Ta Ho Ma Pty Ltd v Allen [1999] NSWCA 202

Reported Decision : 47 NSWLR 1 (2000) NSW ConvR 55-927

New South Wales Court of Appeal CITATION : Ta Ho Ma Pty Ltd v Allen [1999] NSWCA 202 FILE NUMBER(S) : CA 40235/98 HEARING DATE(S) : 9 March 1999 JUDGMENT DATE : 28 June 1999

Ta Ho Ma Pty Limited PARTIES : v Christopher L Allen JUDGMENT OF : Handley JA; Giles JA; Sheppard AJA

LOWER COURT JURISDICTION : District Court LOWER COURT FILE NUMBER(S) : 0414/97 LOWER COURT JUDICIAL OFFICER : Raphael ADCJ

COUNSEL : A - G Rich R - CJ Bevan SOLICITORS : A - Bryan McCarthy, Dee Why R - Nikola Velcic & Associates, Parramatta CATCHWORDS : NEGLIGENCE - Economic loss - Valuer - Negligent valuation - Duty of care - Reasonable reliance - Whether valuation stale; VALUER - Negligence - Duty of care - Reasonable reliance - Whether valuation stale. Commercial Union Assurance Co of Aust Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 556 Ultramares Corporation v Touche (1931) 255 NY 170 Rogers v Whitaker (1992) 175 CLR 479 R & G Mortgages Pty Ltd v Ronald A Newton & Associates Pty Ltd (Supreme Court of Victoria, 4 July 1997, unreported) CASES CITED: San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 Esanda Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Smith v Bush [1990] 1 AC 831 Hawkins v Clayton (1988) 164 CLR 539 Kondis v State Transport Authority (1984) 154 CLR 672 Caparo Industries Plc v Dickman [1990] 2 AC 605 Harris v Wyre Forest District Council [1990] 1 AC 831 DECISION : Appeal dismissed with costs

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40235/98 DC 0414/97

HANDLEY JA GILES JA SHEPPARD AJA

Monday, 28 June 1999

TA HO MA PTY LIMITED v Christopher L ALLEN

JUDGMENT

1 HANDLEY JA: I am indebted to both Giles JA and Sheppard AJA for their judgments in this appeal. Because I agree that the appeal should be dismissed, and I agree generally with their reasons, my own can be brief. 2 The negligent valuation related to a residential property at 78 Jenner Road, Dural which the respondent valued at $565,000 in his valuation of 24 November 1992 made as at 20 November. In early August 1993, some 8½ months after the valuation date, Mr Beckers, who controlled Palpay Pty Ltd, the registered proprietor, telephoned a Mr Bryan McCarthy, a solicitor, and sought a loan of $360,000 on the security of the property. He told Mr McCarthy that he had a valuation from C L Allen and Associates at $565,000. Mr McCarthy said that he might be able to obtain instructions to make the loan and asked Mr Beckers to ring back in a few days. 3 The appellant lent money on first mortgage through Mr McCarthy. Mr Johnson, a practising accountant, administered its affairs and he and those controlling the appellant relied on Mr McCarthy to make mortgage investment decisions on its behalf. Mr McCarthy was told that the appellant had funds available for this loan and when Mr Beckers rang back he was asked to send in particulars of his title and a copy of the valuation. On 9 August the appellant, on Mr McCarthy's advice, agreed to lend $375,000 on a first mortgage of this property. Mr McCarthy relied on the valuation in recommending this loan to the appellant, and did so without inspecting the property (AB 13) or making other enquiries. He did not seek confirmation of the continuing validity of the valuation from the defendant, but relied on his knowledge of the general property market which, in his view, had improved since the valuation was made. 4 The advance of $375,000 was made on 3 September 1993 for a term expiring on 1 August 1995. The respondent's valuation was then some 9½ months old. The trial judge found that the valuation had been made negligently, and the appellant suffered loss when the borrower defaulted and the subject property was sold. In December 1994 the appellant made a further advance of $50,000 which was wholly lost. I agree that its claim in respect of this advance fails on the facts, and there is nothing I need add to the reasons of Sheppard AJA. 5 Subject to what follows, I agree generally with the analysis of the basis of the duty of care contained in the judgment of Giles JA, which substantially accords with the views of Sheppard AJA. However with respect I doubt that it is strictly correct to say that a valuer owes a duty in cases such as this to a class. In Smith v Bush [1990] 1 AC 831, which concerned the liability of a valuer to a purchaser who relied on a valuation obtained by his mortgagee, Lord Griffiths said at 865: "… the liability is limited to the purchaser of the house - I would not extend it to subsequent purchasers … There is no question here of creating a liability of indeterminate amount to an indeterminate class". 6 This is not a case where the valuer contemplated that a class of persons might rely on his valuation. 7 The respondent did not foresee that the appellant, as an identified person, might rely upon his valuation, but he did foresee that a lender, such as the appellant, might do so because his valuation was given for mortgage purposes. The law will, in general, impose a duty of care on a valuer, who gives such a valuation, which is owed to the lender who first relies on it provided his reliance was reasonable. 8 The trial Judge held that the appellant, through Mr McCarthy, did not act reasonably in relying, without further enquiry, on a valuation which was some 9½ months old at the date of the first advance. There was evidence that there had been no material change in the condition of the property, and that the market for property in the vicinity had not been detrimentally affected by local factors. In these circumstances Mr Rich for the appellant submitted that the valuation remained relevant and there was no reason why a duty of care should not be recognised. 9 The trial Judge accepted the evidence of the defendant and a Mr Quinlan, the expert called in the defendant's case, that a professional valuation is regarded by some major lenders, including the Commonwealth Bank, as having a life of only 3 months, although some solicitors accept valuations for up to 6 months, but only after a telephone enquiry of the valuer to ascertain the current position. 10 The appellant called Michelle Blamey as its expert witness on valuation issues. She gave evidence on 16 and 18 March 1998, which were the first and second days of the trial. The defendant then gave evidence followed by Mr Quinlan. On 19 March the defendant was recalled by leave for further cross-examination, but the plaintiff did not call Michelle Blamey in reply to answer the evidence given by the defendant and Mr Quinlan about the limited life of a valuation. 11 The Court can infer that Ms Blamey was either in court when the evidence of the defendant and Mr Quinlan was given, or was available at short notice to give instructions for their cross-examination. No explanation was given for the failure to call her in the plaintiff's case in reply. In these circumstances a Jones v Dunkel inference should be drawn against the plaintiff. See Commercial Union Assurance Co of Aust Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389, 418-9. 12 In cases such as the present, reasonable reliance determines the scope of the duty of care. A valuation must, in the nature of things, have a limited useful life and there is no reason for the Court to reject the views of sophisticated consumers of valuation services as to what this might be. These views are relevant in assessing whether the plaintiff's reliance, through Mr McCarthy, on the valuation was reasonable. 13 The question of reasonable reliance must be determined in the light of the matters known to Mr McCarthy at the time, and the Court must disregard information not then known to him. Thus it is not relevant that the physical condition of the property had not deteriorated during the interval and its market value had not been diminished by local factors. We must also disregard the fact that the valuation had been prepared negligently because the duty question is anterior to, and independent of, the question of breach. 14 In my opinion the plaintiff's reliance on this valuation, having regard to its age, and the lack of any other knowledge of the condition of the property or the market for property in the vicinity, was not reasonable. Accordingly the respondent valuer did not owe the appellant a duty of care and the appeal should be dismissed with costs. 15 GILES JA: I am indebted to Sheppard AJA for his recital of the facts and discussion of the principles of law. I am in general agreement with his Honour's reasons, and wish only to make the following observations as to why the respondent's duty of care did not extent to a duty of care in relation to the first advance. 16 The area of discourse is liability for economic loss suffered in reliance on a negligent misstatement. It is necessary that the defendant owe to the plaintiff a duty to take care in making the statement. Putting aside where the defendant knows or intends that the plaintiff as a particular person will rely on the statement, reasonable foreseeability that a class of persons which includes the plaintiff might rely on the statement and thereby suffer loss is not sufficient for a duty of care. The class of persons to whom a duty of care is owed is more narrowly confined. 17 So a valuer who puts out a negligent valuation does not incur an open ended liability to any and every financier who relies on it, even if it was reasonably foreseeable that the financier would rely on it. The particular financier may be outside the class of persons to whom the valuer owes a duty to take care in making the statement in the valuation, in the same manner as Esanda was outside the class of persons to whom the auditors owed a duty of care on the case as pleaded in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; the auditors owed a duty of care to the members of Excel, but not to Esanda. 18 Although a duty of care may be found from other considerations, in this area an important, often determinative, consideration is expectation of reliance on the statement. The reliance in the existence of a duty of care is to be distinguished from the reliance in proving causation of loss Esanda Finance Corporation Ltd v Peat Marwick Hungerfords at 256 per Dawson J; at 263 per Toohey and Gaudron JJ; at 309 per Gummow J. 19 In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords the criteria for defining the class of persons included -

