New South Wales Supreme Court CITATION : Genworth Financial Mortgage Insurance Pty Limited v Hodder Rook & Associates Pty Limited [2010] NSWSC 1043 HEARING DATE(S) : 6/09/10 - 8/09/10 JUDGMENT DATE : 15 September 2010 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : The plaintiff has established the case which they pursued. The parties are directed to bring in short minutes of order on which occasion costs may be argued. CATCHWORDS : Negligence - Duty of Care - Breach of duty - Valuation of real estate - Whether valuations performed by defendant constituted breaches of duty to exercise reasonable care and skill - Discussion of relevant principles - Trade Practices - Whether defendant valuer had engaged in misleading and deceptive conduct in relation to valuations - Reliance - Remoteness of Loss - Damages Civil Procedure Act 2005 (NSW) LEGISLATION CITED : Corporations Act 2001 (Cth) Fair Trading Act 1987 (NSW) Trade Practices Act 1974 (Cth) CATEGORY : Principal judgment Adwell Holdings Pty Ltd v Smith [2003] NSWCA 103 Bickle v Commissioner of Main Roads (1961) 7 LGRA 155 Commonwealth v Arklay (1952) 87 CLR 159 Hann Nominees Pty Ltd v National Australia Bank Ltd [2000] FCA 454 Harris v Minister for Public Works (1912) 12 SR (NSW) 149 Ingot Capital Investments v Macquarie Equity Capital Markets (2008) 73 NSWLR 653 Interchase Corp Ltd v ACN 010 087 573 Pty Ltd [2000] QSC 013 Jowett v Federal Commissioner of Taxation (1926) 38 CLR 325 Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 Kestrel Holdings Pty Limited v APF Properties Pty Ltd (2009) 260 ALR 418 CASES CITED : Lancini Properties Pty Limited v Savills (Qld) Pty Limited [2009] QSC 323 Lion Nathan Ltd v Coca-Cola Bottlers Ltd [1996] 1 WLR 1438 Merrivale Moore plc v Strutt & Parker [1999] 2 EGLR 171 Minister of Environment v Petroccia (1982) 30 SASR 333 Pamalco Pty Ltd v Minister (No 3) (1991) 71 LGRA 441 Redeam Pty Ltd v South Australian Land Commission (1977) 40 LGRA 151 Riverbank Pty Ltd v Commonwealth (1974) 48 ALJR 483 Singer & Friedlander Ltd v John D Wood & Co 1977) 243 EG 212 St Martins' Centre Pty Ltd v Valuer-General (WA) (2003) 30 SR (WA) 218 Trade Credits Ltd v Bailleu Knight Frank (NSW) Pty Ltd (1985) Aust. Torts Reports 80-757 Vero Lenders Mortgage Insurance Ltd v Taylor Byrne Pty Ltd [2006] FCA 1430 TEXTS CITED : A A Hyam, The law affecting valuation of land in Australia (Federation Press, 4th ed. 2009 PARTIES : Genworth Financial Mortgage Insurance Pty Limited ACN 106 974 305 (Plaintiff) Hodder Rook & Associates Pty Limited ACN 003 936 141 (Defendant) FILE NUMBER(S) : SC 2008/00290472 COUNSEL : Mr T M Mehigan (Plaintiff) SOLICITORS : Hicksons (Plaintiff) Litigant in person (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Wednesday 15 September 2010 2008/00290472 Genworth Financial Mortgage Insurance Pty Ltd v Hodder Rook & Associates Pty Ltd JUDGMENT The proceedings 1 The plaintiff, Genworth Financial Mortgage Insurance Pty Limited, is a mortgage insurer which is in the business of providing lenders mortgage insurance, [LMI policies], to financial institutions that lend on the security of registered mortgages over real property: The references to GE Insurance Pty Limited or GE Mortgage Insurance Services may all be read as a reference to Genworth for the reason that Genworth acquired the insurance business of GE Capital and Mortgage Insurance Corporation on 31 March 2004 and so much of the paper work that was being used at the time was old GE paper work. 2 The defendant, Hodder Rook and associates [Hodder Rook] is a company which is in the business of providing valuation services to lenders and their mortgage insurers in relation to loans to be secured on mortgages over residential properties. 3 Two valuations remain in dispute in these proceedings. 4 Each of the valuations was prepared and signed by Mr Perera. At the time of those valuations Mr Perera was a valuer employed by Hodder Rook. Since then Mr Perera has become the sole principal of Hodder Rook. He is currently the sole director and shareholder of that company. 5 These proceedings originally concerned eight valuations. The claims in relation to three of those valuations were resolved at a mediation last year in July and Genworth has not pursued two of the remaining valuations since November 2009. 6 The total of the plaintiff's claim is of $406,000 plus interest. That is a precise calculation and the precision of that calculation comes about because the claim was based upon LMI insurance claims that had been paid to the vendors. 7 The damages that Genworth claims is the value of those insurance claims and the legal basis for the claim is that Genworth contends it would not have been exposed to those claims if Hodder Rook had not negligently valued those properties. That is because in each case Genworth would not have entered into the transaction. 8 The plaintiff claims damages for i. breaches by the defendant (Hodder Rook) of a tortious duty to exercise reasonable skill and care; ii. misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TPA) (and s 42 of the Fair Trading Act 1987 (NSW) (FTA) in relation to valuations of 2 properties at Cabramatta and Ashcroft each of which was expressed to be addressed to the lender " and its mortgage insurers for mortgage purposes ." [There had been a claim made concerning another valuation but in its opening submissions the plaintiff confined its claim to the above-described valuations] 9 Genworth claims to have relied on the valuations in entering into lender's mortgage insurance (LMI) policies with the lenders that advanced funds to borrowers on the security of the properties. 10 Hodder Rook admits that Genworth entered into the relevant LMI policies and, in relation to the Cabramatta valuation, admits that a duty of care was owed to Genworth. The denial that a duty of care was owed in relation to the Ashcroft valuation (and when this was an issue, possibly the Bankstown valuation) is based on the contention that the valuation provided to Genworth was not co-signed by a director of Hodder Rook and was a "preliminary valuation." 11 Under the terms of the LMI policies, Genworth insured the lenders for the loss on an Insured Loan at the Loss Date (relevantly the date on which the lender sells as mortgagee in possession) following a Default (an event following which the lender's power of sale becomes exercisable) [Clauses 2.2, 3.1 and Definitions in clause 1.1 of the LMI Master Policy (pages 6,7 and 10)]. The insured loss is the amount outstanding on the loan less specified deductions which include the amount realised on the sale of the property [Clause 3.3 of the LMI Master Policy (page 11)]. 12 Set out below is a table summarising the key dates and amounts on each transaction: Cabramatta Ashcroft Valuation $430,000 $400,000 (Date) (9 July 2004) (14 January 2005) Amount of Insured Loan $385,000 (part of $512,000 loan) $360,000 Date of Approval 12 July 2004 17 January 2005 Gross Proceeds of Sale $265,000 $272,000 (Date of Sale) (8 December 2005) (7 December 2005) Amount of LMI Claim Paid $156,772.56 $132,007.71 (Date) (6 April 2006) (29 October 2006) The issues 13 The issues for determination (based on the pleadings) were as follows: i. Was a duty of care owed by Hodder Rook in relation to the Aschroft valuations despite the fact the valuation was not co-signed by a director of Hodder Rook? ii. Did Genworth rely on the valuations when issuing the LMI policies to Perpetual and Permanent? iii. Were the valuations based on unsuitable sales evidence and inaccurate, or was there (as contended by Hodder Rook) a reasonable basis for the valuations? iv. Did Hodder Rook breach a duty of care owed to Genworth in relation to any of the valuations? v. Did Hodder Rook engage in misleading and deceptive conduct in contravention of s 52 of the TPA and/or s 42 of the FTA in making representations as to the market value of the properties which were inaccurate? vi. Did Genworth cause or contribute to its own loss by: a) failing properly to assess the creditworthiness of the borrowers or capacity to repay the loans? b) failing to take adequate security against the risk of default by the borrowers? vii. Has Genworth failed to mitigate its loss by take adequate steps to recover the loans to the borrowers or taking seeking to enforce a judgment against the borrowers exercising rights of subrogation? viii. Are the losses claimed by Genworth too remote or not the natural consequence of the conduct of Hodder Rook? ix. Was the cause of the losses claimed by Genworth market volatility or a fall in the market value of the properties? 