CBFC Ltd v Natdale Pty Ltd & Anor [1994] QSC 200

- State Reporting Bureau TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION SHEPHERDSON J Writ No 742 of 1994 CBFC LIMITED (ACN 008 519 462) and NATDALE PTY LTD (ACN 010 212 576) and AUSTIN JOHN,WATSON BRISBANE .. DATE 11/08/94 JUDGMENT 1 Plaintiff First Defendant Second Defendant -- 1 of 31 -- 110894 tkb/rdt (Shepherdson J) HIS HONOUR: I dismiss the counterclaim. I give judgment for the plaintiff against the defendants on the counterclaim with c.osts, including reserved costs, if any, to be taxed. I publish my reasons. JUDGMENT 2 10 20 30 40 50 60 -- 2 of 31 -- IN THE SUPREME COURT OF QUEENSLAND Brisbane Before Mr Justice Shepherdson [CBFC Limited v. Natdale Pty Ltd] BETWEEN CBFC LIMITED (A.C.N. 008 519 462) NATDALE PTY LTD (A.C.N. 010 212 576) AUSTIN JOHN WATSON JUDGMENT - SHEPHERDSON I Judgment delivered 11 August 1994 Writ No. 742 of 1994 Plaintiff First Defendant Second Defendant CATCHWORDS: EVIDENCE - Negligent misrepresentation alleged - issues of fact. Counterclaim only tried. COUNSEL: Mrs Mullins for plaintiff McMurdo Q.C. for defendants SOLICITORS: David J. Frank for plaintiff Holland & Holland for defendants HEARING DATE: 13, 14 and 15 July 1994 -- 3 of 31 -- IN THE SUPREME COURT OF QUEENSLAND BETWEEN: CBFC LIMITED (A.C.N. 008 519 462) NATDALE PTY LTD (A.C.N. 010 212 576) AUSTIN JOHN WATSON JUDGMENT - SHEPHERDSON !. Judgment delivered 11 August 1994 No. 742 of 1993 Plaintiff First Defendant Second Defendant In this action the plaintiff sued the first defendant ("Natdale") for monies owing under a loan agreement executed by Natdale in favour of the plaintiff on 21 March 1990 and it sued the second defendant ("Watson") for the same amount owing under a guarantee executed by Watson in favour of the plaintiff on 21/3/90. Both defendants defended and counterclaimed. On 26/11/93 the plaintiff obtained judgment on its claim against both defendants for a total of $644,040.85 including interest of $70,775.25. The counterclaim remained alive and this was tried before me on 13, 14 and 15 July 1994. The monies lent by the plaintiff to Natdale, the repayment of which was guaranteed by Watson, were applied in the purchase by Natdale of land and -- 4 of 31 -- 2 dwelling house and other improvements at 49 Stanhill Drive, Chevron Island, Gold Coast. By a contract dated 7 February 1990 and signed by Natdale, it contracted to buy this property for $920,000. The contract (Exhibit 3) was signed by Watson as Natdale's duly constituted attorney and Watson, as director of Natdale, guaranteed performance by Natdale of its conditions of the contract. At the material times Peter Michael O'Meara ("O'Meara") was employed by the plaintiff as a Loans Officer and Patrick John Costigan ("Costigan") was employed by the Commonwealth Bank of Australia as a valuer. The defendants' case in their counterclaim is: (a) that on or about 7/02/90 and before the contract was signed by Natdale and guaranteed by Watson, O'Meara advised Watson (and through him Natdale) that the market value of the property was 1.1 million dollars; (b) that such advice was negligently given in that the plaintiff, by O'Meara did not exercise reasonable care in advising that value; (c) that the property was worth about $620,000; (d) that in reliance upon the valuation stated by O'Meara, Natdale entered into the contract, performed the contract and did so by borrowing all purchase moneys from the plaintiff and Watson entered into the guarantee to the plaintiff; (e) that Natdale suffered loss on paying $920,000 for a property worth about $620,000; (f) that Watson suffered loss as a result of guaranteeing Natdale's obligations under its loan agreement with the plaintiff. -- 5 of 31 -- 3 The plaintiff has denied the defendants' claims of negligence and, by a late amendment, further pleaded that any loss or damage suffered by Natdale and Watson (which loss or damage was not admitted) was caused or contributed to by both defendants' negligence in failing to obtain an independent valuation of the property before Natdale signed the contract and Watson guaranteed Natdale's borrowing from the plaintiff. The defendants' case depended heavily upon the evidence of Watson. The plaintiff's case depended largely upon the evidence of O'Meara. Neither of these men kept contemporaneous diary notes or records of conversations each had with the other. There were marked credibility issues between the two of them.' However, in the evidence there are some contemporaneous documents which have helped me to resolve these credibility issues. I should state now that I am satisfied that O'Meara and Watson knew each other before the dealings in early 1990 which have led to this litigation. I find that each knew the other because of dealings between a company named Hatprint Pty. Ltd. and the plaintiff. Watson and a man named McAvoy were, as I so find, directors of Hatprint Pty. Ltd. and in 1989, with the aid of funding by the plaintiff, Hatprint Pty Ltd had been developing an industrial site at Musgrave Industrial Park, Coopers Plains. I find that in January 1990 O'Meara knew that this development had been financially successful and had reached the stage, where although not completed, Watson would take about 1.2 million dollars in cash as his share of the profits from that development to that stage. I also find that Watson did not know O'Meara as well as Watson would have had me believe. I find that before the dealings concerning this present case, contact between O'Meara and Watson had been few in -- 6 of 31 -- 4 number and all on the footing of Watson as a director of Hatprint who was the customer of the plaintiff and O'Meara as a person employed by Hatprint's financial backer but with no closer relationship between the two men. I find that in January 1990 Watson had in mind investing his expected profit in a prestige residential property at the Gold Coast. He .had, as I so find, absolute control of Natdale. Watson's oral evidence before me was that in January 1990 he telephoned O'Meara and told him that Natdale was interested in buying a prestige residential property on the Gold Coast; that