) above. The document bears the fax notation indicating it came from Arispel on 13 June 1997.

(iv) That commencing at p38 came from Elliott and Harvey. It stated the value to be $675,000 and the Insurance and Replacement Value $420,000. It contained the phone number 9716 5421, said that instructions were received from Elliott and Harvey and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was large and sloping and the properties included in the list of comparable sales were those referred to in paragraph (i) above. However the prices stated were the higher figures contained in the copy report received by Hunt on 22-23 July and sent to Hooton & Perkins on 29 July – see paragraph 25 above. The figure for the last sale was however readable - $515,000.

(v) That commencing at p44 came from Hooton & Perkins, stated the value to be $675,000 and is described above. Save that the comparable prices are indecipherable, and the document bears fax notations showing it to have been sent by Neave Real Estate PL and Hunt Pacific Finance on 23 and 29 July respectively, it seems identical with that referred to in paragraph (iv).

(vi) That commencing at p50 came from Phillips Fox. It stated the value to be $675,000 and the Insurance Replacement and Reinstatement Estimate Value to be $420,000. It contained the phone number 9716 5421, said that instructions were received from Glen Nicholson and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was small and horizontal and the properties included in the list of comparable sales were those referred to in paragraph (i) above. However the prices stated were the higher versions contained in the copy report received by Hunt on 22-23 July and sent to Hooton & Perkins on 29 July. The document bears a fax notation 19 June 1997 but without any indication of the sender.

(vii) That commencing at p58 came from Elliott and Harvey. It seems to be identical with that in the immediately preceding paragraph.

(viii) That commencing at p66 came from Hunt. The copy omitted the valuation and signature page. It contained the phone number 9716 5421, said that instructions were received from Elliott and Harvey and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The properties included in the list of comparable sales were those referred to in paragraph (i) above. To some extent the prices stated are indecipherable but seem to be the higher set. The document bears a fax notation 22 July 1997 from Neave Real Estate.

(ix) That commencing at p73 came from Hunt. It stated the value to be $675,000 and Insurance Replacement and Reinstatement Value to be $420,000. It contained the phone number 9716 5421, said that instructions were received from Elliott and Harvey and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was large and sloping and the properties included in the list of comparable sales were those referred to in paragraph (i) above. The prices stated are largely indecipherable. The document bears a fax notation showing it came from Neave Real Estate PL on 23 July.

(x) That commencing at p137 came from Hunt. It stated the value to be $440,000 and the Insurance … Value to be $200,000. It contained the phone number 9319 6112, said that instructions were received from Glen Nicholson and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was small and horizontal. The properties and prices included in the list of comparable sales were those referred to in paragraph (i) above. It bore a fax note from Arispel dated 13/06 ’97.

(xi) That commencing at p165 came from Hooton & Perkins and stated the value to be $675,000. The document seems identical with that referred to in paragraph (v) above.

94 There were also differences between some of the documents as to the spacing of matters on the “Certificate of Valuation” page. In those cases where the document said that Hooton & Perkins, or some other identified person could rely on the valuation, the documents also said that any intending Mortgagor or Mortgage Insurer could do so.

95 The following are notes of the copies in Exhibit C of what purport to be RCR Valuations of the property at 102/767 Anzac Parade Maroubra:-

(xii) That commencing at p82 came from Phillips Fox. It stated the market value to be $330,000. It contained the phone number 9319 6112, said that instructions were received from Bob Newman and that its author would allow Hooton & Perkins to use it. The signature was large and sloping. The list of comparable sales referred to properties at 159 Gale Rd, 62 Marine Parade and Lot 10, 126-128 Mons Av. The prices recorded were respectively $471,000, $300,000 and $333,000.

(xiii) That commencing at p90 came from Hunt. It stated the market value to be $390,000. It contained the phone number 9319 6112, said that instructions were received from Bob Newman and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was of medium size and sloping and the list of comparable sales and prices was the same as that referred to in paragraph (xii). The document bears a fax notation indicating it came from Arispel on 25/06 ’97

(xiv) That commencing at p94 came from Phillips Fox. It stated the market value to be $330,000. It contained the phone number 9319 6112, said that instructions were received from Bob Newman and that its author would allow Hooton & Perkins to use it. The signature was large and sloping and the list of comparable sales and prices was the same as that referred to in paragraph (xii).

(xv) That commencing at p99 came from Elliott and Harvey. It stated the market value to be $575,000. It contained the phone number 9319 6112, and said that instructions were received from Elliot and Harvey and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was large, horizontal and “Reilly” was different from all or most others. The list of comparable sales was of the 3 headed by 159 Gale Rd but the prices were $571,000. $480,000 and $433,000.

(xvi) That commencing at p106 came from Elliott and Harvey. It stated the market value to be $575,000. It contained the phone number 9716 5421, said that instructions were received from Bob Newman and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was small and sloping. The list of comparable sales was of the 3 headed by 159 Gale Rd but the prices were $571,000. $480,000 and $433,000. The document bears an unreadable fax notation to the top of the pages.

(xvii) That commencing at p113 came from Phillips Fox. It stated the market value to be $575,000. It contained the phone number 9716 5421, said that instructions were received from Bob Newman and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was small and sloping. The list of comparable sales was of the 3 headed by 159 Gale Rd but the prices were $571,000. $480,000 and $433,000. The document bears a fax notation 19 June 1997 but no indication of the sender.

(xviii) That commencing at p120 came from Hunt. It stated the market value to be $575,000. It contained the phone number 9716 5421, said that instructions were received from Elliot and Harvey and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was large and slightly sloping. The list of comparable sales was of the 3 headed by 159 Gale Rd but the prices, some of which were very difficult to read seem to be $571,000. $480,000 and $433,000. The document bears a fax notation “Jul 23 ‘97 Neave Real Estate PL” at the top of the pages.

(xix) That commencing at p125 is incomplete. It stated the market value to be $575,000. The signature was large and slightly sloping. The document bears a fax notation “Jul 22 ‘97 Neave Real Estate PL” at the top of the pages.

