New South Wales Supreme Court CITATION : Aghajanian v Stanley Thompson Valuers Pty Ltd [1999] NSWSC 1154 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 4779/91 HEARING DATE(S) : 12 - 16 May, 19 - 21 May, 23 May, 22 August, 1 - 5 September and 28 October 1997, 2 - 5 February, 18, 19 & 26 May, 12 November 1998 JUDGMENT DATE : 17 December 1999 Yourik Aghajanian (P1) Emmik Aghajanian (P2) Nshan Pty Limited (P3) PARTIES : Alice Aghajanian (P4) Ara Aghajanian (P5) Shakeh Arakelian (P6) Stanley Thompson Valuers Pty Limited (D) JUDGMENT OF : Hamilton J COUNSEL : M J Slattery QC and G M Colman; later Stuart Donaldson (P1-6) S Kalfas and S Flannigan (D) SOLICITORS : Tress Cocks & Maddox (P1-6) Phillips Fox (D) CATCHWORDS : DAMAGES [22] - Measure and remoteness of damages in actions for tort - Remoteness and causation - Proof of causation - Whether negligence in preparation of valuation for financier causative of damage to purchaser of real property; REAL PROPERTY [222] - Valuation of land - Valuers - Duty of care - Valuation commissioned by financier - Whether duty of care owed to intending purchaser - Breach of duty - Danger of hindsight infecting valuation evidence; TRADE AND COMMERCE [92] - Trade practices and related matters - Consumer protection - Misleading or deceptive conduct - Particular classes of conduct - Real estate transactions - Valuer - Valuation alleged to be wrong and to constitute misleading or deceptive conduct ACTS CITED : Trade Practices Act 1974 (Cth), s 52 Amadio Pty Ltd v Henderson (1998) 81 FCR 149 Australian Breeders Co-Operative Society Ltd v Jones (1997) 150 ALR 488 Cash Resources Australia Pty Ltd v Ken Gaetjens Real Estate Pty Ltd (1994) Aust Torts Reports par 81-276 Chappel v Hart (1998) 72 ALJR 1344 Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 CASES CITED : Kenney v Hall, Pain & Foster [1976] EGD 629 March v Stramare (E & M H) Pty Limited (1991) 171 CLR 506 MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 RAIA Insurance Brokers Limited v FAI General Insurance Co Limited (1993) 41 FCR 164 Rogers v Whittaker (1992) 175 CLR 479 Smith v Eric S Bush; Harris v Wyre Forest District Council [1990] 1 AC 831 Ta Ho Ma Pty Ltd v Allen [1999] NSWCA 202 Taco Company Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 DECISION : Judgment for the defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J FRIDAY, 17 DECEMBER 1999 4779/91 YOURIK AGHAJANIAN & ORS v STANLEY THOMPSON VALUERS PTY LIMITED JUDGMENT His Honour: Background 1 This is a claim for negligence and for misleading or deceptive conduct against a valuer. It is made by members of a family called Aghajanian and Nshan Pty Limited ("Nshan"), a company of which they are the principals. The relevant members of the family are Yourik Aghajanian ("Mr Aghajanian"), his wife, Emeek Aghajanian ("Mrs Aghajanian"), their daughters, Shakeh Arakelian ("Shakeh") and Alice Aghajanian ("Alice") and their son Ara Aghajanian ("Ara"). They are an Armenian family from Iran. Their mother tongue is Armenian, but they are all fluent in Persian. They are all intelligent and well educated. Mr Aghajanian and Mrs Aghajanian were born in 1929 and 1928 respectively. Having gone to live late in life in English speaking countries, they do not speak English fluently and both gave evidence with the aid of an interpreter, although giving answers in English to some questions. The Aghajanian children all speak English fluently. Mr Aghajanian is by profession a civil engineer and practised as such from 1955 to 1981 in Iran. He does not have qualifications to practise his profession in Australia. Mrs Aghajanian worked for many years in a bank in Iran. Shakeh is a finance officer and Alice is an aeronautical engineer. Ara is a consultant in the computer industry. In 1971, Mrs Aghajanian left Iran and went to live in London where the children were studying. In 1981, Mr Aghajanian left Iran and he, together with the rest of the family, migrated to Australia. For 25 years in Iran, Mr Aghajanian was involved in the breeding of race horses. Upon coming to Australia, as well as finding that he could not practise as an engineer, he also found it impractical to engage in the commercial breeding of race horses at that time, though he apparently has done so after the failure of the venture to which I shall now refer. 2 Upon finding that he could not engage himself in engineering or race horse breeding after his arrival in Australia, Mr Aghajanian decided that he should become involved in the business side of some kind of sporting activity. He searched for an enterprise which he could buy. He inspected and rejected a number of squash centres. In late 1983 or early 1984, he discovered the availability for lease of a sporting complex in Forrester Road, St Mary's ("the squash centre"). The squash centre was located in an industrial area. It included 16 squash courts, a sauna, swimming pool and spa, a gymnasium, a roller skating rink for approximately 400 people and a 150 seat restaurant. Mr Aghajanian gave, as among the reasons why he was interested in the squash centre, as opposed to the centres he had earlier inspected and rejected, the fact that the squash centre provided the facilities for the conduct of three businesses, first, the squash courts and associated facilities, secondly, the roller skating rink and, thirdly, the restaurant. Early in 1984, Mr Aghajanian instructed Terrence P Salmon ("Mr Salmon") of Solomon Salmon and Co, Solicitors, to act on behalf of the Aghajanians in relation to the acquisition of the squash centre. For that purpose, Nshan was incorporated. In its capital, 15 shares were issued, ten to Mr Aghajanian, two to Mrs Aghajanian, and one each to the three Aghajanian children. On 13 April 1984, Nshan purchased the business of the squash centre on a leasehold basis for $100,000 from J D Boyd Enterprises Pty Limited ("Boyd Enterprises"), of which the principal was J D Boyd ("Mr Boyd"). The lease was for ten years from 26 June 1984 at a commencing rental of $213,200 per annum. Nshan entered into possession of the squash centre on 26 June 1984 and commenced to conduct the business. It encountered many difficulties, which were considerably exacerbated by the fact that the building was found to have many defects which were not perceived prior to the purchase. 3 Complaints were made to the lessor concerning these defects, but little action to remedy them was forthcoming, and Boyd Enterprises proved difficult even to communicate with concerning the problem. Finally, a meeting was arranged on 5 March 1985, at which Mr Aghajanian, other members of the Aghajanian family, Mr Salmon and Mr Boyd were present ("the meeting"). At the meeting, Mr Boyd made an offer to sell the freehold of the squash centre to the Aghajanians at a price, which he said was a concessional price, of $1,229,619. There is controversy as to whether there was agreement between the parties as to that price at the meeting, which will be referred to below. It is undoubted that thereafter application was made to AGC Advances Limited ("AGC") for a loan to permit Nshan to purchase the squash centre and approval was given by AGC for a loan of $1,100,000 ("the loan") in early April 1985. A contract for the purchase of the squash centre by Nshan at the price of $1,229,619 was in fact exchanged on 12 April 1985 ("the first contract") and a deposit of $61,480.50 paid. In giving the loan approval, AGC undoubtedly relied on a valuation obtained from the defendant, dated 28 March 1985 and prepared by Paul Kennedy ("Mr Kennedy"), for $1,300,000 ("the valuation"). The valuation is the subject matter of these proceedings. By whom the valuation was commissioned is a subject of controversy. The question is whether it was commissioned by Nshan or by AGC. At the time the loan was approved, it was understood that the excess of the purchase price over the loan ("the balance") would be provided by the Aghajanians from funds available to them in the UK or Iran. In the event, these funds were not forthcoming and, after notice to complete was given, the first contract was terminated by the vendor. After termination, however, the vendor agreed to provide vendor finance for the balance (which it had previously refused) and on 23 August 1985 a fresh contract was entered into identical to the first contract, save for a clause as to the provision of that vendor finance ("the second contract"). The second contract was completed on 27 September 1985. Nshan granted a mortgage to AGC to secure its loan ("the mortgage"). The enterprise still did not flourish and encountered further difficulties, including difficulties arising from the condition of the building. By late 1986 Nshan was insolvent and on 9 October 1986 receivers were appointed by AGC under the mortgage. The squash centre was sold at public auction on 12 October 1988 for $730,000. 4 In 1990 AGC brought proceedings against Nshan and the Aghajanians to recover moneys still owing to it. The Aghajanians brought proceedings against Mr Salmon and also brought the present proceedings against the defendant. The proceedings brought by AGC and the proceedings against Mr Salmon were ultimately settled on confidential terms. Those terms, however, are in evidence because of their relevance to the assessment of damages against the defendant. The claim in these proceedings against the defendant is for damages for negligence or for misleading or deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth) ("the TPA"). Issues 5 The contested issues in these proceedings are: 1 Was the defendant employed to give the valuation by Nshan or by AGC? 2 If by AGC, did the defendant owe the plaintiffs a duty of care? 3 Was the defendant in fact guilty of a breach of duty in the preparation of the valuation or of misleading or deceptive conduct in relation to it? 4 Did the plaintiffs rely upon the valuation in entering into the first contract or the second contract or was there otherwise a causal connexion between any breach of duty or any conduct by the defendant and any damage suffered by the plaintiffs? 5 What was the quantum of that damage? 6 In these reasons for judgment I shall proceed in the following manner. I shall not deal with the issues in the logical order in which they are set out above. I shall deal with the first, third, second and fourth issues in that order. I shall then proceed to the fifth issue, if necessary. First, I shall say something of the evidentiary difficulties in this case, and then I shall outline the lay evidence (by which I mean, in this context, all the evidence save that going to the quality of the valuation). I shall then answer the question posed by the first issue. After that, I shall turn to the third issue, referring to the relevant law, outlining the valuation evidence and stating my conclusion. Thereafter, I shall proceed to the remaining three issues, recording such findings of fact, setting out such matters of law and expressing such conclusions as I consider necessary. The Evidentiary Difficulties 7 Before turning to the consideration of the evidentiary material I shall say something generally about the witnesses in this matter. I did not form the impression that any of the witnesses was deliberately giving untruthful evidence or doing anything other than attempting to give the Court his or her best recollection of the matters deposed to. However, the evidence of all the witnesses must be approached with considerable caution. Most are or were involved directly or indirectly in litigation arising from the transactions under consideration. Some are interested in the result of this litigation, or still have professional reputations at stake. Even some of the expert valuers unconnected with the defendant made valuations of the squash centre for clients before being approached as witnesses in this case. As I have already said, I do not regard these circumstances as leading any of them to tell deliberate untruths, but their interests obviously may have impacts on their recollections. Even more importantly, in this case most of the witnesses are reaching back through the haze of time to recall events that occurred many years ago, the most central events being in 1985. That was many years before they gave instructions for or made affidavits, and more years before they came to give oral evidence. In a number of cases, affidavits as to material matters in these proceedings were sworn only shortly before the oral evidence was given. These things make particularly important what can be derived from surviving contemporaneous documents that give concrete indications of what was occurring. Unfortunately, that documentation in this case is quite sparse. But because of its importance I shall set out first what the documents show. The Lay Evidence: The Documents 8 There is a page of Mr Salmon's notes which he says were made at the meeting. Those notes do appear to show, which accords with his other evidence, that the calculation of a price of $1,229,619 for the property was made at the meeting, and a five point "heads of agreement" reached relating to the purchase of the squash centre by Nshan. Christie and Partners ("Christies"), the vendor's solicitors, sent a draft contract by courier to Mr Salmon under cover of a letter of 8 March 1985 with the proviso that they did not have their client's final approval to the agreement and that there should be no binding contract until formal exchange. The heads of agreement provided that exchange of contracts should take place on or before 15 March 1985 and settlement four weeks thereafter. A further letter from Christies to Mr Salmon on 14 March 1985 confirmed telephone discussions to the effect that the date for exchange was postponed from 15 to 22 March 1985, on condition that the purchaser paid $15,000 arrears of rent in the meantime. On 15 March 1985, Mr Salmon wrote to Christies enclosing a trust account cheque for $15,000 and agreeing to the terms of Christies' letter of 14 March 1985. 9 On 14 March 1985, Gill Richmond and Co, the plaintiffs' accountants, wrote a letter addressed to Mr Aghajanian ("the accountants' letter"). This set out the monthly takings of Nshan from 1 July 1984 up to 19 February 1985 (and including the five days of June 1984 that Nshan had traded in the squash centre) in the total sum of $155,520. It noted that the December/January figures were low, as was to be expected because of the holiday season, but that otherwise the trend was up. It recorded that the previous operator's figures supplied to Mr Aghajanian had shown monthly takings of $31,000. It forecast on that basis a cash surplus of $17,000 to $19,000 per month. It attached a balance sheet and profit and loss account shown to be made up to 28 February 1985 ("the February figures"), although the income figure was identical to the takings figure stated in the accountants' letter to be the figure up to 19 February 1985. The income figure was stated to be "Income - Squash Court". No additional income figure was given for the roller skating rink, so "Squash Court" presumably related to the whole of the squash centre rather than just the squash courts element. The February figures showed a small profit, but the rent debited was only some $60,000, far short of the rental which would accrue due during an ordinary eight month period. 10 AGC's application form for the loan is dated 18 March 1985. Presumably it is the application which was filled out on the bank visit. It shows that the February figures were supplied to AGC. 11 On 21 March 1985, there is a handwritten note on Mr Salmon's file as follows: ''Bob Ternes is to ring us & give us name of man at Hooker's who did valuation of Boyd. Ring Terry 2312299 Christie & Partners 2322788 He spoke to a number of people at Hookers - is a conflict of interest - they are existing mtgee on ppty. Don't want to do a valuation for AGC. Perhaps you should get Stanley Thompson or somebody else to do it.'' 12 The defendant's instruction sheet is also dated 21 March 1985 ("the instruction sheet"). It contains material of some importance, which I shall set out verbatim. The document is on a printed form, with spaces to fill in information. The instruction sheet is marked at the top of the page, ''urgent''. In the quotation from the instruction sheet set out below, the printed parts of the form are in bold type and the handwritten parts are in italics: " Ordered By: Westpac AGC Mike Musso 234 1296. On Account Of: NSHAN PTY LTD … Valuation To Be Forwarded To: Westpac 126/130 Phillip St Sydney Account To Be Forwarded To: do do do " In the middle of the page the rental is recorded and the lease referred to. Then follows: "Income squash $155,000 Hookers Val 1.4 million Paying 1,229,000 plus 16 Courts Solicitor - T Salmon 750-7511" At the foot of the page appears: " FEE: $1488 Quoted. collect from client. '' All the handwriting quoted in italics above is in the same hand. With regard to the fee at the foot of the page which I have recorded above as $1,488, that appears to me to be the figure originally written. In fact the last two digits are overwritten, whether to make the figure the $1,450 ultimately charged or some other figure I cannot tell. The valuation number and detailed material relating to the property description are handwritten on the instruction form, in hands different from the italicised material. The instruction sheet does have to me the appearance of a contemporaneous document, at least the bulk of which was written on 21 March 1985. Possibly the material relating to the location of the property, written in a different hand, was placed there, not on the same day, but very early in the piece and before the valuation was carried out. 13 On 25 March 1985, Mr Salmon forwarded to the defendant, under cover of a letter marked for the attention of Mr Kennedy, copies of a s 149 certificate, lease, survey and search. 14 The valuation is dated 28 March 1985. The only account for the valuation fee that is in evidence is addressed to ''Nshan Pty Ltd c/o Mr Salmon, Solomon Salmon & Co''. That address is on a label which is stuck over the original address, which was to AGC. The document describes itself as a statement for the month ended 31 March 1985. It records only one item, dated 28 March 1985, in relation to Forrester Road, St Mary's, $1,450. It bears two other numbers, 30009 and 44514. The former of these is a valuation number and the latter appears to be an invoice number, but there is no other trace of an invoice in the evidence. 15 AGC's internal recommendation for approval of the loan is dated 29 March 1985, noting the defendant's valuation of $1.3 million. There is in evidence a further internal memorandum by the Credit Manager Northern of AGC expressing doubts about the wisdom of approval. Another memorandum recommending approval is dated 9 April 1985 and the Credit Manager Northern in the light of that memorandum agreed to approval on 9 April 1985. On 12 April 1985, AGC issued a letter of approval of the finance under the hand of Mr Torossian. Contracts were in fact exchanged on the same day. 16 Mr Salmon's records show the receipt from Nshan on 15 April 1985 of $1,450 for the valuation fee by cheque which was banked into his trust account, and payment by cheque to the defendant of that sum from the trust account on the same day. 17 There is a letter dated 18 April 1985 from AGC to Nshan confirming approval of the loan and for the first time nominating Solomon Salmon & Co as the solicitors to act for AGC as well as Nshan in respect of the transaction. 