New South Wales Supreme Court CITATION : I&L Securities v Landmark White [1999] NSWSC 1012 CURRENT JURISDICTION : Equity Division - Commercial List FILE NUMBER(S) : 50063/1999 HEARING DATE(S) : 24th September 1999 JUDGMENT DATE : 8 October 1999 PARTIES : I & L Securities Pty Limited - Plaintiff Landmark White (NSW) Pty Limited - Defendant JUDGMENT OF : Rolfe J COUNSEL : Mr G.A. Sirtes - Plaintiff Mr S.R. Donaldson - Defendant SOLICITORS : Deacons Graham & James - Plaintiff Phillips Fox - Defendant CATCHWORDS : Application for leave to file a cross-claim for contribution pursuant to s.5 of the Law Reform (Miscellaneous Provisions) Act 1946 against directors and solicitors (being the same people) of the plaintiff company. Application opposed on the ground that defendant had pleaded contributory negligence against the plaintiff and the defendant could not in those circumstances claim contribution as this would amount to "double dipping": Daniels & Ors v Anderson & Ors (1995) 37 NSWLR 438 relied on. Held that the cross-claim not futile, the application of the relevant principles depending on the findings of fact.; Also held that a claim for contribution could be made in respect of an action for damages under the Trade Practices Act 1974. Conflicting authorities noted: Australia and New Zealand Banking Group Limited v Turnbull and Partners Limited (1991) 106 ALR 115; Bailkower v Acohs Pty Limited & Ors (1995) 154 ALR 534; South Cross Airlines Holdings Limited v Arthur Andersen & Co & Ors (1998) 280 FCA (27 March 1998) and Wickstead & Ors v Browne (1992) 30 NSWLR 1 noted: matter to be determined at the trial.; Held application was not futile and should be granted. DECISION : Application granted. THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST ROLFE J FRIDAY, 8 OCTOBER 1999 50063/1999 - I & L SECURITIES PTY LIMITED v LANDMARK WHITE (NSW) PTY LIMITED JUDGMENT HIS HONOUR: Introduction 1 By a Summons issued on 14 May 1999 the plaintiff seeks damages against the defendant, including damages pursuant to ss.82 and 87 of the Trade Practices Act 1974, interest on any award of damages at a compound rate, and ancillary relief. 2 The plaintiff alleges that, at all material times, it carried on the business of a money lending institution, and that the defendant, at all material times, carried on a property valuation and property consultancy business and represented itself to the plaintiff as experienced in the area of property valuations. It is pleaded that on or about 22 October 1995 the defendant prepared a written valuation for the plaintiff, on behalf of Mr and Mrs Crisp, of a certain property for mortgage security purposes, whereby it valued an unencumbered fee simple interest in the property as at that date at $3.4m. It is pleaded that in or about November 1995 the defendant caused the valuation to be forwarded to the plaintiff to be used for its mortgage security purposes, and that it thereby made representations to the plaintiff that it had the necessary skill and expertise to value the property; that a Mr Jelley, a director of the defendant, was a registered valuer and had the necessary skill and expertise to value the property; that the market value of the property for the purpose to which I have referred, as at 22 October 1995, was $3.4m; and that the valuation was suitable for the plaintiff's mortgage security purposes. 3 It is pleaded nextly that by letter dated 4 December 1995 the defendant "assigned" the valuation to the plaintiff and represented to it that the market value at the date to which I have referred was as stated; that the valuation was prepared for mortgage security purposes; that the valuation was suitable to be relied upon by the plaintiff for its mortgage security purposes; that the plaintiff was entitled to make a loan secured by a registered first mortgage on the property in reliance on the valuation; that the defendant was responsible to the plaintiff in relation to the content of the valuation; that Mr Jelley was a registered valuer; and that the defendant's professional indemnity insurance covered the valuation. Certain implied representations, essentially to the same effect, are pleaded and, in paragraph 9, it is pleaded that "induced by and acting in reliance on the valuation and the representations" the plaintiff advanced $2,383,000.70 to Mr and Mrs Crisp by a loan agreement dated 4 December 1995, accepted a registered first mortgage over the property as security for the repayment of the amount lent, and discharged its mortgage over other property owned by Mr and Mrs Crisp, which otherwise would have secured the debt. 4 It is pleaded in paragraph 11 that when preparing, forwarding and "assigning" the valuation to the plaintiff and making the representations alleged, the defendant knew or reasonably ought to have known that the plaintiff was relying upon it to exercise all due care and skill in the preparation of the valuation; that the plaintiff would act upon the valuation when deciding whether to advance money to Mr and Mrs Crisp and in determining what security to accept for repayment thereof; that if the valuation proved to be inaccurate, unreliable or otherwise negligently prepared the plaintiff was liable to suffer financial loss and damage; and that the plaintiff was in fact advancing money to Mr and Mrs Crisp in reliance on the valuation. 