14 The only issues that have been actively pursued by Hodder Rook in the evidence have been issues 1 to 5. Duty of Care 15 The legal principles are not in doubt. A valuer owes a duty of care to the recipient of a valuation containing negligent misstatements causing economic loss. 16 The relevant authorities were recently reviewed by the Full Court of the Federal Court in Kestrel Holdings Pty Limited v APF Properties Pty Ltd (2009) 260 ALR 418. At [94] Gray, Mansfield and Tracey JJ stated: It now seems clear that a valuer may in certain circumstances owe a duty of care to the recipient of a valuation containing negligent misstatements causing economic loss, even in the absence of a contractual relationship between the valuer and the recipient of the valuation. A duty of care is recognised to exist where the valuer actually knows or ought to have known that the person in question would rely upon the valuation so prepared. In respect of the objective limb of that formulation, it is noted that subjective knowledge of the particular recipient or purpose to which the valuation would be put is not relevant. In addition, there is the further requirement that a finding of a duty of care be reasonable in all the circumstances. Accordingly, the subjective knowledge, actual or potential, of the valuer is a relevant consideration in determining reasonableness 17 The analysis in Kestrel is consistent with the High Court's judgment in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413. At ]58] of that judgment McHugh J held: The valuation in the present case is the product of a contract between the valuer and the Bank. MGICA was not a party to that contract. However, the scope of the duty of care which the appellant owed to MGICA is identical with the contractual duty which the appellant owed to the Bank and which is to be deduced from the terms of the contractual arrangement entered into by those parties. That is because the contract specifically contemplated MGICA as a party which was entitled to rely on the valuation. 18 At [83] Gummow J held: In this case, MGICA relied upon the valuers to exercise reasonable care and skill in providing the valuation. The relationship of reliance was particularly close in that but for the valuation MGICA would not have acted to its detriment in entering into the mortgage insurance transaction. Further, given the text of their Report, the valuers knew, or ought to have known, that their representations would be relied upon by MGICA. 19 And at [116] Kirby and Callinan JJ held: The instructions, and the terms in which they were complied with, and the valuation provided, all give content to the duty of care in this case, as they will in most, if not all, such cases. 20 Counsel for the plaintiff took the Court to the decision in Vero Lenders Mortgage Insurance Ltd v Taylor Byrne Pty Ltd [2006] FCA 1430, which appears to be the only decision, in relation to the Australian Property Institute (API) Residential Valuation and Security Assessment Pro-forma Valuation Instrument and Supporting Memorandum, which supports the proposition that that particular Supporting Memorandum gives content to the relevant duty of care. At [50] Greenwood J noted: In preparing the valuation, Mr Duffield was undertaking professional tasks which gave rise to a duty to exercise all reasonable care, skill and diligence as a competent valuer in preparing the valuation and security assessment contained within the Pro-forma Report compiled in accordance with the Supporting Memorandum. 21 Counsel for the plaintiff further took the Court to relevant decisions concerning the so-called "bracket" principle. In Hann Nominees Pty Ltd v National Australia Bank Ltd [2000] FCA 454 the Full Court of the Federal Court stated: 26 Because a valuation does not admit of a precise conclusion, competent and careful valuers may properly differ as to a particular figure. Therefore difference of result does not necessarily mean that a valuer has been negligent. However where a valuer determines a figure which is outside a range of values which could properly be arrived at by a competent valuer the Courts have taken the view that such an over-valuation affords some evidence of negligence on the valuer's part… 29 The relevant principles were also considered by the English Court of Appeal in Merrivale Moore plc v Strutt & Parker [1999] 2 EGLR 171 at 176-177 where Buxton LJ (with whom Nourse LJ agreed) pointed out that a finding that a valuation fell outside a reasonable range or "bracket" is not of itself sufficient to establish negligence but it substantially eases the task of the Court in deciding whether a valuer has been negligent. His Lordship was not prepared to hold in general terms that the adducing of evidence to the effect that the valuation is outside a reasonable range or bracket is a necessary precondition to a finding of negligence on the part of a valuer. He considered it may be open to a Judge, in a suitable case, to hold that a valuation figure is so far removed from what is the true value of the property that it could be regarded as a valuation that was outside the limits open to a competent valuer without specific professional evidence being given of what those limits were. 22 Furthermore, in Adwell Holdings Pty Ltd v Smith [2003] NSWCA 103 Meagher JA, Mason P and Buddin J agreeing, held at [9]: In Singer & Friedlander Ltd v John D Wood & Co [1977] EG 569 [this appears to be a reference to (1977) 243 EG 212] Watkins J said: "The valuation of land by trained, competent and careful professional men is a task which really, if ever, admits of precise conclusion. Often beyond certain well-founded facts so many imponderables confront the valuer that he is obliged to proceed on the basis of assumptions. Therefore, he cannot be faulted for achieving a result which does not admit of some degree of error. Thus, two able and experienced men, each confronted with the same task, might come to different conclusions without anyone being justified in saying that either of them has lacked competence and reasonable care, still less integrity, in doing his work." Since then, judges seem to have taken a figure of 10% (or, in some cases at least, perhaps 15%) of the true figure to constitute an area, or bracket, within which, prima facie, a valuation is not negligent. But the importance of that "bracket" notion must not be misunderstood. It is not a statement of some principle that no valuation within the bracket can, as a matter of law, be negligent. That such a valuation can still be negligent is not only a matter of common sense, but has been judicially developed in such cases as Interchase Corp Ltd v ACN 010 087 573 Pty Ltd (Supreme Court, Queensland, 520 of 1994, BC 200000188) [this appears to be a reference to [2000] QSC 013] and Lion Nathan Ltd v Coca-Cola Bottlers Ltd [1996] 1 WLR 1438. Once one finds that a valuation is within the "bracket", one can infer that prima facie, but only prima facie, it is not tainted by negligence; of course, it may have been arrived at by negligence, but that fact must be proved; one can never say that purely because a figure is within the "bracket", no negligence can be involved; but, on the other hand, if one arrives at a conclusion that a particular valuation is correct, one may turn to the "bracket" test as a check. 