MAM Mortgages Limited and Anor v Cameron Bros and Ors [2001] QSC 162; Piesse Investments Pty Ltd v WR Mortgage Services Pty Ltd and Ors
[2001] QSC 163
•18 May 2001
SUPREME COURT OF QUEENSLAND
CITATION: MAM Mortgages Limited & Anor v Cameron Bros & Ors [2001] QSC 162
Piesse Investments Pty Ltd v WR Mortgage Services Pty Ltd & Ors [2001] QSC 163PARTIES: MAM MORTGAGES LIMITED (IN LIQUIDATION)
(first plaintiff)
and
MELBOURNE ASSET MANAGEMENT NOMINEES PTY LTD (IN LIQUIDATION)
(second plaintiff)
v
CAMERON BROS (A FIRM)
(first defendant)
DAVID ALAN STUART CAMERON
(second defendant)
RICHARD WILLIAM CAMERON
(third defendant)
DAVID ALAN STUART CAMERON AND WAVERLEY JOHN CAMERON AS EXECUTORS AND TRUSTEES OF THE ESTATE OF JOHN WALLACE CAMERON
(fourth defendant)
HIH CASUALTY & GENERAL INSURANCE
(third party)FILE NO: S1562 of 1996 COUNSEL: J D Sheahan SC, with him D A Kelly, for first and second plaintiffs
J Bell QC for first and second defendants
G A Thompson SC, with him Mr A W Duffy for third and fourth defendants
B Clarke for fourth defendant
P McMurdo QC, with him P Taylor for third partySOLICITORS: MacGillivrays for first and second plaintiffs
Freehills for first and second defendants
Tutt & Quinlan for third and fourth defendants
Nicol Robinson Halletts as town agents for Morton & Morton, Maryborough for fourth defendant
Gadens for third partyCITATION: Piesse Investments Pty Ltd v WR Mortgage Services Pty Ltd & Ors [2001] QSC 163 PARTIES: PIESSE INVESTMENTS PTY LTD ACN 070 985 581
(plaintiff)
WR MORTGAGE SERVICES PTY LTD
CAN 069 059 267
(first defendant)
WILLIAM HANRON REDMOND
(second defendant)
DASCAM PTY LTD ACT 010 758 335
TRADING AS CAMERON BROS
(third defendant/first third party)
DAVID ALLAN STUART CAMERON
(fourth defendant/second third party)
HIH CASUALTY AND GENERAL INSURANCE LTD
(third third party)FILE NO: S4031 of 1996 COUNSEL: D Clothier for plaintiff, and second defendant
J Bell QC for third and fourth defendants, and first and second third parties
P McMurdo QC, with him P Taylor for third partySOLICITORS: Brian Bartley & Associates for plaintiff, and second defendant
Freehills for third and fourth defendants, and first and second third parties
McCullough Robertson for third party and for third third partyDELIVERED ON: 18 May 2001 DIVISION: Trial Division DELIVERED AT: Brisbane HEARING DATE: 11 September 2000 JUDGE: Douglas J ORDER: MAM
1) That the plaintiffs’ action be dismissed;
2) That the defendants’ action against the third party be dismissed.Piesse Investments Pty Ltd
1) That the conclusions expressed by David Cameron in the valuations being exhibits 16 and 17 are not the product of reasonable skill and care on the part of Mr Cameron.
I shall hear submissions as to costs in both actions and as to the form of judgment in the Piesse Investments Pty Ltd action.
