Vella overturned -valuers now 100% liable

Ever since July 2004 lenders have been forced to settle for cents in the dollar when suing valuers.

Valuers’ insurers have used the Proportionate Liability, and in particular the 2009 decision of Vella, to avoid paying the bulk of losses caused by their negligence.

In Vella a solicitor, whose negligence caused the loss, only had to pay 12.5% of the loss on the grounds that a fraudulent party also caused the loss. Fraud far outweighed negligence so most of the blame and damages were apportioned to the fraudster. This meant that all a valuer had to do was find some untruth on the loan application and it could argue the valuer’s maximum liability was in the order of 10% of the loss.

The New South Wales Court of Appeal has now overturned Vella increasing the solicitor’s liability from 12.5% to 100%. This is good news for lenders and bad news for insurers. A specially convened five-member bench of the New South Wales Court of Appeal was put together because the decision was so important.

The Court of Appeal found that in order to apportion loss under the proportionate liability legislation it had to be the same type of loss. The damage caused by the fraudsters was inducing the lenders to advance the loan when it would not otherwise have done so; the damage caused by the solicitors was to deny the lenders the benefit of security for the money paid out–totally different types of damage and therefore unapportionable. 

In reaching their conclusion the NSW Court of Appeal approved the Victorian Court of Appeal decision in St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245, a case in which borrowers who had failed to repay a loan were found to have caused damage to the lender in the form of the failure to repay the loan and a valuer was found to have caused damage to the lender in the form of the lender having inadequate security for the loan. In that case the Court of Appeal held:

The Borrower cannot be said to have caused or be liable for ‘the same damage’ as the valuer. The loss or damage caused by the Borrower was his failure to repay the loan. Nothing which the valuer did or failed to do caused the Borrower to fail to repay the loan. The damage caused by valuer was to cause the Bank to accept inadequate security from which to recover the amount of the loan.

Call Matthew Bransgrove and Kate Cooper to discuss your valuer liability cases with the experts.

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