Victorian Securities Corporation v Hay Property; Consultants Pty Ltd and Ors
[2009] VCC 114
•6 March 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
COMMERCIAL LIST PILOT
Case No. CI-07-05038
| VICTORIAN SECURITIES CORPORATION | Plaintiff |
| LIMITED (A.C.N. 004 496 208) | |
| v | |
| HAY PROPERTY CONSULTANTS PTY LTD | Firstnamed Defendant |
| (A.C.N. 006 368 985) | |
| & | |
| PETER MCARTHUR HAY | Secondnamed Defendant |
| & | |
| CRAIG FITZGERALD | Thirdnamed Defendant |
| & | |
| AMIR BURZIC | Fourthnamed Defendant |
| & | |
| INDIRA BURZIC | Fifthnamed Defendant |
| JUDGE: | HER HONOUR JUDGE KENNEDY |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 26 & 27 February 2009 |
| DATE OF JUDGMENT: | 6 March 2009 |
| CASE MAY BE CITED AS: | Victorian Securities Corporation v Hay Property Consultants Pty Ltd & Ors |
| MEDIUM NEUTRAL | [2009] VCC 0114 |
| CITATION: |
REASONS FOR JUDGMENT
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Catchwords: Claim against valuer and valuer’s principal in negligence, breach of contract and for contravention of s52 Trade Practices Act 1974 (TPA) / s9 Fair Trading Act 1999 – whether valuer/ principal liable for the entire loss suffered by the plaintiff- whether diminution in value caused by damage to property excluded- whether the proportionate liability provisions under Part VIA of the TPA or Part IVAA of the Wrongs Act 1958 operate to reduce or eliminate the liability of the valuer and its principal
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr. S. R. Senathirajah | Hall & Wilcox |
| For the First, Second and | Mr. D. V. Aghion | DLA Phillips Fox |
| Thirdnamed Defendants | ||
| For the Fourth and | No appearance | |
| Fifthnamed Defendants HER HONOUR: |
Background
1 The plaintiff has sought damages for breach of contract and negligence in respect of a valuation given by the first defendant on 17 December 2004 in respect of properties situated at 92 and 94-96 Hemmings Street Dandenong. The valuation gave the value of the properties as $800,000 when the true value of the properties as at 17 December 2004 was $575,000.
2 The plaintiff also claimed that by forwarding the valuation the first defendant engaged in misleading and deceptive conduct contrary to section 52 of the Trade Practices Act 1974 (“TPA”) and/or section 9 of the Fair Trading Act 1999 (“FTA”).
3 Relief was also sought against the second defendant who was the sole director, secretary and member of the first defendant. The plaintiff alleged that he had aided abetted, counselled or procured, induced or was knowingly concerned in or a party to the first defendant’s contravention of the TPA and of the FTA.
4 The third defendant was alleged to be employed by the first defendant. This was denied, the defendants alleging that the third defendant was sub- contracted by the first defendant. In any event, at the first day of the hearing of this matter, by consent, the plaintiff was given leave to discontinue its proceeding against the third defendant with no order as to costs.
5 In reliance upon the valuation the plaintiff lent $520,000 to the fourth and fifth defendants who were registered proprietors of the properties. The plaintiff obtained a registered mortgage over the properties.
6 There was subsequently a default on the loan and on 24 October 2006 the plaintiff obtained possession of the properties. However at some between 15 September 2006 and 23 October 2006 the properties were damaged. The nature of this damage will be referred to further below but the plaintiff accepts that it was deliberate damage perpetrated by persons unknown and further that the diminution in value of the properties caused by the damage was $215,000.
7 The plaintiff subsequently entered into contracts of sale to sell the properties for the sum of $380,000 on 14 December 2006. Consequent on the sale the plaintiff lost an amount of $170,601.74.[1]
[1] See further paragraph 18 below
8 The plaintiff’s case was that it was entitled to the entire amount lost on the transaction on the basis that it would not have agreed to provide Mr and Mrs Burzic with any loan funds if the properties had been valued at less than $800,000.
9 The defendants’ case was that the sum of $215,000 diminution in value of the property should be excluded.
10 The plaintiff seeks no relief against the fourth and fifth defendants who are undischarged bankrupts and have taken no part in these proceedings. However they were joined as defendants by orders made on 13 October 2008 on the application of the first to third defendants. Those orders also gave leave for the first to third defendants to pursue a claim pursuant to rule 11.15 subject to obtaining leave to proceed from the Federal Magistrates’ Service. The first to third defendants seek to allege that the fourth and fifth defendants are “concurrent wrongdoers” pursuant to the provisions of the Part IVAA of the Wrongs Act and Part VI of the TPA and that their liability to the plaintiff, if any, should be thereby reduced or eliminated.
11 The Amended Writ adding the new defendants together with the Notice filed pursuant to rule 11.15 were subsequently served but no appearance was ever entered by the fourth and fifth defendants.[2] In the Notice, the first to third defendants claimed apportionment of liability against the fourth and fifth defendants and sought a declaration that the liability of the first second and third defendants was limited to an amount reflecting that proportion of the loss or damage claimed by the plaintiff that the court considers just having regard to the extent of the responsibility of the first and second defendants for the loss and damage.
