By Russell Cocks, Solicitor
First published in the Law Institute Journal
Estate agents have always been given a degree of ‘poetic licence’ when it comes to describing the property that they are retained to sell on behalf of a vendor. To describe a property as ‘immaculate’ Walker & Anor v Masillamani & Anor [2007] VSC 172 – or as having ‘perfect presentation’ (Mitchell v Valherie (2005) 93 SASR 76) does not mean that the property is perfect in every aspect and completely free of all defects. Such sales descriptions fall within the definition of ‘mere puffery’ and the courts expect a prospective purchaser to exercise a reasonable level of cynicism when balancing such descriptions with the physical condition of the property revealed by inspection.
However, two recent cases indicate that courts will not be so lenient and extend such licence to an agent who is describing the sales process, rather than the subject matter of the sale.
Bovino P/L v The Casey Group Holdings P/L [2010] VSC 391 concerned the sale of a caravan park for $8.6m. The agent submitted the property to two prospective purchasers and both purchasers made offers that were subject to the purchaser obtaining planning approval to redevelop the land. The agent concentrated his attention on the ultimate purchaser and evidence was given that the agent left a voice message on that purchaser’s phone to the effect that:
‘There is another purchaser’ and
‘You will have to make an unconditional higher or better offer’
The purchaser responded with a higher offer that, importantly, was not conditional upon planning approval.
The purchaser thereafter sought to avoid the contract on a number of grounds and the vendor sued for specific performance of the contract. Ultimately the issue came down to the question of whether the purchaser could characterise the conduct of the agent as ‘misleading and deceptive’ within the meaning of the Trade Practices Act (superseded by the Competition and Consumer Act – see schedule 2 item 18). The evidence as to the substance of the representations was accepted, principally because it appeared to have been confirmed in a later email by the agent to the vendor when discussing a request for an extension of time for performance. The agent wrote that he had ‘put a fair amount of pressure on them (the purchaser) to go unconditional’. The Judge relied upon this as confirmation that the agent had suggested that the existence of another purchaser meant that the purchaser would miss the property if the purchaser did not make an immediate, higher, unconditional offer and that such conduct by the agent was misleading and deceptive and justified avoidance of the contract by the purchaser.
Astvilla P/L v Director of Consumer Affairs Victoria [2006] VSC 289 concerned similar concepts under the Victorian Fair Trading Act, although the offence was committed by an in-house sales employee of the vendor rather than an external estate agent. The Court held that the creation of a false sense that the property was ‘a very popular house’ and could be sold ‘five times over’ (when in fact it had been on the market ‘for years’) and a false sense of urgency requiring immediate signing and payment of a deposit was misleading and deceptive conduct.
These representations related to both the property itself (that it was ‘popular’) and the sales process (that urgency was required). The representations relating to the property ‘went beyond mere puffery’ and those representations alone would have justified a finding of misleading and deceptive conduct, but the representations in relation to the need for urgency as the property might be sold to another purchaser were also factors in the decision.
Agents should therefore beware. Advising prospective purchasers that there are other willing purchasers competing for the property may amount to misleading and deceptive conduct unless the agent is able to prove the truthfulness of that representation. Auctions are all about exposing competing purchasers to the marketplace, as are private or boardroom auctions, but representing that there is genuine competition for a property when that is not the case may cross the line.
Other issues in bovino
Specific performance
The vendor sought specific performance of the contract. That remedy is discretionary and only granted if damages would not suffice. Whilst ordering a vendor to specifically perform a contract by transferring a particular property is a relatively common order, Abraham v Johns [2010] VSC 33, an order that a purchaser specifically perform a contract by paying the contract price is rare. Such an order ‘could require the continued supervision of the Court to ensure the fulfilment of the contract. Ibid at para 79. Damages will generally be the appropriate order against a purchaser. After all, the vendor is only interested in receiving the contract price; it is irrelevant where the money comes from.
Impecuniosity
As the purchaser successfully avoided the contract, the availability of an order for specific performance was not an issue; however judicial comment was made on the purchaser’s defence against such an order. The purchaser argued that they did not have the funds to complete the contract – that it was a typical ‘two dollar company’. That impecuniosity was shared by the guarantor (Clinton Casey) who claimed that his principal asset was an entitlement to share in distributions from a discretionary trust and therefore effectively valueless. The Judge found such arguments to be ‘without substance: Bovino P/L v The Casey Group Holdings P/L [2010] VSC 391 at para 70. They might also be of considerable concern to anyone engaging in commercial transactions with defendants.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.