Park v Allied Mortgage Corporation Ltd

JAMES BEATTIE PARK; ELAINE PARK; SUE ELLEN REGAN and RUBY VIOLET GLADYS
POULTON v. ALLIED MORTGAGE CORPORATION LIMITED; MORTGAGE FINANCE AUSTRALIA
(SECURITIES) LIMITED; WAHRING HOLDINGS PTY LIMITED; DAVID ANTHONY UNDERHILL;
STEPHEN JOHN GOODMAN; ALEXANDER R M MACINTOSH; SALLMANNS (NSW) PTY LIMITED and
STEPHEN HOWES
No. G980 of 1992
FED No. 404
Number of pages - 14
Trade Practices
(1993) ATPR 46-105 (extract)

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Davies J(1)

CATCHWORDS

Trade Practices - alleged misleading and deceptive representation - unassignable right to claim damages under ss.82 and 87 of the Trade Practices Act - loan made on security of second mortgage - whether reliance upon negligent valuation of property development - whether duty to disclose information - duty of mortgagee to ascertain value when exercising power of sale.

No. 1 Rabarem Pty Ltd v. Monroe Schneider Associates (Inc) (unreported, 8 February 1991, von Doussa J)

Argy v. Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112

Kewside Pty Ltd v. Warman International Ltd (1990) ASC 58,821

Pendlebury v. Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676

Farrars v. Farrars Ltd (1888) 40 Ch D 395

Trade Practices Act 1974 (Cth) - ss.52, 82, 87

HEARING

SYDNEY, 28-30 April 1993

#DATE 11:6:1993

Counsel for the 3rd and 4th applicants: F. Kunc

Solicitors for the 3rd and 4th applicants: Colin Daley Quinn

Counsel for the 1st, 2nd
and 5th respondents: D.J. Hammerschlag

Solicitors for the 1st, 2nd
and 5th respondents: Dunhill Madden Butler

Appearing for the 3rd
and 4th respondents: Mr D.A. Underhill

ORDER

THE COURT ORDERS THAT:

The claims of the third and fourth applicants against the first to fifth respondents be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

DAVIES J This application alleges misrepresentation causing loss to the applicants and relies upon s.52 of the Trade Practices Act 1974 (Cth). The misleading and deceptive conduct is said to be in part express, in part to be inferred from words that were spoken and written and in part to arise from a failure to disclose information when there was a duty to do so. Principles of unjust enrichment are also relied upon but would seem to add nothing to the claim.

The four applicants were clients of Messrs Colin Daley Quinn, solicitors, who arranged for the loan of moneys on mortgage as a part of their practice. Messrs Colin Daley Quinn acted as solicitors for the applicants in these proceedings. Having been advised by counsel that the applicants had received appropriate advice in relation to the proceedings, I permitted the matter to proceed. But I should not let the occasion pass without observing that, as it was a contention of the defence that the applicants' losses arose from the negligence of Mr Colin Daley and as Mr Daley was the principal witness for the applicants, it was, in my opinion, inappropriate that Colin Daley Quinn should act as the applicants' solicitors in the proceedings. Parties to the proceedings should have independent advice with respect to the institution and conduct of proceedings and that should plainly be seen to be the case. That cannot be seen when an issue in the proceedings is whether negligence on the part of the applicants' solicitors had caused the applicants' loss.
Shortly before the hearing, by deed dated 21 April 1992, the first two applicants, James Beattie Park and Elaine Park, assigned their interests in these proceedings to the third applicant, Sue Ellen Regan. Subsequently, on 28 April 1993, the first two applicants filed notice of discontinuance of their claims. Therefore, a preliminary issue is whether the assignment was effective to confer upon Mrs Regan an entitlement to any relief to which Mr and Mrs Park would have been entitled had they remained applicants in these proceedings.
In my opinion, a right to claim damages under ss.82 and 87 of the Trade Practices Act 1974 (Cth) is, in general, a bare right of action which cannot be assigned. I am not speaking of an assignment such as may occur on the bankruptcy or death of a person or on the merger of a company into another entity. Absent such special circumstances, a right to claim under ss.82 and 87 cannot, in my opinion, be assigned. Section 82 provides:-

"(1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."

The section does not allow for the award of damages in respect of a loss which was not suffered by any party to the proceedings. Both the terms of the statutory provision and the principle as enunciated in cases such as Dawson v. Great Northern and City Railway Co. (1905) 1 KB 260 at 270-1, Defries v. Milne (1913) 1 Ch 98 and Poulton v. The Commonwealth (1953) 89 CLR 540 at 602, preclude Mrs Regan from suing for damages in respect of any loss suffered by Mr and Mrs Park. Mr and Mrs Park have discontinued their claims and that is an end to them.