23 The plaintiff further relied on a decision of this Court in Trade Credits Ltd v Bailleu Knight Frank NSW Pty Ltd (1985) Aust. Torts Reports 80-757, wherein [at 69, 529] Clarke J relied on the various valuation evidence - other than that of the defendant valuer - in order to determine what a permissible margin of error was. 24 In a useful publication – A A Hyam, The law affecting valuation of land in Australia (Federation Press, 4th ed. 2009) one finds at page 190, the following passage in relation to the "use of comparable sales evidence": The use of comparable sales evidence is the most widely accepted method of determining the market value of land: Redeam Pty Ltd v South Australian Land Commission (1977) 40 LGRA 151 at 156. This method was described by Stephen J in Riverbank Pty Ltd v Commonwealth (1974) 48 ALJR 483 at 484 as 'the conventional valuation technique', and in Bickle v Commissioner of Main Roads (1961) 7 LGRA 155 at 159 as the most direct method. Indeed, in applying most methods of valuation it is necessary for the valuer or the Court to use market transactions for the purpose of obtaining basic information. In St Martins' Centre Pty Ltd v Valuer-General (WA) (2003) 30 SR (WA) 218, the Land Valuation Tribunal of WA made the following comments, in relation to the application of this method, at 224: The direct comparison method of valuation, sometimes referred to as 'the market comparison', is applicable in cases where sales evidence of other properties directly comparable to the subject are available, or where minor adjustments can be made when applying the evidence to take into account pointes of difference between the evidence and the subject properties. The method rests on the principle that evidence of market price is the best indicator of value. If acceptable evidence exists, direct comparison of comparable sales of other land provides the most straightforward and reliable guide to market values: Harris v Minister for Public Works (1912) 12 SR (NSW) 149 at 156; Jowett v Federal Commissioner of Taxation (1926) 38 CLR 325 at 329; Commonwealth v Arklay (1952) 87 CLR 159 at 170. The 'selling' approach based on market sales of comparable land requiring the minimum of adjustment was preferred by Hemmings J, in Pamalco Pty Ltd v Minister (No 3) (1991) 71 LGRA 441 at 447, in valuing land for compensation purposes to the hypothetical development method with the inevitable multiplicity of assumptions and adjustments. After identifying the transactions or sales upon which they will rely in forming their opinion as to value, valuers will analyse the sales by dissecting them into their component parts, then, using their skill and judgment, apply the information thus obtained to the task at hand. In Minister of Environment v Petroccia (1982) 30 SASR 333 at 343, Wells J said that having identified the comparable sales 'they must be subjected to critical appraisal in the usual way before being put to direct use in the process of valuation'. Evidentiary matters 25 The evidence demonstrates that each of the valuations was expressly addressed to the "mortgage insurer" and each of the three reports state that the valuation can be relied on by GE which, in context, can be understood as a reference to Genworth. 26 I accept that there is nothing in the point taken by Hodder Rook that the Ashcroft valuation was attended by some lesser duty of care. 27 I accept that on the evidence and there was no requirement in the instructions that the valuation should be co-signed (the Ashcroft valuation instructions is at plaintiff's chronological bundle 2 (CB 2) p 345). 28 Nor is there any evidence of any internal Hodder Rook rule of which Genworth was made aware requiring two signatures. The instructions from the mortgage originator did not require two signatures. There was no internal Genworth guideline that a valuation would only be accepted it had two signatures. 29 The valuation was faxed to the mortgage originator (see p 357 CB 2). The finding is that the valuation was sent in the knowledge it would be relied on by the mortgage insurer in deciding whether to issue LMI a policy in relation to the loan. 30 The fact that Hodder Rook apparently were not paid for the Ashcroft valuation is irrelevant. That is a credit risk issue between Hodder Rook and the mortgage originator AMC Loans and does not impact on the existence or scope of the duty owed by Hodder Rook to Genworth. Reliance 31 The documentary and witness evidence demonstrates that in each case approval of the issue of a LMI policy was conditional on a satisfactory valuation, and the valuation was obtained and considered before the relevant transaction was approved. It is appropriate to treat with the valuations individually Cabramatta Valuation 32 The evidence revealed that the decision to issue a LMI policy to Permanent Custodians Limited in relation to the loan to Kin Oanh Nguyen and Quoc-Hoa Hau was made by Samantha Ashcroft and Paul Crick. 33 Samantha Ashcroft's evidence was set out in paragraphs 18 to 20 of her affidavit affirmed 25 November 2009 in the following terms: "18. Kim Oanh Nguyen and Quoc-Hoa Hau applied for a loan from Permanent Custodians Limited of $512,000 to refinance a loan secured by a mortgage over an owner occupied property at [ ], Cabramatta and additional funds for the purchase of an investment property [ ], Cabramatta. Initially the investment property was to be in Queensland however this was changed by the borrowers to the purchase of an investment property at [ ], Cabramatta before the Conditional Approval Advice was issued. The security offered for this loan was mortgages over the properties at [ ] Cabramatta NSW and [ ] Cabramatta NSW. 19. On 8 July 2004, the proposal for lenders' mortgage insurance was reviewed by Garth Adam who at that time was an Account Manager in the employ of the plaintiff, holding a Level 1 delegation. This delegation allowed him to authorise policies of lenders' mortgage insurance for a loan of up to $400,000 for a single residential dwelling and $300,000 for land . He entered the following note in eSolve: "Loan $512,000. Refinance homeside $385,000. Investment purchase $127,000. NDI 1.42 LVR 65.7% Repayment ticked satisfactory. 2 paid defaults, $397 to Vodaphone. Paid 9/10/02 and $768 to Amex paid 6/3/02. Average excuses but within GE guidelines at this LVR. Recommend approval STV." 20. The conditional approval of the lenders' mortgage insurance was outside Garth Adam's delegated authority and he referred it to me on 6 July 2004. I reviewed Garth Adam's notes, particularly regarding the low LVR at that time and entered the following note in eSolve: "Approved STV" 34 That evidence was not challenged on cross-examination. This evidence confirms the documentary evidence that the application for a LMI policy was "sought for an amount of $512,000 as one approval" (CB 3 at 554). The split of the loans between the two properties offered as security did not alter the fact that Genworth was asked to treat the application as one loan and did so. 35 Ms Ashcroft approved the transaction "subject to valuation" which is recorded in the Genworth computer record (p 623 at CB 3). A Condition Approval Advice was sent on 8 July 2004 (p 584 at CB 3). 36 The valuations of the two properties offered as security for the loans was received on 12 July 2004 and reviewed by Paul Crick (see the Genworth computer record at p 623 in CB 3). Paul Crick's evidence as to his decision-making process is at paras 13 to 19 of Crick's affidavit in the following terms: "13. On 12 July 2004, I reviewed the fax sent by Advest Consulting Group, including the valuations by the defendant for the proposed security properties at [ ] Cabramatta and [ ] Cabramatta. 14. I entered the details for each of the proposed security properties into the eSolve system. The eSolve system confirmed that, based on the valuations of the proposed security properties, the proposed loan to Kim Oanh Nguyen and Quoc-Hoa Hau was within Genworth's underwriting guidelines. Having reviewed the proposal for lenders' mortgage insurance, including the valuations by the defendant for the proposed security properties at [ ], Cabramatta and [ ] Cabramatta, I considered that the proposal for lenders' mortgage insurance represented an appropriate risk to insure and I entered the following notes into the eSolve system: "Vals received and checked. Accepted Approved." 15. Kim Oanh Nguyen and Quoc-Hoa Hau sought a loan of $512,000 which, compared to the sum of the valuations by the defendant for the proposed security properties at [ ], Cabramatta and [ ]Cabramatta (which came to the sum of $645,000), represented an LVR of 80% which was within Genworth's Underwriting Guidelines and was within my delegated authority. 16. In approving the proposal for lenders' mortgage insurance, I had regard to the valuations by the defendant of each of the proposed security properties. I relied entirely on the expertise of the defendant as a valuer to assess the value of each of the proposed security properties. 