St George Bank Ltd v Quinerts Pty Ltd
[2009] VSCA 245
•28 October 2009
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No 3839 of 2008
| ST GEORGE BANK LIMITED (ACN 097 263 048) | |
| Appellant | |
| v | |
| QUINERTS PTY LTD (ACN 067 715 584) | Respondent |
| AND BETWEEN: | |
| QUINERTS PTY LTD (ACN 067 715 584) | Cross-Appellant |
| v | |
| ST GEORGE BANK LIMITED (ACN 097 263 048) | First Cross-Respondent |
and | |
| ALEXANDER TVARKOVSKI | Second Cross-Respondent |
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| JUDGES | NETTLE and MANDIE JJA and BEACH AJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 1 October 2009 |
| DATE OF JUDGMENT | 28 October 2009 |
| MEDIUM NEUTRAL CITATION | [2009] VSCA 245 |
| JUDGMENT APPEALED FROM | St George Bank Limited v Quinerts Pty Ltd & Anor (Unreported, County Court of Victoria, Judge Kennedy, 4 August 2008) |
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CONTRACT – Breach of contract – Professional negligence – Valuer retained by bank to value mortgaged premises – Negligent overvaluation causing bank to lend too much against security of mortgaged premises – Damages for breach of retainer – Quantum of damages required to place bank in position as if valuation had been competently performed – Whether bank would have entered into alternative transaction – Whether alternative transaction would have been productive of loss – Damages for loss of opportunity – Evidence required to prove value of lost opportunity – Contributory negligence – Whether bank at fault in failing adequately to assess borrower’s capacity to repay loan – Whether bank’s failure was causative of loss – Proportionate liability – Whether valuer’s liability limited by Part IVAA of Wrongs Act 1958 – Whether delinquent borrower and valuer were concurrent wrongdoers – Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109, Royal Brompton Hospital NHS Trust v Hammon [2002] 1 WLR 1397, considered; Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505, distinguished – Wrongs Act 1958, Part IVAA, ss 23B, 24, 24AH and 24AI.
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Appearances: | Counsel | Solicitors |
| For the Appellant/ First Cross-Respondent | Mr D G Collins SC with Mr S B Rosewarne | Middletons |
| For the Respondent/ Cross-Appellant | Mr C M Caleo SC with Mr D V Aghion | DLA Phillips Fox |
| For the Second Cross-Respondent | No Appearance |
NETTLE JA:
This is an appeal from a judgment given in the County Court following trial before judge alone. The appellant’s (‘the Bank’s’) claim below was for damages for breach of contract, negligence and misleading and deceptive conduct, the result of the respondent’s (‘Quinerts’’) negligent overvaluation at $800,000 of the Unit 12, 410-412 Bay Street, Port Melbourne (‘the property’). The Bank advanced $640,000 (being 80% of valuation) to Alexander Tvarkovski (‘the Borrower’) secured by mortgage over the property. The Borrower defaulted and the Bank, as mortgagee, sold the property by public auction. The highest price bid was only $495,000, leaving the Bank with a loss of more than $100,000 plus interest. The Bank contended that, if the property had been competently valued at its true worth of not more than $500,000 the Bank would not have entered into the transaction. On that basis, it claimed that it was entitled to damages calculated to put it in the position in which it would have been had it not made the loan.
Quinerts admitted that their valuation was incompetent and ultimately admitted that the true value of the property was no more than $500,000 at the time of valuation.[1] They alleged, however, that if the property had been competently valued at $500,000, the Bank would have lent the Borrower $450,000 (‘the alternative transaction’)[2] and, therefore, that the Bank’s claim should be limited to the difference between its loss in fact and the loss which it would have incurred if it had entered into the alternative transaction. Quinerts also contended that the Bank was guilty of contributory negligence in failing properly to assess the Borrower’s capacity to service the loan, and that the Bank’s claim should be reduced accordingly. Further or alternatively, Quinerts argued that, by reason of the proportionate liability provisions of Part IVAA of the Wrongs Act 1958, Quinerts was not liable to the Bank for more than a proportion of the Bank’s loss.
[1]At the outset of the trial, they contended that it was worth $550,000, but eventually conceded that it was $500,000.
[2]Being 90 per cent of valuation, with mortgage insurance.
The judge held that it was more likely than not that the Bank would have entered into the alternative transaction, and that the Borrower would have financed the remaining $60,000 needed for completion of the purchase of the property from his own resources, including those of companies with which he was associated.
The Bank now appeals against the judgment on grounds that the judge erred in finding that the Bank would have entered into the alternative transaction; and in refusing a claim by the Bank for damages in the nature of interest for loss of use of the funds which it lent to the Borrower; and in refusing the Bank an order for all of its costs of the proceeding (on the basis of an offer of compromise made by Quinerts before trial).
Quinerts cross-appeals on grounds that the judge erred in refusing to reduce the damages payable to the Bank to allow for what Quinerts contended was the Bank’s contributory negligence, and in refusing to apportion Quinerts’ liability under Part IVAA of the Wrongs Act 1958. A further claim that the judge erred in failing to apportion liability under Part VIA of the Trade Practices Act 1974 (Cth) was abandoned.
The appeal – The alternative transaction
Under cover of Grounds 1 and 2, the Bank contended that the judge erred in finding that the Bank would have entered into the alternative transaction and thus in finding that the damages for which Quinerts were liable excluded the loss[3] which the Bank would have suffered if it had done so. Counsel for the Bank submitted that it was clear from the Bank’s lending guidelines that the Bank would not have lent 90 per cent of valuation of $500,000 unless the Borrower had been able to demonstrate that he had the additional $60,000 in hand, and that the Borrower’s finance application and supporting materials, and the statements pertaining to the ‘line of credit’ account (on the basis of which the Bank advanced the $640,000 to the Borrower), strongly implied that the Borrower would not have had access to money in that amount.
[3]Assuming there would have been a loss. In fact, as will be explained, the alternative transaction would not have resulted in a loss.
In my view, there is force in that submission. The finance application and materials provided in support of it included details of the Borrower’s assets, and they did not show any funds in bank accounts or other liquid assets. The application form noted that the Borrower owned three properties, but that they were all subject to existing mortgages and that the amount secured was increasing.[4] As at 27 November 2001, the loan the subject of ‘the South Melbourne mortgage’ had a balance of $847,284.92 and as at 25 February 2002, that had increased to $944,715.00 The balance noted on the finance application form was $945,000.00. As at 5 March 2002, the loan the subject of ‘the Southbank mortgage’ had a balance of $447,483.92 and as at 30 June 2002, that had increased to $447,606.62. The balance noted on the finance application form was $448,000.00.
[4]These were relevantly the mortgage held by Bosise Pty Ltd, and two further mortgages held by Liberty Funding Pty Ltd over properties in South Melbourne and Southbank.
The statements pertaining to the line of credit facility showed that, at settlement on 14 February 2003, the Borrower drew down the line of credit to the extent of $618,343.50. That included $500,960 to pay out the vendor of the property, Bosise Pty Ltd, a bank cheque to the Bank of Melbourne for the sum of $50,000, and a further cheque for $60,032.50 for purposes which the Borrower said in evidence he could no longer recall. One wonders why the Borrower would have drawn down more than the minimum necessary to complete the purchase if he had another $60,000 readily available. Additionally, although the Borrower thereafter occasionally deposited funds to the credit of the line of credit account, so as to reduce the account balance, the account rarely operated within agreed limits and the Borrower was frequently charged substantial penalties and accommodation fees for account excesses and other delinquencies.
In my view, the documentary evidence was not sufficient to sustain a conclusion that the Bank would have entered into the alternative transaction. The impression I derive from the documents is one of a Borrower who was fully extended and for the time being significantly short of liquidity. By itself that does not satisfy me that it was more likely than not that he could have come up with the additional $60,000 required in order to avail himself of the alternative facility.
It appears that the judge was mindful of the implications of the documentary evidence - particularly, the implications of the Borrower having drawn down almost all of the available balance of the facility at the time of completion - but her Honour said that she was persuaded by the Borrower’s oral evidence that he would have been able to find the additional funds. Her Honour reasoned that:
In terms of the ability to make up the difference between the amount lent and the amount required to discharge the loan to Boisise (sic), Mr Tvarkovski gave evidence that he was pretty sure that, at that time, he or his companies had $56,000 in cash or that he could obtain such funds through the sale of property. I accept this evidence although it was given in the context of requiring an extra $56,000. I am prepared to infer that he would have been able to find the extra if in fact more was necessary to cover the excess (in the order of approximately $60,000) in relation to a hypothetical loan of $450,000).[5]
…
[Counsel for the appellant] suggests that the fact that the [B]orrower drew down on the funds in excess of the amount necessary to discharge the mortgage to Boisise (sic) suggests that Mr Tvarkovski would have been unable to find the excess necessary to discharge the Boisise (sic) facility. However, Mr Tvarkovski gave evidence that he utilised this money in his property investment business. Simply because he utilised extra cash in a business does not mean that he would not have been able to access funds if he had wanted to.[6]
[5]Reasons, [32].