(xx) That commencing at p127 came from Hooton & Perkins. It stated the market value to be $575,000. It contained the phone number 9716 5421, said that instructions were received from Elliot and Harvey and that its author would allow any intending Mortgagor or Mortgage Insurer to use it. The signature was large and slightly sloping. The list of comparable sales was of the 3 headed by 159 Gale Rd. The first price of $571,000 is readable but the others are not. The document bear fax notations “Jul 23 ‘97 Neave Real Estate PL” and “29/7/97 … Hunt Pacific Finance” at the top of the pages.

(xxi) That commencing at p171 came from Hooton & Perkins and seems identical to that referred to in paragraph (xx).

96 In the case of these documents also, there is variation in the spacing of matters on the page containing the valuation and the signature.

97 The source of the documents listed above is taken from the index to Exhibit C, with which all parties appearing by counsel acquiesced. Although some of the documents reproduce copies in other exhibits which do afford evidence of their source, there was no attempt to prove independently the source of many others. Hence, there are serious limits to the use that can be made of a number of the above documents vis-à-vis Mr Reilly or other unrepresented parties. And although Phillip Fox were, at one time Mr Reilly’s solicitors, there was no evidence that the document said to have come from that firm did so, nor as to when or in what circumstances, that firm (or Mr Reilly) had acquired the documents. Given the source of the documents could have been proved if the parties present wished to use that source against persons not present at the hearing – and that was not suggested - I would in any event limit the use to which the information in the index to Exhibit C could be put against those parties.

98 Mention should also be made of a letter of 20 March 1998 in which Mr Reilly wrote to Hooton & Perkins in terms:-

“I refer to the above matter and our recent telephone conversation. I would like a copy of your copy of the above valuations.

I am concerned that on your report the valuation figures are not the figures I put on these properties and that they are a forgery.

This happened to us before with these people where we were advised by a mortgage insurer that they had changed valuation figures on another property.”

99 In passages of their affidavits which were not objected to, both Ms Eggleston and Mr Perkins remarked to the effect that since settlement of the loan to Icon they had become aware that Mr Reilly knew of previous instances where the directors of Icon were involved in altering his valuation reports. No particulars of this knowledge were given. The only evidence of it is contained in the letter which I have just quoted.

100 If the proper conclusion is that prior to settlement of the mortgage loan on 20 August 1997, Mr Reilly knew of other instances, then there is much to be said for the view that his conduct in advising Hooton & Perkins that they and their clients could rely on his valuations was misleading and, indeed, recklessly fraudulent. However, when one recognises that his letter was dated 20 March 1998, it does not seem to me that one is justified, by his use of the word “before” in the context of the last paragraph of that letter, in drawing the inference that Mr Reilly’s knowledge was acquired prior to 20 August 1997. Nor do the passages in the affidavits of Ms Eggleston and Mr Perkins persuade me to that effect.

Other Evidence

101 Expert evidence was called from Miss Margaret Hole and Mr John Fisher. Ms Hole is a former President of the Law Society of New South Wales but both were well qualified to give evidence as to the practice of solicitors who carried on a mortgage lending practice or acted for lenders who advanced money on the security of mortgages over residential real estate and of what reasonable care in that regard required. They were also both qualified to express opinions on the topic of undertakings by solicitors. There was no suggestion or reason to doubt their honesty.

102 Among the opinions expressed by Ms Hole were that:-

(i) The profit and loss statement of Icon which was supplied did not disclose sufficient income to support a loan in the sum of $162,000 and a prudent solicitor would have made further investigation;

(ii) The profit and loss statement did not disclose the cost of the existing mortgages as an expense and it would seem that they were being serviced from other sources;

(iii) It was negligent for Hooton & Perkins not to pursue substantiation of Icon’s ability to service the proposed loan until reliable evidence became available;

(iv) Further investigation from a source independent of the mortgagor should have been undertaken to establish that the letter from SRA referred to a definite contract to undertake specific work in respect of which consideration would be received and the veracity of the mortgagor’s accountant’s statement that the company’s turnover would be significantly more than in the previous year;

(v) An independent valuation should have been obtained;

(vi) It was negligent to vary the original requirement for an independent valuation to a requirement that the valuations be addressed to Hooton & Perkins and then not insist on receiving the original valuations;

(vii) It was negligent to settle the mortgage advance in reliance on Mr Cunninghams’ undertaking without seeing and being satisfied with the original valuation;

103 In the course of Ms Hole’s oral evidence she also said that a solicitor in Mr Perkin’s position must always concern himself or herself with the security as a primary factor. She did, I think accept that there may be circumstances where reliance could be placed on a valuation such as Mr Perkins received but that more information about it would be needed first. Proper consideration of Icon’s financial position would normally involve consideration of 3 years financial records. If servicing the loan required assistance from others beside Icon, steps would need to be taken to investigate their financial position. Again consideration of 3 years tax returns would be usual. Re-addressed valuations were rare. The risk with a copy of a valuation is that it differs from the original.

104 On the topic of a solicitor’s undertaking Miss Hole agreed that the giving of such an undertaking is a most important matter and that it is almost universally recognised that it shouldn’t be given unless there is no doubt that it can be fulfilled. A solicitor accepting an undertaking is entitled to assume accordingly and that if the undertaking is accompanied by a statement of fact, that the solicitor making the statement has satisfied himself of the fact. A solicitor giving an undertaking should not be reliant on someone else to be able to perform it.

105 Ms Hole did say “yes” to a question in terms to the following effect:-

“In circumstances where-

a solicitor received a copy valuation from a source that, over a number of years had always proved reliable,

the copy valuation was apparently prepared by a registered valuer,

the valuer had indicated agreement to have the solicitor rely on the valuation, and

the solicitor is informed by the solicitor acting for the borrower that the original valuation is with the finance broker and receives a personal undertaking by the borrower’s solicitor that it will be produced forthwith after settlement

all the indications are that there is an original in existence.