[2] Both the notice and amended writ were served by way of substituted service pursuant to orders of Judge Anderson of 13 .11.08- Affidavit of Cathryn Prowse of 25.2.09 paragraph 6
12 The plaintiff subsequently obtained an order of a Federal Magistrate of 8 December 2008 granting leave for it to proceed against the fourth and fifth defendants pursuant to s58(3)(b) of the Bankruptcy Act 1966 on an undertaking not to seek or obtain monetary judgment and to only seek declaratory relief.
13 In the result no monetary relief was sought by Mr Aghion, Counsel for the first to third defendants in this case although relief in the nature of the declaration was pursued.
Issues 14
A large number of claims and defences were open on the pleadings immediately prior to the commencement of the trial. In particular there was extensive expert valuation evidence filed by both parties with the trial expected to run for at least four to five days.
15
However at the commencement of the trial Counsel for the plaintiff, Mr Senathirajah, announced that the parties had agreed that only two major issues required resolution and further that these issues could be resolved on the basis of a joint statement of agreed facts.
16
The parties are to be commended on this approach which ultimately saved a great deal of court time and expense.
17
At the invitation of the court, the issues were ultimately defined as specific questions calling for resolution with specific consequences conceded as follows:
The first question
Are the first and second defendants liable in law for the entire loss suffered by the plaintiff or is the diminution in value to the subject properties, caused by the deliberate damage to the Properties between 15 September and 23 October 2006, to be excluded?
If yes, consider the second question.
If no (ie the diminution in value is excluded), the plaintiff’s claim is dismissed.
The second question
Do the proportionate liability provisions under Part VIA of the TPA or Part IVAA of the Wrongs Act 1958 operate to reduce or eliminate the first and second defendants’ liability to the plaintiffs, on the ground that:
(a) Mr and Mrs Burzic failed to repay the loan; or
(b) (if proven as a question of fact) Mr and Mrs Burzic breached the loan covenants at clauses 6.02, 6.03 and 6.11(a), (e) or (i) of the Memorandum of Common Provisions (exhibit D)?
If yes, determine the proportion of Mr and Mrs Burzic’s responsibility for the loss, and reduce or eliminate the liability of the first and second defendants accordingly.
If no, enter judgment for the plaintiff in the sum of $170,601.74 plus penalty interest from the date of commencement of the proceeding.
18 The sum of $170,601.74 was subject to agreement also as to its constituent parts. These are referred to in the agreed statement of facts below and were as follows:
Amount lent (65% of $800,000) $520,000 Payments by Burzics -$62,492.00 Sub-Total $457,508.00 Recovered amount -$380,000 Costs of sale $20,935.38 Legal fees $5,313.84 Interest $66,844.52 Sub-Total $170.601.74
Evidence
19 Given the receipt of the agreed statement of facts there was very little need for further evidence and no oral evidence was adduced by either party.
20 The parties’ “Joint statement of agreed facts and documents” read as follows:
1. On or shortly after 9 December 2004, the first defendant became subject to a duty of care in favour of the plaintiff, to conduct a valuation of properties situated at and known as 92 and 94-96 Hemmings Street, Dandenong (“the Properties”) diligently, skilfully and not negligently, which valuation the first defendant knew would be relied upon by the plaintiff to decide whether it would advance funds on first mortgage security up to a loan value ratio of 65%.
2. The first defendant’s duty of care referred to above arises pursuant to:
(a) a contract entered into by the plaintiff and first defendant on about 9
December 2004 (“the Contract”); and/ or
Particulars
The contract is partly written and partly to be implied. Insofar as the Contract is in writing, it is constituted by the letter from the plaintiff to the first defendant dated 9 December 2004 (PCB 108)
(b) a common law duty of care by reason of the first defendant’s knowledge of
the plaintiff’s reliance as referred to in paragraph 1 above.
3. On about 17 December 2004, the plaintiff received from the first defendant documents titled “Report and Valuation” (PCB 123-126 and DCB 93-97) in which the first defendant valued the Properties, as at 17 December 2004, in the cum of $800,000 (“the Valuation”).
4. Further or alternatively to paragraph 1 above, on or about 17 December 2004, by sending the Report and Valuation referred to in paragraph 3 above, the first defendant represented (“the First Defendant’s Representations”) to the plaintiff that:
(a) the present market value of the Properties was $800,000; and
(b) the Properties were suitable security up to a loan value ratio of 65%.
5. In reliance upon the Valuation and/ or the First Defendant’s Representation, the plaintiff agreed to lend, and did lend (on 24 December 2004), $520,000 to the joint registered proprietors of the Properties, Indira Burzic and Amir Burzic, on the basis that Mr and Mrs Burzic would grant first registered mortgages over the Properties in favour of the plaintiff to secure repayment of that loan (PCB 109-114, 115 and 130-131).
6. Mr and Mrs Burzic granted the plaintiff first registered mortgages over the Properties pursuant to the terms set out in Memorandum of Common Provisions AA 662.
7. The plaintiff would not have agreed to provide Mr and Mrs Burzic with any loan
funds (nor provided any such funds to them):
(a) if the Properties had been valued at less than $800,000 by the first
defendant; and/ or
(b) if the first defendant had represented to the plaintiff that the present market
value (as at 17 December 2004) of the Properties was less than $800,000.
8. The first defendant breached its duty of care to the plaintiff in performing the Valuation of the Properties, and the true value of the Properties was $575,000 as at 17 December 2004.
9. The First Defendant’s Representations were false in that:
(a) the true value of the Properties was $575,000 as at 17 December 2004; and
(b) by reason of (a) above, the Properties were not suitable to secure a loan of
$520,000.
