Newcombe v The Queen

[2000] HCATrans 287

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M45 of 1999

B e t w e e n -

THOMAS JENKINS and HEATHER JOY JENKINS

Applicants

and

NATIONAL AUSTRALIA BANK LIMITED

Respondent

Office of the Registry
  Melbourne  No M46 of 1999

B e t w e e n -

HEATHER JOY JENKINS

Applicant

and

NATIONAL AUSTRALIA BANK LIMITED

Respondent

Applications for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 26 MAY 2000, AT 10.55 AM

Copyright in the High Court of Australia

______________________

MR D.J. WILLIAMS:   May it please the court, I appear for the applicants in each of these matters with my learned friend, MR S.V. PALMER.  (instructed by Tisher Liner & Co)

MR C.L. PANNAM, QC:   If the Court pleases, I appear with my learned friend, MR A.T. SCHLICHT, for the respondent.  (instructed by Russell Kennedy)

GLEESON CJ:   Yes.  Mr Williams, I asked the Registrar some days ago to notify the parties that I hold some shares in National Australia Bank.  I assume nobody has any object to me sitting in the matter.

MR WILLIAMS:   We do not, your Honour.

CALLINAN J:   I should say that I overlooked asking the Registrar to inform the parties but I have a superannuation fund with some shares in the National Bank.

MR WILLIAMS:   I would be quite confident that my instructions would be the same, your Honour.

MR PANNAM:   And mine.

GLEESON CJ:   Thank you.  Yes, Mr Williams.

MR WILLIAMS:   If the Court pleases, it is desired to address in oral argument only the question of the valuation of the property and whether the measure of damage adopted by the learned trial judge and, in effect supported, although we would say on different grounds by the Court of Appeal, is wrong.

GLEESON CJ:   Am I right in understanding that the reason that was behind the approach that was taken both at first instance and the Court of Appeal was what was regarded as the unreliability of some earlier transactions, or possible transactions, as a guide to value.

MR WILLIAMS:   As a guide to value, perhaps, your Honour.  We would say that the Court of Appeal erred in misunderstanding what the learned trial judge had found about the reliability of that evidence.  The Court of Appeal erred in finding, for example, that the trial judge was right in rejecting the evidence of the valuer, Mr Falvo, who gave the most cogent evidence of the value of the property because, in fact, we would say that the trial judge accepted Mr Falvo’s evidence on the key question in the case, namely, the question of liability.  We would say, similarly, that the Court of Appeal erred in going behind her Honour’s finding on the question of whether a contract to one Karanikis would have proceeded.

Her Honour found that it would have proceeded had the valuation been maintained from March 1990 through to October 1992.  The Court of Appeal expressed doubts about that conclusion.  So, in perhaps a long answer to your Honour’s question, we would say that the Court of Appeal approached the matter differently from the learned trial judge.  The learned trial judge, with respect, did not specifically avert to reasons for preferring evidence of later restoration of the property to evidence concerning sales of the property, and in particular, to the valuation evidence.  Her Honour gave no reason for not dealing with the valuation evidence of Mr Falvo on the question of assessment of damages.

GLEESON CJ:   I had in mind what appears at the top of page 63 of the application book.

MR WILLIAMS:   In relation to the failure of the guarantors to lead evidence, your Honour, is that the aspect?

GLEESON CJ:   No, “The judge was confronted by evidence” et cetera.

MR WILLIAMS:   Yes.  Well, her Honour was, of course, confronted by evidence of those transactions but her Honour found – if I could take the Court to the trial judge’s reasons in relation to those matters at page 13 of the application book.  In paragraph 28 of her Honour’s reasons, commencing at about line 23 her Honour said:

I accept the evidence of Mrs Neesham –

who was, of course, Mr Karanikis’ solicitor in respect of the conveyancing, or proposed conveyancing:

that throughout 1992 her client was anxious to effect the purchase;  that the reason why the sale was not completed was not completed was his inability to obtain finance after the second valuation at $410,000;  and that if the valuation in October had been for $830,000, the same amount as the March valuation, the sale for $1 million would have proceeded.

So that, with respect, the statement which appears at the top of the application book, page 63, to which your Honour the Chief Justice has drawn my attention, in the reasons of his Honour Justice Phillips on appeal we would say overlooks the fact that her Honour at trial had actually made a finding that that contract was a genuine contract and that had the valuation held up the contract would have proceeded.  That is so in circumstances where, as we make the point, no notice of contention was filed by the Bank seeking to challenge any of her Honour’s findings of fact or to uphold her Honour’s decision on any grounds other than those on which her Honour made that decision.

