Special Counsel, Jacqueline Browning looks at the case of Propell National Valuers (WA) Pty Ltd v Australian Executor Trustees Ltd  FCAFC 31 which highlights the role of property valuers in financing transactions and their potential liability in the event of loss upon realisation of property.
The facts of the case are typical of many financing transactions and serve as a useful example on what can happen when property sale proceeds are insufficient to discharge the debt.
- On 7 April 2007 the valuers had prepared a valuation of a property in Cottesloe Western Australia on behalf of the existing mortgagee, Mortgage Ezy Pty Ltd, in connection with an application jointly made to Australian Executive Trustees (AET) and Seiza Mortgage Company Pty Ltd (Seiza) for refinancing by Mr Pell, as borrower, who offered the property as security.
- The refinance was for an existing loan in the sum of $1.2m.
- Following a pre approval letter of 26 April 2007, the valuer was instructed by the incoming lender to prepare a new valuation.
- The valuer issued a new valuation on 7 May 2007 representing that the market value of the property as at 3 April 2007 was $1.6m.
- On or about 7 May 2007 AET made a written offer to Mr Pell for a principal loan advance of $1.2m plus additional funds for fees payable by Mr Pell secured by a first registered mortgage over the property.
- In due course Mr Pell defaulted on the loan and was declared bankrupt.
- AET commenced proceedings for possession of the property, obtained judgment and entered into possession in October 2009.
- AET sold the property as mortgagee in possession by public auction in February 2010 for a sale price of $980,000. The proceeds were insufficient to extinguish the loan obligation of Mr Pell. AET claimed as trustee for the loans and mortgage written under Seiza’s lending programme the amount of $407,739.15 plus costs and interest as damages.
On appeal to the Federal Court by the valuers, AET and Seiza claimed the valuation contained false or incorrect representations as the market value of the property was only $1,030,500 and not $1.6m and that the representations were not based on a reasonable degree of professional skill and care. The valuers disputed such claims and in addition claimed that AET and Seiza did not adequately mitigate any such loss.
The full Court of the Federal Court dismissed the appeal by the valuer parties and upheld the decision of the Federal Court.
Of particular note are the following points:
- Whilst it is acknowledged that the courts recognise there is a “bracket” within which a valuation may fall – (ie if a valuation is within 10% or on occasion within 15% of the market value) this is simply a range of tolerated variation in a reasonable valuation opinion and does not raise any immutable presumption in respect of claimed negligence.
- Valuers owe a duty of care to third parties relying on a valuation.
- Valuers are required to make a value judgment based upon the valuer’s knowledge and the material available and some room for error is contemplated however in practice the valuer can only have regard to comparative sales information which is available up until the time of the valuation. Only such sales information (and not sales information after the date of valuation) is relevant for the purposes of determining if there is a breach of duty or misleading or deceptive conduct.
- The Court held that Mr Coleman, as the employed valuer, did owe a duty of care at common law to the respondents and that he was knowingly concerned in the contravention of s52 Trade Practices Act by preparing the valuation with the intention of AET and Seiza relying upon it.
The case is a timely reminder of the duty of care owed by valuers and the role and responsibility valuers play in financing transactions.