10. In making the First Defendant’s Representations, the first defendant engaged in conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive contrary to section 52 of the Trade Practices Act 1974 (“the TPA”) and/ or section 9 of the Fair Trading Act 1999 (Vic) (“the FTA”).
11. Further or alternatively, at all material times, the second defendant:
(a) aided abetted, counselled or procured;
(b) induced; or
(c) [was] knowingly concerned in or a party to,
the first defendant’s contravention of section 52 of the TPA and section 9 of the FTA within the meaning of section 75B of the TPA and section 145 of the FTA, respectively.
12. Mr and Mrs Burzic failed to perform their obligations under the loan agreement for $520,000 with the plaintiff, and the plaintiff issued notices of default to Mr and Mrs Burzic on or about 20 June 2005, 26 September 2005 and 29 September 2006.
13. On or about 13 October 2006, the plaintiff commenced proceeding number 18 of 2006 in the Supreme Court of Victoria at Ballarat against Mr and Mrs Burzic seeking an order for possession of the Properties.
14. At some time in the period 15 September 2006 to 23 October 2006, the
Properties were damaged, such damage included:
(a) destruction of a large number of fittings;
(b) damage to tiles, walls and doors;
(c) ripping out of toilet cisterns and basins;
(d) removal of wiring; and
(e) removal of plasterboard from the ceiling in one of the buildings.
15. On or about 24 October 2006, the plaintiff obtained possession of the
Properties.
16. Subsequently, the plaintiff, in the exercise of its power of sale, offered the
Properties for sale by ways of public auction.
17. Immediately following the public auction, held on 14 December 2006, the plaintiff entered into contracts of sale of real estate under which it agreed to sell the Properties for the sum of $380,000 (plus GST).
18. On 14 December 2006, the true value of the Properties was $595,000 had
they not been damaged.
19. The diminution in value of the Properties caused by the damage was therefore $215,000 (being the true value in the undamaged state of $595,000 less the sale price of $380,000).
20. The settlement of the sale of the Properties was completed on 24 January
2007.
21. At the time of the settlement:
(a) the plaintiff received $380,000 (plus GST) from the purchaser of the
Properties;
(b) Mr and Mrs Burzic had paid $62,492 (interest of $49,123.13 and principal of
$12,768.87) to the plaintiff;
(c) the plaintiff had incurred legal fees of $5,313.84 in respect of the loan to Mr
and Mrs Burzic; and
(d) the plaintiff had incurred expenses of $20,935.38 in respect of the sale of the
Properties.
22. If the plaintiff had not advanced $520,000 to Mr and Mrs Burzic on 24 December 2004 in the period from that date until settlement (ie 24 January 2007), the plaintiff would have earned $66,844.52 on the $520,000, as it would have invested that amount in bank bills.”
21 The letter of 9 December 2004 addressed to the first defendant through the third defendant as referred to in paragraph 2(a) of the agreed facts stated, inter alia,:
“We would be pleased if you would redirect the valuation report prepared by yourself over the abovementioned property for Victorian Corporation Limited to rely on for mortgage purposes.”
22 This was done in a context wherein the original valuation had not been prepared for the plaintiff.
23 The report and valuation of 17 December 2004 (in both forms) referred to at paragraph 3 of the agreed facts certified that the property had been inspected on December 15 2004 and assessed the present market value at $800,000. The valuation further stated “The property is considered a suitable security up to a loan value ratio of 65%.”
24 The letter to the Burzics dated 9 December 2004 confirming approval of the loan referred to in paragraph 5 of the agreed facts stated that:
“The amount VSCL is prepared to lend on the security offered is $520,000 which is the full amount requested in your application subject to this amount not exceeding 65% of the value placed on the property offered as security as determined by a registered valuer…”
Resolution of Issues: question one
25 The plaintiff’s case was a relatively simple one with primary emphasis placed on the High Court case, Henville v Walker[3]
[3] (2001) 206 CLR 459
26 The case of Henville was concerned with a case in which an estate agent advised an architect who was contemplating undertaking a development that the units would be worth between $250,000 and $280,000 each. The architect also prepared a feasibility study which included an assessment of various costs items and which substantially underestimated the costs of the project.
27 If either the selling prices or costs had been estimated accurately the project would not have been considered profitable and it would not have proceeded.
28 The architect, Henville sued the estate agent claiming damages for contravention of s52 of the TPA. He claimed the entire loss he laid out on the project.
29 The majority of the High Court (McHugh J, Hayne J and Gummow J - agreeing with the reasons of McHugh J and Hayne J) held that Henville was entitled to this total loss since the agent’s contravention of the TPA was one of two concurrent causes of the architect’s loss and that was enough to enable damages to be recovered under s82. The leading judgment is that of McHugh J.
30 The difference between the majority and the minority (Gleeson CJ and Gaudron J) was whether certain expenditure was causally connected to the agent’s conduct. The minority found that the trial judge was correct in holding that a discrete part of the loss was not causally connected to the agent’s contravention.
31 Mr Senathirajah submitted that he was primarily relying on the TPA claim and that, in the light of Henville the loss was caused “by” the contravention in this case as provided by s82.[4]
[4] Which provides that a person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part 1V or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
32 Mr Senathirajah emphasized that the plaintiff agreed to lend the funds to the Burzics in reliance upon the valuation (paragraph 5 agreed facts) and further that the plaintiff would not have agreed to provide the Buzics with any loan funds if the properties had been valued at less than $800,000 or had been represented as less than $800,0000 (paragraph 7 agreed facts). In these circumstances it followed that the misrepresentation was “a” cause of the loss and the fact that there was another cause was irrelevant given Henville.
