Plenty & Plenty v Pattinson & Anor No. Scgrg-82-1230

[2001] SASC 83

PLENTY & PLENTY v PATTINSON and ROSS D  HODBY and ASSOCIATES
[2001] SASC 83

Civil

1. DUGGAN J.         In this matter I have found that the defendants are liable to the plaintiffs for loss occasioned by the negligence of each defendant.  The first defendant, a valuer, provided a valuation of the property which was mortgaged to the plaintiffs as security for a loan advanced by them.  The second defendant was a finance broker who recommended the loan to the plaintiffs.  I have dealt with liability as a separate issue and the action will proceed to the assessment of damages in due course.

2. I reserved the issue of contribution between the defendants until the parties had the opportunity to read my reasons on liability.  Submissions on contribution have now been made and it is necessary to address that issue in these reasons.

3. As I have pointed out in the reasons for decision on liability, the first and second defendants have issued contribution notices against each other claiming contribution pursuant to s 25(1)(c) of the Wrongs Act, 1936.

4. It is necessary to deal first with an argument raised by Mr Pickhaver, for the second defendant, in support of a submission that the second defendant was entitled to a full indemnity from the first defendant.  Mr Pickhaver acknowledged that I had found the second defendant negligent in recommending the transaction to the plaintiffs when it knew, or should have known, that the first defendant’s report was inadequate and when it had failed to make any enquiries as to the financial position of the borrowers.

5. However, he argued that any recommendation to the plaintiffs by the second defendant based on the valuation should not be taken into account in determining whether the second defendant was liable to the first defendant by way of contribution.  In support of this proposition Mr Pickhaver said that the first defendant was an expert, the valuation was critical and the first defendant owed a duty to the second defendant as well as the plaintiff.

6. I cannot agree with the proposition put forward by Mr Pickhaver.  Section 25(1)(c) enables a tortfeasor to recover contribution from another tortfeasor in respect of damage to the plaintiff for which both are liable.  Section 26 states that the amount of contribution should be such as may be found to be just and equitable “having regard to the extent of that person’s responsibility for the damage”.  I have found that one aspect of the second defendant’s negligence was that it recommended the loan despite the obviously inadequate valuation.  The valuation was an important consideration in the plaintiffs’ decision to enter into the transaction.  In my view the second defendant’s negligence in relation to the valuation is one aspect to be taken into account in determining the level of contribution as between the defendants.

7. The other aspect of the second defendant’s negligence arose from its recommendation that the plaintiffs should enter into the loan transaction when no enquiries had been made by the second defendant as to the financial position of the borrowers.  According to Mr Pickhaver’s argument, there was no evidence to show that the plaintiffs tried to pursue the borrowers to recuperate their losses.  It followed, so it was said, that there was no proof that the plaintiffs had suffered any loss by reason of the financial situation of the borrowers.

8. I have found that the plaintiffs relied on the recommendation of the second defendant to enter into the loan agreement; that the recommendation was made without any enquiry at all as to the financial position of the borrowers; and that the plaintiffs were misled in that they were given to understand that such enquiries had been made and they revealed that the loan was an excellent business proposition.  The causal link between the default of the borrowers and their financial position is an irresistible inference to be drawn from the evidence both as to the financial position of the borrowers at the time the loan was made and the circumstances of the default.

9. Mr Pickhaver endeavoured to support his argument by reference to those cases which emphasise that contribution between defendants cannot be ordered unless the defendants are liable “in respect of the same damage”.  (Dillingham Constructions Pty Ltd v Steel Mains Pty Ltd (1975) 132 CLR 323; Mahony v J. Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522.)

10. In Mahony’s case it was held (527) that “damage” in this context is not to be equated with “damages”.  The joint judgment continued:

    “The distinction between ‘damage’ and ‘damages’ is significant.  Damages are awarded as compensation for each item or aspect of the damage suffered by a plaintiff, so that a single sum is awarded in respect of all the foreseeable consequences of the defendant’s tortious act or omission.  But concurrent tortfeasors whose negligent acts or omissions occur successively rather than simultaneously may both be liable for the same damage, being a foreseeable consequence of both torts, although one is liable for some only of the damage for which the other is liable and an award of damages against the one would necessarily be less than an award of damages against the other.”

11. In a case such as the present it is necessary to identify the “damage” which might be said to have been caused by the separate acts of the defendants.  In this respect, I think the damage can be described as the plaintiffs’ financial loss arising from entry into the loan agreement.  This loss was a foreseeable consequence both in relation to the first defendant’s negligent valuation and the act of the second defendant in recommending the loan despite the inadequate valuation and lack of enquiry as to the borrowers’ financial position.

12. The circumstances are distinguishable from those in Grundy v Lewis (1995) 133 ALR 400 where the applicants accepted an assignment of a mortgage as part of the consideration for the sale of their business. The mortgagors defaulted and the applicants exercised their power of sale under the mortgage. They took action against various respondents for the resulting deficiency after the sale of the property. Some of the respondents were solicitors who had advised the applicants. It was held that other respondents, who were alleged to have made misrepresentations to the applicants, could not claim contribution against the solicitors. It was alleged against the solicitors that they had failed to advise the applicants to ensure that there was mortgage insurance and insurance cover. It was also alleged that they had failed to take steps to guard against the property being sold at an undervalue. However it was not claimed that the damage caused by the solicitors was produced by the applicants’ entry into the agreement.

13. These circumstances can be contrasted with the present case where it was proved that the actions of the first and second defendants had caused the plaintiffs to enter into the agreement.

14. I also regard as irrelevant the point made by Mr Pickhaver that the plaintiffs did not pursue the borrowers for the shortfall.  Loss was established and it is not to the point for present purposes that there was no attempt, if such was the case, to mitigate the loss.

15. It remains to determine what orders should be made on the contribution notices.  The valuation prepared by the first defendant was an important factor in the plaintiffs’ loss.  The plaintiffs relied heavily on it in deciding whether to advance the funds.  I have found that it grossly overvalued the mortgage property.  The second defendant recommended the loan on the strength of the valuation and despite the fact that it had made no enquiries about the borrowers’ financial position, although inferring that it had done so.  The second defendant’s role in relation to the valuation is not as significant as that of the first defendant, but the other aspect of the second defendant’s negligence in making the recommendation without making the enquiries to which I have referred must also be weighed in the balance.

16. I have reached the conclusion that it would be just and equitable to order that the amount of contribution as between the defendants be 50 per cent as to each defendant.