he asked O'Meara what the lending margins were, that O'Meara said that if the valuation was all right they (meaning the plaintiff) would lend up to 100%, that he said to O'Meara "I don't want to pay too much for the property I want to make sure that I'm getting value for money" and that O'Meara replied, "That's okay. Our valuers are good. When you find a property I'll send my valuer to have a look at it". Watson said that at the time of that conversation, he had not found a property which he or Natdale were interested in buying. In his evidence O'Meara denied any such conversation occurred and on this aspect I accept O'Meara in preference to Watson. I find that Watson first spoke to O'Meara about Natdale buying a prestige residential Gold Coast property only after he, Watson, had seen and inspected 49 Stanhill Drive. I find that through an agent at the Gold Coast named Task, Watson met Lyn Fulham of Knobel Davis Real Estate, that Ms. Fulham told Watson of the property for sale at 49 Stanhill Drive, that the asking price was $1.5 million, that the vendor was in trouble financially and that Watson could possibly buy the property for $900,000 if he went in cash unconditional because the vendor needed the money. -- 7 of 31 -- 5 Watson told me and I accept that he understood when Fulham said "cash unconditional" that in effect any contract was binding there and then and was not subject to any purchaser obtaining any finance. I find that on a date in the second half of January 1990 and before 25 January 1990 Watson telephoned O'Meara and spoke to him, introducing himself and saying that Natdale was looking at buying a property on the Gold Coast, that it wanted short term finance, that the property was listed at $1.5 million, that finance was required on a short term basis pending proceeds of sale from the Hatprint development, that he was able to obtain the finance from his bankers but that because CBFC was familiar with the Hatprint development and the pending cash flow from that, he would prefer to do the deal or finance the transaction with CBFC. I find that during this conversation Watson told O'Meara he wanted to arrange his finance in advance so that he could negotiate a more acceptable purchase of the property, that he could purchase the property below market value if he had his finance in place and Watson asked O'Meara how much CBFC advanced. I find O'Meara followed his usual company policy of informing clients about this aspect and he told Watson that CBFC would not advance any more than 85% of its valuation of the property. Watson, as I so find, told O'Meara "I would pay up to $900,000 for the property in question" and O'Meara told Watson he would prepare an application for finance and submit that to his immediate superiors. I find also that in this telephone conversation Watson did not tell O'Meara the address of the property saying only that it was situated on the Gold Coast on the Nerang River. The conversation I have set out in this paragraph was, I find the first occasion when -- 8 of 31 -- 6 Watson spoke to O'Meara about his or Natdale buying a prestige Gold Coast residential property. I find O'Meara did make some notes of this conversation with Watson but did not retain them. I find O'Meara prepared a document, a copy of which is Exhibit 18. This exhibit is really a duplicate of a submission made to CBFC Sydney by CBFC Brisbane. Exhibit 18 was I find based in part on O'Meara's above notes which he did not retain. It concerned two subjects - the commercial loan to Hatprint Pty. Ltd. and a "commercial loan application by Natdale for $900,000". This submission included the f allowing passages: "As a separate but related matter we have received an approach from one of the partners of Hatprint Pty. Ltd., Mr. Austin Watson for a short term assistance with the purchase of a residential property on the Nerang River at the Gold Coast, pending realisation of profits from the Hatprint Pty. Ltd. development. The property concerned is to be auctioned and we understand the vendor is seeking $1.5 m. for the prestige property. Mr. Watson is prepared to pay $900,000, however before submitting an offer he want to be satisfied that his finance was in place. The finance would only be required for 3-6 months and would be cleared from his half share of the profit distributions from the Hatprint Pty. Ltd. development .... AMOUNT SOUGHT AND PURPOSE $900,000 to assist with the purchase of a prestige residential property on the Nerang River on the Gold Coast for $900,000. Mr Watson feels sure that if he can secure the property on a cash unconditional basis the property should value in excess of the purchase price as the vendor is anxious to sell." This submission was signed by a Mr Griffin, plaintiff's Acting Manager for Queensland and he was as I so find O'Meara's immediate superior. -- 9 of 31 -- 7 I should at this stage say that I find that in early I990 Natdale was a company engaged in retailing men's clothing as well as investing in commercial real estate and that in its clothing business, leased a shop in Albert Street, Brisbane directly across the road from the plaintiff's business premises in a building at the corner of Albert and Adelaide Streets. On a date after 25 January I990, - which date I am unable to identify but certainly before 7 February 1990, O'Meara received from plaintiff's Sydney office advice that the application for finance for Natdale had been approved at $900,000 but subject to conditions. As a result, O'Meara wrote to Natdale a letter dated 7 February 1990, a copy of which is ex.19. I note that ex.19 has certain pencil markings on it but these were not on the original of the letter to Natdale. I find that O'Meara delivered the letter to Natdale's store in Albert Street at a time when Watson who was usually there, was absent. I find it much more likely than not that Watson received the letter although, in evidence before me he said he could not recall having received it. I find also that before O'Meara delivered the letter on 7 February 1990 to Natdale, he telephoned Watson telling him "the $900,000 had been approved subject to CBFC advancing