33 Mr Aghion submitted:
(a) that the causes were not concurrent since the stripping out of the property was remote in time and the damage caused was separately identifiable both as to event and quantum. He distinguished the case of Henville wherein two or more causes jointly influenced the architect to proceed.[5] This was not the case on the present facts wherein the transaction was entered into well before the damage was perpetrated.
(b) that the damage was not reasonably foreseeable at the time of entry into the loan and/or the damage was too remote to the act of valuing the land in December 2004;
(c) that the reasoning of Henville makes it clear that a representor does not become an underwriter for all losses however incurred. Rather an “intervening event” will break the chain of causation to the extent it caused or contributed to the loss;
(d) the defendants further relied on other cases apart from Henville including Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd[6], Duncan & Weller Pty Ltd v Mendelson[7], Kenny & Good Pty Ltd v MGICA [8] and Travel
Compensation Fund v Tambree.[9]
Whether Concurrent
[5] Henville v Walker (2001) 206 CLR 459 per McHugh J at [107]
[6] (1987) ATPR 40-822
[7] [1989] VR 386
[8] (1999) 199 CLR 413
[9] (2005) 224 CLR 627
34 It is true that the two operative causes in Henville occurred at the time of entry into the transaction. This is to be distinguished from the present case wherein the subsequent damage occurred after entry into the loan transaction.
35 However, the crucial question raised by s82 is whether the contravening conduct is a cause of the loss rather than whether it is a cause of entry into the transaction per se. [10]
[10] See also Henville at [14] per Gleeson CJ, [66] per Gaudron J; [163] per Hayne J
36 This is made clear by the succeeding paragraph[11] to that referred to by Mr Aghion in the judgment of McHugh J wherein His Honour notes that the principle (that two or more causes may influence a person to undertake a course of conduct) has been applied in cases where a complicating factor is the intervention of some act or decision of the plaintiff or a third party that allegedly constitutes a more immediate cause of “the loss or damage.”[12]
[11] Henville v Walker (2001) 206 CLR 459 per McHugh J at [108] Henville v Walker (2001) 206 CLR 459 per McHugh J at [108]
[12]
37 In my view, the contravening conduct in this case was a cause of the loss since the entire loss was brought about by the decision to lend the money which would not have occurred without the misrepresentation. On the agreed facts no amount would have been lent at all if the properties had been valued at less than $800,000.
38 Further the damage inflicted also contributed to the loss since the amount ultimately recovered was less by reason of the damage effected.
39 In my view therefore this is a case of concurrent causes.
Reasonable foreseeability and remoteness
40 There are a number of statements in the majority in Henville which cast doubt on the applicability of these common law concepts when considering a contravention of the TPA.
41 McHugh J suggests that although the “by” in s82 invokes the common law concept of causation (citing Wardley)[13] this does not mean that common law conceptions of causation should be rigidly applied without regard to the terms or objects of the TPA.[14]
[13]
[14] Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Henville v Walker (2001) 206 CLR 459 per McHugh J at [95] – [96]
42 He further states:
“Given the long history of the common law’s recognition of the concept of remoteness in assessing damages in contract and tort and its relationship with the issue of causation it seems proper to read the term ”by” in s82 as including the concept of remoteness. By remoteness I mean that the loss or damage was not reasonably foreseeable even in a general way by the contravener.”[15] (emphasis added)
[15] Ibid at [136]
43 Further he states that one of the fundamental purposes of the TPA is to protect consumers from being induced to enter into agreements and transactions by false or misleading conduct. It follows that the loss from acting on such an inducement will usually be greater than the amount recoverable by treating the representation as a warranty:
“An award of damages under s82 will therefore ordinarily be inadequate to achieve one of the purposes of the Act unless the claimant is compensated for what he or she has “suffered in consequence of his or her altering his or her position under the inducement of the fraudulent misrepresentations”.”[16]
[16] Ibid per McHugh J at [144]
44 Hayne J stated:
“There may be cases where some of the loss suffered by a person following- and I use the word “following” in a neutral sense - the conduct of another in contravention of the Act may not be loss suffered by that person by the contravening conduct...Whether, as Gaudron J suggests (140), it would be for the contravener to demonstrate in such a case that part of the loss suffered was not attributable to the contravention is a point I need not decide. For the moment, it is enough to say that it seems to me that such questions must find their answers within the Act rather than by analogies with common law. Thus if notions of remoteness of damage or reasonableness are to find reflection in s82(1) it seems probable that they may do so only through consideration of the causation question which the subsection poses.“[17]
[17] Ibid at [166]
45 In terms of the minority judgments, Gleeson CJ referred to “similar principles” being appropriate as the common law.[18]
[18] see discussion at [24-31] He also cites Winn LJ in Doyle v Olby approved in Smith New Court v Citibank [1997] AC 254 at [30-31] although this should be compared with comments of McHugh J at [136-137] who suggests that the comments of Winn LJ confuse remoteness with contributory negligence and causation
46 However, Gaudron J stated that considerations of foreseeability and contributory negligence are “irrelevant” to the exercise required by s82(1) although causation was relevant given the word “by” in s82(1).[19]
[19] Ibid per Gaudron J at [66].