17. The defendant valued the proposed security property at [ ] Cabramatta as being worth $430,000 as at 9 July 2004. There was nothing in the valuation of [ ] Cabramatta that caused me any concern that the proposed security did not offer appropriate security for the loan. There were no adverse comments contained in the valuation of [ ] Cabramatta or any concerning risk ratings in the valuation that suggested that the proposed security property would not be readily saleable in the event of default. 18. The defendant valued the proposed security property at [ ] Cabramatta as being worth $215,000 as at 9 July 2004. There was nothing in the valuation of [ ], Cabramatta that caused me any concern that the proposed security did not offer appropriate security for the loan. There were no adverse comments contained in the valuation or any concerning risk ratings in the valuation of [ ] Cabramatta that suggested that the proposed security property would not be readily saleable in the event of default. 19. Given the earlier acceptance of the borrowers' financial position and based on the valuations by the defendant, I determined that that the proposed loan to Kim Oanh Nguyen and Quoc-Hoa Hau represented an acceptable risk for the plaintiff to insure." 37 Mr Crick was questioned about the split of the loans. His evidence was that the splitting of the loans was an automatic process within Genworth's computer system of which he had no knowledge. Mr Crick also gave evidence that he did not see the Acceptance Advice issued by Genworth on 12 July 2004 (p 616 at CB 3), as this was a computer-generated document. He had no knowledge of the split between the two loans. His evidence was consistent he approached the transaction as one loan with two properties offered as linked security. 38 In relation to the decision he would have taken if the valuation of the property at [ ], Cabramatta had been valued at $340,000, Mr Crick's evidence was as follows: "21. If the loan had been referred to me for consideration on the same terms save that the proposed security property at [ ], Cabramatta was valued at $340,000 and the proposed security property at [ ]Cabramatta security was valued at $215,000, this would have represented an LVR of 92.5%. An LVR of 92.5% was (and remains) well outside Genworth's Underwriting Guidelines for a loan which included an investment property and also for a loan which exceeded $500,000. eSolve would not have permitted any Account Manager, even myself, to issue an Acceptance Advice for such an LVR for a loan involving an investment property and a loan in excess of $500,000. For the policy of lenders' mortgage insurance to be processed in these circumstances it would have required recommendation by a Team Leader to the Chief Risk Officer or Managing Director and approval by the Chief Risk Officer or Managing Director. 22. If the proposal had been referred to me with a valuation of $340,000 in relation to the security property at [ ] Cabramatta NSW, I would not have referred the proposal to the Chief Risk Officer or Managing Director for consideration as the proposed security property did not represent appropriate security for the loan based on Genworth's Underwriting Guidelines." 39 Mr Crick accepted in cross-examination that the amount insured of $385,000 in relation to [ ] property (recorded on the acceptance advice (p 616 at CB 3)) represented 89.5% of the valuation of $430,000. Mr Crick accepted that the valuation (Ex P2) had on the third page under the Additional Comments section recommended a "LVR of no more than 85%". 40 Mr Crick's responses on these points are set out at p 44 of Day 1 of the transcript: Q. Could you read the comments on this page, all the last sentence? A. It says, conservative mortgage recommended, LVR of no more than 85%. Q. Of course this is a recommendation, you do not have to follow it but any reason why you would still approve this loan, even if it is over 85%? A. As I've previously stated, the actual risk is over both securities, so in our normal practice, our normal practice is because there's two securities our LVR is calculated over both securities in this instance. If you're getting a - if this was a standalone security and the loan amount was 385,000 and we had one security of 430,000 and it was at 89%, then the comment then placed into the valuation would be relevant in that case. We would then obviously look at that LVR and look at the combined LVR and it if was 89.53 then the likelihood would be that we would reduce it to 85% or below. 41 Later, in re-examination, Mr Crick gave the following evidence (at T45): Q. Mr Crick, you were asked some questions about the split? A. Yes. Q. In the valuation? A. Yes. Q. And you answered that that was not something that you controlled. Can you explain what you looked at in terms of valuation evidence and what you relied upon when issuing the loan? A. With reliance to the acceptance of the policy in this case, because there were two, because there were multiple securities in this case, where the total LVR of the total - basically the total loan is over the total amount of the securities, so in that case we looked at both securities, whether they were both acceptable at the time, over the total loan amount which was 312 which then gave us a combined LVR of 80% as per the policy, that's how it was issued. In regards to the loans, the actual split, the loan splits, they're determined - the lender sends us - it says there's a loan split A and there's a loan split B, we don't actually - and then they tell us the loan purpose. They don't advise us which - what loan covers what security because of - they've submitted it requiring both securities to bring the loan within our policy. 42 Mr Crick's evidence was, in summary, that he had considered the valuations together as part of linked security offered for the loan. Mr Crick approved the transaction on the basis of a LVR of 80%. 43 There was no challenge to Mr Crick's evidence that he would not have approved the transaction if the valuation of the [ ] property had been $340,000. Ashcroft Valuation 44 The Ashcroft transaction was approved by Sunny Siddiqui and Emma Tattersall - neither of whom gave evidence. 45 Genworth's computer records record that Sunny Siddiqui approved the application "STV" (subject to valuation) on 5 January 2005 and Emma Tattersall noted on the computer system on 17 January 2005 "Rec'd acceptable val. Approved" (p 367 at CB 2). I accept that this is consistent with the documentary evidence that the valuation was sent to Genworth on 17 January 2005 (p 363 in CB 2). 46 Genworth acceptance advice sent out that day (p 368/ CB 2). 47 Ms Ashcroft gave evidence of what is likely to have occurred if the Ashcroft property had been valued at $340,000 at paragraphs 37 to 39 of her affidavit in the following terms: "37. The proposal for lenders mortgage insurance included a valuation of the proposed security property, the Ashcroft Property, by the defendant dated 14 January 2005. The defendant valued of the Ashcroft Property as being worth $400,000 as at 14 January 2005. Mahmoud Chamma sought a loan of $360,000 and this represented an LVR of 90% based on this valuation. There were no adverse comments contained in the valuation or any concerning risk ratings in the valuation that suggested that of the Ashcroft Property would not be readily saleable in the event of default. 38. If the loan had been referred to me rather than Emma Tattersall for consideration on exactly the same terms save that the Ashcroft Property was valued at $340,000, this would have represented an LVR of 105%. An LVR of 105% was (and remains) outside Genworth's underwriting guidelines. ESolve would not have permitted any Account Manager, even myself, to issue an Acceptance Advice for such a high LVR. For the policy of lenders' mortgage insurance to be processed in these circumstances it would have required recommendation by a Team Leader to the Chief Risk Officer or Managing Director and approval by the Chief Risk Officer or Managing Director. 39. I would not have referred the proposal to the Chief Risk Officer or Managing Director for consideration as the proposed security property did not represent appropriate security for the loan given the loan was greater than the value of the security. In my experience I have never heard of any of the other Team Leaders making recommendations for acceptance of risks carrying a LVR of 105%, nor have I ever heard of the Chief Risk Officer or Managing Director ever approving a loan in that category." 