no more than 85% of the valuation of the property." I also find that during this conversation Watson said that he intended to have the property independently assessed and that he was having people look at the property to evaluate its worth. I find that O'Meara said that was "fine" but that he (O'Meara) could not rely on any independent valuation which Watson had commissioned and that it was the Commonwealth Bank Finance Company's policy that it used its own valuers, the Commonwealth Bank Valuing Department. Watson, I find, said "that's -- 10 of 31 -- 8 O.K." and asked what the cost of the valuation would be to which O'Meara replied "$300" and Watson said to the effect "well that's reasonable". I find also that in another telephone conversation between O'Meara and Watson which was before the contract of 7 February 1990 was signed by Watson, Watson told O'Meara that he was having the property independently assessed and that he believed the property would value somewhere between $1.1 and $1.2 million and that if the Commonwealth Bank didn't value the property at around $1.1 million he probably wouldn't proceed with the purchase. I pause here to say that the letter ex.19 shows (inter alia) the following:- (a) that the loan approved was $900,000 which points to the conversation between O'Meara and Watson which preceded the delivering of the letter ex.19 having occurred before the contract dated 7 February 1990 was signed by Watson; (b) "the valuation of any property offered as security and the title thereto and the all legal aspects connected with the loan must be to CBFC's satisfaction and subject to a lending margin of no more than 85% of valuation"; (c) that valuation costs in establishing the loan were estimated at $300. Watson's evidence conflicted with O'Meara's evidence as to the contents of the first conversation between them concerning the purchase of a Gold Coast property. Watson's evidence is that after he had told O'Meara that he would only purchase the property which was available at $900,000 if O'Meara could lend him 100% of the money and that he had told O'Meara the address of the property, his next conversation with O'Meara occurred less than a week afterwards. According to -- 11 of 31 -- 9 Watson, O'Meara telephoned him and said "the valuation is coming in at around 1.1 million, I have seen the property, it would make a great brothel. The paper work is still coming through, you're O.K. sign away". Watson further said that O'Meara mentioned the name of the valuer "Costigan". According to Watson, after that conversation, he was minded to sign the contract at $900,000, that he believed the property was worth $1.1 million because O'Meara had told him his valuer had seen it and the valuation was coming in around $1.1 million and that he (Watson) did not seek any other advice from any other person. I note that in this piece of evidence Watson was specific in his belief as to the worth of the property- "$1.1 million" not "about $1.1 million." According to Watson, when O'Meara told him the property was worth $1.1 million and as he was purchasing the property for $900,000 he believed he could purchase it by borrowing 100% of the purchase price. The arithmetical calculation shows that 85% of $1.1 million is $935,000. O'Meara denied that such conversations occurred. Accepting, as I do, the evidence in exs.l8 and 19 which are documents which came into existence reasonably contemporaneously with the conversations in issue between the parties, I find it much more likely than not that O'Meara telephoned and spoke to Watson telling him in effect that finance for $900,000 had been approved and that the size of the advance depended on the valuation, the policy of the bank being to lend up to 85% of the value in the valuation. I find the version of the conversation given by Watson did not occur. I accept O'Meara's evidence that he did not ever see the property at 49 Stanhill Drive and I find that the statements attributed by Watson to him to the effect that he had seen -- 12 of 31 -- 10 the property, that the valuation was coming in at around 1.1 million, that it would make a great brothel, that the paperwork is coming through and you're O.K. sign away were not made. At the time of the conversation alleged by Watson, O'Meara had not at that stage instructed the Commonwealth Bank valuation section to value the property. I find that he did not then know the address of the property other than that it was on the Nerang River at the Gold Coast. On or before 7 February 1990, Watson did sign the contract for Natdale to buy 49 Stanhill Drive for $900,000 and the guarantee of the purchaser's obligations under the contract. I find that the contract was then unsigned by the vendor Patrick E. Rippin who later signed it after altering the price to $920,000. I find that after Watson had first signed the contract he initialled the alteration in the price and probably also an alteration of the settlement date to 5 April 1990. In oral evidence Watson said that at some unspecified date, which I find was when he (Watson) had received the contract from his solicitor, he telephoned O'Meara and according to him said "I have the contract back" to which O'Meara replied "that's very good shoot them across and could you enclose a letter indicating that the property should value at 1.1 million; scratch something out for my file to cover me." Watson said he replied "I'll do that." Although Watson, on his evidence did not say that he told O'Meara that the price had increased to $920,000 from the $900,000 the size of the advance conditionally approved, I find that it is more likely than not that Watson did tell O'Meara in this conversation that the price was $920,000. Watson agreed in cross- examination that he learned this in a telephone conversation with O'Meara between 30 January and 13 February. O'Meara in his evidence told me that he did have a -- 13 of 31 -- 11 telephone conversation with Watson when Watson telephoned after he had executed the contract and he (O'Meara) asked him to send a copy of the contract so that he could commission a valuation. O'Meara denied having said to Watson "could you enclose a letter indicating that the property should value at 1.1 million; scratch something out for my file to cover me." I accept O'Meara's evidence on this aspect and I find that he did not say "could you enclose a letter indicating that the property should value at 1.1 million, 'scratch out' something for my file to cover me." Watson wrote to O'Meara a hand written note to which was attached a photocopy of the contract including Watson's guarantee. This note and copy contract are ex.4. I am satisfied the note was written after Watson received the signed contract from his solicitors and after the above conversation with O'Meara in which he did not mention the increase in the purchase price. I find that ex.4 was hand delivered to O'Meara probably after 7 February 1990. I now set out the hand written note part of ex.4:- "Dear Peter, Please find enclosed a copy of the contract for the $920,000 advance. The property should value at 1.1 to 1.2 million it might be more economical just to use your own valuers. If you have any problems please don't hesitate to contact me on (018) 729363. Regards Austin Watson." I am satisfied that O'Meara did not know the address of the property until he received ex.4 and the enclosed copy contract. The note ex.4 contains the statement "the property should value at 1.1 to 1.2 million". That statement reads as an assertion - a statement of Watson's belief at the time he wrote the note. -- 14 of 31 -- 12 I thought that if Watson were telling the truth when he said O'Meara had told him the valuation was coming in around $1.1 million it was strange that Watson should write in ex.4 "should value at 1.1 to 1.2 million". If it were true that O'Meara had said (as Watson claimed) "could you enclose a letter indicating that the property should value at $1.1 million, scratch something out for my file to cover me" why should he (Watson) add "to 1.2 million"? When cross-examined on this aspect and asked by Mrs Mullins why he included in ex.4 "the property should value at 1.1 to 1.2 million", he replied "because he told me that the property was coming in around $1.1 million". He denied Mrs Mullins suggestion that prior to his sending O'Meara the note ex.4, O'Meara did not say that to him at all. Mrs Mullins then asked him:- "Mr Watson, you've said that this wasn't a normal transaction, that you were relying on the bank to value - CBFC to value the property, weren't you alarmed when you were asked to put in a letter as you say that the property should value at 1.1 to 1.2 million. - No." A little later, again in cross-examination, Watson asserted that O'Meara had told him to put in the note that the property should value at $1.1 to $1.2 million. This was in my view a significant departure from his evidence in chief when he said O'Meara had said "could you enclose a letter indicating that the property should value at 1.1 million". This evidence in chief also mentioned a definite figure - "1.1 million"- no suggestion of "about 1.1 million". In an affidavit which Watson had sworn on 25 August 1993, he asserted in effect that the note (which is now ex.4) was a reference to a conversation which he had earlier sworn in the affidavit he had had with O'Meara in which he swore that O'Meara had telephoned him and said words to the effect "everything is O.K. with -- 15 of 31 -- 13 the purchase it's coming in at $1.1 million with the valuer, I have had a look at it as well. It would make a great brothel", with O'Meara then going on to say "the paper work is still coming but you're O.K. sign away." I thought that on the above aspect of ex.4 namely his statement "The property should value at 1.1 to 1.2 million "Watson was most unconvincing. I am well satisfied:- (a) that before Watson ever spoke to O'Meara about purchasing a prestige Gold Coast property, he had inspected 49 Stanhill Avenue twice; (b) that at or about these times, Watson had looked at other properties in the Surfers Paradise area that fell within the description of prestige residential properties and had been told information about the prices at which those properties were on the market; that, as he swore in his affidavit of 25 August 1993, he had investigated the market, by which I understand him to have meant, the market at the Gold Coast for prestige residential properties; (the underlining is mine) (c) that by 25 January 1990, and by the time he signed the contract Watson was experienced in purchasing real estate; (d) that by 7 February 1990, Watson was an experienced business man; (e) that in January and February 1990, Natdale, of which Watson was in effect of sole control, conducted business primarily as an investor in real estate and Watson himself was very much involved in investing in real estate in early 1990; (f) that before he signed the contract dated 7 February 1990 Watson had, quite independently of anything which he said O'Meara had told him, -- 16 of 31 -- 14 formed his own opinion of what he thought 49 Stanhill Drive should be valued at and that that opinion was that the property should value at $1.1 to $1.2 million; (g) that in a conversation the date of which I could not identify but certainly before the contract was signed on 7 February 1990 Watson had told O'Meara that if the bank's valuation did not come in at $1.1 million he probably would not proceed with the purchase; (h) the statement in ex.4 "the property should value at 1.1 to 1.2 million" was Watson's own opinion and an opinion reached independently of anything which he said O'Meara had said to him. At this stage I mention a contemporaneous document namely an internal memorandum dated 13 February 1990, (ex.20) from O'Meara to the property valuation department of the Commonwealth Bank of Brisbane instructing that department to carry out a market valuation of 49 Stanhill Drive in which the following statement appears:- "Our client estimated the present market value of the property at $1.2m". This document is consistent with O'Meara having been told by Watson what his opinion of the value of the property was and I am well satisfied that that statement in ex.20 resulted from what appeared in ex.4 in Watson's handwriting. Overall, Watson did not impress me as a witness on whom I could rely and especially in areas of conflicting evidence between him and O'Meara. The defence of the two defendants and their claim of negligent misrepresentation first came to light when the defendants were contesting an application for summary judgment. In his affidavit sworn on 10 August 1993 (ex.lO) Watson swore:- -- 17 of 31 -- 15 11 5..