So that we would say, with respect, that it was not open to the Court of Appeal to go behind her Honour’s reasons and in fact undermine or look beyond findings of fact which her Honour had made in supporting her Honour’s conclusion on different reasons, and, yet we say that that is exactly the course which was the adopted in the Court of Appeal and the course which has, in effect, denied the applicants here the right of intermediate appeal because the intermediate appeal process went off the rails, with respect, with the court making findings and upholding reasoning which was not her Honour’s reasoning in circumstances where no notice had been given that such a course would be adopted.

What we seek to do today is to persuade your Honours, first, that her Honour’s reasoning was erroneous and, second, that the Court of Appeal upheld her Honour’s reasoning on erroneous grounds.  If I could, perhaps, go to the first of those steps.  The first point we make is that her Honour in fact accepted the evidence of Mr Falvo on the question of liability.  On the question of liability, of course, her Honour was dealing with the Pendlebury test, whether it was safe for the Bank, as mortgagee, to expend its own money on the property or in preserving the property.  Her Honour deals with that question in her reasons, particularly at page 19 of the application book.

On page 18 her Honour has set out in some length the classic statement by Justice Isaacs in Pendlebury of the test and, in particular, the issue of safety on the part of the mortgagee in expending money.  At the top of page 19 in paragraph 43 her Honour says this:

Considering the application of that passage to the present case, the property with which I am here concerned was valued in March 1992 at $830,000 and Mr Mitchell –

who I interpose, your Honours, was a Bank officer –

said that $700,000 would have covered the debt as at 1 September 1992.  Presumably that amount would have been somewhat less when the plaintiff took possession January 1992.

Her Honour then goes on in the next half a dozen lines or so to deal with some other aspects of it and then says at line 12:

On that basis, it can be said that provision for a security service and a caretaker from the outset would have been “safe” in Isaacs J’s terms and would almost certainly have preserved the property in the interest of both mortgagor and mortgagee.

Now, the words “On that basis” in line 12 must be taken to be a reference of what goes before in the paragraph because it is that paragraph which sets out the factual matters to which her Honour gave attention in considering the safety test and those matters include the valuation in March 1992 which her Honour must plainly have been accepting for that purpose.  And, in fact, she must have been accepting it for the purpose stated in Justice Isaacs’ judgment and that goes to the question of what the Bank could expect to recover on a sale.

In other words, the Bank is entitled, if it is reasonably of the view that what will be recovered on a sale is less than what it is owed, not to expend its own money, throwing good money after bad, as it were, but if the Bank ought be satisfied that a sale of the property will not yield not only sufficient funds to pay out its debt but also to cover the costs of such steps that it ought to take, then in that sense it is safe and it is to that question that her Honour was drawing attention.  Therefore, in finding that it was safe, on the strength of the $830,000 valuation, her Honour was in fact finding that had the property been sold by the Bank in the ordinary course of a mortgagee sale, in other words, without breach of duty on its part, it would have yielded sufficient not only to pay up the $700,000 then owed to the Bank but also the modest additional cost of the security and caretaker services which were not taken and which her Honour found to be the basis of liability.

GLEESON CJ:   Where is the finding that her Honour makes which you say is inconsistent with her finding at the top of page 19?

MR WILLIAMS:   The ultimate finding that the diminution in value of the property caused by the Bank’s negligence was only the sum of $120,000 is inconsistent because, first, it applies the wrong test.  The test ought be not what would be the cost of putting the property back into some similar condition – and we have some complaint about whether in fact it was the same condition – but not that cost but the difference between what is realised and what ought to have been realised, absent breach of duty, an issue upon which her Honour did not embark.

So, in applying the wrong test her Honour, in our submission, fell into error because if one applied the test of the difference between what was actually realised, namely, the sum of $275,000, and what ought to have been realised had there been no breach of duty, we say her Honour had already determined, at least in part, what that sum was because her Honour had already determined that had the property been sold without breach of duty it would have yielded at least enough to cover the debt and the cost of the security services.  So that at a minimum, even if one ignores the cost of the security services, her Honour ought to have found, we would submit, that damages of not less than the difference between 275 and 700 had been caused because the true test is not, as I say, what value or what monetary expenditure had to be made to put the property back in a similar condition later, but what would have been realised had the property been sold without breach of duty.