The assignment has effect, however, insofar as it assigns to Mrs Regan all the entitlement of Mr and Mrs Park under the mortgage into which all the applicants had entered as mortgagees. Thus, if any ancillary relief under s.87 depends upon the approval or request of the mortgagors, the remaining applicants now hold all interests in respect thereof.
For convenience I shall refer to Mr and Mrs Park, Mrs Regan and Mrs Poulton as "the applicants", but I intend it to be kept in mind that Mr and Mrs Park have discontinued their claims.
In October 1990, the applicants loaned the sum of $420,000 to Beechboro Investments Pty Ltd ("Beechboro"), the purchaser of a large and unusual property called "The Renaissance Centre" near Katoomba in the Blue Mountains. The loan was for the term of 6 months and was made on the security of a second mortgage. Mr Daley did not obtain an independent valuation of the property but relied upon a valuation which the 8th respondent, Mr Stephen Howes, an employee of the seventh respondent, Sallmanns (NSW) Pty Limited ("Sallmans"), had made on the instructions of Beechboro. Mr Daley obtained from Sallmans an assignment of the benefit of that valuation.
In due course, when Beechboro was unable to meet its obligations under the loan, the property was sold but failed to reach the sum attributed to it by Mr Howes' valuation and the applicants were unable to recover their moneys.
As the eighth respondent, Mr Howes, was joined only at a late stage, the proceedings against him and Sallmanns have been set aside for separate determination. The case sought to be made against them is that the valuation was negligent. Whether the valuation was negligently done is not presently an issue, but all parties to the aspect of the proceedings with which I am now concerned are agreed that that was so. Accordingly, for the purpose of these reasons for judgment, though not as a finding against Sallmanns or Mr Howes, I proceed on the footing that Mr Howes' valuation was negligent. It was not put, however, that there would be any breach of s.52 of the Trade Practices Act by the communication in good faith of a valuation which was subsequently found to have been negligently made.
One ground of defence specifically raises the issue of negligence on the part of Colin Daley Quinn as the alleged cause of the applicants' loss. However, negligence on the part of the applicants or their advisers is not a defence to proceedings under s.82 of the Trade Practices Act. It is sufficient to found relief that there was conduct in breach of the Trade Practices Act and that loss resulted therefrom. As von Doussa J said in No. 1 Rabarem Pty Ltd v. Monroe Schneider Associates (Inc) (unreported, 8 February 1991):-

"Clerk and Lindsell on Tort, 15th ed. at 854 says in relation to a claim for damages in deceit: 'Carelessness of plaintiff in not discovering the untruth no defence. A person to whom a misrepresentation is made is not deceived if he actually knows the truth, i.e. knows the falsity of the representation at the time it is made to him, but it is no answer to an action for misrepresentation that the plaintiff might have discovered the falsity by the exercise of ordinary care.'

This passage was applied to a claim for damages under s.82 for a contravention of s.52 of the TP (Trade Practices) Act by Pincus J in Neilsen v. Hempston Holdings Pty Ltd (1986) 65 ALR 302 at 309, and by Wilcox J in Collins Marrickville Pty Ltd v. Henjo Investments Pty Ltd (1987) 72 ALR 601 at 613 whose reasoning was unanimously affirmed on appeal: Henjo Investments Pty Ltd and Others v. Collins Marrickville Pty Ltd, (1988) 79 ALR 83 at 96,106. See also Sutton v. AJ. Thompson Pty Ltd (in liq.) and Others (1987) 73 ALR 233 at 241."

See also the remarks of Sheppard J in Poseidon Ltd v. Adelaide Petroleum NL (1992) ATPR 40,224 at 40,235 and similarly of Hill J in Argy v. Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 135 and at 138 where his Honour examined the effect of negligence or unreasonable conduct on the issue of causation. His Honour cited the remarks of French J in Kewside Pty Ltd v. Warman International Ltd (1990) ASC 58,821 that:-

"... Concepts such as contributory negligence and mitigation have no role as such in this process (liability) but analogous notions may apply to decide whether or not a claimed loss was truly caused by the contravention in question: Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700 at 712; Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410 at 418-419; Pavich v Bobra Nominees Pty Ltd (1988) 84 ALR 285."

In this light, it is unnecessary that I make any observation as to whether Mr Daley was negligent when acting for the applicants in relation to the loan. It is sufficient that, if the conduct of the respondents was in breach of s.52 of the Trade Practices Act and if Mr Daley was misled and deceived thereby and loss to the applicants resulted therefrom, any negligence on the part of Mr Daley would not be a defence. In my opinion, no conduct or failure on the part of Mr Daley would have constituted a novus actus which broke or otherwise affected the chain of causation.
I should note, nevertheless, that Mr Howes' valuation may not have been an appropriate valuation for the applicants to have relied upon, whether negligent or not. Mr Howes' valuation took into account approval for the development of the Renaissance Centre into a facility with the following features:-

. A 100 room two-story motel

. A two-story restaurant/coffee shop . A four theatre cinema centre

. Theme shopping facilities at ground floor level . Resort office space at first floor level . A single story fast food restaurant . On-site parking and associated landscaping works.