106 Mr Fisher expressed, inter alia, the following opinions:-

(i) In investigating Icon’s accounts for the year ending 30/6/1996 and the 6 months ending 31/12/1996 and, having satisfied himself that Icon was relying on the incomes of its directors, investigating the tax returns of its directors, Mr Perkins generally acted in accordance with common practice;

(ii) In 1997 it was not inconsistent with common practice for a solicitor acting for a lender to rely on a valuation obtained on instructions from a borrower, provided the valuation had been prepared for mortgage lending purposes and the valuer permitted the solicitor or lender to rely on it, or readdressed the valuation to the solicitor or lender;

(iii) Conformably with common practice a solicitor could rely on a copy of a valuation although account would need to be taken of the circumstances;

(iv) Mr Perkin’s decision to rely on the copy valuation was not necessarily inconsistent with common practice, particularly in light of Mr Cunningham’s undertaking and previous dealings with Hunt;

(v) A solicitor accepting a (personal) undertaking from another solicitor is entitled to assume that the undertaking will be honoured, that the solicitor giving it has satisfied himself that if can be honoured and that the solicitor giving it has satisfied himself of the accuracy of any accompanying statements of fact.

107 There was little cross-examination of Mr Fisher.

108 During address, attention was also given to the terms of rule 27 of the Solicitors’ Rules which provides:-

“A practitioner must not give to another practitioner an undertaking compliance with which requires the co-operation of a third party, who is not a party to the undertaking, and whose co-operation cannot be guaranteed by the practitioner.”

Conclusions

Hooton & Perkins

109 It could not be, and was not, disputed that Mr Perkins was under an obligation to take reasonable care to ensure that the estimated value of the properties over which the moneys lent were secured was at least $1,250,000. That flowed from the terms of his instructions which I have quoted above. The terms of those instructions and his role as the Plaintiffs’ solicitor also make it clear that, at the least, Mr Perkins was also obliged to take reasonable care to ensure that the figure of $1,250,000 would “be evidenced by Formal Valuations”.

110 Common experience indicates that the performance of obligations of that nature is commonly achieved by obtaining from a person appropriately qualified and reliable, and who appears to have properly directed his attention to the task, an original document indicating that a valuation has been made. In this case the problem arose partly because Mr Perkins did not insist on receiving an original document, but more particularly because insufficient steps were taken by Mr Perkins to ensure that the two valuation documents he had, and the conclusions in them, accurately reflected the opinion of a person qualified and reliable.

111 Counsel appearing for Mr Perkins emphasised evidence from Mr Fisher that I have set out to the effect that it is not necessarily a departure from good practice to rely on a copy of a valuation. I am prepared to accept that, of itself, acting on the basis of photocopy or faxed documents is not negligent, although I might add that both this case and other experience in the Court demonstrates that doing so is fraught with danger. However, if copies were to be used, it was necessary to obtain sufficient or at least reasonable evidence of their reliability. In relation to this, it was pointed out that they came from Hunt and that there was evidence that Mr Perkins felt he could rely on Hunt. However, there was no statement by Hunt that they had, or had seen, original valuations. Furthermore, on a matter as fundamental to a loan on mortgage transaction as the value of the properties being mortgaged, certainly in the absence of good reason for having to do so, I would not regard reliance by a solicitor on a statement by a non-solicitor third person that that person had, or had seen, original valuations, as the exercise of reasonable care. After all, one of the purposes of employing solicitors in these sorts of transactions is to make sure that “i”s are dotted and “t”s are crossed, not merely to have a solicitor simply assume, or ask others if, they have been.

112 In any event, Hunt was not the author or original recipient of the valuations. It was clear on their face that the documents, copies of which were faxed to Hooton & Perkins, had not been supplied by their author directly to Hunt and indeed there is a fax note on the documents indicating they had come from an organisation Neave Real Estate Pty Ltd on 23 July 1997. What the history of the documents was between the preparation of the originals on or about 6 June apparently for Elliot and Harvey and 23 July, was a matter which Mr Perkins did not explore.

113 Hooton & Perkins did direct attention to obtaining from Mr Reilly his agreement to his valuation being relied on by the Plaintiffs or addressed to Hooton & Perkins. This was a matter raised with, inter alia, Hunt on 31 July, and Mr Cunningham in a letter of 11 August and agreed to by Mr Reilly in his letter of 20 August. However that is an entirely different matter to the identity of Mr Reilly’s valuations or the authenticity of what had been received by Hooton & Perkins. Certainly Ms Eggleston’s questioning of Mr Cunningahm and Ms Bright as to whether they had the original of the valuations indicates that she was then directing attention to this further topic as does the consideration given by Mr Perkins and herself to Mr Cunningham’s enquiry whether an undertaking to produce the originals would be acceptable.

114 But directing attention to the topic was not sufficient. Nor was the undertaking. Leaving aside whether in any circumstances such an undertaking would be sufficient, in this case there was nothing to suggest that Mr Cunningham had seen the originals – indeed it seems clear he had not – and nothing to show that the originals of which he spoke were in identical terms to the copies which Hooton & Perkins had. If Mr Perkins and Ms Eggleston directed attention to the topic at all, they simply assumed the “original Valuations” would conform to the copies.

115 It may be accepted that if Hunt had the originals of the copies it had sent, the originals would be in the same terms. However, Ms Bright had said, sometime after the copies were sent, that Hunt did not have the originals – a circumstance which somewhat reduces the likelihood to which I have referred. And, even if Hunt did have some “original Valuations” again nothing was done to check whether they were in the same terms as the copies received by Hooton & Perkins. (A similar assumption of identity between copy and originals is contained in the question to Ms Hole which I have quoted.)

116 It is clear that Mr Perkin’s willingness to rely on the purported valuations which he had received from Hunt was a significant factor which led to his clients entering into the transaction. It seems to me a most likely inference from the copy valuations which are in Exhibit C that the original versions produced by Mr Reilly were in the lowest of the figures given for the value of each property. It strikes me as inherently unlikely that anyone would fraudulently reduce the figure in a valuation. The sale prices ultimately realised argue in the same direction. The strong probability is that had Mr Perkins insisted on receiving proper or formal valuations, these would have been so low that the transaction would not have been entered into. The same could be said if Mr Perkins had ensued that the valuer was contacted and asked to confirm or identify sufficiently his valuation. It is clear that Mr Perkins did not take any reasonable steps even in this respect. In these circumstances, he is liable for the Plaintiffs’ loss.

