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Residential property acquired for commercial purposes: How influential is the Australian Consumer Law?

02May
122492126

In Carter v Delgrove Holdings Pty Ltd [2013] FCCA 783, the Federal Circuit Court had to determine whether the respondent engaged in misleading or deceptive conduct under s 18 of the Australian Consumer Law (the ACL) by first submitting the successful bid for a residential property in auction, then refusing to proceed to settlement.

The facts

The owners of the property, the Carters, submitted an application for damages for breach of contract resulting from an auction of their house. The Carters used the services of a real estate agency to dispose of their property with the valuation set at $3.65 million.

An auction was held with an undisclosed reserve of $3.9 million and at the day of auction, a number of the bids were submitted by vendors, with the final vendor bid amount of $3.6 million.

After making a second call for the final bid, Mr Ilahi, who was director and shareholder of Delgrove Holdings Pty Ltd, raised his hand to bid and due to the fact the reserve price had not been met, the auctioneer consulted with the Carters to determine whether or not the property could be sold at the final bid price. The Carters allowed the auction to proceed with the auctioneer informing those in attendance that the property would go to the final bid if there were no further bids. Bidding recommenced at $3.6 million and after the final call, the property was sold to Mr Ilahi.

As a result of the property price being under the reserve price, Mr Ilahi and his wife were invited into the property to sign the contract of sale. It was during this period that the Ilahi’s called their son who came to the property and spoke to his parents. Upon the departure of their son, the agent requested that the Ilahi’s sign the contract and pay the deposit, and it was then that Mr Ilahi chose to inform the agent that he did not wish to purchase the property.

Because the Ilahi’s refused to proceed to settlement, the Carters were forced to incur further expenses by putting their property on the market once more. Unfortunately, the property did not sell and the Carters commenced proceedings against Delgrove Holdings Pty Ltd. Once the trial commenced, the agreed value of the property was $3.275 million.

Issues at trial

The claim for loss fell into two categories. First, the Carters made a claim of $325,000 for damages which was the difference between the bid by Mr Ilahi, and the agreed value of the property at trial. Second, “holding costs”, including additional mortgage and utility payments also formed part of the claim.

The Carters argued that Mr Ilahi engaged in misleading or deceptive conduct contrary to s 18 of the ACL because once he placed a bid, Mr Ilahi chose to depart without proceeding to settlement. Additionally, it was also put forward by the Carters that the making of a bid was a misleading representation in respect to a future matter as provided by s 4 of the ACL.

Was the transaction in trade or commerce?

In order to make a relevant s 18 claim, it is essential to determine whether the transaction was made in trade or commerce. The argument submitted by Mr Ilahi was that the purchasing of a residential property with no business characteristics did not fall within the s 18 meaning of conduct in trade or commerce, however, Lindsay J refused to accept this argument. His Honour observed that the Ilahi’s did not submit any evidence that the property was to be used in a residential capacity, but rather, it was reasonable to conclude that the property was to be acquired to derive rental income, which was consistent with the previous conduct of Delgrove Holdings Pty Ltd. As a consequence, Lindsay J was satisfied that Mr Ilahi’s purchasing of the Carters property was commercial in nature.

Lindsay J outlined the following important aspects in relation to a claim made under the ACL:

  • the $3.6 million bid was a representation with respect to future matters, which for the purposes of s 4, was misleading or deceptive; and
  • by allowing the auction to proceed without withdrawing his bid or expressing a desire not to proceed with purchase, Mr Ilahi’s actions were deemed to be misleading to the Carters and any other persons associated with the auction process.

Did the Carters suffer loss or damage?

With Lindsay J making the finding that Mr Ilahi’s conduct was misleading or deceptive, it was then up to his Honour to determine whether or not the Carters suffered loss or damage due to the actions of Mr Ilahi.

Mr Ilahi’s bid was the only genuine bid at auction and when looking to causation, this was considered significant. However, the loss resulting from the misleading or deceptive conduct was only a loss of opportunity to recommence with the auction, and was only significant in theory. Therefore, although Mr Ilahi contravened s 18 of the ACL, the Carters could not show loss or damage.

Were the Carters successful in their claim of damages for breach of contract?

It is necessary for the contract of sale in land that the writing requirement be fulfilled, as outlined by s 2 of the Law Reform (Statute of Fraud) Act 1962 (WA) for an action for breach of contract to succeed. Unluckily for the Carters, they were unable to satisfy the writing requirement.

The implications for Queensland

Section 16 of the Fair Trading Act 1989 (QLD) is similar in nature to s 19 of the Fair Trading Act 2010 (WA), which provides that the ACL is applicable to both jurisdictions. Provided there exists an element of trade or commerce, the broad constitutional powers allows the ACL to be applied to the conduct of corporations, partnerships and individuals. Therefore, the case demonstrates the potentially broad application of the ACL in relation to property purchased for commercial purposes both in Western Australia, and Queensland.

This article or the information contained therein does not purport to provide a full explanation of the law, give advice or any guidance to anyone in connection with any property or other issue and this article is not to be used by anyone to support their legal position or otherwise. This article is provided on the basis of the assumption of particular facts and circumstances. For clarification purposes and further to the above this article does not purport to be advice in relation to any matter. This firm cannot take responsibility for any action readers take based on this information. We would be happy to assist you with any property, real estate, development, building, construction and engineering related legal issues you may have, please get in touch via enquiries@usherlevi.com or telephone our Brisbane office on (07) 3087 3463 or Sunshine Coast office on (07) 5413 9270 and one of our experienced construction or property lawyers will respond to you.

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