CATCHWORDS: REAL PROPERTY – VALUATION OF LAND – VALUERS – whether defendant valuer made “dishonest” valuations to first plaintiff
REAL PROPERTY – VALUATION OF LAND – METHODS OF VALUATION – COMPARABLE SALES – GENERALLY – failure by defendant valuer to check for comparable sales
REAL PROPERTY – VALUATION OF LAND – METHODS OF VALUATION – CAPITALISATION OF RETURNS – RENTS – PROFITS – whether defendant valuer was not only negligent but also dishonest in failing to check whether a sustainable market rental was being paid for the hotel, and the adoption of a comparatively low capitalisation rate
REAL PROPERTY – VALUATION OF LAND – PARTICULAR PROPERTIES AND INTEREST – PRIMARY PRODUCTION LAND – whether defendant valuer was not only negligent, but also dishonest in his errors of methodology in valuing Avocado trees
REAL PROPERTY – VALUATION OF LAND – PARTICULAR PROPERTIES AND INTERESTS – OTHER PROPERTIES – whether an error to value industrial land as freehold rather than leasehold land was not only negligent, but dishonest
EQUITY – TRUSTS AND TRUSTEES – DISTINCTION FROM CONTRACTUAL OR OTHER FIDUCIARY DUTIES – whether a fiduciary relationship existed between first plaintiff and each investor, sufficient to give rise to a constructive trust, of which the first plaintiff was trustee
GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE BREACH AND DEFENCE TO ACTION FOR BREACH – ACCORD AND SATISFACTION – whether plaintiffs were able to hold defendant valuer responsible for financial losses due to negligent valuations, given the admitted negligence of the valuations
TRADE AND COMMERCE – TRADE PRACTICES AND RELATED MATTERS – CONSUMER PROTECTION – MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT – CHARACTER AND ATTRIBUTES OF CONDUCT – REPRESENTATIONS IN GENERAL – whether defendant valuers negligent valuations satisfied requirements of s 52 of Trade Practices Act 1974
TRADE AND COMMERCE – TRADE PRACTICES AND RELATED MATTERS – CONSUMER PROTECTION – MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT – CHARACTER AND ATTRIBUTES OF CONDUCT – KNOWLEDGE OR INTENTION – RELEVANCE – CASUAL CONNECTION BETWEEN CONDUCT AND LOSS
TORTS – NEGLIGENCE – ESSENTIALS OF ACTION FOR NEGLIGENCE – DUTY OF CARE – SPECIAL RELATIONSHIPS AND DUTIES – PROFESSIONAL PERSONS – duty of care of real property valuers to not make negligent or dishonest valuations to financial institutions
TORTS – NEGLIGENCE – ESSENTIALS OF ACTION FOR NEGLIGENCE – WHERE ECONOMIC OR FINANCIAL LOSS – CARELESS ADVICE, STATEMENTS AND NON DISCLOSURE – PARTICULAR PERSONS AND SITUATIONS – PROFESSIONAL ADVISERS
Fair Trading Act 1999 (Vic)
Property Law Act 1974 (Qld), s 55
Trade Practices Act 1974 (Cth), s 52ASC v Melbourne Asset Management Nominees Pty Ltd (1994) 121 ALR 626
Briginshaw v Briginshaw (1938) 60 CLR 336
Chappel v Hart (1998) 195 CLR 232Chittick v Maxwell (1993) 118 ALR 728
Crowe v Wheeler & Reynolds [1988] 1 Qd R 40
Eastend Real Estate Pty Ltd v C E Heath Casualty & General Insurance Limited (1993) 7 ANZ Ins Cas
Fitzgerald v Penn (1954) 91 CLR 268
HG & R Nominees Pty Ltd v Fava [1997] 2 VR 368
Kendall Wilson Securities v Barraclough [1986] 1 NZLR 576
Kenny & Good v MGICA (1999) 163 ALR 611
Krakowski v Eurolynx Properties Ltd (1995) 180 CLR 563
Lynch & Co v United States Fidelity and Guarantee Co [1971] OR 28
McMillan v Joseph (1987) 4 ANZ Ins Cas 61-162
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170Murphy v Swinbank; Swinbank v Cleary (1999) NSW SC 934
Perre v Apand Pty Ltd (1999) Aust Torts R 81-516.
DOUGLAS J: These actions both involve a number of valuations carried out by the second defendant, David Cameron, as a partner of the first defendant, Cameron Bros (a firm). Throughout the trial they were referred to respectively as the MAM and the Piesse actions. I shall deal with the MAM action first.
MAM
There are a number of undisputed facts which can be treated as preliminary matters and which I have borrowed for the purpose of this judgment, from the written submissions of the plaintiffs. They are:
MAM and Nominees
In or about August 1988, the first plaintiff, formerly known as McKinley Mortgages Limited (“MAM”), was incorporated to conduct a mortgage lending business that was affiliated with McKinley Wilson, a Melbourne stock broking firm. The second plaintiff, formerly known as MKW Nominees Pty Limited (“the Nominees”), was established to operate strictly as a “nominee” company in connection with the mortgage lending business in the sense that it did not correspond with anyone, it did not have a letterhead, it did not incur or pay fees or charges to anyone, it did not receive any fees and did not operate any bank account.
MAM and Nominees conducted and managed contributory mortgage funds. Mr Keith Bulfin (“Mr Bulfin”) was a director of MAM. The shareholding in MAM was initially owned 60% by McKinley Wilson and 40% by Mr Bulfin. In August 1992, Mr Bulfin and Mr Arthur Brown purchased McKinley Wilson’s 60% shareholding in MAM, Mr Bulfin increasing his shareholding in the company to 70%.
Mr Bulfin was the managing director of MAM and was responsible for approving MAM’s larger loans, that is loans that exceeded in amount $500,000. Mr John O’Brien (“Mr O’Brien”), an accountant and the office manager of McKinley Wilson, was the company secretary of MAM. He was a signatory to cheque account No 3000-0036-4211 (“the MAM trust account”) maintained by MAM with the Commonwealth Bank of Australia at its branch at 637 Collins Street, Melbourne.