148 The second basis of the Plaintiffs’ claim against Hunt is that by forwarding the Application for Mortgage Finance, Hunt:-

represented that the properties were worth the amount stated in the accompanying valuations,

represented that it was not aware of any matters that might indicate the properties were not worth that amount, and

represented that there was no other matter relating to the valuations and material to the decision to approve the application or the terms of any such approval, known to Hunt.

149 The third of the Plaintiffs’ claims against Hunt is that by the forwarding of the Application for Mortgage Finance, Hunt was guilty of misleading and deceptive conduct in that the submission of the Application without explanation of the valuations was likely to mislead the Plaintiffs into believing matters along the lines of the representations referred to in the immediately preceding paragraph.

150 In the Third Cross-Claim in proceedings 20161 of 1998, Hooton & Perkins also made a claim against Hunt. It was also for what was said to be misleading and deceptive conduct and (what I take to be negligent) breach of duty to take all reasonable care to avoid providing information to Perkins which was untrue, inaccurate or incomplete. The matters relied on were a failure to disclose, at the time the valuations were provided to Hooton & Perkins on 29 July:-

(a) that the owner of the Alexandria property, The first defendant, had asserted in April 1997 that the value of the property was about $420,000 to $425,000;

(b) that the valuations had been arranged by Icon or persons associated with Icon, not by a proposed lender;

(d) that the owner of the Alexandria property had been unhappy with the valuation and was going to deal with the valuer in an effort to have a revised valuation issued in respect of the Alexandria property;

(e) that on 25 June 1997 Hunt Pacific received the low Maroubra valuation;

(f) that the valuations provided to Perkins were revised valuations of each of the Alexandria and Maroubra properties as at 6 June 1997;

(g) that the high Alexandria valuation was more than 53% higher than the low Alexandria valuation; and

(h) that the high Maroubra valuation was more than 47% higher than the low Maroubra valuation.”

151 It was said that the failure to disclose was misleading or deceptive or likely to mislead or deceive in that the failure created an inaccurate impression of the extent to which the valuations accompanying the Application could be relied on.

152 Because of the relative positions of the Plaintiffs and Hunt, I am of the view that Hunt did not owe a duty of care to the Plaintiffs so as to have any liability in negligence. The broker is the agent of the proposed mortgagor and can be assumed to be looking after the interests of his client, not that of the mortgagee. While a broker may not mislead, and if he does is liable to a claim properly formulated, he is not under a duty uberrima fidei. In the normal course, mortgagees and their solicitors protect themselves by obtaining relevant information from a valuer.

153 For similar reasons I do not regard as negligent the submission of a valuation at a time when the broker is in possession of information throwing doubt on the valuer’s conclusion.

154 Nor in the ordinary course would I regard the submission by a finance broker of what purports to be a valuation by a registered valuer as a representation by the broker that the property concerned has the value attributed to it in the valuation. The apparent lack of expertise in the broker and the limited nature of his role to my mind precludes any upholding of this part of the Plaintiffs’ claim. On similar grounds and because the broker’s primary duty is to his client and because, in the normal course, mortgagees and their solicitors protect themselves by obtaining relevant information from a valuer, I do not regard the submission of a valuation as a representation by a broker that it was not aware of any matters that might indicate the properties were not worth the amount indicated in the valuation or a representation that there was no other matter relating to the valuations and material to the decision to approve the application or the terms of any such approval, known to the broker. Thus the second basis of the Plaintiffs’ claim against Hunt also fails.

155 What I have said is enough to dispose of the second and third aspects of the Plaintiffs’ third claim against Hunt. I do not regard the submission of a valuation by a broker, even one who has built up some rapport with the solicitor, as misleading or deceptive or as likely to lead to any belief on the part of the solicitor that the broker was not aware of other matters that might suggest the valuation was excessive or that the broker was not aware of any factors material to the decision of the solicitor to approve the loan application or as to the terms of any approval.

156 In arriving at the conclusions as to the Plaintiff’s claims against Hunt so far expressed, I do not forget that there was a deal of evidence directed to showing the existence of rapport between Hooton & Perkins and Hunt and that Hooton & Perkins placed some trust in Hunt. However it does not seem to me that this placed Hunt under a legal duty higher than I have indicated.

157 There remains the first aspect of the Plaintiffs’ third claim against Hunt. The allegation is that “by forwarding the Loan Application including the Valuations” … Hunt “engaged in misleading and deceptive conduct in that the submission of the application without explanation of the valuation was likely to mislead or deceive Perkins into believing that the properties were worth the amount stated in the Higher Valuations”. So expressed, the complaint would apply to the submission of any valuation which was in fact erroneous and irrespective of whether the broker in fact believed the valuation to be accurate. It would apply to the repetition of any other person’s view likely to have an impact on the recipient and again, whether or not the person communicating was himself or herself misled. I have difficulty in accepting that the proscription contained in s42 is so wide.

158 However, contained within this claim is I think a narrower one which, while it could have been better or expressly formulated, it is not unfair to Hunt to consider. It is one of the particulars of the Plaintiff’s negligence claim against Hunt and one of the matters relied on by Hooton & Perkins in that party’s Cross-Claim against Hunt. It arises from the fact that each of the valuations included a statement that it was on “instructions received from Elliott and Harvey, Solicitors”. That statement was not correct. Mr Tilley knew that it was not correct. Assuming, as seems to have been accepted before me, that some valuations were made on instructions from Elliot and Harvey, those valuations were not later than the ones that Hunt first received in amounts of $440,000 and $390,000. The ones Hunt forwarded to Hooton & Perkins were valuations made after, according to Mr Tilley, Mr Nicholson had talked to the valuer. They were valuations with which, as a matter of inevitable inference, Elliot and Harvey had nothing to do.