(a) in the judgment of Brennan CJ, that the defendant knew or ought reasonably to have known that the information or advice would be communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice at 252 ;

(b) in the judgment of Dawson J, that the defendant realises or ought to realise that he is being trusted to give the best of his information and advice as a basis for action on the part of the other and it is reasonable for that other to act on the information or advice at 255, adopted from the judgment of Barwick CJ in Mutual Life & Citizens' Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 572-3 , and that reasonable reliance, in combination with other circumstances, may establish a relationship of proximity which will support a duty of care at 256-7 ;

(c) in the joint judgment of Toohey and Gaudron JJ, that the relationship of proximity marked by reliance or the assumption of responsibility does not arise unless it was reasonable for the recipient of the information or advice to act on it without further inquiry at 265 ; and

(d) in the judgment of McHugh J, that a duty of care will normally require an intention to induce the recipient of the information or advice, or a class to which the recipient belongs, to act or refrain from acting on it at 275 . 20 Involved in these criteria is that the class of persons to whom a duty of care is owed will normally be confined to those persons whose reliance on the information or advice is reasonable. The reasonableness will be tested according to the circumstances as they become known. 21 The likelihood of which Brennan CJ spoke reflects his Honour's citations from earlier cases Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465 at 503; Mutual Life & Citizens' Assurance Co Ltd v Evatt (1968) 112 CLR 556 at 571; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 357, 372; Caparo Industries Plc v Dickman (1990) 2 AC 605 at 620-21, 628-9, 661, including from his own judgment in San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 372 in which he had stated as one of the conditions for a duty of care that it "would be reasonable for the representee to accept, and act on [the] information or advice", and connotes reasonable conduct by the plaintiff. 22 Reasonable reliance is express in what was said by Dawson J, and his Honour also cited the passage from the judgment of Brennan J (as he then was) in San Sebastian Pty Ltd v The Minister with the condition of reasonable acceptance and action on the information or advice. Reasonable reliance is also express in what was said by Toohey and Gaudron JJ, and followed preference for reliance expressed in terms of an expectation, reasonable in the circumstances, that due care will be exercised in the provision of the information or advice at 264, taken from the judgment of Mason J in Kondis v State Transport Authority (1984) 154 CLR 672 at 687, and for assumption of responsibility as explained by Barwick CJ in Mutual Life & Citizens' Assurance Co Ltd v Evatt: that explanation included that it was reasonable for the recipient of the information or advice to accept and act upon it at 264: see footnote 4. 23 The intention of which McHugh J spoke would seldom be an intention to induce unreasonable action or inaction, and his Honour regarded San Sebastian Pty Ltd v The Minister as the leading case in the area at 274 and included in his citations from that case the recognition in the joint judgment of Gibbs CJ, Mason, Wilson and Dawson JJ that the defendant's appreciation of the reasonableness of reliance will be relevant at 273; see San Sebastian Pty Ltd v The Minister at 358 and the passage from the judgment of Brennan J with the condition of reasonable acceptance and action on the information or advice at 274-5. 24 So where a valuer puts out a negligent valuation the class of persons to whom the valuer owes a duty of care will normally be confined, apart from any other considerations, to those persons whom the valuer knows or ought to know will reasonably rely on the valuation. If the reliance of the particular financier is unreasonable, it will normally follow that the criteria for a duty of care owed to the financier are not satisfied. If the valuer knows or intends that the plaintiff as a particular person will rely on the valuation, even unreasonably, different considerations of course arise. 25 I would prefer not to ascribe the part played by reasonableness of reliance in determining the duty of care in a case such as the present to a lurking fear of opening the floodgates. In this area there is often reference to the cautionary admonition of Cardozo CJ in Ultramares Corporation v Touche (1931) 255 NY 170 at 179 against "liability in an indeterminate amount for an indeterminate time to an indeterminate class". Deeper analysis of policy factors can be found in the cases, especially in the judgments of McHugh and Gummow JJ in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords at 281-9 per McHugh J, 302-4 per Gummow J. If it be asked whether what McHugh J calls "the demands of corrective justice" Esanda Finance Corporation Ltd v Peat Marwick Hungerfords at 289 require the imposition of a duty of care in favour of a financier who unreasonably relies on a valuation, the balance of policy factors is in the negative. 26 The imposition of a duty of care could spur valuers to take greater care, although it might be thought that the prospect of liability to the person(s) to whom the valuation is addressed and perhaps other persons reasonably relying on the valuation would impress upon the most obtuse valuer the need to take care. But financiers and others who act on valuations are generally persons of business, able to look after their own interests, and there is no reason to excuse them from the consequences of their unreasonable conduct by letting them recover from the negligent valuer. There is no reason to impose on the public, via the charges of valuers, financiers and possibly others and the cost of the justice system, the expense of additional insurance, litigation, and unproductive time involved in shifting losses from one unreasonable actor to another. 27 Whether or not on this kind of analysis of policy factors Toohey and Gaudron JJ refer simply to commonsense and ordinary principles in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords at 265, it follows from the principles established by authority that a valuer may owe a duty of care to a financier who immediately lends money in reliance on the valuation, but may not owe a duty of care to another financier - or even the same financier - who lends money in reliance on the valuation at a later time As in R & G Mortgage Pty Ltd v Ronald A Newton & Associates Pty Ltd, McDonald J, 4 July 1997, unreported; see also Lord Griffiths' exclusion of liability to subsequent purchases in Smith v Bush (1990) 1 AC 831 at 864-5, presumably regarding subsequent purchasers as remote in time or other circumstances so as to be outside the class of identifiable persons who will act on the valuation. It will depend, of course, on all the circumstances. The financier relies on the valuer's opinion of value as at the date of the valuation (or the date as at which the valuation is made). In particular circumstances that reliance may be reasonable even at the later time: for example, if what matters for the transaction is that the property had a particular value at the earlier time. In other circumstances the transitory nature of a valuation will mean that the reliance is unreasonable at the later time: for example, if what matters for the transaction is that the property has a particular value at the later time, and the passage of time and possible changes in market values or the value of the property in question have or may have blighted or removed the authority of the valuation. 28 In the present case, the determinative consideration in the duty of care owed by the respondent to the appellant, as a member of a class of potential financiers, is expectation of reliance, including the reasonableness of the appellant's reliance on the valuation. 29 What was reasonable in the circumstances of this case will be informed by evidence of the practices of valuers and financiers. 30 The evidence of the practice of valuers was scanty. Mr Allen gave no direct evidence concerning the life of a valuation. Indirectly, that he as a valuer recognised limitation on the life of a valuation came first from the condition in his valuation that it was valid only during the economic conditions prevailing at the date at which the appraisal applied, and secondly, from his evidence of the requirements of banks and solicitors to which I shortly refer. As explained by Sheppard AJA, there was also no direct evidence from Ms Blamey, called for the appellant, but she did accept that for comparable sales when making a valuation a time-frame was involved, described by her as "certainly not years and certainly not months", and that in the valuation of a property at different points of time a short period of time could make a difference. Mr Quinlan, called for the respondent, gave evidence of the requirements of banks, and explained the reasons for their three months limit - "Well there could be a number of things, there could be a fall in the market within the area. There could be a catastrophe thats effected [sic] the house, the construction of the house. All the repairs may not have been carried out and the property may not have been in the same condition as it was when first valued, when they first considered the loan." 31 The evidence of the practice of financiers was, so far as it went, all one way. Mr Allen said that the major banks would only accept a valuation less than three months old - "… otherwise they ask you to update them and normally you'll find that most solicitors will go up to six months but they'll normally ring you and just make sure that that's okay. After six months then you virtually have to update the valuation. Certainly all the solicitors that I have worked for have done that." 32 Mr Quinlan said that the Commonwealth Bank and the Commonwealth Development Bank "wouldn't accept a valuation without checking it after three months and they would either send one of their own valuers or they would get a private valuer to carry out another valuation". 