•. before Natdale Pty Ltd became bound to purchase the property a valuation was completed by a valuer employed by the Plaintiff. I believe the valuer's name was Costigan. 6. I recall that before the valuation was obtained I spoke to Peter O'Mara (sic), a loans officer at Brisbane branch of CBFC Limited. I told Peter O'Mara (sic) that Natdale Pty Ltd would only proceed with the purchase if the property was worth in excess of ONE MILLION DOLLARS ($1,000,000). Peter O'Mara (sic) said to me and I did verily believe that the property was worth One Million one hundred thousand dollars ($1, 100,000) as he had received the valuation to that effect from Costigan." In his affidavit sworn on 25 August 1993, (ex.9) - also used in contesting the application for summary judgment - Watson said:- "16. By the time I spoke to O'Meara on the second occasion no contract had been signed between the first defendant and the vendor of the property. 17. On the second occasion I telephoned O'Meara, I said to him words to the effect of "I found a property that Natdale wants to purchase, they are looking for $920,000. If it values up I'll buy it as long as you can lend me 100% on it. 18. He said words to the affect (sic) of 'O.K. give me the details and I'll get the valuer on to it.' 19. A very short time later O'Meara rang me. He said words to the effect of "everything is okay with the purchase; its coming in at $1.1 million with the valuer. I have had a look at it as well. It would make a great brothel." We both laughed. 20. I recall this conversation because of the comment concerning the brothel. 21. O'Meara then went on to say 'the paper work is still coming but your okay sign away.' 22. On the basis of this Natdale signed the contract and ultimately settled on the purchase. 23. Although I had investigated the market I can say that Natdale Pty Ltd would not have proceeded with the purchase without the representation that the valuer believed the property to be worth $1,100,000." (the underlining is mine) -- 18 of 31 -- 16 There is in my view a significant distinction between the statements in paragraph 6 of the first affidavit and paragraphs 19 and 21 of the second affidavit sworn 15 days later. The first says that the valuation had been received from Costigan and the second says the valuation is still coming in and Costigan is not mentioned. In paragraph 17 the price mentioned in the initial conversation was said to be $920,000 and not $900,000. I thought this significant. I formed the view from seeing and hearing Watson in the witness box that he was at pains in his evidence to portray O'Meara as a person who, for no apparent reason made statements which on the evidence were to say the least reckless. The following matters in the evidence spring readily to mind:- (a) the statement attributed to O'Meara that he had seen the property - a statement alleged to have been made before the contract was signed. O'Meara, as I have found has never seen the property; also there was no apparent reason for him to see the property which was at the Gold Coast; (b) the statements attributed to O'Meara that the valuation was coming in around $1.1 million and that the valuer was doing the valuation - these statements at a time when not only had no valuation been made but no instructions had gone to the Commonwealth Bank Valuation office to make a valuation and further at a time when O'Meara did not know the address of the property; (c) the statement attributed to O'Meara that Watson should "sign away you're O.K". -- 19 of 31 -- 17 Part of the background is, as I have already found that until O'Meara received the note ex.4 and the contract, he did not know the address of the Gold Coast property on the Nerang River. The letter ex.l9 which was a contemporaneous document made it quite clear that one condition of the loan which had been approved at $900,000 was:- "The valuation of any property offered as security and the title thereto and all legal aspects connected with the loan must be to CBFC's satisfaction and subject to a lending margin of no more than 85% of valuation." On the evidence I could find no apparent reason and indeed no reason for O'Meara to make to Watson the representations on which the defendants' case depends. Watson of course has a very real interest in the outcome of this case. I am satisfied that while O'Meara in the course of his duties gave instructions to the Commonwealth Bank Valuation Section to make necessary valuations, he had no control over who actually did the valuation for the Commonwealth Bank's Property Valuation Department. In fact, on 13 February 1990, O'Meara signed a document (ex.20) containing written instructions to that department to carry out a market valuation of the 49 Stanhill Drive property on behalf of CBFC. This document which was an internal memorandum referred to "Commercial loan: Natdale Pty Ltd $900,000." It continued:- "CBFC have approved a Commercial loan to the abovementioned company to assist with the purchase of a residential house property at 49 Stanhill Drive, Chevron Island for $920,000. Copy of contract of sale is attached together with RPO search and plan. You are instructed to carry out a market valuation of the property on our behalf. -- 20 of 31 -- 18 We mention for your information, the property was apparently listed with agents for $1.5M and the purchase price was negotiated down to $920,000 as a result of an anxious vendor. Our client estimated the present market value of the property at 1.2M$. We would be particularly interested in your comments in light of the above information which we have not confirmed." I mention now that although ex.20 stated that the loan had been approved for $920,000 this was not in fact true