159 The failure by Hunt to provide an explanation or, more accurately, to correct, the statement as to the source of instructions for the valuations Hunt sent meant that Hunt “engaged in misleading and deceptive conduct in that the submission of the application without (that) explanation of the valuation was likely to mislead or deceive Perkins” because it is clear from the evidence in the case that the source of instructions for valuations was regarded as a factor relevant to the reliability of them. Mr Perkins’ evidence makes it very clear that had he known that the ones he received had been prepared on the instructions of a borrower, he would not have relied on them. The forwarding of the valuations with their misleading statement as to the source of instructions contributed to Mr Perkins either “believing that the properties were worth the amount stated in the Higher Valuations” or at least that the valuation was one that could be relied upon.

160 During cross-examination of the Plaintiffs or their principals, some attention was given to the matters on which they relied. However, it is no answer to a claim based on reliance by their agent Hooton & Perkins, that the Plaintiffs themselves also relied on Hooton & Perkins or what the Plaintiffs were told by that firm.

161 Accordingly the Plaintiffs succeed in their claim that Hunt engaged in misleading or deceptive conduct.

162 I turn to Hooton & Perkins’ claim against Hunt. Because of the role of a broker as representing a borrower, I do not regard the matters referred to in sub-paragraphs (a) and (c) to (h) of paragraph 150 above as providing a basis for the claim to succeed. However, (b) falls into a different category. As I indicated when dealing with the first part of the Plaintiffs’ third claim, each of the valuation documents forwarded by Hunt to Hooton & Perkins included a misstatement that it was on “instructions received from Elliott and Harvey, Solicitors” whereas the truth was, as the Cross-Claim asserts, “the valuations had been arranged by Icon or persons associated with Icon, not by a proposed lender”.

163 Furthermore, although I do not think it matters, Mr Tilley knew this and also knew, I would infer, that Hooton & Perkins would not accept valuations prepared on a borrower’s instructions.

164 One may doubt whether there would have been any misleading conduct by Hunt in failing to disclose the involvement of Icon or Mr Nicholson if nothing had been said as to the source of instructions for the valuations Hunt submitted to Hooton & Perkins. However, once the documents containing the statement that they had been prepared on instructions from Elliot and Harvey were submitted, it was misleading and deceptive conduct on the part of Hunt not to reveal the true source of the instructions.

165 Because of a number of submissions which were made rather than because I regard the matters as of relevance I would add that I have no doubt that at least part of Hunt’s motivation in sending the valuations to Hooton & Perkins was to increase the chances of a loan being obtained from or through Hooton & Perkins and that, as time went on, Mr Tilley must have realised that the valuations were being relied on – initially to approve the loan in principle but later, as showing the security was adequate.

166 Has Hooton & Perkins suffered loss or damage by the misleading and deceptive conduct of Hunt? It was submitted by Mr Corsaro SC on behalf of Hunt that the completion of the loan transaction was because of Hooton & Perkins’ departure from their own requirements as evidenced by the letters they had sent to Hunt and Mr Cunningham. Undoubtedly, those departures were contributing factors but that does not deny that Hunt’s conduct was also a cause of what occurred and of the loss and damage that Hooton & Perkins have suffered. Accordingly Hooton & Perkins is entitled to recover from Hunt damages suffered in consequence of Hunt’s misleading and deceptive conduct.

Mr Reilly

167 The only “evidence” that Mr Reilly had anything to do with any of the valuation documents tendered before me is his Defence filed in proceedings 20161/1998 that he prepared written valuations dated 6 June 1997 for a property at 101A Wyndham Street, Alexandria indicating a value of $340,000 and a property at 102/767 Anzac Parade, Maroubra indicating a value of $330,000, the valuation documents themselves, and Mr Reilly’s letter to Hooton & Perkins saying that that firm could rely on his valuations. The valuation documents tendered before me were all copies. Features of them to which I have referred are strongly suggestive of some at least being, or being copies of, forgeries.

168 It was submitted on behalf of the Plaintiffs that there were a number of aspects of the evidence in the case that suggested Mr Reilly was responsible for the documents. These included:-

(i) similarity in appearance, suggestive of a common origin;

(ii) each had a separate “certificate” page permitting ready “adjustment” of the valuation, said to be consistent with an intention that an “adjustment” should occur.

(iii) the fact that Mr Norman’s name had been misspelt “Newman” in the Maroubra valuation;

(iv) Mr Tilley’s evidence that he was told Mr Nicholson was going to talk to Mr Reilly with a view to having the valuation changed;

(v) an inference, available from the fact that the high and medium valuations were widely used, that Messrs Nicholson and/or Manley expected that Mr Reilly would support the valuations if enquiry was made; and

(vi) the fact that the 20 August letter to Hooton & Perkins initially failed to state a date.

169 The differences in the first paragraphs of a number of the valuation documents suggest that Mr Reilly may have been the author of a number of them. The “flow” of the words and absence of gaps argues against them being a “scissors and paste” exercise. However, the fact that Mr Reilly may have prepared copies of the same valuation at the request of Elliot and Harvey and Mr Nicholson or for Hooton & Perkins to rely on (although none for Hooton & Perkins seem to have been forwarded to that firm) provides no basis for criticism. Nor is it any evidence of participation by Mr Reilly in any fraud.

170 Certainly some of the differences in the valuation documents, particularly those on the Certificate of Valuation page, are consistent with forgery by “scissors and paste” and photocopying. But, given that the other 2 pages of the valuation documents are full or reasonably so, it is impossible to conclude that the fact that the Certificate of Valuation is on a separate page is indicative of intention that it should be alterable. I see nothing in the third, fourth or fifth of the matters listed from which, as a matter of rational inference – see Holloway v McFeeters (1956) 94 CLR 470 at 477 – one could infer wrong-doing by Mr Reilly. Nor do I see anything suspicious in the fact that the letter of 20 August signed by Mr Reilly, originally referred to “valuations dated June 1997” – and this whoever may have inserted the date “6” before June in some of the copies in evidence. Mistakes and omissions do happen. Neither singly nor in combination do the matters relied on by the Plaintiffs persuade me that Mr Reilly is responsible for what occurred. I have already indicated that I am not prepared to find that, at any relevant time, as distinct from later, Mr Reilly knew of the fraudulent, or fraudulent use of, his valuations.