[6]Reasons, [35].
With respect, I do not consider that was the effect of the Borrower’s evidence. His evidence in chief on the point was at best equivocal:
If St George only were prepared to give you $440,000 and you had a mortgage to Bosise for the purchase price, which you think is $495,000, you’re $55,000 short. How would you make up the balance, that $55,000? - - - I would provide my own funds or I [would have] tried to borrow more money and pay mortgage insurance, that’s commonsense.
We’ll take those one step at a time. Provide your own funds, did you have $55,000 to provide to pay out the mortgage? - - - I’m pretty sure at the time I had money to raise – to pay $55,000 yes.
When you said ‘I had’, are you talking about you individually or you and all your companies together? - - - It’s me. I was my company, so if company had some funds, company would lend me money or I would have money. So I can’t remember 2003, I just can’t remember, but definitely would try to settle. If I can’t settle, I would probably easily sell this apartment for much more than $495,000.[7]
…
If St George had offered you a loan with mortgage insurance, would you have accepted it, that is, that you’d have to pay mortgage insurance in order to get the loan? - - - It’s [a] very hypothetical question.
It is a hypothetical question? - - - I would try probably go to another institution and borrow it from them first and if I can’t raise money from other banks, I would probably take St George offer, yes.
[7]Emphasis added.
In cross-examination, it declined to being ‘pretty sure’ either that he could find the money or that he would have sold the property:
You’ve indicated that if hypothetically, if you had been aware that this property was valued, in fact, at $550,000 at the time you went to St George, that you would have still tried to borrow $440,000. Is that right? - - - I would love because the property definitely was worth more. I would just probably still borrow money from St George or any other institution. Because under an agreement I need to refinance this property.
You had a number of other institutions you could have gone to borrow money from as well? - - - I think like everybody else, you can go to any bank.
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If in 2003 you had been told by St George, ‘We’ll only give you $440,000 because we don’t think this apartment is worth as much as $550,000’, I’m suggesting you would have tried with another lending institution to get more because you were strongly of the view it was worth a lot more than $550,000? - - - I think at the time it was very important because Jimmy Sui had another pressure from his partners from overseas, he had to pay some money. I don’t think I had enough time to got to approach another bank. I probably would settle with St George and maybe refinance with another institution further down the track.
…
It wouldn’t have taken much time to go and speak to one of the other institutions you were giving business to? - - - That’s not true.
It would have taken a long time? - - - No, common situation with any application, it takes between four to six weeks to complete a transaction with any institution. If you have already applied to one bank, they’ve already done [valuation], already assessed your application, it takes four to six weeks, so you’re talking about a delay of at least one month.
…
You’ve indicated that if you had to find another $56,000, I think you said you would have provided your own funds. You’re pretty sure at the time you had that money, I think you said? - - - I’m pretty sure I would find some money to settle or I would sell property again.
Then it declined further, to being ‘pretty sure’ that he would have had some way to find the $56,000 or, if not, that he would have obtained a larger loan (with mortgage insurance) from St George:
Have you looked at what your financial position was in January 2003 recently? Have you looked back to have a look at what funds you actually had available or are you just remembering that you think generally you would have had that money? - - - As I said, I didn’t remember anything about 2003 because it’s very difficult to remember five years ago what actually your account was look like at the time when refinance happened, but I’m pretty sure I would have had some way to find $56,000, or obtained St George loan with the mortgage insurance, absolutely.
If you had obtained mortgage insurance you would, of course, have been lent a bit less money by St George, wouldn’t you, because you would have had to pay for that mortgage insurance out of the money you were being nominally lent/ - - - I don’t understand question, sorry?[8]
…
A bank officer has given evidence it would have been about $6,000 - - - My apologies. I don’t know precise number. I can look in the book and tell you exactly amount, yes.
So that would be a sum that you would have to pay for, would it not, if you took out mortgage insurance? - - - No, you are not correct. If you borrow 95 per cent on an amount of $550,000 variation [sic][9] – hypothetically, as you’re saying – so 95 percent will give you an amount of $520,000 which will definitely cover all costs and leave me another $15,000 on top.
[8]Emphasis added.
[9]At the stage of the trial at which the Borrower gave evidence, Quinerts was still contending that the true value of the property at the time of valuation was not less than $550,000. Later, Quinerts conceded that the true value was not more than $500,000.
The judge had the benefit of seeing and hearing the Borrower give his evidence and, to that extent, her Honour was in a better position than this court to assess the Borrower’s credibility. I should be slow, therefore, to depart from any of her Honour’s findings based upon that considerable advantage.[10] But as Kirby J explained in State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq),[11] where a credibility determination leaves untouched other evidence which requires separate evaluation, and which renders the judge’s conclusion improbable or contrary to compelling instances, an appellate court is bound to conduct a real review of the evidence itself and draw its own conclusions.[12]
[10]See, for example, Devries v. Australian National Railways Commission (1993) 177 CLR 472, 479 (Brennan, Gaudron and McHugh JJ) (referring to Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842); and Abalos v Australian Postal Commission (1990) 171 CLR 167.
[11](1999) 160 ALR 588, 620.
[12]Fox v Percy (2003) 214 CLR 118, [24]–[27]; Waterways Authority v Fitzgibbon [2005] HCA 57, [73]; cf Commissioner of Main Roads v Jones [2005] HCA 27; (2005) 79 ALJR 1104, [73].
As it seems to me, this case falls into that category. Taken at its highest, the Borrower’s evidence as to the possibility of him entering into the alternative transaction went no further than that he was ‘pretty sure’ that he could have raised another $56,000 or that, if he could not raise it, he was ‘pretty sure’ that he would have obtained a loan of 95 per cent of valuation from the Bank to cover the whole purchase price of $495,000 plus the costs of the mortgage insurance.
The net effect of the Borrower’s evidence was substantially less than that. He could not remember whether he or companies controlled by him had the money needed. He accepted that he had not gone back to look at what funds he had available in 2003, and that he did not remember anything about 2003. He had no recollection concerning the application of the $140,000 which was advanced in addition to the sum required to discharge the Bosise facility. He had no recollection of any account in which he had $56,000. He was unable or unwilling to say anything of the sources from which he supposed that such money would have come, and his suggestion that, failing all else, he could have completed the sale with a loan from the Bank of 95 per cent of valuation (which he put at $550,000) was plainly misconceived.
As was later conceded, the true value of the property was not more than $500,000. It was also not in issue that the Bank would not have lent more than 90 per cent of valuation in any circumstances (even with mortgage insurance), and would not have been prepared to lend at all unless and until satisfied that the Borrower had sufficient funds to discharge remaining encumbrances. Accordingly, if it is assumed that the Bank had lent $450,000 (being 90 per cent of the $500,000) and that the costs of the mortgage insurance (which were $6,000) were deducted from the loan advance, as the Borrower said in evidence they would be, the Borrower would have been left with only $444,000 or, in other words, $51,000 less than the amount required to complete the purchase.
It is true, as the judge observed, that an officer of the Bank (Mr Jones) said in his evidence on behalf of the Bank that it was ‘likely that mortgage insurance would have been granted’.[13] But Mr Jones gave that evidence in response to a series of hypothetical questions which assumed that the property was correctly valued at $550,000 (as opposed to its true value of $500,000), and so upon the hypothetical basis that the Bank would have been prepared to lend 90 per cent of $550,000 with mortgage insurance:
[13]Reasons, [34].
How high could he [the Borrower] have gone with lenders mortgage insurance against the security of the property? - - - For investment purposes, the maximum would have been 90 per cent.
So he could have had a 90 per cent loan with lenders mortgage insurance? - - - Yes.
…
So on this particular application, all other issues as to income and serviceability being equal and the only thing changing was that the valuation was returned at $550,000 rather than $800,000, would you have approved a loan to Mr Tvarkovski with lenders mortgage insurance at $496,000? - - - I could have. They have a matrix where some can be done, what they call under open policy, so if it fits a certain criteria.
…
On the basis of this particular application, is it likely that lenders mortgage insurance would have been granted? - - - I think so, yes.
Staying with the hypothetical again, that is, that the valuation of the property was returned at $550,000? - - - Mm’hm.
It was never put to Mr Jones, still less accepted, that the Bank would have been prepared to lend more than 90 per cent of valuation or, if it had been known that the true value of the property was only $500,000, that the Bank would have been prepared to lend $450,000 (being 90 per cent of valuation) unless the Borrower had been able to satisfy the Bank that he had in his account or otherwise available the remaining $45,000 plus costs necessary to complete the purchase. To the contrary, Mr Jones’ evidence in chief was clear that any advance would have been conditional on production of a bank statement showing that the additional funds for completion were in the Borrower’s account:
Suppose that the property had been, in fact, valued at $550,000 and the borrower said, ‘Well, I want to seek, therefore, $440,000, 80 per cent of that’? - - - Yes.
Would the bank have automatically advanced that or are there other matters that the bank would have looked into? - - - We would have needed to verify whether he had had sufficient funds to make up the shortfall, to be able to pay out the first mortgage.
