Zagga Investments Pty Ltd v Walsh; Walsh v Preston Rowe Paterson Newcastle & Central Coast Pty Ltd

The plaintiff, Zagga Investments Pty Ltd, brings these proceedings against the defendant, Mr Dylan Walsh. Zagga Investments seeks to recover some $3 million from Mr Walsh under a guarantee that Mr Walsh executed in relation to advances made by Zagga Investments to New Aged Projects No 2 Pty Ltd (“NAP2”), a company associated with Mr Walsh. NAP2 is now in liquidation.

Mr Walsh has made a cross claim against Zagga Investments. He has also made a cross claim against the valuer, Preston Rowe Paterson Newcastle and Central Coast Pty Ltd (“PRP”).

PRP has filed a Notice of Motion on 28 October 2024 seeking an order that Mr Walsh’s cross-claim against it be dismissed or struck out.

By Notice of Motion filed on 5 November 2024, Zagga Investments has also sought to have Mr Walsh’s cross-claim against it struck out. I am not for the moment dealing with that motion.

According to the Cross-claim, on 26 February 2018, NAP2 entered a contract to purchase a property at Tindale Street in Muswellbrook from an entity associated with the Catholic Church for $4.62 million.

NAP2 approached Zagga Investments to finance that purchase. In that context, on, 12 December 2018, Zagga Investments retained PRP to value the Muswellbrook property.

PRP produced a valuation on 25 January 2018.

The valuation stated: “The property has been valued on the basis of potential hostel use…”.

The valuation stated that “[t]he basis of valuation” was “market value on the basis of vacant possession.”

The valuation also stated, under the heading “Occupancy”, that “the buildings were vacant at the date of inspection and the property has been valued with vacant possession.”

The market value, “as is”, was expressed to be $3.4 million.

On 19 March 2018, Zagga Investments agreed to lend NAP2 $2.2 million, being 65% of that valuation. NAP2 settled the purchase of the property the following year, 4 April 2019.

Mr Walsh appears for himself and appears to have drafted the Cross-claim against PRP. It is a lengthy document containing some 61 paragraphs over 18 pages. It is certainly drafted in a narrative form, but it is clear enough from the document what Mr Walsh is alleging.

First, Mr Walsh alleges that PRP owed him, as guarantor of NAP2 under its obligations to Zagga Investments, a duty of care.

Mr Leggatt, who appears today for PRP, submitted that it was impossible for Mr Walsh to establish, in the circumstances of this case, that PRP owed him a duty of care.

The cases show that a valuer who has given a valuation to a lender for lending purposes may owe a duty to a third party borrower provided that, on the facts, the elements necessary to establish a duty of care to protect against pure economic loss can be established.

Those elements have been discussed in many cases; for example, by McHugh J in Perre v Apand Pty Ltd, [1] where his Honour said: [2]

There are other cases where a duty of the kind Mr Walsh contends has been established. [3]

Whether or not Mr Walsh could establish a duty in this case is a matter that I will, for the present purpose, accept as being arguable.

There remain a number of fundamental problems with his Cross-claim as it is currently articulated.

The first relates to what I will call the complaint that Mr Walsh makes about the valuation. The complaint is, in substance, that the valuation somehow contained within it a representation that the subject property was in “vacant possession”. Thus, in the Cross-claim, it is said:

Later in the Cross-claim, it is said that the valuation contained representations said to be misleading or deceptive for the purpose of s 18 of the Australian Consumer Law, [4] in that, relevantly:

Implicit in these allegations is a contention that the valuation contains an assertion or representation that the property was, in fact, vacant. On no reading of the valuation does it convey that representation. All it says, quite clearly in my opinion, is that the basis upon which the property has been valued is that it was vacant possession. The valuation says nothing about whether or not as a matter of fact that was so.

The second difficulty with the Cross-claim relates to the question of reliance. Mr Walsh does not allege in the Cross-claim that NAP2 or he relied upon the valuation. Rather, it is alleged that Zagga Investments relied on the valuation and that “as the valuation report was misleading and deceptive that Zagga’s losses are caused by that misleading and deceptive conduct.” In view of my conclusions as to what Mr Walsh has alleged concerning the valuation, that proposition is not sustainable.

A further difficulty arises from what is said in the cross-claim under the heading “Settlement – no transaction case”:

The allegation there is that, in effect, but for the valuation and its alleged defects, NAP2 could not, and would not, have completed the purchase. It is impossible to see from the cross-claim how those allegations could be sustained.

Further, Mr Walsh has informed me today that, as a matter of fact, the original contract dated 26 February 2018 was, on 15 March 2019, rescinded and a new contract entered, being a contract that Mr Walsh tells me was ultimately settled in April 2019. None of those matters are alleged in the cross-claim.

The cross-claim in its current form cannot stand and must be struck out.

The order I make is that the Statement of Cross-Claim by Mr Walsh against Preston Rowe Paterson Newcastle and Central Coast Pty Ltd is struck out.

I order that Mr Walsh pay the First Cross-Defendant’s costs of its motion of 28 October 2024.