5 In paragraph 12 it is pleaded that the valuation was prepared by the defendant and "assigned" to the plaintiff negligently in a number of ways particularised. 6 It is then pleaded that the representations were made by the defendant in trade or commerce, and that in contravention of s.52 of the Trade Practices Act they were misleading or deceptive and/or likely to mislead or deceive. 7 The contentions conclude by pleading that Mr and Mrs Crisp defaulted under the loan agreement on 5 May 1998; that they had not repaid the amount owing; that the property is unlikely to achieve a price "anywhere in the vicinity of $3.4m"; and that its market value as at 22 October 1995 was $775,000. 8 The plaintiff then pleads the institution of proceedings by it against Mr and Mrs Crisp in this Court, and that had the defendant not prepared the valuation negligently and made the representations then the plaintiff would not have advanced any money to Mr and Mrs Crisp and, further or in the alternative, it would not have advanced the amount it did to them, accepted a mortgage over the property as security for the repayment of it, and discharged its mortgage over the other property. 9 In the circumstances it is alleged that by reason of the defendant's negligence and breaches of s.52 the plaintiff has suffered and will continue to suffer loss. 10 By its Notice of Grounds of Defence the defendant, relevantly for present purposes, admits that it prepared the valuation as alleged and that the valuation was prepared on behalf of Mr and Mrs Crisp for use in connection with one or more proposed finance applications, but otherwise denies the matters pleaded in paragraph 5. The defendant denies that it caused the valuation to be forwarded to the plaintiff, but admits that by letter dated 4 December 1995 it informed the plaintiff that it would extend its responsibility in connection with the contents of the valuation to it. It further admits that it represented to the plaintiff that Mr Jelley held the professional opinion that, based upon the methodology, assumptions, qualifications and recommendations contained in the valuation, a reasonable assessment of the value of the property as at 22 October 1995 was $3.4m. The defendant also admits that it represented that the valuation was suitable to be relied upon by the plaintiff for its mortgage security purposes; that it acknowledged that Ingwersen and Lansdown, solicitors, and the plaintiff, intended to make a loan in reliance on the valuation secured by registered first mortgage; and that it represented that Mr Jelley was a registered valuer and that the defendant's professional indemnity insurance covered the valuation. The defendant also admits that it represented that Mr Jelley held the professional opinion to which I have referred. 11 In paragraph 11 the defendant admits that it knew that the plaintiff was contemplating advancing funds on the security of the mortgage over the property; that it may rely upon the valuation in connection with the proposed loan; and that in the event that the plaintiff acted in reliance on the valuation and it proved to be inaccurate, unreliable or otherwise negligently prepared, the plaintiff was liable to suffer financial loss and damage. 12 The matters relating to damage are put in issue, essentially on the basis that there is a denial that the market value of the property, as at 22 October 1995, was $775,000, and, as subsequently emerged, that there were other factors affecting the value of the property. 13 In answer to the whole of the Summons the defendant says that if the plaintiff suffered loss or damage, which the defendant denies, it was caused or contributed to by the plaintiff's negligence in that it failed to make any adequate investigation and/or analysis of the creditworthiness of the borrowers; failed to carry out any adequate assessment of the borrowers' capacity to service the loan; and failed to identify and assess or adequately assess the risks involved in the loan and, in particular the risks involved by reason of the scale of the proposed subdivision, the time required to complete it, the time required to market and sell the lots created by it, the re-zoning of the property, and the absence of local Council consent to the proposed subdivision. 14 It is further pleaded that the plaintiff failed to carry out any adequate assessment of the borrowers' ability to repay the principal sum when it fell due or of the viability of the proposed subdivision, and advanced funds for the purpose of road construction without first obtaining professional confirmation of construction cost and without any adequate confirmation or assurance that works had been or would be completed, or that the roads would be vested as public roads within the meaning of the Roads Act 1993. 