november 2009

in this issue

Apportioning liability in claims against valuers – St George Bank Limited v Quinerts Pty Ltd

By Anna Vetrova and Justin Bates of Gadens Lawyers, Sydney

privacy notice

financial services recovery update - november 2009

Apportioning liability in claims against valuers – St George Bank Limited v Quinerts Pty Ltd

By Anna Vetrova and Justin Bates of Gadens Lawyers, Sydney

In the current market, lenders often seek to recover shortfalls on the sale of security property from valuers. 

There are many cases involving claims against professionals where liability has been apportioned amongst concurrent wrongdoers (see, for example, Ginelle Finance Pty Ltd v Diakakis, Vella v Permanent Mortgages and Solak v Bank of Western Australia Ltd, discussed in our May 2009 update click here to read).  These cases demonstrate that the apportionment of liability to third parties may adversely impact the ability of lenders to recover losses from negligent professionals, including valuers. 

However, in a recent decision of the Victorian Supreme Court of Appeal involving a claim by a lender against a negligent valuer, St George Bank Limited v Quinerts Pty Ltd, the Court refused to apportion liability to third parties and held the negligent valuer liable for the whole of the lender’s loss. 

While the Quinerts decision is favourable to lenders, it highlights the inconsistency in the approach that courts may take in apportioning liability and draws attention to the importance of accounting for the risk of apportionment in the conduct of matters.

The Case

The case involved a claim by St George against Quinerts (the valuers) in relation to a negligent valuation.  Quinerts admitted that their valuation was negligent but contended, amongst other things, that the liability for St George’s loss should be apportioned to the borrower and the guarantor, who the valuers submitted were concurrent wrongdoers within the meaning of Part IVAA of the Wrongs Act. 

The Court held that the borrower and the guarantor were not concurrent wrongdoers with the valuer and that no liability should be apportioned to them. 

The Court's reasoning was as follows:

• The proportionate liability provisions of the Wrongs Act, properly construed, should be interpreted consistently with the contribution provisions of the Wrongs Act and case law on contribution

• The contribution is available only where two or more persons have contributed, albeit in different ways, to the “same damage” and the mere fact that two or more wrongs lead to a common result does not of itself mean that the wrongdoers are liable in respect of the same damage

• The valuers in this case were not liable for the “same damage” as the borrower and the guarantor

• While the valuer's negligence caused the bank to make the loan, or at least caused it to lend more than it would otherwise have been prepared to lend, neither the borrower nor the guarantor did or failed to do anything actionable (in the sense of rendering them liable to the bank) that caused the bank to lend or to lend more than it would otherwise have been prepared to lend 

• On the facts of the case, the only misconduct of the borrower and guarantor were their failures to repay the loan and, as such, their failures to repay the loan did not cause the bank to make the loan or to lend more than it would otherwise have been prepared to lend

• Further support for the conclusion that the borrower and the guarantor did not cause the “same damage” can be found by considering the time at which the damage caused by the valuer's negligence was suffered and to compare that with the time at which the damage caused by the borrower's and guarantor's failure to repay the loan was suffered.

In coming to the above conclusions, Nettle JA considered the decision of Vella v Permanent Mortgages.  In Vella, a fraudster forged the execution of a mortgage against which Permanent lent funds, which later proved irrecoverable.  Permanent's solicitors were guilty of negligence in failing to draw the mortgage in a form which, despite fraud, would have rendered the mortgage effective upon registration.  In Vella it was held that the fraudster was a concurrent wrongdoer in the context of Permanent's claim against the solicitors and a significant amount of loss was apportioned to the fraudster.  

Nettle JA said that he accepted the decision in Vella was “at odds” with his own conclusion but that he was not persuaded by it. 

Where to from here

The proportionate liability regime is still a relatively new concept which is being tested by the Courts. 

In light of the authorities, there are two alternative views on whether it is appropriate to apportion liability in negligence claims against professionals, including valuers. 

The Quinerts decision is favourable to the lenders, whilst Ginelle, Vella and Solak are not. 

Therefore, as a practical matter, the risk of apportionment should be taken into account as a factor in any settlement negotiations and the conduct of the litigation generally.