18 In a letter to Nshan dated 12 June 1985, Mr Salmon noted that the Aghajanians had said to him that there was no possibility of obtaining the balance necessary to complete the purchase inside 12 months from that date. He also confirmed that the vendor was not in a position to force completion unless and until the fire doors were properly installed and saying that when that occurred a notice to complete might be anticipated. A notice to complete was in fact served on 18 June 1985 requiring completion on or before 10 July 1985. Mr Salmon responded on 27 June 1985, explaining his client's financial predicament, and asking for finance from the vendor for the balance. On 5 July 1985, Christies replied, insisting on the notice to complete and threatening termination of both the contract and the lease. They also wrote on the same date declining vendor finance. The notice expired on 10 July 1985 and notice of termination was given by Christies on 19 July 1985. Negotiations then proceeded along lines that Nshan would remain in occupation of the squash centre and either the whole or half of the deposit under the contract would be forfeited to the vendor. In fact, the second contract was exchanged on 23 August 1985. The negotiations proximate to that date which led to the exchange are not in evidence. The second contract was at the same price as the first contract and was on condition of vendor finance of $240,000 for two years secured by an unregistered second mortgage. The second contract was completed on 27 September 1985. The promised funds were advanced for that purpose by both AGC and the vendor. 19 There is only one document emanating from the Aghajanian camp which provides anything like a contemporaneous version of events. However, it is not a contemporaneous document in the same way as the documents previously referred to. It dates from after the disaster. This means that it does not reflect contemporaneous thinking, and the thinking it does reflect is tinged with hindsight. It consists of six pages of typewriting in the same type face. It has some handwriting on it, but this handwriting has not been identified. When I describe it as a document, it is far from certain whether it is one document or two and whether that document or either of those documents is complete. It appears to me to be more likely that it is two separate documents, the first consisting of the first two pages and the second consisting of the remaining four. Each of the documents appears to me to be a summary of the facts or some of the facts relating to the family disaster arising from the squash centre. It is a feature of the documents that the valuation does not play any very prominent part in either of them. The first two pages appear to deal with events after the purchase. The more material section is the four page portion, which is dated 25 August 1986. The most relevant parts of that document are as follows: "When Mr Boyd found out our decision was to return the complex to him he suddenly showed upfrom [sic] out of the blue and agreed to sell the place to us with very reasonable conditions and cheaper than its actual value. We thought it best to purchase. Now the question arises that why did we buy the place after incurring such a loss? Firstly, we thought that after renovating the complex, with hard work and advertising we could attract more customers. Secondly, we could get the restaurant area operating which was closed until then, and therefore take full advantage of the place, and all three sections of the complex would operate instead of just two. … Mr Salmon prior to the purchase of the property, in the presence of Mrs Aghajanian, my daughter Alice and myself rang the council and spoke to someone regarding any complaints or anything which might have been relevent [sic] to the purchase of the building outstanding with them. Their answer was negative and Mr Salmon (according to Mrs Aghajanian) even asked for a written letter of confirmation from them. If there has been any failure to communicate it has been on behalf of the Penrith City Council. On that basis and the faith that we had in the council's word we went ahead with the purchase of the building and the settlement. AGC financed the deal, so everyone was under the belief that it was a sound deal only to find out later on the contrary to this. … Our only hope now is to see that all those people who put us through all this without any fault of ours pay for their mistakes." Shakeh's evidence is that she typed the document. Most of the information was given to her by her father in Armenian, and she did all the translation and typed it up. The document from its terms appears to be cast as a statement by Mr Aghajanian. Whilst, as I say, it is not truly a contemporaneous document, but one written with legal action already in mind, it is the version emanating from the Aghajanian family which is closest to the events spoken of. The Lay Evidence: The Witnesses 20 Affidavit and oral evidence for the plaintiffs was given Mr Salmon and by all the members of the Aghajanian family mentioned above, namely, Mr and Mrs Aghajanian, Ara, Shakeh and Alice. 21 Mr Salmon deposed that he was present at the meeting. He said that there was discussion concerning the resolution of the problems between the lessor and the Aghajanians. "Ultimately, that resolution was resolved upon the basis that Nshan would purchase the freehold of the centre for $1,229,619." He said that the meeting took about two hours and that the heads of agreement, which I have already quoted from, to his belief contained "the principal terms of the agreement finally reached at this meeting". He denied that he was asked to advise concerning the wisdom of the transaction or the appropriateness of the purchase price. 22 He said that thereafter he accompanied Mr Aghajanian on a visit to the Forestville branch of Westpac ("the bank visit"). The manager indicated that it was not the bank's policy to make loans of the sort requested, but that AGC might be able to help. The manager then made a telephone call and, while they were still at the bank, an AGC representative arrived (who may have been Warren Edmonds) with an application form. He (Mr Salmon) then and there assisted in the filling out of the application form. The payout figure of $43,000 was mentioned at that meeting and the loan was requested in the sum of $1,272,000. 23 Mr Salmon opened his file for Nshan on 13 March 1985, which date was recorded on the file cover. That file he continued to use in relation to the matter after he had received AGC's instructions to act for it as mortgagee. He did not open a separate file in relation to his instructions from AGC when received. 24 Mr Salmon said that he received a telephone call from an AGC representative concerning the commissioning of a valuation. His affidavit evidence as to that call was as follows: "In about March, 1985 I received a telephone call from an AGC representative whose name I cannot now recall, who said words to the effect: 'We need to obtain a valuation of the property for which the loan is sought before we can approve the application.' I then said words to the effect: 'I will obtain a valuation from Stanley Thompson, they are reasonably prompt.' On the same day … I telephoned the offices of Stanley Thompson, Valuers, and after identifying myself, was transferred by the receptionist to Mr Peter Kennedy. I said to Mr Kennedy words to the effect: 'I need a valuation done of a property at St Marys. Could you do it for me?' Mr Kennedy then said words to the effect: 'Yes, that will be OK. What is the address of it?'" 25 Mr Salmon deposed that he regarded the defendant as a suitable valuer because he did work for AGC and knew that the defendant was a valuer acceptable to AGC. When he took the Aghajanians' instructions on the transaction, although he did panel work for AGC quite regularly, he did not know whether he would receive instructions to act for AGC in this matter, since most of the work he did for AGC related to the purchase of homes. 26 In cross examination, Mr Salmon frankly conceded that he did not have a clear recollection of the conversations he had deposed to. In particular, he did not have a clear recollection of the telephone conversations he says he had concerning the instructions for the valuation, either the telephone call from AGC or the subsequent call to Mr Kennedy. He did not know Mr Kennedy at the time. He kept no note of either conversation. It was not until 1991, some six years later that he recorded his recollections of these conversations in the initial affidavit that he swore. The conversations were reconstructed by him on the probabilities arising from the limited amount of documentation then available to him. He also said as to his evidence that he received a call from a representative of AGC to obtain a valuation of the property, "The basis of that belief is the usual practice in cases such as this and my best recollection of what happened." The fact that Mr Kennedy's name appears in two places in the documentation may have influenced him in coming to the belief that it was with Mr Kennedy that he spoke in his initial conversation with the defendant. He equally conceded that his letter of 25 March 1985 forwarding documentation to Mr Kennedy may have been the result of a telephone call to him from Mr Kennedy requesting that documentation. 27 He had no recollection of a conversation requesting the cheque for $1,450 for the valuation, but was quite satisfied that he did not tell any of the Aghajanians that the quantum of the valuation could be derived by applying a percentage to the amount of the invoice. At one time he claimed to have told Mr Aghajananian when asking for the cheque that the valuation was $1.3 million. However, in cross examination about his communication of the quantum to the Aghajanians, he assented to the proposition, "You believed that you would have told them, but you have no actual recollection of doing so". At the time that he received the valuation it was his understanding that the valuation had been requested by AGC, not obtained at the instance of the Aghajanians (although he believes that Nshan ordered it). He denied that the Aghajanians had ever suggested to him that they did not know whether it was a good idea to purchase the property and that they would leave that up to him or that they asked him to make all appropriate enquiries and tell them whether it was a good deal; they never requested advice from him of that nature. 28 In his evidence, Mr Aghajanian confirmed his presence at the meeting; confirmed that the price of $1,229,619 was calculated in his presence by Mr Boyd; but denied that the price was agreed to at the meeting. He said that at that time he only indicated that he was interested, and that he did not know "whether it was a worthwhile property for that price in St Mary's or not". He said that the price that they were prepared to pay "was yet to be considered". Mr Aghajanian said repeatedly that at that time he had no idea what an appropriate price was for the property and that it was left to Mr Salmon to ascertain that. Thus: "It was an offer which was made to me and I left it with my solicitor to decide if it was a suitable price to purchase the land or not." "We didn't have any idea as to what price we should offer." "The price which was offered to us was the price that you mentioned, $1,229,619, but we weren't prepared to pay that price for the property. We didn't know what the market price is for that property." "We left the matter with our solicitor to deal with it." "We agreed to buy the property, but not at that price. We had to make investigations and we put our solicitor in charge of that investigation." "We agreed to purchase the property and we left the matter in our solicitor's hands to decide if it was the right price to purchase the property or not. But the decision to purchase the property was already made, but we had to make some investigation as to the price, whether it was the right price to purchase it or not." 29 Mr Aghajanian also agreed that he went on the bank visit with Mr Salmon. The February figures were obtained to be shown to financiers and were taken on the bank visit. The bank declined to lend the $1.1 million sought, but at the bank he and Mr Salmon spoke to another gentleman (although he did not identify him as being connected with AGC). He agreed that on that occasion an application form for finance was filled out by Mr Salmon in his presence. He said, as did all other members of the family, that none of them saw any copy of the valuation before the purchase of the squash centre was completed. Mr Aghajanian said that he was told the figure at which the valuation was brought in, but insisted that the figure he was told was $1,450,000. He was cross-examined stringently about this, but remained absolutely resolute that the only figure mentioned to him was $1,450,000. He denied that he told any member of his family that there was a valuation at $1,300,000. However the valuation was commissioned, there is no suggestion in Mr Aghajanian's evidence that he requested or commissioned any other valuation or made any other investigation as to the appropriateness of the price, or that Mr Salmon made any report to him about the appropriateness of the price, other than what was implicit in conveying the amount specified in the valuation (which, as I have said, he insisted was $1,450,000). 30 Mrs Aghajanian, in an affidavit sworn only shortly before she gave oral evidence, deposed as to what she knew of the valuation. There is no record of her having made any statement concerning this prior to that late affidavit. In that affidavit she swore, "I recall my husband saying: - '… The business is valued at $1.3 million and we are buying it at $1.229 million'." It is to be noted that it was not the business but the land that was in fact valued by the defendant at $1.3 million; the business was something else entirely. However, she made a positive statement that a figure of $1.3 million was conveyed to her by her husband. What certainty there was about this statement evaporated as soon as her oral evidence commenced. The first time she was asked about the source of the information as to the valuation she answered: "It was a valuation for the value of 1.3 and I am not sure if it was from my husband. I heard it from somewhere." Shortly thereafter she said that she heard it from either her husband or Mr Salmon. She remembers the cheque issued for $1,450 for the valuation but maintains that the only figure that she heard of in connexion with a valuation was $1.3 million. She continued uncertain, under cross examination at some length, as to whether it was from her husband or Mr Salmon that she had heard it. She proved quite unable to deal in any rational or cogent way with the conflict in her testimony presented by, on the one hand, the unqualified statement in her affidavit that her husband told her of the value and, on the other, her uncertainty in cross-examination as to who it was that had told her. She was emphatic that none of her children had mentioned the figure of $1.3 million to her and that she had not seen the valuation before the transaction occurred. At another time she stated unqualifiedly that Mr Salmon had told her. In the end her evidence came down to: "One of these two persons must have told me. It was either my husband or Terry Salmon." 31 Ara gave evidence for the first time by an affidavit sworn a few days before his oral evidence that his father said to him that "the valuation has come in at $1.3 million". He could not remember when and where the conversation took place or whether it was face to face or by telephone. He had no written note of the conversation and the evidence was given from memory more than 12 years after the event. He was "pretty sure" it was before the purchase. He had said in his affidavit that the conversation was either at the sports complex or at home but in cross examination conceded that he was not sure of that. 32 Shakeh deposed in an affidavit that she was present at the meeting. Concerning this she said, significantly in my view: "Towards the end of the meeting, Yourik, on behalf of the family, decided to purchase the property for an amount of $1,229,619. I recall that during the negotiations, I asked Salmon for advice concerning the purchase of the property. I said to him words to this effect: 'Terry, what do you think of the proposition.' He responded with words to this effect: 'It is your decision.'" 33 In another affidavit two days later, Shakeh deposed that Mr Salmon advised that, if they pulled out of the squash centre, they would lose all that they had invested in it. In Shakeh's case, too, there was a significant retreat in cross examination from her evidence concerning the source of her knowledge of the valuation. In relation to that, Shakeh, having stated positively in her affidavit that she did not recall who had told her of the valuation, in her cross examination deposed firmly that she had been informed by Mr Salmon in a telephone conversation she had with him that the value was more than the purchase price. She claimed to have a clear recollection of that conversation. Asked whether she rang Mr Salmon or he rang her, she replied firmly that she rang him from the family home at 60 Cook Street, Forrestville. She claimed that this conversation was very clear in her mind and had always been clear in her mind, certainly as far back as the times when she swore her earlier affidavits in December 1994 and February 1995. Equally, it was clear in her mind when she swore her most recent affidavit which contains the quotation set out above. She claims that the valuation was mentioned again at a meeting in Mr Salmon's office when the cheque for $1,450 was handed over, it being said at the time that that was a very small percentage of the valuation. She gave no satisfactory account of the inconsistency between the evidence in her affidavit (sworn only eight days previously) and her answers in cross examination. Confronted with the inconsistency, she said: "I was never told the valuation, and the amount of the valuation, by anyone specific that I can remember. However I was only told that the value of the property was more by Terry on two occasions. That is the only thing that I do remember and that is all that I remember." 34 Alice deposed in an affidavit, again only a few days before she gave oral evidence, as follows: "At the time of the settlement of the purchase of the squash centre … I was aware that a valuation had been obtained for financing purposes. I assumed that our solicitor or our financier would warn us if that valuation was not as much as the price which we had agreed to pay for the property of $1.229 million." She deposed that when that affidavit was initially presented to her she had corrected some typographical errors and the affidavit had then been retyped. She had not requested or suggested the inclusion of any further material concerning the valuation in the affidavit. 