15 It is pleaded that the plaintiff failed to obtain any adequate confirmation or assurance in relation to a certain lot in the proposed subdivision; failed to ensure that the borrowers proceeded with the proposed subdivision of that lot within an appropriate time frame; failed to have regard to the zoning details referred to in a s.149 certificate issued and provided to Ingerswen and Lansdown on 21 November 1995; failed to have regard to the zoning information contained in the borrowers' loan application; failed to obtain any or any adequate confirmation or assurance that those parts of the property which required rezoning to permit the proposed subdivision or development would be rezoned within an appropriate time frame; failed to obtain further security or, alternatively, further security in substitution for the mortgage over the second property; failed to make any adequate investigations and/or analysis of the creditworthiness of the borrowers and/or a change in their position from the date of the loan; extended the time for repayment of the loan on 4 December 1996 and/or 4 December 1997 without obtaining an up-to-date valuation of the property or obtaining any or any adequate confirmation of the progress made by the borrowers in developing the property or making any or any adequate investigations as to whether there had been any rezoning of the property, or obtaining any or any adequate confirmation that the borrowers were proceeding with the proposed development or subdivision within an appropriate time frame; or carrying out any or any adequate investigation or analysis of the creditworthiness of the borrowers and/or their ability to service and/or repay the loan. The Present Notice Of Motion 16 By a Notice of Motion filed on 3 September 1999 the defendant sought leave to issue a cross-claim in the form attached thereto. This application was opposed. The proposed cross-claim seeks indemnity or contribution in respect of any damages recovered against the defendant by the plaintiff, the nature of the dispute being stated as a claim for indemnity or contribution in respect of any damages recovered by the plaintiff against the defendant; whether there was breach of statutory and tortious duties owed to the plaintiff by its directors and officers; and whether there was negligence by a firm of solicitors, Ingerswen and Lansdown, in the performance of legal services and mortgage management services provided to the plaintiff. 17 The cross-claim pleads that, at all material times, the plaintiff carried on business as a lender and the manager of funds paid to Ingerswen and Lansdown by persons wishing to make loans secured by first mortgages over real property, and as a trustee of those funds and of securities given in respect of advances of those funds. 18 It is pleaded that, at all material times, the first cross-defendant was an officer of the plaintiff and involved in the day to day management and conduct of its affairs and business and, that at all material times since 14 September 1996, he was a director of it. It is pleaded that at all material times each of the second to fifth cross-defendants was a director and officer of the plaintiff involved in the day to day management of its affairs and conduct of its business and that by reason of the matters pleaded the cross-defendants owed a duty to the plaintiff to ensure that it did not act negligently or in breach of trust in connection with its dealings with the contributors or its management of or dealings with their funds. Particulars are given of s.232(4) of the Corporations Law "and the common law and in equity". 19 It is pleaded that the loan was made, but in breach of the duty the first cross-defendant failed to exercise reasonable care, skill and diligence in facilitating and/or participating in the approval of the finance application and the advancing of the contributors' funds to the borrowers. 20 Thereafter a number of particulars of negligence are pleaded, many of which reflect or are similar to those alleged in the allegations of contributory negligence. 21 There is an alternative pleading that at all material times the second to fifth cross-defendants, and at all material times since 1 July 1996, the first cross-defendant, carried on their profession as solicitors under the name Ingerswen & Lansdown and were retained by the plaintiff to provide services in connection with the finance application of Mr and Mrs Crisp and mortgage management services, including analysis of the loan application and the making of recommendations to the plaintiff, and acting on its behalf in its capacity as lender in the loan transaction. It is pleaded that the cross-defendants knew or ought to have known that the plaintiff would rely upon them to properly and carefully perform the legal services and that if this were not done the plaintiff may suffer loss or damage. It is pleaded that in reliance upon the legal and mortgage management services, the plaintiff advanced the said sum to the borrowers, accepted a registered first mortgage over the property as security for its repayment, agreed to and did discharge its mortgage over another property, and rolled over the loan for the further periods of twelve months on 4 December 1996 and 4 December 1997. It is pleaded that in doing so the cross-defendants were negligent in a number of respects, essentially, once again, reflecting the general nature of the way in which the negligence had been pleaded previously. 