47 In this case the loss was caused “by” the contravention given without the contravening conduct the plaintiff would never have entered into the transaction and suffered the loss. In my view then the first defendant’s breach has materially contributed to the loss sustained and there is no need to inquire further.
48 However, even if foreseeability concepts are employed, the reduction of the value of the properties was reasonably foreseeable in a general way (as formulated by McHugh J). In this regard I accept Mr Senathirajah’s submission that for a variety of reasons realisation of 100 per cent of the value of the assessed value is unlikely. There may be a variety of reasons for this including a decline in values, the building of a development in the area, lack of interest on the day of the auction or for some other reason.
49 Further the first defendant specifically represented that the property was considered a suitable security up to a loan value ratio of 65 per cent. In these circumstances it was reasonably foreseeable that the valuation would need to cover reductions in the asset of up to 35 per cent for reasons which may have been outside the control of the plaintiff. Indeed a reduction of up to $280,000 was specifically contemplated (being 35 per cent of $800,000).
50 Thus even if foreseeability and remoteness principles are employed, it was reasonably foreseeable that there might be a reduction in the value of the properties as, in the result, occurred in this case.
Whether damage was an intervening event
51 The starting point is that where a person contravenes the Act and induces a person to enter upon a course of conduct that results in loss or damage an award of damages that compensates for the actual losses incurred in embarking on that course of conduct best serves the purposes of the Act and should ordinarily be awarded[20]
[20] Ibid per McHugh J at [135].
52 It is true that the case of Henville does leave open the possibility of a supervening or intervening event but it seems that there will be few cases wherein these will absolve a contravener for liability.
53 Thus McHugh J states that if the defendant’s breach has “materially contributed” to the loss or damage it will be regarded as “a cause” of loss despite other factors having played an even more significant role. Only in “exceptional cases where an abnormal event intervenes between the breach and damage it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.”[21]
[21] Ibid at [106]
54 His Honour later cites Medlin[22] which suggests that the ultimate question must always be whether notwithstanding the intervention of the subsequent decision the defendant’s wrongful act is properly to be seen as having caused the relevant loss or damage.[23]
[22] Medlin v State Government Insurance Commission (1995) CLR 1
[23] Henville v Walker (2001) 206 CLR 459 per McHugh J at [108]
55 Mr Aghion also relied on certain comments of McHugh J to the effect that if the conduct merely provides the reason why the person acted it will not be sufficient to establish a causal connection unless the purpose of the legal norm that the defendant has breached is to prevent persons suffering detriment in circumstances of the kind that occurred. [24]
[24] Ibid at [103]
56 One of the fundamental purposes of the Act is to protect consumers from being induced to enter into agreements and transactions by false or misleading conduct. In my view that purpose is intended to prevent persons suffering detriment in circumstances of the kind that occurred in this case.
57 This passage of McHugh J therefore does not assist the defendants.
58 Hayne J also allows some room for an intervening event as he suggests that if the appellants had chosen “for wholly extraneous reasons” to change the design of the units to waste extra costs it might be said that those extra costs were not caused by the contravention.[25]
[25] Henville v Walker (2001) 206 CLR 459 at [166]
59 However in this case, as found by the majority in Henville, the entire loss was attributable to the misrepresentation and this passage again does not assist the defendants.
60 The minority justices did not disagree with the proposition that a contravener is liable for all the loss attributable to the contravention. However they upheld the trial judge’s finding that a discrete part of the loss was not causally connected.
61 Overall and notwithstanding the perpetration of the subsequent damage, in my view the contravention remained an ongoing cause of the loss given there were concurrent causes of the loss for the reasons I have set out above (paragraphs 34- 39).
62 Moreover, the subsequent reduction in the value of the property could hardly be described as “abnormal” “exceptional” or “supervening” given the possibility of a reduction in the asset was specifically contemplated.
63 There is no intervening event such as to break the chain of causation in this case.
Other cases
Kenny & Good Pty Ltd v MGICA (1992) Limited[26]
[26] (1999) 199 CLR 413
64 The case of Kenny was concerned with whether a valuer was liable in respect of an overvaluation in circumstances wherein the valuation report stated that the property was “suitable security for investment of trust funds to the extent of 65 per cent of our valuation for a term of three to five years.”
65 The case was decided by the High Court on the basis of the common law duty of care.[27] The principal question was whether, having regard to the fall in property values the valuer was liable for the total loss suffered by the financier’s mortgage insurer who was expressly covered by the valuation.
[27] See at [30] and [125]
66 The High Court held that the valuer was liable for the total loss suffered. The reasoning appears to be based partly on the specific terms of the warranty and partly on the fact that because the respondent would not have given any insurance cover if it had been advised of the true value, it was entitled to the full amount paid under the policy.
67 Kirby and Callinan JJ suggest that “very often” the amount of loss caused by a contravention of s52 will coincide with the damages at common law.[28]
[28] Kenny & Good Pty Ltd v MGICA (1992) Limited (1999) 199 (CLR) 413 per Kirby & Callinan JJ at [129] – [130]
68 However, Mr Aghion also referred to certain passages from the judgments of Gaudron and McHugh JJ in terms of the role of supervening events.
69 The passage of Gaudron [29] suggests that there may be a role for “some supervening event” and further that the valuer is responsible for loss arising out of the transaction save to the extent that it is attributable “to some other cause.”[30]
[29] Ibid at [17]
[30] Ibid per Gaudron J at [21]
70 However Her Honour suggests that the valuer would escape liability only if some part of the loss would have been suffered if the valuation was correct.[31] This does not assist the defendants herein since they have not demonstrated that any loss would have been suffered if the valuation was correct.[32] Thus if the valuation had been correct, (and the properties were really worth $800,000) the $215,000 damage would not have led to the plaintiff suffering loss because the remaining value of the properties would have been sufficient to discharge the indebtedness of the Burzics.
