In Kayteal Pty Ltd v Dignan1, the plaintiff
(Kayteal) lent A$780,000 to Mr Bsat on the security of a mortgage
over property owned by Mr Bsat, valued by Mr Dignan and his company
(the valuers) at A$1.2 million. The property was worth only
A$52,000. Mr Bsat did not repay any of the loan. Kayteal obtained
judgment against Mr Bsat, however it remained unsatisfied and Mr
Bsat was later made bankrupt. Kayteal sued the solicitors who acted
for them on the mortgage alleging they were negligent.
Brereton J found that:
unless specifically instructed, the scope of a solicitor's
duty of care to a lender includes the legal efficacy of the
security, but not its value, nor the creditworthiness of the
if in the course of investigating title and preparing for
settlement, a solicitor discovers facts that might cause the lender
to doubt the correctness of the valuation, or some other element of
the lending decision, the solicitor is required to report the
matters to the client.
His Honour found that the solicitor had discovered facts that
might cause the lender to doubt the correctness of the valuation
(namely that there were discrepancies between the valuation and a
survey of Mr Bsat's property and the council zoning
certificate). Brereton J found the solicitor had drawn certain
discrepancies to the valuers' attention but should not have
been satisfied with the valuers' responses. In addition, the
solicitor had not drawn the valuers' attention to a
"significant" matter, namely that, contrary to what was
stated in the valuation, the property was subject to flooding.
Brereton J found that that the solicitors breached their duty of
care by assuring Kayteal that the valuation was "okay"
instead of advising Kayteal that the valuers had not sufficiently
addressed their concerns. Also the valuers had assumed that the
property was not subject to flooding when a council certificate
Brereton J apportioned responsibility between the wrongdoers as
Mr Bsat – 47.5% – "he must have known
that the valuation (and thus his statement of assets and
liabilities) was erroneous, as he had purchased the property only
two months earlier for A$52,000. His misrepresentation must have
been intentional, and was for his benefit"
the valuers – 40% – "while not
intentional, their negligence was gross and their responsibility
not much less than that of Mr Bsat"
the solicitors – 12.5% "their responsibility is
relatively slight ...".
In determining the solicitors' responsibility, his Honour
said that the cases of Ginelle Finance (90% fraudster, 10%
solicitors), style="font-style: italic;">Chandra (90%
fraudster, 10% solicitors) and Vella (72% fraudster, 15% a
solicitor who falsely witnessed a signature and 12.5% negligent
solicitors) provided "much needed guidance".
In addition, Brereton J's conclusions with respect to the
wider aspects of the apportionment legislation include that a
cross-claim is not maintainable against any person who is found to
be a concurrent wrongdoer - except that a cross-claim is
maintainable against any person who is an "excluded concurrent
wrongdoer" – one who intentionally or fraudulently
caused the loss: s34A of the Civil Liability Act 2002
His Honour dismissed the solicitors' cross-claim against the
valuers (his Honour commented that the cross-claim did not assert
intentional or fraudulent wrongdoing). The solicitors had not
brought a cross-claim against Mr Bsat (whom Brereton J said would
be an "excluded concurrent wrongdoer").
The Kayteal case leaves open the question of whether a
concurrent wrongdoer is prevented or prohibited from obtaining
contribution or indemnity from any other concurrent wrongdoer
because no other concurrent wrongdoer has contributed to that
person's particular (apportioned) loss – see the
decision of McDougall J in Dymocks2.
The Kayteal case illustrates the scope of a
solicitor's duty of care to a lender and the apportionment of
responsibility between defendants where a fraudster is involved in
the lender's loss.
The decision also indicates that a cross-claim can be brought
against a fraudulent or intentional wrongdoer. However, the
commercial prospects of the cross-claim would need to be considered
as in many instances fraudulent and/or intentional wrongdoers are
persons of straw.
  NSWSC 197.
 Dymocks Book Arcade Pty Ltd v Capral Limited 
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