To go to Pendlebury 13 CLR, if I could, on that question, at the foot of page 692 in the report of Pendlebury which appears in the judgment of the Chief Justice his Honour said towards the foot of that page:

In my opinion, a mortgagee selling under circumstances which show a reckless disregard of the interests of the mortgagor is responsible to the same extent and on the same principles as an accounting party who is liable for wilful default.

I think, therefore, that the defendants are liable to account to the plaintiff for the amount which would have been realized on a sale of the property conducted without wilful default, which I hold to have been established –

Now, when one applies that to the present case her Honour must, in the paragraph to which I have been taking the Court on the question of liability, have been taking the view that of course the Bank would sell without wilful default in reaching the safe proposition.  What would be safe in the case of wilful default no-one will ever know, but her Honour must have found that if the Bank proceeded to a sale without engaging in the wilful default which ultimately her Honour found had been made out, then it would have yielded sufficient to pay out at least $700,000 because, without that finding, her Honour could have not made the finding that she did that the Pendlebury test was made out and the Bank was liable to the applicants for damages.

So, that is how we say the reasoning of her Honour fell into error.  Her Honour misunderstood the test or applied the wrong test because her Honour overlooked in the assessment of damage the fact that she had already reached a finding which was most material to the question of quantum, namely, the finding to which I have referred the Court.  Having already found that that evidence was sufficient upon which to make a finding of liability her Honour could not, as the Court of Appeal wrongly took her Honour as having done, reject that evidence on a question of quantum or regard it as irrelevant.  It was, in fact, the very issue to which attention ought to have been given on the question of quantum and her Honour’s failure to give attention and place reliance upon the valuation evidence on the question of quantum is the error that we say is made out in the primary decision in this case. 

Now, when we took the matter to appeal the Court of Appeal, as I have indicated, adopted a rather different approach to that which her Honour had accepted.  The Court of Appeal took the route of reanalysing for itself all of the evidence, which of course it is entitled to do, but not in such a way, we submit, as to go behind findings of facts made by her Honour which are unchallenged by the respondent to the appeal.

In other words, it is perfectly open to a party, an appellant, to say to the Court of Appeal that, on the factual findings of the trial judge, the judge then fell into error in apply those findings on questions of law which arise, or questions of mixed fact and law, such as the assessment of the quantum of damages.  So, in the present case, the appellants in the Court of Appeal were perfectly entitled to assume, in the absence of a notice of contention, that the Court of Appeal would review the rulings of law made by her Honour and the assessment of damages made by her Honour on the basis that her Honour’s findings on factual questions were not in challenge.

CALLINAN J:   Mr Williams, can you show me where the final calculation of damages is made?  Is that at page 22 of the application book?  The conclusion was $60,000, was it not?

MR WILLIAMS:   The conclusion was $60,000 in one case and $120,000 in the other.

CALLINAN J:   Thank you.

MR WILLIAMS:   Perhaps the clearest statement appears starting at the foot of page 23 of the application book and going over to page 24 in relation to the damage to the property and to the chattels.  Your Honours will see in the second‑last line:

I consider that a reasonable estimate of the cost of restoring Camelot Castle to the state where it could be operated as a reception centre would be $120,000, being $60,000 for chattels and equipment and $60,000 attributable to labour and materials for the restoration of the freehold property subject to the mortgage.

Her Honour then goes on to say:

On that basis, the amount of 60,000 is the measure of damages payable to Mrs Jenkins on her claim against the plaintiff as a mortgagor of the property ‑ ‑ ‑

CALLINAN J:   I am sorry, I must be missing something.  $60,000.  There is a reference earlier to $120,000.  $60,000 is the value of the real property, is it?

MR WILLIAMS:   Yes.  Her Honour finds the diminution of $60,000 in the value of the real property.

CALLINAN J:   The chattels were not subject to any mortgage, you say.

MR WILLIAMS:   They were subject to a mortgage debenture and the guarantors also claimed that the loss by the Bank of the chattels harmed the guarantors in the sense that it diminished the security available to the Bank and so there were two heads, each of $60,000, which resulted in a finding in favour of Mrs Jenkins in the sum of $120,000 and in relation to Mr Jenkins in the sum of $60,000 because the court held that Mr Jenkins did not have the benefit of the diminution in value of the property, only in the chattels.