[31] Ibid at [29]
[32] Mr Senathirajah suggested that the indebtedness was $550,601.74 which would have been covered by the sale of the property if the valuation was correct being $585,000 ($800,000 - $215,000) . This calculation was not challenged and appears to be correct
71 Moreover her Honour notes that is “possible that liability under s52 of the Act is limited neither by foreseeability nor remoteness”[33] which also does not assist the defendants.
[33] Kenny & Good Pty Ltd v MGICA (1992) Limited (1999) 199 (CLR) 413 per Gaudron J at [30]
72 The passage of McHugh J relied upon reads:
“Many kinds of loss that are reasonably foreseeable in a general way are outside the area of recoverability in the law of torts and the law of contract. Thus it is reasonably foreseeable and within the reasonable contemplation of the parties that a property the subject of a negligent valuation may be damaged by fire or other natural disaster. Yet unless there is something which indicates that this property is the subject of risk of fire or natural disaster over and above that of properties generally, no one would suggest that the borrower can recover the loss from the valuer on the ground that but for the negligent valuation the property would not have been purchased.”[34] (emphasis added)
[34] Ibid per McHugh J at [55]
73 The passage of McHugh J cited above is clearly speaking of the common law of torts and contract. It is also to be contrasted with His Honour’s specific statements in Henville to the effect that the concept of remoteness applicable to s82 is only limited when the loss or damage was not reasonably foreseeable in a “general way” by the contravener (at paragraph 42 above).
74 His Honour’s remarks were further dicta.
75 The case of Kenny does not assist the defendants.
I & L Securities v HTW Valuers (Brisbane) Pty Ltd[35]
[35] (2002) 210 CLR 109
76 Both Counsel referred to this case which was a s52 case based on a misleading valuation. The plaintiff was successful in the case in recovering all of its losses caused by its entry into the loan transaction notwithstanding that the financier made no inquiries into the owner’s ability to repay the proposed loan.
77 No question of a diminution in value post valuation arose.
78 Mr Aghion referred to the judgment of Gleeson CJ which stated that as the facts in Henville demonstrated, where a person has suffered loss or damage following conduct in contravention of the TPA there may be a serious question as to the amount of damage caused by the contravening conduct.[36]
[36] I & L Securities v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 per Gleeson CJ at [20]
79 However, for reasons already given I am satisfied that the alleged contravention did materially contribute to all of the loss. As such it is not appropriate to “subtract” a portion said to be specifically attributable to the damage to the property as the defendants seeks to do in this case.
80 Mr Aghion further referred to the judgment of McHugh J which identifies a distinction between the defendant’s conduct causing some part of the loss and the defendant’s conduct playing a part in the sustaining of the entire loss.[37]
[37] Ibid per McHugh J at [88] – [89]
81 In my view the first defendant’s conduct did play a part in the sustaining of the entire loss for reasons already given.
82 It is also relevant to highlight the statement of Gaudron, Gummow and Hayne JJ as follows:
“As was recognised in Henville v Walker there may be cases where it will be possible to say that some of the damage suffered by a person following a contravention of the Act was not caused by the contravention. But because the relevant question is whether the contravention was a cause of (in the sense of materially contributed to) the loss, cases in which it will be necessary and appropriate to divide up the loss that has been suffered and attribute parts of the loss to particular causative events are likely to be rare. Further it is only in a case where it is found that the alleged contravention did not materially contribute to some part of the loss claimed that it will be useful to speak of what caused that separate part of the loss as being “independent” of the contravention“[38](emphasis added)
[38] Ibid per Gaudron, Gummow & Hayne JJ at [62]
Given the alleged contravention did materially contribute to the entire loss in this case it is not useful to speak of the damage perpetrated as being “independent” of the contravention.
Other cases
83 Mr Aghion referred to various other cases which in my view do not take the matter further in terms of resolving this case.
84 Thus:
•
the case of Collins[39] (which was pre Henville), concerned misrepresentations as to seating capacity in a sale of a restaurant business. It was found that there were identifiable trading losses suffered by the business which were nothing to do with the misrepresentations. This is to be compared with the present case where the contravention materially contributed to the whole of the loss which was brought about by the decision to enter the loan.