33 This evidence does not necessarily close off a finding of reasonable reliance on a valuation more than six months old cf Rogers v Whitaker (1992) 175 CLR 479 at 487, but I see no reason to impose on the respondent a more generous standard of reasonableness than that informed by the evidence. The evidence justified the conclusion that the appellant did not reasonably rely on the valuation and was outside the class of persons to whom the respondent owed a duty to take care in making the statement in the valuation - a conclusion expressed by Raphael DCJ in the terms that it was "not objectively reasonably foreseeable that a lender will, without any reference whatsoever to the original valuer, or without making some confirmatory check of its own … rely upon a valuation of that age". An age of about nine months may be close to the line, but even when market values generally are not volatile the value of a property can be suddenly, and markedly, affected by matters peculiar to its neighbourhood or to the property itself. Good reason can be seen for prudence in the currency to be ascribed to a valuation, and for confirmatory reference to the valuer or a revaluation after a period of six months or so. 34 The particular circumstances in which the appellant made the first advance do not save it from the consequential conclusion that the respondent did not owe it a duty of care in relation to that advance. Mr Johnson relevantly acted through Mr McCarthy. Mr McCarthy said that he was aware from his extensive dealings in property that the property market had improved substantially since the date of the valuation, and that he assumed that the value of the property would not have decreased. It was correct that there had not been an adverse change in market values generally since the valuation was made. They may have improved very slightly, although the expert evidence did not support Mr McCarthy's reference to substantial improvement. But even if Mr McCarthy combined the valuation of the property as at August 1992 with his assumption that the value of the property would not have decreased, in the light of the evidence to which I have referred his reliance on the valuation was still not reasonable. He acted on his view of the property market generally, but the reasons for a valuation's limited life include that matters peculiar to the neighbourhood, or to the particular property, can affect its value. The evidence of the practice of banks and solicitors, for example, was not qualified in the event that there was a stable or improving general property market. 35 In my opinion, therefore, Raphael DCJ correctly concluded that it had not been established that the respondent owed to the appellant a duty of care in relation to the first advance. I agree that the appeal should be dismissed with costs. 36 SHEPPARD AJA: This is an appeal from a judgment of the District Court (Raphael ADCJ) in which his Honour dismissed an action brought by the appellant to recover damages from the respondent. The action arose out of the alleged reliance by the appellant upon a valuation prepared by the respondent for a Mr Beckers whose company, Palpay Pty Ltd, was the owner of a residential property at Dural. The valuation stated that it was made for mortgage purposes. It followed that it was likely to be shown to prospective mortgagees who might rely on it in deciding whether to advance moneys upon the security of the property. It was common ground that the valuation was done carelessly and was wrong. This was because the respondent had relied on supposedly comparable sales which proved not to be comparable with the property in question. There was no submission on the appeal to suggest that his Honour's findings in this regard were erroneous. The issue between the parties is, however, whether it was in all the circumstances reasonable for the appellant to rely on the valuation which was some nine months old at the time it made the advance. 37 His Honour held that there was no duty of care owed by the respondent to the appellant in respect of the valuation at the time the appellant relied upon it nine months after it was made. In reaching his conclusion, his Honour considered that the reliance by the appellant upon the valuation was not, in the circumstances of the case, something which was reasonably foreseeable by the respondent. He said that the matter could be put also as one of proximity, ie whether there was a sufficiently proximate relationship between the parties to warrant the conclusion that a duty of care was owed. 38 Originally the appellant relied upon causes of action based upon breaches of provisions of the Trade Practices Act 1974 (Cwth). His Honour held, however, that the claim being against an individual, as distinct from a corporation, no cause of action was available under the Trade Practices Act. The case was put alternatively in negligence and that is how the matter was dealt with by his Honour. There was no attempt by the appellant to rely on the causes of action under the Trade Practices Act on the hearing of the appeal. 39 Before coming to his Honour's account of the facts and his findings, I should refer briefly to the valuation. It shows that the property in question was a residential property at 78 Jenner Road, Dural. The object of the "appraisal" was stated to have been "Mortgage Loan". The property was said to consist of a large two storey home which, at the date of the valuation, 24 November 1992, was approximately three years old. There followed a list of sales of properties said to be comparable. No comment was made on these and there was no discussion in the valuation report of why they were said to be comparable. There then followed the respondent's conclusion which was described as "Certificate of Value". Effectively, the certificate said that the respondent assessed the value of the property at $565,000 as at 20 November 1992. 40 Appended to the valuation was a list of the respondent's qualifications and appointments and, in addition, a document headed, "Limiting Conditions". The valuation was said to be subject to a number of conditions. Only two of these are at all relevant. The first provided that, where the appraisal was shown in the valuation to be for mortgage purposes - that is the case here - the estimate of value was for first mortgage on the current usual terms only unless otherwise stated. The second condition provided that the value stated in the appraisal was valid only during the economic conditions prevailing "at the date at which this appraisal applies". 41 In the course of his judgment, his Honour said that the Court had not been told "much about Ta Ho Ma" (the appellant). He said that the company was run out of the offices of an accountant, Mr Johnson, who was also a director and secretary of the company. His Honour said that it seemed to be "the captive lender of a solicitor, Mr Bryan McCarthy". Potential borrowers would apply to Mr McCarthy who would refer their application to Mr Johnson. Mr Johnson gave evidence that all his business came from Mr McCarthy. His Honour continued: "He said apropos of the Company's lending policy, words to the following effect: 'If Mr McCarthy says it's ok and we have the money we approve it most of the time.'" 42 His Honour said that Mr Johnson did not, in respect of the subject loan, see either the applicant for the loan (ie the appellant) or the valuation upon which the appellant was said to have relied. He added that Mr McCarthy gave evidence that he received his instructions from Mr Johnson who he believed made decisions on behalf of the elderly shareholders of the company. 43 His Honour said that the property was owned by Palpay Pty Limited. He said that company was the creature of a Mr Beckers who, according to the evidence of Mr McCarthy, was a finance broker. Both Mr McCarthy and Mr Allen knew Mr Beckers although, I gather, not well. His Honour then said, "Mr Beckers is a shadowy, if important, character in this drama from whom the Court did not hear". 44 The property was auctioned in about October 1992 but did not sell. No bids were received. The reserve price was $485,000. The evidence of another valuer, Ms Blamey, was that the public reaction to the property was that it was over priced and that a reasonable price for it would have been in the region of $400,000 at the time. In late November 1992 Mr Beckers decided to try to raise money on the security of the property to repay loans which he had taken out with Barclays Bank. He approached the respondent and asked him whether he would prepare a valuation. The valuation was carried out. It was addressed to Mr Beckers from whom Mr Allen received his instructions. 