Kenny & Good Pty Ltd v MGICA (1992) Ltd

HIGH COURT OF AUSTRALIA

GAUDRON, McHUGH, GUMMOW, KIRBY AND CALLINAN JJ

KENNY & GOOD PTY LTD & ANOR  APPELLANTS

AND

MGICA (1992) LTD  RESPONDENT

Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25
17 June 1999
S66/1998

ORDER

Appeal dismissed with costs.

On appeal from the Federal Court of Australia

Representation:

D L Davies SC with G Curtin for the appellants (instructed by Colin Biggers & Paisley)

D F Jackson QC with R W White for the respondent (instructed by Hickson Lakeman & Holcombe)

Notice:  This copy of the Court’s Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Kenny & Good Pty Ltd & Anor v MGICA (1992) Ltd

Tort – Misrepresentation – Valuation of property – Representation as to present and future value – Duty of care – Scope of liability of valuer – Causation and remoteness of loss – Whether liability to financier includes losses arising from subsequent fall in property market.

Damages – Negligence – Misrepresentation – Valuation of property – Remoteness and measure of damages – Whether contractual remoteness test applicable.

Trade practices – Misleading and deceptive conduct – Valuation of property – Remoteness and measure of damages.

Valuation – Property – Principles – Efficiency of market – Foreseeable risks – Whether factored into value.

Fair Trading Act 1987 (NSW), ss 42, 68.
Trade Practices Act 1974 (Cth), ss 52, 82.

1. GAUDRON J.   The appellants are real estate valuers who, for a fee, were engaged by Macquarie Bank Limited ("the Bank") to value a residential property ("the property") in Hunters Hill, a harbourside suburb in Sydney.  The valuation was required to enable a decision to be made as to the provision of mortgage finance to the owner, Beca Developments Pty Limited ("Beca").  The Bank's request was for a valuation which "extended to include ... Permanent Custodians [and] MGICA Limited".  The respondent to this appeal, MGICA (1992) Limited ("MGICA"), was formerly MGICA Limited.

2. The appellants valued the property while building work was still in progress.  They assessed its value as it stood on 18 April 1990 at $5.35 million and at $5.5 million on completion.  In May 1990, Permanent Custodians Limited ("Permanent Custodians") lent $3.575 million to Beca, that being 65 per cent of the valuation of the property on completion.  The loan was secured by a first mortgage and insured by MGICA.

3. It is not now in issue that the value of the property was less than stated by the appellants and that, on 18 April 1990, its true value, on an "as completed" basis, was of the order of $3.9 million to $4 million.  In June 1991, Beca defaulted under the mortgage and, on 2 July 1991, Permanent Custodians entered into possession.  On 6 January 1992, the property was sold for $2.65 million.  It is not suggested that the property could have been sold earlier.  Moreover, it is accepted that $2.65 million was its value when sold, there having been a fall in residential property values in Hunters Hill between April 1990 and January 1992.

4. In all, Permanent Custodians suffered a loss of $1,977,513.67.  That sum was paid to it by MGICA as mortgage insurer.  The question in this appeal is whether, having regard to the fall in property values, the appellants are liable for the total loss in respect of which MGICA indemnified Permanent Custodians.  Before turning to that question, it is convenient to say something of the appellants' valuation report.

5. It was stated in the valuation report that the property was "suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3-5 years".  The report also stated:

   "This Report and Valuation has been prepared for and under the instructions of our Client – Macquarie Bank Limited, as intending mortgagee.

   It is also noted that ‑

   Permanent Trustee,
     Permanent Custodians,
     MGICA Limited
     and

   MGICA Securities Limited,

   may use and rely upon this report and valuation in the same manner as intended by Macquarie Bank Limited."

6. Notwithstanding the statement that the property was "suitable security for [the] investment of trust funds to the extent of 65% of [the] valuation for a term of 3-5 years", MGICA neither sued to obtain the benefit of that statement as a contractual warranty[1] nor complained of the representation embodied in it.  Rather, it brought proceedings in the Federal Court of Australia complaining only of the valuation.

   [1]As to the circumstances in which a third party may sue to obtain the benefit of a contract, see, generally, Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107.

7. In its application to the Federal Court, MGICA claimed that the appellants were negligent in making the valuation, were in breach of contract in failing to exercise due care and skill and were in breach of ss 52 and 53A of the Trade Practices Act 1974 (Cth) ("the Act") and, also, of ss 42 and 45 of the Fair Trading Act 1987 (NSW). Sections 52 and 53A of the Act respectively proscribe misleading or deceptive conduct by a corporation in trade or commerce[2] and false or misleading representations with respect to land by a corporation in trade or commerce[3]. Sections 42 and 45 of the Fair Trading Act proscribe the same conduct by an individual.

   [2]Section 52(1) of the Act provides:

   "      A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

   [3]Section 53A(1) of the Act relevantly provides:

   "      A corporation shall not, in trade or commerce, in connexion with the sale or grant, or the possible sale or grant, of an interest in land or in connexion with the promotion by any means of the sale or grant of an interest in land:

   ...

   (b)make a false or misleading representation concerning the nature of the interest in the land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put or the existence or availability of facilities associated with the land".

8. At first instance, Lindgren J found that the appellants were negligent and that they had contravened s 52 of the Act and s 42 of the Fair Trading Act[4].  No finding was made on the claim for breach of contract, it being treated, it seems, as raising the same issues as the claim in negligence.  His Honour also found that MGICA provided insurance in reliance upon the appellants' valuation and that, had the "as completed" valuation been less than $4.5 million, "MGICA would not have insured [the loan] at all."[5]

   [4]MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 at 383.

   [5](1996) 140 ALR 313 at 364.

9. So far as concerns damages, his Honour held that the appellants were liable to MGICA for the whole of the loss in respect of which it indemnified Permanent Custodians.  In so doing, he declined to follow the decision of the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd[6].  It was held in that case that a valuer is liable to a lender in negligence only for "the consequences of the valuation being wrong"[7], not the consequences of the lender entering into some loss-making transaction in reliance upon the valuation[8].

   [6][1997] AC 191. The decision is also known as South Australia Asset Management Corporation v York Montague Ltd.

   [7][1997] AC 191 at 222.

   [8]See also the recent House of Lords decision in Platform Home Loans Ltd v Oyston Shipways Ltd [1999] 2 WLR 518; [1999] 1 All ER 833, in which this approach is affirmed.

10. The appellants appealed from the decision of Lindgren J to the Full Court of the Federal Court[9].  Their appeal was dismissed.  They now appeal to this Court, arguing, as they did in the Full Court, that they are not liable for the full loss in respect of which MGICA indemnified Permanent Custodians, but only so much as constitutes "the consequences of the valuation being wrong".

    [9]Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 77 FCR 307.