So what sort of verification would you have wanted to see to ensure that that first mortgage could be paid out? - - - Just a bank statement showing the funds in the account.
Similarly, in cross-examination, he said that:
Earlier today my learned friend asked you a question about if the valuation had returned a value for this property of $550,000. Do you recall that? - - - Yes.
You said that St George would be prepared to lend up to 80 per cent of the value being $440,000, but it had a concern, the concern being that the Borrower must demonstrate that the loan to the previous financier must be discharged? - - - Yes. Well, that’s part of the process anyway. That’s right. Yes.
So in the case where St George agreed to lend $440,000, you indicated that St George would have to be satisfied that the borrower could discharge the rest of the loan? - - - Yes.
Of the previous loan to Bosise, the balance being $56,000? - - - Yes, he would need to verify that he had those funds available, yes.
I add that Mr Jones’ evidence on that point was corroborated by the written special conditions of the loan, which included the following:
‘Discharge existing loan commitments,’ ‘You must provide evidence that the following loan commitments have been discharged’,
and under which was the following: Bosise Pty Ltd – Mortgage - $496,000.
As proponent of the issue (that the Bank would have entered into the alternative transaction if apprised of the true value of the property), Quinerts bore the evidential burden of persuading the judge to decide that issue in favour of Quinerts.[14] In my view, it failed to do so. Once tested by cross-examination, I consider that the Borrower’s testimony on the point was exposed as so equivocal, and so lacking supporting documentary evidence, as to fall well short of the mark. Based on the evidence to which I have referred, I am not persuaded on the balance of probabilities that the Bank would have been prepared to enter into the alternative transaction.
[14]Heydon, Cross on Evidence, [1600] and [7055].
Claim for loss of use of funds
I turn to the Bank’s contention that the judge erred in rejecting the Bank’s claim for an amount of damages to compensate it for interest forgone by entering into the transaction. Following the decision of Giles J in Bank of New South Wales v Yee,[15] her Honour held that, even if the Bank were entitled to be put in the position in which it would have been had it not entered into the transaction, it was not entitled as such to interest as if the Borrower had complied with the loan agreement. Nor was the Bank entitled to damages in the nature of an opportunity foregone unless it adduced evidence of the missed opportunity and the loss thereby suffered. In her Honour’s view, it could not be assumed that the Bank would have lent the funds advanced to another borrower at the same rate as was charged to the Borrower.
[15](1994) 33 NSWLR 618, 636 (Giles J).
Counsel for the Bank attacked the judge’s conclusion. He submitted that it was obvious that the Bank was in the business of lending money on a regular and recurrent basis and, on that basis, that her Honour should have been prepared to assume that, if the Bank had not entered into the loan transaction with the Borrower, it would have entered into another comparable transaction at more or less the same contractual rate of return.
I reject that submission. In my view the judge’s analysis on this point was correct. The decision of the High Court in Hungerfords v Walker[16] established that expenses incurred and opportunity costs arising from money being paid away or withheld as a result of a negligent breach of contract are able to be recovered as pecuniary losses suffered by a plaintiff as a result of the defendant’s conduct. But as the High Court later explained in The Commonwealth v Amann Aviation Pty Ltd,[17] such damages are simply manifestations of the principle that a party who has sustained loss by reason of a breach of contract is entitled to be placed in the same position, so far as money can do it, as if the contract had been performed. Consequently, the incurrence of such losses must be proved. It is not enough for a party like the Bank simply to assert that, because it is in the business of lending money, it must follow that it has suffered a loss equal to the return on funds which it might have achieved if it had entered into a successful transaction at the same rate of return as the failed transaction. At best, the opportunity foregone represents a loss of a chance to invest in a more successful transaction and, depending on the facts of a case, the value of the loss may have to be discounted significantly to allow for the vicissitudes of chance.
[16](1988) 171 CLR 125.
[17](1991) 174 CLR 64.
Admittedly, as Giles J observed in Bank of New South Wales v Yee, there have been some cases in which the courts have been prepared to assume an appropriate rate of return in the absence of evidence. For example, in Trade Credits Limited v Baillieu Knight Frank (NSW) Pty Ltd,[18] which was a case involving an advance of funds by a finance company on the faith of a negligent valuation, Clarke J held that:
the proper manner of approach is to award interest at a rate which would place the plaintiff in the position it would have been in if the tortious conduct had not occurred. That is a rate reflecting the plaintiff's normal return from the investment of its funds. If it had invested moneys in December 1981 on first mortgage security for a period of three to five years it would have obtained a return of 17 per cent and if on second mortgage security between 22 per cent and 23 per cent. It is impossible to be precise in this award for the plaintiff's lending policies undoubtedly covered a wide range or types of loans. In all the circumstances I believe it appropriate to assess the particular component of interest upon the losses flowing to the plaintiff, as opposed to the cost of buying out the first mortgage, at 20 per cent.
[18](1985) 12 NSWLR 670, 674.
But with respect, I do not find that reasoning persuasive. Perhaps, it was the correct approach in the circumstances of that case. Evidently, Clarke J was satisfied on the evidence before him that the finance company in question could have and would have been able to place the subject funds elsewhere at an assured rate of return. But, in point of principle, such assumptions are bound to be speculative. Given the extent to which banking has been deregulated in this country, each case is likely to be different. Generally speaking, the value of the chance foregone by a lending institution as the result of entering into an improvident transaction (and thereby foregoing the opportunity of entering into a more beneficial transaction) is the net rate of return or spread which would have been generated upon the alternative transaction after bringing to account the cost of funds and other expenses which would have been incurred in connection with the alternative transaction.[19] In the absence of evidence, there is little reason to suppose that the cost of funds and expenses for one transaction is the same as for another.Moreover, in order to provide a truly accurate reflex of the damage actually incurred as a result of not entering into a more satisfactory transaction at an identified rate of return, the spread should ordinarily be discounted to allow for possibilities such as that the funds invested in the improvident transaction could not have been placed in another more acceptable transaction; and the risk that, even if so placed, the other borrower might still have defaulted.
[19]See and compare I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, 147 [123] (McHugh J).
Maybe, in some cases, the evidence will be such as to permit of a broad brush technique of approximation like that adopted in Trade Credits. Usually, however, it is only by going through the steps that one can come to an accurate assessment of the value of the opportunity foregone. Otherwise, to adopt and adapt the language of Deane J in Amann,[20] it is impossible to do more than speculate about the approximate proportionate chance of the Bank placing the money in a more satisfactory transaction and one can do no more than speculate about how advantageous to the Bank any such alternative transaction would have been.
[20](1991) 174 CLR 64, 130.
Counsel for the Bank complained that such punctiliousness would mean that lending institutions may henceforth need to lead expensive detailed evidence concerning their internal rates of return on sums available to them for lending and the likely application of the sums advanced, and he submitted that for the court to require inquiry and evidence of that order would be entirely disproportionate to the task in hand.
I reject that submission. It is difficult to conceive of a litigant better equipped or better qualified than a bank or other lending institution to produce at very short notice and with relative ease and economy its cost of funds for particular classes of transactions, percentage probabilities of placing funds at specified rates of return and default rates and profit consequences for given classes of business. Indeed, I should be surprised if that sort of information were not already produced or capable of being produced routinely as part of the Bank’s own management accounting system. Given the documentary evidence provisions of the Evidence Act 1958, including the computer evidence provisions of s 55B, the work involved in converting that sort of material into a form admissible in evidence should be straightforward.
Costs orders
(i) The compromise offer
Before the trial of the action, Quinerts made an offer of compromise in accordance with Rule 26.02 of the Rules of the County Court in the amount of $175,000 plus costs. At the end of the trial, the amount of the judgment awarded in favour of the Bank of $145,000, plus interest of $25,428.70, was in total less than the amount of the offer. On that basis, the judge ordered that Quinerts pay the Bank’s costs of the proceeding up to the date of the offer and that the Bank pay 80 per cent of Quinerts’ costs of the proceeding from that date.
Under Ground 2 of the appeal, counsel for the Bank argued that, but for the finding that the Bank would have entered into the alternative transaction, the amount of the judgment awarded in favour of the Bank would have exceeded the amount of the offer and thus that there would have been no basis for the judge to order that the Bank pay any part of Quinerts’ costs. It followed, it was contended, that the judge’s order as to costs ought be set aside and that it should be ordered that Quinerts pay all of the Bank’s costs of the proceeding.
I accept that submission. In view of what I have said about the improbability of the Bank entering into the alternative transaction, I consider that the Bank should have had its costs of the proceeding.
(ii) Costs of realisation
I add that, even if I had been persuaded that the Bank would have entered into the alternative transaction, it appears to me that the Bank would still have beaten the offer of compromise and so been entitled to an order for its costs of the proceeding.