45 His Honour then said: "The very strong impression that I obtained from the evidence of Mr Allen was that he was aware that this valuation, although addressed to Mr Beckers, would be used by Mr Beckers to obtain a mortgage and would therefore be relied upon by any potential provider of such a mortgage. Indeed, he gave evidence that he received a telephone call some weeks after providing the valuation from the Commonwealth Bank and he was happy to give them information about the property and his valuation. He then heard no more about it." 46 In late August 1993, some nine months after the valuation had been made, Mr McCarthy was approached by Mr Beckers who requested a loan of $375,000 on the security of the property. Mr McCarthy said that Mr Beckers asked him whether money was available. Mr McCarthy said that it might be depending on the type of property and the amount of the valuation. Mr Beckers told Mr McCarthy of the valuation made by Mr Allen of $565,000. Later, Mr McCarthy told Mr Beckers that he could arrange the loan and asked for the particulars of title and for the valuation. Mr McCarthy gave evidence that the appellant had a strict lending policy of providing money only up to sixty-six per cent of the valuation. Mr Johnson, who gave the instructions on behalf of the company for the loan to be made, said that he had had regard to the valuation although he had not read it. He knew the valuation was dated in 1992 but received no copy of it. He believed that Mr McCarthy must have told him about it in his conversations with him. 47 The loan was drawn down. In or about December 1994 Mr Beckers approached Mr McCarthy again. He requested that Mr McCarthy arrange for the loan to be increased by a further sum of $50,000. His Honour said that the additional $50,000 took the "ratio of the loan" to the valuation above the normal limit permitted by the appellant. In order to support the additional loan, a document described as an appraisal and addressed, "To Whom It May Concern" was provided to Mr McCarthy by a firm of property consultants in Balmain, MJM Property Consultants. His Honour said that he was not clear whether Mr McCarthy had commissioned this document or whether Mr Beckers had, but his Honour said that he believed that Mr McCarthy's evidence was to the effect that Mr Beckers had Mr Mannix of MJM Property Consultants send the appraisal directly to Mr McCarthy. In his evidence Mr McCarthy said that he relied on that document and so had Mr Johnson although Mr Johnson did not see it. Mr Johnson said that he had been told about it by Mr McCarthy but said that he did not rely solely upon it. He said he needed some comfort to have approved the increase and then stated that as the total loan was still within seventy-five per cent of the value of the property pursuant to the valuation, it was still within the guidelines. As his Honour remarked, this was patently incorrect as the instructions dated 14 December 1994 and signed by Mr Johnson indicated that "the estimated value of the security at the date of the loan would be at least $600,000". The instructions also said, "the value will be evidenced by MJM". 48 On or about 1 December 1995 Palpay Pty Limited defaulted under its mortgage. In May 1996 the company was wound up and on 19 November 1996 the property was sold for $387,500 by an agent acting on behalf of the liquidator of Palpay Pty Limited. 49 His Honour referred to the pleadings and dealt with the causes of action based on the Trade Practices Act. I do not refer to the detail of these. 50 His Honour then turned to the case in negligence. He said that the gravamen of the complaint against the respondent was that he overvalued the property and could not support that overvaluation by the use either of the comparable method of valuation or the summation method of valuation. His Honour said that in the way the case developed, it was clear that an allegation was being made that the respondent misrepresented that certain properties he claimed were comparable were truly comparable and that his valuation had been negligently arrived at because it was not within the range of valuation that any competent valuer could possibly have reached at that time. 51 His Honour went on to discuss the evidence in more detail and reached conclusions about the reliability of the various witnesses. He said that he found Mr McCarthy an honest and straightforward witness whose evidence he had no hesitation in accepting. He was not quite as confident of the evidence of Mr Johnson. That was particularly the case in relation to questions put to him concerning the second loan of $50,000. In relation to that matter his Honour said: "When he was asked about whether at this time he still relied on the original valuation he stated that he did do so but he also wanted some additional comfort which was obtained from the MJM letter. He then went on to give responses concerning the total of the amount lent to the valuation and stated that the increased amount was still within 75% and therefore within guidelines. I felt that Mr Johnson was aware that a question of this type would be asked of him and was determined to give an answer which indicated his reliance upon the original valuation so far as was consistent with his obligation to tell the truth. I find the reference to 75% difficult to understand in the light of the evidence given previously about a limit of 66% and the plain written instructions." 52 His Honour said that he was impressed by the evidence of Ms Blamey. His Honour made no adverse comment about the respondent's evidence. He said that he was no longer carrying on practice as a valuer and that he lived in Indonesia. However, he said that, where the evidence of Ms Blamey and the respondent differed, he preferred that of Ms Blamey. Finally, his Honour referred to the evidence of Mr Quinlan who was an expert called by the respondent. It is sufficient to say that again his Honour preferred the evidence of Ms Blamey to that of Mr Quinlan. 53 His Honour said that he would deal with the second advance first of all. He said that he was satisfied by the evidence of Mr McCarthy and Mr Johnson that neither relied at the date of the second advance on the report given by the respondent. He commented that, if they had relied upon it, the total amount of the advance would have exceeded the sixty-six per cent margin which the appellant had "laid down". 54 His Honour's conclusion in relation to the second advance is challenged on this appeal. I have considered the various submissions which have been made in relation to this matter but it seems to me that the matter was, as his Honour thought it was, a pure question of fact. He found that the respondent's valuation was not relied upon for the second advance. It was clearly open to him to make that finding. In the circumstances, the appeal, so far as it is based upon reliance on the valuation for the second advance, must fail. The questions which arise in relation to the first advance are more difficult. 55 His Honour referred to a submission made on behalf of the respondent to the effect that Mr Johnson had not seen the valuation and could therefore not have relied upon it even for the first advance. He rejected that submission because he found that Mr McCarthy as solicitor for the lender was its effective agent to receive, consider and make recommendations upon mortgage propositions to be put to it. He was the appellant's agent, not the agent of the borrower. If the appellant accepted his recommendations and acted on them, as it did in the present case, then it was bound by the consequences so far as third parties were concerned. His Honour said that the respondent would have been as liable for the delivery of negligent advice to the agent as he would have been if the advice had been given to the principal. 56 After referring to a number of authorities, his Honour continued: "Although the valuation prepared by Mr Allen was prepared for the mortgagor and not the mortgagee I have already found that Mr Allen was aware that it was likely to be used and relied upon by a potential mortgagee. The necessary degree of proximity has been established." 57 His Honour referred at length to the speech of Lord Griffiths in Smith v Bush [1990] 1 AC 831. I shall refer to this case in more detail a little later. His Honour said that he was obliged to consider as a threshold question whether or not any duty of care owed by the respondent to Palpay Pty Limited extended to "any mortgagees". He said that he believed that the duty extended to a mortgagee such as the Commonwealth Bank which was considering lending money on the security of the property within a reasonable time after the production of the valuation. He referred to evidence of what would be considered the reasonable "life" of a valuation of this type given by the respondent and Mr Quinlan. His Honour continued: "The maximum period appears to be approximately 3 months although the evidence was limited to their personal experience, which in the case of Mr Quinlan was only in respect to the Commonwealth Bank. Mr Allen conceded that where money was being obtained through solicitors valuations of up to 6 months were sometimes used but only after a telephone enquiry to ascertain the current position. No authority has been provided to me in which there was any judicial pronouncement on the "life" of a valuation but I take comfort from what Lord Griffiths said in Smith ( supra ) that the valuation can only be relied on only once. I interpret his remarks as indicating that valuations do have a limited life span and after that life span has expired it would be unreasonable for a third party to rely upon it. After that time the economic loss to the third party will be no longer be foreseeable. 