The borrower sued the bank and a valuer. The borrower argued that because the security was undervalued, the bank withdrew its financial support for the borrower resulting in its needing to sell assets below value in a fire sale environment.
The bank and the valuer argued that summary judgment should be granted because the evidence showed clearly that the valuation played no role in the Bank proceeding as it did in pressing the applicants to bring their affairs into order and, in particular, to sell various properties to repay debt. The bank’s argument, adopted by the valuers, was that no evidence whatsoever has been put on by the applicants to prove their central proposition which is that the bank would have acted differently had the valuation come in at the true figure which was $800,000 higher than that relied upon by the bank.
The judge held that even though the evidence he had seen supported the bank and the valuer, it was not appropriate to determine a case which depended upon evidence like that summarily and that the causation question could only be determined at a full blown trial, where all the evidence could properly be tested by cross-examination.
Damages for misleading or deceptive conduct cannot be recovered without reliance. For there to be reliance, the erroneous valuation had to be believed by the person alleging misleading and deceptive conduct. The managing director of the borrower testified that he never believed nor was he induced by the valuation to believe the value of the property was as represented. The judge held:
The bank’s reliance argument must be accepted and disposes of those parts of the claim based upon the actions of the borrowers as distinct from the actions of the Bank or the Valuers. I consider the Bank and the Valuers should succeed in the application for dismissal of all those parts of the claim in relation to representations.
The borrower’s argument that there was an implied term in the contract with the bank that the bank would not rely on a faulty valuation failed. The judge commented:
Assuming that such a term can be implied and assuming it has been breached, the borrower would only be entitled (by an award in damages or otherwise) to be put in the position they would have been in under the contract had there been no breach. As the Bank had no ongoing obligations to finance the applicants regardless of the level of the Valuation the contract case cannot succeed.
As a result of the determinations, the only aspect of the claim capable of going to trial is that part of the claim which relies upon interest and other charges immediately imposed by the Bank consequent upon receipt of the valuation which was said to be misleading.
As the bank and valuer were mostly successful they received two/thirds of their costs.