By Russell Cocks, Solicitor
First published in the Law Institute Journal
Property law is an inherently conservative branch of the law. The contest between strict legal principles and the application of equity seems to have occupied an inordinate portion of the last two centuries, with the common law principle of caveat emptor still being the starting point of any analysis of purchaser’s rights. When added to the equally dominant preference in favour of certainty of contract, it can be seen that a purchaser alleging a breach of contract by the vendor generally starts behind the eight ball. A defect in title might justify complaint, but these are rare. The more common defect in quality rarely justifies avoidance of the contract and claims based on implied terms founder on the rocks of certainty.
But the consumer (of encyclopedias or real estate) has found an ally in the last 25 years as Parliament has responded to the common law’s intransigence by creating rights and remedies that seek to equalize the imbalance of power between vendor and purchaser. The Trade Practices Act has been the saviour of the downtrodden consumer but, due to the Commonwealth’s limited power, this weapon was confined to disputes with corporate foe. The corresponding Fair Trading Acts in the various state jurisdictions were generally viewed as the poor cousin of the Trade Practices Act, but a recent High Court decision may have changed the landscape forever.
Houghton v Arms [2006] HCA 59 involved a commercial dispute between a consumer and a corporation based on the Trade Practices Act, but the corporation had gone into liquidation, so the claimant faced a pyrrhic victory. The claimant therefore sought to claim against two individuals who had negotiated the contract on behalf of the corporation. These individuals were not directors of the corporation but mere employees, albeit in senior positions in a relatively small organisation. This claim could not be based on the Trade Practices Act, as these defendants were individuals, and so the claim was made pursuant to the Fair Trading Act. The High Court held that the Fair Trading Act effectively mirrored the Trade Practices Act and, provided that the individual defendants had been acting in ‘trade and commerce’, that they would be equally liable (with the corporation) for the misrepresentations. The claim had been lost at first instance on the basis that mere employees were not engaged in ‘trade and commerce’ (merely engaged in their contract of employment) but the High Court took the view that the employees were indeed engaged in trade and commerce in the fulfilment of their employment duties. The extraordinary aspect of the case was that the Chief Justice delivered a unanimous judgment on behalf of all five judges (neither Kirby J. nor Callinan J. sat) and the whole judgment occupies just 9 pages and 48 paragraphs. It is a case study in judicial brevity.
The recent willingness of courts (Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405) to lift the corporate veil has been a worrying trend for directors who have sought refuge behind this (now flimsy) artifice. Houghton v Arms means that mere employees may now ‘carry the can’ for corporations, although this liability is a personal one based on the Fair Trading Act, rather than a vicarious liability transmitted from the corporation.
In the context of common or garden variety conveyancing, not only will corporate vendors be held accountable for misleading or deceptive conduct, so too will their employees. This may be particularly significant for individual estate agents (who are undoubtedly acting in trade and commerce) and the employees of development companies who sell land and/or apartments to the public. It may have a particular significant in terms of what such participants in the conveyancing process don’t say, as much as what they do say. Misrepresentation by silence is unknown to the common law, but a usual suspect in a trade practices environment. Now, not only corporate vendors and agents will be liable for their failure to disclose, so too will their employees.
Is it too much to expect that this may lead to the mythical world of ‘truth in advertising’?
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.