Hay Property Consultants Pty Limited v Victorian Securities Corporation Limited  VSCA 247
In this case, the Victorian Court of Appeal decided an appeal from a County Court judgment where a lender was awarded damages for loss said to have been caused by a negligent over-valuation of properties by the defendant valuers. The case was brought at common law and for misleading conduct proscribed by the Trade Practices Act (Cth) ('TPA') and Fair Trading Act (Vic).
The valuers had valued properties at $800,000 and said that the properties were suitable security "up to a loan ratio of 65%" (that is, $520,000). On that basis, the lender lent $520,000 to borrowers secured by mortgages over the properties. After the borrowers defaulted, but before the lender took possession of the properties, the properties were deliberately damaged by an unknown person. The properties were then sold for $380,000 plus GST, resulting in a loss to the lender.
For the purpose of the proceeding it was agreed by the parties that: the properties were, in fact, only worth $575,000 at the time of the valuation; if the properties had not been valued at $800,000, the lender would not have made the loan; the diminution in value of the properties caused by the property damage was $215,000 and the loss on sale totalled about $170,000.
One question the trial judge was asked to resolve was whether the valuers were liable for the entire loss suffered by the lender or whether the diminution in value of the subject properties caused by the deliberate damage was not recoverable. The valuers were held liable for the entire loss. The decision was overturned on appeal.
First instance decision
The trial judge considered the decision of the High Court in Henville v Walker, a leading case on damages under s82 of the TPA.
That case suggests generally that it will be sufficient if the defendant's misleading conduct was a cause of the plaintiff's loss. In that instance, negligence by the plaintiff was not sufficient to break the chain of causation.
The trial judge held the valuers were liable for the whole of the loss suffered by the lender on the sale of the properties, because their misleading conduct was one of two operative and concurrent causes of the lender's loss. Further, that the contravening conduct was a cause of the loss because the entire loss was brought about by the decision to lend the money, which would not have occurred without the misrepresentation. No amount would have been lent at all if the properties had been valued at less than $800,000.
The trial judge noted that in Henville members of the High Court left open the possibility that, in rare cases, a supervening event might relieve a defendant from liability for misleading conduct under s82 of the TPA. She held that this was not such a case.
The decision on appeal
The valuer was successful on appeal.
In the view of the Court of Appeal, the loss on resale was not an indivisible loss caused by the misleading representations by the valuers. There were two separate and distinct types of loss, one of which was the valuer's misleading representations; the other of which was attributable to the fact that the properties were damaged by third parties. The Court gave several reasons.
First, although the lender would not have made the loan but for the valuers' misrepresentations, the satisfaction of the 'but for' test is not sufficient to establish that the loss was caused by the conduct of the valuers.
The criminal damage could have occurred regardless of the valuers' negligent misstatement.
Secondly, the legal context in which the right to recover damages arises must be taken into account in resolving causation issues. The Court considered that the purpose and policy of the TPA does not require a negligent valuer to be held liable for loss caused by the criminal acts of third parties, except in circumstances where the original breach increased the risk that those acts would occur. The damage suffered was not within the scope of the protection conferred by the TPA.
The Court of Appeal said it was consistent with the objects of the TPA to hold that the negligence of a plaintiff will not normally relieve a defendant from liability for loss under s82 of the TPA (or at least as it stood before the proportionate liability amendments introduced into s82(1B)). However, that rationale did not apply where loss is caused by the acts of third parties following a breach of the TPA. The policy considerations which underpin the TPA did not require a finding that a valuer who misrepresents the value of property is to be held liable for all losses which happen to occur after the making of a misrepresentation. The Court said that the case law did not require valuers to be treated as insurers of the loan; to be burdened with liability for every loss which occur after making a negligent misstatement of the value of the property. The reference to the 65% loan to value ratio in the valuation was not an undertaking that the properties would continue to be adequate security for the loan, even if they were subsequently damaged by third parties.
Finally, the Court considered the case was an example of an abnormal event intervening between the breach and the damage which broke the chain of causation between the misleading representation and the loss suffered as the result of the subsequent criminal acts.
The case demonstrates that, while an expansive view is taken to the awarding of damages under s82 of the TPA, there are limits to this. There may still be cases where intervening act arguments can succeed.
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