11. To understand the appellants' argument, it is necessary to say something of the expression "the consequences of the valuation being wrong".  In Banque Bruxelles that expression was used to signify the difference between the value as represented and the actual value of the property in question.  That can be seen by referring to the facts of two of the three appeals reported under that name, namely, South Australia Asset Management Corporation v York Montague Ltd and United Bank of Kuwait Plc v Prudential Property Services Ltd.  In South Australia Asset Management the facts were these:

    "the lenders on 3 August 1990 advanced £11 m on a property valued at £15 m.  May J found that the actual value at the time was £5 m.  On 5 August 1994 the property was sold for £2,477,000.  May J quantified the loss at £9,753,927.99 and deducted 25 per cent for the plaintiff's contributory negligence."[10]

    The verdict was not disturbed because, as Lord Hoffmann explained:

    "The consequence of the valuation being wrong was that the plaintiffs had £10 m less security than they thought.  If they had had this margin, they would have suffered no loss."[11]

    In United Bank of Kuwait the facts were as follows:

    "the lenders on 19 October 1990 advanced £1.75 m on the security of a property valued by the defendants at £2.5 m.  The judge found that the correct value was between £1.8 m and £1.85 m.  It was sold in February 1992 for £950,000.  Gage J quantified the lenders' loss (including unpaid interest) at £1,309,876.46 and awarded this sum as damages."[12]

    In the House of Lords, it was held that the damages "should have been limited to the consequences of the valuation being wrong, which were that the lenders had £700,000 or £650,000 less security than they thought."[13]

    [10][1997] AC 191 at 222.

    [11][1997] AC 191 at 222.

    [12][1997] AC 191 at 222.

    [13][1997] AC 191 at 222.

12. Were the Banque Bruxelles approach to be adopted in this case, damages would be limited to $1.5 million or $1.6 million, that being the difference between the valuation and the true value of the property.  This notwithstanding, one possibility that emerged in argument in this Court was that the whole of the loss was to be treated as caused by market forces because the trial judge found that "[i]f the security had been realised immediately following the making of the advance … the property would have been sold for … $4 million or … slightly less."[14]

    [14](1996) 140 ALR 313 at 365.

13. So far as concerns the claim in negligence, the notion that the entire loss sustained in this case is to be treated as caused by market forces assumes that the tort was complete when the loan was made.  There is some basis in logic for that view because, as soon as the mortgage was taken by Permanent Custodians, it was less valuable than it would have been if the value of the property had been as stated.  On that basis, however, the damages should be the difference in the value of the mortgage, not the loss that would arise in the event of a hypothetical sale on the day that the advance was made, which, in essence, is what is involved in the notion that, in this case, the entire loss is referable to market forces.

14. Where economic loss is said to have resulted from a transaction entered into in reliance upon negligent advice or information, the approach of this Court has not been confined to looking at the immediate situation brought about by entry into the transaction.  That is because, as was pointed out in Wardley Australia Ltd v Western Australia, "[w]ith economic loss, as with other forms of damage, there has to be some actual damage" and not simply "[p]rospective loss"[15].  And where a transaction involves benefits and burdens, "no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is 'worse off than if he had not entered into the transaction'."[16]

    [15](1992) 175 CLR 514 at 527 per Mason CJ, Dawson, Gaudron and McHugh JJ.

    [16](1992) 175 CLR 514 at 537 per Brennan J, referring to Toteff v Antonas (1952) 87 CLR 647 at 650 per Dixon J.

15. It was pointed out in Wardley that "[t]he kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected."[17]  Wardley was concerned with an action for damages for breach of s 52 of the Act. However, there is no reason in principle why the position should be any different in tort[18].

    [17](1992) 175 CLR 514 at 527 per Mason CJ, Dawson, Gaudron and McHugh JJ.

    [18]See Hawkins v Clayton (1988) 164 CLR 539 at 599-602 per Gaudron J.

16. The interest that a mortgage lender seeks to protect by obtaining a valuation of the proposed security is not simply an interest in having a margin of security over and above the mortgage debt.  Rather, it is that, in the event of default, it should be able to recoup, by sale of the property, the amount owing under the mortgage.  And that is also the interest of a mortgage insurer.  It is the risk that recoupment might not be possible that calls the valuer's duty of care into existence.  And it is the interest in recoupment that is infringed by breach of that duty.  Moreover, the time that loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible.  In the case of a mortgage transaction, that will occur when it is reasonably ascertainable that sale will result in a loss[19].  At the earliest it will be when default occurs and, at the latest, when the property is sold.

    [19]See Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 537 per Brennan J. See also Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [1997] 1 WLR 1627 at 1634-1635 per Lord Nicholls of Birkenhead; [1998] 1 All ER 305 at 312.

17. Once the interest which calls the valuer's duty of care into existence is identified as the interest of the mortgage lender in recouping what is due under the mortgage in the event of default, it is simply a matter of common sense to treat the loss arising from inability to recoup as flowing from breach of that duty, except to the extent that that inability is, in law, referable to the lender's own actions or some supervening event.  At least that is so where, but for the negligent valuation, there would have been no mortgage transaction at all.

18. The appellants contend that to treat a valuation as causative of a subsequent transaction and, also, as causative of the loss arising from that transaction is to apply the "but for" test of causation – a test rejected as the exclusive test of causation in March v Stramare (E & MH) Pty Ltd[20].  They contend that the proper approach is that taken by the House of Lords in Banque Bruxelles and rely, in particular, on the statement that:

    "a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action."[21]

    [20](1991) 171 CLR 506.

    [21][1997] AC 191 at 214.

19. One of the problems most frequently encountered in the area of causation is imprecision of language[22].  When a person claims to have taken, or refrained from taking, a particular course of action in reliance upon another's representation, the critical question, assuming the representation is one that might reasonably be relied upon, is whether, but for that representation, he or she would have taken that action.  In that context, "but for" does not signify a sine qua non or causative factor which, although necessary, is not sufficient to produce the result in question.  Rather, it signifies the decisive consideration or one of the decisive considerations for taking the course of action in question.  It was in the former sense that the "but for" test was rejected as the exclusive test of causation in March v Stramare[23].  In the sense of asking whether a representation is a decisive consideration, "but for" is always the test of reliance.

    [22]See the Introduction to Hart and Honoré's Causation in the Law, 2nd ed (1985) at 1, where the authors refer to "the uncertainties and confusions which continue to surround the legal use of causal language in spite of a vast juristic literature dedicated to its clarification" and to "[t]he images and metaphors, the fluid and indeterminate language, upon which both courts and textbook writers … still fall back when deciding issues in causal terminology".  See also March v Stramare(E & MH) Pty Ltd (1991) 171 CLR 506 at 509 per Mason CJ.

    [23](1991) 171 CLR 506 at 516 per Mason CJ, 523 per Deane J.

20. Moreover, to identify the loss suffered by a person who has entered into a transaction in reliance upon another's advice as the whole of the loss flowing from that transaction, save to the extent that it is, in law, referable to his or her own actions or some supervening event, is not to apply the "but for" test of causation.  That is because, in terms used in Banque Bruxelles, it does not have the consequence that a valuer is necessarily "responsible for all the consequences of that course of action."[24]

    [24][1997] AC 191 at 214.