Mr Sturgess - Misnomer

171 The evidence shows that in the early stages of Hooton & Perkins’ involvement, it was contemplated that Billie Guy Investments Pty Ltd (hereinafter referred to as “Billie Guy”) would be one of the lenders. Its name remained on some of the documents whereas on others or in some places the name of Jonstan Pty Ltd was substituted. In response to a claim by the Plaintiffs that the First to Third Defendants guaranteed the performance by Icon of its obligations under the loan agreement, Mr Sturgess’ defence asserts that he entered into a Deed of Guarantee with Billie Guy Investments and others and, implicitly, not one with Jonstan and others.

172 The evidence also shows that in fact Jonstan was one of the lenders and Billie Guy was not.

173 An examination of the documents shows:-

The Deed of Guarantee and Indemnity named as lenders, Billie Guy, Nelarc, Prefix, and Messrs Suthers and Wiley. It provided for its execution by, in addition to Messrs Nicholson, Norman and Sturgess as guarantors, Jonstan, Nelarc, Prefix and Messrs Suthers and Wiley. The document provided that the guarantors guaranteed performance of the obligations in “the Documents”, a term defined to be:-

Memorandum of First Mortgage between the Billie Guy Investments Pty Limited, Nelarc Pty Limited, Prefix Pty Limited, William Dixon Suthers and John James Wylie as Mortgagees and Glenn William Nicholson as Mortgagor dated the 20th day of August 1997 in respect of the property at 101a Wyndham Street, Alexandria.

Memorandum of First Mortgage between the Billie Guy Investments Pty Limited, Nelarc Pty Limited, Prefix Pty Limited, William Dixon Suthers and John James Wylie as Mortgagees and Robert William Norman as Mortgagor dated the 20th day of August 1997 in respect of the property at 102/767 Anzac Parade, Maroubra.

Facility Deed between Icon (NSW) Pty Limited as Borrower, Jonstan Pty Limited ACN 004 000 220, Nelarc Pty Limited ACN 067 501 026, Prefix Pty Limited ACN 000 826 166, William Dixon Suthers and John James Wylie as Lenders, Glenn William Nicholson and Robert William Norman as Mortgagors dated the 20th day of August 1997.

Each of the mortgages by Messrs Nicholson and Norman named as mortgagees Jonstan, Nelarc, Prefix, and Messrs Suthers and Wiley.

The Loan Facility Deed was between Icon as borrower, and Jonstan, Nelarc, prefix and Messrs Suthers and Wylie as lenders and Messrs Nicholson and Norman as Mortgagors.

174 It is clear law that “Words may generally be supplied, omitted or corrected, in an instrument where it is clearly necessary in order to avoid absurdity or inconsistency” – Fitzgerald v Masters (1995) CLR 420 at 426-7. See also Dalgety Ltd v John J Hilton (1981) 2 NSWLR 169 at 172; Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303 at 306. There can be no doubt that the guarantee in this case was intended to be in favour of those who had lent money and that the reference in the Deed of Guarantee and Indemnity to Billie Guy was a mistake. The matter is so obvious and as the name Jonstan rather than Billie Guy appears elsewhere in the document that the reference to Billie Guy can be simply ignored as a misnomer.

175 Of course, were it necessary to do so, Jonstan and the other Plaintiffs would be entitled to an order that the document be rectified by the substitution of Jonstan’s name for that of Billie Guy. However in this case that further step is unnecessary.

176 Once that matter is put aside, and subject to issues arising under cross-claims Mr Sturgess has filed, it is clear from the evidence that there was default in the obligations of Icon and the guarantors under the loan documents and that Mr Sturgess is liable to the Plaintiffs under the guarantee. Indeed the contrary was not suggested.

Cross-Claims and Contribution

177 In proceedings 20161/1998 there are cross-claims which may be summarised as follows:-

The first is by Mr Sturgess against the Plaintiffs. In it Mr Sturgess alleges that the Plaintiffs orally and in writing represented to him that they were advancing no more than 66 2/3% of the value of securities provided in respect of the advance to Icon, that the representation was misleading and deceptive and that it induced Mr Sturgess to enter into the Deed of Guarantee and Indemnity. It was also claimed that the Plaintiffs knew or ought to have known that they were being relied on by Mr Sturgess to exercise due care in and about the making of the representation and that in consequence the Deed, so far as Mr Sturgess is concerned was unjust and that it is unfair and unconscientious for the Plaintiffs to rely on it.

The second is by Mr Sturgess against Mr Perkins and a Mr Pashalis who is said to have been Mr Perkins’ partner in Hooton & Perkins. It is said that they engaged in misleading and deceptive conduct in representing that, on behalf of the Plaintiffs, they were making an advance to Icon of not more than 66 2/3% of the value of the securities at 101A Wyndham Street, Alexandria and 102/767 Anzac parade Maroubra and that Mr Sturgess was induced by that representation of give his guarantee.

The Third Cross-Claim is by Mr Perkins against Hunt, Mr Reilly and Mr Cunningham. The claims against all three were in negligence, for misleading and deceptive conduct and for contribution.

178 In proceedings 11657/1999 there are cross-claims which may be summarised as follows:-

The first is by Hunt against Mr Reilly, Mr Perkins and Mr Cunningham. The claims against all three were in negligence, for misleading and deceptive conduct and for contribution or indemnity.

The second is by Mr Cunningham against Mr Reilly and Mr Perkins for contribution or indemnity.

179 So far as the First and Second Cross-Claims in proceedings 20161/1998 are concerned, there is no evidence of the making to Mr Sturgess of the representations alleged. They are not contained in Hooton & Perkins’ pre-offer letter of 31 July to Hunt, in the offer letter of 7 August to Icon c/- Hunt, in the letter of 11 August to Mr Cunningham or in any other letters from the lenders’ side of the transaction to what I may call the borrowers’ side. Mr Sturgess did not give evidence and there is no other evidence of any such oral representations. Accordingly, these Cross-Claims fail. I should perhaps add that, even if the making of the representations had been established a question would have arisen as to whether, given Icon’s apparent need for money, Mr Sturgess relied on them and whether, at least so far as any claim in negligence is concerned, the Plaintiffs owed any relevant duty to Mr Sturgess.