58 The reasons for this are obvious. A valuation relates to two criteria, the market and the property. The market can swing, sometimes violently, within a very short period of time as this country experienced between 1987 and 1992. The property can also change. It can be allowed to deteriorate slowly or it could be burnt down, the owner could make improvements or delete improvements such as a swimming pool or extra rooms which were there at the time of the valuation. The area in which the property is situated could be blighted by fears of, or the existence of, aircraft noise. That these things or a combination of them are so common is presumably the reason why a prudent lender such as the Commonwealth Bank of Australia which is regularly trumpeted as Australia's largest home lender only allows a valuation a life span of three months. It is not difficult for a lender to contact a valuer after such a period to check whether or not that valuer stands by his or her valuation in the current market. Mr Allen indicated that he was happy to have done so in the case of the inquiry from the Commonwealth Bank. No inquiries were made by Mr McCarthy or Mr Johnson and the document they allege they were relying upon was at least 9 months old. It is not objectively reasonably foreseeable that a lender will, without any reference whatsoever to the original valuer, or without making some confirmatory check of its own (which in my view would generally supersede the reliance on the valuation) rely upon a valuation of that age. In these circumstances even though this lender could have brought itself within a sufficient degree of proximity to have rights against the valuer it cannot do so in this case." 59 His Honour referred at some length to the decision of McDonald J of the Supreme Court of Victoria in R & G Mortgages Pty Ltd v Ronald A Newton & Associates Pty Ltd (Supreme Court of Victoria, 4 July 1997, unreported, but noted in (1997) Butterworths' Unreported Cases 973013). In the course of that discussion, he referred also to the decisions of the High Court in San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 and Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241. 60 His Honour referred to part of the discussion to be found in McDonald J's judgment in R & G Mortgages Pty Ltd including his statement that it was by application of the principles referred to in Esanda Finance that it must be determined whether, insofar as one King relied on the valuation and report for the purpose of the plaintiff entering into the transactions, there existed at that time a relationship of proximity between the plaintiff and one Newton to give rise to a duty of care owed by the latter to the former. Having referred to this, his Honour in the present case said: "In coming to his determination the learned Judge used the word "proximity" where I have used the words "reasonable foreseeability". There is currently considerable debate as to the use of these terms but I do not think it matters for the purposes of either decision which are used. In R & G Mortgages Pty Ltd evidence was given that since 1996 it had been a recommendation of the Law Institute of Victoria that a loan being made by a solicitor should be supported by a valuation made within 6 months of the commencement of the loan. There was other evidence that the "life" of a valuation which gave the "market value" of a property was between 60 to 90 days." 61 His Honour went on to refer to more of what McDonald J had said in R & G Mortgages Pty Ltd and concluded his reasons by saying: "I rely on this judgment as authority for my finding that there was no duty of care owed by Allen to Ta Ho Ma in respect of the valuation at the time Ta Ho Ma proposed to use it some 9 months after it was written. The facts relating to the changes in the property market described in some detail by his Honour in R & G Mortgages may be different to those which occurred in this case, I do not believe they affect the principle which is discernible from his judgment." 62 His Honour then reached the conclusion that the respondent should succeed. 63 In the course of his submissions, counsel for the appellant referred to the fact that the valuation unquestionably had been prepared negligently, ie in the sense of carelessly, and that the respondent was aware that the valuation was intended to be relied upon by a potential mortgagee so that the necessary degree of proximity existed between the respondent and "a potential class of mortgagee". It was submitted that his Honour was in error in finding that all valuations had a limited life of three months for the purpose of a mortgagee relying on them. Counsel said that the primary Judge was wrong to take into account evidence given in R & G Mortgages that since 1996 it had been a recommendation of the Law Institute of Victoria that a loan being made by a solicitor should be supported by a valuation made within six months of the commencement of the loan. Counsel said that the recommendation should not have been taken into account because it was not in evidence in these proceedings and, in any event, the recommendation was not made until three years after the loan in the present case was made. He also drew attention to the fact that the matter of the life of a valuation was not put to Ms Blamey whose evidence was preferred to the evidence of the other valuers, the respondent himself and Mr Quinlan. 64 Counsel submitted that the shelf life of a valuation was an issue of fact in each case and not a matter for rigid definition. Counsel conceded that the circumstances affecting the validity, really the relevance, of a valuation were obvious. These included changes in the state of the market or changes in the nature of the property. In the present case the evidence was that there had been no material change in the condition of the property. To the knowledge of Mr McCarthy there had been an improvement in the market since the valuation was made. Certainly, the market had not declined. Ms Blamey's evidence confirmed this. It was counsel's submission that there were not in existence between the date of the valuation and the time that each advance was made any factors which would have made the original valuation irrelevant. There was no reason for any three months rule. To adopt such a rule would involve a very artificial approach. In short, counsel submitted that the primary Judge was wrong in saying that there was a fixed rule and in not considering the evidence as to the circumstances about the actual market and state of the property. That evidence was given by Ms Blamey and Mr McCarthy. He distinguished R & G Mortgages because there had been a marked decline in market value during the relevant period in that case. 65 Counsel submitted that it was "objectively foreseeable" that a valuation made nine months earlier than the reliance placed on it could be relied upon where the market had not deteriorated and the property had not deteriorated. He said that a confirmatory check would not necessarily supersede the original valuation as the basis of the lending decision. It did not create a fixed rule of limitation regardless of the actual facts. The facts were not reviewed but would have confirmed that no relevant changes in the market or condition of the property had occurred and, even if a check had been carried out, the evidence would have confirmed that the market had not declined. There was absolutely no basis for suggesting that a confirmatory check would have demonstrated the market value of the property nine months later to have declined by $155,000. 66 Counsel then made submissions about the second advance. I have already expressed my views about this matter. In my opinion, as I have said, that matter depends entirely on factual considerations. The Judge's finding was that there was in fact no reliance. That seems to me to be the end of the matter. 67 Counsel concluded by submitting that the losses sustained were clearly foreseeable in circumstances where the valuation was prepared for mortgage purposes and provided a substantially inflated and erroneous value. 68 Counsel for the respondent said that his Honour had correctly identified the requirements for a duty of care to arise on the part of the respondent to the appellant in relation to the use of the valuation by the appellant some nine months after it was made. Counsel said that the requirements were proximity between the parties, a reasonable foreseeability of economic loss and reasonable reliance on the valuation in the making of loan advances. Counsel referred to San Sebastian v The Minister (supra) at 355 and 357-8, Hawkins v Clayton (1988) 164 CLR 539 at 555-6, 593, 596-7, and Smith v Bush (supra). 69 Counsel conceded that there was here the necessary degree of proximity. He said that this was not an issue on the appeal. His principal submission was that it was not reasonably foreseeable that the appellant would rely on the valuation after its life span expired, namely more than three months after it was made, without reference to its author, or more than six months after it was made if reference had been made to the respondent prior to reliance being placed upon it. Reference was made to the evidence of the respondent and Ms Blamey. 70 Counsel for the respondent then referred to R & G Mortgages. His Honour had relied extensively upon this decision. Counsel emphasised that there was clear evidence accepted by the primary Judge to the effect that the life of a valuation was limited to no more than six months. That was the experience of the valuers and, upon the basis of their evidence, the practice of mortgagees, particularly mortgagees who are institutions. It followed, in counsel's submission, that in those circumstances it was not reasonable for the appellant to rely on the valuation nine months after it was made. The fact that the valuation may have been carried out negligently was not to the point. 71 There was discussion in the argument about the fact that Ms Blamey was not directly asked about her view of the usual life of a valuation. She was called in the appellant's case. No questions had been asked her by counsel for the appellant about this matter. Counsel for the appellant criticised counsel for the respondent for not asking questions but counsel for the respondent submitted that it was a matter for counsel for the appellant. If the matter were not raised in the appellant's case, there was no obligation on the respondent to raise it. I think that the appropriate way of dealing with this contretemps is to conclude that there is no evidence on the point from Ms Blamey. The case has to be dealt with on that basis. Her failure to deal with the matter ought not to be regarded as advantageous or disadvantageous to either of the parties. 72 In essence, the appellant's case may be said to be based on the following matters, namely:

(1) The valuation was wrong because of the respondent's carelessness.

(2) The respondent's own disclaimer imposed no limitation as to time. It imposed only a limitation that applied where there were changes in the market. No doubt, if the condition of the property had in some way deteriorated between the date of the valuation and the date of reliance, that also would have been a matter to be taken into account in determining whether the appellant's reliance on the valuation was reasonable.

(3) The evidence of Ms Blamey and Mr McCarthy accepted by the primary Judge established that there was no relevant change in the market. If anything, it had gone up. Furthermore, the property had not been altered and there was no deterioration in it.

(4) The valuation expressly contemplated that it was for mortgage purposes. It followed that the appellant was one of the class of persons recognised by the respondent as persons who might rely on it.

(5) On that basis the key question was whether it was reasonable for the appellant to rely on the valuation nine months after its date without at least enquiring of the respondent whether it was still current. Tied up with this question was the further question whether there is a rule of thumb or practice which says that a valuation is stale after, say, three months or six months. 73 The principal contention made by the respondent was that the evidence of the valuers to which reference was made in counsel's submissions turned the case into one on its own facts. His Honour had proceeded upon the basis of the evidence which had been accepted. That was the end of the matter. I think this over simplifies the case. But counsel for the respondent submitted that, in that event, the period of nine months involved in this case was simply too long. Essentially, it was his contention that the respondent could not reasonably have foreseen that someone, such as the appellant here, would rely on the valuation nine months after it came into existence at least without reference to the respondent to ascertain whether the valuation was still current. It seemed to be conceded during the oral submissions made by counsel for the appellant that common sense suggested that there must be some period after which the valuation could not be regarded as current. For instance, if the valuation had been three years old, rather than nine months, it would seem difficult to me to be comfortable about a situation in which a prospective mortgagee had looked at the valuation and relied on it without a further valuation either from the original valuer or from another one. 74 I think it may be helpful if I next refer to some authorities. Although the case is in a different context to the present one and does not directly involve the question of reliance after a period on financial advice, I think the most helpful of the authorities is Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (supra). The proceeding which eventually led to the matter being dealt with by the High Court was an application to strike out a statement of claim. The action was to recover moneys from auditors upon the basis that the plaintiff had relied upon them in its dealings with a company and had suffered damage. It was alleged in the statement of claim that the plaintiff had entered into certain transactions in reliance upon audited accounts and an accompanying report. It was alleged that mandatory accounting standards applied and that the auditors had breached the standards in conducting the audit. It was also alleged that the financier was a member of a class of persons whom the auditors foresaw, or ought reasonably to have foreseen, might reasonably have relied on the audited accounts and report. It was pleaded that but for the audited accounts and the report, the financier would not have entered into the transactions or suffered the consequential losses. The High Court held that the statement of claim did not disclose a cause of action. Reference was made to the decision of the High Court in San Sebastian Pty Ltd (supra) as well as to other authorities. 75 In the course of his judgment Brennan CJ said (at 252): "The uniform course of authority shows that mere foreseeability of the possibility that a statement made or advice given by A to B might be communicated to a class of which C is a member and that C might enter into some transaction as the result thereof and suffer financial loss in that transaction is not sufficient to impose on A a duty of care owed to C in the making of the statement or the giving of the advice. In some situations, a plaintiff who has suffered pure economic loss by entering into a transaction in reliance on a statement made or advice given by a defendant may be entitled to recover without proving that the plaintiff sought the information and advice ( San Sebastian Pty Ltd v The Minister ( supra )). But, in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound. If any of these elements be wanting, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use reasonable care in making the statement or giving the advice." 76 Brennan CJ went on to say that the statement of claim did not plead the elements to which he had referred and upheld the Full Court of South Australia which had ordered that the statement of claim be struck out. 77 Dawson J said (at 254): "Apart from the accounting standards, no facts are pleaded by Esanda as the basis for alleging a duty of care on the part of PMH towards it. Of course, without a duty of care, there can be no liability in negligence. The plea that Esanda was a member of a class of persons who might reasonably and relevantly rely on the Excel accounts and the auditors' report was no more than a plea that it was foreseeable that carelessness in making the report might cause harm to Esanda. However, mere foreseeability of harm does not, where the only harm is pure economic loss, give rise to a duty of care. The reason for this is that a duty of care imposed by reference to the mere foreseeability of harm in the form of financial loss would extend liability in negligence beyond acceptable bounds. Financial loss occurs as the result of legitimate commercial competition, and commercial activity would be stifled if the law were to impose a duty to take care to avoid that loss. Moreover, if the circumstances in which there was a duty of care to avoid causing purely financial loss were not confined, the extent of the liability imposed would in many cases be virtually without limits, both in terms of persons and amount. Thus, for a duty of care to arise in cases of pure economic loss, the law requires, in addition to the foreseeability of harm, a special relationship between the parties which is described as a relationship of proximity." 78 Dawson J said (at 254) that the relationship of proximity which is required before a duty of care can arise may be established in any number of ways, but authorities served to identify certain circumstances which, either alone or in combination, might be sufficient for that purpose. After discussing some authorities including San Sebastian, Dawson J continued (at 255-6): "The majority pointed out [in San Sebastian ] that there is no convincing reason for confining liability for negligent misstatement to cases where there is a request for information or advice. The existence of an antecedent request for information or advice may assist in demonstrating reasonable reliance on the part of the person making the request. However, a request is not a necessary prerequisite for reasonable reliance. The trust of which Barwick CJ spoke [ Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 556 at 572-3] is nowadays more often referred to as reliance and reliance was said in San Sebastian [162 CLR at 357]] to be "a cornerstone of liability for negligent misstatement". Of course, the person acting, or refraining from acting, on the information or advice must demonstrate reliance in order to prove that any loss which flows therefrom was caused by the negligent misstatement. But that reliance must also be reasonable in all the circumstances and this may be demonstrated in any number of ways."