21. As the valuation was a decisive consideration in MGICA's decision to insure the loan from Permanent Custodians to Beca, it is simply common sense to treat that transaction as resulting from the valuation[25].  And subject to a qualification shortly to be mentioned, once that is accepted, it is also common sense to hold a valuer responsible for the loss arising out of that transaction, save to the extent that it is attributable to some other cause.

    [25]See March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 515 per Mason CJ, 522-523 per Deane J.

22. The qualification with respect to the responsibility of a valuer for loss resulting from a transaction entered into in reliance upon his or her valuation is that where a duty of care is superimposed on a contractual relationship, it is open to the parties to the contract to limit the scope of the duty or the legal consequences of its breach[26].  And the terms of a contract may, in some circumstances, limit the duty or the consequences of its breach even where, as here, that duty is owed to a person not a party to the contract[27].

    [26]See Bryan v Maloney (1995) 182 CLR 609 at 621-622 per Mason CJ, Deane and Gaudron JJ. See also Central Trust Co v Rafuse [1986] 2 SCR 147 at 204-205.

    [27]Hill v Van Erp (1997) 188 CLR 159 at 167 per Brennan CJ, 196 per Gaudron J.

23. In the present case, it may well be that the contractual stipulation that the property was "suitable security for investment of trust funds to the extent of 65% of [the] valuation for a term of 3-5 years" operates to confine the appellants' liability to loss arising in the event of resale within five years and, then, to so much as is not referable to the loan exceeding 65 per cent of the valuation.  However, that issue does not arise on the facts of this case.  The only question is whether, in law, the loss or some part of the loss suffered by Permanent Custodians and indemnified by MGICA is referable to some cause other than the appellants' valuation.

24. It is not suggested that any part of the loss in this case is referable to the actions of Permanent Custodians, as might have been the case if, for example, it had advanced more than 65 per cent of the appellants' valuation.  Rather, the only contention is that the fall in market value is, in law, to be treated as the cause of some or all of the loss suffered by Permanent Custodians and, hence, by MGICA.  Before considering that question, it is convenient to make some further reference to the risk that brought the appellants' duty of care into existence.

25. As already indicated, the appellants came under a duty of care because of a foreseeable risk that, in the event of default, Permanent Custodians might not recoup the principal and interest then owing.  A significant factor contributing to that risk – if not the most significant factor – was the foreseeable possibility of a decline in market value.  In Chappel v Hart, I pointed out that "[i]t is contrary to common sense to treat part of the ... risk which called [a] duty [of care] into existence as a supervening event breaking the chain of causation beginning with the breach of that duty."[28]  Subject to one qualification, it is also contrary to common sense to treat a factor contributing to the risk as a supervening cause of the loss suffered if that risk eventuates.

    [28](1998) 72 ALJR 1344 at 1347; 156 ALR 517 at 521.

26. The qualification to the proposition that a factor contributing to a foreseeable risk of injury is not to be treated as a supervening cause if the risk eventuates is this:  a person who negligently provides information or advice should not be held liable for loss that would have been suffered if the information or advice were correct.  Thus, if some part of the loss suffered by Permanent Custodians would have been suffered even if the property were worth $5.5 million, the appellants cannot be held liable for it.

27. It may be that the approach taken by the House of Lords in Banque Bruxelles proceeds, at least in part, on the basis that, were the responsibility of a valuer not limited to "the consequences of the lender having too little security"[29], he or she would be liable for loss that would have been sustained by reason of a fall in market value even if the valuation were correct.  In this regard, it was said by Lord Hoffmann in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd of the Banque Bruxelles approach:

    "It was accepted that the whole loss suffered by reason of the fall in the property market was, as a matter of causation, properly attributable to the lender having entered into the transaction and that, but for the negligent valuation, he would not have done so.  It was not suggested that the possibility of a fall in the market was unforeseeable or that there was any other factor which negatived the causal connection between lending and losing the money."[30]

    [29]Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [1997] 1 WLR 1627 at 1638 per Lord Hoffmann; [1998] 1 All ER 305 at 316, referring to the decision of the House of Lords in Banque Bruxelles.

    [30][1997] 1 WLR 1627 at 1638; [1998] 1 All ER 305 at 316.

28. However, once it is accepted, as in my view it must be, that a valuer is not liable for loss that would have been sustained if the valuation were correct, it is contrary to the common sense approach required by March v Stramare to adopt the Banque Bruxelles approach either as to the identification of the duty of care owed by a valuer to a prospective lender or the identification of the economic loss suffered in consequence of breach of that duty.

29. It follows from what has been said that the appellants can resist liability for the whole of the loss suffered by Permanent Custodians and indemnified by MGICA only if some part of that loss would have been suffered if the valuation were correct.  At no stage has there been any suggestion to that effect.  Accordingly, the appellants are liable for the whole of the loss suffered by Permanent Custodians and indemnified by MGICA.

30. The present case is not one that calls for any analysis of causation for the purposes of an action for breach of s 52 of the Act, it being common ground that, if the appellants are liable in negligence for the whole of the loss suffered by Permanent Custodians and indemnified by MGICA, they are liable to the same extent in consequence of their breach of s 52 of the Act and of s 42 of the Fair Trading Act.  However, damages may not always be the same[31]. It may be that a contractual provision that operates to limit tortious liability will not avail in an action based on breach of s 52 of the Act. Further, it is possible that liability under s 52 of the Act is limited neither by foreseeability[32] nor remoteness[33].

    [31]See Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333.

    [32]See Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526 per Mason CJ, Dawson, Gaudron and McHugh JJ.

    [33]See Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333 at 344 per McHugh, Hayne and Callinan JJ.

31. The appeal should be dismissed with costs.

32. McHUGH J.   The question which the appellant[34] alleges arises for determination in this appeal is whether a real estate valuer, who negligently overvalues a property, should be held liable for the entirety of the loss suffered by the insurer of the mortgage, if the loss suffered is increased by a subsequent fall in the market.  Essentially, the question is whether a negligent valuer should be liable for loss caused by a fall in the market.

    [34]There are two appellants.  The first is Kenny & Good Pty Ltd which carried on business as a real estate valuer and consultant.  The second appellant is the person who signed the valuation which gave rise to the action in these proceedings.  It is convenient to refer to them as "the appellant".

33. The issue of principle which is said to arise is whether the liability of the valuer for a negligent valuation is determined exclusively by the scope of the duty of care or whether, in the case of a transaction entered into in reliance on a negligent valuation, the liability of the valuer extends to all reasonably foreseeable losses caused by entering into the transaction.  The appellant contends that liability must focus on the scope of the duty.  It relies on the reasoning of the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd[35] which reversed the decision of the Court of Appeal in that case and a number of allied cases.  The Court of Appeal had differentiated between a case where the lender would not have lent at all (the no-transaction case) and a case where the lender would have lent a lesser sum on the same security.  In the former case, the Court of Appeal held that the aggrieved party can recover the entire loss, but in the latter case, that party can only recover the difference between the actual loss and the smaller loss that would have occurred if the reduced amount had been lent or insured.  However, on appeal, the House of Lords rejected this approach.  Their Lordships held that it is not sufficient to ask whether A owes B a duty of care; it is always necessary to determine the scope of the duty by reference to the kind of damage to B which A is under a duty to prevent.  Lord Hoffmann, with whom the other members of the House agreed, thought that the principle laid down by the Court of Appeal offended common sense because it made a person responsible for consequences which, though in general terms foreseeable, did not appear to have a sufficient causal connection with the subject matter of the duty.  His Lordship said:[36]

    "[A] person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action.  He is responsible only for the consequences of the information being wrong.  A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties.  It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.