at the time ex.20 was written. At 13 February, O'Meara knew the contract price was $920,000 - he may have written of an approval of $920,000 because of a slip or because of his knowledge of the price and further because he knew that a loan at that figure would be approved if Watson's estimate of the property valuing at 1.1 - 1.2 million proved to be correct when the banks valuation was received. I prefer the latter reason. Costigan who gave evidence for the plaintiff said that he did valuations of a variety of properties, did castings of work to be constructed and progress payments of work under construction. At trial he had been working for 15 years in the valuation section of the Commonwealth Bank. He described himself as Senior Clerk of Works with the Commonwealth Bank. His professional qualifications are a Diploma in Quantity Surveying from the Queensland Institute of Technology which he has held since 1966. For 10 years prior to joining the Bank he had worked for Iezzi (which I infer was a construction company) doing all tendering for that company and ordering materials and generally supervising construction work. Prior to working for Iezzi he was for ten years to 1969 a quantity surveyor at the State Works Department. He described the procedure in the Banks Valuation section in the first couple of months of 1990 as being that "a request for a valuation comes into the -- 21 of 31 -- 19 office from any of the branches or other entities, and the work is written into a register ... then given to the Manager who allocates each job to one of the valuers." CBFC Limited is a financial entity of the Commonwealth Bank. I find that the document ex.20 was allocated to him on 13 February 1990. Costigan consulted contemporaneous records kept in the valuation section of the bank (ex.27) and was able to tell me in evidence which I accept, that on 22 February and 28 February 1990 he went to 49 Stanhill Drive, Chevron Island. On the first day he was unable to get access to the property and on 28 February he returned and there met Lyn Fulham from Knobel and Davis Real Estate. On that occasion he gained access to the property and inspected it which inspection including walking through the whole of the house. He recorded notes on ex.20. Costigan consulted certain material including the documents in ex.27 and he relied on information which he obtained from Mrs Fulham on recent sales of properties, similar properties in the area. He explained that this inspection was done at the height of the boom, that there was a lot of activity on the Gold Coast and that the Valuer-General's records were some six months behind and he thought it prudent to get up to date sales from local agents and so spoke to Mrs Lyn Fulham. I accept the truth of these explanations. Costigan made a written valuation report (ex.28) in which he stated (inter alia) that the market value of 49 Stanhill Drive was $1,100,000. This document was dated 1 March 1990 and signed by Costigan. It includes a valuation of the land content only, at $550,000. I accept Costigan's evidence that when he did this valuation, he tried to get as close as possible to market value recognising that he -- 22 of 31 -- 20 was doing it specifically for the Bank's purposes, for security purposes and that the value which he put on it was not a forced sale value. Costigan is not a registered valuer. At no stage did he attempt to describe himself as such. I have already set out his qualifications. In ex.28 he did not refer to any comparable sale but I am satisfied that he took into account what he believed were comparable sales including one where Mrs Fulham had told him the asking price and there had been no concluded contract. Strictly, that information where there had been no concluded contract was not a comparable sale (see McDonald v. The Deputy Federal Commission of Taxation (1915) 20 CLR 231 at 239-240). Costigiu1 later revalued this property at 1 August 1991 (see ex.29). He opined that at the end of February 1990 the market for properties such as 49 Stanhill Drive was at the height of a boom and that the market started to fall somewhere around mid 1990. His later valuation of the property was $1 million. However, his land content in the two valuations remained the same and he conceded, quite correctly, "maybe I should have apportioned differently". Costigan was cross-examined as to what he may have told persons such as O'Meara. I am satisfied that in February 1990, Costigan did know O'Meara and had known him for some time on a regular business basis. I find that in early 1990, Costigan may well have spoken to persons such as O'Meara on an informal basis discussing areas but not any specific property. He conceded that it was possible that he had a discussion with O'Meara at about this time about the state of the prestige housing market at the Gold Coast and further that had he done so it was quite likely that he told him something to the effect that the market was at the height of a boom. In cross-examination he conceded that it was possible that on an informal -- 23 of 31 -- 21 basis, without talking about a specific property that he could have ventured an opinion when speaking with somebody within the Commonwealth Bank or CBFC that the property in a location with an asking price of $1.5 million at the height of a boom most probably would value in excess of $1 million or perhaps at $1.1 million. He was then asked:- "and doing the best you can with your recollection and I take the force of what you said about recalling events last week, but doing the best you can in respect of February 1990 you can't say today whether you had such a conversation with Mr O'Meara I suppose. and he answered 'absolutely not'". I must say that I thought Costigan an honest man doing his best to tell me the truth. While I accept his admissions as to the possibility of his having discussed in a general way the real estate market, I find that before 13 February 1990, he had no knowledge of the property of 49 Stanhill Drive, that he had not discussed the property at 49 Stanhill Drive with O'Meara and that it was not until on or after 28 February 1990 that he