Australia: Valuation of property: Provident Capital Limited v John Virtue Pty Ltd (No 2) [2012] NSWSC 319

Last Updated: 29 September 2012
Article by James Berg and James Morse


John Virtue Valuers (JVV) has successfully defended court proceedings on the basis that the valuation method adopted (and the relevant valuation figure) was reasonable, notwithstanding the potential for some variance on those issues.

Further, reliance on the valuation by the plaintiff lender, Provident Capital Limited (Provident Capital), was considered unreasonable in circumstances where the valuation was based on an assumption that Provident Capital knew (or ought to have known) it was actually or potentially incorrect. That assumption related to the bona fides of pre-sale contracts for the proposed development. Relevantly, on numerous occasions in the valuation report, JVV had 'warned' Provident Capital that the assessment of value was conditional upon the pre-sale contracts being determined available and bona fide.


Provident Capital sought damages from JVV due to an allegedly negligent valuation of a development site in Erskineville in Sydney, New South Wales.

The first valuation

In December 2004, JVV valued the property at $12 million. In providing that assessment of value, JVV:

  • utilised a gross realisation, hypothetical development/ feasibility methodology as the only valuation methodology
  • explained that following a search of sales evidence, it was unable to identify any useful sales for the purposes of undertaking an assessment by direct comparison

Provident Capital loaned funds secured by the property. However, the borrower defaulted.

The second valuation

Following default in October 2005, Provident Capital requested that JVV provide a further valuation of the property. At that time JVV assessed the value of the property at between $6.25 million and $7 million. However, it did so on the basis that the presale contracts were no longer available for consideration, thereby significantly increasing the risk and cost of the proposed development.

In addition, JVV used a direct comparison methodology as one of the methodologies in the second valuation.

The submissions

Provident Capital's expert valuer criticised JVV's first valuation on the basis that the direct comparison methodology should have been used as a primary valuation methodology in the circumstances. Thereafter, a gross realisation, hypothetical development/feasibility methodology should have been used as a 'check' for the method of valuation. Provident Capital also asserted that the significant difference between JVV's two valuations was enough to establish negligence.

JVV denied negligence and submitted that the second valuation was irrelevant yet, in any event, there was no inconsistency between the two valuations such that no adverse inference could be drawn.

The determination

Following a detailed and considered review of the relevant legal authority by the court, JVV was successful. Amongst other things, the court found that:

1 JVV did not breach its duty of care to Provident Capital.

The court accepted that valuation is 'an art, not a science'. When considering the method by which JVV undertook the initial valuation, the court accepted the evidence of JVV and acknowledged that the specific valuer was an experienced valuer in the type of valuation required and for the area in respect of which the property was located.

The court found that the specific valuer was entitled to exercise his professional opinion/discretion by adopting what he considered to be the appropriate methodology in circumstances where, it appeared to the court, that he could adequately justify why (for example) he did not have regard to the direct comparison methodology.

In this instance, the evidence was that there were no relevantly comparable sales within the previous 12 to 18 months which would have been of assistance. The evidence from the specific valuer was that if he were to have regard to dated sales, the process of adjustment would make the assessment of value less reliable.

Against that background, although JVV had adopted a different approach to that proposed by the relevant experts, the difference was 'not significant'. Relevantly, the court stated (at paragraphs 157 to 158):

"A valuer is entitled to exercise his professional judgment in carrying out a valuation ... The guidelines support [the specific valuer's] approach that where there are only a small number of comparable sales, the comparative method is not appropriate. While [the specific valuer] applied a more favourable value to the unit price in the feasibility studies, the difference was only 1 to 3% from those of the two expert valuers. Valuation is not an exact science and this different margin is not significant overall.