22 It is pleaded that if the defendant was negligent in the manner alleged in the contentions, which is denied, and if the plaintiff suffered loss and damage as a consequence of that negligence, which is also denied, then the cross-defendants are tortfeasors liable in respect of the same damage within the meaning of s.5 of the Law Reform (Miscellaneous Provisions) Act 1946; and, further and in the alternative, if the defendant engaged in misleading and deceptive conduct in breach of s.52, which is denied, and if the plaintiff suffered loss and damage in consequence thereof, which is denied, then by reason of the matters pleaded in the proposed cross-claim the cross-defendants are, or would if sued, be joint tortfeasors and/or have a co-ordinate liability to compensate the plaintiff in respect of the same loss. 23 The defendant, as cross-claimant, claims indemnity or contribution in respect of any damages recovered against it by the plaintiff, costs and ancillary orders. The Provisions Of The Law Reform (Miscellaneous Provisions) Act 1946 24 Section 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 provides:- "5(1) Where damage is suffered by any person as a result of a tort (whether a crime or not): ……. (c) any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tortfeasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by that person in respect of the liability in respect of which the contribution is sought." The Case As Propounded 25 The plaintiff's case, accordingly, is that it obtained a valuation on the faith of which and of the various representations it has pleaded it lent money to Mr and Mrs Crisp on the security of the valued property, (and gave up other security), but that the valuation was excessive as a consequence of wrongful conduct on the part of the defendant and as a result of which the plaintiff has sustained loss. The defendant's initial response to these allegations is that the plaintiff was guilty of contributory negligence. The plaintiff was a company through which money, at least so far as the pleading discloses, provided by clients of Ingerswen & Lansdown, was amalgamated and lent. The partners in that firm were directors of the plaintiff and, as such, owed duties to it. The firm also acted for the plaintiff in the lending transaction, so that the partners owed duties to the plaintiff acting in that capacity. In these circumstances the acts of the proposed cross-defendants in their roles as directors and solicitors will have to be investigated. 26 It may well be, although one can see the potential complications in this, that the plaintiff wishes to cross-claim against the proposed cross-defendants, either in their role as directors of it or, perhaps more logically, as its solicitors. Indeed, in the course of submissions, attention was drawn to the possibility that the cross-defendants may have to be represented separately from the plaintiff. However, these complications are not of the defendant's making. They arise from the way in which the plaintiff has been administered and its decision to use as its solicitors the firm of which its directors are partners. This is not intended to be critical of the plaintiff, its directors or solicitors, but merely to emphasise how, at least to a large extent, the present problem has arisen. 27 The defendant's claim that the plaintiff has been guilty of contributory negligence, if made out, entitles the defendant to have the damages to which the plaintiff otherwise would be entitled reduced "to such extent as the Court thinks just and equitable having regard to the claimant's share in the responsibility for the damage": Law Reform (Miscellaneous Provisions) Act 1965, s.10(1). The Submissions For The Proposed Cross-Defendants 28 It was submitted that the Court would not, as a matter of law, order contribution against the proposed cross-defendants, firstly, because the defendant must establish that such contribution is "just and equitable": s.5(2) of the Law Reform (Miscellaneous Provisions) Act 1946, "having regard to the extent to that person's responsibility for the damage". Thus, so the submission ran, there is an entitlement to have the damages against the plaintiff reduced in so far as that is "just and equitable" having regard to the conduct of the plaintiff, but there cannot be a right to contribution from a third party where the damages have been so reduced. 29 Reliance was placed upon the decision of the Court of Appeal in Daniels & Ors v Anderson & Ors (1995) 37 NSWLR 438. It was submitted that that decision is authority for the proposition that contribution against officers and agents of the plaintiff will not be ordered where there is an existing claim against the company for contributory negligence, as it is not "just and equitable" to reduce the defendant's damage twice in relation to the same negligence. 