Propell National Valuers (WA) Pty Ltd v Australian Executor Trustees Limited [2012] FCAFC 31 (20 March 2012)

Summary

A recent judgment of a full bench of the Federal Court reinforces the principle that in assessing  allegations that a valuer has provided negligent advice and engaged in misleading and deceptive conduct, the evidence of expert valuers in making an assessment of other valuers’ advice will be inadmissible to the extent that they consider comparable sales after the date of the impugned valuation.

Background

  • A valuer was engaged in April 2007 to perform a valuation of a property in Perth being held up as security in connection with a refinancing arrangement. The property was valued at $1.6 million and subsequently a loan was advanced for $1.2 million.
  • When the borrower defaulted, the financier as mortgagee in possession sold the property at public auction for $980,000. 
  • The financier sued the valuer’s principal and the valuer personally for providing negligent advice and engaging in misleading or deceptive conduct under the Trade Practices Act 1974 (now the Competition and Consumer Act 2010 (Cth)).

What the decision tells us

In the context of these causes of action, a majority of a Full Bench of the Federal Court affirmed that:

  • the court must consider the conduct of the valuer at the time of their making the impugned valuation and in doing so may not consider evidence which relates to events after the date of the impugned valuation, namely evidence of comparable sales post-valuation;
  • valuers owe a duty of care to third parties relying on a valuation, such as financiers, to prepare valuations with due care and skill;
  • valuers in their personal capacity, as employees of a principal, owe the same duty of care to third parties.

In doing so, the judgment highlights the distinction between:

  • cases requiring evidence of expert valuers to assess the conduct and competence of a valuer, such as in allegations of negligence; and
  • cases where a court seeks to assess the market value of a property at a certain point in time, for some other reason, such as in claims for compensation for compulsory acquisition or in land related tax disputes.

The dissent

Justice Gilmour’s dissent reveals the confusion evident in the use of the ‘10-15% bracket’ concept: the generally accepted margin of error within which a valuation might fall. His Honour’s dissent argued that:

  • a relevant consideration in determining whether the valuer gave negligent or misleading or deceptive advice was what the market value was at the date of the valuation;
  • if that valuation fell within the bracket, then prima facie, (but not necessarily), the valuation might not be tainted by negligence; and so,
  • in the context of assessing market value and the bracket ‘test’, his Honour held that the lower court should have accepted evidence based on post-valuation comparable sales.

Justice Gilmour’s view seemed to be spurred further by the belief that the financiers had pleaded their case framed by reference to the market value of the property being outside of the bracket.

The majority, although agreeing that such a ‘bracket’ might be recognised by courts in a general sense, was insistent that the evaluation to take place in the context of a negligence or misleading or deceptive conduct proceeding, was one that must only take into consideration matters that valuer would have had regard to at the time of preparing the valuation.

Practical take-home points

For valuers and their principals, the case is simply a reminder to maintain high standards of professionalism (and a current insurance policy!).

For financiers and their advisors taking security:

  • Be involved in the process of engaging trusted valuers and ensure they are aware that you intend to rely on their advice.
  • Be aware of any qualifications and/or limitations which valuers impose on their advice.

For financiers and advisors assessing their options following a shortfall in the recovery of security:

  • Consider using the ‘10-15% bracket’ as a blunt, but nevertheless practical commercial tool, in making an initial assessment of the prospects of success of a claim in negligence against a valuer, even though courts are not likely to adopt such an approach.
  • If you engage expert valuers to provide reports to be used as evidence, be aware of the limitations that a court is likely to place on assessing that evidence.  However, given the law in this area may not necessarily be finally settled, do not necessarily instruct experts to exclude post-valuation comparable sales data from their considerations.