The Cameron MAM valuations
On 16 November 1990 the second defendant (“David Cameron”) caused a letter to be sent in the post marked to the attention of Mr Keith Bulfin, the manager of MAM, enclosing valuations (“the Cameron MAM valuations”) of the following properties:
(a) the Commercial Hotel, 71 Eighth Avenue, Home Hill (“the hotel”);
(b) Teddington Grove, Stutz’s Road, Tinana (“the avocado farm”);
(c) 24 Mica Street, Carole Park (“the industrial land”).
These valuations had been prepared at the request of Mr Rob Corbett (“Corbett”). During October and November 1990, Corbett and Mr Ross Jackson had been negotiating with Mr Bulfin in relation to a possible loan by MAM to three companies, Austate Thoroughbreds Pty Ltd (“Austate”), Mordex Pty Ltd (“Mordex”) and Perlow Corrosion Control Pty Ltd (“Perlow”).
The Cameron MAM valuations certified that:
(a) the value of the hotel as at 14 November 1990 was $786,000;
(b) the value of the farm as at 13 November 1990 was $1,777,000;
(c) the value of the industrial land as at 14 November 1990 was $1,921,250.
The MAM Loans
MAM advanced monies to Austate, Perlow and Mordex (“the MAM loans”). The MAM loans were made as follows:
(a) on 17 December 1990, funds in the amount of $1,756,000 were transferred from the MAM trust account to the trust account (“the MacGillivrays trust account”) of Messrs MacGillivrays & Co, solicitors (who acted for MAM in relation to the documentation and settlement of the loans);
(b) on 17 December 1990, there were withdrawals from the MacGillivrays trust account as follows:
(i) a payment by way of bank cheque in the amount of $1,338,276.50 made payable to the trust account of Messrs Morris, Fletcher & Cross, the agent of Austate;
(ii) a payment by way of bank cheque in the amount of $384,707.29 to Messrs Geoff Klooger & Associates, the agent of Austate;
(iii) a payment by way of bank cheque in the amount of $12,406.21 made payable to the Council of the Shire of Burdekin;
(iv) a payment (made for and on behalf of Austate, Mordex and Perlow) to Messrs MacGillivrays & Co of $20,610.00 for fees and disbursements (of which $4,710.00 related to the advance to Austate, $7,900.00 related to the advance to Mordex and $8,000.00 related to the advance to Perlow).
(c) on 17 December 1990, MAM deducted $200,000 representing the establishment fee in connection with the MAM loan;
(d) 15 January 1991, MAM made an advance to Austate, Mordex and Perlow in the amount of $44,000.
(e) on 24 May 1991, there were withdrawals from the MacGillivrays trust account as follows:
(i) a payment by way of bank cheque in the amount of $105,340 to Project and Property management Pty Ltd (the agent of Mordex);
(ii) a payment (made for and on behalf of Mordex and Perlow) to Messrs MacGillivrays & Co of $4,660 for fees and disbursements;
(iii) an advance of $180,000 to Mordex and Perlow which, from 24 May 1991, was held on deposit and credited against interest payments owed by those companies and Austate under the MAM loans;
(iv) on or about 24 May 1991, MAM deducted the amount of $170,000 which represented the mortgagee’s fees in connection with the advances made in May 1991;
(v) on or about 30 May 1991, MAM made an advance to Austate, Mordex and Perlow in the amount of $90,000.
THE PROPER PLAINTIFF
The third party (HIH) alleges that MAM did not suffer any loss because it was either not beneficially entitled to the monies that it advanced, or did not in fact make the advances as such documents evidence. The documents record that the advances were made by Nominees, which was the mortgagee in each case. The submission goes on to say that the third party owed no duty of care to Nominees, as distinct from MAM, in the preparation and delivery of the Cameron MAM valuations.
Similar facts were considered by Northrop J in ASC v Melbourne Asset Management Nominees Pty Ltd (1994) 121 ALR 626 at 649 where His Honour, in relation to MAM, found that MAM was a constructive trustee of investors’ money in its bank accounts.
In addition, as regards the tort of negligence, a duty of care was owed by the defendants to Nominees. Note David Cameron’s evidence to the effect that someone in the position of Nominees was entitled to rely upon his valuations.
The relationship between MAM and nominees reveals that:
(a) MAM procured investors to invest funds with it for investing in first mortgage securities;
(b) MAM operated all of the relevant bank accounts;
(c) any funds received from investors were banked to the MAM trust account from which account monies were drawn for the purpose of advancing monies to borrowers. As such the trust account constituted a fund containing all monies received from investors, together with monies received from borrowers as well as monies beneficially earned by MAM.
(d) Nominees did not have a bank account and no monies were paid to it by MAM. When a mortgage advance was made by MAM, a mortgage was registered with Nominees being the mortgagee. At that stage Nominees would then, in most cases, execute a declaration of trust in favour of the investors in a deposited fund with MAM. This declaration specified the amount invested, and the particular mortgage into which funds were to have been invested.
