Hannaford v Conroy [2000] FCA 274

FEDERAL COURT OF AUSTRALIA

Hannaford v Conroy [2000] FCA 274

PETER FREDERICK HANNAFORD, JOHN CORDWELL ROACH AND BRETT CAMERON SCOTT v BEVAN CONROY AND JOHN HELLMRICH

NG 856 OF 1998

LEHANE J

8 MARCH 2000 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 856 OF 1998

BETWEEN: PETER FREDERICK HANNAFORD, JOHN CORDWELL ROACH AND BRETT CAMERON SCOTT

APPLICANTS

AND: BEVAN CONROY

FIRST RESPONDENT

AND: JOHN HELLMRICH

SECOND RESPONDENT JUDGE: LEHANE J

DATE OF ORDER: 8 MARCH 2000

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. There be judgment for the applicants against the second respondent in the sum of $1,814,099.58; 2. The second respondent pay the applicants' costs of the proceedings. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 856 OF 1998

BETWEEN: PETER FREDERICK HANNAFORD, JOHN CORDWELL ROACH AND BRETT CAMERON SCOTT

APPLICANTS

AND: BEVAN CONROY

FIRST RESPONDENT

AND: JOHN HELLMRICH

SECOND RESPONDENT

JUDGE: LEHANE J

DATE: 8 MARCH 2000

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is a motion by which the applicants seek final judgment against the second respondent in circumstances where the second respondent has taken no step in the proceedings. The amended application and the amended statement of claim have, on the evidence before me, been served on the second respondent in accordance with orders which I made on 17 February 1999 for substituted service. Directions which I made on 9 August 1999 for filing and service of a defence of the second respondent have not been complied with. 2 I am satisfied that the directions were properly brought to the notice of the second respondent in accordance with my orders, that the second respondent has been properly notified of the intention of the applicants to move today for judgment and that the second respondent has been served with copies of the affidavits upon which the applicants rely in order to establish the necessary elements of their claims against him. 3 The pleaded case against the second respondent is a simple one. It is to the effect that the applicants, who at relevant times were solicitors practising in partnership, acted as trustees for investors in first mortgage transactions. The second respondent at relevant times conducted a business as a real estate valuer and property consultant. On or about 7 December 1995, an application was made to the applicants, as trustees, for a mortgage loan of $1.5 million for a term of six months, the proposed security for the loan being principally a first mortgage over a large parcel of land in North Queensland. 4 The applicants shortly thereafter, it is pleaded, sought from the second respondent a current valuation of that parcel of land. The second respondent, who had already provided, on the instructions of other parties, a valuation of that parcel among others, sent a letter dated 15 December 1995 to the applicants' solicitors in which it is alleged the second respondent made certain representations. They were that the parcel of land to which I have referred was worth $28 million at the date of the valuation, that a fair and reasonable loan to valuation ratio for the provision of trustee funds was 50 per cent of that stated value and that the combined value of the parcel of land concerned and another parcel was $90 million. 5 It is alleged that the representations in the letter were made in trade and commerce and that they were misleading and deceptive or likely to mislead and deceive. The particulars of that latter allegation are simply (in substance) that the representations were false. It is alleged also that the second respondent owed the applicants a duty of care in preparing the valuation and that the second respondent was negligent. The particulars of negligence may be summarised as relating to alleged deficiencies in the method of valuation adopted by the second respondent and the steps which he took for the purpose of satisfying himself that his valuation was a proper one. 6 It is pleaded that, in reliance on the representations made by the second respondent, among others, the applicants advanced the sum requested on the security proposed. It is alleged that later, on about 30 January 1996, the applicants advanced a further sum of $125,000 on the same security. It is then alleged that on or after 20 June 1996 the borrower defaulted in meeting payments due in respect of the loan and the applicants took steps to realise the securities, principally the security over the property to which I have referred, and suffered a substantial loss. The alleged loss at the date of the amended statement of claim was $1,494,602.67. In particular, it is alleged that the large parcel of land to which I have referred, valued by the second respondent at $28 million in December 1995, was realised six months later for $194,000. 7 One matter which is not specifically dealt with in the amended statement of claim is how it is that the applicants say that they have a claim against the second respondent under s 52 of the Trade Practices Act 1974 (Cth), the second respondent being a natural person. The applicants rely on the circumstance, although it is not specifically pleaded, that the conduct which they plead, that is the making of the representations in the letter dated 15 December 1995, involved the use of the postal service, thus enlivening s 6(3) of the Trade Practices Act. In the circumstances, I do not think it is fatal to the applicants' claim that facts enlivening s 6(3) are not specifically pleaded but, of course, it is necessary that the applicants establish, by evidence, circumstances in which the jurisdiction of the court is attracted. 8 The evidence in support of the claims against the second respondent comprises affidavits sworn on 2 March 2000 by two of the applicants, Mr Scott and Mr Hannaford. Those affidavits are evidence of the essential facts, going to liability, alleged in the amended statement of claim. That is to say, they sufficiently prove in my view the request for the valuation, the provision of the valuer's letter, the making of the loans and the grant of the security in reliance upon representations contained therein, the later default on the part of the borrower, the realisation of the mortgaged property and the amounts realised on its sale. The evidence includes a document, entitled "Reconciliation and Funds Received from Sale of Properties in the Eastview Forge Loan", which in general terms sets out the history of the loan transaction but particularly provides evidence of amounts of interest paid and amounts received on realisation of the mortgaged properties. 