•
The case of Duncan[40] was a valuer’s negligence case in which it was accepted that the valuer’s assessment of the completion of building works was incorrect and negligently made. The full court appeared to accept that it was appropriate to deduct the costs of rectification works rendered necessary by vandalism and deterioration when assessing the true valuation of the costs of completing the works. The issue does not appear to have been subject to any argument. The issue of rectification also appears to have arisen in the context of assessing whether the valuation itself was inaccurate on the basis of the building in its then current state (the vandalism having already occurred). This is to be distinguished from the present case where the court is being asked to assess the loss suffered on the given basis that the valuation was inaccurate and negligent at the time it was given. The case was also decided on common law principles and prior to the decision in Henville;
•
In the case of Travel Compensation Fund[41] the High Court found that certain subsequent events had not severed the chain of causation after the making of a misleading statement by an accountant; hence the accountant was liable pursuant to the FTA and, by majority (Gleeson CJ, Gummow and Hayne JJ) in negligence. There appeared to be some divergence between the majority and the minority as to the application of the “common sense” principles; with Gummow and Hayne JJ doubting whether the common sense notion could provide a “useful, still less universal legal norm.”[42] Nevertheless the court was unanimous in finding the claim to be sustained under the FTA. More particularly :
[39] Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) ATPR 40-822
[40] Duncan & Weller Pty Ltd v Mendleson [1989] VR 386
[41] Travel Compensation Fund v Tambree (2005) 224 CLR 627
[42] Ibid at [45]
-Gleeson CJ found that similar considerations applied at common law and under statute in that case though his honour emphasized the primary task was to apply the legislative norms found in the FTA [43];
- Gummow and Hayne JJ confirmed that the notions of cause were to be understood by reference to the statutory subject, scope and purpose; emphasizing that the issue was whether the contravention was “a cause” of the loss.[44]
[43] Ibid at [29]
[44] Ibid per Gummow & Hayne JJ at [49] – [50]; see also Kirby J at [56] and Callinan J at [79]
Summary
85 In my view, the loss was caused “by” the contravention in this case as provided by s82. The plaintiff relied on the valuation ( paragraph 5 of agreed facts ) and would not have agreed to provide the Burzics with any loan funds if the properties had been valued at less than $800,000 or had been represented as less than $800,000 (paragraph 7 agreed facts). The misrepresentation was “a” cause of the loss notwithstanding the intervention of the further damage which also materially contributed to the loss. The fact that there was another concurrent cause is irrelevant given Henville.
86 Given the misrepresentation in this case induced the plaintiff to enter upon a course of conduct that resulted in loss, an award of damages that compensates the plaintiff for the total losses suffered in embarking on that course of conduct best serves the objects and purposes of the TPA in protecting consumers from being induced to enter transactions by false or misleading conduct.
87 Given similar principles apply in relation to the Victorian FTA, I am further satisfied, for similar reasons, that the plaintiff suffered loss because of the contravention of the first defendant.[45]
[45] S159 FTA
88 As is apparent from my reasoning, above, my findings are based on the first defendant’s contravention of the TPA/ FTA. I am also satisfied as to the second defendant’s liability given the matters set out in paragraph 11 of the agreed facts.[46] However, I am also of the view that the answer ( at least in relation to the first defendant) would not be different under common law on the agreed facts given, in particular, my discussion at paragraphs 40-50, above. However, it is unnecessary for me to consider this matter further given I am satisfied that the answer is affirmative by reason of the statutory provisions.
[46] See s75B of the TPA and s145 of the FTA
89 Having considered all of the authorities cited as discussed above, it follows that the answer to the first question is “yes.”
90 It is therefore necessary to consider the second question.
Second question
The provisions
91 The first to third defendants rely upon the provisions of Pt IVAA of the Wrongs Act 1958 (the “Victorian Proportionate Liability provisions”) and Pt VIA of the TPA (the “Commonwealth Proportionate Liability provisions”).
92 Section 24AF of the Wrongs Act states:
Application of Part
(1) This Part applies to—
(a) a claim for economic loss or damage to property in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care; and (b) a claim for damages for a contravention of section 9 of the Fair Trading Act 1999.
93 Section 24AH(1) further provides that:
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.
94 Section 24AI then provides:
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. 95 Part VIA of the TPA contains similar provisions. Pursuant to section 87CB(1), Part VIA of the TPA applies to certain claims if the claim is a claim for damages made under section 82 for economic loss or damage to property caused by conduct that was done in a contravention of section 52. Pursuant to s 87CB(3) a concurrent wrongdoer in relation to a claim is a person who is one of two or more persons whose acts or omissions caused, independently of each other or jointly, the damage or loss that is the subject of the claim. Section 87CD(1) then makes provision for apportionment in similar terms to s 24AI, above (hereinafter together the “proportionate liability provisions”[47]).
[47] Both the Commonwealth and the Victorian provisions will be considered together. No material difference was highlighted by either Counsel insofar as the present case is concerned.
96 The proceeding brought by the plaintiff concerns a claim for economic loss in an action for damages arising from a failure to take reasonable care and also a claim for damages for a contravention of section 9 of the FTA. The proceeding is thus an apportionable claim within the meaning of the Victorian proportionate liability provisions. Given the plaintiff also seeks a claim for damages under s 82 for economic loss caused by a breach of s 52 it would also be an apportionable claim pursuant to the TPA.
97 However, the plaintiff denies that there is another “concurrent wrongdoer” against whom the claims can be apportioned.
98 In terms of the Commonwealth provisions section 87CD applies whether or not all concurrent wrongdoers are parties to the proceedings.[48] The borrowers are therefore, prima facie, concurrent wrongdoers within the Commonwealth provisions.
[48] Trade Practices Act 1974 (Cth) s 87CD(4)
99 In terms of the Victorian proportionate liability provisions, it is necessary for the concurrent wrongdoer to be a defendant in the proceeding unless dead or, if a corporation, wound up.[49] “Defendant” is defined as including “any person joined as a defendant or other party in the proceeding (except as a plaintiff).”[50]
[49] Wrongs Act 1958 (Vic) s 24AI(3)
[50] Ibid s 24AE
100 In this case, therefore, the borrowers, having been joined as defendants, are also prima facie concurrent wrongdoers within the Victorian provisions,
101 The pivotal issue is whether the proportionate liability provisions are intended to apply so that the borrowers are properly characterised as concurrent wrongdoers within the meaning of the proportionate liability provisions.