30 At p.589 Clarke and Sheller JJA said:- "Mr McAlary submitted that the Court should not apply this approach but should disregard the contributory negligence finding in assessing appropriate contribution. Any injustice which flowed from the determination could be dealt with at the stage when Deloitte Haskins & Sells sought execution of the judgment. Although it is not entirely clear, we understood him to be saying that there should be a permanent stay of execution. In our opinion there is nothing in favour of this solution of the problem. How could it be 'just and equitable' to make an award and then permanently stay its effect. We consider that the answer proffered by Dr Williams and Jackson J offers the only practical solution although we acknowledge that its effect is to enable the party against whom it is found that he would, if sued, have been liable to AWA to leave the arena virtually unscathed. We are also aware that it is possible to conjure up complex fact situations in which Dr Williams' solutions may not provide the answer. For instance if AWA had sued Deloitte Haskins & Sells and Hooke, and each had cross-claimed against the other, there would be obvious difficulties which may not be capable of resolution by recourse to the approach advocated by Dr Williams. We are not, however, concerned with hypothetical situations but in endeavouring to provide the satisfactory solution to the present problem. Where, as in the present circumstances, a party has secured partial relief, by way of a finding of contributory negligence it would not, in our opinion, be just and equitable that it obtain an award for any compensation. If it were otherwise it would unjustly receive double compensation." At pp.579-580 their Honours set out the view of Dr Glanville Williams, and the application of that principle in the two authorities to which they referred. 31 In my opinion, application of these principles, as I think their Honours were saying, must await the ultimate factual determination. I think it is clear from the penultimate paragraph of their Honour's reasons that that determination requires a consideration of the particular "circumstances" of each case. They can only be assessed at the end of the evidence and when conclusions are made on the respective claims. There can be no doubt that that assessment may lead to the result suggested by their Honours, and the Court, obviously enough, cannot allow a defendant to "double dip". But I am not satisfied that that is an issue to be determined in advance of a resolution of the case. Rather, in my opinion, it is a matter to be adjudicated upon in the final determination of it, and it does not provide a basis for holding that to allow a cross-claim raising these issues is impermissible, such that the Court should either not permit the cross-claim to be filed or, if the defendant is entitled as of right to do so, it should not strike it out as futile. 32 Mr G.A. Sirtes of Counsel, who appeared for the plaintiff and the proposed cross-defendants, analysed the acts of contributory negligence and negligence allegedly entitling the defendant to contribution. He submitted that that analysis showed that they were essentially the same and, accordingly, that the decision of the Court of Appeal rendered the proposed cross-claim futile. For the reasons I have sought to give, I do not consider this is so. It may be, of course, that when all the facts are known it will be held that contribution is not appropriate. However, that is a very different thing from saying that a party is not entitled to have the factual issues explored for the purpose of determining the ultimate legal issues and, in my opinion, the defendant, as cross-claimant, does have that entitlement. 33 It was nextly submitted that the claim made by the defendant against the proposed cross-defendants was in respect of the different capacities in which the proposed cross-defendants acted, namely as directors and as solicitors, although it was submitted that this was "a distinction without a difference" because the proposed cross-claim ascribes the same acts and conduct towards both as constituting the ground for contribution. The submission continued:- "The proposed cross-defendants acted on behalf of the company and in my submission it would not be possible to arbitrarily allocate the same acts performed by the same people to different roles. The conduct, performed in dual capacities, must be imputed to the company." 34 The submission continued that it would be "an act of artificiality" for the Court to attempt to differentiate between the acts of the five proposed cross-defendants in their capacities as directors and solicitors in seeking to apportion damages, and that it is "unlikely" that the Court could find them responsible in negligence as solicitors, but not in their capacity as directors. Mr Sirtes also stated that the plaintiff had made a written concession that it made no attempt to disavow the acts of its agents, whether they were directors or solicitors. This concession was apparently made without any prompting from the defendant and it was not one accepted unequivocally by the defendant, nor was it one the full legal implications of which are clear. It seems to me that the precise effect of any