Emerson & Emerson v Custom Credit Corporation Ltd [1991] QSC 319

•r•· l ' ,,..,___., . • J --\\ ('?Y TRANSCRIPT OF PROCEEDINGS ~:y, . ,,/ State Reporting Bureau, 4th Floor, The Law Courts, George Street, BRISBA.NE, 0. 4000 Tel. (07) 227.4360 (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.) REVISED COPIES ,ISSUED ! SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION de JERSEY J No 1436 of 1985 JOSEPH FRANCIS iEMERSON and WILMA LUCY EMERSON and CUSTOM CREDIT CORPORATION BRISBANE .. DATE 01/11/91 JUDGMENT ICourt Reporting Bureau Date: r ~ I l\ / "\ l Plaintiffs Defendant 1 -- 1 of 11 -- 10 20 3'0 40 50 60 011191 JUDGMENT HIS HONOUR: This is the judgment in the matter of Emerson v. Custom Credit. Judgment for the plaintiffs against the defendant for $130,178.99 together with interest on tha~~ amount calculated from 9 October 1984 to the date of this judgment at six-monthly rests at the various applicable bank interest rates set out in Exhibit 32 and costs to be taxed. I publish my reasons. Govt. Printer, Qld. 2 10 20 30 40 50 60 -- 2 of 11 -- IN THE SUPREME COURT OF QUEENSLAND No. 1436 of 1985 Before the Honourable Mr. Justice de Jersey BETWEEN: AND: Counsel: JOSEPH FRANCIS EMERSON and WILMA LUCY EMERSON CUSTOM CREDIT CORPORATION LIMITED JUDGMENT - de JERSEY J. Delivered the 1st day of November, 1991 Plaintiffs Defendant D.R. Cooper with C.L. Francis for plaintiffs S.M. Kiefel Q.C. with P.D.T. Applegarth fordefendant Hearing dates: 28th, 29th, 30th, 31st October, 1991 -- 3 of 11 -- IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: JOSEPH FRANCIS EMERSON and WILMA LUCY EMERSON No. 1436 of 1985 Plaintiffs CUSTOM CREDIT CORPORATION LIMITED Defendant JUDGMENT - de JERSEY J. Delivered the 1st day of November, 1991 On 4th October, 1984 the defendant sold the Tropicaire Motel and some associated land to Mr. and Mrs M. Mahaffey. The defendant sold as mortgagee. The registered proprietor was John Horne. The contract provided for a price of $1 million, payable by a deposit of $100, $800,000 on an unspecified date for completion, and the balance of $199,900 within 18 months. Only the $800,000 was paid. That was paid on 19th October, 1984, although "settlement" had otherwise occurred ten days earlier. The plaintiffs held a subsequent registered mortgage. The amounts received by the defendant were not enough to pay out the defendant's mortgages. The plaintiffs contend that the defendant, when selling, breached its duty to them, essentially by selling the property, which was worth $1 million, under a contract by which the defendant was unlikely to recover anything more than $800,000, as it knew. The plaintiffs contend that had the defendant obtained the -- 4 of 11 -- 2 market value of $1 million, they would have received a sum substantially in excess of $100,000. The plaintiffs claim to have lost that, and the interest they could have earned on it. They sue for damages and interest, or an account. The major issue is what was the market value of the property as at 4th October, 1984. That was the date on which the defendant sold the property to Mr. and Mrs Mahaffey. I heard evidence from three valuers. Mr. Rafter, who gave evidence for the plaintiffs valued the property, at the instance of F.A.I. Insurances Ltd., as at 17th July, 1984, at $1 million. He gave evidence that the property would have had the same value as at 4th October, 1984. Mr. Hall, who gave evidence for the defendant, valued the property, at the instance of the defendant, as at 7th August, 1984, at $480,000. Mr. Browning, also called for the defendant, valued the property as at 17 July, 1984 at $650,000. Mr. Hall was asked by the defendant to value the properties on a "forced sale" basis, which he understood to involve the defendant's selling, as he put it, "fairly quickly". Mr. Hall did not carry out an inspection of the property, particularly for this valuation, although he had earlier seen it. He relied on trading figures collected by an assistant, Mr. Rowland, and Mr. Rowland gave some extremely sketchy evidence about that. Mr. Rafter and Mr. Hall prepared their valuations at times proximate to the relevant sale. Mr. Browning prepared his some years later, in February, 1990, for the purpose of -- 5 of 11 -- 3 litigation by F.A.I. against Mr. Rafter with respect to Mr. Rafter's valuation. A chartered accountant, Mr. Paterson, gave evidence as to the reliability of Mr. Rafter's financial projections, particularly with respect to Mr. Rafter's adoption of a 60 per cent occupancy level, and his food and beverage income and payroll expense figures. Mr. Paterson used some information not available to Mr. Rafter at the time, in respect of subsequent events. But that aside, I was not satisfied with the basis for the figures Mr. Paterson adopted, because of the matters covered in cross-examination. Having heard from both Mr. Rafter and Mr. Paterson, Rafter about the matters report. I preferred the opinions of Mr. challenged by the accountant's I considered that Mr. Rafter's valuation gave the most reliable view of the market value of the properties, especially because of his use of comparable sales. Mr. Hall substantially confined his approach to capitalisation (a method Mr. Rafter however used as well). Neither Mr. Hall nor Mr. Browning took any proper account of the earlier purchase of the subject properties by Mr. Horne for $1,040,000 in July, 1983. Their explanations for that failure were insufficient and unconvincing. Mr. Rafter's more comprehensive analysis did in the end give a much more reliable indication of value than either of the others produced. I should add that I think he was entitled to take account of projected figures, and that his error in not including rates has no ultimate significance -- 6 of 11 -- 4 in the resolution of the issue. correct. Valuations cannot be exactly I found Mr. Rafter' s oral evidence given in court in support of his valuation much more convincing than that given by either Mr. Hall or Mr. Browning, and my ultimate conclusions in this area are