As was earlier noted, the Bank’s principal claim was for the sum of $145,000 (representing the difference between the amount of $640,000 advanced and the gross sales proceeds of $495,000 realised on sale of the property). In addition to that, the Bank claimed a further $28,638.96 as costs of realisation of the property. If the Bank had succeeded in that additional claim, the judgement awarded in favour of the Bank would have been greater than the amount of the offer. But the judge refused the additional claim, on the basis that:
[Counsel for the Bank] did not formally abandon a claim for sales costs but did not pursue them strongly. This was an appropriate stance, since expenses for proceeding with a loan and/or from attempts to sell a property will generally not be available given these expenses would have been incurred in any event.[21] The plaintiff has not established that these costs would not have been incurred even on a smaller loan.[22]
[21]The legal liability of valuers, Joyce and Norris, (2nd ed, 1994), 92.
[22]Reasons, [39] (emphasis added).
With respect, that reasoning overlooks that, if the Bank had entered into the alternative transaction, and so advanced $450,000 (being 90 per cent of the true value of the mortgaged property), there would have been sufficient in the proceeds of sale of $495,000 to cover not only the principal of $450,000 but also the costs of realisation of $28,636.96. Perhaps, the judge was influenced by what her Honour characterised as the Bank’s counsel not pursuing the claim for sales costs ‘strongly’. But it is apparent from her Honour’s reasons that she did not take the claim for costs of realisation to have been abandoned. Nor is it disputed that the Bank was entitled under the terms of its mortgage to treat the costs of realisation as part of the moneys secured by the mortgage and thus recoup itself for those costs out of the proceeds of sale.
It follows that, assuming the Bank would have entered into the alternative transaction, the Bank should have been awarded judgment in an amount of not less than $145,000 plus the $28,636.96 costs of realisation, plus interest, which in total would have been greater than the amount of the offer. Hence, Quinerts should have been ordered to pay the Bank’s costs of the proceeding.
(iii) Change of defence
Finally, under the heading of Grounds 1 and 2, counsel for the appellant advanced a further alternative contention that, assuming the Bank had not been entitled to judgment for as much as the amount of the compromise offer, the Bank should still have had its costs, on the basis that the alternative transaction defence was not advanced until the second day of trial, which is to say some 18 months after the offer expired.
I do not accept that contention. Logic and commonsense compel the view that, when deciding whether a party has acted unreasonably in refusing an offer of compromise, one looks at the circumstances as they were at the time the offer was made; and pre-eminently in a proceeding like this, the circumstances include the issues between the parties as defined by the pleadings.[23]
[23]See Rolls Royce Industrial Power (Pacific) Ltd v James Haride & Coy Ltd (2001) 43 NSWLR 626, 642 [94]–[96] (Stein JA) (reversed on appeal, sub nom Amaca Pty Ltd (formerly known as James Hardie & Co Pty Ltd) v New South Wales (2003) 199 ALR 596, but not on this point); Castro v Hillery [2003] 1 Qd R 651, 663 [72]–[75] (Williams JA); Morrison v Hudson [2006] 2 Qd R 465, [2] (Williams JA) and [36]–[37] (White J); Simonovski v Bendigo Bank [2003] VSC 139, [18] (Ashley J).
Here, at the time when the compromise offer was open to be accepted, although Quinerts had not pleaded the alternative transaction, it had denied that it was negligent and it had denied that the Bank had suffered any loss. Assuming that the Bank had not been entitled to recover its costs of realisation, the offer of $175,000 would have been considerably more than the sum to which the Bank was entitled and, therefore, it would have been unreasonable for the Bank to reject.[24]
[24]Cf Hazeldine’s Chicken Farm Pty Ltd v VWA (2005) 13 VR 435, [23]–[25] and [30].
Consequently, if it be assumed that the Bank would have entered into the alternative transaction, my only reason for disturbing the judge’s order as to costs would be because I consider that the Bank was entitled to its costs of realisation and so to succeed for more than the amount of the offer.
The cross-appeal
(i) Claim for surplus of realisation
Although not identified with any specificity in the Notice of Cross-Appeal, during the course of oral argument counsel for Quinerts submitted that, if the Bank had entered into the alternative transaction,[25] and sold the property for $495,000, there would have been an amount of $16,361.04 remaining in hand after satisfaction of the loan of $450,000 and the realisation costs of $28,638.96. He contended that since, in order to calculate the damages which the Bank was entitled to recover from Quinerts, it was necessary to compare the loss which the Bank suffered in fact with the loss which the Bank would have suffered if it had entered into the alternative transaction, one had to deduct from the loss suffered in fact not only the loss which would have been suffered under the alternative transaction but also the amount of $16,361.04 which it was said would have been left in hand at the end of the alternative transaction.
[25]Scil, lent $450,000.
In my view, that contention is untenable. If the Bank had entered into the alternative transaction it would not have suffered any loss. It would have advanced $450,000 and there would have been sufficient when the property was sold for $495,000 to cover both the outstanding loan of $450,000 and the costs of realisation of $28,638.96. The balance of $16,361.04 would have been due to the mortgagor. In fact, the Bank advanced $640,000, and the property was sold for $495,000, leaving a shortfall of $145,000 plus the costs of realisation of $28,638.96, which is to say a total loss of $173, 638.96.
(ii) Contributory negligence
Under Ground 1 of the cross-appeal, Quinerts contended that the judge erred in holding that the amount of damages recoverable by the Bank should not be reduced pursuant to s 26 of the Wrongs Act 1958. Counsel for Quinerts submitted that the evidence established that the Bank had been guilty of contributory negligence in failing to make inquiries of the Borrower’s ability to service the loan and by shutting its eyes to unsatisfactory characteristics of the Borrower.
I do not think that there is anything in that point either. The judge undertook an extensive review of the evidence which it was contended bore upon the question of contributory negligence and her Honour concluded that she was not satisfied that:
any contributory negligence is established in terms of the alleged failure to pay attention to the risk of redistribution [of moneys of trusts of which the Borrower was a beneficiary]; the relationship with Wealthlink [a mortgage broker with which the Borrower was associated]; the correct interest rate on the Liberty loan [another loan taken out by the Borrower]; or the assessment of rental income. Moreover the defendant has not established that the assessment of living expenses was made negligently despite my reservations as to its appropriateness.
Counsel for Quinerts identified four matters which, in his submission, demonstrated that the judge was in error in concluding as she did. The first was that the Bank had assumed that revenue and profit generated by the Borrower’s company’s development business would continue into the future without inquiring into the nature and type of developments in hand.
I do not accept that submission. I agree with the judge that, even if the Bank did not do as much as a prudent lender might have done by way of inquiry into the nature of the Borrower’s development activities, there was no direct evidence or basis from which to infer that further inquiries would have led to the result being any different.[26]
[26]Reasons, [62] and [63].
The second matter was what were said to be ‘calculation errors’ made by Mr Jones of the Bank, whereby he mistakenly assessed one of the Borrower’s existing loans as incurring interest at 8.6 per cent instead of 9.5 per cent.
I see nothing in that point either. As the judge observed, it equated to a difference of only $5,000 in the surplus available to the Borrower over a year of the loan after allowing for expenses including the costs of the loan. In the scheme of things, it was de minimis.
The third matter was a difference of opinion between Mr Jones of the Bank and Quinert’s expert witness on banking practice, Mr Finn, as to whether the appropriate risk factor to apply to income to be derived from the property was 60 per cent or 80 per cent. As to that, I agree with the judge that:
Given the divergence of opinions on a matter on which reasonable minds might differ, [Quinerts] has not discharged its burden of proof in demonstrating negligence. Additionally, given that the difference in serviceability is alleged by [Quinerts] to amount to approximately $5,000 and that the property was let in any event, any negligence is of no consequence.[27]
[27]Reasons, [74].
The final matter was that the Bank had assessed the Borrower’s living expenses using a computer based finance application programme which adopted the Henderson poverty line as the default cost of living. It was contended that such an amount was likely to be very substantially less than the Borrower’s cost of living in fact and therefore it was negligent to adopt it.
I reject that too. While the judge considered that it appeared to be an unsatisfactory basis on which to assess a Borrower’s living costs, as her Honour said, there was no evidence that it was an imprudent lending practice.
(iii) Proportionate liability – Wrongs Act 1958
Under Ground 2 of the Cross-Appeal, Quinerts contended that the judge was in error in refusing to apportion Quinerts’ liability pursuant to Part IVAA of the Wrongs Act 1958.
Counsel for Quinerts argued that, because the Bank’s claim against Quinerts was for economic loss for breach of contract arising from failure to take reasonable care, it followed that the proceeding involved an ‘apportionable claim’ within the meaning of Part IVAA. It was also clear, he submitted, that the Borrower’s and a guarantor’s failure to repay the loan were independently causative of the loss and damage the subject of that claim, and that the Borrower and guarantor were capable of being held legally liable to the Bank for having ‘committed the relevant legal wrong against’ the Bank. Thus it followed, he submitted, that the Borrower and the guarantor were ‘concurrent wrongdoers’ within the meaning of Part IVAA of the Wrongs Act and, therefore, that the liability of Quinerts in relation to the Bank’s claim was limited by s 24AI of Wrongs Act1958 to an amount reflecting the proportion of the loss or damage claimed that the court considered just having regard to the extent of Quinerts’ responsibility for the loss and damage.