such concession should be gauged in the light of the way in which any such concession is pleaded by way of a reply to the defendant's defence or a defence to the cross-claim. It may also be, and I am not expressing any final view about this, that the contributors would wish to have this issue further delineated and defined, because if, for some reason, any damage suffered by the plaintiff is found to be irrecoverable against the defendant in consequence of the conduct of the proposed cross-defendants, the contributors may wish to assert, depending upon their precise relationship with the plaintiff, the cross-defendants in their role as directors, and the cross-defendants in their role as solicitors, that in so far as the plaintiff is unable to recover from the defendant the full amount it seeks, the contributors are, in some way, entitled to recover from the proposed cross-defendants in one or both of their capacities. 35 The next submission was that the defendant seeks contribution against the proposed cross-defendants in relation to the Trade Practices Act claim raised by the plaintiff, and that the defendant is not entitled to claim contribution under s.5 in respect of that cause of action. Firstly, it was submitted, that s.5 is concerned with tortfeasors, and that a party in breach of the Trade Practices Act is not a tortfeasor: Australia and New Zealand Banking Group Limited v Turnbull and Partners Limited (1991) 106 ALR 115 and Bailkower v Acohs Pty Limited & Ors (1995) 154 ALR 534. It was not contended that these cases were not authority for that proposition. 36 However, in Bailkower the Full Court of the Federal Court said, at p.544:- "Section 5 of the Law Reform (Miscellaneous Provisions) Act is not directly relevant in the present case. However, notwithstanding the view of Mr Campbell QC which appealed to Cooper J in Dorrough , we are inclined to the view that Sheppard J was correct when he said in Turnbull that the cause of action under s.82 for breach of s.52 of the Act is entirely statutory and not an action in tort. It is true that actions based on s.52 are analogous to actions in tort, and that because of this the rules for assessing damages in tort, rather than those for assessing damages in contract, are the appropriate guide for assessments under s.82 .. but the cause of action is created by the statute. Unlike the tort of breach of statutory duty, the common law plays no part in the creation of the cause of action. However, since s.5 does not apply in the present case, we need not decide that point." Therefore, whilst it is apparent that the Full Court favoured the view in Turnbull , it is by no means apparent from their decision that, after full consideration, they would have followed it. 37 The matter was also considered, in the context of statutory claims under the Corporations Law, by Cooper J in South Cross Airlines Holdings Limited v Arthur Andersen & Co & Ors (1998) 280 FCA (27 March 1998). Whilst I think it correct to say that his Honour's view would have supported the view for which Mr Sirtes has contended I do not consider that when one has regard to Bailkower and that decision that the matter has been so clearly determined that I should strike out that part of the cross-claim. That is particularly so having regard to the decision, and the reasoning underpinning it, in Wickstead & Ors v Browne (1992) 30 NSWLR 1. The High Court, in granting special leave to appeal, also upheld the appeal. 38 As I consider that the balance of the cross-claim should be allowed to go forward, I am not prepared to disallow this part of it. The matter can be determined, along with the other issues, at the hearing. 39 Finally it was submitted that the proposed cross-claim failed to address the issue of knowledge, which it was submitted is the cornerstone of liability in a director's negligence case. The submission continued that the plaintiff may have done or failed to do a number of things causing or contributing to the loss claimed against the defendant, that these matters cannot constitute negligence by the directors unless they are matters of which, in the performance of their duties, they were or should have been aware. 40 The proposed cross-claim alleges that each of the proposed cross-defendants was involved in the day to day management of the affairs and conduct of the business of the plaintiff, and the particulars of negligence allege, essentially, failures by them, in their roles as directors, to do various things, the obvious inference from the pleading being that these were matters to which directors should have attended. In so far as it is necessary for there to be an allegation of knowledge, I think this is a sufficient pleading of it. Conclusions 41 In the result I am of the view that the defendant should have leave to issue the cross-claim in the form attached to its Notice of Motion filed on 3 September 1999. I make an order in terms of paragraph 1 of that Notice of Motion and I order the cross-defendants to pay the cross-claimant's costs of the Notice of Motion. ********** Last Modified: 10/08/1999 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.