Litigation & Dispute Resolution

On 20 March 2012, the Federal Court reiterated the legal principles to be applied in matters involving negligent, misleading or deceptive property valuations in the decision of Propell National Valuers (WA) Pty Ltd v Australian Executor Trustees Limited [2012] FCAFC 31.

Background

In 2007, Mr Michael Pell submitted an application for refinancing to the second respondent, Seiza Mortgage Company Pty Ltd (Seiza), and offered a property based in Western Australia as security for the loan.

Propell National Valuers (WA) Pty Ltd (the firm) was retained on behalf of Mr Pell to value the property for mortgage security purposes. The firm prepared a valuation report which assessed the market value of the property at $1.6 million. The evidence tendered at trial established that the property had a market value of only $1,030,500.00 at that time.

In reliance upon the firm’s valuation report, a loan of $1.2 million was extended to Mr Pell by the first respondent, Australian Executor Trustees Limited (AET), and security was taken by way of first registered mortgage over the property.

Mr Pell subsequently defaulted on the loan, and AET exercised its rights as mortgagee in possession to sell the property for $980,000. At trial, Justice Barker of the Federal Court held that:

1. The firm’s valuation report contained representations about the value of the property that were misleading and deceptive in contravention of section 52 of the Trade Practices Act 1974 (Cth) (TPA);
2. The firm breached its duty of care to AET by failing to prepare the valuation report with due care and skill; and
3. The valuer who prepared the valuation report was involved in the contravention of section 52 of the TPA.

Justice Barker assessed damages payable to AET and Seiza at $405,682.15 plus pre-judgement interest.

The firm appealed from Justice Barker’s decision.

The appeal

The Full Court of the Federal Court upheld Justice Barker’s decision. In dismissing the firm’s appeal, Justice Collier, who wrote the leading judgment, noted:

1. Corisand Investments Ltd v Druce & Co (1978) 248 EG 315 remained authority for the proposition that, in determining whether a valuer had, in the course of preparing a valuation report, breached his or her duty of care, the relevant question was whether the valuer relied upon any matters that no competent valuer could properly rely, or had failed to take into account any matters that no competent valuer in the circumstances could failed to have regard. The sales data relied upon by the valuer in valuing a property, was one such matter of relevance. Justice Collier noted that when assessing whether a valuer had performed their role in a negligent manner, or conducted themselves in a manner contrary to section 52 of the TPA, only comparative sales data up until the time of the valuation was relevant. Sales after the date of valuation had no bearing on the conduct of the valuer producing the valuation, or the content of the valuation.
2. With regard to sales data, Justice Barker’s comment, that properties should not be compared by calculating a rate of sale per square metre, was affirmed, along with his Honour’s recommendation that comparable property sales should be analysed against the subject property using an overall comparison. 
3. It was generally accepted that where a valuation fell within a bracket of 10% to 15% of the market value it was prima facie untainted by negligence and not misleading or deceptive. However, as stipulated in Adwell Holdings Pty Ltd v Mark Smith [2003] NSWCA 103, the fact that a valuation fell within the acceptable bracket did not preclude a finding that it had been arrived at by negligence.
4. Justice Barker was correct in finding that the valuer owed a duty of care at common law to AET and Seiza because he knew who he was preparing the valuation report for, that it would be relied upon for mortgage security purposes and that the firm would furnish the report to them. While the firm sought to rely upon the House of Lords’ decision in Williams v Natural Life Health Foods Ltd [1998] UKHL 17 to support a contrary finding, Justice Collier held that the decision was unlikely to represent the law in Australia.
5. Similarly, Justice Barker was correct in finding Mr Coleman liable pursuant to section 75B of the TPA. This was because Mr Coleman was directly and knowingly concerned in the making of the representation about the property’s market value. He prepared the valuation with the intention that Seiza and AET would rely upon it and was instrumental in the making of the representations at every step. He prepared the valuation, knew its purpose and caused it to be given to Seiza and AET. He was aware of all the facts that gave rise to the contravention and it was his conduct that led to the contravention.

Relevance

In the current financial climate, with property values adjusting and many mortgagors looking to refinance, the Federal Court’s decision provides a timely and sobering reminder of the responsibilities placed upon property valuers and the liability that they may personally face in instances of negligence and misleading or deceptive conduct. While courts have acknowledged the imprecise nature of the work undertaken by valuers, there remains, as always, a duty to undertake any valuation with a reasonable degree of professional skill and care.

If you would like further information on these issues, please contact Kristi Riedel or Andrew Cheetham on 61 7 3231 2444.

Generally, an eligible person will succeed in a challenge to a Will if they have been left without adequate provision and they can demonstrate some financial need. Provision will not usually be refused except in exceptional circumstances, such as where there are minimal assets in the estate or where there has been disentitling conduct.

With the increasing number of claims against small estates, judges are quickly changing their attitude towards these applications.

In the recent NSW Supreme Court decision of Bull v Booth three adult children brought a claim for further provision against their mother’s estate. The mother’s Will appointed her second husband as her executor and left all of her estate to him. The major asset was a home valued at approximately $410,000. The estate also had liabilities of $70,000, including legal costs.

The husband was unable to work and was living on a disability pension as a result of significant health problems. He did not own any property and had assets of approximately $7,000.

All three children had varying medical conditions requiring ongoing treatment and two were unable to work due to their conditions. Two had dependent children who required ongoing medical care. Two had significant mortgages over their homes, while the third lived in government housing. All three children had a good relationship with their mother before she died.

The court found that all three children were eligible to bring a claim and had clearly been left without adequate and proper provision. However in all the circumstances, the husband’s entitlement as the spouse took priority over the children’s claims.

Taking into consideration the small size of the estate, the estate’s liabilities and the needs of the husband, the court denied any further provision to the children and dismissed their applications.

If you require advice regarding estate disputes or for more detailed information, please contact Paul Coves or  Hannah Kulaga.