CALLINAN J:   So that the total amount is effectively the cost of restoration, plus an item which is a value attributed to the diminution arising from other factors, is that right?

MR WILLIAMS:   Yes, your Honour, although both were the subject of complaint and both were the subject of findings of breach of duty.

CALLINAN J:   So the total damages were $180,000?

MR WILLIAMS:   $120,000, your Honour.

CALLINAN J:   $120,000.

MR WILLIAMS:   Yes, the $60,000 in relation to the chattels, the same finding was made in favour of Mr and Mrs Jenkins, so it is the same sum.

CALLINAN J:   $120,000.

MR WILLIAMS:   Yes.

CALLINAN J:   What was the sale price?

MR WILLIAMS:   $275,000, your Honour.

CALLINAN J:   So that all her Honour did was look at the actual sale price arising from a sale effected some considerable time after the breach of duty by the mortgagee, and, simply, effectively added to that the cost of restoration, and treated that as the true value as at whatever would have been the appropriate date for the performance of the duty owed by the mortgagee, is that right?

MR WILLIAMS:   Precisely, your Honour.

CALLINAN J:   That, you say, is the error?

MR WILLIAMS:   Yes, your Honour.

GLEESON CJ:   The breach of duty by the mortgagee was not failing to sell the property, was it?

MR WILLIAMS:   No, your Honour, it was failing to take adequate steps to preserve and secure the property.

GLEESON CJ:   Yes.

MR WILLIAMS:   It was a continuous breach over, really, an eight month period starting in January 1992 when possession of the property was taken and through to September 1992 when the Bank first took steps in relation to security.

GLEESON CJ:   Am I right in thinking that the essential part in her Honour’s reasoning that you criticise is at the bottom of page 22 and the top of page 23?

MR WILLIAMS:   Yes, your Honour.

GLEESON CJ:   You say, rightly or wrongly, that in applying that process of reasoning her Honour appears to have overlooked or failed to take into account the factual matter referred to on the top of page 19.

MR WILLIAMS:   Yes, your Honour.

CALLINAN J:   The preservation of the property, however, was preservation for a purpose.

MR WILLIAMS:   Yes, your Honour.

CALLINAN J:   The mortgagee was always going to exercise its power of sale and the preservation was for that purpose, it was not an end in itself.

MR WILLIAMS:   No, your Honour, it was for the purpose of getting the best price.

GLEESON CJ:   Thank you, Mr Williams.  Yes, Dr Pannam.

MR PANNAM:   If your Honours please, our central submission is that the finding made both by the trial judge and the Court of Appeal were factual findings and findings that were entirely open to them on the peculiar facts of this case.  Can I, in order to put the submission just made into context, just briefly retell to your Honours what the essential facts were.  On 23 August 1990 the Bank made demand under the mortgage and the under the mortgage debenture.  On 25 January 1992 the Bank took possession of the property.  An auction was held at the property on 21 February 1992 which attracted no genuine bid.

The judge found, as was the fact, that the Bank did not take appropriate steps to look after the property and it lapsed in its condition, things were stolen, people lit fires in various parts of it, but the fabric of the building remained intact.  It was finally sold at the end of 1992 for $275,000.   Those are facts.

GLEESON CJ:   When was that, Dr Pannam?

MR PANNAM:   November 1992 of the same year.  Now, there are several peculiar features of the facts of this case.  The first was was that the purchaser, a man named Parkinson, immediately set to work to bring the property, which was an unusual one, a castle type reception centre, back into the condition it was at the time that the Bank took over, and indeed, we would submit, and the judge, Justice Phillips, indicated that he was inclined to find, that the works that had been carried out were such not only to bring the property back to the condition that it was in when the Bank took possession but it was probably a bit better because the evidence was it was in a tired condition at that time, it required repainting, recarpeting and all of those things, and those matters had been attended to.

Now, what he spent in order to achieve that position was $60,000 in terms of expenditure of money on actual things to improve the property and bring it back to its original condition and $60,000 in labour of himself and various relatives that were necessary for that purpose.  So, that was the actual money that was required to bring the property back to the condition that it was in.  That was the first unusual feature.  It was a case where you knew precisely how much it had taken to bring the property back to the condition that it should have been in, and, arguably, a bit better.