180 I have said enough concerning the respective positions and actions of Hooton & Perkins, Hunt, Mr Cunningham and Mr Reilly, the parties to the other cross-claims, to make clear my conclusions on what I may call their primary responsibility. It is also clear that the respective rights and liabilities of the parties have been sufficiently raised and canvassed that there is no justification for maintaining any distinction between the two sets of proceedings. Having regard to the terms of the Supreme Court Act ss63 and 76A, under Part 31 Rule 7 the proceedings should be consolidated, Hunt treated as an additional Defendant in 20161/1998 and the Claims, Cross Claims and Defences in proceedings 11657/1999 treated as further Claims, Cross-Claims and Defences in proceedings 20161/1998. I shall proceed accordingly.

181 In summary my findings to date are:

(i) The Plaintiffs are entitled to succeed against Mr Sturgess.

(ii) The Plaintiffs are entitled to succeed against Hooton & Perkins in negligence in connection with the valuations. I have not found it necessary to decide whether the Plaintiffs were entitled to succeed on the basis that Mr Perkins was also negligent in relation to the ability of the borrower or guarantors to service the loan. The Plaintiffs are not entitled to succeed against Hooton & Perkins on the basis of misleading and deceptive conduct.

(iii) The Plaintiffs are entitled to succeed against Mr Cunningham for misleading and deceptive conduct and also for breach of contract although the damages on that latter account are only nominal.

(iv) The Plaintiffs are not entitled to succeed against Mr Reilly.

(v) The Plaintiffs are entitled to succeed against Hunt for misleading or deceptive conduct but not for negligence.

(vi) Mr Perkins is entitled to succeed against Mr Cunningham for misleading and deceptive conduct. I have not found it necessary to consider whether Mr Cunningham is also liable to Mr Perkins in negligence.

(vii) Mr Perkins is entitled to succeed against Hunt for misleading and deceptive conduct.

182 It follows from what I have said about Mr Reilly’s involvement that he is not liable to anyone.

183 In its Cross-Claim against Mr Perkins, Hunt alleges in effect that Mr Perkins had a duty to Hunt to take all reasonable care to ensure that settlement of the loan advance did not occur until all conditions and documentary requirements in the Hooton & Perkins letters of 31 July and 7 August had been satisfied. Hunt alleged that there had been a “negligent breach of duty” in, inter alia, failing to obtain an up-to-date valuation report by a valuer of the mortgagees’ choosing, relying on facsimile valuation reports and relying on Mr Cunningham’s undertaking. In its Cross-Claim against Mr Cunningham, Hunt alleges that the latter owed Hunt a duty at the time he gave his undertaking to ensure that at that time he had taken all steps and made all enquiries required of a reasonably competent solicitor to obtain the original valuations and had reasonable grounds to believe he could fulfil the undertaking and that in these respects he failed. Hunt also alleged that in informing Hunt as it did in the letters of 31 July and 7 August, Hooton & Perkins engaged in misleading or deceptive conduct and Mr Cunningham did the same in his undertaking.

184 Senior counsel appearing for Hunt sensibly did not seek to support these claims in address. Hooton & Perkins owed no duty of care to Hunt in the respects alleged. Nor did Hunt suffer loss by the conduct said to have been misleading or deceptive. Any loss Hunt suffers will be because of its own actions or defaults.

185 There remain the claims by Mr Perkins, Hunt and Mr Cunningham for contribution.

186 Subject to one matter, when one has regard to their respective responsibilities for the Plaintiffs’ loss, it seems to me that, as between themselves, Mr Perkins and Mr Cunningham should share in that loss in the proportion of two-thirds payable by Mr Perkins and one third by Mr Cunningham. That seems to me the proportion which is just and equitable having regard to their respective responsibilities for the Plaintiff’s loss. In arriving at these proportions, I have been largely influenced by the fact that Mr Perkins was the plaintiffs’ solicitor, and had the primary responsibility for ensuring that things went properly and did not go wrong. Of course I do not ignore the responsibility which Mr Cunningham had so far as giving an undertaking is concerned, nor the fact that his conduct was not merely negligent but misleading. Even had I found Mr Perkins’ defaults extended to negligence in and about the serviceability issue or misleading conduct vis-à-vis the Plaintiffs, I would not have altered these proportions. These latter matters were relatively small in the scheme of things so far as Mr Perkins and the Plaintiffs and the Plaintiffs’ loss is concerned. I should add that there was no suggestion that Mr Cunningham’s actions were not a tort.

187 The reservation referred to at the beginning of the immediately preceding paragraph arises from the exception in s5(c) of the Law Reform (Miscellaneous Provisions) Act 1946 precluding a person’s recovery of contribution from someone entitled to be indemnified by him. As I have held, Mr Perkins is entitled to recover from Mr Cunningham the loss or damage Mr Perkins has suffered by Mr Cunningham’s conduct. Had Mr Cunningham not been guilty of misleading conduct by giving the undertaking, the transaction would not have settled. Although Mr Perkins was himself at fault, his decision to settle and his loss, in the sense of the damages he is liable for to the Plaintiffs, was a consequence of Mr Cunningham’s conduct. Mr Cunningham is liable for it and, in effect, to indemnify Mr Perkins for that loss – see Henville v Walker (2001) 206 CLR 459. Accordingly, Mr Cunningham is not entitled under s5(c) to contribution from Mr Perkins. This conclusion does not affect Mr Perkins’ entitlement to contribution against Mr Cunningham.

188 Similar considerations apply as between Mr Perkins and Hunt. Hunt is not entitled to contribution from Mr Perkins because it is liable to him for its misleading conduct and the loss he has suffered in consequence. Mr Perkins is entitled to pass on to Hunt all of his liability to the Plaintiffs. Mr Cunningham did not seek contribution from Hunt but there remains the claim by Hunt against Mr Cunningham for contribution, both being liable to the Plaintiffs. As between themselves it seems to me just and equitable that Hunt should bear three quarters of their liability to the Plaintiffs. In arriving at this assessment I am influenced particularly by the fact that Hunt knew of the falsity of its representation as to the source of instructions for the valuations whereas Mr Cunningham did not know of the falsity of his misleading conduct. I of course do not forget that Mr Cunningham was a solicitor and his conduct breached rule 27 of the Solicitors Rules but Hunt’s conduct was in my view far worse than Mr Cunningham’s and in that and other respects, Hunt far more responsible for the Plaintiffs’ damage.