(The emphasis is added.) 79 Later, Dawson J said (at 256-7): "… an intention to induce a person to whom information or advice is given to act in a particular way is merely one of the various means by which it may be shown that the reliance by that person upon the information or advice is reasonable so that, in combination with other relevant circumstances, it may serve to establish a relationship of proximity which will support a duty of care. It was in this sense, I think, that the majority in San Sebastian commented that in cases where the defendant intends the information or advice to operate as a direct inducement to action, the reasonableness of the reliance will not be a critical factor." 80 In their joint judgment, Toohey and Gaudron JJ referred to the judgment of Mason J in Kondis v State Transport Authority (1984) 154 CLR 672 at 687. There, Mason J said that the special duty arose because the person on whom it was imposed had undertaken the care, supervision or control of the person or property of another or was so placed in relation to that person or his property as to assume a particular responsibility for his or its safety in circumstances where the person affected might reasonably expect that due care would be exercised. 81 After discussion of some further authorities, their Honours said (at 264-5): "In the context of liability for negligent statements, it seems to us that reliance is better expressed in terms similar to those used by Mason J in Kondis . Thus, reliance is to be understood, in the context of the provision of information or advice, as an expectation, which is reasonable in the circumstances, that due care will be exercised in relation to that provision. Similarly, we consider that, in that same context, assumption of responsibility should be understood in the way explained by Barwick CJ in Evatt . More precisely, it should be understood as the assumption of responsibility for providing information or advice in circumstances where it is known, or ought reasonably be known, that it will or may be acted upon for a serious purpose, and loss may be suffered if it proves to be inaccurate. 82 Even if reliance and assumption of responsibility are understood in the manner indicated, they do not, of themselves, reveal the precise nature of the situations or categories of situation which involve a special relationship of proximity marked by one or other of those features and which, thus, result in liability for pure economic loss suffered in consequence of the negligent provision of information or advice. Clearly, such a relationship may exist where the information or advice is provided in the course of a professional relationship or pursuant to contract." 83 Later, their Honours said (at 265) that there might be liability where information was conveyed or became available to some person other than the person who requested it whether or not the original request arose out of a professional or contractual relationship. Their Honours referred to such situations as situations involving the voluntary provision of information or advice. They added (at 265) that ordinary principles required that the relationship did not arise unless it was reasonable for the recipient to act on that information or advice without further enquiry. That latter statement is of particular significance for the purposes of this case because the question which has to be answered is whether, in all the circumstances of the case, it was reasonable for the appellant to act on the information contained in the valuation without further enquiry. Their Honours went on to discuss the allegations made in the statement of claim in the case before them and concluded that the statement of claim had been rightly struck out. 84 In the course of his judgment, McHugh J, after reviewing a number of authorities, said (at 275): "Thus, the position in Australia to date with respect to liability for pure economic loss caused by negligent misstatement is that, absent a statement to a particular person in response to a particular request for information or advice or an assumption of responsibility to the plaintiff for that statement, it will be difficult to establish the requisite duty of care unless there is an intention to induce the recipient of the information or advice, or a class to which the recipient belongs, to act or refrain from acting on it. Mere knowledge by a defendant that the information or advice will be communicated to the plaintiff is not enough." 85 Gummow J said (at 301) that in a case of "auditor's negligence", the alleged damage flowed not immediately from the making of the statement by the auditor, but from the reliance by the plaintiff upon it and from the action or inaction of the plaintiff which produced consequential loss. Gummow J said that, on behalf of the auditors, it had been submitted that reliance was an essential link between the defendant's conduct and the plaintiff's injury and was a cornerstone of liability in negligence so that, in the Esanda case, it was necessary for Esanda to plead and establish reliance. What was involved was the foreseeability of reliance. 86 Later, Gummow J referred to the decision of the House of Lords in Caparo Industries Plc v Dickman [1990] 2 AC 605 saying that any equation between proximity and mere foreseeability was denied by the House of Lords in that case. Gummow J also pointed out that the High Court had rejected foreseeability of loss as a sufficient criterion for the existence of a duty of care to avoid a pure economic loss. He referred, inter alia, to San Sebastian at 354-5 and 367. It was on this basis that counsel for the auditors submitted that Esanda's pleading reverted to a view of the law which was not open to it. Gummow J said (at 302) that the criticism was soundly based with the consequence that the appeal must fail. Gummow J noted that the auditors sought to have the Court rule on various alternative formulations of the Esanda claim. He thought that that invitation ought not to be accepted. Gummow J then embarked on a review of what he described as "the fundamental issues presented in claims of negligence by auditors" and the present state of authority in other common law jurisdictions. He said (at 302) that the review would confirm the conclusion then reached as to the particular, if not limited, basis upon which the appeal should be disposed of. 87 As I have said, the problems which arose in the Esanda case are in many respects dissimilar from those which arise here. But the heart of the matter is the existence of a duty of care at the time that the appellant relied upon the valuation. The various authorities show the matters that need to be taken into account in determining whether a duty of care exists. The nature of those matters was extensively discussed in Esanda both by McHugh J and Gummow J. McHugh J referred (at 283-9) to a number of matters including some economic matters which he thought were relevant to be taken into account in the context of actions against auditors. In my opinion, considerations such as he has mentioned also have relevance in considering actions brought against valuers. 88 Under the heading "Auditor's negligence", Gummow J discussed (at 302-4) a number of matters relevant to that topic. Again, I would take the view that what his Honour said at those pages is of relevance to the determination of whether there is here a duty of care. 89 The next authority to which I make reference is the decision of the House of Lords in Smith v Bush (supra) and Harris v Wyre Forest District Council [1990] 1 AC 831. The two cases were dealt with together and resulted in the composite judgment to which I have referred. The reason for this is that similar issues were involved in each. 90 Both cases concerned the purchase of residential properties. Both purchasers needed to take out a mortgage. The mortgagee in each case engaged a valuer to make a valuation of the properties. In each case the valuation was carried out negligently but was carried out on the instructions of the mortgagee, not the purchaser. The plaintiff in each case succeeded. The basis upon which this occurred was stated by Lord Templeman (at 848) as follows: "In general I am of the opinion that in the absence of a disclaimer of liability the valuer who values a house for the purpose of a mortgage, knowing that the mortgagee will rely and the mortgagor will probably rely on the valuation, knowing that the purchaser mortgagor has in effect paid for the valuation, is under a duty to exercise reasonable skill and care and that duty is owed to both parties to the mortgage for which the valuation is made." 91 Lord Griffiths said (at 864-5): "I therefore return to the question in what circumstances should the law deem those who give advice to have assumed responsibility to the person who acts upon the advice or, in other words, in what circumstances should a duty of care be owed by the adviser to those who act upon his advice? I would answer - only if it is foreseeable that if the advice is negligent the recipient is likely to suffer damage, that there is a sufficiently proximate relationship between the parties and that it is just and reasonable to impose the liability. In the case of a surveyor valuing a small house for a building society or local authority, the application of these three criteria leads to the conclusion that he owes a duty of care to the purchaser. If the valuation is negligent and is relied upon damage in the form of economic loss to the purchaser is obviously foreseeable. The necessary proximity arises from the surveyor's knowledge that the overwhelming probability is that the purchaser will rely upon his valuation, the evidence was that surveyors knew that approximately 90 per cent of purchasers did so, and the fact that the surveyor only obtains the work because the purchaser is willing to pay his fee. It is just and reasonable that the duty should be imposed for the advice is given in a professional as opposed to a social context and liability for breach of the duty will be limited both as to extent and amount. The extent of the liability is limited to the purchaser of the house - I would not extend it to subsequent purchasers. The amount of the liability cannot be very great because it relates to a modest house. There is no question here of creating a liability of indeterminate amount to an indeterminate class. I would certainly wish to stress that in cases where the advice has not been given for the specific purpose of the recipient acting upon it, it should only be in cases when the adviser knows that there is a high degree of probability that some other identifiable person will act upon the advice that a duty of care should be imposed. It would impose an intolerable burden upon those who give advice in a professional or commercial context if they were to owe a duty not only to those to whom they give the advice but to any other person who might choose to act upon it." 92 The learned primary Judge in the present case cited this passage. He relied on so much of it as says that the liability should be limited to the purchaser of the house and should not be extended to subsequent purchasers as a statement by Lord Griffiths that the valuation could only be relied on once and as indicating that valuations have a limited life span. I do not think his Honour's conclusions in this respect are justified. What Lord Griffiths was concerned to do was to make sure that the approach that was being adopted was not taken too far. He was concerned, as was McHugh J in Esanda, with the economic consequences of the decision. Nor do I think his Lordship was saying anything about the length of time that needed to elapse before it would become unreasonable for a third party to rely upon it. In other words, I do not think that Lord Griffiths' statements in Smith v Bush are able to be used in the way that his Honour sought to use them. What, however, is I think important are his emphasis that there needs to be a sufficiently proximate relationship between the parties in order for the liability to arise and his statement that it must be just and reasonable to impose the liability. 93 In relation to the general approach to be adopted, Lord Jauncey of Tullichettle said (at 871) that the four critical facts in Smith v Bush were that the appellants knew from the outset that the report would be shown to the purchaser, that she would probably rely on the valuation contained in it in deciding whether to buy the house without obtaining an independent valuation, that if, in those circumstances, the valuation was, having regard to the actual condition of the house, excessive, the purchaser would be likely to suffer loss, and that she had paid to the building society a sum to defray the appellant's fee. 94 The only other authority to which I refer is the decision of the Supreme Court of Victoria in R & G Mortgages Pty Ltd (supra). The decision is largely concerned with questions of fact. The learned primary Judge relied extensively on it and quoted extensively from it. I do not think that it provides the assistance which his Honour thought it did, it being a case on its own facts and circumstances. The facts concerned another mortgage transaction. The property was valued by the defendants in June 1989 at $750,000. The plaintiff alleged that on or about 2 August 1989 it requested the defendants to confirm that the fair market value of the property for security purposes was $750,000. They confirmed that this was their opinion on 11 August 1989 and recommended a first mortgage advance not exceeding $500,000. The plaintiff alleged that, acting upon the accuracy of the valuation and the confirmation, it increased the amount of a loan which was secured by a registered first mortgage over the property which was due to expire on 22 December 1989. The increase occurred on 6 October 1989 when the amount secured by the mortgage was increased from $280,000 to $453,000. On 22 December 1989 the sum advanced was further increased to $500,000 and the term of the mortgage extended to 1 February 1991. In January 1991 the term of the loan was further extended to 1 February 1994. 