greatly affected by my assessment of the demeanour of the valuers when giving their evidence ( cf. Cuckmere Brick Co. v. Mutual Finance Ltd. ( 1971) 1 Ch. 949, 960). I also note that Mr. Rafter gave his valuation, as I infer on a conservative basis, to a financier other than the defendant; and that on the other hand, Mr. Hall had a long standing association as a valuer with the defendant. I note as well that Mr. Browning prepared his valuation for the purposes of litigation against Mr. Rafter with relation to Mr. Rafter's valuation. Mr. Hall's valuation carried the additional disadvantage of having been inspired by the instruction for a "forced sale" valuation ( even though in oral evidence he sought to adjust it), rather than a valuation of market value in the ordinary way. I accept the evidence of Mr. Rafter and I reject the valuations of Mr. Hall and Mr. Browning. I therefore find that as at 4th October, 1984 (and for the preceding few months) the market value of the properties was $1 million. The defendant was obliged to take reasonable care to ensure that the properties were sold at the market value, and it owed that obligation to the plaintiffs. I draw that from -- 7 of 11 -- 5 s. 85 of the Property Law Act. Ordinarily, a mortgagee would, to that end, advertise a property for sale. The defendant did not do that immediately preceding this sale, or, indeed, proceed with any other particular step to draw the properties to the attention of parties who might be interested in purchasing them at this time. That neglect was consistent with Mr. Wedlake's wish to get the property "off the books" of the defendant as soon as possible. In that regard, I accept the evidence of the plaintiffs, Mr. T. Mahaffey and Mr. McCracken. I accept all of the evidence of those witnesses, whom I considered credible. I reject the evidence of Mr. Wedlake where in conflict. That determination is based on my assessment of the demeanour of the witnesses. I should say that Mr. Wedlake had a very limited recollection of relevant events and I found his evidence vague and generally unsatisfactory. (Mrs Lynch was ,an honest witness, but her role was subordinate to Mr. Wedlake' s with respect to this transaction. ) At the time of the sale on 4th October, 1984 Mr. Wedlake knew that there was in existence a valuation from the Ray White organisation putting a value of $1 million on the properties. That should have alerted him to the importance of a proper investigation of market value, in light of the much lesser figure put on the property by Mr. Hall. In Mr. Wed lake' s view, the defendant would recover only $800,000 from the Mahaffeys. I find that Mr. Wedlake provided for a price of $1 million in the contract merely to suggest -- 8 of 11 -- 6 that there had been a sale at the amount of the Ray White valuation (although this is not a case where the contract at that price was in a legal sense a sham). As Mr. Wedlake put it, the defendant had to be "seen" to be protecting the plaintiffs' interests. But in reality, the defendant was not protecting the plaintiffs' interests at all. It took no reasonable step to secure the market value of $1 million, even though it ended up with a contract at that price, there being no expectation of its being paid anything beyond $800,000. Had the defendant taken reasonable steps, it would probably have secured a sale for $1 million, for settlement at about the same time as this contract was settled. I say at. about the same time 9th October, 1984 because the defendant became entitled to sell in late April, 1984, and as Mr. Hall said, one would normally allow three to six months to achieve a sale at market value. (I did accept his evidence in that regard.) That would lead to a sale by October, 1984. As at 9th October, 1984 there was $843,426.50 due to the defendant, and it was entitled to reimbursement of $9,910 legal fees secured by the mortgages. ( I accepted Mr. Chapman' s evidence as to the costs. ) As well, in this adjustment, $16,409.01 for rates and $75.50 search fees should be brought to account to the defendant's credit. Mr. Horne then owed the plaintiffs $163,964 secured by the mortgage on which they now rely. After deducting the amounts due to the defendant ($843,426.50, $9,910, $16,409.01 and $75.50), there would, from the price of $1 million, have been $130,178.99 -- 9 of 11 -- 7 left for the plaintiffs. They are entitled to judgment for damages in that amount, together with interest. The interest should be allowed from 9th October, 1984 at the various applicable bank interest rates set out in ex. 32. I would not cut down the period for which interest should be allowed in light of the time it has taken for the action to come to trial, because I accept as reasonable the plaintiffs' explanation for that. Counsel for the plaintiffs submitted that I should regard the defendant as having "in fact" received the sum of $1 million under the contract, and grant the plaintiffs relief on that basis. Those words are taken from s. 88 of the Property Law Act. That section is a machinery provision designed to ensure that a mortgagee properly distributes moneys actually received by it. The defendant here did not "in fact" receive anything more than $800,000. The plaintiffs cannot establish an entitlement to relief by reference to s. 88. They are nevertheless entitled to succeed on the damages basis. There will therefore be judgment for the plaintiffs against the defendant for $130,178.99 together with interest on that amount calculated from 9th October, 1984 to the date of this judgment at six monthly rests at the various applicable bank interest rates set out in ex. 32, and costs to be taxed. I do not intend that the interest be capitalised. My selection of six monthly rests reflects my view as to how the plaintiffs would probably have invested the money had they received it, and as to what is reasonable now in the exercise -- 10 of 11 -- 8 of my discretion. I do not consider it appropriate to award costs on a solicitor-own client basis. -- 11 of 11 --