The judge’s reason for rejecting that argument was that she considered that the provisions of Part IVAA are essentially directed to joint and several tortfeasors and not intended to apply to a case like the present. As her Honour expressed it:
In my view, similarly the provisions should not be expanded to meet the current situation which goes beyond what is necessary to address the undesirable consequences of the joint and several rule. As a matter of policy, the provisions appear to be largely directed to joint and several tortfeasors.[28]
…
Even if the provisions should not be limited in the way described above, the quantum of loss recoverable against the valuer is different to that recoverable against either the borrower or guarantor.[29]
…
…’the loss or damage’ that is the subject of the claim’ is different to that recoverable against the borrower and guarantor in both nature and amount. Thus, as highlighted by [Counsel], the plaintiff would have a right to the money lent, to interest and to bank charges as against both the borrower and guarantor. This may be contrasted with the valuer where the damages are calculated by a comparison of what was lent and would what would have been lent on the true value of the property. Not only are these two different methods of calculation, in the present case they are actually two different damages as I have previously determined.[30]
[28]Reasons, [118].
[29]Reasons, [130].
[30]Reasons, [132].
In my view, the judge was right to conclude that Quinerts’ liability to the Bank was not limited by Part IVAA of the Wrongs Act, although I get there by a different route.
Proportionate liability provisions of the kind prescribed by Part IVAA were adopted by the Commonwealth and by each of the States and Territories as in effect a national co-operative scheme designed to overcome what were perceived to be undesirable consequences of the joint and several liability rule.[31] As Palmer J explained in Yates v Mobile Marine Repairs Pty Ltd:[32]
The object of [the part] is remedial and it dramatically changes the previous law. Formerly, a plaintiff could choose to sue only one of several wrongdoers who caused the same loss and the Court could enter judgment for the whole of that loss against that defendant. Even if the defendant cross claimed in the proceedings for indemnity or contribution against the other wrongdoers, the plaintiff could enforce a judgment against the defendant alone for the whole of the loss, leaving the defendant to recover from the cross defendants, if it could. Sometimes the defendant obtained judgment against a cross defendant but could not recover the judgment because of the cross defendant’s insolvency.
[The Part] is designed to alleviate this perceived injustice. It is intended to visit on each concurrent wrongdoer only that amount of liability which the Court considers ‘just’, having regard to the comparative responsibilities of all wrongdoers for the plaintiff’s loss. How the Court is to assess what is ‘just’ is not explained. The Court must exercise a large discretionary judgment founded upon the facts proved in each particular case. The principles upon which the Court will exercise this discretionary judgment will come to be developed on a case-by-case basis. However, it seems clear enough that the policy of [the Part] is that a wrongdoer who is, in a real and pragmatic sense, more to blame for the loss than another wrongdoer should bear more of the liability. This calls for the exercise of the same kind of judgment as the Court exercises in apportioning responsibility as between a defendant sued in tort for negligence and a plaintiff who, by his or her own negligence, has been partly responsible for the injury.
[31]See B McDonald, Proportionate liability in Australia: The devil in the detail, (2005) 26 Aust Bar Rev 29, 31–2; Byrne J, Proportionate Liability, Some Creaking in the Superstructure, Judicial College of Victoria 19 May 2006.
[32][2007] NSWSC 1463, [93]–[94], in relation to the comparable provisions of Part IV of the Civil Liability Act 2002 (NSW).
It is important to keep in mind, however, that the proportionate liability provisions were not designed to do any more than that. As Besanko J observed in Shrimp v Landmark Operations Ltd,[33] concerning the comparable provisions of Part VIA of the Trade Practices Act 1974 (Cth):
The above references [to extrinsic materials] suggest that the mischief to which the amendments were directed was a plaintiff being able to recover 100% of his damages from any one of several wrongdoer’s when that wrongdoer’s ‘fault’, when compared with the other wrongdoers, was less or far less than that. In other words, the amendment was directed to what were considered to be the undesirable consequences of the joint and several liability rule. There is no suggestion that the mischief the amendments were designed to remedy was any wider than that. The definition of concurrent wrongdoer seems to be the critical subsection and, in my opinion, the word ‘caused’ in s 87CB(3)[34] should be read as meaning such as to give rise to a liability in the concurrent wrongdoer to the plaintiff or applicant.[35]
[33](2007) 163 FCR 510.
[34]Scil, in Victoria, under s 24AH of the Wrongs Act 1958.
[35]Ibid [62] (emphasis added); see also Sali & Anor v Metzke & Allen [2009] VSC 48 [282] (Whelan J).
In particular, there is no suggestion in Part IVAA that it was intended to do more by way of apportionment than in theory could previously be achieved by contribution under s 23B of the Act. As appears from the Second Reading Speech on the Commonwealth Proportionate Liability Bill,[36] the object of the apportionment legislation was to put a defendant in exactly the position it would have been if all other concurrent wrongdoers liable to make contribution under the Commonwealth equivalent to s 23B were before the court and of sufficient means to meet their obligations to make contribution according to their respective responsibilities for the loss and damage suffered by the plaintiff:
This bill deals with issues arising where a court finds that more than one respondent has contributed to a claimant’s loss. In such a case at common law, the law of negligence operates so that the principle of joint and several liability determines what damages are paid for the loss and damage caused.
The effect of this general principle is that the claimant only needs to identify one respondent against whom a case can be proved. That respondent is then potentially liable for all the damages payable to the claimant. Where all contributing respondents have sufficient assets or are insured and can be found, damages are apportioned according to each respondent’s contribution to the loss. However, this usually only occurs when these respondents bring actions against each other. Problems arise where only one respondent can be located or where only one respondent is financially viable or insured. That one respondent can be held liable for all the claimant’s loss regardless of how much he or she contributed to that loss. This common law principle protects claimants by allowing them to recover the total damage suffered from at least one of the respondents.[37]
[36]On which Part IVAA is substantially modelled.
[37](2007) 163 FCR 510 [66] (emphasis added).
It is against that legislative background that the provisions of Part IVAA fall to be construed.
So far as is relevant for present purposes, ss 23B and 24 of the Wrongs Act1958 define the entitlement to contribution and prescribe the award of contribution as follows:
23B Entitlement to contribution
(1)Subject to the following provisions of this section, a person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with the first-mentioned person or otherwise).[38]
….
[38]Emphasis added.
24 Recovery of contribution
(1) …
(2)Subject to subsections (2A) and (2B), in any proceedings for contribution under section 23B the amount of the contribution recoverable from any person shall be such as may be found by the jury or by the court if the trial is without a jury to be just and equitable having regard to the extent of that person's responsibility for the damage; and the jury or the court if the trial is without a jury shall have power to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity.
The comparable provisions of Part IVAA are ss 24AH and 24AI, which provide that:
24AH Who is a concurrent wrongdoer?
(1)A concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim.
(2)For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died.
24AI Proportionate liability for apportionable claims
(1) In any proceeding involving an apportionable claim—
(a)the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the loss or damage claimed that the court considers just having regard to the extent of the defendant's responsibility for the loss or damage; and
(b)judgment must not be given against the defendant for more than that amount in relation to that claim.
(2)If the proceeding involves both an apportionable claim and a claim that is not an apportionable claim—
(a)liability for the apportionable claim is to be determined in accordance with this Part; and
(b)liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.
(3)In apportioning responsibility between defendants in the proceeding the court must not have regard to the comparative responsibility of any person who is not a party to the proceeding unless the person is not a party to the proceeding because the person is dead or, if the person is a corporation, the corporation has been wound-up.
It will be observed that there are some differences between the language of s 23B and the language of the comparable provisions of Part IVAA. Whereas s 23B directs attention to ‘the damage suffered [by the plaintiff]’ for which a defendant is ‘liable’, and provides for the defendant to obtain contribution from another person ‘being liable in respect of the same damage’,[39] s 24AH refers to ‘the loss or damage that is the subject of the [plaintiff’s] claim’, and provides for apportionment of the defendant’s liability as against another ‘person … whose acts or omissions caused … the loss or damage that is the subject of the [plaintiff’s] claim’.[40] It might be thought that the differences were intended to signify that ‘a person whose acts or omissions caused … the loss or damage that is the subject of the [plaintiff’s] claim’ within the meaning of s 24AH is something other than a ‘person liable in respect of the same damage’ within the meaning of s 23B.
[39]Emphasis added.
[40]Emphasis added.
In my view, however, that is not the case.[41] As Besanko J held in Shrimp v LandmarkOperations,[42] a ‘concurrent wrongdoer’ includes a person whose acts or omissions caused the damage or loss that is the subject of the plaintiff’s claim only if the person is ‘liable’ to the plaintiff for that loss and damage. In light of s 24AI(3), however, ‘liable’ in the sense identified by Besanko J must include both presently liable and liable in the sense of having been liable and, but for ceasing to exist, would still be liable. It would be inapposite to describe a person who was liable, but has ceased to be liable because they have ceased to exist, as being ‘liable’. Hence, it appears to me that the drafter of s 24AH chose ‘cause’ rather than ‘liable’ to accommodate the possibility that apportionment may be ordered in relation to a concurrent wrongdoer who is not presently liable but who was liable and, but for ceasing to exist, would still be liable.