In ASC v Melbourne Asset Management Nominees Pty Ltd (supra) at 649 Northrop J said:
“11. Priority between investors and creditors
From all evidence, there can be no doubt that a fiduciary relationship existed between MAM and each investor. This relationship arose, from the nature of the dealings between MAM and each investor. Neither company claimed any beneficial interest in the moneys advanced by the investors. MAM received the moneys on the basis that it would deal with the moneys in accordance with the investment scheme. In fact, it did not do so, but that does not alter the fiduciary relationship that existed between MAM and the investors. Generally see Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371; 65 ALR 193.”
It is clear in my view that a fiduciary relationship existed between MAM and each investor. The arrangement carried out was sufficient to impose upon MAM the character of a fiduciary in relation to each investor and to give rise to a constructive trust of which MAM was the trustee.
As submitted by the plaintiffs:
“MAM should not be taken to have settled on Nominees the monies which MAM received on behalf of investors. Rather, the better view is that MAM, as agent for, and indeed the constructive trustee of, the individual investors, advanced the monies directly to the borrowers in return for the execution of securities in favour of Nominees, a nominee company controlled by MAM. It acted in this way on the footing that any monies coming in from the borrowers by way of the repayment of principal or interest was banked into the MAM trust account. Thus, it can be seen that the monies were advanced by MAM in return for a mortgage in favour of its associate, Nominees.”
I respectfully agree with that submission. It follows that MAM is the proper plaintiff to the action.
A further question arises as to whether or not MAM as trustee can be a party to legal proceedings. The fact of this case is that the causes of action are causes of action vesting in MAM for breaches of duty owed to MAM. Reliance can be had upon the comments of Cooke J (as he then was) in Kendall Wilson Securities v Barraclough [1986] 1 NZLR 576 at 596 where His Honour said:
“In my opinion the relevant duty may be defined as a duty owed to the company to take reasonable care in the valuation, so that the funds administered by the company would not be lost by reliance on an erroneous valuation.”
NEGLIGENCE
There can be no doubt that the defendants owed duties of care to MAM in connection with the preparation and provision of the valuations. Such is admitted by the defendants and HIH. In addition Richard Cameron admits that the defendants owed similar duty to Nominees. The defendants other than Richard Cameron deny that any duty was owed by the defendants to Nominees. Such an argument was put to rest by the clear evidence from David Cameron that he intended that any company in the McKinley mortgages group could rely upon his valuations, and that it would be “legitimate for them as part of the same business to act on the valuation”.
When considering all of the relevant facts and circumstances, and the comments of Gummow J in Perre v Apand Pty Ltd (1999) Aust Torts Reports 81-516 at 66, 080 it is clear to my mind that the defendants owed a duty of care to Nominees as well.
None of the defendants seriously contended at the trial that David Cameron was not negligent in his preparation of the MAM valuations. The third party contended that not only was he negligent in the preparation of such valuations, but that he was dishonest in their preparation. I shall deal with that question later.
It is clear that in relation to the hotel valuation, David Cameron’s valuation was in error in his failure to check whether the rental being paid was a sustainable market rental, and in his adoption of a capitalisation rate of 11% which was too low in the circumstances.
In relation to the farm valuation, his errors of methodology were adding the land value to the value of the trees and adopting a formula for calculating the value of the trees which was demonstrably inappropriate.
Further, in relation to the industrial valuation, his error was to value the property as freehold rather than leasehold.
CAUSATION
The third party sets up two issues which are fundamental to whether or not Mr Bulfin relied upon Cameron’s valuations in arriving at a decision to advance the monies in the first place. It says that there was no reliance on the valuations because the plaintiff knew of, or was recklessly indifferent to, the purchase prices that were in fact to be paid by the borrowers to the receiver, and that there was no reliance upon the valuations because the advances were “relevantly induced” by the prospect of fees.
There is no issue as to the existence of the defendant’s duty of care to MAM. But reliance is important in the consideration of the issue of causation of MAM’s loss. The test is satisfied when “a cause” rather than “the cause” of loss and damage is identified. See the joint judgment of Dixon CJ, Fullagar and Kitto JJ in Fitzgerald v Penn (1954) 91 CLR 268 at 276 where their Honours said:
“It is of course necessary that a jury should be told that the cause of action is negligence causing damage. The three elements must be stated and negligence defined … In the generality of cases it is probably true to say that no real question of “causation” arises … On the other hand, there will not seldom be cases in which the attention of the jury ought to be called by the judge to the question whether a particular act or omission, which they may regard as negligent, can fairly and properly be considered a cause of the accident.”