35 On the defendant's behalf, Mr Carritt deposed that between March 1983 and February 1987 he was managing director of the defendant. The defendant during that time had a close association with AGC, was on AGC's panel of valuers and was the preferred valuer of AGC. He deposed that the bulk of the handwriting on the instruction sheet (including the parts which I have quoted in italics) was his. He cannot remember writing the instruction sheet, but his usual procedure was to write down on such sheets instructions from clients during telephone conversations with them. In the instant case, he filled in the instruction sheet whilst speaking on the telephone with Michael Musso of AGC. The commissioning of valuations by telephone by Mr Musso was frequent and the telephone requests were not always confirmed in writing. It was his practice when taking instructions to note any existing valuations which the person requesting the valuation knew of and he believes that the note "Hookers Val. $1.4 m" means that Mr Musso informed him that he was in possession of, or had sighted or been told of, a valuation of the property at a figure of $1.4 million by L J Hooker. The handwriting at the foot of the page other than the valuation number he identified as that of Paul Kennedy. The normal practice at the time was that, after he had completed instruction sheets, he would place them in a work tray, and a valuation number would be allocated to the job by the receptionist. This explains the handwritten valuation number 30009 at the foot of the instruction sheet. It was he who usually allocated the jobs to appropriate valuers. Paul Kennedy was the defendant's specialist valuer for the far west of Sydney, and he allocated the valuation of the squash centre to him. On a sheet headed "Gross Rental" setting out the calculation of the rental basis for capitalisation there appears a note "Discussed with me" followed by an initial and the date "27/3/85" (which are in Mr Carritt's handwriting). These indicate that he had had a discussion concerning the valuation with Mr Kennedy on that date. This was in implementation of a "valuation check system" which he as managing director had instigated. Under this system, valuations between $1 million and $1.5 million had to be discussed either with him as managing director, or with the chairman of the defendant; valuations in excess of $1.5 million had to be discussed at a committee of three persons, of whom either himself or the chairman was one. The note indicates that there was a valuation check discussion between Mr Kennedy and Mr Carritt concerning the details and basis of this valuation and that Mr Carritt was satisfied with the work. The Lay Evidence: Assessment of the Witnesses 36 I did not form the view that any of the above witnesses was deliberately giving evidence that was untrue, or was attempting to mislead the Court. 37 Mr Aghajanian was not a very satisfactory witness. Whilst he had a deal of English, he gave the bulk of his evidence through an interpreter. There was difficulty during the early part of his oral evidence arising from quite unsatisfactory interpretation. Even after an apparently successful interpreter was found, there were considerable difficulties with the interpretation of his evidence. Whether this was because the evidence was being given in a language which is not Mr Aghajanian's first language (that being Armenian), or because of the diffuse nature of his answers, and his difficulties in paying attention to the precise questions he was asked and therefore frequently giving unresponsive answers, I am unable to tell. Certainly it was apparent from the answers that were translated and from a number of answers that he gave in English, that he would in many instances not pay attention to precisely what he was being asked. He was frequently unresponsive in his answers. He struck me as a man who adhered doggedly to the idea that he had in his head. He was often unwilling to give attention to what he was being directed to. His doggedness was illustrated by his adherence to his evidence that he was told that the valuation was $1,450,000 rather than $1,300,000, a proposition that did not accord with the evidence of any other witness, the available documents, or the probabilities. Because of these difficulties, his demeanour generally and the quality of his answers, I am unable to put any great weight on Mr Aghajanian's evidence. 38 Mrs Aghajanian was equally an unsatisfactory witness. I have drawn attention to the fact that her cross examination was quite inconsistent with the affidavit which she had sworn only a few days before. The inconsistencies in her evidence, viewed in conjunction with her demeanour and the nature of her answers rendered her a witness of little credit. 39 Shakeh likewise gave evidence on what and from whom she learnt of the valuation inconsistent with her affidavit sworn only a few days previously, and was quite unable to give any rational or convincing explanation of the difference. Her evidence also was generally of little credibility. 40 It should be said of all the family members that their attention was turned to recalling in detail what they learnt about the valuation and the effect at the time of such knowledge as they had only many years after the event, and that despite the fact the action against the valuer was commenced in 1990. That evidence can have no great weight. The only record of any contemporaneity of any of their versions relating to the subject matter was in the statement typewritten by Shakeh in 1986. 41 I formed the view of Mr Salmon that he was a straightforward witness who was attempting to give the Court the best account he could of events in the distant past. He was quite ready to concede, when cross examined about his statements in evidence, that they were reconstructions, being the best version that he could give from what recollection he had (which in general terms he conceded was slight) and the probabilities as he could derive them from what documentation there was and from practices he adopted as a solicitor. Despite my comparatively favourable view of his quality as a witness, the usefulness of his evidence was seriously limited by the remoteness of the events and the consequent imperfection of his memory. 42 Mr Carritt had little recollection of actual events, but gave evidence in a straightforward way of his practices as managing director of the defendant, which evidence, in general terms, I accept. I also accept that in a valuation practice with a high turnover (Mr Kennedy alone was doing 200 valuations a year) there is a high likelihood that the practice of filling in instruction sheets as the instructions were received over the phone was adhered to. 43 Mr Kennedy's credit I deal with generally in conjunction with the valuation evidence. Suffice it to say here that, where Mr Kennedy's evidence conflicts with Mr Aghajanian's, I accept Mr Kennedy. The First Issue: Who Commissioned the Valuation? 44 I find that the valuation was commissioned by AGC and not by Nshan or the Aghajanians. The question is not an entirely easy one, because the alternatives are both quite feasible and recollections badly faded. To me, the most important piece of evidence is the instruction sheet. As I have said, it has the appearance of a genuine contemporaneous document. There is no doubt that the largest and most important part of the handwriting on it is that of Mr Carritt. He does not claim to have any recollection of having written it there, but on the other hand has a clear recollection of his practice at the time, which recollection accords with what appears upon the instruction sheet. The sheet points to the actual instruction to the defendant being given by Mr Musso of AGC to Mr Carritt, who noted the details upon the instruction sheet as they were given, and the job being thereafter assigned by Mr Carritt to Mr Kennedy, that again being in accordance with the defendant's practice at the time. Mr Salmon's name and phone number appear on the sheet, but not in a position that would suggest that he made the initiating call. I reject Mr Salmon's evidence in so far as it suggests that the initial commissioning of the valuation was by a telephone call by him to Mr Kennedy. I do not doubt that Mr Salmon had a telephone conversation with Mr Kennedy concerning the carrying out of the valuation. I think it is likely that the letter from Mr Salmon conveying information to the defendant was as a response to such a telephone conversation. The secretary's note set out in [11] I find quite equivocal. Mr Kennedy is sure that he received instructions from Mr Carritt, not from Mr Salmon, in the first instance. I do not think that the conclusion that the valuation was commissioned by AGC rather than by the Aghajanians is detracted from by the fact that a copy of the valuation was sent to Mr Salmon as well as to AGC, nor by the fact that the account as sent was ultimately directed to Nshan. It is common practice that a mortgage valuation is paid for by the prospective borrower, even when commissioned by the intending mortgagee. This practice is encompassed in the instruction sheet, where it notes that the bill is to be sent to the client for payment. And the original address of the bill was to AGC, before the address to Nshan was stuck over it. The foregoing are not exhaustive of the considerations I have taken into account. I have taken into account the whole of the evidence on the subject matter, including the evidence of Mr Salmon, of Mr Kennedy, of Mr Carritt and, in particular, the terms of the instruction sheet (the most concrete piece of evidence), which appear to point to the receipt of instructions by Mr Carritt from Mr Musso of AGC. On the whole of the evidence I find on the balance of probabilities that the contract for the furnishing of the valuation was between the defendant and AGC. The Third Issue: Breach of Duty of Care and Misleading Conduct 45 As I have found that the valuation was commissioned by AGC, the defendant cannot be liable to any of the plaintiffs in contract. The issue which I propose to deal with next is the third issue, which may now be formulated as whether, assuming that the defendant owed a duty of care to any of the plaintiffs, there was a breach of that duty of care. In conjunction with this, I shall consider whether the defendant was guilty of any misleading or deceptive conduct towards the plaintiffs within the meaning of TPA s 52. Breach of Duty of Care and Misleading Conduct: The Law 46 So far as concerns the correct legal test in respect of the standard of care to be exercised by valuers, there was really no contention between the parties. The standard of care owed by a person with a particular skill was stated generally by the High Court in Rogers v Whittaker (1992) 175 CLR 479, where the majority said at 487: "In Australia it has been accepted that the standard of care to be observed by a person with some special skill or competence is that of the ordinary skilled person exercising and professing to have that special skill." In relation to valuers, the test was formulated by Bollen J in the Supreme Court of South Australia in Cash Resources Australia Pty Ltd v Ken Gaetjens Real Estate Pty Ltd (1994) Aust Torts Reports par 81-276 at 61,364 as being that a valuer should "exercise the care and skill of a reasonably prudent and competent valuer in the circumstances." In MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 at 335 Lindgren J in the Federal Court (in relation to a residential valuation) stated the duty to be "to exercise the standard of care and skill ordinarily exercised by professional valuers of residential property." (The appeals to the Full Court (1997) 77 FCR 307 and the High Court (1999) 73ALJR 901; 163 ALR 611 challenged His Honour's judgment only in relation to the assessment of damages.) 47 Relevantly to the application of TPA s 52 to expert opinions, in Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88 it was said per curiam (Bowen CJ, Lockhart and Fitzgerald JJ): "A statement which involves the state of mind of the maker ordinarily conveys the meaning (expressly or by implication) that the maker of the statement had a particular state of mind when the statement was made and, commonly at least, that there was basis for that state of mind. If the meaning contained in or conveyed by the statement is false in that or in any other respect, the making of the statement will have contravened s 52(1) of the Act." See also RAIA Insurance Brokers Limited v FAI General Insurance Co Limited (1993) 41 FCR 164 at 174-5; Amadio Pty Ltd v Henderson (1998) 81 FCR 149 at 236. And certainly the propounding of an expert valuation may amount to misleading or deceptive conduct if it is "so far removed from the true value … as to be misleading or deceptive": MGICA supra at 335 per Lindgren J. But, as was said by Deane and Fitzgerald JJ in Taco Company Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 200, "no conduct can mislead or deceive unless the representee labours under some erroneous assumption." Thus, even if it were not based on reasonable grounds, the stipulation of a particular value could not contravene the section unless it could be characterised as wrong or erroneous. Breach of Duty of Care and Misleading Conduct: The Valuation Evidence 48 A number of valuers gave evidence in the proceedings. Some prepared valuations of the squash centre and others were called simply to give their assessment of the valuation or their expert opinion as to other relevant matters. The defendant relied on the evidence of Mr Kennedy himself concerning the preparation of the valuation, which was prepared in the circumstances adverted to earlier in this judgment. The second valuer on whose evidence the defendant relied is Gregory John Windred, formerly of Herron Todd White Valuers Pty Ltd and now of Robertson and Robertson, consulting valuers, of Parramatta. Mr Windred was first asked to value the property as at 28 March 1985 in May 1990. The instructions for that valuation were received not from the defendant, but from AGC. Subsequently he was retained on behalf of the defendant to provide an opinion as to whether Mr Kennedy's valuation had been prepared in conformity with reasonable valuation practice. The defendant also led the evidence of A F Kenny, a consultant real estate valuer. Mr Kenny did not prepare a formal valuation, but in his affidavit did express an opinion as to the value of the property in March 1985, and expressed a view as to whether Mr Kennedy in preparing the valuation exercised reasonable skill and care as a valuer. The plaintiffs relied on the evidence of Barry Smith of Colliers International, who prepared a valuation of the property as at March 1985 in June 1990. He also expressed views as to the appropriateness of Mr Kennedy's valuation. The plaintiffs also obtained a valuation by Craig Miller of Craig Miller Pty Limited dated 15 August 1997 as to the value of the property as at 28 March 1985, and Mr Craig Miller also expressed views as to the appropriateness of Mr Kennedy's valuation. The defendant called K P Norris of Egan National Valuers to express opinions as to the standard of the valuation and also concerning the report provided by Mr Craig Miller. 49 The heart of the valuation prepared by Mr Kennedy is as follows: "METHOD OF VALUATION: Our appraisal has been carried out by reference to sales of squash and sporting complexes, together with a number of sporting complexes that are presently listed for sale within the metropolitan area. It has also been arrived at by adopting the capitalisation method, a summary of which appears hereunder: ESTIMATED GROSS ANNUAL RENTAL - 1. Squash Courts (including use of pool, spa, sauna, gymnasium, club room and amenities room) 16 courts @ $150 per week = $124,800 p.a. 2. Roller skating rink, including canteen, disco booth, skate hire and amenity rooms 1,511m @ $45 per m2 per annum = $68,000 p.a. 3. Restaurant, incorporating reception / conference room, office and amenity rooms 540 m2 @ $50 per m2 per annum = $27,000 p.a. $219,800 LESS: Vacancy allowance $4,230 Council Rates $1,440 M.W.S. & D. Board rates $15,150 Land Tax $1,630 Management $4,000 Insurance $5,500 Repairs & Mntce. $6,750 Common area - Cleaning & lighting $1,300 = $40,000 ESTIMATED NET ANNUAL INCOME - $180,000 CAPITALISED @ 13.75% = $1,308,600 SAY, $1,300,000 " The valuation proceeds under the heading "General Remarks" to discuss a number of considerations. These include the nature of the building, its condition and the situation of the site in relation to nearby uses and potentially competing squash courts. It continues: "Our research studies indicate that squash generally is experiencing a slight downturn in popularity and that there appears to be a marked increase in the number of tenant operators going out of business, and an increase in the number of comparatively new squash and sporting establishments that have come back on to the market. Our enquiries reveal that many operators (whether tenant or owner operators) are presently being raced [sic] with dwindling peak periods, and to maintain a reasonable income level, they are working hard to promote the non-peak periods. To overcome this problem, the subject centre is attempting to promote early morning squash for business personnel, afternoon squash for primary and high school children, and evening competitions. It would appear that a [sic] court occupancy is an operators major problem and to overcome this situation, it is essential that a centre should cater for additional facilities, such as, spa, sauna, club room that can be utilised as a child-minding area, gymnasium that can double for jazz ballet, karate, yoga and keep-fit classes, shop/canteen and other amusement facilities. The subject premises caters for all these additional facilities in conjunction with the management of the sixteen squash courts." It then deals with the potential of the roller skating rink and the restaurant and continues: "In arriving at our valuation figures, we have not only had regard to the limited sales information of squash court centres within the Penrith and neighbouring districts but also sales of squash court and sporting complexes within the Sydney metropolitan area. Our figures have also been determined on information gained on centres that are leased to tenant operators. Our values are well supported by reference to analyses of sales information which would indicate that capitalisation rates currently vary from about 12% up to 15%, depending upon the design concept, the accommodation offered, the nature and flexibility of the building and other pertinent circumstances that prevail. We consider that the subject property is acceptable security for mortgage purposes, however the success of the business operations is highly dependant upon advertising, promotion and management expertise of the operators, which in turn has a direct relationship to the rental structure and the value of the real property." Finally Mr Kennedy adverts to the replacement cost of the building being as high as $2,200,000 and finally formally assigns to the squash centre the value of $1,300,000. 