The second feature of the case was that, to say the least, there were a number of very peculiar transactions that were entered into by the present appellants and can I just indicate what they were.  In October 1990, that is just after the Bank’s original demand, there was a sale of the property to an entity called Charnock Properties Pty Ltd for $1.52 million.  It was an unconditional sale contract.  There was a $300,000 deposit.  No attempt was ever made to enforce that contract. On 14 November 1991 there was a sale to a man called DiFiori for $1.8 million – the figures are significant – and there was a $125,000 deposit which had been received but had not been paid over to the Bank.  Again, that was an unconditional contract taken over by a man called Karanikis who was liable under the contract but no attempt was made to enforce it. 

On 15 July 1992 there was a further sale to the man who had already brought the property, Karanikis, for $1 million.  No attempt was made to enforce that contract.  In November 1992 Mr Karanikis offered to purchase the property for $500,000 on terms that he paid $250,000 down and there was going to be another $250,000 a year later.  So, you have all of those funny transactions.

Against that, the Bank had a valuation of $475 million from a man named Sutherland.

GLEESON CJ:   $475,000.

MR PANNAM:   $475,000, and the valuation that my learned friend referred to – there were two valuations, one a valuation made by ‑ ‑ ‑

GLEESON CJ:   Could I interrupt you, Dr Pannam, when was the valuation of $475,000 made?

MR PANNAM:   It did not appear – it was in the Bank’s files.  It appeared to come into existence back in the previous year.

GLEESON CJ:   1991.

MR PANNAM:   Yes, I think that is right, but that can be turned up.  In the relevant year, 1992, Mr Falvo’s valuations – there were two of them that are referred to ^‑ one was for, I think, $800,000.

GLEESON CJ:   That is the one referred to on the top of page 19.

MR PANNAM:   Yes.  The other one, a little later on, was significantly less than that.  These are just valuations.

GLEESON CJ:   Just remind us who Mr Falvo was.

MR PANNAM:   He was an independent valuer who was retained on behalf of the present applicants to value the property and it was valued on a fundamentally false basis in the first valuation to which your Honour has referred because he valued it on a going concern basis and in fact the place had been shut for months.

GLEESON CJ:   Just pausing there, that March 1992 valuation of $830,000 was made on a going concern basis?

MR PANNAM:   Yes.

GLEESON CJ:   What was the date and amount of his second valuation?

MR PANNAM:   The date and the amount of his second valuation appears at page 61 of the application book.  The second valuation was $410,000.

GLEESON CJ:   When was that?

MR PANNAM:   That was in October 1992.  So, you had all of these facts that were before the court and the question was, how do you put a value on the diminution in value of the property.

CALLINAN J:   When you say “going concern basis”, was that a basis which attributed notional profits and income?

MR PANNAM:   Yes, but it had been closed for several months.

CALLINAN J:   No, I understand that.

MR PANNAM:   Yes.

CALLINAN J:   But it was not simply a valuation of the real property in a finished and ‑ ‑ ‑

MR PANNAM:   No, it was an income stream valuation, put it that way.

CALLINAN J:   Income stream.

MR PANNAM:   Yes.  Now, against all of that evidence, the question of fact that fell to be determined was what was the amount to be put upon the diminution in value of the property in terms of what it could have achieved by sale as a result of the Bank’s failure to properly maintain it.  Now, that question of fact was addressed on what, on one view, might be a very unusual way, but we would say a factually attractive way, was to say, “We know the following facts in the real world.  Put valuations and strange transactions to one side.  We know it was sold for $275,000.  We know it took $120,000 to bring it back to what it was”.

So, what both the trial judge and the appeal court did was to say, “Well, that was an approach that was, on the facts, an appropriate measure of the diminution in the value of the property that was caused by the Bank’s breach of duty”.  Now, that was purely a factual case.  Our learned friend’s submission has to be, “Oh, no, you take the valuation that was made by Falvo on a going concern basis and you say that crystallises that question”.  Well, it does not.  The valuation was what it was, a valuation.  It proceeded upon a false premise to begin with but it was only a valuation.  It was a view expressed against the background of an auction that took place shortly thereafter where not a bid, a genuine bid, was achieved.