9 The other evidence relied upon goes to the question of negligence and to the question of the reasonableness of the opinion expressed by the second respondent in his letter of 15 December 1995. That evidence takes the form of an affidavit of Mr Gordon Price, who is qualified as an expert valuer, and two reports prepared by Mr Price. Due (I am informed) to an oversight, one of those reports has not yet been verified and I have taken it into account upon being assured that an affidavit will be sworn which will cure that oversight. (Since the hearing, such an affidavit has been sworn and filed). 10 It is unnecessary to discuss that evidence in any particular detail. It is sufficient, I think, to say that it confirms a prima facie impression that it is unlikely that a valuation which valued at $28 million a property which approximately six months later was sold for less than $200,000 could be a correct valuation, prepared in accordance with the duty owed by the valuer to the persons instructing him. The second respondent's valuation was made on the footing that approvals were in hand from the relevant local authority which would enable the property to be developed as a very substantial resort incorporating hotels of a high international standard. The valuation purports to rely also upon a number of sales which it treats as comparable sales. 11 In broad terms, the evidence of Mr Price, who valued the property himself at $200,000 both at December 1995 and at March 1997, was to the effect that the second respondent's valuation, first, overlooked conditions attached to the approvals given by the local council; secondly, overlooked the circumstance that other approvals would be needed before the property could be developed in the way contemplated; thirdly, took no account of the circumstance that a resort already constructed and operating in the vicinity had gone into receivership; next, took no account of the circumstance that appropriate airport facilities were not available in the vicinity; and, finally, appeared to make use of comparable sales in a way which took no account of very significant differences in the sizes of the various properties the subject of the supposedly comparable sales or of the very substantial extent to which the property being valued was larger than any of them. That evidence satisfies me both that the second respondent breached a duty of care which he owed to the applicants and also that he expressed, in his letter of 15 December 1995, an opinion which was wrong and for which he did not have reasonable grounds and which may thus properly be regarded as misleading or deceptive or likely to mislead or deceive. 12 I should add, before turning to damages, that on the question of jurisdiction there is no explicit evidence to the effect that the letter of 15 December 1995 from the second respondent to the applicants' solicitors was sent through the post. I am prepared, however, in the circumstances to infer that it was. Mr Scott, in his affidavit, describes the letter as a letter which he received. The document itself, a copy of which is annexed to the affidavit, is a document expressed to be sent from a valuer in North Queensland to a firm of solicitors in Port Macquarie, New South Wales. It is addressed to those solicitors at a post office box in Port Macquarie. There is no indication that it went from North Queensland to Port Macquarie by any means other than the post. In those circumstances, I am prepared to infer that it was sent to the applicants' solicitors through the post and therefore that the conduct relied on by the applicants involved to that extent the use of the postal service. It is therefore open to me to find, and I do, that s 52 of the Trade Practices Act applies on the footing that the second respondent is liable in the same way as he would be liable if he were a corporation. 13 That brings me finally to the subject of damages. I have been provided with the evidence to which I have already referred as to the amount from time to time outstanding in respect of the loan and the amounts received, including upon realisation of the mortgaged property. I have also been provided with a calculation of interest at the Supreme Court rates. 14 The damages claimed are calculated in this way. On about 22 December 1997, the applicants paid to their beneficiaries the full amount which they were then owed in respect of the loans, being a principal sum of $1,625,000 (that is to say, the initial $1,500,000 plus the additional $125,000) together with interest due for December 1997, being $13,454.30. Against the sum of those amounts, plus interest previously paid to the beneficiaries and costs (principally costs of the sale), are offset the total proceeds of sale, $602,500, leaving a net amount of $1,494,602.67 by which the applicants, on 22 December 1997, were out of pocket. 15 That then is the measure of their damages at 22 December 1997. Interest is then calculated on that sum from that date to 31 August 1998 at 10 per cent per annum, being the Supreme Court rate for that period (that interest amounting to $103,598.49) and from 1 September 1988 at the Supreme Court rate applicable to that period, 9.5 per cent per annum (that interest amounting to $215,898.42). Total interest since 22 December 1997 is then $319,496.91, making the total damages for which the applicants claim to be entitled to judgment against the second respondent $1,814,099.58. The evidence sufficiently establishes, in my view, that the applicants are entitled to those damages. Given my findings, the appropriate orders, which I now make, are those which the applicants seek: 1. That there be judgment for the applicants against the second respondent in the sum of $1,814,099.58.