[41]Cf Commissioner of Taxes (Vic) v Lennon (1921) 29 CLR 579, 590 (Higgins J); McGraw-Hinds (Aust) Pty Ltd v Smith (1978) 144 CLR 633, 643 (Gibbs ACJ); Murphy v Farmer (1988) 165 CLR 19, 26–28 (Deane, Dawson and Gaudron JJ); and see Pearce & Geddes, Statutory Interpretation in Australia, (6th ed), [4.6]–[4.7].
[42](2007) 163 FCR 510, 521 [59]–[62].
The use of ‘loss or damage the subject of [the plaintiff’s] claim’ in place of ‘the same damage’ appears also to have been the result of drafting necessity or convenience. It presents as having been adopted because of the way in which the operation of Part IVAA is limited by s 24AF to claims of a particular kind. Having so limited the operation of the Part, it was necessary to define a ‘concurrent wrongdoer’ in s 24AH in terms of a claim of the kind to which the application of the Part is limited - hence, the opening words of s 24AH: ‘A concurrent wrongdoer, in relation to a claim [of the specified kind]’ - and then to complete the definition in s 24AH by
describing a concurrent wrongdoer in relation to the claim as a person who caused [scil is liable for] the loss or damage that is the subject of that claim.
Arguably, it would have been possible to draft s 24AH along the following lines:
A concurrent wrongdoer in relation to a claim is a person whose acts or omissions caused [scil. a person who is liable or but for ceasing to exist, would be liable in respect of] the same damage as the damage that is the subject of [the plaintiff’s] claim.
If the section had been so drafted, there could be little doubt that ‘same damage’ in s 24AH was equivalent to ‘same damage’ in s 23B.
Presumably, however, the drafter was keen to avoid the surplussage and other inelegances which that sort of drafting would have entailed, and so stripped them out. That left the section as enacted:
A concurrent wrongdoer in relation to a claim is a person … whose acts or omissions caused … the loss or damage that is the subject of the claim.
Judged according to the plain and ordinary meaning of the terms of the section as enacted, it appears to have the same meaning as the earlier suggested draft. I conclude that the ‘loss or damage that is the subject of the claim’ in s 24AH has the same meaning as ‘the same damage’ in s 23B.
What then is meant by ‘the same damage’ in s 23B? In Alexander v Perpetual Trustees WA Ltd[43] a statutory majority of the High Court referred with approval to the decision of the House of Lords in Royal Brompton Hospital NHS Trust v Hammond[44] and, consistently with what decision, held that the ‘same damage’ in s 23B is a narrower concept than that of liabilities arising out of, or by reason of some transaction or related transactions. Their Honours reasoned that:
[43](2004) 216 CLR 109, 122 [26]–[27].
[44][2002] 1 WLR 1397.
The evident remedial purpose of the legislation has been relied upon, in both the United Kingdom and this country, to support what is said to be a wide or broad interpretation of the statutory right and remedy which it created. Such expressions mask the requirement that the legislation be given its proper construction having regard to its purpose and scope. The new statutory right and remedy do not operate at large. Rather, they are available only to a party who meets the criteria specified in Pt IV. In Royal Brompton Hospital, Lord Bingham of Cornhill said of the UK Act:
When any claim for contribution falls to be decided the following questions in my opinion arise. (1) What damage has A suffered? (2) Is B liable to A in respect of that damage? (3) Is C also liable to A in respect of that damage or some of it?
Translated to the present appeal, A represents the plaintiffs, B the respondents, and C Minters.
Where a person has suffered damage in connection with some transactions or events involving the wrongful conduct of others, the statutory creation of rights of contribution between the wrongdoers seeks to address the injustice that may result in some cases if the victim, by his or her selection of defendants, could throw the burden of liability on to one or some of the wrongdoers, to the exclusion of the others. A policy of preventing or limiting such injustice will require a legislature to make choices between different methods of giving effect to that policy. Those choices will be reflected in the terms of the legislation. The Act directs attention to a common liability by using in s 23B the expression ‘in respect of the same damage’. This is a narrower concept than that of liabilities arising out of, or by reason of, the same transactions or related transactions. In resolving questions of construction of the legislation, it is not to be assumed that the legislative purpose is always to provide the widest possible sharing of liabilities, actual or potential, real or hypothetical.[45]
[45]Citations omitted.
The statutory majority in Alexander also referred with apparent approval to the conclusion of the House of Lords in Royal Brompton Hospital[46] that a claim by the hospital against a builder for damages for delay in the completion of a building project was not a claim for ‘the same damage’ as was sought by the hospital from the project architect for damages for negligence in certifying for time extensions and thus compromising the ability of the hospital to recover damages for delay from the builder. Their Honours said that:
In Royal Brompton Hospital it was held that this requirement in the UK Act[47] was not satisfied. The hospital claimed damages against the architect it had engaged under a building contract in respect of, among other lapses, the negligent issue of extension certificates to the builder. The claim by the architect against the builder for contribution was struck out. This was because the claim by the hospital against the builder was for damages for delay in completion, whilst its claim against the architect was for the impairment of its ability to proceed against the builder. Thus, the Law Lords held that the statutory criterion that the claims be for ‘the same damage’ was not met. Lord Steyn said that the ‘natural and ordinary meaning’ of that phrase was controlling. Lord Bingham of Cornhill described that phrase as emphasising the need, which was ‘a constant theme of the law of contribution’, for the ‘one loss to be apportioned among those liable’.[48]
[46][2002] 1 WLR 1397.
[47]Civil Liability (Contribution) Act 1978 (UK).
[48]Ibid [37], citations omitted.
Given the High Court’s apparent approval of the reasoning in Royal Brompton, it is instructive to examine it more closely. Lord Bingham of Cornhill, who agreed with Lord Steyn reasoned that:
The employer’s [hospital’s] claim against the contractor [builder] would be based on the contractor’s delay in performing the contract and the disruption caused by the delay, and the employer’s damage would be the increased cost it incurred, the sums it overpaid and the liquidated damages to which it was entitled. Its claim against the architect, based on negligent advice and certification, would not lead to the same damage because it could not be suggested that the architect’s negligence had led to delay in performing the contract.[49]
[49][2002] 1 WLR 1397, 1402 [7].
Lord Steyn, who delivered the principal speech, observed that the legislative context did not justify an expansive interpretation of ‘the same damage’. He said that the concept was narrower than ‘substantially or materially similar damage’ and, thus understood, it followed that the damage suffered by reason of the builder’s delay was not the same damage as was suffered by reason of the architect’s negligence, because the latter did not cause the delay.
Lord Steyn also referred to the decision of the English Court of Appeal in Howkins and Harrison v Tyler[50] in which it was held that, where a lender advanced funds on the faith of a negligently overvalued security and then claimed the amount of its loss from the valuers as damages for their negligence, the valuers’ liability to the lender was not ‘the same damage’ as the Borrower’s liability to the lender and, therefore, the valuers were not entitled to contribution from the Borrower under the Civil Liability (Contribution) Act 1978.[51] In that case, Sir Richard Scott, VC, who delivered the principal judgment, reasoned that:
[I]t seems to me that a simple test should be applied to identify a claim capable of being one to which the 1978 Act can apply. That test is this: Suppose that A and B are the two parties who are said each to be liable to C in respect of ‘the same damage’ that has been suffered by C. So C must have a right of action of some sort against A and a right of action of some sort against B. There are two questions that should then be asked. If A pays C a sum of money in satisfaction, or on account, of A’s liability to C, will that sum operate to reduce or extinguish, depending upon the amount, B’s liability to C? Secondly, if B pays C a sum of money in satisfaction or on account of B’s liability to C, would that operate to reduce or extinguish A’s liability to C? It seems to me that unless both of those questions can be given an affirmative answer, the case is not one to which the 1978 Act can be applied. If the payment by A or B to C does not pro tanto relieve the other of his obligations to C, there cannot, it seems to me, possibly be a case for contending that the non-paying party, whose liability to C remains un-reduced, will also have an obligation under section 1(1) to contribute to the payment made by the paying party.
The Act was intended to deal with cases where the damage suffered by the victim could be remedied by a claim against one or other of two or more possible defendants, and where the quantification of the damage to the victim for which a defendant would be liable would be affected by what the victim might recover or had recovered from one or other of the possible defendants …[52]
Lord Steyn commented that the Vice Chancellor’s test may provide a practical test for determining whether two claims under consideration are for ‘the same damage’, but that it also had the potential to make questions of contribution unnecessarily complex. It was better, his Lordship said, simply to apply the statutory test.
[50][2001] Lloyd’s Rep PN 27.
[51]The equivalent of s 23B of the Wrongs Act 1958.
[52](2001) 92 Lloyd’s Rep PN 1, 4 [17]–[18].