"It is my view that [the specific valuer] exercised all reasonable care, skill and diligence that would be expected from a competent valuer when [it] prepared the first valuation in accordance with the instructions he was given ... [and] exercised reasonable care and skill when [it] valued the property at $12 million, proceeding as he did on the disclosed assumption that the presales were bona fide. The valuation was well within the reasonable range or "bracket" of values that are prima facie not negligent ... To the extent that the instructions furnished to [the specific valuer] informed the content of the duty of care ... [the specific valuer] complied with those instructions."

2 JVV did not cause Provident Capital's loss.

In short, JVV did not cause Provident Capital's loss as the valuation was accurate.

3 Provident Capital's reliance on the (first) valuation was unreasonable.

JVV made it abundantly clear numerous times in the valuation report that it was important to check that the presales were bona fide.

The court accepted, having regard to the multiple warnings in the valuation, that it was therefore up to Provident Capital to verify the bona fides of the presales if it wished to rely on the valuation. As it turned out, Provident Capital proceeded without such verification of presales which ultimately proved to be unreliable.

Relevantly, the court stated (at paragraph 196):

"[The specific valuer] made many references to the importance of the presale being bona fide in his report. Provident Capital evaluated this issue as being an important one. Provident Capital had taken notice in its internal evaluation that there had been a slowdown in the market and that this could adversely affect the security or saleability of the property market. [JVV] had cautioned Provident Capital that because of the slowdown it was important to ensure that the presales were in place.

"The valuer made it abundantly clear to Provident Capital that it was important to check the presales were bona fide and that the bona fides of the sales affected the valuation figure. Once that had been done it was up to Provident Capital to verify the bona fides of the presales. They, not the valuer, were in a position to find out the true position with regard to the presales.

"Provident Capital decided to proceed with the settlement of the loan when 17 out of 24 contracts were in trade dollars. Provident Capital's reliance on the valuation, in circumstances where it proceeded with the loan despite knowing that most of the contracts were in trade dollars, was unreasonable."

Another particularly significant aspect of the judgment was the fact that the court appears to have preferred the evidence of JVV and its expert, both of which were acknowledged by the court to be actively working in the area at the time that the valuation was provided. This was in contrast to Provident Capital's expert valuer who had not been actively providing valuations of the type in the area for a number of years.

In addition, the court accepted JVV's submission that the existence of the second valuation could in no way be relevant to an assessment of liability with respect to the first valuation. This was for a number of reasons, including:

  • the negligence of JVV in respect of the first valuation can only be assessed against JVV as at the date of the first valuation
  • in any event, there were plausible explanations for the significant drop in value over a relatively short period of time, namely the unavailability or unreliability of the presale contracts

In summary, the court concluded that JVV and the specific valuer did not breach their duty of care to Provident Capital (nor did they cause Provident Capital's loss) and Provident Capital's reliance on the valuation was unreasonable. Hence, JVV and the specific valuer were not negligent, such that Provident Capital's claim failed.

Verdict and judgment was therefore entered in favour of JVV and the specific valuer.


This case is yet another reminder that the practise of valuation is an art, not a science. It is not simply a 'tick-a-box' or process-driven service.

A valuer must adapt and evolve the valuation method to suit the facts, matters and circumstances that give rise to the provision of the valuation – especially the instructions given by a lender-client. The professional valuer must exercise his/ her mind and bring all relevant skill and experience to bear.

In this instance, JVV applied its expertise in determining that a direct comparison methodology was not appropriate and noted as such in the valuation report. JVV then proceeded to value the property using a gross realisation, hypothetical development methodology and included a number of warnings to Provident Capital regarding the relevance of the presale contracts.

Given the numerous bases upon which valuations can be undertaken and provided, close attention must be given to the instructions that underlie a valuation request. The impact of market fluctuations also means that the time at which a valuation is provided (and the information that is reasonably available at that time) is a critical consideration. Likewise, the content of parts of the valuation must be viewed in the context of the entire valuation.


The judgment of Provident Capital Limited v John Virtue Pty Ltd (No 2) [2012] NSWSC 319 has since been appealed to the Supreme Court of New South Wales – Court of Appeal.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

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