50 Mr Windred proceeds in much the same way. Under the heading "Basis of Valuation" he says: "In arriving at our assessment of value, we have had regard to sales and leasing of squash/sports centre properties which occurred around the date of valuation. We have principally had regard to the capitalisation/investment method of valuation, which involves determining the current market rental for the property and capitalising at an appropriate yield." He then lists seven sales to which he adverted. Thereafter he continues: "Having regard to these and other sales, and to our market research, we assess the market value of the subject property as at the 28 March 1985 as follows; Valuation Calculations Net Annual Rental 16 squash courts at $6,500 $104,000 Roller skating rink 1,537 m2 at $37.67 $ 57,905 Restaurant 552 m2 at $37.67/m2 $ 20,795 Assessed Market Rental $182,700 We consider a purchaser of the property would have expected an initial net yield, based on our assessed market rental, of between 14% and 15%. This equates as follows: Net Income $182,700 Capitalised at 14% = $1,305,000 Capitalised at 15% = $1,218,000 Say, $1,2000,000 to $1,300,000 We consider it appropriate to adopt the mid point in this instance, ie. $1,250,000." Under "General Comments" he states the following: "The success of a squash/sports centre is highly dependent on the quality and expertise of the centre management. It is apparent that centres under good management (i.e. centres which are kept tidy, provide personal service, organise squash competitions and actively promote the game) are the centres which operate most successfully. The quality of management in a squash/sports centre is a significant influence in the value of the property. Whilst difficult to quantify, inherant [sic] in the value of a going concern squash centre property is an amount representing the goodwill of the centre management. We consider that, in a centre which is operating successfully, this goodwill amount may be as high as 40% of the total property value. Therefore, in accepting a squash centre as mortgage security, it is essential for a financier to establish the management expertise of the operators in order to determine the continued viability of the centre. We also consider such properties to be not ideal security, and lending policy should reflect this. Our valuation is based on market conditions relevant to squash/sports centres as at March 1985, as well as the condition of the premises and the apparent trading ability of the property at that time. Both squash and roller skating was in the early stages of their downturn in popularity (the eventual extent of which could not have been foreseen). We consider the general squash centre market to have been reasonably sound (although not as strong as in, say, 1982). Substantial evidence of the decline of the squash industry started to occur in mid 1985 and 1986 when a number of forced sales and mortgagee sales of unprofitable or poorly managed centres occurred. Our enquiries would indicate that the subject property was operating successfully up to 1985 with well patronised squash courts and the roller skating rink being very popular, although the restaurant was at that time vacant. The improvements were relatively new (4-5 years) and, we understand, were well maintained. The lessees (Nshan Pty Limited) had been in occupation only nine months so that any inappropriate management practises would not yet have had any significant effect. In summary, we would reiterate that the squash/sports centre market is an extremely volatile one, and that the value of a given centre is dependent to a large extent upon the quality of its management. We would consider these two factors to have been primarily responsible for the significant difference in the subject property's market value as at March 1985, and its eventual sale price of $730,000 in October 1988." The opinion that he stated in his affidavit as to Mr Kennedy's valuation was as follows: "6. Based on my perusal of the documents referred to in paragraph 4 above (in particular, the Kennedy affidavit), I consider that the STV valuation was soundly based and resulted in an appropriate market valuation assessment as at that date. 7. My opinion (referred to in paragraph 6 above) is based upon many features of the STV valuation which exhibit Mr Kennedy's reasonable care in preparing the STV valuation. In particular: · In the 'General Remarks' section of the STV valuation, the mortgagee's attention was drawn to evidence of possible structural instability and it was recommended that prior to settlement an engineers certificate be obtained. · The STV valuation also stressed the importance of management expertise in the operation of such a property and commented that this has a direct relationship to the rental structure and value of the subject property (page 12 of the STV valuation). · The STV valuation stated that the nature of the subject property would require specialised and comprehensive marketing and that an extended marketing period would be required (page 13 of the STV valuation)." 51 Mr Smith's valuation, relied on by the plaintiffs, was also carried out for AGC, about a month after Mr Windred's. It was also a valuation as at 28 March 1985. Mr Smith places a valuation of only $650,000 on the squash centre. Again Mr Smith's "valuation approach" is not radically different from that of Mr Kennedy or Mr Windred and is set out as follows: "The method of valuation adopted has been the capitalisation of new rental approach and the basis adopted, existing use as a sports and recreation centre. … We have generally considered an alternative use of the premises as industrial factory units, however our enquires indicate refurbishment cost including Ordinance 70 compliance may render such redevelopment uneconomic. In addition to high refurbishment/redevelopment costs a further drawback to the premises as industrial factory units, is the denied access to Forester Road. In adopting the capitalisation method of valuation we have had to rely upon a limited number of sales to ascertain an appropriate yield in our calculations. As a check only against our determined capital value we have analysed squash court sales at our [sic] about the relevant date to determine an overall improved rate per court. This analysis indicates a price level of between $42,000 and $65,000 per court." Under the heading "Commentary" Mr Smith reveals that the figures of takings that he allowed for as "a reasonable expected/estimated income of the property" were as follows: "Squash Courts - $3,000 - $3,500 per week Roller Skating Rink - $1,300 - $1,500 per week Water Aerobics/Gym - $ 800 - $ 900 per week $5,100 - $5,900 per week" He allows only $10,400 per annum in relation to the restaurant area which he considered unusable as a restaurant and usable only as office, light storage or auxiliary space. Taking all these matters into account he takes the total income to be $296,400 per annum . He concludes his general comments as follows: "By way of general comment our enquiries indicate the sport and recreation industry, particularly squash centres, suffered a decline in patronage in mid to late 1985. This decline apparently accelerated in 1986 as is evidenced in sales we have compiled at or about this time. Finally it would appear to us, in hindsight that the subject complex was in the hands of an operator new to the industry, dealing with perhaps an un-cooperative lessor, and subsequently the level of management and decision making may have been at best, average." 52 Mr Smith criticised Mr Kennedy's valuation by suggesting that it was an unsound approach, when relying on an aggregated income stream (as from squash courts, roller skating rink and restaurant), to apply a single capitalisation rate, and that different capitalisation rates should have been applied to the individual income streams before aggregation of the result. He also said that Mr Kennedy should have been struck by the disparity between the rental income of the squash centre and the Five Dock property on the one hand and of the other squash court properties on the other. Without explanation and analysis of that disparity, Mr Smith said that it was wrong for Mr Kennedy to have taken as a basis of his valuation a rental at the level of the St Mary's and Five Dock properties. He should have taken the view that, whilst the actual rental of the squash centre at St Mary's was at that level, the business may have proved unable to sustain profitability when such a high rental had to be met, so that for valuation purposes a lower rental should have been taken as the putative rental of the property. He criticised Mr Kennedy for not having made further inquiries as to the income or income prospects of the squash centre, or failing to downgrade the income taken as the basis of the valuation in the absence of satisfactory answers to such inquiries. Alternatively to reducing the notional rent to be used for the purpose of valuing the squash centre on a capitalisation basis, the valuer could and should have adopted a much higher capitalisation rate than 13.75%. Furthermore, Mr Smith said that Mr Kennedy failed to make proper check valuations. He himself propounded check valuations on a direct comparison basis, selecting as the appropriate comparable property the Mount Druitt squash court. He also did a check valuation on what he described as a "going concern/business basis". His valuation calculations on all three bases were set out in an annexure to his affidavit as follows: " VALUATION CALCULATION Basis 1 - Rental Estimated gross income from sporting complex $ 5,500.00 pw $ 286,000.00 Upstairs area 477sq.m @ $21.80 per sq.m $ 10,400.00 $ 296,400.00 Rental value adopting industry norm 1/3 of takings $ 98,000.00 Assume lessee pays all outgoings Capitalise @ 15% $ 658,000.00 Capitalise @ 15.5% $ 637,419.00 Capitalise @ 16% $ 617,500.00 Adopt say $ 615,000.00 or per court overall $ 40,625.00 Basis 2 - Direct Comparison Direct comparison with Mount Druitt sale, better location, walk to train. Sale shows $42,000.00 per court overall. Zoning similar, state of repair similar at date of sale. 16 courts @ $42,000.00 $ 672,000.00 The Mount Druitt complex had other income streams in addition to squash courts. Basis 3 - As Going Concern/Business Total gross income $296,400.00 Operating expenses $156,000.00 $140,400.00 Yield to reflect risk of business not real estate Capitalise @ 20% $702,000.00 Capitalise @ 18% $780,000.00 Say $700,000.00 Records show income squash courts year ending 28 February 1985 as a [sic] $155,520.53, expenses $136,972.00 including rent of $60,472.00. The accounts profit and loss income expenses sheets noted 'started with subsidy'. Net Profit $1,943.09." The overall per court figure set out at the end of Basis 1 is in fact arithmetically incorrect and should read $38,437.50 rather than $40,625.00. 53 Mr Kenny, also called on behalf of the defendant, had not himself made a valuation of the property. His evidence was that the various assumptions made by Mr Kennedy were in his (Mr Kenny's) view justified. 54 Mr Craig Miller, who gave evidence on behalf of the plaintiffs, again did not prepare a valuation of the squash centre. However, after considering the subject matter available to him, including the written evidence of the other valuation witnesses except Mr Norris, Mr Craig Miller expressed the view that the correct valuation of the property as at 28 March 1985 was $730,000. As to the quality of Mr Kennedy's valuation, his evidence was as follows: "WHETHER A COMPETENT VALUER ACTING WITH REASONABLE SKILL AND DILIGENCE WOULD PRODUCE THE VALUATION? My answer to this question is No. A competent valuer, acting with reasonable skill and diligence, ('a reasonable valuer') would have known that the value of the Sports Centre was dependent upon its profitability. Mr Kennedy was correct in requesting trading details but as they were not produced a reasonable valuer should not then have proceeded to complete the valuation. Financial statements to the 28th February, 1985 were available at the time of his valuation. If he had insisted upon obtaining them and with the benefit of the financial statements of the Erina Squash and Fitness Centre and the details of the sale of that property he would not have valued the property at $1,300,000.00. In addition, as the first floor conference/restaurant section of the Centre was vacant at the time of his valuation and had been vacant for at least 9 months prior thereto a reasonable valuer should have ascertained from Penrith Council what conditions the Council may impose in the event of steps being taken to re-open this portion of the Centre. I consider this enquiry to be important as a conference/restaurant with kitchen and possibly a large number of people would represent a potentially fire hazardous situation and therefore would warrant the special attention of the Council." 55 To the suggestion that he should have made further inquiry as to trading figures, Mr Kennedy replied that he called for the trading figures from Mr Aghajanian, who answered that they were not available. He stated that he did not believe that, even if they were available, it would have been appropriate to rely on them, because the business being conducted in the squash centre was a classic example of a cash business in which there were minimal, if any, records of actual sales. He said that particularly in relation to the roller skating rink he had personally observed that patrons simply paid cash and were allowed access to the rink via a turnstile. Furthermore, he was aware that the existing operators of the squash centre had been in business for only a few months, which he did not regard as long enough to make an assessment of the income capacity of the business. 56 Lastly, Mr Norris was also called by the defendant to provide his opinion of the respective valuations of the property of Mr Kennedy and Mr Craig Miller. As to Mr Kennedy's valuation his view is set out in his report as follows: "I note Mr Kennedy at Paragraph 23 of his Affidavit of 28th January, 1992, states that he called for the trading figures, but they were not available. I note further that the sitting tenant of the premises had only been in occupation for some 7.8 months and as such could not have supplied reliable trading figures. Further, as the restaurant had not been in operation during the aforementioned period, an allowance would have to have been made to already unreliable figures. In my experience, where turnover figures are to be relied upon, the valuer should have access to the following: · At least the previous three years trading figures. · An assessment of management, i.e. details of management experience to establish quality of management to enable the valuer to establish whether it is average or above/below average. · Accountants verification of the requested figures. It is my view that where turnover figures are not available, or are unreliable, the valuer must have regard to alternate methods of valuation. Mr Kennedy, therefore, could hardly be criticised for not capitalising income figures, but rather opted for the alternate valuation approaches of comparable sales and capitalisation of rental. Perusal of Mr Kennedy's report and notes indicates to me that Mr Kennedy: Thoroughly inspected and measured the premises; made enquiries of Council as to the zoning, dimensions, area, rating valuation and registered proprietor; carried out an extensive sales and rental analysis; discussed his valuation with other experts and set out his calculations in a comprehensive report format. Perusal of the comparable sales/rentals shows that Mr Kennedy's adopted rental was at the bottom of the range of rents indicated from his analysis. I have concluded that the approach taken by Mr Kennedy in all the circumstances was that which one would expect of a competent and reasonable valuer." So far as Mr Craig Miller's report is concerned, Mr Norris attacked his analogy between the valuation of hotels and the subject valuation by reason of the fact that figures in relation to the trading of hotels are reasonably accessible and reliable, eg, licence fees and a substantial pool of information from specialist brokers. He contrasts the low availability of trading figures in relation to sporting complexes. He says that to say that the valuation should not have been carried out without trading figures would mean that new specialised premises could not be valued. He criticises Mr Craig Miller for basing his valuation on one uninspected comparable property and not carrying out a valuation by any check valuation method. The Valuation Evidence: Background Facts 57 The evidence shows that squash enjoyed a considerable vogue in New South Wales in the 1970s and early 1980s. Its popularity thereafter suffered a sharp decline and the prices which purchasers were prepared to pay for specialised squash court premises fell considerably. The sale of the squash centre for $1,229,000 in April 1985 followed by a sale at auction for $730,000 in October 1988 is by no means atypical. The evidence is not as clear as to the commencement and progress of the downturn. Mr Windred and Mr Norris put it as commencing some time in 1985, and becoming pronounced later that year and in 1986. Mr Smith argues that the sharp downturn had already commenced by the time of the subject valuation in March 1985, and that this is made manifest by a strong tendency towards mortgagee sales already visible at the time of the valuation. However, it would seem that only two out of the seven sales that probably ought be regarded as potentially material for the purposes of the valuation were mortgagee sales. And there are reasons for mortgagee sales other than a general downturn in the market for squash courts generally. They may be because of poor management, since quality of management is always particularly important in relation to the business conducted in specialised premises such as squash courts. Despite what has been said about the popularity of squash, sales of squash courts in the Sydney metropolitan or New South Wales country areas were not numerous. As already indicated, there was something in the vicinity of seven sales which might be thought material over about the four years preceding the valuation. With types of premises in which there is an abundant market, one would not look to sales up to four years before the relevant date as a basis of valuation. But where sales are few because of the thinness of the market or the nature of the premises, it may be relevant to look at sales at that distance of time, whilst exercising caution by reason of the distance in time of the sale from the valuation. The evidence shows that roller skating rinks were even rarer than squash courts, and that the availability of evidence of sales or leases of such premises was even less. The Valuation Evidence: Findings of Fact 58 Before proceeding to assess the valuation evidence, it is necessary to determine various factual questions as to how Mr Kennedy proceeded. For that purpose, I should say something about my view of the credit of Mr Kennedy, which was the subject of challenge. I formed the view that Mr Kennedy was generally a satisfactory witness. In giving evidence, he was reaching back to a time in the fairly distant past, namely, 1985, and that in a context where he was doing about 200 valuations per year. Bearing that in mind, he appeared to me to have a reasonable quality of recollection. More importantly, he appeared to me to be a witness who was attempting to tell the Court the truth. He did not have a tendency to claim to remember things which he did not. There were obvious errors in his testimony. For instance, he had annexed to an affidavit as the working papers used by him at the time of making the valuation papers which included material that was subsequent in time. These subsequent papers had been created, or got into the defendant's file, after the valuation, either because they were added as a reference source for future valuations of squash courts, or, particularly, because the receiver of Nshan wrote to the defendant challenging the quality of the valuation in 1987 and Mr Kennedy at that time participated in writing the reply. For the purpose of that reply, and of justifying the valuation, relevant material subsequent to the valuation had then been collected. But, in general terms, I accept Mr Kennedy as a witness of truth and accuracy. 