The lender in liquidation (previously the RE for the LM First Mortgage Income Fund) advanced $23m to a developer secured over the land purchased and sued its surveyors for an alleged negligent valuation of works and also sued for misleading and deceptive conduct. The surveyor raised various defences, namely that its conduct did not cause the fund’s loss, that the borrower was a concurrent wrongdoer and that the lender was guilty of contributory negligence.
The court found that the surveyors breached their contractual and tortuous duty of care to the lender, since it was engaged on terms that made it clear that the lender would rely on its advice in approving drawdowns and was also guilty of misleading or deceptive conduct.
The court said:
In Australia, it is well established that where a lender advances money on the basis of a negligent valuation or misleading or deceptive conduct, the lender is entitled to recover the difference between what was lent and what would have been lent on the true value of the property. If the transaction would not have proceeded at all, generally speaking, the lender is entitled to recover the whole loss that it suffers from the transaction.
The court found that the borrower was not a concurrent wrongdoer because the lender’s claim against the borrower was simply a claim in debt for failing to repay the money lent and that claim did not depend upon establishing a failure to take reasonable care. The court also found the lender was not contributory negligent.
The court found the lender entitled to recover its full loss and noted:
It is true that [the lender] could have completed the Development itself or sought to sell it in its then current state earlier than it did. But those points do not establish that the loss it claims was not suffered as a consequence of [the surveyor’s] advice. They may have formed the basis of an allegation that [the lender] failed to mitigate its loss. However, no such allegation is made.