    The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take.  If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action.  If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken.  If his duty is only to supply information, he must take reasonable care to insure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong". (emphasis in original)

    [35][1997] AC 191. This appeal consisted of 3 cases in which similar points were raised and determined.

    [36][1997] AC 191 at 214.

34. Subsequently, in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No. 2)[37] Lord Hoffmann said that in Banque Bruxelles the House had:

    "[I]dentified the duty as being in respect of any loss which the lender might suffer by reason of the security which had been valued being worth less than the sum which the valuer had advised.  The principle approved by the House was that the valuer owes no duty of care to the lender in respect of his entering into the transaction as such and that it is therefore insufficient, for the purpose of establishing liability on the part of the valuer, to prove that the lender is worse off than he would have been if he had not lent the money at all.  What he must show is that he is worse off as a lender than he would have been if the security had been worth what the valuer said ... The valuer does not warrant the accuracy of his valuation and the lender cannot therefore complain that he would have made more profit if the valuation had been correct."

    [37][1997] 1 WLR 1627 at 1638; [1998] 1 All ER 305 at 316.

35. Later, his Lordship said:[38]

    "It is important to emphasise that this is a consequence of the limited way in which the House defined the valuer's duty of care and has nothing to do with questions of causation or any limit or 'cap' imposed upon damages which would otherwise be recoverable.  It was accepted that the whole loss suffered by reason of the fall in the property market was, as a matter of causation, properly attributable to the lender having entered into the transaction and that, but for the negligent valuation, he would not have done so.  It was not suggested that the possibility of a fall in the market was unforeseeable or that there was any other factor which negatived the causal connection between lending and losing the money."[39]

    As will later appear, the facts of this case make this appeal an unsatisfactory basis for determining the question of principle which is said to arise.  But in any event I do not think that the question turns on choosing between the scope of duty and the reasonable foreseeability of loss approaches.  Both approaches are relevant.  In my view, where a person has agreed to value property and, as a result of the agreement, a person to whom the valuer owes a duty of care has suffered loss, the proper approach is to apply the principles of contract law in assessing damages.  Furthermore, that is the proper approach whether the plaintiff was a contracting party or merely a person for whose benefit the valuation was made.  Speaking generally, the valuer is liable only for such losses as a reasonable person would regard as flowing naturally from the negligent valuation or which are of a kind that should have been within the valuer's contemplation.  In the absence of a contrary undertaking or special circumstances, the aggrieved party cannot recover any part of the difference between the true value of the property and the price recovered at the time of the sale.  The aggrieved party's damages are confined to the difference between the price paid for the property and the price that would have been paid on the basis of a true valuation together with such expenses and other losses that were sufficiently likely to result from the breach of duty to make it proper to hold that they flowed naturally from the breach of duty or that they were within the reasonable contemplation of the parties to the valuation contract or arrangement.  In the case of money lent on a valuation, the damages are confined to the difference between what was lent and what would have been lent on the true value of the property together with such expenses and other losses that were sufficiently likely to result from the breach of duty to make it proper to hold that they flowed naturally from the breach of duty or that they were within the reasonable contemplation of the parties to the contract or arrangement.  In either case, losses do not include the consequences of subsequent market declines.

    [38][1997] 1 WLR 1627 at 1638; [1998] 1 All ER 305 at 316.

    [39]See also Platform Home Loans Ltd v Oyston Shipways Ltd [1999] 2 WLR 518 at 533-535 per Lord Hobhouse, 537-538 per Lord Millett; [1999] 1 All ER 833 at 847-849, 851-852.

    Factual background

36. The appellant, a real estate valuer, entered into a contract with Macquarie Bank Limited to value a residential property.  The Bank required the valuation for the purpose of determining whether to provide mortgage finance to the owner of the property, Beca Developments Pty Ltd.  The respondent MGICA (1992) Ltd, and Permanent Custodians Ltd, were named in the contract as being persons to which the valuation was "extended to include".

37. The appellant performed the valuation while building work on the property was still in progress.  It assessed the value of the property as at 18 April 1990 as $5.35 million and as at the date of completion as $5.5 million.  However, the value of the property as at 18 April 1990 was less than that stated by the appellant.  As at that date, its true value on an "as completed" basis was $3.9 million to $4 million.

38. In May 1990, Permanent Custodians, as mortgagee, lent $3.575 million to Beca Developments, being 65% of the valuation of the property on completion.  The loan was secured by a first mortgage and insured by MGICA.  In June 1991, Beca Developments defaulted under the mortgage.  On 2 July 1991, Permanent Custodians entered into possession.  On 6 January 1992, the property sold for $2.65 million.  The appellant accepts that the property could not have been sold earlier and that its value when sold was $2.65 million because of a substantial drop in residential property values between April 1990 and January 1992.  As a result of lending money to the mortgagor, Permanent Custodians suffered a loss in the order of $2 million.  It was indemnified by MGICA in its capacity as mortgage insurer.

39. The contract between the appellant and the Bank contained the following statements:

    "We understand our report and valuation is required for mortgage consideration purposes by Macquarie Bank Limited, as intending mortgagee.

    It is also noted that –

    Permanent Trustee,
      Permanent Custodians,
      MGICA Limited
      and

    MGICA Securities Limited,

    may use and rely upon this report and valuation in the same manner as intended by Macquarie Bank Limited.

    …

    We recommend the property as suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3-5 years, provided that an additional amount may be safely advanced in the event that mortgage protection insurance is effected, and this valuation can also be relied upon by any of the following mortgage insurers -

    MGICA Limited,

    Housing Loans Insurance Corporation
      and

    Australian Mortgage Insurance Corporation of AFG Insurances Limited.

    …

    We acknowledge that this Report and Valuation has been prepared for mortgage purposes and do not disclaim any liability to any subrogated, transferred or assigned interests in any mortgage created as a direct consequence of this report and valuation …"

    The history of the proceedings

40. In proceedings heard in the Federal Court[40], MGICA alleged that the appellant had contravened ss 52 and 53A of the Trade Practices Act 1974 (Cth) and ss 42 and 45 of the Fair Trading Act 1987 (NSW). It also pleaded a breach of obligations of reasonable care, skill and diligence and competence arising under the general law and as implied terms of the respondent's contract of retainer. MGICA pleaded the contractual obligation on the basis that the Bank entered into the contract as agent for MGICA as principal or, if MGICA was not a party principal, that the valuation was for MGICA's benefit and was entitled to sue upon the contract made between the Bank and the appellant. Lindgren J, the learned trial judge, did not deal with MGICA's contentions based on contract and they do not arise on appeal. Furthermore, MGICA did not at any time seek to sue for the breach of a contractual warranty that the property was "suitable security for investment of trust funds to the extent of 65% of [the] valuation for a term of 3-5 years".