59 One important issue of fact that arises is as to what occurred relating to the financial records of the squash business. There is no doubt, as referred to previously in this judgment, that Mr Salmon had procured the accountants' letter and the February figures for use in connexion with the finance application. I find that those documents were not at any material time in the possession of either Mr Kennedy, or otherwise of the defendant. That is really not contested. Mr Kennedy was previously familiar with the squash centre, having occasionally played squash there and having more frequently taken his children to the roller skating rink. Upon receiving instructions for the valuation, Mr Kennedy carried out an inspection of the squash centre and had discussions with Mr Aghajanian. He said that he inspected the booking sheets of the squash courts, and I find that he did so. He said that he remembered them because they were about A2 size and larger than the booking sheets usually used in squash courts. He was aware of this because he was a regular squash player and had also valued a number of squash courts, a large number, in fact, in view of the comparative rarity of such premises, even at that time. Mr Kennedy was an experienced valuer generally, and particularly in relation to properties in the far western suburbs of Sydney. His detailed knowledge of that district was attested to by other valuers who gave evidence. 60 As I have said, Mr Kennedy never had the February figures. What is in issue is whether he ever asked for them, or any financial records of the business. In this regard Mr Aghajanian denies that Mr Kennedy ever asked him for the figures. Mr Kennedy on the other hand said that he asked for the financial records and was either refused them, or simply not given them. His belief is that he was told that there were not any. Mr Kennedy quite straightforwardly said that he has no actual recollection of asking for the figures. He relied on the fact that it was his invariable practice to ask for the turnover figures of businesses such as squash courts when they were conducted in premises which he was valuing. He had the firm belief that he did so in this instance. That was his practice, he said, because such figures are obviously of potential materiality in the valuation of such businesses, although the degree of materiality in this case was in contest among the valuation witnesses, as will hereafter appear. Bearing in mind Mr Aghajanian's unreliability as a witness, Mr Kennedy's evidence of his practice, and the inherent likelihood of that being his practice and him following it, I find that Mr Kennedy did ask for the turnover figures and that they were refused him or simply not given to him. This is of importance because of the evidence given by both Mr Kennedy and other valuers as to what it was appropriate for a valuer to do, both as to attempting to obtain such figures, and as to proceeding in their absence in valuing a property in which a business was conducted. 61 It is common ground that, whilst comparable sales are the most satisfactory method of valuation, it is often appropriate for valuers to carry out a check valuation on another basis or to use more than one basis of valuation, particularly in the case of specialised premises. There seems to me little doubt, from the terms of the valuation itself, that Mr Kennedy used both the comparable sales and capitalisation of net rentals bases. In addition, he swore that this was so, and I accept his word. Some doubt was cast on whether comparable sales were really used as a basis of valuation by reason of Mr Kennedy's failure to specify the comparable sales relied on in the valuation (cf the later valuation by Mr Windred of the subject property as at the same valuation date, where the comparable sales adverted to are specifically set out). Mr Kennedy explained the absence of specification of the comparable sales on the basis that it was agreed between AGC and the defendant, which did many valuations for AGC at about this time, that, where the comparable sales basis was used, the sales would not be specified in the valuation. I accept Mr Kennedy's word as to this. I also accept his evidence, corroborated by references to properties in his field notes and otherwise in the defendant's file, that he did in fact advert to comparable properties in making his valuation. 62 Some difficulty was caused to Mr Kennedy in his justification of the valuation by the fact that his field notes and the other material contained in the defendant's file are not entirely satisfactory. A number of things which Mr Kennedy said he adverted to were not contained in the notes or the file. This means that the record keeping was not very satisfactory and, as I say, puts difficulties in the way of the justification of the valuation years later, but does not of itself indicate that the valuation was carried out negligently. Mr Kennedy said that the absence of particular matters which he did advert to is to be explained by the fact that there were two relevant records he made or had at the time, which are not now available. These were an analysis book and a trip book. The analysis book was a book kept by him personally, in which he kept notes of relevant information that he used from time to time, particularly information relating to unusual or specialised properties such as the squash centre. The trip book was kept, as a requirement of the defendant for its records, as to journeys made by its staff in the course of field work. When Mr Kennedy subsequently left the employ of the defendant he said that he handed these books on to somebody at managerial level as recording information gathered by him in the course of his employment, and which might continue to be useful or advantageous to the defendant after his departure. He was challenged as to the existence of these records, but I accept his word that they did exist and, certainly in the case of the analysis book, contained material to which he did advert in the course of preparing the valuation. Assessment of the Valuation Evidence in Relation to the Negligence Claim 63 Mr Kennedy says that he proceeded by reference to the comparable sales and capitalisation of rental methods of valuation. Save from Mr Craig Miller, there did not appear to be any challenge to the general appropriateness of this. I summarise as follows the principal propositions put by way of objection to the valuation: (1) According to Mr Craig Miller, the only sound method of valuation was by capitalisation of profits. (2) So far as the comparable sales method is concerned, Mr Kennedy did not really do an exercise by this method at all. Alternatively, he adverted to sales that were too old or adverted to comparable figures that were too high. (3) So far as both the comparable sales and capitalisation of rental methods are concerned, he ignored or paid too little attention to the visible decline in the squash industry. (4) So far as the capitalisation of rental method is concerned, it was a fatal flaw that Mr Kennedy capitalised the three income streams (from squash courts, roller skating rink and restaurant) together at the one capitalisation rate, instead of separately, at differential capitalisation rates, before amalgamating the results. (5) Further, Mr Kennedy in effect carried out his exercise by reference to the actual rent of the squash centre, or otherwise by reference to too high a putative rental, being one beyond the capacity of the proposed businesses to sustain; in this regard, he made inadequate efforts to ascertain the actual earnings of the business already conducted there. At least he should have heavily qualified his report in this regard. (6) Additionally or alternatively, the rental figures he selected in respect of the roller skating rink and the restaurant were too high. (7) Generally, Mr Smith's valuation of $650,000 should be taken to be correct, and the valuation, being at twice that figure, must be taken to be wrong, simply from its 100% divergence from the true value. 64 So far as concerns Mr Craig Miller 's view set out as proposition (1), that the only appropriate method of valuation of the squash centre was, not a capitalised rental approach, but a capitalised profit approach, Mr Miller is a very experienced valuer, but I do not find this view sound. It is a radical view, not in this form expressed by any other witness. It seems to me to ignore that what was being valued was the real estate and not the business. Insofar as that method is applied to licensed hotels or to motels, it is used in a totally different context and does not, in my view, translate happily or easily to the valuation of a sporting complex in 1985. Hotels and motels were at all times much more common properties than squash courts, let alone sporting complexes with both squash courts and a roller skating rink. Much more information is available in relation to hotels and motels on the economic side than was available in relation to the exercise that Mr Kennedy was undertaking. Hotel valuation in particular is a highly specialised field. The information available includes licence fees based on a percentage of liquor turnover and bodies of historical information, including information as to turnover, collated by specialist brokers. The inappropriateness of the application of this method as the sole method of valuation is shown by the evidence given in this case of the difficulty of obtaining correct or conventionally accepted turnover figures for the comparatively small number of squash courts or skating rinks conducted in 1985, together with grave doubts as to the accuracy of the information which could be obtained. As I have said, I reject Mr Craig Miller's approach as useful in regard to the exercise in hand. Certainly, I do not regard it as the only validly available approach to the valuation. 65 As to proposition (2), I have already said in [61] that I reject the suggestion that Mr Kennedy did not do a comparable sales exercise at all. I also accept, in general terms, that he adverted to the sales he said he adverted to. Once this situation is reached, there appears to be no criticism that he omitted reference to any relevant sales. The suggestion that he placed too much weight on sales that were too old, I have also dealt with already, in [57]. It is also said that he fell into the error of wrongly extrapolating from lower priced court complexes which contained a smaller number of courts. All relevant witnesses agreed with the proposition that you could not infer that a 16 court complex at the same site would produce double the income that an eight court complex produced. This flowed from the fact that, whilst the 16 court complex might be fully booked at peak times (which in 1985 seemed to be about 5 to 10 pm), it might well have in non peak times a much lower court use ratio than the smaller court complex. However, Mr Kennedy denied that he fell into this error, certainly insofar as prices per court derived from the comparable sales were taken into account. He proceeded, insofar as he used this approach, by a per court figure at the bottom end of the scale. Mr Windred agreed that this provided an acceptable method of allowing for the lower court use ratio that there was likely to be in respect of a larger complex, and I accept that this is correct. In my view, no error has been demonstrated in Mr Kennedy's adversion to or use of comparable sales. 66 So far as concerns proposition (3), that he ignored the visible downturn in the squash industry, in my view it was not wrong for Mr Kennedy to proceed as he did. I have already said something about this in [57]. I find that, although there were some signs of downturn, or at least slowness in the market for squash courts by March 1985, the sharp downturn did not become apparent until later in that year. Insofar as there were signs of some downturn in the market at the time of the valuation, this was observed by Mr Kennedy and adverted to in the valuation. His duty was to value the property as it then stood on the information then available, and it seems to me that he did this. Insofar as there was a hint of slowness in the market, he took it into account and noted it, in my view accurately, in the valuation. There is no justice in the complaint that he did not duly take into account in the valuation what signs of downturn then existed. 67 Proposition (4) is not, in my view, sound. Whilst undoubtedly different capitalisation rates may be appropriate in respect of properties used for different purposes, when there are different income streams from different activities within the one property, allowance may be made for this in the appropriate selection of a single overall capitalisation rate, as well as by capitalisation of the different streams at different rates and subsequent amalgamation. In my view, it is not demonstrated that Mr Kennedy erred either by proceeding with a single capitalisation exercise or in his selection of a capitalisation rate. 68 Proposition (5) constitutes the main thrust of the plaintiffs' case in negligence (characterised as such in oral address by Mr Donaldson of counsel). Most importantly, it was said that the capitalisation of rental process had gone astray, because it was vital in carrying out that exercise not to adopt a rental figure that it was beyond the capacity or potential capacity of the business to be conducted in the property to sustain. If it is clear that the business does not have the potential to produce a turnover significantly in excess of the actual rental, then it is apparent that in time the business will fail, because of the burden of the rental; in such a case a notional rental should be adopted for the purposes of the valuation which is potentially sustainable by the business, at least in cases where by the nature of the premises they cannot be put to a use which would sustain a higher rental. It is said that the substantial error which Mr Kennedy committed was that he did not carry out sufficient investigation of the potential turnover of the business, and that sufficient investigation could have brought to light figures which would inevitably or probably have led to the conclusion that the squash centre could not be operated with a turnover that would sustain the rental adopted. 69 There were three pieces of information that it appears from the evidence were in existence at this time. They were: (1) The takings figures for Nshan of about $155,000 for the eight month period to February 1985 which appeared in both the accountants' letter and the February figures. It would seem the figure included takings from both the squash court and the roller skating rink operations (the restaurant was undoubtedly out of operation and not producing income at the time). In view of this, they were somewhat inaccurately described in the February figures as "squash income". Neither the accountants' letter nor the February figures was in the possession of the defendant. (2) The information in the accountants' letter (and therefore not available to Mr Kennedy) that the squash centre had, before being taken over by Nshan, had a turnover of about $31,000 per month. (3) The notation "$155,000 squash income" on the instruction sheet (and therefore available to Mr Kennedy). 70 I have already found in [60] that, on the probabilities, Mr Kennedy did ask Mr Aghajanian for financial records, which were not furnished. Mr Kennedy says that he did not seek them more vigorously, because he would not have placed great reliance on them if he had them. It was submitted on the plaintiff's behalf that Mr Kennedy was "having two bob each way" in that, on the one hand, he said that he had been refused Nshan's turnover figures and that, on the other hand, he said that he would not necessarily have regarded them as appropriate to take into account in any event. In my view this criticism is not fair. The thrust of what Mr Kennedy said was that he did not have them, so could not advert to them, but that the vigour with which he pursued them was moderated by the fact that he would not have regarded them as determinative or of high significance in any event. The reason, he said, for this was that they were only the short term figures of an inexperienced operator, which did not necessarily show the turnover potential of the premises; he also pointed out in this context that it was the premises that he was valuing, and not the business, which reduced the significance of the actual turnover. That this stance was not unreasonable was attested to by Mr Windred and Mr Norris. 71 It is not, of course, correct to say that Mr Kennedy simply adopted the current rental as the basis of his rental capitalisation exercise. Doing the best he could, he calculated a putative rental figure of $180,000. This is a good 15% under the contractual rental, which exceeded $213,000. In selecting that figure, he bore in mind the best estimate he could make of the potential returns from the squash centre. In looking critically at this, it must be remembered that the evidence shows (although Mr Kennedy did not know it) that the previous operator had been taking some $30,000 a month and that Mr Aghajanian believed that he could increase his takings by $10,000 per month. That these figures were not achieved, in circumstances of increasing vicissitude, does not of itself mean that the hope for such figures was baseless in March 1985. 