Case: Kenny &amp; Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25 ; (1999) 199 CLR 413
Outcome: cited
In Kenny &amp; Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25 ; (1999) 199 CLR 413 a valuer valued a property at $5.5m and recommended it as suitable for the investment of trust funds on mortgage to the extent of 65 per cent of its valuation for a term of three to five years. A mortgage insurer insured a mortgage for that percentage of the valuation. Upon default by the mortgagor, the property was sold for $2.65m. The trial judge (Lindgren J) found the valuer to have been negligent and that the true value at the time of valuation was $3.9m-$4m. The High Court held that the insurer could recover the full amount of the loss, and not just the difference between the valuation and the true value. 328 Two elements of Kenny are relevant for present purposes. First, the retainer of the valuer specifically raised the question of value extending over a period into the future. As McHugh J commented at [59], the terms of the valuation made the case a "poor vehicle" to determine the correctness of the principle for which the valuer contended. Once the true nature of the representation as to value was properly understood, the statements in Potts v Miller , relied on to limit liability to the difference between the loan and the true value at time of the valuation, had no application to the case: at [62]. See also per Gummow J at [80] and per Kirby and Callinan JJ at [121]. 329 Another example of a wrongdoer being liable for fluctuations in value over a period was Henderson v Amadio Pty Ltd (No 1) (1995) 62 FCR 1. That case concerned an investment scheme for a purchase of a building leased to Coles Myer financed by a mortgage back to the vendor for a three year term, the scheme being sold on a promise of consistently increasing value over a much longer period; see at 198. Investors were hit by the catastrophic collapse of the Melbourne commercial property market in the early 1990s. In declining to apply a strict price less true value at time of purchase approach I relied on the English Court of Appeal decision in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] QB 375. (Subsequently that decision was reversed by the House of Lords: Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1996] UKHL 10 ; [1997] AC 191. However, in Kenny the High Court preferred the Court of Appeal's decision.) In Henderson at 199 I characterised the scheme and its future value elements by a nautical metaphor: The Coles Myer building investment scheme was like an overloaded and unseaworthy ship setting out on a long voyage. Given exceptionally fair winds and calm seas she might conceivably have reached her destination. However, she was always to be at severe risk from ordinary perils of the seas. The fact that what sunk her was a cyclone of 50-year severity hardly absolves those who caused her to be put to sea. 332 The second Kenny element is related to the first. It turns on the nature of a valuation. As already noted, that case concerned a market decline between transaction and trial. McHugh J at [48] pointed out that insofar as a decline in the market was reasonably foreseeable, it will already be factored into the assessment of the true value of the property as at the date of valuation. Present value cannot be divorced from future prospects: at [52]. His Honour observed (ibid): The true value of a property on a particular day therefore reflects the likelihood of any risk that the price for the property in the reasonably foreseeable future will rise or fall on what it would have fetched the day before. If not reasonably foreseeable, any loss arising from the decline must be regarded as outside the contemplation of the parties to the valuation arrangement and not recoverable. However, the particular arrangements in that case meant that the valuer was giving a warranty as to the value of the property over the next five years. This took the case out of the general rule: see at [58]-[62]. See also per Gummow J at [80]. 333 In the present case the property in question was a freely negotiable commodity, farming land in a well established farming area. True it is the purchase of the Robinson properties was part of a larger joint venture arrangement. However, this did not impose any restriction on the purchaser's reselling. 334 Unlike Henderson, Morgan Corporate , and Kenny , the present case on the respondents' version (which, as it happens, I do not accept) is one of general market increase after the transaction. The transaction, however, was one partly caused by the respondents' wrongful conduct. There seems to be an unfairness in a respondent mitigating or eliminating its liability in such circumstances. Had the representations or valuations been true, at the time of trial the property would have been worth more than the representors' or valuer's figure. This is another way of looking at the point McHugh J makes in Kenny . The "true value" at the time of purchase will include an assessment of the prospects for future increase (or decline) in value. When an increase has in fact occurred by the time of trial, it should not affect the Potts v Miller assessment of the aggrieved party's loss: difference between price paid and true value at time of purchase. The exceptional case of unforeseeable boom between purchase or trial does not arise in the present case there is no suggestion of a property boom in North West Coast farming properties between 2001 and 2007. The evidence is all to the contrary. 354 In MGICA (1992) Ltd v Kenny &amp; Good Pty Ltd (1996) 140 ALR 313 at 356 ( Kenny at first instance) Lindgren J held that a valuation report in that case conveyed representations not only that the opinions expressed in them were held but also (a) that the opinions were based on reasonable grounds, (b) were the product of the exercise of due care and skill and (c), after making due allowance for their nature as opinions as to the market value of real estate at a particular time, safe to be relied upon and not outside the range of latitude properly to be allowed to them. The same can be said of the Mantach valuations in the present case. 356 The valuations of Mr Austin, which I accept, and even Mr Cripps, establish that there was here a gross overvaluation, which in itself is evidence of negligence: Baxter v F W Gapp Co Ltd [1939] 2 KB 271 at 277, Kenny (at first instance) at 335-337. This is confirmed by what happened when the properties were put up for sale in 2004: [139]-150] above. There were also identifiable errors, especially in the assessment of the croppable areas, but also in the use of some of the comparable sales and the inherently unreliable "catch-all" approach. 375 Gaudron A-CJ and Hayne J pointed out at [19] that if regard were to be had to culpability there would be "much to be said" for the view that the vendor's culpability and its causal significance were of such a different order from the conduct of the solicitor that no contribution should be ordered. The vendor's misleading conduct was a positive inducement to the purchaser whereas the solicitor's omission to advise further enquiries "merely had the consequence that (the vendor's) misleading conduct remained undetected". In similar vein McHugh J observed at [59] that it would be "absurd" to suggest that a person who stole money and was ordered to repay it could obtain contribution from a person who negligently failed to safeguard the money. In substance, his Honour thought, there was no difference between that example and the instant case. 376 A factor which much influenced the majority's approach was that the contribution would have the effect of repaying to the vendor half of the ill-gotten gains which he had to disgorge to the purchaser: per Gaudron A-CJ and Hayne J at [22], per McHugh J at [65]. Also, as the latter pointed out at [66], contribution would be inconsistent with the policy considerations behind Pts V and VI of the Trade Practices Act . Contribution would enable a person in breach of s 52 to profit by its contravention of the Act. The vendor would be able to obtain $375,000 from the solicitor even though its misleading and deceptive conduct had misled him (as well as the purchaser). 377 In the present case the application of those principles mandates a conclusion that the Robinsons, whose conduct misled and deceived Mantach as well as the applicant, are not entitled to contribution from the former. 378 Mantach is entitled on its cross claim to recover from the Robinsons the amount of its liability to the applicant. However, this liability would not extend to the third respondent Robertson Investment Capital, whose only role has been the passive one of lessee of the Broadmoor homestead block. 379 The applicant is entitled to judgment against Kestrel Holdings, Nicolas Robinson and Mantach for damages being the difference between the price paid for Broadmoor and Lower Wilmot and the true value of those properties at the time of purchase as assessed by Mr Austin, together with expenses and interest as detailed above. 380 The claim to set aside the lease of the Broadmoor homestead block is dismissed.