See also the comments of McHugh J in Chappel v Hart (1998) 195 CLR 232 at 243 as follows:
“In March this Court specifically rejected the ‘but for’ test as an exclusive test of factual causation. Instead the Court preferred the same common sense view of causation which it had expressed in its decision in Fitzgerald v Penn. There the Court said that the question is to be determined by asking ‘whether a particular act or omission … can fairly and properly be considered a cause of the accident’.”
Those comments by McHugh J were adopted by Kirby and Callinan JJ in Kenny & Good v MGICA (1999) 163 ALR 611 at 644 acknowledging that although McHugh J was in dissent, his views reflect the conclusions reached by the majority on the issue.
The plaintiff relied solely upon the evidence of Mr Bulfin to establish that but for the Cameron valuations there would not have been any loan at all.
Mr Bulfin was charged and convicted of crimes to do with his management of MAM and its subsidiary companies. He went to jail. He has served his term. Commonsense tells one that he is, in those circumstances, highly unlikely to, at this stage, say anything other than that he relied upon Cameron’s MAM valuations as to their accuracy and competency and that but without the production of those valuations the loans would not have been made. I was unimpressed by Mr Bulfin as a witness. I thought that he went to great lengths to ensure that the court would believe that he did everything according to the book. This is hardly consistent with his conduct in relation to the matters with which he was charged and convicted.
In support of Mr Bulfin’s credit, MAM pointed to the following things:
1. That he had no financial interest in the outcome of the proceedings and had no reason to embellish his evidence;
2. That his recollection with respect to the Dale & Young report (which impinged upon the farm valuation) was correct even though when cross examined he accepted that he had not disclosed the report to investors. It became clear in re-examination that he had;
3. That Mr Bulfin was a witness who was genuinely trying to assist the court, which is said to have been demonstrated by his evidence in relation to a circular to investors dated 19 March 1991. The submission is that in circumstances where he was not required to answer a question in relation to that document, he readily did so and acknowledged that he would have been the author of it;
4. That the evidence of Mr Bulfin was that he was unaware of the source of the funds advanced, and unaware of the identity of the investors.
It is evident, however, that Mr Bulfin had no idea where the money had come from. It is apparent from the evidence that the money came from monies in the trust account which Mr Bulfin said must have been available to lend out. He said that he did not know where it came from but “obviously it was there”.
As against this the third party submits that in order for MAM to succeed the court must be persuaded to accept Mr Bulfin’s evidence at least where he had asserted that he had relied upon the valuations.
It was further submitted that on the most generous view of his conduct, he was indifferent as to whether or not the valuations had been reasonably and diligently prepared. It was submitted that he was driven by his own greed and the enormous fees which MAM, and he as a shareholder and commission agent of MAM, were able to receive as result of lending the monies.
The fees were in fact enormous. There were various fees totalling $150,000 to be paid on the expiry of the original term of three months and a further “establishment fee” of $200,000 when the loan was made.
In my view the $200,000 fee was enormous by any standard. The loan was for approximately $2M for a period of only three months. It is clear that McKinley Mortgages Ltd did not have any investors’ authority to receive such an extraordinary fee. The evidence plainly revealed that the funds used were existing trust funds. The point is illustrated by the concern which Mr Bulfin showed on or about 19 March 1991 when it was apparent that there were difficulties with the loan. It is only at that time (about 19 March 1991) that MAM first began to obtain “investor acknowledgments” with respect to this particular investment.
In my view Mr Bulfin thought that he could make a quick “killing” out of this loan without the need to call up particular investors for its purpose. Mr Bulfin took a commercial decision that the funds would be repaid within three months.
In my view Mr Bulfin merely went through the procedures. That is, he ensured that there were valuations on file which could, he thought, support the loans if eventually there were problems. He did not care whether the valuation had been carefully, skilfully and diligently prepared. The fact is that he misappropriated existing investors’ funds and, by 19 March 1991, sought to remedy that situation by garnering other investors to cover this particular loan.
Mr Bulfin was indifferent to whether the valuation had been properly prepared or not. He did not rely on them. I am not prepared to go so far as to say that he knew, or believed, that they had been improperly prepared.
THE CAUSES OF ACTION
The plaintiffs’ causes of action are in negligence, breach of contract or conduct in contravention of s 52 of Trade Practices Act 1974 (Cth). Each of those causes of action require proof of reliance upon Cameron’s valuations for MAM to succeed. In view of my findings above each of those causes of action must fail.
DISHONESTY
It is necessary for me, however, to consider Cameron’s position with respect to the valuation should this matter proceed any further.
Relevantly there are two sets of valuations involved in this case. Cameron had first valued the three properties in 1989. He was called upon to revalue them in 1990 for the purpose of the MAM transactions. Tantamount to the submissions of the third party is that all six valuations were made dishonestly.
