In Valcorp Australia Pty Ltd v Angas Securities Limited 
FCAFC 22, following a valuer's appeal of the primary
judge's finding that the lenders were responsible for 25 per
cent of the loss, the Full Federal Court increased the extent of
the lenders' contributory negligence to 50 per cent on the
basis that the lenders failed to undertake proper enquiries with
regards to the borrowers' ability to service the loan.
In November 2007, three associated lenders specialising in
non-conventional loans, Angas Securities Limited, Barker Mortgages
Pty Ltd and KWS Capital Pty Ltd (the lenders),
advanced a total amount of $2.88 million to Mr and Ms Opie
(the borrowers). The loan was secured by a
mortgage over the borrowers' apartment in Glenelg, South
Australia. Prior to advancing the funds to the borrowers, the
lenders retained Valcorp Australia Pty Ltd (the
valuer) to value the property. The property was valued by
Valcorp at $3.6 million with a reduced value of $3.2 million in the
event of a forced sale. Following default by the borrowers, the
property was sold for $1.75 million. The lenders sued the valuer
for misleading and deceptive conduct in contravention of s 52 of
the Trade Practices Act 1974 (Cth).
The trial judge found that the valuation had been conducted
negligently and that the valuer had contravened s 52 of the Trade
Practices Act 1974 (Cth). Indeed, by failing to identify Glenelg as
a separate market and by placing reliance on sales which were not
comparable sales, the valuer had conducted its valuation below the
standard of a reasonably competent valuer.
In addition, the trial judge determined that the lenders were
guilty of contributory negligence for having failed to conduct a
proper assessment of serviceability of the loan, contrary to
guidelines found in their operations manuals and declarations found
in their prospectuses to investors. The trial judge found that
there was not enough evidence that the borrowers had the capacity
to service the loan in November 2007. Indeed, the information
received from the borrowers only reinforced the need to make
further inquiries. The fact that the borrowers went into default
almost immediately after the advancement of the monies was a strong
indication that the borrowers did not have the ability to repay the
loan at the time of the advancement of the monies. Accordingly, the
trial judge found that the lenders were 25 per cent responsible for
The valuer appealed to the Full Federal Court on the question of
The Full Federal Court found that the lenders were guilty of
contributory negligence to the extent of 50 per cent. In the
Court's view, the conduct of the lenders departed from the
standards of a reasonably prudent lender. This departure was,
according to the Court, at least as serious as the valuer's
departure from the standards of a reasonably competent valuer.
Consequently, the Full Federal Court found that the trial judge was
wrong to differ apportionment in a case were all parties were
equally responsible for the loss.
Lenders should ensure that they adequately assess the capacity
of borrowers to service loans. A failure to assess serviceability
might result in a finding of contributory negligence against the
In addition, riskier lending practices (for example, lending
money to borrowers who fall into the sub-prime category) may not
affect the obligation on lenders to investigate the capacity of
borrowers to service the loans. A claim by a lender that its focus
is on security rather than loan serviceability will not necessarily
excuse the lender from failing to investigate the ability of a
borrower to service a loan.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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