Mr Howes' valuation was based principally on the projected value of such a development and the projected cost thereof. The result of the hypothetical calculation, based on the projected value of the property as developed less the cost of development and profit, was to give a value to the existing land and facilities of $3.5m. Although the valuation was expressed "to assess the current Open Market Value on behalf of an intending mortgagee.", it seems surprising that the valuation was thought to have application to the position of the applicants, who required security for a loan of only $420,000 for a period of six months, especially as Beechboro Investments did not itself intend to develop the property but proposed to resell it for its development potential. The applicants were interested in the value which the property would bring in a mortgagee's sale. A guide to that value was the $1.55m for which the first respondent, Allied Mortgage Corporation Limited, as mortgagee, was selling the land to Beechboro.

The first respondent, Allied Mortgage Corporation Limited and the second respondent, Mortgage Finance Australia (Securities) Limited, were associated companies which lent funds pursuant to an arrangement which they had with the Bank of Singapore. The businesses of the two companies were carried on in the one set of offices through the same directors and staff. For convenience, I shall refer to both companies as "Mortgage Finance". The fifth respondent, Stephen John Goodman, was a director of both companies and was the person principally concerned with the events with which we are now concerned.
The third respondent, Wahring Holdings Pty Limited ("Wahring Holdings"), was a finance broker and its principal director was the fourth respondent, David Anthony Underhill. Mr Underhill and Wahring Holdings carried on business in the offices of Mortgage Finance but the businesses were separate, save that Mr Underhill from time to time advised or acted on behalf of Mortgage Finance. It had at one time been proposed that Mr Underhill become a director of Mortgage Finance, but that did not eventuate.
The sixth respondent, Alexander R.M. Macintosh, is no longer a party to the proceedings.
The Renaissance Centre was an interesting property which had at one time been a Catholic school. The property seemed to have development potential, but during the period with which we are concerned, no person having an interest in developing the property and the funds for development appeared. Mortgage Finance had been involved with the property for some time but their relations with the then owners had an unhappy history. The property was sold on 30 July 1990 by Mortgage Finance to Beechboro for $1.55m in a mortgagee's sale, with settlement to take place in September 1990. At that time, Mortgage Finance held a valuation of the property by a Mr Dwyer made in July 1990, which valued the property at between $1.5m and $1.6m. That valuation supported Mortgage Finance in its sale of the property at a price within that value and in its agreement to lend to the purchaser the sum of $1.25m which was the sum already lent on the property.
By letter dated 15 August 1990, Mortgage Finance formally offered to lend to Beechboro the sum of $1.25m on first mortgage. Beechboro Investments responded to that letter by a letter also dated 15 August which stated, inter alia:-

"AMOUNT OF ADVANCE

We understood that the total advance to be made by the Lender was $1,690,000.00 to be advanced in the following manner:

(a) As to $1,250,000.00 at settlement of the purchase; and

(b) As to $440,000.00 to be advanced when sufficient funds are available to the Lender, but at the latest on date six months from the date of initial drawdown.

We understand that the Lender may have additional funds of approximately $50,000.00 which they may be able to advance immediately and add to the initial advance of $1,250,000.00. This would assist considerably in the payment of loan establishment fees, legal fees, valuation fees etc. ...

VALUATION

We have ordered a valuation from Sallmanns International. We will let you know immediately this valuation is received. Would you kindly confirm that Sallmanns are an acceptable valuer for you."

Mr Goodman responded the same day:-

"AMOUNT OF ADVANCE

Total advance will be $1,690,000.00, and fresh Letter of Offer will issue on a restructured basis as requested, the variation of $440,000 conditional upon the availability of mortgages within the portfolio, within the term agreed. We have committed the $50,000 towards the proposed variation, however drawing of same, initially would deteriorate the gearing beyond 80%, as well to have an adverse effect on incoming second mortgagee. ...

VALUATION

We are relying on our panel valuer, valuation to settle this transaction, already to hand.

You have organised the Sallman's valuation of your own volition, purely for the benefit of either refinancing and/or balance sheet appreciation. We will favourably consider the recognition of Sallmans to our panel as we vary mortgage progressively from available discharges. The Contract for Sale was exchanged on the understanding that Allied Mortgage Corporation Limited was providing $1,250,000, such contract being conditional to AMC arranging the second mortgage. There was never an arrangement that our Offer would be accepted on the basis of your comment regarding a facility for a second mortgage. We interpret this statement as reading 'if the second mortgage cannot be formalised we will not accept you (sic) Offer'. If this is in fact correct, please respond and we will withdraw our Offer."

Mr Howes' valuation of the Renaissance Centre, including lots 2 and 3 which were not part of the property being purchased by Beechboro, was $3.5m. That valuation was dated 22 August 1990, but Mr Howes must have orally communicated his valuation prior to that.
On 17 August 1990, Mr Goodman wrote to Beechboro confirming the following arrangement:-

"AMOUNT OF

ADVANCE: $1,690,000.00 One Million six hundred and ninety thousand dollars.

The drawdown of the loan amount will be completed on the following basis, and subject to the following terms and conditions;

(a) An initial drawdown of $1,250,000.00 to assist with the purchase of the property known as 'The Renaissance Centre' 227 Great Western Highway, Katoomba, NSW.