72 Another basis on which it is suggested that a much lower putative rental should have been adopted is that a rental should not be adopted as the basis of a capitalisation calculation for valuation purposes if the rental is more than one third or one fourth of the takings. One witness who, under cross examination gave some such evidence was Mr Carritt. He assented to a proposition that a notional rental should not be assigned to a property for rent capitalisation purposes that bears a ratio of more than one to four to the turnover of the property. Mr Smith enunciated a similar proposition but stipulated a ratio of one to three. Leaving aside the question that it is the potential turnover rather than the actual turnover which the valuer must take into account in such an exercise, I do not think that the mechanical use of a ratio of that sort is appropriate in valuing the property. Apart from anything else, as has been pointed out, people often purchase businesses or business properties where the return potential appears lower than justified by purely commercial considerations. For example, people purchase small businesses for the sake of being their own employers, rather than simply by reference to economic return. People, the evidence is, will buy into sporting complexes for the sake of having a way of life associated with sport, rather than simply for commercial considerations. Indeed, it would seem in this case that there were motivations of this sort in the Aghajanians' purchase of the squash centre. Mr Aghajanian regarded it as a property which would absorb his time and managerial abilities (by reason in part of the tripartite nature of the businesses contemplated) and would provide employment opportunities for other members of his family, rather than simply by reference to economic factors. I do not think what Mr Carritt did or thought in valuing the property in 1988, or extrapolations from it, are of great assistance in attempting to ascertain the value of the property in the totally different context of three years earlier, or in determining whether or not at that earlier time the way in which Mr Kennedy proceeded was appropriate. 73 It is suggested that another regard in which Mr Kennedy was guilty of a breach of duty was that, since he was proceeding on the assumption that the squash centre would produce a turnover which would support the actual rental, he should have made an express qualification to the report that he was proceeding upon that assumption, which he had been unable to verify. However, he was proceeding on a capitalised rental basis and he saw in other rentals to which he adverted support for the adoption of rent at the level which he did in fact adopt. He did advert in the valuation to the importance of management quality to the sustainability of the business and the potential difficulty that this presented to the value of the property as security, which was the purpose for which he was writing the report. There is no evidence in this case that Mr Kennedy contemplated that the report would be relied on by the proposing purchaser for the purpose of determining whether or not to enter into the transaction, or any evidence that valuers at the time were aware that prospective purchasers of such specialised properties as this relied, generally or at all, upon valuations procured by or for lending bodies in their decisions as to whether or not to buy. In my view, it cannot be said that Mr Kennedy was in breach of any duty in not putting any greater qualification than he did in the valuation. 74 Turning to proposition (6), so far as the rental element relating to the roller skating rink is concerned, there was criticism of Mr Kennedy for relying on material relating to a roller skating rink at Bomaderry which he had valued, particularly as being in a country area. However, the material available as to roller skating rinks was even more exiguous than that relating to squash courts, and in my view Mr Kennedy was right in adverting to what material was available. He himself had made some observation of the operation of the roller skating rink and, so far as the ability of both the squash courts and the roller skating rink to compete in the market was concerned, was very knowledgeable about the western part of Sydney and the availability and use of both squash courts and roller skating rinks in that area. I am unable to see that he proceeded wrongly or in breach of any duty in relation to what the way he approached the potential income of the roller skating rink. 75 In the context of this already difficult valuation exercise, the restaurant had its own difficulties. All seem agreed that the relevant portion of the squash centre was not suitable for independent operation as a restaurant because of the means of access, which, as the building stood, was available only through other parts of the premises. That could be changed, but it would take money. In addition, various difficulties were seen by different people as to the suitability of the premises for a restaurant. Mr Kennedy saw problems of competition, naming three other restaurants operating in the same general area as providing the greatest problem. He was of opinion that, although located in an industrial area, the premises had sufficient proximity to residential areas to permit successful operation as a restaurant, subject to the competition problem. Others took the view that the siting was too inaccessible to the potential clientele for a restaurant to be successful. However, it seems to me that the view of Mr Kennedy, with his high degree of knowledge of the area, and bearing in mind that there was some potential for operation of a restaurant facility as an adjunct to the sporting facilities, has not been proved to be wrong. Everyone was agreed that, at some rental, there was a potentiality for the use of the space, if it could not be operated as a restaurant, as storage space or for some other similar use. In my view it has not been demonstrated that Mr Kennedy was wrong in the figure he put upon the rental potential of this element. He clearly expressed considerable reservations as to its use as a restaurant. In any event, even if he were wrong as to this, the difference between the figure he assigned on the basis of use as a restaurant, and the minimum figure which it was conceded by others should have been put upon it, would not be sufficient to make the valuation wrong, bearing in mind that such a valuation needed to be regarded as having at least a 10% if not 15% margin of error. 76 Overall, it is put, in proposition (7), that Mr Smith's valuation of $650,000 should be taken to be correct. Once this is accepted, it may be inferred, from its large divergence from that figure, that the valuation is wrong, and must have been negligently prepared; in appropriate circumstances, an inference of departure from the standards of skill may be inferred by divergence from a valuation appropriately established to be correct, or from a body of evidence establishing a range within which reasonably skilful valuers would place the value. But in this case, I do not think that Mr Smith's valuation can be used in this way. Another valuer, in Mr Windred, came to much the same conclusion as Mr Kennedy as to the correct figure. And it is not proper to draw the inference that, because Mr Carritt valued the property at $650,000 as of 1988, that that was a correct or acceptable valuation of the property as at 1985. The significance of Mr Carritt, so far as the evidence of valuation was concerned, was that in 1988 after the sale of the premises for $730,000, Mr Carritt carried out a valuation of the squash centre as at that time and assigned a value to the property of $650,000. In doing so, he gave full play, and properly, to events after March 1985, including the sale of the squash centre at auction for $730,000, the disasters that occurred in the plaintiffs' conduct of the businesses, and the general sharp downturn in the fashionability of squash and the value of squash adapted premises, which by 1988, on everybody's account, had fully taken effect. 77 In assessing a value at a time in the past a valuer (and a Judge) must be careful not to fall a victim to the seduction of hindsight. Hindsight is a wonderful advantage. Lindgren J warned of the need to take particular care in a valuation case "to sift from the evidence the inevitable contamination of hindsight": MGICA supra at 335. In Kenney v Hall, Pain & Foster [1976] EGD 629 at 645-646 Goff J (as his Lordship then was), sitting in the Queen's Bench Division of the English High Court, discussing factors relevant to whether a contested valuation was erroneous, said: "Moreover, since every valuation is a question of opinion, it is an axiom of the profession that if you take the opinions of 10 valuers on one property, you will get 10 different valuations. The present case is no exception. I had the assistance of no fewer than seven expert witnesses, and of these, five expressed opinions as to the value of the plaintiff's interest … Their opinions ranged from £40,000 to £98,000. This extraordinary range of opinion to some extent reflected three special factors. … Third, the experts were being asked to project their minds back in time to June 1973 and to rid themselves of the knowledge and understanding which they had since acquired of the market at that time, and it was generally accepted among them that it was difficult, if not impossible, to discard altogether the benefit of hindsight." 78 The squash industry did undergo a sharp downturn, as I have found, in mid to late 1985. The Aghajanians suffered other vicissitudes in their attempted conduct of the businesses in the premises. The results were disastrous and led to the property being sold for $730,000 in 1988. It is very easy to say that one must not be blinded by hindsight to the real contemporaneous position, and then proceed immediately to act under the influence of the wonderful advantage that hindsight gives. I bear this in mind in turning to Mr Smith's evidence. 79 Mr Smith conceded the appropriateness of the capitalisation of net rental method as one approach to the valuation of properties such as the squash centre. He appeared to suggest that the valuation of such a property should not proceed at all in the absence of well documented figures relating to the turnover of the business conducted in the property, or in properties let at comparable rentals, or, if such information cannot be obtained, then the heaviest qualification should be put upon the valuation. But this is not a perfect world. It is a world in which from time to time information of the sort referred to is simply not available, or not available in reliable form, eg, in the case of new types of buildings where no track record is available, or of highly specialised premises, where there is paucity of available information. Yet premises such as these often need to be valued for a variety of reasons, including security and revenue purposes, and it is the valuer's task, using the methods that appear appropriate, to place a valuation on them as best he can. I find Mr Smith's approach too perfectionist in the information demanded and too conservative in the result reached by him in the absence of hard information. Furthermore, it seems to me that his view of the value as at March 1985 is infected by hindsight. The areas of hindsight include both the foreseeability of the sharp downturn of the squash market, by reference to what occurred thereafter, and the potential earning power of the businesses, by reference to the disasters that subsequently overtook the plaintiffs, by reason of various vicissitudes, including but not limited to the general downturn in the squash industry. Indeed, in the last paragraph quoted in [51] from Mr Smith's valuation there appears to be an express acknowledgment that elements of hindsight played a part in Mr Smith's deliberations. For the foregoing reasons, I do not think Mr Smith's assessment can be taken as the true or correct valuation. 80 The conclusion I have reached is that it is not demonstrated that Mr Kennedy's assessment of value in the valuation was wrong or that he was in breach of any duty in his preparation or propounding of the valuation. The Claim under the TPA 81 Similarly, the plaintiffs cannot succeed in a cause of action based upon s 52 of the TPA. The valuation cannot be characterised as wrong or erroneous or lacking in any, or any adequate, foundation. It therefore could not and did not constitute conduct which contravened the section. 82 Once these conclusions are reached, it is impossible for the plaintiffs to succeed in the proceedings, which must accordingly terminate in judgment for the defendant. It becomes unnecessary for the purpose of determining the proceedings for me to reach any conclusion on the second, fourth or fifth issues. Nevertheless, since I have traversed the evidence concerning these matters, I propose to set out the findings of fact that I should have made, and the conclusions to which I should have come, in relation to the second and fourth issues, had this proved necessary. I shall set out, first, the findings of fact, then, some reference to the legal principles, and, lastly, the conclusions which I should have reached. The Issues of Duty and Reliance: Findings of Fact 83 I do not accept Mr Aghajanian's evidence that no decision had been taken by the end of the meeting to buy the property nor any agreement reached with the vendor as to price. That is not to say that there was a legally enforceable contract before the exchange which was to take place, but as between the parties I find that agreement had been reached that the squash centre would be sold and the price had been fixed. Mr Aghajanian's evidence to the contrary does not accord with any of the other evidence. It is not in accord with Mr Salmon's recollection or the note concerning the agreement which he made. It is not in accordance with the recollection of Shakeh who stated, as set out in [32], that the decision was taken at the meeting by Mr Aghajanian to pay the requested price. Equally I do not accept Mr Aghajanian's evidence that it was left to Mr Salmon to investigate and report on the appropriateness of the price. I accept Mr Salmon's evidence that no such advice was ever sought from him. That evidence again is supported by the evidence of Shakeh. It is supported by Mr Salmon's evidence (which I accept) that he was at all times under the belief that only one valuation was obtained and that was obtained at the instigation of AGC. 84 Nor do I accept that any of the Aghajanians, whatever part he or she played in the decision to buy the squash centre, relied in any real sense upon a valuation of $1.3 million by the defendant or relied upon the valuation at all. The only possible way in which it could be said that there was a causal connexion between the valuation and the decision to purchase is that, had the valuation come in at any sum substantially less than the purchase price, they may have been spared the purchase by the refusal of the prospective lender to lend the money because of insufficiency of the security. To that argument I shall return in due course, but, save through that mechanism, I find that there was not any reliance by any of the Aghajanians upon the valuation or any causal connexion between the valuation and any losses that the Aghajanians have subsequently suffered. I find it quite impossible to come to the conclusion that any of the Aghajanians actually relied on the valuation in the light of the complete confusion of the evidence as to the state of knowledge of the various Aghajanians of the contents of the valuation. The evidence is all one way that no copy of the valuation was sent to any of the Aghajanians and that none of them saw the document before the completion of the purchase. This in itself, it seems to me, is contrary to the case sought to be put that Mr Salmon had been commissioned to obtain material to gauge the correctness and/or appropriateness of the price, or that the Aghajanians were awaiting the results of Mr Salmon's investigations before deciding whether or not they would enter into the contract at the price proposed by the vendor. Mr Aghajanian claims dogmatically that he was told that the valuation was $1,450,000 which, as I have said, was contrary to all other evidence on that subject. Perhaps he drew this inference himself at the time from the quantum of the defendant's bill. I do not accept that Mr Salmon, or anyone else, told him anything that could have led him to this conclusion. Perhaps it is a figure that lodged in his mind, either at the time or subsequently, from some other source, but it is pointless to speculate how this belief came into his mind. Equally, bearing in mind all the inconsistencies of the evidence of the various other witnesses and the lateness of the formulation of their evidence, I am not prepared to accept on the balance of probabilities that Mr Salmon informed them or any of them that the valuation had come in at $1,300,000, or even that the valuation had come in at a figure greater than the purchase price. I find the evidence too confused and conflicting for me to draw that conclusion upon the balance of probabilities. 