Kayteal v Dignan [2011] NSWSC 197

The lender relied on a valuation in entering into the mortgage. The valuation indicated the property was worth $1.2million when in fact it was only worth $52,000. The claim against the valuer settled. The lender then proceeded against the solicitor who acted for them on the advance.

The solicitor had noticed inconsistencies between the property and how it was depicted in the valuation. The solicitor raised this with the valuer and the valuer confirmed the valuation. The solicitor did not raise it with the lender.

Justice Brereton noted that ordinarily a solicitor’s duty is confined to ensuring the lender obtains valid and enforceable security. This does not normally encompass advising on the valuation.

However, his Honour extended this duty in limited circumstances by stating:

Generally, a solicitor has an implied obligation to pass on information obtained during the course of investigating title which might cause the lender to doubt the correctness of the valuation, or the borrower’s bona fides. Thus, if, in the course of investigating title, the solicitor discovers facts that suggest that the value of the security is insufficient, or otherwise cast doubt on the accuracy or reliability of the valuation, then – regardless of the terms of the retainer – the solicitor ought to draw this to the attention of the client.

Accordingly, the Judge found the solicitor had breached its duty.

Proportionate liability
The solicitors ran a second defence which was that if it breached its duty the damages should be apportioned between all the parties who caused loss.

In comparing the blameworthiness and causative potency of the conduct, the Judge noted that:

  1. The borrower would have known the valuation was erroneous because he purchased the property two months earlier for $52,000;
  2. The borrower therefore must have intentionally misrepresented the value of the property on the application form, saying it was worth $1.2 million.
  3. The valuer was primarily responsible for the valuation and identifying the property valued.
  4. The valuer failed to heed the solicitor’s attempts to draw their attention to the discrepancies.
  5. The solicitor ought to have been satisfied with the responses from the valuer.
  6. The solicitor took some steps to correct the valuer and therefore their responsibility was relatively slight.

The Judge apportioned the damages as follows:

  1. The borrower – 47.5%
  2. The valuer – 40%
  3. The solicitor – 12.5%

The broker was not a concurrent wrongdoer as they were simply passing on the information they were given and did not adopt it as their own.

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