    [40](1996) 140 ALR 313.

41. Lindgren J held that the valuation provided by the appellant was negligent and that the appellant had also contravened s 52 of the Trade Practices Act and s 42 of the Fair Trading Act[41].No finding was made on the contractual claim[42].  His Honour held that MGICA had provided insurance in reliance on the appellant's valuation and that, if MGICA had known that the correct on completion value was $4.5 million, then "MGICA would not have insured [the loan] at all"[43].  As a result, his Honour held that the appellant was liable for the whole of the loss of MGICA which was the amount it had indemnified Permanent Custodians[44].

    [41](1996) 140 ALR 313 at 383.

    [42](1996) 140 ALR 313 at 357.

    [43](1996) 140 ALR 313 at 364.

    [44](1996 140 ALR 313 at 383.

42. Lindgren J declined to follow the reasoning in Banque Bruxelles[45].  He said[46]:

    "At base, their Lordships have redefined the valuer's duty in a manner which purports to foreclose questions of causation, remoteness and measure of damages, which have, at least conventionally, been treated as distinct from the formulation of duty.  In my opinion, the valuer's duty is a duty to exercise an appropriate level of care and skill in arriving at, and reporting, an opinion as to market value which will be, after allowing for the degree of latitude called for by the nature of the subject matter and by the process and nature of valuation, safe to be relied on by the intending mortgagee or mortgage insurer.

    Unlike their Lordships, but like the English Court of Appeal, I think that the starting point must, as a matter of principle, be to identify the legal wrong done and to inquire what the loss-sufferer's position would have been if that wrong had not been done ... This is so in both contractual and tortious contexts, although the nature of the wrong done differs as between the two.  In the case of contract, the wrong would not have occurred if the contract had not been breached; a tortious wrong on the other hand would not have occurred if the tortious act or omission had not occurred.  To take a different starting point from these seems to me to be, with respect, radically novel ...

    In my view, in a no-transaction case such as the present one, a mortgagee's or mortgage insurer's loss arising from a fall in the market value of the security is not too remote a consequence of a valuer's negligence to be properly compensable by an award of damages.  According to the approach taken by the House of Lords, such loss is to be compensated for but subject to a limit, namely the extent to which the valuation was wrong ... "

    [45][1997] AC 191.

    [46](1996) 140 ALR 313 at 371-372.

43. The appellant appealed to the Full Federal Court[47] on the sole ground that his Honour erred in not applying the decision of the House of Lords in Banque Bruxelles[48].  The Full Court rejected the appeal.  Pursuant to the grant of special leave, the appellant has appealed to this Court contending that it is not liable for the full loss but only so much as constitutes "the consequences of the valuation being wrong".

    [47]Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 77 FCR 307.

    [48][1997] AC 191.

    Scope of the duty of care

44. Where a valuer owes a duty of care to an aggrieved party in respect of a valuation, the duty of the valuer is to take reasonable care to protect that person from financial loss in relying on the valuation.  But what losses?  If the plaintiff is a party to the contract with the valuer, the loss for which the valuer is responsible is determined in accordance with the principles of law of contract.  Whether the loss is recoverable depends on the terms of the arrangement between the parties and the surrounding circumstances.  Furthermore, these principles should apply when the plaintiff is not a contracting party but a free rider on the contract.  In such a situation, the duty owed by the valuer to the third party is "equivalent to contract"[49].  In the free rider case, the defendant's duty to the third party plaintiff arises out of the defendant's assumption of responsibility.  If consideration had been given for the undertaking of responsibility, the principles for assessing damages in contract would apply.  Where the circumstances are equivalent to a contractual arrangement, I can see no reason why the contractual principles should not apply to the case.

    [49]Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 529-530 per Lord Devlin; Spring v Guardian Assurance Plc [1995] 2 AC 296 at 324 per Lord Goff; Hill v Van Erp (1997) 188 CLR 159 at 233 per Gummow J.

45. The relevant principle then is that formulated by Alderson B in Hadley v Baxendale[50]:

    "Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it."

    [50](1854) 9 Ex 341 at 354 [156 ER 145 at 151].

46. In C. Czarnikow Ltd v Koufos[51] Lord Reid elaborated on this principle when he said:

    "The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation."

    This passage was referred to with approval by Gibbs J in Wenham v Ella[52] and by Wilson, Deane and Dawson JJ in Burns v MAN Automotive (Aust) Pty Ltd[53].

    [51][1969] 1 AC 350 at 385.

    [52](1972) 127 CLR 454 at 471-472.

    [53](1986) 161 CLR 653 at 667.

47. Ordinarily, the parties to a valuation contract will understand that the valuer's opinion concerning the property is an opinion as to its current value, that is to say, the value at or about the time of the making of the report.  If the valuer has performed his or her task negligently, and the person seeking the valuation has relied on it and subsequently suffered loss, it does not follow that the valuer is necessarily responsible for the whole of the loss suffered by the aggrieved party.  That will depend upon the circumstances of the case.  As Lord Keith of Kinkel pointed out in Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd[54]:

    "The true question in each case is whether the particular defendant owed to the particular plaintiff a duty of care having the scope which is contended for, and whether he was in breach of that duty with consequent loss to the plaintiff.  A relationship of proximity in Lord Atkin's sense must exist before any duty of care can arise, but the scope of the duty must depend on all the circumstances of the case."

    [54][1985] AC 210 at 240.

    Liability for losses arising from a fall in the market

48. Whether a valuer is liable for a subsequent decline in the market will depend on the terms of the valuation arrangement.  Ordinarily, however, the valuer will not be liable for the monetary difference between true value of the property and any lesser price obtained because of a market decline, notwithstanding that declines in market values are reasonably foreseeable in a general way.  The reason for this conclusion is that, in so far as a decline in the market was reasonably foreseeable, it will already be factored into the assessment of the true value of property as at the date of valuation.  In so far as the market decline was not reasonably foreseeable, any loss arising from the decline must be regarded as outside the contemplation of the parties to the valuation arrangement and not recoverable in an action for negligence or breach of contract.

49. Value is determined by forming an opinion as to what a willing purchaser will pay and a not unwilling vendor will receive for the property.[55]  In determining that value, there must be attributed to the parties a knowledge of all matters that affect its value.  Those matters will include the predicted impact of future events as well as the experience of the past and the rates of return on other investments.  As Isaacs J pointed out in Spencer v The Commonwealth:[56]

    "We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property." (emphasis added)

    [55]Spencer v The Commonwealth (1907) 5 CLR 418.

    [56](1907) 5 CLR 418 at 441.

50. The market for the property is, therefore, assumed to be an efficient market in which buyers and sellers have access to all currently available information that affects the property.

51. New information concerning properties becomes reflected in the prices which buyers are willing to pay for those properties.  How quickly that occurs will depend on the efficiency of the market.  But sooner or later the price will reflect the present value of the future prospects of a property.  Many factors influence the movement of the property market, and even more factors can influence the market for a particular property.  No doubt the market for property in Australia is not as volatile as other markets, such as the share and commodity markets.  Nevertheless, the prices paid for properties go down as well as up.  Bear markets exist in respect of property as well as shares. 