95 McDonald J found that the valuation had been carried out negligently and that the property was not worth as much as the valuation suggested. His Honour said that the valuer knew, when he sent his certificate and report to the prospective lender, that it would be received by one or other of a class of persons who would be approached to lend money on the security of the property. He concluded that that class included the plaintiff. His Honour said that he was satisfied that it ought to have been realised, having regard to the increase in the value of the property between 1986 and 1989 as assessed by the valuer, that it would be very likely that the eventual recipient of the report, the lender, would enter into a transaction of the kind it entered into which would involve the increase of the sum secured on the property which occurred on 6 October 1989. His Honour was also satisfied that there existed between the plaintiff and the valuer a sufficient proximity of relationship to give rise to a duty of care owed by the valuer to the plaintiff in assessing the market value of the property. The duty of care existed at the time that the plaintiff relied on the valuation and report to reach the agreement on or about 6 October 1989 to increase the amount of the existing loan. 96 However, his Honour also said that it was necessary to analyse the proper basis for the existence of the duty of care as it was relevant when considering whether there existed the necessary relationship of proximity between the plaintiff and the valuer so as to give rise to a duty of care when the plaintiff entered into the subsequent transactions. These were the agreement in late 1989 to increase the sum secured over the property to $500,000 and to extend the period of the loan to 1 February 1991 and subsequently in early 1991 to extent the term of the loan to 1 February 1994. As his Honour said, it was by application of the principles referred to and enunciated in Esanda that it must be determined whether the plaintiff's reliance on the valuation and report for the purpose of the plaintiff entering into the last two transactions, there existed at that time a relationship of proximity such as to give rise to a duty of care owed by the valuer to the plaintiff. His Honour said that it was then a question of whether, in the circumstances that existed on those occasions, it was reasonable for him to do so, and also whether the valuer knew, or ought reasonably to have known, that the valuation and report would be provided to the plaintiff or a class of persons, of which it was one, for the purpose of entering into a transaction of the kind that was entered into. 97 His Honour referred to some evidence and concluded that he was not satisfied that it had been established by the plaintiff that the valuer ought reasonably to have known at the time that he furnished his report that his valuation would be used by the plaintiff or by a class of financiers to whom the plaintiff belonged for the purpose of his entry into the transactions in December 1989 and January 1991. His Honour then raised the question whether it had been established that in December 1989 and/or January 1991 it was reasonable for the plaintiff to rely on the valuation for the purpose of entering into the transactions. He referred to further evidence. This disclosed that the property market had undergone a downturn in June 1989. He said that that fact, coupled with the fact that the valuation mentioned the downturn, satisfied him that as at December 1989 it was not reasonable for the plaintiff to rely on the valuer's valuation for the purpose of entering into the transaction then entered into. His Honour also concluded that, although at the time the plaintiff relied on the valuation and report for the purpose of entering into the transaction in October 1989, there existed a sufficient relationship of proximity to give rise to a duty of care, this did not extend to the time of the entry by the plaintiff into the subsequent transactions. 98 It will be seen from the above account that that case is a very different case from the present. There, there was a deterioration in the market foreshadowed in the valuation itself. That is not the position here. On the contrary, the evidence is to the effect that the market continued to firm after the valuation had been made. 99 I have spent perhaps over much time referring to the case but I have done so because of the weight given to it by the primary Judge in the present case. I do not think it helpful in resolving the outcome except insofar as it provides an example of a case which has some similarity to the present where a Judge found that the necessary degree of proximity did not exist at the crucial time. To that extent the case may appear to be directly in point but, as McDonald J himself has said, the principles are those to be derived from Esanda. 100 Another thing that I think can be said of R & G Mortgages is that it shows that McDonald J thought it appropriate, when determining whether or not the necessary degree of proximity existed, to look at the position from the viewpoint of both parties. He considered whether it was relevant to have regard to the reasonable expectation of the valuer in having his valuation relied upon some six months after it was made and then at a later time some two and a half years further on. The other matter he looked at was whether it was reasonable for the plaintiff to have relied upon a valuation that was four or five months out of date at the time of the first reliance. Both these questions he answered in the defendant's favour. 101 Having considered the approach adopted in Esanda, however, I think the question is one of whether it was, in all the circumstances, reasonable for the plaintiff to rely on the valuation. I am not suggesting that the valuer's expectation in relation to the period during which his valuation might be used is irrelevant but I think one has to concentrate on the position of a plaintiff in cases such as this to see whether his or her conduct in relying on the valuation some months after it was made is, in all the circumstances, reasonable. 102 Before I continue, I should mention that during the hearing of the appeal, counsel were asked whether they had ascertained whether there were any relevant United States authorities. Counsel furnished us with copies of a number of United States cases. Although grateful for the assistance we have had from counsel in this respect, I take the view that none of the United States authorities to which reference was made are of assistance in resolving this problem. That appears to have been the view of counsel as well. 103 In the end, the question is whether or not there is a duty of care. That question is in truth a question of law rather than a question of fact. That perhaps is not of great moment in a case where the tribunal of fact is the one body. In order to determine whether the duty exists, one has to take into account the whole of the facts and circumstances. The evidence here suggests that it would be unreasonable to rely on the valuation more than six months or so after it was made. Ms Blamey, called in the appellant's case, made no contribution to that debate. I have alluded to this earlier. Counsel for the appellant submitted that a six months rule such as was suggested was an arbitrary approach by the adoption of a rule of thumb. He stressed the fact that there had been no change in the condition of the property nor in the market except insofar as the market may have risen rather than fallen. 104 Nevertheless, it seems to me that one cannot reach a conclusion in a matter of this kind which is open ended. There are the cautionary remarks about economic implications and opening the door too widely mentioned in the judgment of McHugh J in Esanda and mentioned also by Dawson and Gummow JJ. Similar considerations were mentioned by Lord Griffiths in Smith v Bush. In the end one has to make a judgment about the matter in the light of the relevant facts and circumstances. If the period here had been, say, two or three years, I would have had no hesitation in concluding that the period was too long. Nine months is a much shorter period. Nevertheless, there is the evidence to which I have referred of a practice among valuers, some institutions and some solicitors, which suggests that the approach taken by those who are concerned to deal with matters of this kind on a regular basis is cautious. 105 In my opinion the appellant was not justified in relying solely upon the valuation as it was without at least approaching the respondent to ask whether the value in the valuation remained applicable. In approaching the matter this way one has to be careful, I think, that one does not fall into the error of using what in reality is contributory negligence to defeat the existence of the duty of care which is relied upon. I have endeavoured to take that matter into account, but in the light of all that I have said about the facts and circumstances of the case by the time nine months had elapsed the appellant was not reasonably justified in relying on the valuation at least without checking the figure with the respondent. 106 In reaching this conclusion, I have endeavoured to give full weight to the appellant's submission, the essence of which is that the respondent placed in circulation a valuation which was wrong because of his negligence in circumstances where he knew that it was likely to be relied upon by intending mortgagees. In the period of nine months which is in question the value of the property had not been adversely affected by movements in the real estate market or by any change in its condition. Why, in these circumstances, asked counsel for the appellant, should not the valuer, whose conclusion has caused the problem, be called to account for his mistake no matter that nine months or so had passed since the valuation came into existence. In counsel's submission no compelling reason had been advanced which convincingly demonstrated the error in this approach. Weighty as those considerations are, I think they are overborne by the cautious approach presently adopted by courts when dealing with claims for economic loss. There is a lurking fear that the flood gates will open unless some limitation is put upon these claims. The view is taken that public policy requires that decisions should err on the side of caution. That approach is reflected in the speeches in the House of Lords in Smith v Bush and in the judgments of at least three members of the High Court in Peat Marwick. 107 I think that the resulting outcome, arbitrary thought it may be, is not really unfair or unjust. It would seem to me to be unwise for any borrower to rely on a valuation that might well be stale. The evidence suggests that that is the approach of experienced lenders and other institutions and also of solicitors who regularly procure mortgages for clients in which to invest. Intuition is not always a safe guide. But my intuitive reaction to the circumstances of this case, no doubt conditioned by the evidence and the authorities, is that nine months is just too long to be reasonable in the circumstances. 108 If the view be taken that it is important also to consider the position of the valuer and, in particular, his expectation of the period during which he might expect that a mortgagee might rely on the valuation, I would reach a similar conclusion. I bear in mind the clause in the conditions which qualified the applicability of the valuation in cases where there had been a change in the market. But that cannot control the whole situation. If the period had been five years on a continually rising market, it would be very difficult to say that, that notwithstanding, a valuer should expect to be taken to task for a valuation made so long before. It follows that, however the matter is looked at, the appellant was unable to rely on this valuation, carelessly done though it was, nine months after its date. In all the circumstances, it was not reasonable for him to have done so. 109 In the result I have reached the conclusion that his Honour was correct in concluding that it had not been established that there was, in the circumstances of this case, a duty of care. I would therefore dismiss the appeal with costs. * * * * * * * * *

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