Now, what we would say is that there was no argument before the trial judge or in the Court of Appeal about the relevant principle.  All that arose was a question of fact.  How, in the circumstances of the very peculiar facts of this case, how do you properly place a number on what the Bank’s dereliction of its duty had reduced the property by and, in our respectful submission, there is no point of principle in that, it is a question of fact.  The trial judge approached it in the way that I have indicated.  That same approach was taken by the Court of Appeal and there was no obligation to accept, willy-nilly, Mr Falvo’s valuation of earlier that year.

GLEESON CJ:   Mr Williams puts against you that there is an internal inconsistency in the process of reasoning of Justice Balmford.  He says that her findings of fact on page 19 in the context of the question of liability, if I can use that expression, are difficult at least to reconcile with the approach that she adopted on the question of damages on the bottom of page 22 and the top of 23.

MR PANNAM:   What we would say about that is that the valuation of the property at $830,000 meant something in the world of fact.  That is, what the valuer was assaying a view about was, how much would, in the real world, the property have achieved if put up for sale at that time.  That is a question of fact, it is nothing more.  She had before her subsequent facts, namely, the valuation proceeded on a false basis, in any event, there was an actual sale, there was an actual rehabilitation of the property and there were figures available at every step.  So, what she did was to prefer the facts rather than the view that had been expressed by Mr Falvo on the incorrect basis that I have identified, and that is what the Court of Appeal have found.

GLEESON CJ:   On that approach she was willing to use Mr Falvo’s valuation as a stick to beat the Bank with on the issue of liability but she was not willing to depend on it for the purpose of computing damages.

MR PANNAM:   It was one of the matters that was taken into account by her in saying, “Yes, all of these terrible errancies of the bank in failing to look after the property, vandals coming in, animals coming in and all sorts of things happening, we get a flavour of that that it had a value because I had this valuation earlier in the year when these things had not happened” but that is a different question.  The question when it came to assessing what the damage was that was caused by the Bank’s dereliction of its duty in maintaining the property, she had before her not just that one piece of evidence but she had a plethora of other evidence, both before and after the taking of possession of the property by the Bank.

GLEESON CJ:   It may be that the Bank’s breach of duty was so obvious that it would be a little unrealistic to attach too much significance to the importance, in her process of reasoning, on the question of liability to Mr Falvo’s valuation.

MR PANNAM:   Yes, indeed.

CALLINAN J:   The acceptance of it may also have been an error in favour of the mortgagor in being prepared to take into account a valuation on a going concern basis.  It may really have been an inappropriate basis but it certainly was to the benefit of the mortgagor.

MR PANNAM:   Can I put it another way.  If one reverses the thought process and adopts the argument that was put, you would have, on this assumption, the trial judge coming to the conclusion that, “Yes, I will not look at all the facts, I will just take Mr Falvo’s valuation earlier in the year and I will proceed to assess the damage based upon just that valuation”.  In that situation we would have had a fairly good case on appeal in the Court of Appeal because we would have said the error that would be committed by the primary judge in that circumstance was preferring the expression of a view in this complicated factual situation that was contradicted by the facts - no bid at the auction, later in the year a sale in fact to a real

purchaser, later on a rehabilitation of the property for, in the scheme of things, not a lot of money ‑ ‑ ‑

CALLINAN J:   But nobody would suggest that it was the Bank’s obligation to conduct the property as a business ‑ ‑ ‑

MR PANNAM:   Certainly not.

CALLINAN J:    ‑ ‑ ‑which was Mr Falvo’s basis of valuation.

MR PANNAM:   Yes.  In brief, they are our submissions.  It is a facts case involving no point of principle at all.

GLEESON CJ:   Thank you, Dr Pannam.  Yes, Mr Williams.

MR WILLIAMS:   With respect to my learned friend, your Honours, it is a case on which the facts are important and they ought be correctly stated which, with respect, they have not been.  In relation to Mr Falvo’s valuation two points have been made about it which, with respect, are both wrong.  The first is that Mr Falvo was retained by the applicants.  He was not.  He was independent of the applicants.  In fact, he had been retained by a financier who was looking to lend money to Mr Karanikis, the purchaser.

GLEESON CJ:   Was his valuation on a going concern basis?

MR WILLIAMS:   No, your Honour.  It was on the basis that a business was being conducted but it was not a valuation of a business or of an income stream.

GLEESON CJ:   What did you mean when you said, “It was on the basis that a business was being conducted.”

MR WILLIAMS:   This was dealt with at pages 8 to 9 of the application book in her Honour’s reasons.

GLEESON CJ:   Yes.