48 I accept that the evidence of Ms Ashcroft, which was not challenged by the defendant, is appropriate to be accepted. It was entirely consistent with Genworth's underwriting guidelines (pp 308-329 at CB 2). The guidelines stipulate that the maximum LVR on a refinance transaction (see p 333 at CB 2) was 90% (see p 313 at CB 2). 49 The evidence demonstrates that in relation to both the Cabramatta and Ashcroft transactions, the transactions would not have proceeded if lower valuations had been provided by Hodder Rook. Scope of the Duty in Tort 50 Furthermore the question whether Hodder Rook breached its duty owed to Genworth ultimately turns on the expert evidence, the content of the duty owed by Hodder Rook can largely be determined from the documentary evidence which is not in dispute. 51 Each of the valuations in issue in these proceedings (Ex P2 and Ex P4) contained a statement in the following terms: "As instructed this report complies with the criteria set out in the API Residential Valuation and Security Assessment pro forma supporting memorandum dated 8 May 1998, and must be interpreted with that memorandum." 52 The PropertyPro Residential Valuation and Security Assessment Pro-forma Supporting Memorandum (PropertyPro Memorandum) (Ex P1) sets out detailed instructions and guidance for the completion by a valuer of the pro-forma valuation. 53 The memorandum gives content to the duty owed by Hodder Rook to Genworth (see Kenny & Good (1999) 199 CLR 413 (see McHugh J at 439 [58], Kirby and Callinan JJ at 456 [116] Gummow J at [83], Vero Lenders v Taylor Byrne [2006] FCA 1430 at [50]). 54 The key sections of the PropertyPro Memorandum in relation to the issues in these proceedings are: PP 1: 1.0 INTRODUCTION Purpose This Supporting Memorandum provides the basis upon which Members of the Australian Property Institute (API) who are Certified Practicing Valuers will provide valuations on residential properties for mortgage purposes using the PropertyPRO 'Residential Valuation and Security Assessment' Pro-forma Report for Mortgage Purposes. It is also the basis on which their lender clients will accept and use such valuations. Scope This Supporting Memorandum sets out limitations and qualifications inherent in valuations, and in particular the Risk Analysis, provided in the PropertyPRO 'Residential Valuation and Security Assessment' Pro-forma Report for Mortgage Purposes format. A lender-client who instructs a valuer to provide a PropertyPRO Proforma Report agrees to accept and be bound by the process contained within this Supporting Memorandum. … Valuations using the PropertyPRO 'Residential Valuation and Security Assessment' Pro-forma Report for Mortgage purposes are provided for and may be relied on by lender-clients and their mortgage insurers and/or securitisers only. …. PP 1: 3.0 FORMAT OF REPORTS Layout Designed to Facilitate Easy Checking The PropertyPRO Residential Valuation and Security Assessment Pro-forma report layout intentionally has most of the key information, the risk analysis, valuation and assessments (and their certification) on the first page, while supporting information, data and comments follow. While this is primarily to facilitate easy checking by the lender and/or trustee and mortgage insurer, it is essential that the whole report be read. The risk analysis on the front page with its graphic presentation particularly serves to draw immediate attention to any risks rated 'Medium to High' or 'High', and to appropriate comments later in the report. Brief Facts, Points and Concise Statements As the report is a pro-forma report, it presents its information in brief pertinent facts, points and concise statements. However, features impacting significantly on the property should be adequately noted. The format has been designed to suit a majority of situations. Where required, the 'Comments' section can be expanded to cover less common properties. While the first page is fixed length, some fields on the second page have the capacity to expand, creating an extra page (or more) if needed. …. 2. RISK ANALYSIS The risk analysis in the PropertyPRO format is the valuer's assessment of the impact on the property of a number of specified factors presented in a numerical/ graphical format. This is a simplified analysis based on the current experience of the valuer and is not a technical analysis. The lender client cannot expect that the valuer brings to the task any greater level of common knowledge or ability to foresee events than can be expected of persons experienced in the market for that class of property in its market place (which may be local or broader). The risk analysis is the product of the current experience of the valuer based on information that is common knowledge and /or readily ascertainable in the market for that class of property in its market place. The risk analysis does not reflect information that is privileged or to which the market for that class of property in its market place does not have ready access and it does not reflect decisions, announcements, releases, articles and the like that the valuer has not had reasonable time and opportunity to assess and consider. Subject to these limitations, the Risk Analysis indicates the level of adverse impact each stated aspect has, or in the near future, might have on the property's value and marketability. In the case of higher level ratings, it can also provide an indicator of the presence of relevant comments in the 'Additional Comments' section on the following page. .... Risk Ratings Risk Ratings focus on four property-specific aspects and four market-related aspects. Each of these aspects can involve consideration of a range of elements relative to it. . . . level of adverse impact or risk It is accepted that each aspect is likely to have some possibility of adverse impact or risk, however low or nominal. The assessment of the level of adverse impact or risk includes assessment of both the probability and consequence of the risk. A Risk Rating of 1 equals normal or no influencing factors and risk factors elevate from that point. ..... the risk ratings The ratings which are outlined below the bar graphs are: '1' - Low '2' - Low to Medium '3' - Medium '4' - Medium to High '5' - High Any Risk Ratings of 4 or 5 or the existence of three or more '3' Risk Ratings MUST BE COMMENTED UPON in the 'Additional Comments' section. For the purpose of these reports, the risk rating reflects the valuer's assessment of: • the level of adverse impact the stated aspect has upon the current value and/or marketability of the security property, and/or • the currently perceived level of adverse impact the stated aspect could have on the value or marketability of the security property within the initial 2-3 year period of the security. … Market Risk Ratings. Reduced Value next 2 - 3 yrs This Risk Rating is an indication of the level of risk of this property reducing in value over the next 2-3 years. It is a forward-looking summary rating taking into account aspects affecting, or likely to affect, the value of the property. The assessment is made on the basis of information that is common knowledge and/or readily ascertainable in the market and having regard to reasonably foreseeable events as at the date of the assessment. The rating cannot be expected to reflect information that was not common knowledge, or conditions, events or circumstances that occur subsequently or unexpectedly. Market Volatility This aspect reflects the risk of significant adverse impact on the value of the property of the market changing direction rapidly. While this will reflect historical performance, reasonably foreseeable events should also be taken into account. Local Economy Impact This aspect reflects the extent to which a significant change in the local economy is impacting adversely and/or the risk that it may impact adversely on the value of the property in the 2-3 year time frame. Market Segment Conditions This aspect reflects the extent to which the condition of the market in this particular market segment is impacting or may impact adversely on the property. … 3. EXPLANATORY MATERIAL The valuation will be