102 Mr Aghion submitted that they were concurrent wrongdoers for two reasons:
(a) by reason of their failure to repay the loan; and
(b) by reason of their breach of various covenants of the mortgage.
Repayment of loan
103 For reasons I gave in the case of St George v Quinerts Pty Ltd [51] Mr and Mrs Burzic are not concurrent wrongdoers as defined under the proportionate liability provisions.
[51] [2008] VCC 764 - this decision is currently the subject of an appeal
104 Firstly, this is because they did not cause the loss or damage that is the subject of the claim. Thus the amount of the plaintiff’s loss against the defendants is the shortfall between the amount realised on the sale and the defendant’s indebtedness to the plaintiff. By way of contract the plaintiff is entitled to claim against the Burzics the full amount of their indebtedness under the loan agreement.
105 Secondly, for similar reasons as given in St George, I do not believe that the provisions are intended to operate in present circumstances. The claim against the Burzics is a claim for breach of contract arising from their failure to repay the amount advanced. It is not a claim for loss arising from any failure to take reasonable care and does not lend itself conceptually to apportionment of responsibility principles.
106 Moreover the facts of the present case highlight the undesirability of applying the provisions to the present case. Thus the whole purpose of the taking of a security is to provide comfort in the event of a default of a borrower. If a person who makes a misrepresentation about the value of a security can point to a borrower as exculpatory of liability it would undermine the long- standing commercial practice of the taking of security. This certainly cannot have been the intention of the provisions. This is particularly so pursuant to the TPA which, as set out already, seeks to provide full redress in respect of contraventions of the Act.
107 Mr Aghion cited a case of Sali & Ors v Metzke & Allen[52], a decision of His Honour, Justice Whelan which has been decided since I delivered reasons in
St George.
[52] [2009] VSC 48
108 In that case His Honour was concerned with an accountant who prepared prepared false reports in circumstances where it was found that they were either deliberately false or were prepared in circumstances which must have involved negligence. His Honour found that the accountant could be treated as a concurrent wrongdoer for the purposes of the Victorian provisions.
109 However, in the circumstances of that case the facts permitted a finding that the concurrent wrongdoer had failed to exercise reasonable care. Hence the “wrongdoing” could provide a basis for an apportionable claim.
110 This is to be distinguished from the present case wherein the “wrongdoing” of the Burzics was based on a simple breach of contract.
111 It follows that I am not satisfied that the Burzics should be treated as concurrent wrongdoers for the purposes of the proportionate liability provisions by reason of their failure to repay the loan.
Breach of mortgage provisions
112 There was limited evidence on which Mr Aghion could base this submission since the agreed facts do not recite the identity of the person who effected the damage to the property and gave no detail of the circumstances in which that damage came to be done (see paragraph 14 agreed facts).
113 However, Mr Aghion referred to various provisions of the mortgage as follows:
•
6.02 which required the mortgagor to “take such steps as may be necessary” to put into and keep the improvements in good substantial and tenantable repair order and condition;
•
6.03 which required that the mortgagor not demolish or make structural alterations to the improvements or remove any improvements nor quarry or excavate the land without written consent nor otherwise do or suffer to be done any act matter or thing whereby the value of the land or improvements may be in any way impaired;
•
6.11(a) provides that the mortgagor shall not allow the land and improvements to deteriorate or become prejudicially affected in any way by the act default or neglect of the mortgagor;
•
6.11(e) provides that the mortgagor shall not remove, sell, mortgage, part with possession or otherwise dispose of or alter any fixture, fitting or other thing or agree to do so without consent;
•
6.11(i) provides that the mortgagor shall not do, omit to do or allow anything to be done which will or may prejudicially affect the mortgage.
114 Mr Aghion also submitted that there was a failure to take reasonable care to ensure the value of the security was maintained. However, this submission was not pursued in oral submissions which, in my view was a proper course to take. There is simply no evidence on which such a failure can be found
115 Given I am unable to determine whether the damage was caused by any action of the Burzics a breach of 6.03, 6.11(a) or 6.11(e) has not been sustained. There is also no evidence as to what if anything the mortgagor did, omitted to be done or allowed to be done to satisfy clause 6.11(i).
116 The main provision relied upon was clause 6.02. Again, however, the evidence does not established any failure to “take such steps as may be necessary” as required by clause 6.02.
117 However, even if there was a breach of clause 6.02 or some other provision set out above, I am not satisfied that the Burzics should be treated as concurrent wrongdoers.
118 Firstly, again, it is clear that the loss the subject of the claim is completely different in each case. Thus the plaintiff would be able to recover the full amount of the damage of $215,000 against the Burzics. This is to be compared with the amount claimable against the defendants being the shortfall between the amount outstanding and the amount realised of $170,601.74.
119 Secondly, the nature of the claim against the borrowers is again contractual. Given the absence of evidence in this case it is further incapable of providing a basis for an apportionable claim.
120 For these reasons, and again for reasons already expressed in St George, the Burzics are not concurrent wrongdoers even if they have breached one or more provisions in the mortgage.
121 It follows that the answer to the second question is “no”.
Conclusion
122 Judgment should be entered for the plaintiff in the sum of $170,601.74 plus penalty interest from the date of the commencement of the proceeding.
123 The proceeding of the first to third defendants filed 16 October 2009 seeking declaratory relief should be dismissed.
124 I will hear from the parties as to the appropriate form of final orders.
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