MR WILLIAMS:   Her Honour refers to Mr Falvo in paragraph 15 in the middle of the page:

In a formal valuation as at that date –

ie, 10 March:

he valued the freehold, including all furniture, plant and equipment, at $830,000, on the basis that the property was being used as a reception centre, motel and restaurant.

GLEESON CJ:   How did the circumstance that he assumed the property was being used have relevance to the amount that he ultimately reached.

MR WILLIAMS:   He specifically dealt with that and her Honour refers to his evidence about that question.  If I could take you to the last three lines at page 8 of the application book and over to 9:

Mr Falvo said in evidence that the difference between the two valuations –

his earlier and his later –

was attributable to the deterioration of the property, the loss of the chattels, the unsuccessful auction and the fact that a business had not been operating there for some six months, which he said would make a difference to the valuation of between $50,000 and $100,000.

GLEESON CJ:   I am sorry, I am not sure that that answers my question.  Concentrating on the value of $830,000 which was said to be on the basis that it was being used for its highest and best use, what was the significance of that assumption to the method of valuation?

MR WILLIAMS:   The extent of the significance, at least, is dealt with by Mr Falvo’s further evidence that the non-use of the property ‑ ‑ ‑

GLEESON CJ:   Can you tell us how, in the methodology that are used to arrive at $830,000, he attached significance to the assumption that the property was being used as a reception centre?

MR WILLIAMS:   Your Honour, I would have to take you in detail to Mr Falvo’s valuation, it is not in the materials.  Mr Falvo valued the property on a number of bases, as is usual, and then came up with a global figure.  He did not specifically value the property solely on the basis of an income stream but he did have regard to the fact that it was used or available to be used for a particular purpose, but what we say about that is he quantified the amount by which that affected his valuation because when asked about the matter he said at the top of page 9, as her Honour records that:

he said that would make a difference to the valuation of between $50,000 and $100,000.

We conceded before the Court of Appeal, and we concede again, that even if you take the $100,000 off - the upper limit of that figure off the valuation, reflecting the fact that it is not currently being used, then one gets to the stage where it still exceeds the amount which was owed to the Bank.  Her Honour no doubt had that in mind because she specifically refers to that evidence at this point where she is still discussing at this point the question of liability.

Questions of bids at auction – by the time of the auction some of the damage had been done, all of the chattels had been stripped out of the property, so, to say that there was no bids at the auction undermined Mr Falvo’s valuation is not comparing like with like, just as comparing the product of Mr Parkinson’s efforts with what had been there before is not comparing like with like because all Mr Parkinson did, according to the findings of her Honour, was put the thing back into a position where it could be used as a reception centre, not to put it back into the position that it was status quo ante where Mr Falvo valued it, based on that it be used as a reception centre, and motel, and restaurant, and it was also habitable by the proprietors.  It is a different beast, your Honour.

Might I briefly mention Mr Sutherland’s valuation, the only valuation held by the Bank, was in 1988, four years before the relevant event as appears at page 7 of the application book at line 17.  In relation to Mr Karanikis not enforcing the contracts that he had, that was of course to be expected because the property that he had sold had in the meantime been trashed, the damage had been done.  It is no surprise that a contract against Mr Karanikis could not be enforced in the middle or late 1992 because by then the property which he had agreed to buy had been damaged and the chattels had been taken from it so as to diminish its value.

GLEESON CJ:   Mr Williams, before you conclude, is the matter of the certificate a live issue?

MR WILLIAMS:   We say no more about it than we have said in the submissions, your Honour.

GLEESON CJ:   That is what I wanted to check.  Thank you.

On the issue relating to the calculation of loss resulting from the mortgagee’s neglect the decision of the trial judge and the Court of Appeal turned on the particular and unusual facts and circumstances of the case.  No question of principle that would warrant a grant of special leave arises, and the Court is not persuaded that the interests of justice require such a grant.  On the issue relating to the certificate of indebtedness, the decision of the trial judge and the Court of Appeal was correct.  For those reasons special leave to appeal is refused.

Can you resist an order form costs, Mr Williams?

MR WILLIAMS:   Your Honour, all we have said about the matter is that we were successful at trial on the question of liability and there were difficult questions of quantum.  I can say no more about it.

GLEESON CJ:   The applicants must pay the respondent’s costs of the application.

AT 11.36 AM THE MATTER WAS CONCLUDED