formed his opinion that the property was worth $1.1 million. In short, Costigan's evidence and the contemporaneous documents, such as they are, support O'Meara's denials of the allegations made against him by Watson. I return to the defendant's pleading paragraph 23 of which reads:- "23. On or about 7th February 1990, O'Meara advised the first defendant that the market value of the property was 1.1 million dollars." I find that O'Meara did not make any such statement to Watson before the contract was signed. I find that Watson's decision to sign the contract was based solely on his own belief and his own opinion that 49 Stanhill Drive was worth $1.1 to $1.2 million. I find, that although he did not produce and probably did not have any valuation by a registered valuer or other person who may have been qualified to -- 24 of 31 -- 22 value 49 Stanhill Drive Watson had, before signing the contract, investigated the property and that when he signed the contract Watson in effect backed his own judgment as to the value of the property for the purposes of a loan of $920,000 being less than 85% of the value. He was at that time aware as I so find that the Commonwealth Bank Valuation Department was to value the property. I accept that at some date, probably in early February 1990, and before the contract was signed that Watson had said to O'Meara in effect that if the Commonwealth Bank did not value the property at 1.1 million he probably wouldn't proceed with the purchase. I find that that latter statement was a statement of Watson's then intent, but I also find that that intent did not continue and had ceased to exist by the time Watson signed the contract. As I have already said, after Watson signed the contract at $920,000 he wrote to O'Meara the letter which is part of ex.4 and attached a copy of the contract. By the time he signed the contract, Watson I find had made up his own mind to buy the property independently of anything he said Watson may have told him. I accept O'Meara's evidence that he took Watson's comment to the effect that he wasn't going to purchase the property unless the bank's valuation came in at $1.1 million as indicating Watson was very confident that the property would value at $1.1 million based on his (Watson's) investigations as to the value of the property. I find also that O'Meara took the above comment as Watson suggesting to him that if the loan was going to go ahead the bank should come up with that sort of valuation and that O'Meara dismissed that because he had no control over it. In summary then, I find that when Watson signed the contract (ex.3) he relied entirely on his own opinion (and no one else's opinion or statement) that the property was worth $1.1 to $1.2 million and that the bank should value at $1.1 to $1.2 million. -- 25 of 31 -- 23 In the events which subsequently happened Costigan did value the property at $1.1 million and so the full purchase price was advanced by the plaintiff. I mention now that the plaintiff's earlier conditional approval for an advance of $900,000 was amended to an approval for an advance of $920,000. On 6 March 1990, O'Meara prepared an internal memorandum to the plaintiff's Sydney office (ex.21) in which he sought an increase in the approval from $900,000 to $920,000. A copy of the completed valuation was attached and ex.21 refers to the valuation "confirmed at 1.1M$ by Property Valuation Department. (copy attached)" A telephone message from Sydney approved the increase to $920,000. On 7 March 1990, O'Meara wrote to Natdale a letter (ex.11) which contained the plaintiff's approval of a loan of $920,000. This letter repeated earlier conditions stated in the earlier approval and included a reference to the valuation being subject to a lending margin of no more than 85% of valuation. Mr O'Meara conceded that inserting that particular matter was unnecessary - he said in effect that it was an oversight. I am satisfied that it really resulted from thoughtlessly copying the conditions of the earlier approval (ex.19) without realising that the valuation at $1.1 million had been received and that proposed loan of $920,000 was within the 85% limit. I do not regard this oversight as having adversely affected O'Meara's credit. I add that in assessing the credibility of both Watson and O'Meara, I have borne in mind and accepted O'Meara's evidence that in preparing to give evidence before me he had gone back to and looked at his letter of 25 January 1990 (ex.18), that by that stage whatever notes he had made of conversations with Watson at or about the time of the conversations were no longer available and that what he had done was to read the memorandum of 25 January and build his recollection of what -- 26 of 31 -- 24 happened in January 1990 very largely from that document. I have also taken into account and accepted O'Meara's evidence that (before giving his evidence before me) he had not seen the plaintiff's file relating to this transaction since 1990. As I have concluded that the defendants have failed to prove the allegation in paragraph 23 of the counterclaim on which the counterclaim relies namely:- "On or about 7th February 1990 O'Meara advised the first defendant that the market value of the property was" $1.1 million the counterclaim must be dismissed. I see no need to consider now the various aspects of the claim for negligence where the allegation pleaded in the above paragraph 23 has not been proved to have been made. However, I will comment on the evidence as to damages led by both parties. The defendants called Daniel Bryan Quinlan a registered valuer who inspected 49 Stanhill Drive on 5 and 6 July 1994 and then valued the property (retrospectively) as at 7th February 1990 at $665,000. This valuation (ex.2) is made up of the following components:- Land content $340,000 Residential dwelling $330,000 External improvements $ 45.000 $715,000 Less necessary repairs at time of purchase $ 50,000 TOTAL $665,000 The defendants called Terence John Lacey a registered valuer who has had extensive experience in the Gold Coast real estate market and market trends which have occurred since 1972. I do