The Impact of Proportionate Liability Legislation in Kayteal Pty Ltd v John Joseph Dignan and Ors - Case Study Example

Case Report KAYTEAL PTY LTD V JOHN JOSEPH DIGNAN & ORS 2011 March 24 Brereton. J. Catchwords SOLICITORS - Professional negligence - mortgages - general principles - duty and breach - solicitor's duty to mortgagee usually framed by retainer - general duty to exercise reasonable care in obtaining a valid and enforceable security - duty does not extend to advising on valuation of security - obligation to pass on information obtained in course of investigating title that may cause mortgagee to doubt correctness of valuation or bona fides of mortgagor - solicitors did not owe duty to ascertain creditworthiness of mortgagor - solicitors discharged duty to obtain a legally efficacious mortgage -solicitors failed to advise client of matters known or which ought to have been known from usual inquiries which would have caused client to doubt reliability of valuation -reasonably prudent and competent solicitor should have appreciated and advised that contrary to assumption stated in valuation land was subject to flooding. SOLICITORS - Professional negligence - mortgages - loss and damage - measure of damage and loss is difference between actual position of mortgagee and hypothetical position but for negligence of solicitors - claim for economic loss from failure to take reasonable care - apportionable claim under Civil Liability Act - proportionate liability of defendants as concurrent wrongdoers - responsibility derived from comparing blameworthiness and causative potency of conduct of alleged concurrent wrongdoers being borrower, valuer, finance broker and solicitors - where borrower fraudulent and valuer grossly negligent - solicitors responsibility assessed at 12.5%. SOLICITORS - claim against valuer for negligence - no duty of care owed by valuer to solicitor - valuer owed duty to borrower only - misleading and deceptive conduct claim against valuer - solicitor's loss not caused by reliance on misrepresentations of valuer but solicitor's failure to take reasonable care - concurrent wrongdoer cannot recover contribution or indemnity against other concurrent wrongdoer except an excluded concurrent wrongdoer - valuer not an excluded concurrent wrongdoer - should have appreciated and advised that contrary to assumption stated in valuation land was subject to flooding. Summary of the case The ruling in Kayteal Pty Ltd v John Joseph Dignan & Ors established the impact of proportionate liability legislation. The court made the three parties liable to the plaintiff. However, the plaintiff was unable to recover more than 12.5% of its losses, on account of the insolvent status of these parties. This ruling defined the scope of a solicitor’s duty of care towards a client (Kayteal Pty Ltd v John Joseph Dignan & Ors, 2011). The judgement in this case constitutes an instance of apportioning responsibility in lending transactions involving a fraudster and where the appraiser was negligent in the discharge of his duties. The extent of wrongdoing or responsibility depends on the facts of the case (Kayteal Pty Ltd v John Joseph Dignan & Ors, 2011). Held In its ruling, the court determined that the loss suffered by the lender, rendered the borrower, solicitors and the valuers liable. During the course of apportioning liability to these three parties, the court assessed their comparative liabilities, extent of the culpability of these parties and the causative influence of their conduct (Vetrova & Bates, 2011). After such assessment, the court concluded that the valuers were guilty of gross negligence in the discharge of their duty towards the lender. This conclusion was reached by the court on the basis of the fact that the valuers were fundamentally responsible for identifying and valuing the property provided as security for the loan. In addition, the court determined that the valuers had empowered the borrower, via their incorrect valuation, which in turn enabled the borrower to make a fraudulent misrepresentation to the lender (Vetrova & Bates, 2011). Moreover, the valuers had provided a valuation of some other property and not that of the property offered as security for the loan. Furthermore, as noted by the court, the valuers had paid scant regard to the efforts of the solicitors to point out the various discrepancies. In fact, the valuers had acted in a manner that even the most callous and casual of valuers would have eschewed (Vetrova & Bates, 2011). All the same, the court apportioned 47.5% of the liability, the largest share, to the borrower. This was due to the fact that the borrower had deliberately and in order to benefit himself, had engaged in misrepresenting the value of the property to the lender. The borrower was precluded from pleading ignorance of the true value of the property offered by him as security to the lender, because he had purchased that property, two months previously, for $52,000 (Vetrova & Bates, 2011). The court apportioned 40% of the liability to the valuers, and 12.5% to the solicitors. Although, the solicitors were penalised to the least extent, it was aggravated by the fact that they had clearly failed in their duty towards the lender. The chief purpose of their engagement by the lender was to provide him with accurate and timely information regarding the property offered as security (Vetrova & Bates, 2011). In addition, the solicitors were duty bound to ensure that all the necessary precautions had been taken and that the essential protections were present. Moreover, they had failed to identify and report to the lender, certain crucial issues relating to the property offered by the borrower as security for the loan (Vetrova & Bates, 2011). Cases Referred to in the Judgement Bank of East Asia v Shepherd & Wedderburn [1995] SLT 1074. Chandra v Perpetual Trustees Victoria Ltd (2007) 13 BPR 24,675. Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60. Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch. 384. Mortgage Express Ltd v Bowerman & Partners [1996] 2 All ER 836. Mortgage Funding Corporation v Tisdell Nelson Nari & Co [1998] PNLR 81. Nationwide Building Society v Balmer Radmore [1999] PNLR 606. National Home Loans Corporation pls v Giffen Couch & Archer [1998] WLR 207; [1997] 3 All ER 808. Omega Trust Company Ltd v Wright Sun & Pepper (No 2) [1998] PNLR 337. Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187. Scholes v Brook (1891) 63 L.T. 837. Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505. White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164. Whiteman v Hawkins (1878) 4 C.P.D. 13. Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463. Yorke v Lucas (1985) 158 CLR 661. Facts In this case, Kayteal lent $780,000 to Bsat, against the security of property located in Canley Vale. Kayteal was provided with the first mortgage over this property. The value of the property was assessed at $1.2 million by John Dignan and his company, Dignan Real Estate. However, the value of the property was just $52,000 (Vetrova & Bates, 2011). Subsequently, the loan was not repaid by Bsat and the lender, Kayteal approached the court and obtained judgement. Thereafter, the borrower declared bankruptcy and Kayteal proceeded legally against the solicitors who had provided it with legal advice regarding the loan transaction with Bsat. Kayteal initiated action for negligence against the solicitors (Vetrova & Bates, 2011). In this case, the valuers who were fundamentally duty bound towards the lender to appraise and value the security and to identify it, failed in their duty. Their inflated evaluation and wrong identification of the property offered as security by Bsat for the loan helped the latter to misrepresent the value of the property to the lender and its solicitors. Furthermore, the valuers crassly ignored the efforts of the solicitors to bring to their notice the various incongruities in their evaluation. Thus, the valuers were guilty of gross negligence, and they were responsible to a similar extent as Bsat (Supreme Court New South Wales, 2011). The liability of the solicitors was due to their failure to ensure that the valuation provided by the valuers was in conformity with the property offered as security for the loan. A major lacuna in the discharge of their duty towards the lender was that they did not stress the fact that the valuation was significantly weakened by the flooding qualification. In the face of the misrepresentations made by the valuers, the solicitors should have been more circumspect and they should have thoroughly scrutinised the responses received from the valuers (Joyce & Morse, September 2011). However, the solicitors brought some of these discrepancies to the notice of the valuers and asked them re – examine the valuation of the property. In this manner, it was established that the liability of the solicitors was less than that of the others. Nevertheless, the court stressed the fact that the solicitors had been primarily engaged for the ensuring that the necessary protections had been effected. Detection of the flood affectation was deemed to be a basic responsibility of the solicitors. Counsel: Plaintiffs: Mr G. F. Grinter 3rd Defendant: Mr M. K. Drake with Mr A. Shearer Judgement In its ruling the court considered Kayteal’s claim to be an apportionable claim. As a result, it fixed responsibility to the extent of 47.5% on Bsat, 40% on Dignan interests and 12.5% on the solicitors. Hence, Kayteal was to receive $134,835 from the solicitors. With respect to the cross – claim made by Kayteal against Dignan, the court held that it was part of the proceedings for an apportionable claim. Consequently, it was held that the overall liability of Dignan was to be assessed on the basis of such apportionment. Therefore, it would be inconsistent with this to allow the solicitors to claim recovery of contribution or indemnity from Dignan, with regard to the apportioned share of the loss. Hence, the first cross – claim was dismissed. With regard to the first cross – claim, the presiding judge gave judgement for the cross – defendant Dignan. The judge consented to make suitable directions for submissions, with respect of the solicitors request to be heard on costs after the judgement. In his judgement, Brereton J, held that the liability of the valuers was not less than that of the borrower. This case highlights the duty of the valuers, which requires them to exercise greater care while assessing the value and identifying property to be provided as security for a loan. Moreover, this decision, demonstrates the nature and extent of the duty owed by solicitors to a lender. It also indicates the extent to which responsibility is to be allocated between the defendants, whenever a fraudster is involved in the loss caused to the lender. List of References Joyce, L., & Morse, J. (September 2011). Kayteal Pty Ltd v John Joseph Dignan & Ors [2011] NSWSC 197. Australia and New Zealand Property Journal, 187 – 188. Kayteal Pty Ltd v John Joseph Dignan & Ors, NSWSC 197 (2011). Supreme Court New South Wales. (2011, March 18). Kayteal Pty Ltd v John Joseph Dignan & ors [2011] NSWSC 197. Retrieved October 10, 2011, from http://www.caselaw.nsw.gov.au/action/PJUDG?jgmtid=150859 Vetrova, A., & Bates, J. (2011, May 11). There is no substitute for instructing the valuer directly. Retrieved October 9, 2011, from http://www.mondaq.com/australia/x/131976/There+is+no+substitute+for+instructing+the+valuer+directly Read More