carried out in accordance with the General Concepts, Principles and Definitions section of Professional Practice 2002 of the Australian Property Institute (and subsequent editions) and the Practice Standards and Guidance Notes contained within the guide. The comments below relate specifically to the PropertyPro Residential Valuation & Security Assessment. Market Value A single figure amount is recorded for the Market Value in line with traditional valuation practice. The figure will normally be arrived at after consideration of several valuation approaches such as Sales Comparison and Summation. The Capitalisation approach may be used for investment property that is subject to a long-term lease. Immediately above the Market Value is an apportionment of that value into its main components - the value of the land and the added value of the improvements. For Strata Title property a single value only is recorded, as an apportionment is inappropriate. As an additional security measure, the 'Market Value' is also provided in words. The Market Value assessed by the Valuer relates to the market conditions existing at the date of valuation (which will normally be the date of inspection). … Authorised for Issue By This is included to address instances where a director of the valuation firm is required by the client to also sign the report. A person signing in this capacity is merely authenticating the report as from that firm. It should not be construed as endorsing or co-signing the valuation. This would be inappropriate unless the co-signatory had, at the date of valuation, also inspected the property and been actively involved in the research and assessments. As a safeguard, the person authorising may choose not to include professional qualifications so as to avoid giving the false impression of being a co-signatory to the valuation. … 7. SALES EVIDENCE & THE MARKET Sales Evidence The three most recent comparable sales available should be provided. More sales may be considered. Details of these should be retained on file but should not be included in the report. Where in the Valuer's opinion there are insufficient or no recent comparable sales, older sales should be included and adjusted. Where sales quoted are older than 6 months (three months in a rapidly changing market), this should be noted in 'Additional Comments'. An explanation should be provided as to the method of valuation, the market dynamics and likely movement of the market since any older sales that have been relied on. Sales relied upon should, as far as possible, be realistic comparisons in price range, type of property and location. Where the sale price evidence differs significantly (say +/- 15%) from the value adopted on the subject property, the valuer should provide suitable comment on the dynamics of the market to explain why it has been necessary to rely on such evidence. Similarly if a different class of property is used as evidence, or if a sale in a substantially different location is relied on, reasons should be stated in 'Additional Comments'. Brief Comments Each comparable sale should be briefly described. In Comparison to Subject For consistency and clarity, the comparison should be the sale property compared to the subject property (not the other way around). For example, if the comparison states 'generally inferior' it should mean that the sale property is generally inferior to the subject property. Where warranted, it should also contain a brief note of any major differences not apparent from the description, eg. 'steeper block' or 'badly needs paint'. Latest sale of subj. property Where a sale of the subject property has occurred in the past 3 years, it should be noted. Specific comment should be made if a current sale is not considered to be in line with the market or is known to be affected by special circumstances or incentives. The valuer is not required to sight a copy of the contract. If the lender is aware of special circumstances or incentives, the valuer could be supplied with details and asked to comment. Where the valuation varies significantly from a current or recent sale of the subject property, the reasons should be outlined in 'Additional Comments'. It is not uncommon for the subject property to be valued 'at purchase price'. If there is a known current sale of the property, the valuer is expected to consider it against other evidence, as it has been a test of the market. As most properties sell within the normal Market Value range or tolerance, it will be reasonable for the purchase price to be adopted if it is considered to be within that range. Where the price has been at the top end of the range, additional comments would be warranted and the risk rating considered for any resultant increase in the risk of 'reduced value next 2 -3 years'. Level of Market Activity A brief note to describe the level of market activity as an indicator of the condition of the market. Adverse market conditions will reflect in the Risk Analysis and should be further commented on within the requirements of that section. Recent Market Direction A brief note of the recent direction (and strength) of movement in prices. Two or multi- tiered market? Is the property within a tiered market that includes two-tier and multi-tier markets. A 'Yes' or 'No' answer is required. If 'Yes', the Valuer should confirm that the valuation of the subject property is based on evidence that is reflective of informed purchasers and realistic marketing conditions or strategies such as would be readily available to an individual owner on resale. …. NOMINATED ADDITIONAL PARTIES This section appears only if it contains information. If the instructing Organisation/Lender requires the report to nominate mortgage insurers and/or securitisers as additional parties who may rely on the report, they can be stated in this section." 55 The key matters which emerge from the PropertyPro Memorandum are as follows: i. The valuer is required to provide an opinion as to the market value of the property at the date of the valuation (usually the date of inspection) that is supported by the evidence of at least 3 comparable sales within the 6 month period prior to the valuation (or 3 months in a rapidly moving market). If there are insufficient suitable comparable sales in the prior 6 months period, an explanation must be given in the Additional Comments section of the form. ii. The sales evidence should provide a realistic comparison in terms of price range, type of property and price. If the sales evidence varies significantly from the valuation (+ or – 15% is referred to in the memorandum) a suitable comment should be provided in the Additional Comments section of the form. iii. The sales evidence should be compared with the subject property with a description of the comparable sale which allows an understanding of why it has been judged to comparable, inferior or superior (as the case may be). iv. A sale of the subject property in the previous 3 years should be noted, particularly if the valuation is a significant variation from the valuation. The memorandum makes the common sense point that a prior sale is a test of the market. v. The valuer is required to comment on the direction the recent activity and direction of the market. vi. The Risk Analysis section of the form requires a forward-looking assessment of four risk factors which may affect the value of the subject property, particularly over a 2 to 3 year period. The most pertinent factors are " market volatility " and the " reduced value 2-3 years ." The risk rating system requires a comment on any "4" rating or if there are three or more "3" ratings. 56 The PropertyPro Memorandum implicitly contemplates that a valuer will provide a valuation as a single figure and will not provide a range of figures. It is accepted in the authorities, however, that competent and careful valuers may properly differ as to the correct valuation of a property (Hann Nominees Pty Limited v National Australia Bank Limited [2000] FCA 454 at [26]-[29] (Full Federal Court), Lancini Properties Pty Limited v Savills (Qld) Pty Limited [2009] QSC 323 at [14]-[18] (Martin J). In each case, there will be an acceptable range of opinion or, as it is sometimes described, a margin for error. 