not repeat his experience which is set out in his curriculum vitae (ex.22). He valued the same property on 22 November 1989 for -- 27 of 31 -- 25 Bank of New Zealand. At that time the registered proprietor was Patrick Euan Rippen (sic), (the vendor who sold the property to Natdale for $920,000). His valuation (ex.23) was on two bases. The first basis was "present day fair market value" and that was as follows:- Land Building improvements Ground improvements TOTAL He also valued it on a "forced sale value" basis at $870,000. $500,000 $380,000 $ 80.000 $960.000 I point out that a comparison of the components in the valuations of Messrs Quinlan and Lacey shows that Lacey valued the land component at $160,000 more than Quinlan and the building and ground improvements at about $85,000 more than Quinlan. I leave to one side the $50,000 repairs referred to by Quinlan because he relied on Watson for this figure and Lacey did not admit the need for such repairs. Of the two valuers I have no hesitation in preferring Lacey to Quinlan. His valuation, which is really his opinion, supports the sale to Natdale at $920,000 some two to three months after his valuation as being the present day fair market value at 7 February 1990. My main reasons for rejecting Quinlan's valuation are his rejection of a sale of 91 Stanhill Drive on 22 March 1988 for $500,000 representing land value only as being in effect an out of line sale and not a comparable sale and his failure to acknowledge and take into account a sale of 93 Stanhill Drive in October 1989 for $525,000 again representing land value only. In fact, one of the comparable sales on -- 28 of 31 -- 26 which Quinlan relied was a sale of 93 Stanhill Drive for land value only on 27 July 1990 for $350,000. This sale date was several months after Natdale bought 49 Stanhill Drive. When cross-examined about the 1989 sale of 93 Stanhill Drive at $525,000 he said that that sale was "slightly out of kilter" as was the sale of 91 at $500,000. Quinlan acknowledged in cross examination that in his searches he did not find any reference to the sale in October 1989 of 93 Stanhill Drive at $525,000. Now it seemed to me that Quinlan was at some pains to justify his opinion that the land content at 49 Stanhill Drive at 7 February 1990 was $340,000. Obviously the sale of 91 Stanhill Drive and the sale of 93 Stanhill Drive (the latter in 1989) at $500,000 and $525,000 respectively would tend to prove his opinion to be incorrect and favour the correctness of Lacey's opinion of $500,000 as the value of the land content of 49 Stanhill Drive. Quinlan's opinion as to $340,000 might be more readily accepted were there only one sale of comparable land at $500,000 but with two such sales his opinion loses validity. In my view both sales were comparable sales and should have been taken into account by Quinlan in arriving at his value of the land content of 49 Stanhill Drive. I was not impressed by his omission from the list (at pp.9-ll of his valuation) of sales of improved properties sold for land value only, of the sale of 93 Stanhill Drive in October 1989 at $525,000. Nor was I impressed by his refusal in the witness box to acknowledge the relevance of that sale. In short, after hearing the valuers Lacey and Quinlan I concluded I could not have any confidence at all in Quinlan 's valuation. I though Quinlan was not an impartial expert witness. Lacey on the other hand impressed me as a valuer and an impartial expert on whom I could confidently rely. Further, his valuation in / -- 29 of 31 -- 27 November 1989 is supported and confirmed by Natdale's arms length purchase of the very same property 2-3 months later at $920,000. I ignore Costigan's valuation because:- (a) he was not a registered valuer; (b) as I have earlier stated he relied, in making his valuation on information as to asking prices which information should not as a matter of law be relied on by a valuer as a comparable sale. Were it necessary for me to have done so I would have concluded that the defendants had suffered no damage as a result of the alleged negligent misstatement and its having entered into the contract. An essential element in the counterclaim would not have been made out and on that ground the defendants' counterclaim would have failed. It will be apparent that if Quinlan 's valuation were amended to show the land content at $500,000 and other components were unaltered, his valuation (excluding repairs) would become $875,000 which in my view is sufficiently close to $920,000 to prove no damage suffered by the plaintiff. On the aspect of the necessary repairs referred to by Quinlan the defendants effectively relied solely on Watson who produced photocopies of invoices from various tradesmen (see ex. 7). These totalled $63,298 of which $10,650 was for removing and replacing carpet. This part of the defendants claim was dropped during evidence. None of the tradesmen was called. The tiling costs were $20,436, and on the face of the invoice and Watson's evidence there must have been a large amount of damaged tiles and travertine marble in the house - of such a degree that damage must have been readily visible to persons such as Lacey and Costigan. Neither saw them. The house at sale in February 1990 was -- 30 of 31 -- 28 some 15-18 months old. Part of the repairs was a bill for $28,875 for what was said to refer to "impacting of the granotrowell wall finish." Neither Lacey nor Costigan saw such damage which, were it present, must have been obvious to them. At the end of the day, were it necessary for me to have made a finding on the matter of these repairs claimed, I would reject them entirely. I thought that Watson, having made what he regarded as a very good "buy" probably decided that he would with his expected $1.2 million profit from Hatprint spend money on the house. The carpet replacement was a good example of that approach and I thought other claims typified that approach. In the result then I dismiss the counterclaim and I give judgment for the plaintiff against the defendants on their counterclaim with costs including reserved costs (if any) to be taxed. -- 31 of 31 --