(b) The further advance of $400,000.00 will be drawn down on a progressive basis, from time to time as approved by Mortgage Finance Australia (Securities) Limited, but shall be advanced by Mortgage Finance Australia

(Securities) Limited to Beechboro Investments Pty Limited at the latest on the date six (6) months from the date of the initial drawdown of this facility. ...

7. All revaluations of the seucirty (sic) property are to be completed by a Mortgage Finance Australia (Securities) Limited approved valuer and all costs of such valuations are to be to the account of the borrower."

By this date, Mr Goodman had been informed of Mr Howes' oral valuation.

Mortgage Finance worked closely with the Bank of Singapore and clear guidelines had been set down in accordance with which loans could be made without special arrangement. Outside these guidelines, approval could be given on request. The usual lending ratio was 66.66% of value, however, there was a special arrangement with respect to funds already lent on the property, as was the case with the $1.25m. The further loan of up to $1.69m could not have been made unless supported by a valuation, as recognised by both Beechboro and Mortgage Finance. The additional loan was contemplated for the future, as Mortgage Finance was waiting for funds to become available upon repayment of other loans. Mr Goodman was aware that Colin Daley Quinn arranged for clients to lend funds on mortgage, for during early August he was involved with that firm in another transaction.
On 16 August 1990, Mr Goodman phoned Mrs Hanslow, a conveyancer with Colin Daley Quinn, and mentioned that Beechboro needed to borrow $440,000. Mr Goodman mentioned Mr Howes' valuation but did not mention Mr Dwyer's valuation. On 20 August 1990, Mr Goodman rang Mr Daley and asked if he had clients who would be interested in lending $440,000 on second mortgage. He said that he was lending $1.25m on first mortgage and that Sallmanns had valued the property at $3.5m and he indicated that he could take over the loan in six months time. No mention was made of Mr Dwyer's valuation of July 1990. The precise terms of the conversation are not important, for Mr Daley conceded in his evidence that he did not rely upon any oral statement as to value expressed by Mr Goodman but relied solely upon Mr Howes' valuation. However, I should mention that I accept Mr Goodman's evidence that he made no representation as to value save by reference to Mr Howes' valuation.

On 23 August 1990, Mr Daley received a letter signed by Mr Underhill on the letterhead of Wahring Holdings which stated, inter alia:-

"I refer to your phone conversation last Monday, 20 August, with Mr Steve Goodman of Allied Mortgage Corporation Limited regarding the above loan application, and I am pleased to be able to enclose the following information:-

1. Synopsis of loan application.

2. Asset and liability statements of guarantors (directors).

3. Copy of the property valuation by Sallmanns dated 22/8/90.

4. Copy of the Letter of Offer from Allied Mortgage Corporation Limited to the borrower for an initial loan of $1,250,000.00 but increasing by $440,000 within six months of the date of settlement. NB Beechboro Pty Ltd is a specific purpose company acquired solely for the purpose of this transaction. As a result no balance sheet exists for the company. The loan facility required from your firm is for an amount of $440,000.00, including $40,000 to be deducted at settlement to cover interest for six months. This interest in advance equates to an earning rate of 19.2% pa, compounding monthly.

Security for your facility will be a 2nd Mortgage over property known as the Renaissance Centre, Katoomba, valued by Sallmanns at $3,500,000.00. First mortgage will be to Allied Mortgage Corporation Limited for $1,250,000.00 initially. Your loan will be discharged, or partially discharged, through further advances by AMC Ltd in accordance with their Letter of Offer. It is anticipated that your loan will be fully discharged within six months."

The accompanying synopsis of the loan showed the borrower to be Beechboro and, inter alia, gave particulars of that company and of its directors.

Had the above been the only communications between Mortgage Finance and Colin Daley Quinn, there would have been misrepresentation on the part of Mortgage Finance, for up to that point of time no mention had been made of the fact that Mortgage Finance was selling the property as mortgagee for the price of $1.55m or that the money which Mr Daley's clients were being asked to lend would be paid over by Beechboro to Mortgage Finance upon settlement of that contract. However, the information that Allied Mortgage was selling the property as mortgagee and that the sale price was $1.55m, was subsequently orally communicated and it is not suggested that there was any misrepresentation in that respect.
On 29 August 1990, in association with an entirely separate transaction, Mr Daley received a brochure setting out details of Mortgage Finance and its business. In that brochure, Wahring Holdings and Mr Underhill were prominently referred to as consultants of Mortgage Finance and Mr Underhill was described as a director. According to Mr Daley's evidence, when he received this information and saw that the address of Wahring Holdings in its letter of 23 August was the same address as that of Allied Mortgage, he concluded that Mortgage Finance was arranging the provision of all the finance which Beechboro required and, therefore, as the company representing a consortium of lenders, it was taking responsibility for such matters as the valuation of the property. Subsequently, Mr Daley also saw a fax sent by Mr Underhill on 21 September, for which Mr Underhill used the cover sheet of Mortgage Finance, thus describing the sender as David Underhill "of Allied Mortgage Corporation Limited". According to Mr Daley, this confirmed his view.
In this respect, however, I cannot draw the inference that there was any misrepresentation which caused loss to the applicants or that there was any relevant holding out of Wahring Holdings or of Mr Underhill as agents of Mortgage Finance. The brochure was sent to Mr Daley for the purposes of an entirely different transaction and it is not suggested that it was in any way misleading or deceptive in relation to that transaction. Mr Daley never inquired about Mr Underhill's position and was never informed, expressly or by implication, that Mr Underhill was acting on behalf of Mortgage Finance in relation to the subject transaction.
Moreover, Mr Daley did not rely upon any assumption that Mr Goodman had satisfied himself that the value was sufficient for the second mortgage. Mr Daley considered Mr Howes' valuation to be a reliable valuation. Mr Daley gave this evidence:-

"The question was: you relied upon Mr Howes' word and Mr Howes' word alone as to the value of the property?---Yes."

