Get It Right, Or It May Come Back And Bite!

 OPINION
by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

A company within the Herron Todd White group lost a High Court appeal not too long ago on how much damages would compensate former clients for negligent valuation advice. HTW Valuers (Central Queensland) Pty Ltd had to pay damages of $406,194.60, another hundred thousand dollars or so for interest plus legal costs around $600,000.00.

The original valuation fee was $250.00 – calculated on two and a half hours work at $100.00 per hour.

Moral: No matter how small the fee, how simple the matter, property professionals – valuers, solicitors, agents, planners, etc. - must be careful. Get it wrong, and damages could result if your clients act to their detriment on your flawed advice.

No matter how innocent they may be, wronged property consumers must sometimes endure huge legal and emotional costs before they get just compensation. Witness this case. It went from a Supreme Court of Queensland trial to the Court of Appeal, to the High Court on a leave application, then again for final determination. It took six and a half years and nine judges before Brisbane solicitor Marcus Johnson (and a couple of barristers) got up for his clients. A few years back a West Australian architect successfully survived a similar ordeal (with the assistance of his Perth solicitor and barristers) after suing an estate agent for misrepresentation.

In both cases the defendants were backed by insurers.

Herron Todd White, according to its website, is Australia’s largest independent property valuation and advisory group. Herron Todd White’s Mackay office in Central Queensland is run by Barry Deacon. This office, like others in the group, offers "services tailored to its local market" and is claimed to have "a detailed knowledge" of that market. In April 1997 John and Lyn Foster proposed to invest in commercial property near Mackay. After they became interested in an arcade of eight shops (part of a "strip commercial district") in Sarina just south of Mackay, they sought valuation advice from Barry Deacon about "the plaza".

The Fosters wanted to know if the plaza’s rentals were right, how they fitted into the Sarina market, about the demand for retail tenancies and the availability of tenants in the town.

Deacon’s advice mentioned ten speciality shops and a supermarket to be constructed nearby. Although these had "attracted reasonably strong interest", he confirmed that current rentals at the plaza were "maintainable" with some "titivation of the building" possibly needed. Fosters’ company, Astonland Pty Ltd, consequently contracted to buy the fully-tenanted plaza on 28th April 1997, and settled on 1st July 1997. By mid-1998 the other centre had opened as a detached drive-in shopping centre - only 400 metres from the plaza. By March 2000 the plaza had one shop vacant for a year, another for 9 months, two others recently vacant, a fifth with rent substantially in arrears and two others with sharply-fallen rents. This was "due in large measure" to the opening of the other centre. The Fosters tried unsuccessfully to sell, but the plaza was no longer "a readily marketable asset."

"Such is life" in strip shopping centres and arcades. The Fosters, fortunately, had relied on professional advice.

While the trial judge accepted that Deacon personally believed the other centre was not likely to affect plaza rentals adversely, His Honour found contractual, tortious and statutory duties of care breached. Deacon’s advice should have been qualified with a caution that "the effect" of the other centre was "uncertain."

There was no argument in the later appeals about this finding, only whether a $355,000.00 component of the damages calculation was correct. In March 2000 the plaza was valued at $130,000.00. So $355,000.00 represented the difference between this diminished value and the original purchase price of $485,000.00.

The High Court ruled that the trial judge’s damages award should stand: "The difference between what he did give and what he ought to have given is insufficiently substantial to suggest that the verdict was out of line … The overall judgement figure has not been shown to be unjust to the defendant or unduly generous to the plaintiff."

The Court made some interesting observations on "market value", "true value" and the assessment of loss and damages:

• "Figures worked out by analysing what willing but not anxious buyers and willing but not anxious sellers would agree on, without taking account of subsequent events, may correspond with market value; but they do not necessarily correspond with true value because the market can operate under some material mistakes."
• "Thus in assessing damages … the Court is not limited to the assessment of risk as at 28 April 1997 but is entitled to take account of how those risks had evolved into certainties at dates after the date on which the comparison of price and value was being made … The market value in 1997 was not a ‘true value, but a mistake in estimate of … value’."
• "Just as the estimation of market value must be an inexact process, so must the assessment of damages based on an assessment of true value."
• "The task of valuation is to be conducted without hindsight … That task is different from the task of assessing loss, because the latter task is to be conducted with hindsight."

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