The relevant insurance contract issued by the third party was for the 1995/1996 year because the relevant claim was made during that year. That contract contained a clause excluding “liability arising … from or brought about by the dishonesty or fraudulent act or omission of any insured”.
It is necessary then to first consider what is the meaning of “dishonesty”. In so far as the categories of dishonesty alleged against Mr Cameron are concerned, it is necessary for the third party to establish that he had no honest (i.e. no subjective) belief in the accuracy of his valuations. Krakowski v Eurolynx Properties Ltd (1995) 180 CLR 563 at 578. The onus is a heavy one; Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 at 170-171. Consideration was given to the word in Crowe v Wheeler & Reynolds [1988] 1 Qd R 40 at 41-42 where Williams J (with whom Andrews CJ agreed) approved of a statement of Fraser J in the Ontario Supreme Court in Lynch & Co v United States Fidelity and Guarantee Co [1971] OR 28 at 37-38, where His Honour said:
I think the weight of authority is against rather that in favour of giving the word ‘dishonest’ in such a policy a meaning that extends far beyond the meaning of that word in popular usage in this jurisdiction. From a review of those cases the weight of authority seems to be that there much (sic) be something in the nature of intention deception or concealment. The Shorter Oxford Dictionary, 3rd ed, in addition to certain obsolete meanings, gives ‘dishonest’ the following meanings.
‘4. Of actions etc not straightforward or honourable; underhand; now, fraudulent, knavish. 5. Of persons, wanting in honesty disposed to cheat or to fraud; thievish.’
‘Dishonest’ is a word of such common use that I should not have thought that it could give rise to any serious difficulty, but in construing even plain words regard must be had to the context and circumstances in which they are used … However, to try to put a gloss on an old and familiar English word which is in everyday use is often likely to complicate rather than clarify. ‘Dishonest’ is normally used to describe an act where there has been some intention to deceive or cheat. To use it to describe acts which are merely reckless, disobedient or foolish is not in accordance with popular usage or the dictionary meaning. It is such a familiar word that there should be no difficulty in understanding it. In the present case there is nothing in either circumstances or the context requiring the Court to give it a meaning other than its popular sense.” (emphasis added)
Reference should also be made to the judgment of J D Phillips J in HG & R Nominees Pty Ltd v Fava [1997] 2 VR 368 and to McMillan v Joseph (1987) 4 ANZ Ins Cas 61-162. Support for Fraser J’s proposition in Lynch & Co (supra) is also to be found in the following cases:
· Murphy v Swinbank; Swinbank v Cleary (1999) NSW SC 934 per Einstein J;
· Chittick v Maxwell (1993) 118 ALR 728 at 746-748; and
· Eastend Real Estate Pty Ltd v C E Heath Casualty & General Insurance Limited (1993) 7 ANZ Ins Cas 61-151.
On the other hand it was submitted on behalf of the third party that the term ‘dishonesty’ should be given its ordinary meaning in this context, for which assistance can be derived from the common law in relation to the tort of deceit, and in particular Derry v Peek (1889) 14 App Cas 337. Reference was also made to Krakowski (supra). Mr McMurdo QC on behalf of the third party correctly pointed out that in Crowe v Wheeler & Reynolds (supra) Williams J expressly declined to attempt to “rule upon the meaning and effect of the clause in question”. He said that although Williams J cited the passage to which I have referred from the judgment of Fraser J in Lynch & Co (supra) which, on one view, suggested the necessity for “something of the nature of intentional deception concealment”, the Full Court did not endorse this passage as representing the proper approach to the meaning of “dishonest” in this context.
In light of the authorities to which I have referred, and in deference to the arguments of Mr McMurdo, I am not prepared to find that intention to deceive is not an essential element of a finding of dishonesty in the circumstances which apply here. It is interesting, however, to note that in the recent judgment of the High Court of Australia in McCann v Switzerland Insurance Australia Ltd (2000) 75 ALJR 325 Gleeson CJ, when considering a similar contract of insurance with respect to a dishonest partner in a firm of solicitors said:
“[23]The language of the exclusion clause does not require the interpretation for which the appellants contend. They seek to read into it words that are not there, Furthermore, for the reasons given above, the liability of a solicitor to a client brought about by a dishonest or fraudulent act will frequently arise in circumstances where the solicitor did not intend that there should be loss to the client, and where there were additional causes of a loss.
If the clause had the meaning for which the appellant’s contend it would not apply to common cases of liability involving fraudulent misapplication of a client’s funds. Such cases form part of the ordinary circumstances which a clause such as this is likely to have been intended to address. To give it the appellant’s construction does not make business sense.”
In that case the submission included a submission that liability for dishonest acts is only brought about where the loss was intended by the partner whose act or omission is in question. See para [20].
The other members of the court did not express any view on this question so the remarks of the Chief Justice must be seen as obiter.