Mr Daley relied upon Mr Howes' valuation because he believed that Mr Howes was a senior valuer and that Sallmanns was a reputable firm. Mr Daley did not discuss Mr Howes, his valuation or the value of the Renaissance Centre with Mr Goodman or with any other officer of Mortgage Finance or with Mr Underhill.

Subsequently, Mr Daley and Mrs Hanslow contacted the applicants and they agreed to lend a total of $420,000, in reliance upon the view of Mr Daley that it was appropriate to do so. The high interest rate offered, effectively 19-20%, presumably played a part in the applicants' decision to make the loan and in Mr Daley's advice to them that the loan should be made. The applicants' agreement to make a loan of $420,000 was communicated to Wahring Holdings on 7 September, subject, inter alia, "to the valuation report of Sallmanns being updated and assigned to us."
On 20 September 1990, Mr Daley wrote to Mr Howes requesting assurance that his valuation stood in the light of the sale for $1.55m. He received assurance that it did and that "valuation may be relied upon by Messrs Park, Regan and Poulton, for mortgage purposes." Mr Howes' letter read inter alia:-

"On the 22nd August, 1990 we undertook a valuation of the Renaissance Centre Great Western Highway, Katoomba, under the instructions of Beechboro Investments, to assess the current market value of the property.

That report concluded that the open market value of the property is the sum of $3,500,000.

That valuation may be relied upon by Messrs Park Regan and Poulton, for mortgage purposes.

For your further information, we are aware that the Renaissance Centre site, was purchased by Beechboro Investments Pty Ltd, from a mortgagee exercising its power of sale, for $1,550,000; however, we understand that the Development Approval which formed an integral part of our 22nd August valuation, was held by Beechboro Investments, or an associated company, and was not the property of the mortgagor at the time of the sale. The circumstances of the purchase and the contract price do not affect our valuation."

The existence of a development approval held by Beechboro scarcely seems to explain the difference between the valuation of $3.5m and the known sale price of $1.55m. The applicants proposed to and did take a second mortgage over the land, not over the land together with the development approval. Perhaps Mr Howes was under the misapprehension that Beechboro itself was developing the land for the purposes allowed by the development approval, in which case the land could have had a special value being suited to that purpose. In any event, Mr Daley accepted Mr Howes' confirmation of the value.
Settlement occurred on 16 October 1990. In addition to the second mortgage, the applicants obtained guarantees from two directors of Beechboro, a solicitor and an accountant, who seemed to be wealthy persons with substantial assets.
One of the documents which was executed was a deed of priority to which Beechboro, the applicants, the guarantors and Mortgage Finance were parties. The deed contained the following recitals:-

"Pursuant to the terms of a Memorandum of Mortgage entered into between the Borrower (Beechboro) and MFASL (Mortgage Finance) on 16 October 1990, as yet to be registered, the Borrower borrowed an amount of $1,690,000.00 at the request of the Guarantors to finance purchase of property known as 'The Renaissance Centre' 227 Great Western Highway, Katoomba, Volume 6164, Folio 41 excluding Lots 10-14 inclusive in Deposited Plan 708067.

Pursuant to Deed of Loan and Guarantee entered into between the Borrower, the Guarantors and MFASL on 16 October 1990, the Borrower and the Guarantors charged the property to be acquired by the Borrower known as 'The Renaissance Centre' 227 Great Western Highway, Katoomba pursuant to Agreement for Sale dated 30 July 1990 in favour of MFASL in support of the borrowing of the Borrower, and by way of guarantee. By clause (8)(D) of the Deed of Loan and Guarantee recited in B above, MFASL agreed to make an initial draw down of $1,250,000.00 and with a further advance of $420,000.00 to be drawn down at the determination of MFASL within 6 months of the initial draw down and otherwise upon the terms and conditions set forth in the Deed of Loan and Guarantee. MFASL has consented to the granting by the Borrower and the Guarantors of a mortgage over the property ranking in all respects in priority behind MFASL and otherwise upon the terms and conditions hereinafter set forth."

The deed included the following provisions:-

"PRP (the applicants) acknowledges that MFASL may make a further advance of $420,000.00 during the first 6 months of its first mortgage loan facility subject to, inter alia, a loan to valuation ratio of 66.66% being maintained for the MFASL loan facility.

MFASL agrees that any additional advance of $420,000.00 under its first mortgage will be paid to PRP in reduction of the sum secured by PRP Security."