85 No doubt at some stage the Aghajanians were informed that the finance had been approved, and it was, no doubt, implicit in that, that the financier had received a valuation which it found satisfactory. There may have been some family consultation about the decisions to be taken, but I find on all the evidence that the principal deciding mind was Mr Aghajanian's. The factors that were influencing that mind and, indeed, the minds of the others, insofar as they participated, arose from what had happened. Money had been spent upon the business, which was not prospering. The building was in poor condition, and the lessor was not performing in bringing it up to standard. There was a belief that the takings could be improved by as much as $10,000 per month, if the building could be put in order and the three businesses became operational together; in particular, it was important in Mr Aghajanian's mind that the restaurant be operational. Another factor operating upon the relevant mind or minds was the belief that Mr Salmon had advised them before the meeting that the prospects were bad of walking away from the lease without legal consequences, and certainly the prospects were poor of them recovering any of their investment up to that point of time. They had been told by Mr Boyd that the building was being offered at a favourable price and were prepared to accept this. These people were all intelligent and well educated, and not without business experience. The real motivation to enter into the first contract was that it was better to pursue the deal than walk away from the considerable losses to date. They were released from the first contract by its termination by the vendor. When the final decision was taken to enter into the second contract, they were under the additional pressure of the forfeiture of the deposit. The plaintiffs could not succeed unless sufficient causal connexion in law between the valuation and the damage is provided by the fact that finance may have become unavailable had the valuation come in substantially under the purchase price. The Law: Duty of Care 86 There have been a number of recent decisions relevant to the question of whether a valuer owes a duty of care to a borrower where the valuation is prepared on the instructions of the lender. In Smith v Eric S Bush; Harris v Wyre Forest District Council [1990] 1 AC 831, the House of Lords considered two appeals which related to reports of valuers concerning modest dwelling houses. In considering these cases it must be remembered that in the United Kingdom house valuations are carried out by "surveyors", which deal with the condition of the house as well as the question of value, whereas in New South Wales generally valuers report solely upon the property's value, and advice as to its physical condition is obtained elsewhere, if needed. In each of the cases it was by reason of the condition of the house that the purchaser had incurred expense. In each case the valuation was commissioned by the prospective lender. In the Smith case the purchaser had been provided with a copy of the valuation. In the Harris case the purchasers had not been provided with a copy of the valuation, but had assumed from the fact that the lender proceeded that the report showed that the value placed on the property had been satisfactory to the lender, and that the valuer had not found serious defects in the property. Liability was imposed on the valuer in each case by the House of Lords. Lord Templeman said at 847-8: "I agree that by obtaining and disclosing a valuation, a mortgagee does not assume responsibility to the purchaser for that valuation. But in my opinion the valuer assumes responsibility to both mortgagee and purchaser by agreeing to carry out a valuation for mortgage purposes knowing that the valuation fee has been paid by the purchaser and knowing that the valuation will probably be relied upon by the purchaser in order to decide whether or not to enter into a contract to purchase the house. … In general I am of the opinion that in the absence of a disclaimer of liability the valuer who values a house for the purpose of a mortgage, knowing that the mortgagee will rely and the mortgagor will probably rely on the valuation, knowing that the purchaser mortgagor has in effect paid for the valuation, is under a duty to exercise reasonable skill and care and that duty is owed to both parties to the mortgage for which the valuation is made." Lord Griffiths said at 864-5: "I therefore return to the question in what circumstances should the law deem those who give advice to have assumed responsibility to the person who acts upon the advice or, in other words, in what circumstances should a duty of care be owed by the adviser to those who act upon his advice? I would answer - only if it is foreseeable that if the advice is negligent the recipient is likely to suffer damage, that there is a sufficiently proximate relationship between the parties and that it is just and reasonable to impose the liability. In the case of a surveyor valuing a small house for a building society or local authority, the application of these three criteria leads to the conclusion that he owes a duty of care to the purchaser. If the valuation is negligent and is relied upon damage in the form of economic loss to the purchaser is obviously foreseeable. The necessary proximity arises from the surveyor's knowledge that the overwhelming probability is that the purchaser will rely upon his valuation, the evidence was that surveyors knew that approximately 90 per cent of purchasers did so, and the fact that the surveyor only obtains the work because the purchaser is willing to pay his fee." However, his Lordship expressed the caveat at 859-60: "It must, however, be remembered that this is a decision in respect of a dwelling house of modest value in which it is widely recognised by surveyors that purchasers are in fact relying on their care and skill. It will obviously be of general application in broadly similar circumstances. But I expressly reserve my position in respect of valuations of quite different types of property for mortgage purposes, such as industrial property, large blocks of flats or very expensive houses. In such cases it may well be that the general expectation of the behaviour of the purchaser is quite different. With very large sums of money at stake prudence would seem to demand that the purchaser obtain his own structural survey to guide him in his purchase and, in such circumstances with very much larger sums of money at stake, it may be reasonable for the surveyors valuing on behalf of those who are providing the finance either to exclude or limit their liability to the purchaser." Lord Jauncey of Tullichettle's opinion was in agreement with that of Lord Templeman and Lord Griffiths, and Lord Keith of Kinkel and Lord Brandon expressed general agreement with the three who delivered opinions. 87 In Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241, the High Court considered a pleading point in a suit for negligence against auditors. In that case a financier sued the auditors of a borrower corporation claiming to have incurred losses through relying upon the audited accounts. The statement of claim alleged that the financier was a member of a class of persons whom the auditors foresaw or ought reasonably to have foreseen might reasonably have relied on the audited accounts and reports. The High Court held that the statement of claim was deficient and had been correctly struck out. Brennan CJ said at 252: "The uniform course of authority shows that mere foreseeability of the possibility that a statement made or advice given by A to B might be communicated to a class of which C is a member and that C might enter into some transaction as the result thereof and suffer financial loss in that transaction is not sufficient to impose on A a duty of care owed to C in the making of the statement or the giving of the advice. In some situations, a plaintiff who has suffered pure economic loss by entering into a transaction in reliance on a statement made or advice given by a defendant may be entitled to recover without proving that the plaintiff sought the information and advice ( San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 356-357). But, in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound. If any of these elements be wanting, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use reasonable care in making the statement or giving the advice. The statement of claim does not plead these elements." Dawson, Toohey and Gaudron JJ said at 260-2: "It is not pleaded that Esanda approached Peat Marwick for information or advice; it is not pleaded that Peat Marwick knew that Esanda was proposing to enter into the transactions in question or, indeed, any transaction with Excel or its associated companies; it is not pleaded that Peat Marwick knew that Excel's 1989 accounts or their report on the accounts would be communicated to Esanda or any other finance provider with respect to the obtaining of finance or for any other purpose. Had one or more of those matters been pleaded, Esanda might have brought itself within the duty of care recognised by Barwick CJ in Mutual Life & Citizens' Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 572-573. (Note that the decision was overturned by the Privy Council in Mutual Life & Citizens' Assurance v Evatt (1970) 122 CLR 628, but the holdings of Barwick CJ have subsequently been held to be correct: see Shaddock & Associates Pty Ltd v Parramatta City Council [No 1] 1981 150 CLR 225 at 251, 255-256.) or that recognised by the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 497." … It is not pleaded that Peat Marwick prepared the accounts and the audit certificate for the purpose of inducing Esanda or others to enter into financial transactions with Excel or its associated companies. Nor is it pleaded that they intended that Esanda or finance providers generally should act upon the accounts or the audit certificate in deciding to enter into financial transactions with Excel or its associated companies. Moreover, it is neither pleaded that Peat Marwick expressly or impliedly invited Esanda or finance providers generally to act on the basis that the accounts were accurate nor that they had an interest in Esanda so acting. Had one or more of these matters been pleaded, Esanda would have found support in this Court's decision in San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 357." McHugh J said at 275: "Thus, the position in Australia to date with respect to liability for pure economic loss caused by negligent misstatement is that, absent a statement to a particular person in response to a particular request for information or advice or an assumption of responsibility to the plaintiff for that statement, it will be difficult to establish the requisite duty of care unless there is an intention to induce the recipient of the information or advice, or a class to which the recipient belongs, to act or refrain from acting on it. Mere knowledge by a defendant that the information or advice will be communicated to the plaintiff is not enough. With the exception of Colombia Coffee & Tea (1992) 29 NSWLR 141 no Australian decision supports Esanda's claim, and R Lowe Lippmann [1992] 2 VR 671 is squarely against it. Nevertheless, the decisions have all emphasised that a lack of an intention to induce the plaintiff to act or refrain from acting is not necessarily fatal to a plaintiff's claim because other factors may be present that obviate the need for such an intention." 88 The application of the principle stated by the High Court in Esanda was considered by the Full Court of the Federal Court in a valuation case in Australian Breeders Co-Operative Society Ltd v Jones (1997) 150 ALR 488 ("the ABCOS case"). The principal judgment was delivered by Wilcox and Lindgren JJ, with whom Lee J substantially agreed. In that case the valuations were not of real estate, but of racehorses. The valuations were manifestly negligent; they were clearly not independent; the value which was placed on the horses equated exactly with the purchase prices under the contract. One of the valuers was involved in the contemplated transaction and the other was not aware that the transaction was not an arm's length sale, but used it as the basis of his valuation. The overall transaction being carried out was the assembly of a syndicate to buy racehorses and train and breed them, predominantly for tax reduction purposes. Not only the sale of the horses, but the actual creation of the syndicate, was conditional upon a satisfactory valuation of the racehorses. However, the valuations were commissioned by the financier, and the prospective syndicate members did not see the valuations. It was in this context that, after citing substantially the portions of the judgments in Esanda set out above, Wilcox and Lindgren JJ said at 524-5: "It is necessary to apply this guidance to the present case. In relation to the statement of Brennan CJ, it is clear that ABCOS, through Pulford, knew the valuation would be communicated to the prospective syndicate members; indeed it was addressed to the syndicate, not to MANL. Copies were sent to King, McDonald and Done, all of whom were acting on behalf of the syndicate members rather than MANL. Pulford did not know the identity of the proposed members of the syndicate and he may not have considered whether the valuation would be seen by each of them. But he intended to place it before them, individually or as a group. Pulford knew, or ought reasonably to have known, that the valuation would be likely to cause the syndicate members to proceed with the venture. This was not only because they might draw comfort from the values ascribed to the horses by him, but because the valuation would be likely to ensure provision of the finance that was critical to the venture proceeding. In other words, Pulford knew the valuation was likely to be a crucial element in the decision whether or not the venture was to proceed; in the words of Brennan CJ, it 'would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into'. But it cannot be said Pulford knew, or ought to have known, it would be likely that the syndicate members would enter into the transaction in reliance on the valuation. Pulford knew the financier would rely on the valuation in entering into the transaction; but he also knew the prospective members were already minded to proceed, on the basis of the prices agreed between King and McDonald. The investors did not rely on the valuation, in the sense of being persuaded by it to proceed with their investment. But the valuation caused them to proceed with their investment, because MANL relied on it in deciding to provide the finance necessary for the venture to proceed. We have hesitated over this aspect of the case but we think it falls within the notion of proximity described by Brennan CJ. As judges have often pointed out, it is erroneous to read a judgment as if it were a statute. In applying an authority, the task is to identify and apply the relevant principle, rather than to determine whether the facts of the instant case fall within the precise language of the earlier case. Courts have imposed a limitation on the extent of the duty of care in respect of a representation because of concern about the effect of an unlimited duty of care on commercial and professional activity: see per McHugh J in Esanda at 781–7. The classic expression of this concern was by Cardozo CJ in Ultramares Corp v Touche (1931) 174 NE 441; at 444: a duty of care imposed only by reference to the criterion of foreseeability would expose the maker of the representation 'to a liability in an indeterminate amount for an indeterminate time to an indeterminate class'. An approach that upheld the existence of a duty of care to B where A relied on the representation to enter a particular transaction with B, the representor knowing of B's existence and the general nature of the proposed transaction, would fall well short of exposing representors to the risk described by Cardozo CJ; the class would be determinate, or at least determinable, and the amount and duration of the risk would be limited by the nature of the known transaction. The extent of liability in such a case would be no greater than if the representation had caused B, rather than A, to go ahead with the transaction; a situation clearly covered by the Hedley Byrne principle as developed in Australia by the cases discussed in Esanda ." 89 The principles in Esanda and in Smith and Harris were recently considered by the New South Wales Court of Appeal in Ta Ho Ma Pty Ltd v Allen [1999] NSWCA 202. There the question was whether reliance by a lender upon a negligent valuation of real estate that was nine months old at the time of reliance led to liability in damages. The borrowing was by the existing registered proprietor, rather than for the purposes of a purchase. The valuation had originally been obtained by the registered proprietor (for mortgage purposes in respect of a proposed borrowing which did not proceed) but was transmitted to and relied on by the later lender. There was evidence that in general terms in the finance industry at the time there was a rule that valuations should not be used without confirmation more than three months, or certainly more than six months, after their date. The valuation was relied on in this instance without any check or confirmation being made. There was no evidence that the property market had significantly changed in the relevant nine month period. In the District Court, Raphael ADCJ found a verdict for the defendant. It is important to note that in the Court of Appeal, counsel for the appellant conceded that there was the relevant proximity of relationship, but denied that it was foreseeable that a lender would rely on the valuation nine months after it was given. In this context Sheppard AJA said at [101], [103] and [104]: "[101] Having considered the approach adopted in Esanda, however, I think the question is one of whether it was, in all the circumstances, reasonable for the plaintiff to rely on the valuation. I am not suggesting that the valuer's expectation in relation to the period during which his valuation might be used is irrelevant but I think one has to concentrate on the position of a plaintiff in cases such as this to see whether his or her conduct in relying on the valuation some months after it was made is, in all the circumstances, reasonable. … [103] In the end, the question is whether or not there is a duty of care. That question is in truth a question of law rather than a question of fact. That perhaps is not of great moment in a case where the tribunal of fact is the one body. In order to determine whether the duty exists, one has to take into account the whole of the facts and circumstances. The evidence here suggests that it would be unreasonable to rely on the valuation more than six months or so after it was made. Ms Blamey, called in the appellant's case, made no contribution to that debate. I have alluded to this earlier. Counsel for the appellant submitted that a six months rule such as was suggested was an arbitrary approach by the adoption of a rule of thumb. He stressed the fact that there had been no change in the condition of the property nor in the market except insofar as the market may have risen rather than fallen. [104] Nevertheless, it seems to me that one cannot reach a conclusion in a matter of this kind which is open ended. There are the cautionary remarks about economic implications and opening the door too widely mentioned in the judgment of McHugh J in Esanda and mentioned also by Dawson and Gummow JJ. Similar considerations were mentioned by Lord Griffiths in Smith v Bush. In the end one has to make a judgment about the matter in the light of the relevant facts and circumstances …" Giles JA said at [16] - [20]: "[16] The area of discourse is liability for economic loss suffered in reliance on a negligent misstatement. It is necessary that the defendant owe to the plaintiff a duty to take care in making the statement. Putting aside where the defendant knows or intends that the plaintiff as a particular person will rely on the statement, reasonable foreseeability that a class of persons which includes the plaintiff might rely on the statement and thereby suffer loss is not sufficient for a duty of care. The class of persons to whom a duty of care is owed is more narrowly confined. [17] So a valuer who puts out a negligent valuation does not incur an open ended liability to any and every financier who relies on it, even if it was reasonably foreseeable that the financier would rely on it. The particular financier may be outside the class of persons to whom the valuer owes a duty to take care in making the statement in the valuation, in the same manner as Esanda was outside the class of persons to whom the auditors owed a duty of care on the case as pleaded in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; the auditors owed a duty of care to the members of Excel, but not to Esanda. [18] Although a duty of care may be found from other considerations, in this area an important, often determinative, consideration is expectation of reliance on the statement. The reliance in the existence of a duty of care is to be distinguished from the reliance in proving causation of loss Esanda Finance Corporation Ltd v Peat Marwick Hungerfords at 256 per Dawson J; at 263 per Toohey and Gaudron JJ; at 309 per Gummow J. [19] In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords the criteria for defining the class of persons included - (a) in the judgment of Brennan CJ, that the defendant knew or ought reasonably to have known that the information or advice would be communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice at 252; (b) in the judgment of Dawson J, that the defendant realises or ought to realise that he is being trusted to give the best of his information and advice as a basis for action on the part of the other and it is reasonable for that other to act on the information or advice at 255, adopted from the judgment of Barwick CJ in Mutual Life & Citizens' Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 572-3, and that reasonable reliance, in combination with other circumstances, may establish a relationship of proximity which will support a duty of care at 256-7; (c) in the joint judgment of Toohey and Gaudron JJ, that the relationship of proximity marked by reliance or the assumption of responsibility does not arise unless it was reasonable for the recipient of the information or advice to act on it without further inquiry at 265; and (d) in the judgment of McHugh J, that a duty of care will normally require an intention to induce the recipient of the information or advice, or a class to which the recipient belongs, to act or refrain from acting on it at 275. [20] Involved in these criteria is that the class of persons to whom a duty of care is owed will normally be confined to those persons whose reliance on the information or advice is reasonable. The reasonableness will be tested according to the circumstances as they become known." The Law: Causation 90 The central principles of the law of causation were considered by the High Court in March v Stramare (E & M H) Pty Limited (1991) 171 CLR 506. That was a personal injuries case. The plaintiff was a drunken driver who, whilst speeding, collided at night with a truck which was parked straddling the centre line of a six lane road with its parking and hazard lights illuminated. The trial Judge found the drivers of both vehicles negligent and apportioned responsibility as to 70% to the plaintiff and 30% to the defendant. The Full Court of the Supreme Court of South Australia held that the plaintiff's own negligence was the sole effective cause of the accident and entered judgment for the defendants. The question was whether the negligence of the defendants caused the accident in the sense necessary to entitle the plaintiff to damages. Mason CJ said (at 515): "Causation as a question of fact The common law tradition is that what was the cause of a particular occurrence is a question of fact which 'must be determined by applying common sense to the facts of each particular case', in the words of Lord Reid: Stapley [1953] AC at p 681. That proposition is supported by a long line of authority in the United Kingdom: Leyland Shipping Company [1918] AC at pp 363, 369-370; Admiralty Commissioners v S.S. Volute [1922] 1 AC 129, at p 144; Yorkshire Dale Steamship Co [1942] AC at p 706; Alphacell Ltd v Woodward [1972] AC 824, at p 847; McGhee v National Coal Board [1973] 1 WLR at pp 5, 11; [1972] 3 All ER at pp 1011, 1017. It is supported also by this Court's decision in Fitzgerald v Penn (1954) 91 CLR 268. It is beyond question that in many situations the question whether Y is a consequence of X is a question of fact. And, prior to the introduction of the legislation providing for apportionment of liability, the need to identify what was the 'effective cause' of the relevant damage reinforced the notion that a question of causation was one of fact and, as such, to be resolved by the application of common sense. Commentators subdivide the issue of causation in a given case into two questions: the question of causation in fact - to be determined by the application of the 'but for' test - and the further question whether a defendant is in law responsible for damage which his or her negligence has played some part in producing: see, for example, Fleming, The Law of Torts, 7th ed (1987), pp 172-173; Hart and Honore , Causation in the Law, 2nd ed. (1985), p 110. It is said that, in determining this second question, considerations of policy have a prominent part to play, as do accepted value judgments: see Fleming, p 173. However, this approach to the issue of causation (a) places rather too much weight on the 'but for' test to the exclusion of the 'common sense' approach which the common law has always favoured; and (b) implies, or seems to imply, that value judgment has, or should have, no part to play in resolving causation as an issue of fact. As Dixon CJ, Fullagar and Kitto JJ. remarked in Fitzgerald v Penn (1954) 91 CLR at p 277: 'it is all ultimately a matter of common sense' and '[i]n truth the conception in question (i.e., causation) is not susceptible of reduction to a satisfactory formula': (1954) 91 CLR at p 278." Deane J said (at 523-4): "[T]he mere fact that something constitutes an essential condition (in the 'but for' sense) of an occurrence does not mean that, for the purposes of ascribing responsibility or fault, it is properly to be seen as a 'cause' of that occurrence as a matter of either ordinary language or common sense. Thus, it could not, as a matter of ordinary language, be said that the fact that a person had a head was a 'cause' of his being decapitated by a negligently wielded sword notwithstanding that possession of a head is an essential precondition of decapitation. Again, the mere fact that a person makes a gift of money to another is not, in any real sense, a 'cause' of the damage sustained by that other person when his agent negligently loses the money notwithstanding that the loss would not have occurred 'but for' the original gift. As Lord Reid pointed out in Stapley [1953] AC at p 681: 'The question (of "what caused an accident from the point of view of legal liability") must be determined by applying common sense to the facts of each particular case. One may find that as a matter of history several people have been at fault and that if any one of them had acted properly the accident would not have happened, but that does not mean that the accident must be regarded as having been caused by the faults of all of them. One must discriminate between those faults which must be discarded as being too remote and those which must not. Sometimes it is proper to discard all but one and to regard that one as the sole cause, but in other cases it is proper to regard two or more as having jointly caused the accident. I doubt whether any test can be applied generally.' It is true that, in the context of apportionment legislation which gives the latitude necessary to enable the relief to be fairly adjusted to fit the circumstances, the courts will be unlikely to deny causation in any case where the fault of a defendant contributed to an accident. Nonetheless, the question whether conduct is a 'cause' of injury remains to be determined by a value judgment involving ordinary notions of language and common sense." Toohey J said (at 524): "Where negligence is in issue, causation is essentially a question of fact, in the sense explained by the Chief Justice, into which considerations of policy and value judgments necessarily enter." Gaudron J agreed with the judgments of Mason CJ and Deane J. McHugh J rejected the common sense test as a test of legal causation and was of opinion that "the 'but for' test should be seen as the test of legal causation" (at 534). His Honour held that the policy issue as to whether liability should ensue should be determined through the concept of remoteness of damage. His Honour said (at 536): "Thus, the 'scope of the risk' test enables relevant policy factors to be articulated and justified in a way which is not possible when responsibility is limited by reference to commonsense notions of causation or to more specific criteria such as 'novus actus interveniens', 'sole cause' or 'real cause', all of which conceal unexpressed value judgments." 91 The question of causation was revisited by the High Court in Chappel v Hart (1998) 72 ALJR 1344, where the question of causation arose in the context of a medical negligence case based on a lack of warning of the risks of an operation. The appellant was an ear, nose and throat specialist who performed an operation on an oesophagus. He was qualified to perform the operation, but was not the most experienced surgeon in the field. The plaintiff claimed that, had she been warned of the risks, she would have sought the attention of the most experienced surgeon. It must be borne in mind that no allegation was made at the trial that the defendant was negligent in the performance of the operation. At trial in this Court the Judge found a verdict for the plaintiff which was upheld by the Court of Appeal. The High Court dismissed the appeal to it by three to two, Gaudron, Gummow and Kirby JJ, McHugh and Hayne JJ dissenting. It has been suggested that Chappel v Hart represents a retreat by the High Court from the principle laid down in March. That does not seem to me to be so. Gummow J, in the majority, said (at 1356-7): "[62] In Australia, it is settled by the decision of this Court in March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506, that the legal concept of causation differs from philosophical and scientific notions of causation. Mason CJ said (in March (1991) 171 CLR 506 at 514): 'In philosophy and science, the concept of causation has been developed in the context of explaining phenomena by reference to the relationship between conditions and occurrences. In law, on the other hand, problems of causation arise in the context of ascertaining or apportioning legal responsibility for a given occurrence.' Mason CJ (with whom Toohey J and Gaudron J agreed) also held that, generally speaking, a sufficient causal connexion is established if it appears that the plaintiff would not have sustained the injuries complained of had the defendant not been negligent: March (1991) 171 CLR 506 at 514). However, the 'but for' test is not a comprehensive and exclusive criterion, and the results which are yielded by its application properly may be tempered by the making of value judgments and the infusion of policy considerations: March (1991) 171 CLR 506 at 516. So, it may be 'unjust' to hold a defendant legally responsible for an injury which, though it may be traced back to the wrongful conduct of the defendant, was the immediate result of unreasonable action on the part of the plaintiff. [63] In Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1998] 2 WLR 350; [1998] 1 All ER 481, the leading judgment in the House of Lords was given by Lord Hoffmann. His Lordship stressed that whilst 'the notion of causation should not be overcomplicated', it should not 'be oversimplified': Environment Agency [1998] 2 WLR 350 at 356; [1998] 1 All ER 481 at 486. He went on to emphasise that (a) the legal issue is not what caused the result complained of, but did the defendant cause it: Environment Agency [1998] 2 WLR 350 at 357; [1998] 1 All ER 481 at 487-488, and (b) 'common sense' answers to questions of causation will differ according to the purpose for which the question is asked and the rule by which responsibility is being attributed: Environment Agency [1998] 2 WLR 350 at 356; [1998] 1 All ER 481 at 487. In particular, 'one cannot give a common sense answer to a question of causation for the purpose of attributing responsibility under some rule without knowing the purpose and scope of the rule': Environment Agency [1998] 2 WLR 350 at 358; [1998] 1 All ER 481 at 488." His Honour by reference to that principle analysed the facts and came to the conclusion that there was, in the circumstances of the case, a link of causation in the requisite sense between the lack of warning and the plaintiff's injury: see [78]. And Gaudron J said (at 1346): "[6] The argument that the damage sustained by Mrs Hart was simply the loss of a chance must be considered in a context concerned with the assignment of legal responsibility. In that context, philosophical and scientific notions are put aside (see: March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506 at 509, per Mason CJ) and causation is approached as a question of fact to be answered 'by applying common sense to the facts of [the] particular case': Stapley v Gypsum Mines Ltd [1953] AC 663 at 681. That is so both for the question whether a particular act or omission caused any damage at all (see March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506; Bennett v Minister of Community Welfare (1992) 176 CLR 408) and for the question whether some particular damage resulted from the act or omission in question (see Medlin v State Government Insurance Commission (1995) 182 CLR 1. [7] Questions of causation are not answered in a legal vacuum. Rather, they are answered in the legal framework in which they arise. For present purposes, that framework is the law of negligence. And in that framework, it is important to bear in mind that that body of law operates, if it operates at all, to assign a duty to take reasonable steps to prevent a foreseeable risk of harm of the kind in issue (see Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 487, per Brennan J; Bennett v Minister of Community Welfare 91992) 176 CLR 408 at 422, per Gaudron J). Conclusion: Duty of Care 92 So far as the existence of a duty of care owed by the defendant to the plaintiffs is concerned, I bear in mind the dicta of the High Court in Esanda. The question is not an easy one. In that case, where no duty was found to exist, it was plain that the auditors did not have a lender such as the plaintiff in contemplation. In Bush and Harris, where Lord Griffiths in particular was hesitant in finding a duty owed by the valuer/surveyor to the purchaser, in one of the two appeals the appellant did not see the report, and in the other the appellant did. However, where the appellant did not see the report, there was clear evidence that it was a condition of the borrowing that there be a satisfactory report, and that this was known to the prospective borrower. Furthermore, there was evidence in those cases that the valuers were aware that in 90% of cases the purchasers were likely to rely upon the valuers' reports as showing, by virtue of their acceptance by the lender, that no defects had been ascertained in the property. (It must be remembered that it was in the area of the report as to the physical condition of the property that the negligence lay.) In the present case, it is common ground that none of the plaintiffs saw the valuation before completion of the purchase and it is not established that the plaintiffs relied upon the valuation. Furthermore, there is no evidence that the defendant knew either that the plaintiffs were likely to rely upon the valuation in deciding whether or not to enter into the contract, or that purchasers in general were likely to rely on such valuations when entering into contracts for the purchase of such premises. It is important to bear in mind that the contracts in Bush and Harris were for the purchase of modest dwelling houses by intending owner/occupiers. The circumstances surrounding the present contract were totally different in a number of ways. The premises were unusual, if not unique, in being a sporting complex that combined squash courts, a roller-skating rink and space for a restaurant; the plaintiffs, being the principals of the purchaser, had experience in business, particularly Mr Aghajanian. He had not only engaged in professional practice as an engineer for many years in Iran, but had experience of breeding race horses in that country. The squash centre was bought not only as an investment but, as I have found, to the intent that the businesses should absorb the time and abilities of Mr Aghajanian and, to a lesser extent, of other members of the family. Even more importantly, the squash centre was being purchased, not by newcomers to it, but by people who were already the tenants and operating two of the three businesses for which the premises had potential. Furthermore, their history at the squash centre was not straightforward; they were bound as tenants to a lease of some length in premises which had been discovered to have defects which created difficulty in the operation of the businesses, and where the landlord was not hastening to remedy the defects. Whilst there is not evidence that the defendant was aware of all the foregoing matters, it was certainly aware of a number of them during the time that the valuation process was carried out. More significantly, there is simply no evidence that the defendant had any knowledge that the purchaser was relying upon its judgment. The only possible exception to this is in the very limited sense that it was no doubt aware of the proposed purchase price and that, if its valuation fell substantially short of that price, that would or might create difficulties in obtaining the finance necessary for the purchase to proceed. 93 In the ABCOS case the Full Court of the Federal Court held that there was a duty of care in a case with some similarity to the present, although it involved the valuation of thoroughbred horses rather than real estate. Although there was not evidence in that case that the valuation was seen by the prospective partners in the horse racing syndicate, there was evidence from which it was inferred that no syndicate would come into existence unless a valuation satisfactory to the proposed lender was obtained. It was a case also of clear negligence, where both the valuations concerned were come to by reference to the actual price being paid under the subject contract for the acquisition of the horses, and could not be described as independent valuations at all: one valuer knew that the transaction for the acquisition of the horses at that price was not at arm's length; the other valuer made no inquiry whatever to ascertain whether the subject transaction was an arm's length transaction. Although all three Judges concurred in the decision, it was a decision which was characterised as borderline. 94 It may be that the decision one way or the other as to whether there was a duty of care in this case is borderline also. However, after careful consideration I have come to the view that the finding I should make, if it were necessary for me to make a finding, is that, in the light of all the foregoing considerations, no duty of care was owed in the present case. Conclusion: Causation 95 Likewise, I should, if it were necessary, find that it is not established that any breach of duty by the plaintiff could be said in the requisite way to have caused any damage suffered by the plaintiffs. I have expressed the view in [84] that there was not any reliance by the plaintiffs on the valuation. The only possible causal link between the valuation and any damage to the plaintiffs is the fact that, had the valuation not been satisfactory to it, a financier may not have lent. In light of the purpose for and circumstances in which the valuation was obtained, the lack of reliance on it by the plaintiffs and the matters set out in [85], it cannot be said in the requisite way that the defendant caused the damage, nor would it be just to impose liability on it, even if the valuation were in breach of duty. Result 96 The result is that there must be judgment for the defendant. …oOo… Last Modified: 06/26/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.