52. In Australia, the fiscal policies of the federal government and the monetary policies of the Reserve Bank are the factors which are most likely to bring about a decline or increase in the price that a willing buyer will pay for a property.  Directly or indirectly, they influence incomes, demand, output, the money supply, bank and institutional lending and interest rates.  The availability of credit and the level of interest rates in particular can dramatically affect supply and demand for, and, consequently, the value of, properties.  If interest rates are expected to rise or credit is expected to be tightened, the demand for properties will decline.  Consequently, savvy buyers and sellers are continually attempting to predict the future course of events that affect the supply and demand for properties because in turn those events will affect the prices that properties will bring.  Present value, therefore, cannot be divorced from future prospects.  If rational buyers believe that there is a real risk that property prices will decline from the prices paid yesterday, they will not be prepared to pay the same prices today.  In so far as the risk of a general decline in prices is reasonably foreseeable, the market will factor that risk into the value of properties.  The true value of a property on a particular day therefore reflects the likelihood of any risk that the price for the property in the reasonably foreseeable future will rise or fall on what it would have fetched the day before.

53. Absent a special arrangement with the valuer, it seems inherently unfair to make a negligent valuer liable for the difference between the true value of the property and any lesser price which is obtained for it at the time of the sale because of a decline in market prices.  In so far as the events which brought about the lesser price were reasonably foreseeable, they are already factored into the true value.  In so far as those events were not reasonably foreseeable, principle requires that the valuer should not be liable for the impact of those events.  Of course, it is unlikely that, even where the relevant events were reasonably foreseeable, the price obtainable at the time of sale will coincide with the quantification of the risk at the time of valuation.  But in principle that cannot matter.  To the extent that the risk of the relevant occurrence was reasonably foreseeable and the probability of its occurrence assessable, they are reflected in the value of the property.  To hold the negligent valuer liable for the difference between the price received on sale and the true value, as well as the difference between the price paid on purchase and the true value, would be to make the valuer liable for a "loss" which in the real world was not reasonably foreseeable or within the reasonable contemplation of the parties.  To hold the valuer liable for such a "loss" would be to hold him or her to a standard of knowledge greater than that of any other market participant including the relevant buyer or lender.

54. Furthermore, I do not think that the fact that the aggrieved party would not have entered into the loss-making transaction but for the negligent valuation is a sufficient ground for holding the valuer liable for the difference between the true value and sale price.  The issue is not one of causation but whether the loss caused by the breach is too remote to be recoverable.  In principle, the valuer is only liable for losses of a kind that were sufficiently likely to result from the breach of duty to make it proper to hold that the loss flowed naturally from the breach or that are of a kind that should have been within his or her reasonable contemplation.  The valuer is not liable for every loss that flows from his or her breach of duty.  Although it is true in one sense that losses from general market declines are within the reasonable contemplation of the parties to a valuation contract or arrangement, I do not think that the notion of reasonable contemplation of loss extends to such generalisations concerning the course of future events.

55. Many kinds of loss or damage that are reasonably foreseeable in a general way are outside the area of recoverability in the law of torts and the law of contract.  Thus, it is reasonably foreseeable and within the reasonable contemplation of the parties that a property, the subject of a negligent valuation, may be damaged by fire or other natural disaster.  Yet unless there is something which indicates that this property is subject to the risk of fire or natural disaster over and above that of properties generally, no one would suggest that the buyer can recover the loss from the valuer on the ground that but for the negligent valuation the property would not have been purchased.  Similarly, in the case of losses from general market declines, the area of recovery should not extend to those losses arising from events causing a decline in property prices if the risk of those events occurring could not be reasonably foreseen and quantified at the time of valuation.

56. Valuation cases differ from other cases in that the true value of the property takes account of all factors that were reasonably foreseeable at the time of breach of duty.  The risk of a market decline, so far as it was reasonably foreseeable, is already factored into the true value.  It is true that, at particular stages of bull markets, the risk of any market decline may be thought so unlikely that the "true value" will reflect the overconfident belief that demand will continue and prices will continue to rise or at least remain stable.  Consequently, the value of properties, as they are then perceived, may not carry any discount for the risk of a market decline.  If so, any loss caused by the subsequent market decline must be regarded as not being within the reasonable contemplation of the parties at the time that the valuation contract or arrangement was made.  Moreover, it is at least arguable that, where the market has got the real value of a property wrong because it could not reasonably foresee the events that caused the market decline, it is unfair to attribute the whole loss to the valuer and award the aggrieved party compensation based on such a "true value".  In such a case, with the benefit of hindsight, it can be seen that the property was in truth overvalued by the market at the time of valuation.  In Banque Bruxelles[57], Lord Hoffmann thought that a duty "which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties."  I think that there is much force in this statement.

    [57][1997] AC 191 at 214.

57. For these reasons, which of course differ from those given by Lord Hoffmann in Banque Bruxelles, I would conclude that, in the absence of a special arrangement or special circumstances, the aggrieved party cannot recover any part of the difference between the value of the property at the time of valuation, as determined by the principles of valuation, and the price recovered at the time of the sale.  The aggrieved party's damages are confined to the difference between the price paid for the property and the price that would have been paid on the basis of a true valuation together with such expenses and other losses that were sufficiently likely to result from the breach of duty to make it proper to hold that they flowed naturally from the breach of duty or that are within the reasonable contemplation of the parties to the valuation contract or arrangement.  In the case of money lent on a valuation, the damages are confined to the difference between what was lent and what would have been lent on the true value of the property together with such expenses and other losses that were sufficiently likely to result from the breach of duty to make it proper to hold that they flowed naturally from the breach of duty or that were within the reasonable contemplation of the parties to the contract or arrangement.  In either case, losses do not include the consequences of actual market declines.

    The appellant's liability extended to the loss arising from the market decline

58. The valuation in the present case is the product of a contract between the valuer and the Bank.  MGICA was not a party to that contract.  However, the scope of the duty of care which the appellant owed to MGICA is identical with the contractual duty which the appellant owed to the Bank and which is to be deduced from the terms of the contractual arrangement entered into by those parties.  That is because the contract specifically contemplated MGICA as a party which was entitled to rely on the valuation.

59. As I indicated earlier, the terms of the valuation make this case a poor vehicle to determine the correctness of the principle for which the appellant contends.  First, the relevant statement in the report of the appellant was essentially concerned with the safety of a loan investment.  The valuation of the property, although an essential step in determining the safety of the loan, was incidental to the principal purpose of the report.  Second, the valuation did not provide, expressly or inferentially, that the valuer's opinion was limited to the value of the property as at the date of the report or on a specified day.  It is true that the report valued the property at approximately $5.5 million dollars as at the completion date of the building contract.  However, the relevant clause of the report recommended "the property as suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3-5 years".  Furthermore, the appellant's report stated that an additional amount could safely be advanced on the property "in the event that mortgage protection insurance is effected".

