Finikiotis v Knight Frank (SA) Pty Ltd [2001] FCA 12

FEDERAL COURT OF AUSTRALIA

Finikiotis v Knight Frank (SA) Pty Ltd [2001] FCA 12 Matter No. S 71 of 2000 EFSTATHIOS FINIKIOTIS & CHRISSAFINA ZERVOS v KNIGHT FRANK (SA) PTY LTD, HEINE MORTGAGE MANAGEMENT PTY LTD & SANDHURST TRUSTEES LTD O'LOUGHLIN J ADELAIDE 19 JANUARY 2001

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY S 71 OF 2000

BETWEEN: EFSTATHIOS FINIKIOTIS and CHRISSAFINA ZERVOS

APPLICANTS

AND: KNIGHT FRANK (SA) PTY LTD, HEINE MORTGAGE MANAGEMENT PTY LTD and SANDHURST TRUSTEES LTD

RESPONDENTS

JUDGE: O'LOUGHLIN J

DATE OF ORDER: 19 JANUARY 2001

WHERE MADE: ADELAIDE

THE COURT ORDERS THAT: 1. The within proceedings be dismissed. 2. The applicants, Efstathios Finikiotis and Chrissafina Zervos, pay the costs of all respondents up to and including this day. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY S 71 OF 2000

BETWEEN: EFSTATHIOS FINIKIOTIS and CHRISSAFINA ZERVOS

APPLICANTS

AND: KNIGHT FRANK (SA) PTY LTD, HEINE MORTGAGE MANAGEMENT PTY LTD and SANDHURST TRUSTEES LTD

RESPONDENTS

JUDGE: O'LOUGHLIN J

DATE: 19 JANUARY 2001

PLACE: ADELAIDE

REASONS FOR JUDGMENT 1 The applicants in these proceedings are Efstathios Finikiotis ("Dr Finikiotis") and Chrissafina Zervos ("Ms Zervos"). On 13 July 2000 they instituted proceedings in this Court naming Knight Frank (SA) Pty Ltd ("Knight Frank") as the first respondent, Heine Mortgage Management Pty Ltd ("Heine") as the second respondent and Sandhurst Trustees Limited ("Sandhurst") as the third respondent. The applicants did not have the benefit of legal advice and it would appear that the application, the statement of claim and Dr Finikiotis' affidavit were prepared by Dr Finikiotis. 2 The applicants were, at one stage, the directors of Gallerie Investments Pty Ltd, the former owner of a shopping centre in the City of Adelaide. That company borrowed $3.398 million from Sandhurst on the security of a mortgage over the shopping centre; in addition the applicants guaranteed the company's obligations under the mortgage. As events transpired, the company and the applicants were unable to meet the obligations under the mortgage. As a consequence, Sandhurst instituted proceedings in the Supreme Court of South Australia and obtained a judgment against the company and the applicants. Sandhurst also entered into and took possession of the shopping centre pursuant to the mortgage. As part of the Supreme Court proceedings Dr Finikiotis and Ms Zervos filed a defence and a counter claim. However the counter claim was against Knight Frank and Heine only; they did not name Sandhurst as a respondent to their counter claim; the counter claim was, in due course, struck out. 3 The statement of claim as filed by the applicants in these proceedings was, in relative terms, a short document of one and a half pages. Its contents are recorded below: "The applicants are directors of Gallerie Investments Pty. Ltd. amd Anacon Enterprises Pty. Ltd. In reliance on a true and proper valuation by Knight Frank SA Pty. Ltd. engaged by Jones Lang Wootten managers for Gallerie Investments the applicants executed the Guarantee and Indemnity, Mortgage over the Gallerie Centre 20 Gawler Place and the Facility Agreement pertaining to a loan of $3.6 million approved by Heine on behalf of Sandhurst on or about 12 August 1997. In addition to the initial valuation prior to the first advance on 20 August 1997, further valuations were made by Knight Frank and sent directly to Heine for approval prior to further advances on 29 August 1997, 11 September 1997, 16 October 1997 and 28 January 1997. The Knight Frank valuation relies excessively on the success of the Homewares tenancy the relocation of the basement tenancies, the J.L.W. Advisory Asset Management Strategy Report and revised letter of 18 April 1997 which give an anticipated gross income of $1.5 million and an anticipated nett income of $830,000 approximately which the Knight Frank valuers knew or should have known was excessively overestimated and could not be achieved. The representation pertaining to the income was false and consequently the applicants have suffered loss and damage. The calculation schedules show that the Knight Frank valuation V 12324 May 1997 was misleading and deceptive as the capitalised value of $6.3 million as at 1st November 1997 upon which the loan of $3.6 million was approved should have been only $2. million without the 'imputed' rent. The representation by Knight Frank that the valuation as at 1st November 1997 would be $6.3 million was false and the applicants refer to the Land Valuers Regulations 1995, the Land Valuers Act S.A., 1994 and the Fair Trading Act S.A. 1987. Knight Frank was negligent as it owed a duty of care to provide a true and proper valuation. As a consequence of the above the applicants have suffered loss and damage. A conflict of interest existed between Heine Management Pty. Ltd., Sandhurst Trustees Ltd, Heine Management Ltd. [trustee] and the Heine Retirement Fund and consequently the flawed and false valuation was missed as there was no independent body to make an arms length appraisal and the applicants refer to the Superannuation Industry Supervision Act 1993 [Section 109] Heine Mortgage Management Pty Ltd was negligent as it owed a duty of care to make a proper appraisal of the valuation prior to loan approval on behalf of Sandhurst Trustees and as a consequence the applicants have suffered loss and damage. The applicants relied on and accepted the expertise of Knight Frank and Heine. As a result of the breach of duty of care and negligence of Knight Frank and Heine the applicants have suffered loss and damage. Loss of income and capital value; Annual rental as at 31 March 1997 equals $881,589 Minus John Martins rental $275,000 Minus annual rental Sept. 1999 approx $200,000 Equals $406,589 capitalised at 11.3% equals $3,598,132. approx. For projected gross income of $1.5 million; Minus annual rental Sept 1999. Approx $200,000 Equals $1.3 million capitalised at 11.3% equals $10,833,330. Continuing future loss in income, value, damages, costs and interest." 4 Heine and Sandhurst filed a joint defence on 20 September 2000, Knight Frank having earlier filed a separate defence on 18 September 2000. Without descending to detail it is sufficient to say that their defences in combination, denied that the valuation of Knight Frank was false or incorrect; they also denied issues of reliance on the part of the applicants. 5 All three respondents joined in filing a notice of motion on 2 November 2000 in which they sought orders as follows: "1. that the within proceedings be dismissed pursuant to Order 20, rule 2; 2. that the proceedings against the respondents be struck out as disclosing no cause of action and/or due to non-compliance with the rules."