As a result of the conversations in August which he and Mrs Hanslow had had with Mr Goodman, from his perusal of Mr Goodman's letter to Beechboro of 17 August and from the negotiations leading to the deed of priority, Mr Daley was aware that there was an arrangement between Mortgage Finance and Beechboro for the loan by Mortgage Finance to Beechboro of a further $440,000. However, the actual terms of the arrangement did not particularly concern Mr Daley. He did not ask to see and did not see the deed of loan entered into between Mortgage Finance and Beechboro. It is not alleged that there was any provision in that deed which ought to have been disclosed because it would have taken Mr Daley by surprise.
On 18 October 1990, only two days after settlement, Beechboro wrote to Mr Goodman and sought an advance of a further $450,000 on first mortgage over the entire site as valued by Mr Howes, including lots 2 and 3 which did not form part of the security for the loan made to that date.
On 23 October 1990, as funds were expected to become available, Mortgage Finance wrote to Beechboro advising approval of a loan of $450,000 subject to certain conditions including:-

"2. A check valuation is to be completed on the Sallmans valuation dated 22 August 1990, for the Renaissance Centre Katoomba whereby the valuation of the two sites known as

(a) Certificate of Title Volume 6164 Folio 41 comprising Lots 26-30 Part Lots 31, 32, 33, and 34 Parts of Lots 35 in Deposited Plan 525 and Lots 1 and 2 in Deposited Plan 12057.

(b) Folio Identifiers 2 and 3/708667 in respect of Lots 2 and 3 in Deposited Plan 708667. had a consolidated value of not less than $3,500,000.00 ..."

On 26 October 1990, Mr Goodman wrote:-

"We refer to our meeting yesterday, in conjunction with our Principal Director, and upon further discussion with the Bank of Singapore, the provider of the Transferable Letter of Credit enhancing our Promissory Note issue, we are pleased to advise that we are prepared to accept the Sallmanns Valuation dated 22/8/90, accordingly the Officer is unconditional with the exception of documentation perfection."

Nevertheless, the further loan did not proceed. The reasons are not made clear by the evidence. The proposal was for an additional loan on first mortgage without paying out the applicants. That would necessarily have involved the consent of the applicants. This consent did not eventuate, though that was not the only matter which affected the transaction. Late in 1990, Mr Goodman appears to have become disenchanted with Beechboro and its directors. On 6 November 1990, Beechboro asked the applicants to extend their loan for another 6 months but their agreement to this request was not forthcoming. In about December 1990, it came to Mr Goodman's attention that Sallmanns was in financial difficulties, which placed doubt upon its insurance for its valuations. On 5 December 1990, Mr Goodman made a file note:-

"I will not accept the Sallman's Valuation due to recently bad rumour mongering (unconfirmed), let alone they are not on our panel."

Mr Goodman sought a further valuation from Mr Dwyer and in January 1991, he valued the property at $1.85m. On 24 January 1991, Beechboro wrote to complain that Mr Dwyer's valuation was "absurdly low", however no other valuation was obtained. I assume that the affairs of Beechboro gradually slipped into insolvency.

Counsel for the applicants alleged the following misrepresentations:-

(a) That the value of the Renaissance Centre in or about August to October 1990 was $3.5m;

(b) That there was adequate equity in the Renaissance Centre so as to make the loan sought from the Applicants a prudent investment on their part;

(c) In making the decision to loan funds to Beechboro, Mortgage Finance was relying on the Sallmanns valuation;

(d) Mortgage Finance was relying on no other valuations for the Renaissance Centre other than the Sallmanns valuation;

(e) Mortgage Finance would ensure that the amount of $440,000 proposed to be advanced by the Applicants would be repaid within six months of the initial drawdown.

Counsel alleged that Mortgage Finance had a duty to disclose that:-

(a) Mortgage Finance had the Dwyer valuation;

(b) Mr Goodman was not relying upon the Sallmanns valuation;

(c) He was relying, at least in part, upon the Dwyer valuation;

(d) The Dwyer valuation was for a significantly lesser sum than the Sallmanns valuation;

(e) Sallmanns was not a member of an approved panel of valuers upon whose valuation MFASL could rely;

(f) Based upon the Dwyer valuation and the loan to value ratios under which Mortgage Finance operated, no further advance could be made to Beechboro by Mortgage Finance after the initial drawdown of $1.25m;

(g) By reason of the matters referred to in the preceding sub-paragraph, the Applicants' loans would not be paid out within six months by a second advance made by Mortgage Finance.