In my view the relevant test is that espoused by counsel for Richard Cameron and the estate of John Wallace Cameron which is “the third party must establish that David Cameron knew at the time each of his valuations was made that the opinion he expressed as to value was false, and that he stated that false opinion with intent to deceive or cheat.”
I have broadly set out the essential elements of David Cameron’s alleged dishonesty.
David Cameron was a member of an old and established valuation firm in Brisbane. There is no plausible motive advanced as to why he should have been dishonest in making these valuations. Furthermore, there was no inducement to put his or his firm’s reputation at risk. He received no financial or other reward for his alleged dishonest acts. I am satisfied that the 1989 transactions involving Solace Securities Pty Ltd were at arms length, or at least that the third party has not established that they were not. Mr Stamp was of that view and there is no reason not to believe him. Messrs Corbett and Jackson certainly thought them to be of sufficient value to procure acquisition of them from the receiver in December 1990. If they are arms length transactions, they then were the best evidence of value at that time. Certainly, in my view, David Cameron believed the contracts to be at arms length. He took them into account as sales evidence.
Ultimately what I have to find is whether David Cameron performed the valuations incompetently or dishonestly. The evidence concerning the valuations was very extensive. I do not intend to traverse it all here. It is sufficient to demonstrate the quality of the valuations by example. If one goes to the “Hotel” valuation, essentially the error complained of is in his failure to check whether the rental being paid was a sustainable market rental and in his adoption of a capitalisation rate of 11% which was too low in the circumstances.
In relation to the “hotel” valuation I find that David Cameron did inspect the hotel in 1989. He went there with a Mr Stamp who supported this evidence. He said he met Mrs Cunnington during that visit, though she cannot recall him in particular. She remembers a person coming, but could not remember meeting that person. I find that the third party has not to the appropriate standard proved that Mr Cameron failed to inspect the property in November 1990, or take field notes. This is relevant to a requirement under the insurance policy that inspections be carried out in person and field notes be taken.
As to the allegation that David Cameron did not make any inquiry of the lessees as to their ability to pay the rental, this is so because he was valuing the landlord’s interests not the lessees business. True it is that the evidence revealed that the most common way to value an hotel is by reference to the fees paid to the licensing commission. But, David Cameron was a person with not much experience in valuing hotels. The fact that he used what might arguably be called a “wrong method” is not of itself proof of dishonesty. Central also to the third party’s claim of dishonesty was that the hotel building was in part structurally unsound; that parts of the roof needed replacement; and that the external timber stairways needed replacement. It is also alleged that the building required a complete repaint. This was because David Cameron had represented that the building was “reasonably well maintained” and required only “minor repairs and maintenance”.
The evidence revealed though that in 1988 other valuers (Novak Tonkin) had described the hotel as structurally sound and in a fair state of repair. Mrs Cunnington thought “it wasn’t too bad”, and mentioned the fact that it stood up very well in the 1989 cyclone, in fact better than other hotels in the town. The verandah was being used.
I am of the view that each of the valuations done by David Cameron were sloppy and incompetent. Indeed they reek of laziness. This is particularly so with respect to the second set where, for instance, there was a failure to revalue the buildings on the industrial land. In the witness box he struck me as being a man who lacked guile. He appeared to me to be doing his best to tell the truth in difficult circumstances. I gained the impression that he was embarrassed by the fact that his incompetency was being shown up. His conduct was, in my view, not such as would fit within the meaning of the word “dishonesty” within the application of the law discussed above. The third party has failed to prove that the dishonesty exclusion applies in this case. As to inspections and field notes, these are relevant because of an exclusion clause under the policy relating to a failure to take field notes and to inspect personally. There seems no doubt that David Cameron did visit the farm, the hotel, and the Mica Street property in 1989. The question is whether he reinspected them and took field notes in 1990.
David Cameron’s own evidence is that he inspected the farm with Wightman and Stamp in 1990. In this he is supported by Mr Stamp and Mr Wightman. Mr Stamp gave evidence that Cameron had a clipboard upon which he assumed he was writing on as he was wandering around. Wightman says that notes were taken on the farm inspection.
Mr Revill was called but could not recall Cameron by name. He did recall some “business people” coming to the farm from time to time. Indeed he did not recall a Mr Fennelly from another valuer calling, even though he must have been there on 4 May 1990 to carry out his valuation.
So far as the hotel is concerned, David Cameron’s evidence is supported again by Mr Stamp. I see no reason not to believe Mr Stamp. Mr Stamp recalled David Cameron taking a clipboard with him on which he thought he took notes.
I accept that David Cameron did inspect the industrial property in 1990; took photographs, and field notes.
The obvious reason for accepting the evidence of Mr Stamp and Mr Wightman is that neither of them has any interest in the outcome of this litigation.