60. The appellant was therefore warranting that, for a period of up to five years, an amount of not less than 65% of $5.5 million, that is to say $3.575 million, could be safely lent on the property and that the lender would be able to recover that sum together with interest accrued on that sum at any time during that period.  Inferentially, the report also warranted that the property would maintain a value of not less than $3.575 million together with the amount of outstanding interest on a loan on that sum.  Since the mortgage had to secure an even higher amount if mortgage protection insurance was effected, it is clear that the appellant was inferentially warranting that, for the five year period, the value of the mortgaged property would be in excess of $3.575 million and certainly well in excess of the sum of $2.65 million which it brought when sold in January 1992.

61. In these circumstances, the appellant is liable for the whole of the respondent's losses even if the case be regarded as one concerned with a negligent valuation rather than one concerned with a negligent statement that a sale of the property during the next five years would return an amount sufficient to recover over $3.575 million and the amount of outstanding interest on that sum.  The appellant's valuation represented that the property would have sufficient value to enable a lender to recover that sum and interest at any time during the next five years.  Given the finding of breach of duty - which is not subject to appeal in this Court - the loss which the respondent suffered flowed directly and naturally from the negligent representation contained in the appellant's valuation.

62. The appellant sought to rely on statements made by Dixon J in Potts v Miller[58] to support its claim that its liability was limited to the difference between the moneys lent pursuant to the valuation and the true value of the property at the time of the valuation.  But once the true nature of the appellant's representation concerning the valuation is properly understood, those statements have no bearing on the present case.

    [58](1940) 64 CLR 282 at 297-300.

    Order

63. The appeal should be dismissed with costs.

64. GUMMOW J.   The first appellant ("Kenny & Good") carried on business as a real estate valuer and property consultant.  The second appellant (Mr Kenny) was its principal.  I refer to the appellants together as "the valuers".

65. Under instructions from its client, Macquarie Bank Limited ("the Bank"), Kenny & Good, on 19 April 1990, delivered a written report and valuation, comprising 15 pages and annexures, of freehold property being a "prestige residence" at Hunters Hill, a suburb of Sydney ("the Report").  The Report was issued by Mr Kenny and he was the only individual through whom Kenny & Good acted.  On the first page, under the heading "PURPOSE OF VALUATION", the document stated:

    "We understand our report and valuation is required for mortgage consideration purposes by Macquarie Bank Limited, as intending mortgagee.

    It is also noted that –

    Permanent Trustee,
          Permanent Custodians,
          MGICA Limited^[[59]]
          and

    [59]The respondent, now named MGICA (1992) Limited ("MGICA").

    MGICA Securities Limited,

    may use and rely upon this report and valuation in the same manner as intended by Macquarie Bank Limited."

    A statement to similar effect appeared on pp 12 and 15.  On p 14, under the heading "SUITABILITY FOR MORTGAGE PURPOSES", it stated:

    "We recommend the property as suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3‑5 years, provided that an additional amount may be safely advanced in the event that mortgage protection insurance is effected, and this valuation can also be relied upon by any of the following mortgage insurers –

    MGICA Limited,
          Housing Loans Insurance Corporation

    and

    Australian Mortgage Insurance Corporation of AFG Insurances Limited."

    The inclusion of these statements had been a requirement of the Bank in its formal written instructions of 17 April.  The valuers had been instructed to value the freehold interest, with vacant possession, both on an "as is" and "on completion" basis because there was current building work at the site.  The valuers gave $5.5 million as the current fair market value "on completion" and $5.35 million as the current fair market value on an "as is" basis and it may be accepted in this Court that the valuers did so without exercising proper care and skill.

66. MGICA used the valuation as the basis for agreeing to insure a mortgage under which $3.575 million was advanced on security of the property.  At the beginning of the second year of the advance, in June 1991, the mortgagor defaulted in payment of interest.  Thereafter, the mortgagee took possession.  Subsequently, on 6 January 1992, the mortgagor, with the consent of the mortgagee and MGICA, contracted to sell the property for $2.65 million.  On 27 March 1992, the mortgagee made a claim on MGICA under its policy for $1,977,513.67.  This was arrived at by deducting the gross proceeds of sale of $2.65 million from the sum of $4,627,513.67.  This larger sum comprised various elements, including unpaid principal of $3.575 million and unpaid interest of some $500,000.

119. The facts of this case not only satisfy a "but for" test but also the other tests referred to in Chappel v Hart[121].  Here, the valuation (given negligently) caused the respondent to insure the loan, and to suffer the loss arising from that insurance.  The negligence of the valuer was directly productive of the making of the insurance contract.  The obligation to perform, and the performance of that contract by the respondent therefore caused the respondent to suffer the loss, by making the whole of the payment that it then made.  Common sense confirms that conclusion.  To use the language of Lord Nicholls of Birkenhead in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2),[122] this was not a case in which the respondent sought to hold the appellant "liable for consequences which would have arisen even if the advice [valuation] had been correct".  In this case had the valuation been a correct one, there would have been no loss suffered by the respondent, for, as found by the primary judge, it would not then have provided the mortgage insurance at all.

     [121](1998) 72 ALJR 1344; 156 ALR 517.

     [122][1997] 1 WLR 1627 at 1631; [1998] 1 All ER 305 at 309.

120. To adopt this approach involves giving content to, or defining the duty of care by having regard to the kind of loss or damage in respect of which the tortfeasor must exercise reasonable care.  The duty devolving on the appellant was a duty to exercise reasonable care inter alia to enable the respondent to decide whether to enter into an insurance transaction, which turned out to be imprudent, at all, if an accurate valuation suggested that it should not[123].

     [123]See Hodgkinson v Simms [1994] 3 SCR 377 at 452 cited by Gummow J at [92].

121. On this analysis it is irrelevant that, if the security had fallen to be realised at the time of making the valuation, the respondent might not have suffered a loss or might have suffered a much smaller loss than it did.  The valuation was neither sought nor provided on that basis.  To consider the matter on such a basis would be misleading.  In commercial terms it would involve consideration of a period which was unrealistically short.  It is equivalent to suggesting that the valuer was entitled to be negligent because, in the artificially short period postulated (being one wholly unconnected with the valuer's instructions) the lender and insurer had escaped liability; whereas in fact, subsequently, they did not.

122. As both the primary judge and the Full Court held, this case really falls for resolution on its own facts.  Accordingly, it is not necessary to attempt to formulate general principles as the House of Lords sought to do in Banque Bruxelles for the determination of the quantification of damages generally in cases of negligent valuations of property[124].  Obviously, the true value of properties may fluctuate and be affected by events for which the valuer may not be responsible.  In respect of some fluctuations, the valuer might have no retainer or obligation to advise its client; nor might it have purported to provide such advice.  It is not necessary in this case to consider the question whether there is a relevant difference between the provision of mere information as opposed to advice and, if there is a difference, whether different consequences flow from the distinction[125].  Each case of this kind must be considered on its own facts, having regard, as did the primary judge here, to questions of causation, remoteness and measure of damages. 