Lord Steyn referred with approval, however, to the decision of the Alberta Court of Appeal in Wallace v Litwiniuk,[53] in which it was held that damage suffered by a motor accident victim by reason of a driver’s negligent driving of a motor car was not the ‘same damage’[54] as that which she suffered by reason of her solicitor’s negligent failure to institute proceedings on her behalf against the driver before the expiration of the limitation period. The Alberta Court of Appeal reasoned that:
The compensation which [the plaintiff] presently seeks from [her solicitors] is not damages for her physical injuries, but damages for what she would have obtained had the original claim been brought …
The distinct nature of the original claim and the professional negligence claim is recognised by the need to estimate the value of the original claim, and then discount for the costs of pursuing the original litigation, and allow for any chance that the original claim might not have succeeded.[55]
Lord Steyn said that the same reasoning would apply in England.[56]
[53](2001) 92 Alta LR (3d) 249.
[54]Within the meaning of s 3(1) of the Canadian Tort Feasors Act 1980, which is relevantly the same as s 23A.
[55](2001) 92 Alta LR (3d) 249, 257 [32] and [34].
[56][2002] 1 WLR 1397, 1412 [29].
Finally, in Royal Brompton, Lord Hope of Craighead said that he did not see anything in the UK Act suggesting an intention to depart from the assumption which had always been made in contribution cases that contribution is available only where two or more persons have contributed, albeit in different ways, to the same damage and that the ‘mere fact that two or more wrongs lead to a common result does not of itself mean that the wrongdoers are liable in respect of the same damage’.[57]
[57]Ibid 1417 [47].
Consistently with reasoning in Royal Brompton, I do not consider that the Borrower or the guarantor in this case could be said to have caused or be liable for ‘the same damage’ as Quinerts. The loss or damage caused by the Borrower and the guarantor was their failure to repay the loan. Nothing which Quinerts did or failed to do caused the Borrower or the lender to fail to repay the loan. The damage caused by Quinerts was to cause the Bank to accept inadequate security from which to recover the amount of the loan. Nothing which the Borrower or the lender did or failed to do caused the Bank to accept inadequate security for the loan. Furthermore, just as in Wallace v Litwiniuk, the distinct nature of the damage caused by Quinerts is demonstrated by the need to estimate the damage which the Bank would have suffered if Quinerts had not acted negligently in the preparation of the valuation and then to calculate the difference between that and the damage which the Bank has suffered by reason of the Borrower’s and guarantor’s failure to repay the loan.
I conclude that the Borrower and the guarantor were not persons whose acts or omissions caused the loss or damage the subject of the Bank’s claim against Quinerts and, therefore, that they were not concurrent wrongdoers in relation to that claim.
Counsel for Quinerts submitted that so to conclude would run counter to the reasoning of Young CJ in Eq in Vella v Permanent Mortgages Pty Ltd.[58] In that case, a fraudster forged the execution of a mortgage against which Permanent Mortgages lent funds which later proved irrecoverable. Permanent Mortgages’ solicitors were guilty of negligence in failing to draw the mortgage in a form which, despite the fraud, would have rendered the mortgage effective upon registration. Young CJ in Eq held that the fraudster was a concurrent wrongdoer in relation to Permanent Mortgages’ claim against the solicitors.
[58][2008] NSWSC 505; 13 BPR 25,343.
I accept that his Honour’s conclusion is at odds with my conclusion. I am not persuaded by it, however, that I should come to a different conclusion. His Honour likened the fraudster in the case before him to a wrongdoer who shoots a victim, and likened Permanent Mortgages’ solicitors to the manufacturer of a bullet proof vest worn by the victim which, because of negligent manufacture, fails to prevent the bullet passing through. His Honour appears to have reasoned that, although the bullet proof vest might have been acquired for the very purpose of preventing the shooter’s bullet passing into the victim’s body, the High Court’s decision Astley v Austrust Ltd[59] implied that the shooter caused the same damage as was caused by the negligent manufacturer of the bullet proof vest.[60] In turn, that led his Honour to conclude that the shooter (scil the fraudster in the case before him) was a concurrent wrongdoer in relation to the victim’s claim against the manufacturer of the bullet proof vest (scil Permanent Mortgages’ claim against its solicitors).
[59](1999) 197 CLR 1.
[60][2008] NSWSC 505, [583]–[589].
With respect, it appears to me that the shooting analogy was misplaced. In Astley v Austrust the High Court was concerned with a question of contributory negligence under the equivalent to s 26 of the Wrongs Act 1958. Among other things, the Court decided that a company which retained auditors who negligently failed to detect irregularities in the company’s accounts could be guilty of contributory negligence in relation to the loss thereby suffered. More precisely, the Court rejected the notion, which until then was supported by a body of English and Australian authority, that a plaintiff could not be guilty of contributory negligence in relation to the very risk that the defendant had been retained to guard against. It was possible, the court held, that the company suffered or may have suffered loss partly as a result of its own failure to take care and partly as a result of the auditor’s negligence.
Translating that to the language of s 24AH, one might say that Astley v Austrust decided that both the company and the auditors caused or may have caused the loss or damage which was the subject of the company’s claim against the auditors. Transposing that to the case before Young CJ in Eq, one might say that Astley v Austrust was capable of supporting a conclusion that both Permanent Mortgages and its solicitors caused or may have caused the loss which was the subject of Permanent Mortgages’ claim against it solicitors. But, with respect, that says nothing as to whether the fraudster caused the loss or damage the subject of Permanent Mortgages’ claim against its solicitors.
A more appropriate analogy to the facts in Permanent Mortgages would be a case in which a thief steals money from a bank and, because of negligence on the part of the bank’s insurance brokers, the bank finds that the risk of the theft is not covered by insurance. In such a case, the damage caused by the thief would be the loss of the bank’s money. Nothing, however, which the insurance brokers did or failed to do in effecting appropriate insurance cover would have caused the theft of the bank’s money. Contrastingly, the loss or damage caused by the insurance brokers would be the bank’s inability to obtain indemnity from an insurance company for the loss suffered by reason of the theft. But nothing done by the thief would have caused the bank’s insurance cover to be inadequate. It would follow that the thief would not be a concurrent wrongdoer in relation to any claim which
the bank might make against its insurance brokers for failing to arrange appropriate insurance cover.[61][61]See and compare Lord Steyn’s criticism of the decision in Hurstwood Developments Ltd v Motor and General & Andersley & Co Insurance Services Ltd [2001] EWCA Civ 1785, in Royal Brompton NHS Trust v Hammond [2002] 1 WLR, 1413 [33].
Applying that analogy to the Permanent Mortgages Case, the fraudster by his acts and omissions induced Permanent Mortgages to believe that the mortgage was effective, and so to advance funds on the faith of the mortgage. The loss or damage caused by the fraudster was, therefore, the loss constituted of Permanent Mortgages parting with its money. Nothing done or omitted to be done by Permanent Mortgages’ solicitors caused Permanent Mortgages to believe that the mortgage was genuine. Contrastingly, the loss or damage caused by the solicitors was the loss and damage occasioned by their failure to take reasonable care to ensure that the mortgage was so drawn that, despite the fraud, the mortgage was rendered effective upon registration. Nothing done or omitted to be done by the fraudster caused the solicitors to fail to draw the mortgage so that upon registration the mortgage was rendered effective despite the fraud. Further, just as in Wallace v Litwiniuk and Royal Brompton Hospital, the distinct nature of the damage caused by the solicitors was demonstrated by the need to estimate the damage which Permanent Mortgages would have suffered if the mortgage had been rendered effective by registration and then to calculate the difference between that amount and the damage suffered by Permanent Mortgages by paying away its money to a thief.
Counsel for Quinerts referred to the decision of Williams J in I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd,[62] and a number of other decisions which his Honour considered,[63] to the effect that a lender is capable of being guilty of contributory negligence vis-à-vis a valuer whose negligence results in the lender accepting inadequate security for a loan. Although counsel did not say so in terms, I took it to be implicit in his submission that, if a lender can be so guilty of contributory negligence, it must be upon the basis that the damage caused by the lender making the loan is the same damage as is caused by the valuer’s negligence in overvaluing the security; that parity of reasoning implied that the damage caused Quinerts’ negligence must have been the same damage as the damage suffered by the Bank by reason of the loan; and that, since that was the same damage as was caused by the Borrower’s and guarantor’s failure to repay the loan, the Borrower and the guarantor were concurrent wrongdoers in relation to the Bank’s claim against Quinerts.
[62]Supreme Court of Queensland, (Unreported, 22 October 1999).
[63]Ibid [45].