57 Ultimately, the question of the acceptable range or margin of error is a matter which must be guided by the expert evidence (Adwell Holdings Pty Limited v Mark Smith [2003] NSWCA 103 at [9]-[11] (Meagher JA with whom Mason P and Buddin J agreed), Trade Credits Limited v Baillieu Knights Frank (NSW) Pty Limited (1985) Aust Tort Reports 80-757 at 69,529-69,531 (Clarke J). Breach of Duty Expert Evidence 58 Genworth called Mr Anthony Looby as an expert witness in relation to both valuations. Mr Looby is a Certified Practising Valuer and a Fellow of the Australian Property Institute with 34 years experience in valuing properties throughout Sydney (see the curriculum vitae at p 209 plaintiff's affidavit bundle 1 (AB 1)). 59 Mr Looby prepared retrospective valuations of the properties at Cabramatta and Ashcroft using the PropertyPro form and without having any knowledge of the valuations conducted by Hodder Rook (see lines 30-36 T57 (cross-examination), line 39-49, T75 and line1, T76). This put Mr Looby, as best he was able, in the same position as Mr Perera. Mr Looby also provided detailed commentary on the Hodder Rook valuations after he was shown them (pp181-189 AB1 (Ashcroft), pp 196-203 AB1 (Cabramatta). 60 Mr Looby met with each of the putative expert witnesses who had prepared reports on behalf of the defendant. Joint statements were prepared and tendered (Cabramatta Ex P11 and Ashcroft Ex P12). 61 The experts reports served on behalf of the defendants were not admitted into evidence because of a failure in each case to comply with UCPR 31.23(3). The Court also ruled that: "In relation to the admission into evidence of so much of the exhibit P12 and the exhibit P11 as identifies matters conceded by the plaintiff's expert, the principled approach to the current position is that only so much of the materials which were agreed to will be before the Court." (lines 4-9 T99) [ ], Cabramatta 62 In his report, Mr Looby stated his opinions that (1) the fair market value of the Cabramatta property as at 9 July 2004 was $340,000; (2) a reasonable range of opinion was $330,000 to $360,000 and (3) Hodder Rook's valuation of $430,000 exceeded the fair market value by more than 26% which exceeded acceptable industry ranges (p 203, AB 1). 63 The joint statement (Ex P11) of the experts records that the experts did not agree on the retrospective fair market value of the property. 64 The statement has a confusing reference to Mr Perera's valuation "represented the upper end of any reasonable market range" but it apparent from page 2 of the joint statement that Mr Looby moderated his opinion to assess the upper and lower end of the reasonable range to be $345,000 to $390,000. 65 Mr Looby clarified the position in re-examination in the following terms: Q. This is the joint statement you referred to in cross-examination I think? A. It is one of the joint statements, yes. Q. That document contains your expression of value on the Cabramatta property at 340,000? A. Correct. Q. And records Mr Perera's valuation at 430,000? A. Yes. Q. What is your opinion about whether that valuation was within a reasonable range of professional opinion? A. I consider as per the joint statement that the value lies between 340 and 390,000 as if you want to call it an upper and a lower range, I don't believe that 430,000 was supportable at the time for a mortgage assessment. 66 On this evidence, the Hodder Rook valuation exceeded the upper end of the acceptable range of opinion by a little more than 10% and the lower by more than 26.5%. I accept that this is sufficient to allow the Court to conclude that the valuation was negligent. 67 The conclusion that the valuation was negligent also flows from the following: i. Mr Perera failed to note the prior sale of the Cabramatta property in November 2003 for $340,000 – 8 months before the valuation date. The fact of the sale was known to him from the RP Data on his file (p 592 at CB3). The PropertyPro Memorandum required mention of the prior sale – particularly if there was a significant variation between the sale price and the valuation. ii. On Mr Perera's own assessment of the market as " steady " (Ex P2, p2), a significant increase in value from November 2003 to July 2004 was difficult to justify (and no attempt was made to do so in the Additional Comments section). It is submitted, however, that Mr Looby's assessment of the market activity as " slow " and the market direction as " declining " should be accepted. On either view of the direction of the market, there was no reasonable basis for the valuation of $430,000. iii. The joint statement records the agreement of the experts that the sale of the property at [ ], Cabramatta was of good comparison. Mr Looby considered the property to be superior to the subject property [ ] because it had potential for dual occupancy (duplex) development as it was a corner site (p 206, CB3). The basis for Mr Looby's view was rational and not undermined by the cross-examination (lines 34-39, T64). Mr Looby's view that the evidence of the sale of [ ] for $390,000 in April 2004 as setting an upper end on the reasonable range was logical and it is accepted. [ ], Ashcroft 68 In his report, Mr Looby stated his opinions that (1) the fair market value of the Ashcroft property as at 14 January 2005 was $340,000 and (2) Hodder Rook's valuation of $400,000 exceeded the fair market value by more than 17% which exceeded acceptable industry ranges (p 188-9, AB 1). 69 In the joint statement (Ex P12), the experts agreed on the margin of variation in relation to the Ashcroft property was $340,000 to $374,000. Mr Looby's confirmed his opinion in re-examination in the following terms: Q. This is the other joint statement I think you referred to in cross-examination, you've recorded there a margin of variations as the agreement between the experts of 340 to 374,000. What is your opinion about the acceptable range of opinion in relation to this property as at the date of the defendant's valuation? A. I believe the range that's stated in the report of 10% is reasonable overall. Q. And do you have an opinion as to the valuation of 400,000 by Hodder Rook wether that was within an acceptable range? A. I consider it exceeded an acceptable range of values. 70 On this evidence, the Hodder Rook valuation exceeded the upper end of the acceptable range of opinion by a little under than 10% and the lower end by more than 17%. I accept that that this is sufficient to allow the Court to conclude that the valuation was negligent. 71 The conclusion that the valuation was negligent also flows from the following: i. The experts had agreed that the three sales used by Mr Perera from the Bonnyrigg area were of limited relevance given the socio-economic disparities between the Bonnyrigg and Ashcroft. ii. The experts agreed that the most useful sales evidence was [ ], Ashcroft which was sold for $375,000 in September 2004 (four months prior to the valuation in January 2005). Mr Looby's view that the Parsons Street property was superior to the subject property because it was a corner site with dual occupancy potential was rational and not undermined in cross-examination (lines 44-50, T73, lines 1-8, T74). Mr Looby's view that the sale of [ ], Ashcroft set the upper limit of the acceptable range was logical and should be accepted. 72 A significant part of the cross-examination of Mr Looby directed to identifying discrepancies and, in some cases, minor errors in his reports. I accept however that the rational basis of Mr Looby's opinion that each of the Hodder Rook valuations were outside the acceptable range of opinion was not undermined. Mr Looby was plainly a very experienced valuer who understood, and discharged, his duty to the Court and did his best to assist the Court. Misleading Conduct 73 The claims for misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TPA) (and s 42 of the Fair Trading Act 1987 (NSW) (FTA) stand or fall with the negligence claims. 