misleading promise

Misleading promise of ocean views leaves home owners feeling salty

Published On 22/10/2019 | By Rahul Arora | Consumer protection, Litigation

The Federal Court of Australia recently awarded $2.57 million in damages for misleading or deceptive conduct and the tort of deceit after the purchaser of land discovered that his lot’s ocean views were not protected as promised by the vendor. In Eckford v Six Mile Creek Pty Ltd (No 2) [2019] FCA 1307, Mr Eckford successfully brought claims as the purchaser of land against Six Mile Creek Pty Ltd (SMC) and Mr McLaughlin, respectively the owner of the land and the controlling mind of the company. Damages were calculated on a ‘no transaction’ basis to restore Mr Eckford to the position he would have been in, had he not purchased the land.

The case makes a number of important points which owners of land and developers should be aware of. In particular, it highlights the risk that false representations made by real estate agents can be attributed to the owner of land even when that agent is contractually engaged by a developer. Further, the case illustrates that care needs to be taken when advertising lots of land as “sold” in a price list.

Background 

In about September 2007, Mr and Mrs Eckford, whilst driving from the Gold Coast to the Sunshine Coast, noticed a sign advertising undeveloped, subdivided lots of land for sale in an estate called “Avalon @ Coolum”. The couple spoke with Mr Boulter, a real estate agent, who gave Mr and Mrs Eckford a sales brochure which promised that lot 10 would keep its ocean views “FOREVER”.

Mr Boulter advised that lots 17, 18 and 19, which adjoined lot 10, had been sold with building covenants which limited the maximum height of buildings and vegetation on those properties. A price list was also given which recorded the prices for which those lots were “sold”.

Subsequently, on 20 November 2007, Mr and Mrs Eckford entered into a contract to purchase lot 10 from SMC. Many years later in February 2016, Mr Eckford discovered that, at some time after Mr Boulter had shown them the price list, SMC had sold lots 17, 18 and 19 to third parties without any building covenants to bind the new purchasers of those lots.

Mr Eckford, as the surviving joint tenant of lot 10, contended that SMC and Mr McLaughlin engaged in misleading or deceptive conduct and made false or misleading representations in contravention of sections 52(1) and 53A(1)(b) of the Trade Practices Act 1974 (Cth) (TPA).

In the proceedings, it was common ground that the real estate agent had made representations, at the time of purchase, to the effect that the adjoining lots had been “sold” at the prices specified in a price list, and that each adjoining lot was burdened with height restrictions. In respect of the price list representation, Mr Eckford further contended that this was made fraudulently and accordingly claimed damages for the tort of deceit.

Was the representation of the real estate agent attributable to SMC and Mr McLaughlin?

The respondents argued that Mr Boulter’s acts in relation to the price list representation could not be attributed to them because SMC did not provide or approve the price list, and never appointed Mr Boulter as agent. By way of a put and call option deed, SMC had agreed that a company called Pangus Pty Ltd (Pangus) would engage a selling agent (in this case, Mr Boulter), and pay their commission.

On the facts, Justice Rares found that Mr McLaughlin admitted that SMC provided Mr Boulter with the information as to the “sales” that appeared in the price list. His Honour accepted Mr Boulter’s evidence that if a prospective purchaser wanted anything outside the terms of a standard contract, he had to refer his request to both Pangus and SMC “because, at the end of the day, Six Mile Creek had to be in agreement to any change”. Further, Justice Rares held that the commercial reality was that Mr Boulter (and his company) would be required to consult with, and obtain approval, from SMC about matters connected to the sale of the lots.

The mere fact that Mr Boulter was contractually bound to act as Pangus’ marketing agent did not prevent him from being in a position where his acts in dealing with Mr and Mrs Eckford were attributable to SMC as the owner of lot 10.

What did the word “sold” in the price list convey to Mr and Mrs Eckford?

Justice Rares noted that the word “sold” can be ambiguous in situations involving the marketing of lots in a subdivision. His Honour found that persons interested in making a purchase of residential property would be conscious that the word “sold” could mean not only that the contract had been completed, but also that the contracts had been exchanged but were yet to be completed.

In this instance, the sale price representation was literally true, prior to 1 October 2007, because three purchasers had signed contracts containing the height restrictions for the sale of lots 17, 18 and 19. However, as indicated in a file note recorded by a law partner, Mr McLaughlin had reached the conclusion by 25 September 2007 that the existing contracts were “all a joke”, “not worth anything until they settle” and were “dodgy” given the purchasers were persistently in default and could not raise finance. Moreover, by 1 October 2007, SMC terminated the contract for lot 19 and it was back on the market.

Nevertheless, Justice Rares found that Mr McLaughlin continued to say that certain lots had been “sold” in order to generate interest and to influence prospective purchasers of other lots because, as McLaughlin said in evidence, “that’s the way that real estate works”. Justice Rares further held that McLaughlin intended a prospective purchaser such as Mr and Mrs Eckford to understand the word “sold” to mean that the contract was bona fide and would be completed in the ordinary course of sales of vacant lots in a subdivided estate.

Accordingly, the price list representation was found to be substantially misleading and fraudulent on the basis that Mr McLaughlin intentionally concealed the termination of the existing lot 17, 18 and 19 contracts from Mr Eckford, as well as the subsequent marketing and sale of those lots without the height restrictions attaching to them. The finding of fraud was significant as it led Justice Rares to postpone the limitation period which would otherwise have barred Mr Eckford’s claim.

Why this matters for owners and developers

The case of Eckford highlights that land owners can be found liable for the misrepresentations of a real estate agent even where that agent is contractually engaged by a third party such as a developer. Courts will look closely at whether, as a matter of fact, the real estate agent was necessarily required to consult with, and obtain approval from, the owner of land in relation to the proposed sale, such that the acts of the agent can be attributed to the owner.

Indeed, if there is a change in circumstances which impacts the accuracy of a representation made by an agent, the failure to correct such a false representation can amount to deceit or fraudulent conduct which is attributable to the land owner. Such a finding of fraud can extend the limitation period which is applicable to the claim.

Further, owners and developers should take caution in the use of the word “sold” when advertising subdivided lots of land for particular prices. Where contracts have been exchanged but the purchaser becomes unable to obtain finance, it may be necessary to clarify with prospective purchasers of adjoining lots that the existing sale may not ultimately eventuate at the price specified in the price list.

Image credit: Tama66 / Pixabay / License / Remixed to B&W and resized

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About The Author

Rahul Arora is a law graduate in the competition litigation team in the Sydney office of King & Wood Mallesons

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