Furthermore, an explanation has been proffered (which I accept) that the field notes which David Cameron took were probably cleaned out in an office tidy up in about 1991 and in 1993/94 before these claims were made in 1995. It should be remembered also that the third party’s requirement to record field and file notes was introduced in 1991, after the valuations had been undertaken.
INSURANCE ISSUES
In view of my findings that the plaintiff did not rely upon the Cameron valuations in 1990 (or indeed 1989) in order to make the loan, both initially and by way of further advances, and that David Cameron was not dishonest in preparing those valuations, it is not necessary to consider the interesting and difficult insurance questions. They would only arise in circumstances where it was found that David Cameron was dishonest. A possible exception is in relation to the recovery of the defendant’s costs of defending this action. Normally they would covered by the policy. I shall, however, hear argument as to this matter.
CONTRIBUTORY NEGLIGENCE OF MAM
There is, as a result of my findings above, no need to consider this issue.
DAMAGES
I should, in any event, make some findings in relation to damages. Mr Wallace Smith has calculated MAM’s loss by reference to three scenarios, with three interest rate regimes applying to each scenario. They are:
1. Total advance less (net recoveries less expenses);
2. Total advance less (net recoveries less expenses) less $90,000;
3. Total advance less (net recoveries less expenses) less establishment fees.
Scenario 2 and scenario 3 were not pushed by MAM. However, in my view scenario 1 overstates the damages which should be assessed should MAM have been successful in this action.
I am of the view that the quantum of the claim should be adjusted or discounted for a number of reasons:
1. It should not be able to claim that component which is effectively represented by its own fees from the transaction, i.e. $370,000. Nor should it be allowed to claim interest on that component;
2. There is no justification in this case to allow compound interest; and
3. MAM failed to prove the further advance of $90,000 in 1991.
The first advances totalled $1.8M as monies paid to or for the borrowers. The balance was the extraordinary fee. MAM claims to have made further advances of $550,000 in 1991, but only proved $460,000 of that. Of that amount $170,000 was fees. The amount of the further advance then is only $290,000. In all then the relevant advances totalled $2.09M, in respect of which $1.28M was recovered on the sale of the three properties. The net loss therefore is no more than $810,000.
There is a further factor that this company (MAM) went into liquidation not long after because of its bad lending practices. That alone is a factor to compel the non award of compound interest. Simple interest only should be allowed at 10% for the period.
LIMITATION DEFENCES
I find that the action in contract against David Cameron and DASCAM Pty Ltd in relation to a cause of action which accrued on 16 November 1990 was commenced within time.
I find that the action based in contract against the third and fourth defendants relying upon s 55 Property Law Act 1974 (Qld) is statute barred, as are the claims against those defendants under the Trade Practices Act (supra) and the Fair Trading Act 1999 (Vic).
PIESSE INVESTMENTS PTY LTD (“Piesse”)
On 2 February 1999 Fryberg J made orders which, in effect, made the only issue in this action whether the valuations which are the subject of that action (exhibit 16 and 17) were the product of reasonable skill and care on the part of Mr Cameron. As the trial progressed it became clear that such an issue did not appear to be in dispute. The evidence of Mr Brett (an expert valuer) was that the conclusions expressed in the valuations in question “are not conclusions which would have been expressed by a reasonably competent valuer”. This evidence was unchallenged.
Mr Clothier, who appeared for Piesse and the second defendant (Mr Redmond), developed the arguments with respect to each valuation clearly and precisely. Without traversing those submissions I am of the view that the valuations (exhibit 16 and 17) are not the product of reasonable skill and care on David Cameron’s part.
Having said that I shall turn back to the question of dishonesty because it was raised against David Cameron in this case also by HIH. It is not possible, in my view, to seek to rely upon these valuations as support for a view that if they were made dishonestly so were the MAM valuations and vicé versá. Rather, the quality of the Piesse valuations fortifies my view that David Cameron was, at least in respect of the valuations I have seen, an incompetent valuer. There is no relationship between the Piesse valuation and the MAM valuations. They were done at separate times and years apart. The second set of MAM valuations was done in 1990 and the Piesse valuations in 1995.
POSITION OF THE EXECUTORS OF THE ESTATE OF JOHN WALLACE CAMERON
Counsel for the fourth defendants (executors) put interesting submissions before me as to what should be done had there been a judgment against the fourth defendant (executors). He also put before me submissions with respect to limitation of action issues. In view of my findings it is unnecessary to consider those matters any further.
In the event I make the following orders and judgments:
MAM
1. That the plaintiffs’ action be dismissed;
2. That the defendants’ action against the third party be dismissed.
Piesse Investments Pty Ltd
1. I declare that the conclusions expressed by David Cameron in the valuations being exhibits 16 and 17 are not the product of reasonable skill and care on the part of Mr Cameron.
I shall hear submissions as to costs in both actions and as to the form of judgment in the Piesse Investments Pty Ltd action.
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