I reject the argument. In I & L Securities the point was that, but for the lender’s negligence and the valuer’s negligence, the loan would not have been made. It followed that the lender’s negligence in making the loan caused the same damage as was caused by the valuer’s negligence in permitting the lender to make the loan. Here, it is different. Although Quinerts’ negligence caused the Bank to make the loan, or at least caused it to lend more than it would otherwise have been prepared to lend, neither the Borrower nor the guarantor did or failed to do anything actionable (in the sense of rendering them liable to the Bank) which caused the Bank to lend or to lend more than it would otherwise have been prepared to lend. On the facts of this case, the only actionable acts and omissions of the Borrower and guarantor were their failures to repay the loan and, axiomatically, their failures to repay the loan did not cause the Bank to make the loan or to lend more than it would otherwise have been prepared to lend. As in Wallace v Litwiniuk and Royal Brompton Hospital, the distinct nature of the damage caused by Quinerts is demonstrated by the need to estimate the damage which the Bank would have suffered if Quinerts had not been negligent in valuing the property and then to calculate the difference between that amount and the damage suffered by the Bank by reason of the Borrower’s and guarantor’s failure to repay the loan.
Finally, on this aspect of the matter, counsel for Quinerts referred to a decision of Bryson AJ, sitting as a judge of the Equity Division, in Chandra v Perpetual Trustees Victoria Ltd,[64] in which a solicitor’s negligent breach of duty resulted in a fraudster obtaining a new duplicate certificate of title and the lender advancing funds on the faith of a fraudulent mortgage. The fraudster was held to be a concurrent wrongdoer in relation to the lender’s claim against the solicitor.
[64][2007] NSWSC 694; 13 BPR 24, 675; (2007) Aust Torts Rep 81–896.
In my view, there is nothing in Bryson AJ’s reasoning or conclusion which is inconsistent with the conclusion to which I have come in this case. The facts in Chandra were that, but for the solicitor’s negligence, the fraudster would not have got his hands on the duplicate certificate of title and so would not have been able to deceive the lender. But for that, there would not have been any loan.[65] Consequently, the damage which the solicitor caused was the damage which resulted from bank making a loan which it would not otherwise have made. Similarly, but for the fraud, the bank would not have made the loan. In the result, the damage caused by the fraudster was the same damage as resulted from the bank making a loan which it otherwise would not have made. It followed that the damage caused by the fraudster was the same damage as was the subject of the lender’s claim against the solicitor and, therefore, the fraudster was a concurrent wrongdoer in relation to the lender’s claim against the solicitor.
[65]Ibid [106].
That stands in contrast to the facts of this case, where the damage caused by the Borrower and the guarantor by their failure to repay the loan was different to the damage caused by Quinerts’ negligence in the valuation of the property. Here, the Borrower and the guarantor are not liable in respect of the loss which is the subject of the Bank’s claim against Quinerts and so in my view are not concurrent wrongdoers.
Another way of looking at the matter is to consider the time at which the damage caused by Quinerts’ negligence was suffered and to compare that with the time at which the damage caused by the Borrower’s and guarantor’s failure to repay the loan was suffered.
As it appears to me, the loss and damage caused by Quinerts’ negligence was similar to the loss and damage suffered by a plaintiff who purchases property at an excessive price on the faith of a negligent overvaluation of the property. In effect, the Bank outlaid excessive funds by way of loan in consideration of an under-secured chose in action and, because the chose in action was so under-secured, it was less valuable than if it had been adequately secured. At that point, the loss and damage caused by Quinerts’ negligence was ascertained or ascertainable and the time in which to institute proceedings for the recovery of damages began to run.[66]
[66]Gould & Anor v Vaggelas & Ors (1985) 157 CLR 215, 255 (Brennan J); HTW Valuers v Astonland Pty Ltd (2004) 217 CLR 640, 655 [28]–[33]; Christie v Purves [2007] NSWCA 182 [35]–[41]; cf Commonwealth v Cornwell (2007) 81 ALJR 933, 941 [36]–[38].
Contrastingly, the loss and damage caused by the Borrower’s and guarantor’s failure to repay the loan was like the loss and damage suffered by a plaintiff who, having purchased property at an overvalue on the faith of a negligent valuation, and then entered into a sub-contract to re-sell the property at the overvalue, is unable to procure the sub-purchaser to complete the sub-contract at that inflated price. In effect, the Bank, having outlaid excessive funds by way of loan in consideration of the under-secured chose in action might still have avoided a loss if the Borrower and guarantor had repaid the loan in full. Thus, it was not until the Borrower and the guarantor defaulted in the performance of their payment obligations that the loss caused by their default was ascertained or ascertainable, and so it was not until then that the time in which to institute a proceeding for the recovery of that loss and damage began to run.
If that is so, the fact that the loss or damage caused by Quinerts was incurred before the loss or damage caused by the Borrower’s and guarantor’s failure to repay the loan is a further indication that the loss or damage caused by Quinerts was not the same loss or damage as was caused by the Borrower and guarantor. And that is so even though the Bank might never have felt the effects of the loss and damage caused by Quinerts’ negligence if the Borrower and guarantor had repaid the loan.[67]
[67]See and compare Howkins & Harrison v Tyler (2001) 92 Lloyd’s Rep PN 1, 5 [24]–[25] (Sedley LJ).
Again, to return to the analogy of a purchaser of land, if the purchaser is induced by a negligent overvaluation to pay above market price for real property, the purchaser suffers loss and damage immediately upon completion of the purchase and the time in which to bring proceedings to recover damages from the negligent valuer begins to run from that point. It does not detract from that conclusion that the purchaser might prefer to defer the institution of proceedings against the valuer and hold the land in the hope of finding a sub-purchaser willing to take the property off the purchaser’s hands at the same inflated value. If the purchaser is able to re-sell the property to a sub-purchaser at a price sufficient to cover the purchaser’s original outlay, plus the opportunity cost of the purchaser’s overpayment, the loss and damage first suffered on completion of the original purchase will be eliminated. In that event, there will be no proceedings against the valuer or, if there are, they will fail.[68] But if the sub-purchaser defaulted in the performance of the sub-contract, with the result that the property was once again thrown back on the purchaser’s hands and unable to be re-sold at a price sufficient to re-coup the loss and damage first suffered, an action would still lie against the valuer for damages equal to the shortfall.[69]
[68]Except, perhaps, for nominal damages for breach of contract.
[69]Assuming the limitation period had not expired.
Certainly, the sub-purchaser’s default would be a causa sine qua non of the purchaser’s ultimate loss. But judged according to common sense conceptions of fact,[70] that would be an insufficient basis to conclude that the sub-purchaser thereby caused the same loss and damage as was caused by the valuer’s negligence. If what I have said is correct, the essence of the loss and damage caused by the valuer was the purchaser paying more for the property than it was worth - and nothing which the sub-purchaser later did or failed to do could be said to have caused that. Contrastingly, the loss and damage caused by the sub-purchaser’s default inhered in the purchaser failing to realise the property for more than it was worth - and nothing which the valuer had previously done or failed to do in valuing the property could be said to have caused that.
[70]March v E & M H Stramere Pty Ltd (1991) 170 CLR 507, 515–6 (Mason CJ), 524 (Deane J), 530–533 (McHugh J).
It is the same with the Bank. The loss and damage caused by Quinerts was the result of the Bank outlaying too much by way of loan in consideration of an over-valued security. Nothing which the Borrower or guarantor did or failed to do caused the Bank to incur that loss and damage. Contrastingly, the loss and damage caused by the Borrower’s and guarantor’s default inhered in the Bank failing to realise the under-secured chose in action for more than it was worth. And nothing which the Quinerts did or failed to do in valuing the property caused the Bank to fail to realise the chose in action for more than the security was worth.
Either way in my view, neither the Borrower nor the guarantor was a concurrent wrongdoer with Quinerts within the meaning of Part IVAA of the Act.
(iv) Proportionate Liability –Trade Practices Act
As was earlier noted, the claim for apportionment under Part VIA of the Trade Practices Act 1974 (Cth) was abandoned. That came about because, during the course of argument, the parties realised that there may be some inconsistency between Part IVAA of the Wrongs Act 1958 and Part VIA of the Trade Practices Act 1974, and wished to avoid the need to give notice under s 78B of the Judiciary Act 1901 (Cth).
It may be observed, however, that ss 82(1B) and 87CD of the Trade Practices Act 1974 only apply to causes of action accruing on or after 26 July 2004.[71] If I am correct that the Bank’s cause of action against Quinerts accrued when the Bank entered into the loan transaction, which was on 10 February 2003, Part VIA of the Trade Practices Act 1974 did not apply.
[71]See Corporations Act 2001(Cth), s 466 and Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth), s 2.
Conclusion
For the reasons I have given, I would allow the appeal and dismiss the cross-appeal. I would set aside the judgment below and in lieu thereof give judgment for the Bank in the sum of $173,638.96 (being the $145,000 awarded by the judge plus the recovery costs of $28,638.96) and interest thereon of $29,628.04 calculated in accordance with the Penalty Interest Rates Act1983 and computed from the date of issue of the writ until judgment.
The respondent should pay the appellant’s costs of the proceeding below and the appellant’s costs of the appeal, and the respondent should have a Certificate under s 4 of the Appeal Costs Act 1998.
MANDIE JA:
I have had the advantage of reading in draft the reasons for judgment of Nettle JA and I agree with those reasons and with the orders that his Honour proposes.
BEACH AJA:
I also agree with Nettle JA.
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