Case one - misleading sales representations
An agent of the vendor was accused of making false representations by the purchaser, who had agreed to enter a contract to purchase a property for $16.8 million.
However, after the purchaser entered into various replacement contracts and gave different notices to complete, the vendor terminated the deal for breach of contract. In response, the purchaser filed a counter-claim to rescind the contract under the misleading and deceptive conduct provisions of the Trade Practices Act.
They alleged the agent made representations about comparable properties during pre-contract discussions which were false, and that the purchase was made based on this information. The case was settled in court in favour of the vendor, and the contract between the parties was validly terminated.
Purchaser's evidence
The court said the purchaser's evidence did not support the claim the agent made misrepresentations regarding the value of other properties. It said that the comparables were for sale and had not been sold. It also found the purchaser had failed to prove that the representations were the cause of entering into the contract.
The court added that the onus was on the purchaser to show they relied on the alleged misrepresentations. The court felt it was commercially illogical and improbable that the purchaser did not obtain external advice as he was an experienced businessman.
Claim avoidance and risk management advice
Peter said the outcome of the case could have been different if the purchaser had advised their solicitors of the representations earlier, and kept a paper trail.
He added that to avoid a similar claim, an agent should:
- be aware of using hyperbole or over-enthusiastic language
- consider if the purchaser would be categorised by a court as an experienced business person
- exercise care when commenting on comparable properties, have evidence available, and confirm everything in an email or letter
- make a record of advice to the purchaser that they should undertake their own investigations on the property value, and comparables
- make notes on any discussions that take place outside the office
- record evidence by a prospective purchaser which suggests why they want to proceed.
Case two - false answers given to requisitions made by a purchaser's solicitor
Misleading and deceptive conduct allegations were made against a selling agent by the purchaser of a $2.5 million service station and convenience store on a 20-year lease.
Following exchange of the contracts the purchaser requested to rescind, alleging failure by the vendor to disclose a proposal for a road widening scheme.
The agent's brochure, which was distributed pre-purchase, used words including ‘outstanding investment’, ‘net income of $257,200 per annum’, and ‘great opportunity for long term security and income’.
The vendor added that they said no to the contract requisition question, "is the vendor aware of any contemplated or current legal proceedings with might or will affect the property?".
The purchaser further alleged that the selling agent did not disclose two issues they were aware of within the lease concerning a rent-free provision and litigation that the landlord and the tenant had been engaged in.
Claim avoidance and risk management advice
- take care when advising of alterations to a proposed contract which removes information from a prospective purchaser. It is best to leave contractual sale provisions to a vendor's solicitor
- avoid expressing unqualified personal views during discussions with prospective purchasers
- avoid using expressions that appear to convey a personal view of the value of the business, unless you distance yourself from the accuracy of the information it will be taken as a belief on the reliability of the information.
Peter added: “If you have knowledge of something and you're advising your client to alter the contract on something a purchaser might have interest in, that puts you in the firing line in terms of a misleading or deceptive conduct claim.
“Agents should also be familiar with standard contractual requisitions, including awareness of contemplated or current legal proceedings.”