Extent of Loss

189 As has been said, shortly after the mortgage was entered into, Icon (NSW) Pty Limited, the mortgagee defaulted. The two properties situate at 101A Wyndham Street, Alexandria and at 102/767 Anzac Parade, Maroubra were in due course realised although only after they had been on the market for an appreciable period and passed in at auction. The Alexandria property was sold for $315,500 and the Maroubra property for $258,000, obviously insufficient to repay all money owing under the mortgage.

190 The affidavits of Messrs Buckley, Cooksey, Hooton and Suthers indicate that from the proceeds, the first 4 Plaintiffs seem to have received the amounts listed below on or about the dates indicated. Ms Player does not indicate when the moneys owing to Mr Wiley were received although she does say that the total was $149,285.87. Given that others received their moneys at the same times and, subject to possibly minor discrepancies, proportionately, it is a reasonable inference that distributions to Mr Wiley followed a similar pattern. The column bearing his name in the table below is calculated accordingly:-

Date	Jonstan	Nelarc	Prefix	Suthers	Wiley
28/8/98	39,692.40	66,154.00	29,107.76	26,461.60	60,861.68
3/9/98	3,217.20	5362.00	2,359.28	2,144.80	4,933.04
21/9/98	50,405.85	84,009.75	36,964.28	33,603.90	77,288.97
22/9/98	4,044.90	6,741.50	2,966.26	2,696.60	6,202.18
Total	97,360.35	162,267.25	71,397.58	64,906.90	149,285.87
Loan	150,000.00	250,000.00	110,000.00	100,000.00	230,000.00

191 I should point out that, in the cases of Jonstan and Prefix, the totals arrived at by the addition of the individual amounts referred to in Mr Buckley’s and Mr Hooton’s affidavits differ from the total sums, $97,371.35 and $71,398.30, those persons deposed to having received, albeit by minor amounts. In the calculation of Mr Wiley’s figures, I have accordingly relied on the figures given for Nelarc and Mr Suthers.

192 The loss of each of the Plaintiffs against Hooton & Perkins, Hunt and Mr Cunningham is the difference between the amount lent and interest thereon and the amount received. It was submitted on behalf of the Plaintiffs that “the loss should be measured by the unrecovered principal plus interest accrued since the expiry of the mortgage, plus the interest that would have been derived from an alternative mortgage during the currency of the Icon advance.” There is no evidence as to what that latter interest would have been, unless one proceeds on the assumption that it would have been the same as payable under the mortgage. I will afford the parties a further opportunity to deal with the topic of quantum but uninstructed, my tentative view is that the interest should be calculated up until the due date for repayment under the mortgage at the rate specified therein for prompt payment. Thereafter, it should be calculated at the usual Supreme Court rates on the total amount of principal and interest then owing subject to appropriate adjustment for moneys received. Of course, because of my conclusion that, had the defaults giving rise to liability on the part of the above Defendants not occurred, neither would the loan and mortgage transaction, it is not appropriate in calculating damages against those persons by reference to the terms of the mortgage or loan or guarantee documents.

193 In the case of Mr Sturgess, it was submitted on behalf of the Plaintiffs that the default interest rate under the mortgages should be used and that account should be taken of the right under the transaction documents entitling the Plaintiffs to appropriate any moneys received first against interest. I agree with the first of these propositions from the time of default under the mortgage. Clause 10(f) of the Deed of Guarantee and Indemnity provided that “The Lender shall have an absolute discretion (without the need to communicate its election to any person) to apply any payment received by it in reduction of such part of the Debt as it shall elect.” Therefore I agree also with the second.

194 Of course, notwithstanding the verdicts and judgements to be entered, the Plaintiffs are not entitled to recover more than they have lost.

Other matters

195 It is apparent from what I have said that some further attention to the calculation of the Plaintiff’s loss is appropriate. Otherwise I think I have dealt with all of the issues arising on the pleadings. If however anything has been overlooked, the parties should feel free to raise it on notice to other affected parties.

196 The question of costs is also a matter that may well generate some debate. There is no obvious reason why the Plaintiffs instituted 2 sets of proceedings and while the Plaintiffs have succeeded, it is on an appreciably narrower basis than pleaded. Having published these Reasons, I will stand the proceedings over for a week or so to enable the parties to decide what course they wish to follow for the resolution of these outstanding matters. I would expect the successful parties to formulate short minutes of order reflecting their success and, in the case of the Plaintiffs, the quantum of any judgments they seek.

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Last Modified: 11/08/2002

CITATION:	JONSTAN PTY LIMITED & ORS v NICHOLSON & ORS [2002] NSWSC 1043
FILE NUMBER(S):	SC 20161 of 1998; 11657 of 1999
HEARING DATE(S):	3.12.01-10.12.01
JUDGMENT DATE:	8 November 2002
PARTIES :	Plaintiffs: Jonstan Pty Ltd; Nelarc Pty Ltd; Prefix Pty Ltd; William Dixon Suthers; John James Wiley Defendants: Glenn William Nicholson; Robert William Norman; Gerrard John Sturgess; Stan Reilly; John Cummingham; Michael J Perkins t/as Hooton & Perkins; Cross Defendants: Jonstan Pty Ltd; Nelarc Pty Ltd; Prefix Pty Ltd; William Dixon Suthers; John James Wiley; Michael J Perkins; George Pashalis; Hunt Pacific Finance Pty Ltd; Stan Reilly; John Cummingham
JUDGMENT OF:	Hulme J at 1

COUNSEL :	Plaintiffs: P Taylor SC with J White Defendants: F Corsaro SC with I Roberts R Darke SC with P Glissan
SOLICITORS:
CATCHWORDS:	Negligence - misleading and deceptive conduct - solicitors - finance brokers
LEGISLATION CITED:	Fair Trading Act;
DECISION:	Orders deferred.