74 For the reasons set out above, Hodder Rook's misrepresented the value of the two properties to Genworth and its conduct contravened the legislation. Contributory Negligence 75 This allegation does not appear to have been pursued. The Genworth witnesses were not challenged about the steps taken to verify the employment of the borrowers and their ability to service the loans. Mitigation 76 This allegation does not appear to have been pursued. Genworth witnesses were not challenged about the steps taken in relation to the sales of the properties (by the lenders) or about any failure (alleged on the pleadings) to exercise rights of subrogation and pursue the borrowers on the balance of the loans outstanding at the dates of the sales of the properties by the lenders. Remoteness of Loss 77 This allegation would appear not to have been pursued, but Genworth's submissions on the issue in its written outline opening submissions are repeated. 78 Genworth contends and I accept that it is plain that a foreseeable and natural consequence of a valuation negligently overstating the value of the property is that there will be a heightened risk to the lender (and its mortgage insurer) of a shortfall on the sale of a property (see the principles explained in Kenny & Good v MGICA (1999) 199 CLR 413) [Gaudron J at 424-5 [16], [17], Kirby and Callinan JJ at 456 [116], 458 [12], 459 [124], see also McHugh J 439 [58]-[59] and Gummow J at 447 [83] and 449 [91] and [92]] 79 In truth the valuations prepared by Hodder Rook not only assessed the market value of the properties as at the date of the reports, but also provided an assessment of market risk based on a risk rating system of 1 to 5 (1–low, 2–low to medium, 3-medium, 4 medium to high and 5-high); the market risk categories being – "Market Segment Conditions", "Reduced Value next 2-3 years", "Local Economy Impact" and "Market Volatility." The valuations (to the extent they were addressed to the mortgage insurer) clearly were intended to enable the mortgage insurer to decide whether to enter into a LMI policy with the lender. Market Volatility or Fall in Market Value 80 Here again this allegation would appear not to have been pursued, but nonetheless the following may be said in relation to the allegation: i. The evidence establishes that Hodder Rook assumed a responsibility to advise both on the value of the properties and market risks, including the risk of a reduced value over a 2 to 3 year period. In those circumstances, this case is consistent with the scope of the duty found to exist in Kenny & Good v MGICA. A foreseeable risk of a negligent valuation was a shortfall on the sale of the property attributable to a fall in the value of the property. Hodder Rook is liable for the whole of Genworth's loss represented by the paid LMI claims in relation to the claims for breach of duty. ii. The evidence has established that Genworth would not have entered into the LMI policies if accurate valuations of the properties had been provided because the loans sought would have exceeded Genworth's maximum allowable Loan to Value (LVR) ratio (generally 90%) [In relation to the Cabramatta valuation, Hodder recommended a more conservative LVR of 85% because of a rating of "4" for Market Volatility. The LVR on the transaction was in fact reduced to 80% ($512,000 loan on combined values of $645,000)]. In each case, the borrowers fell into difficulties and the secured properties were sold within 2 years of the loans. iii. The measure of damages is the same in relation to the misleading conduct claims – either by analogy with the claim for breach of duty ( Kenny & Good at 428 [30], 443 [71] and 461 [130]-[131]) or because Genworth became "locked in" to transactions as a result of Hodder Rook's contravening conduct which exposed it to a fall in the value of the properties [An analogy can be drawn with the acquisition of securities by reason of misleading conduct in contravention of s 995 of the Corporations Act 2001 (Cth) considered by the Court of Appeal in Ingot Capital Investments v Macquarie Equity Capital Markets (2009) 73 NSWLR 653 at 685 [176]-[177])]. Damages 81 Under the terms of the LMI policies, Genworth insured the lenders for the loss on an Insured Loan at the Loss Date (relevantly the date on which the lender sells as mortgagee in possession) following a Default (an event following which the lender's power of sale becomes exercisable) [Clauses 2.2, 3.1 and Definitions in clause 1.1 of the LMI Master Policy (pages 6,7 and 10)]. The insured loss is the amount outstanding on the loan less specified deductions which include the amount realised on the sale of the property [Clause 3.3 of the LMI Master Policy (page 11)]. 82 There has been no challenge to the reasonableness of the sums paid by Genworth in settlement of the claims under the LMI policies. Genworth claims damages of $288,780.27 representing the amounts paid under the LMI policies (Cabramatta $156,772.56 and Ashcroft $132,007.71). 83 Genworth also claim interest on the damages pursuant to s 100 of the Civil Procedure Act 2005 (NSW) calculated at the rates of interest prescribed for judgment debts under Schedule 5 of the UCPR (see s UCPR r 36.7, s101 of the Civil Procedure Act, Ritchie at 2706). Matter reserved 84 During the hearing the Court dealt with objections by the plaintiff to the admissibility of evidence sought to be adduced by the defendant as expert evidence in the proceedings. On the third day of the hearing the reasons for rejecting this evidence were published. 85 During his final address Mr Pereira sought to submit that the expert evidence of Mr Looby [which had been placed before the Court on the first day of the hearing without objection], should now be rejected on the basis that Mr Looby had not agreed to be bound by the expert code of conduct. Naturally such a point ought to have been taken before the witness gave evidence and not after all his evidence was before the Court. Further such an allegation could and should have been put to the witness in cross-examination [on a voir dire]. 86 Nonetheless it is clear that there was no substance in this contention. The materials in evidence included the letters of instruction from Hicksons lawyers to Mr Looby of 1 October 2009. Those letters in terms required his acceptance of the terms of the requirements of the Expert Witness Code of Conduct and enclosed a copy of schedule 7 for his reference. The letters required him to read the schedule and to ensure that this report complied with the stated requirements of the code of conduct. The letters required him to ensure that his report contained a sentence to the effect that he acknowledged having read the Expert Witness Code of Conduct and agreed to be bound by the code. The most cursory glance of his report [see page 196 of volume 1 of the plaintiffs index of affidavits] establishes it is confirmation accordingly. As counsel appearing for the plaintiff correctly contended: In my submission, even taken at face value, this is simply a misreading of the acknowledgment. Mr Looby at page 196 confirmed that he received instruction-- Confirmed that he received instructions on 1 October 2009. Then Mr Looby describes what he's done in this report, and one is to undertake a retrospective valuation and then, secondly, to provide a critique. Mr Perera quite rightly points to the transcript evidence where Mr Looby explained that his process was, in my submission a very fair process, was that he conducted his retrospective valuation without knowledge of the Hodder Rook valuation. Then he was provided with the Hodder Rook valuation and he provided his critique. In providing this acknowledgment here in a report that's dated 26 October 2009, he's acknowledging as required by the rules that all of that work was undertaken. In my submission that's the fair reading of this acknowledgment. He undertook all of that work having been reminded of his obligations under the code, having read them and having agreed to be bound by them. The report itself is an acknowledgment ex post facto and it would be true in every case of an expert report. Experts in complex cases may spend months doing their work and then they'll produce a report at the end, bearing the date that it's produced, containing the acknowledgment. That doesn't mean that an inference can be drawn that there was no awareness or understanding of the report at the outset. In my submission, just taken at face value on the documents, it's a misreading of the acknowledgment. Decision 87 For these reasons the plaintiff has established the case which it pursued. 88 The parties are directed to bring in short minutes of order on which occasion costs may be argued. ***************** 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.