In Valcorp Australia Pty Ltd v Angas Securities Limited [2012] FCAFC 22, the Full Federal Court held that 3 non-conventional lenders (Lenders) were guilty of contributory negligence for failing to carry out adequate enquiries as to whether Opies, a borrower, could service a loan.
The Court made this finding in circumstances of an appeal brought by Valcorp, a property valuer found by the primary judge to have been negligent in valuing the secured property under the loan at $3.6 million when market value was in fact approximately $1.75 million.
The facts
In 2007, each of the Lenders advanced monies to Opies. The total amount advanced was $2.88 million. The majority of this amount was loaned by Angas, a relatively high risk money lender who provides non-conventional loans on the security of a first mortgage applying a 70% loan to valuation ratio. Angas’ loan was repayable after 12 months and was secured by a first mortgage over a penthouse apartment owned by Opies.
Prior to advancing the monies to Opies, Angas engaged Valcorp, a company providing property valuation services, to provide a valuation of Opies’ apartment.
In February 2008, Opies defaulted on the Angas loan. Angas took possession of Opies’ apartment and eventually sold the property in 2009 for $1.75 million.
Angas and the other Lenders commenced proceedings against Valcorp in respect of its valuation. The primary judge found that Valcorp had been negligent in preparing its valuation and had engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act.
The decision
Valcorp argued on appeal that the primary judge should have found the Lenders to be 100% responsible for the loss because if they had made proper inquiries about Opies’ financial position, the loans would not have been made.
The Full Court called it even and held that both the Lenders and Valcorp were equally responsible for the loss, awarding the Lenders only 50% of the damages award originally sought.
Commentary
This decision exemplifies the tough stance that courts are taking against financiers in the current market. Interestingly, the decision suggests that the courts will similarly take a tough stance against lenders that operate in the business of providing non-conventional loans with higher risk factors. In this particular case, the fact that Angas had satisfied its lending policy of a 70% loan to valuation ratio was not sufficient to satisfy the Court that the lender had met the requisite standard of care.
The decision is a reminder of the importance of lenders making proper inquiries as to loan serviceability, and of the consequences that lenders might face for failing to do so.