Counsel also relied upon principles of unjust enrichment, but these add nothing to the claim. They merely put in terms of unconscionable conduct and special relationship concepts which, if established, would found a breach of s.52 of the Trade Practices Act.
In my opinion, none of the allegations is established. Mr Goodman did not represent that the Renaissance Centre had a value of $3.5m or that there was adequate equity for the applicants prudently to make the loan. Mr Goodman merely referred to Mr Howes' valuation and left the matter to Mr Daley, who was an experienced solicitor whose speciality it was to arrange loans on mortgage. Mr Goodman expected that Mr Daley would, in a professional way, satisfy himself as to the value of the property and as to the prudence of making the loan. Mr Daley would not have relied upon and did not rely upon anything less than a formal valuation by a licensed valuer.
Mr Daley gave evidence that he was unaware of Mr Dwyer's valuation. Yet, he was aware that Mr Howes' valuation was made on the instructions of Beechboro and was aware of its date, 22 August 1990. As an experienced solicitor, he would have been aware that a mortgagee exercising a power of sale has a duty to the mortgagor to take reasonable steps before selling to ascertain the value of the property. As Griffith CJ said in Pendlebury v. The Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 at 683:-

"It is not disputed that if a mortgagee sells by private contract he is bound to take reasonable means to ascertain the value before selling, and the same rule applies, in my opinion, to a sale by auction."

The duty of a mortgagee was described by Lindley LJ in Farrars v. Farrars Ltd (1888) 40 Ch D 395 at 411, and see also Latec Investments Ltd v. Hotel Terrigal Pty Ltd (In Liq) (1965) 113 CLR 265 at 273; Forsyth v. Blundell (1973) 129 CLR 477; Australia and New Zealand Banking Group Ltd v. Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195.

Mr Daley should have expected that Mortgage Finance would have obtained either a formal valuation or reliable advice as to the value of the Renaissance Centre before exercising its power of sale. Mr Daley was aware that the Renaissance Centre had been sold for $1.55m. Therefore, he should have expected that Mortgage Finance would have obtained expert advice that this was an appropriate price. As a solicitor, he must have been aware that Mortgage Finance would not have sold the property for $1.55m without advice, or if it had been relying on advice that the property was worth $3.5m. Yet, Mr Daley made no inquiry of Mr Goodman on this point. In my opinion, this was because Mr Daley was satisfied that Mr Howes' valuation was sufficient for the applicants' purposes. He was content to rely upon that valuation and was not concerned with any information as to value which Mortgage Finance had obtained for its own purposes.
Mr Goodman said in his evidence that, as to the loan of $1.25m, he relied solely upon Mr Dwyer's valuation and the fact that the $1.25m was already lent on the property. However, in that evidence, Mr Goodman was speaking merely of the offer to lend the $1.25m and in the context that, because that sum was already lent on the property and because there was a valuation held for an amount greater than that, the loan could be made without special approval from the Bank of Singapore.
In agreeing in August 1990 to lend an additional $440,000 subject to valuation, Mr Goodman did not rely upon Mr Dwyer's valuation. He expected to be able to rely upon Mr Howes' valuation or a similar valuation which reflected the property's potential.
Mr Goodman took the view that the Renaissance Centre had a potential which was reflected in Mr Howes' valuation and he expected that, as Beechboro worked towards realising that potential, the property would become more valuable. That expectation is clear from the letters from Mortgage Finance to Beechboro of 15 and 17 August and from the terms of the documents executed on settlement, which made provision for a total loan of $1.69m, of which $440,000 was to be drawn down within 6 months of the settlement, if supported by a valuation. A formal agreement of loan setting out these terms was executed between Beechboro and Mortgage Finance. By 26 October, Mr Goodman expressed his company's agreement and the agreement of the Bank of Singapore to make the loan in reliance upon Mr Howes' valuation. It is of little significance that the further loan from Mortgage Finance did not go ahead, for that is explained by changed circumstances.
Thus, it cannot be said that there was any conduct on the part of Mortgage Finance which was misleading or deceptive or likely to mislead or deceive, or any failure on its part to disclose information that ought to have been disclosed. In his conversations with Mr Daley and with Mrs Hanslow, Mr Goodman referred to Mr Howes' valuation because that was the valuation which, in his view, would provide the basis for the additional loan. He expected that, when funds were available and within the six months period, Mortgage Finance would itself lend the additional moneys and would do so in reliance on Mr Howes' or a like valuation. Nothing said by Mr Goodman to Mr Daley or to Mrs Hanslow was misleading or deceptive. He was not aware that Mr Howes' valuation had been negligently made and he thought that the property had a potential which was not reflected in Mr Dwyer's valuation of July 1990, as was indeed shown by Mr Dwyer's valuation of January 1991.