     [124]Lightman J in "Civil Litigation in the 21st Century", (1998) 17 Civil Justice Quarterly 373 at 383 has described the reasoning in Banque Bruxelles  as displaying "pyrotechnics" but observed that "the guidance provided … is less than clear cut".

     [125]The difficulties of distinguishing between information and advice in a satisfactory way have been discussed in McLauchlan, "A Damages Dilemma", (1997) 12 Journal of Contract Law 114; Boxer, "Valuers negligence: calculation of damages", (1998) 142(6) Solicitors Journal 159; O'Sullivan, "Negligent Professional Advice and Market Movements", [1997] Cambridge Law Journal 19.  See also the discussion of Banque Bruxelles in Stapleton, "Negligent Valuers and Falls in the Property Market", (1997) 113 Law Quarterly Review 1 and Waddams, "Liability of valuers: Kenny & Good Pty Ltd v MGICA (1992) Ltd", (1997) 5 Torts Law Journal 218.  In an appropriate case, the dichotomy suggested by Lord Hoffmann in Banque Bruxelles may require analysis.  Thus, Restatement of Torts, 2d, vol 3, ch 22, title E, "Damages for Fraudulent Misrepresentation" § 552(1) uses the word "information" in a sense inclusive of advice:

     "One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information." 

123. Nothing said in Potts v Miller[126] is determinative of this case.  Indeed, as Dixon J's reasons in that case show, different situations may arise in practice in cases of deceit (of which Potts was one)[127].  There can be no rigid rules to govern all cases.  If an example is required of the flexibility with which these questions need to be approached, GouldvVaggelas[128] provides it.  There the Court allowed as damages trading losses incurred some time after the giving of a false inducement.  It did so on the basis that it was reasonable, in the particular circumstances, for the purchasers to continue to carry on business as they did.

     [126](1940) 64 CLR 282.

     [127](1940) 64 CLR 282 at 297-300.

     [128]Gould v Vaggelas (1985) 157 CLR 215.

124. The loss which the primary judge found the respondent to have sustained in this case was caused by the negligence of the appellant.  The appellant was therefore liable for the loss which was suffered by the respondent in entering into the insurance transaction.  That loss was readily foreseeable.  It was not in any way remote[129].  In fact, it was foreshadowed in plain terms by the language of the instructions to the appellant which made clear the purpose for which the valuation was being procured.

     [129]Gould v Vaggelas (1985) 157 CLR 215 at 220-223; Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 290-291.

     Recovery for breach of statute

125. It was not suggested that a greater sum was recoverable by the respondent under the Trade Practices Act or the Fair Trading Act than the respondent was entitled to recover in negligence.  Accordingly, the foregoing conclusion would be sufficient to sustain the judgment in favour of the respondent entered by the primary judge and confirmed by the Full Court.  However, in deference to the arguments of the parties, it is appropriate to say something about the claim for relief under the statutes relied upon. 

126. The claim under the Trade Practices Act sought relief pursuant to s 82 of that Act. In Marks v GIO Aust Holdings Ltd[130] this Court gave consideration to the nature and the amount of the loss or damage that may be recovered when a claim under the section has been made out.  In the joint reasons of McHugh, Hayne and Callinan JJ, this was said[131]:

     "… s 82 provides, in effect, that the loss or damage that may be recovered by action is the amount of the loss or damage suffered 'by conduct of' another person that was done in contravention of Pts IV or V. It contains no stated limitation of the kinds of loss or damage that may be recovered and contains no express indication that some kinds of loss or damage are to be regarded as too remote to be recovered. Indeed, s 4K may be seen as expanding the kinds of loss or damage that are dealt with in s 82 (and elsewhere in the Act) by its provisions that:

     'In this Act:

     (a)  a reference to loss or damage, other than a reference to the amount of any loss or damage, includes a reference to injury; and

     (b)  a reference to the amount of any loss or damage includes a reference to damages in respect of an injury.'"

     [130](1998) 73 ALJR 12; 158 ALR 333.

     [131](1998) 73 ALJR 12 at 19; 158 ALR 333 at 344.

127. And later[132]:

     "It can be seen, therefore, that both ss 82 and 87 require examination of whether a person has suffered (or, in the case of s 87, is likely to suffer) loss or damage 'by conduct of another person' that was engaged in the contravention of one of the identified provisions of the Act. That inquiry is one that seeks to identify a causal connection between the loss or damage that it is alleged has been or is likely to be suffered and the contravening conduct. But once that causal connection is established, there is nothing in s 82 or s 87 (or elsewhere in the Act) which suggests either that the amount that may be recovered under s 82(1), or that the orders that may be made under s 87, should be limited by drawing some analogy with the law of contract, tort or equitable remedies. Indeed, the very fact that ss 82 and 87 may be applied to widely differing contraventions of the Act, some of which can be seen as inviting analogies with torts such as deceit[133] or with equity[134] but others of which find no ready analogies in the common law or equity, shows that it is wrong to limit the apparently clear words of the Act by reference to one or other of these analogies."

     [132](1998) 73 ALJR 12 at 20; 158 ALR 333 at 344-345.

     [133]For example, s 52.

     [134]For example, s 51AA.

128. Although there were differences in Marks concerning other questions, all members of the Court referred to the dangers of relying uncritically upon analogies with the remedies available for other civil wrongs when considering the relief to be provided under the Trade Practices Act[135]. No member of the Court suggested that it was wholly unhelpful to consider the background of analogous common law remedies in deciding what damage should be allowed under s 82 of the Trade Practices Act in cases involving conduct in breach of that Act.

     [135](1998) 73 ALJR 12; 158 ALR 333.

129. In Marks all members of the Court acknowledged that help could be had from the common law in deciding what damages may be allowed under s 82 in cases of conduct contravening s 52[136]. Very often, the amount of the loss or damage caused by a contravention of s 52 of the Trade Practices Act will coincide with the damages recoverable in an action at common law for deceit.  This is because the enquiry in both cases is directed to ascertaining what damage "flowed from" (in the sense of being caused by) the deceit or contravention in question.

     [136](1998) 73 ALJR 12 at 15-16 per Gaudron J, 21 per McHugh, Hayne and Callinan JJ, 34 per Gummow J, 42 per Kirby J; 158 ALR 333 at 338-339, 346, 364, 375.

130. In this case the Full Court of the Federal Court did look to the analogy of deceit, perhaps unnecessarily so, but not inappropriately because the loss which was sustained was loss or damage caused by the conduct of the appellant whether characterised as negligent conduct at common law or a contravention of s 52 of the Trade Practices Act.  No different result would flow in respect of the claim made by the appellant under the Fair Trading Act and it is unnecessary to deal separately with that Act. 

131. This was a case in which the conduct, the submission of the valuation in the language which was used and in the context of the instructions which procured it, constituted both negligent conduct and a contravention of s 52. It was productive of the same loss or damage under either characterisation. The result is, therefore, the same whether the common law remedy of negligence is relied on or relief is sought under the applicable statutes.

     Order

132. The decision of the Full Court of the Federal Court should be affirmed.  The appeal should be dismissed with costs.