Counsel for the applicants submitted that a special relationship existed between the applicants and Mortgage Finance, which required Mortgage Finance to disclose Mr Dwyer's valuation. The submission was made that Beechboro itself had no means of repaying the $420,000 from its own funds and that Mortgage Finance and Mr Goodman therefore knew that the applicants were relying upon Mortgage Finance to pay them out. It was said that Mortgage Finance had a duty to disclose that Mr Dwyer's valuation was too low to permit the making of the further loan and that Sallmanns was not on the panel of valuers approved by the Bank of Singapore. Therefore, it was submitted, it should have been disclosed that Mortgage Finance would be unable to make the loan on which the applicants were relying.
The submission fails at every step. The applicants did not rely upon Mortgage Finance for the repayment of their loan. The loan was an ordinary commercial transaction and the responsibility for repayment lay with Beechboro, the borrower. The arrangement between the applicants and Mortgage Finance was that set out in the formal deed of priority executed by them, namely that Mortgage Finance "may make a further advance subject to valuation ratio of 66.66% being maintained." Moreover, Mr Dwyer's valuation did not preclude the making of a proposed further loan. By 26 October 1990, funds having become available and Beechboro having sought the loan, Mortgage Finance indicated its agreement with the approval of the Bank of Singapore to lend an additional $450,000 in reliance upon Mr Howes' valuation.
No special duty existed on the part of Mortgage Finance. It was made known to Mr Daley that Mortgage Finance was the vendor as mortgagee and, therefore, that it had an interest in seeing that the funds were lent. Mortgage Finance did not purport to represent a consortium of lenders. The principal interest of Mortgage Finance was to sell the property. Its interests were different from and to some extent conflicted with those of Mr Daley's clients. Mr Daley had no justification for considering that he was dealing with Mortgage Finance otherwise than at arm's length, as to which, see the remarks of Gleeson CJ in Lam v. Ausintel Investments Australia Pty Ltd (1990) ATPR 50,866. Mr Daley said nothing to Mr Goodman or to Mortgage Finance which indicated that the applicants were relying upon them for their advice or support.
As the case has been put for the applicants, it seems to depend upon the proposition that what Mortgage Finance did and what Mr Goodman said and wrote was misleading or deceptive because Mr Dwyer's valuation of July 1993 was not disclosed. As I have said, Mr Goodman's reference to Mr Howes' valuation was not misleading or deceptive because it was a relevant valuation, Mr Goodman himself expected that his company would be able to rely upon it and, by 26 October 1990, just 10 days after settlement, he had arranged with the Bank of Singapore that Mr Howes' valuation could be relied upon and he had so advised Beechboro. Mr Goodman did not suggest to Mr Daley and to Mrs Hanslow that the applicants should do other than that which, by 26 October 1990, Mortgage Finance was prepared to do, namely, to lend $440,000 on the faith of Mr Howes' valuation.
So the matter comes back to the non-disclosure of Mr Dwyer's valuation of July 1990, on which Mortgage Finance had relied in selling the property for $1.55m in a mortgagee's sale. The applicants' contentions in this respect are curious, for, when Mr Goodman disclosed the fact that Mortgage Finance had sold the property for $1.55m in a mortgagee's sale, he necessarily inferred that Mortgage Finance had received expert advice that that was a reasonable price to obtain in such a sale. The need for mortgagees to have regard to actual value at the time of sale is an ordinary part of commercial law and certainly a part of the understanding of persons who are involved in the lending of money on mortgage.
Mr Goodman thought that the property had a potential greater than that disclosed by Mr Dwyer's valuation and he, on behalf of Mortgage Finance, agreed to lend a further $440,000 on first mortgage of the property on 26 October 1990. Accordingly, the making of the loan was not impossible and Mr Goodman at all relevant times expected to be able to do so.
It was unfortunate for Mr Daley's clients that they lent on the basis of Mr Howes' valuation and fortunate for Mortgage Finance that its offer to do so did not proceed. In fact, by mid-1990, the slump in real estate values was well under way and I was informed from the Bar that, when the Renaissance Centre was ultimately sold, the price realised was only $1.4m. However, this only reflects the fact that Mr Howes' valuation was not a good guide to the price realisable on a mortgagee's sale.
Insofar as any element of principle is involved in my estimation of the facts, I should make it clear that, in my opinion, regard should be had to the common law approach which is robust and takes account of the ordinary incidents of commercial life. Parties dealing at arm's length are not expected to disclose all their knowledge or to be too nice or precise in their discussions. Conduct which merely causes doubt or uncertainty is not, without more, conduct in breach of s.52. See, for example, Parkdale Custom Built Furniture Pty Ltd v. Puxu Pty Ltd (1982) 149 CLR 191 at 198.
In my opinion, what Mortgage Finance did and what Mr Goodman said and wrote was not misleading or deceptive or likely to be so in breach of s.52. The claims against the first, second and fifth respondents must be dismissed.
The position of Wahring Holdings and of Mr Underhill is even clearer. It is not alleged that anything they did was in breach of s.52 of the Trade Practices Act. However, it is alleged that they were involved in and a party to the breach by Mortgage Finance of that section. Counsel for the applicants has asked me to disregard Mr Underhill's evidence that he acted in the transaction solely as finance broker for Beechboro, that he did not act in collaboration with Mr Goodman and that he was not aware of Mr Dwyer's valuation. I see no reason to reject Mr Underhill's evidence. He appeared to me to give his evidence truthfully, that is to say, to answer questions in accordance with his actual recollection. There is nothing improbable about his evidence and I accept him as a witness of the truth. Accordingly, the claims against the third and fourth respondents must be dismissed. See Yorke v. Lucas (1985) 158 CLR 661.
No claim is made against the sixth respondent. The claims against the seventh and eighth respondents have been set aside for separate determination.
For these reasons, the order will be that the claims of the third and fourth applicants against the first to fifth respondents be dismissed with costs.

[1993] FCA 404

11 JUNE 1993