Boase v Sullivan Commercial Pty Ltd trading as McGees Property

Federal Court of Australia|2010-12-20|Before: McKerracher J

INTRODUCTION 1 In these proceedings the applicants allege that property valuers provided an incomplete report which led them to purchase certain property. Mr Timothy Boase is the representative party of a group of 22 individuals. The statement of claim which was initially prepared has been amended after complaints as to suggested defects were raised by the respondents. 2 The respondents take the view that the changes made to the statement of claim are not sufficient to warrant further written submissions in support of their application to strike out the pleading. 3 The pleaded facts, (described below in [4] to [12]), assert that the applicants are investors who provided funds for the acquisition of the property. On 19 February 2007, they were invited to invest in the property by an Expression of Interest (EOI) sent to them by Frasers the Project Managers Pty Ltd (Frasers). Frasers was the Project Manager of 'The Project at Baldivis Pty Ltd' (TPAB) which was incorporated in March 2007 as a vehicle for the applicants to acquire and develop the property. It executed an offer and acceptance for the property. The EOI contemplated that the property would be subdivided into 40 single residential lots with a purchase price of $80,000. To secure a lot, an applicant was to sign the EOI and return it to Frasers with a fee of $6,000. 4 The applicants were to pay half the purchase price and TPAB was to apply for finance for the other half. It applied to the Home Building Society (HBS). In the course of that exercise, HBS asked the first respondent (McGees), town planners, to provide a property valuation specifically addressing: the reasonableness of the timeframe with respect to achieving development approval and other necessary approvals; and the estimated period allocated for titles to be issued and settled the 40 lots appeared reasonable. 5 In relation to this aspect, McGees advised in a valuation report dated 29 May 2007 (the Report) that they believed it was 'extremely subjective' commenting on whether the subject timetable was realistic or not. McGees recommended that the lender should adopt a conservative approach in regards to the length of time it would take for individual titles to be issued. McGees said, however, they believed September 2009 was a realistic timeframe for issue of individual titles over the subject lots (the Written Representations). 6 HBS declined to provide finance but subsequently it was secured from another lender. LaTrobe Financial Services. 7 In about June 2007, the applicants were specifically referred to part of the Report by TPAB (10 pages) when making their decision about whether or not to purchase. 8 Settlement on the purchases occurred in August 2007. 9 The applicants plead that they relied on the Written Representations in deciding whether or not to proceed with the acquisition of the Property. They claim that if they had been told September 2009 was not a realistic timeframe for the issue of individual titles they would not have continued with the purchase of the Property, and if they had been aware that Titles were not going to be available until 2015 they would have asked for a full refund of their $6,000 EOI fee. They understood that unless a purchase of land is for 'land banking' or other purposes unknown, then no lender would provide finance for a proposed subdivision when Titles would not be issued for another 8 years (2015). Both loan applications, to HBS and to LaTrobe Financial Services were for sub-division purposes. 10 In 2008, McGees informed Frasers that there was no sewage available on the Property. On further inquiries it became apparent that the Water Corporation did not support the rezoning of the land from rural to residential and that sewage would not be made available prior to 2015. 11 In 2009, the property was sold at a loss to the mortgagee on a mortgagee sale. There were no funds available to distribute to the individual applicants. 12 The applicants allege that McGees should have known that it was extremely unlikely the land would ever be rezoned. They claim that the provision of the Report was misleading and deceptive in trade and commerce in breach of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (WA) and was negligent.

NATURE OF THE CONDUCT SAID TO BE MISLEADING OR DECEPTIVE 13 The applicants plead (at [19]): 19. Further inquiries by the applicants with the Water Corporation and other Government authorities revealed that: 19.1 The Water Corp did not support the re-zoning of the Property from rural to residential and had consistently maintained its objection to the re-zoning since early 2006. The respondents were contracted by HBS 15 months after this date to prepare their Valuation Report; 19.2 The Water Corporation have confirmed that sewer infrastructure would not be available for the proposed development of the Baldivis Property prior to 2015 and this was information which was available from early 2006; 19.3 This advice is in writing from the Water Corporation and will be produced in the affidavit in these proceedings and/or at discovery; 19.4 The Department of Water did not support the rezoning; 19.5 The Department of Industry Resources did not support the rezoning; 19.6 Alinta Asset Management who manages the Dampier to Bunbury High Pressure Natural Gas Pipeline which pipeline traverses the land subject to MRS 1127/41 did not support the rezoning; 19.7 The City of Rockingham which City the subject land is in, filed a submission to the WAPC raising concerns about the rezoning; 19.8 The Environmental Protection Authority raised concerns about possible soil and ground water contamination which needed the Department of Environment and Conservation's assessment and which same Department had concerns about groundwater issues in the MRS areas; 19.9 The local Traditional Aboriginal Land Owners had filed a submission with the WAPC seeking consultation on the use of the subject land going forward; 19.10 The date of the last transaction is said by the respondents in their Valuation to be 1 March 2007. Records at Landgate record the date of the last Transaction for this property was on 16 July 2003; 19.11 MRS 1127/41 Amendment, which includes the subject land, was being actively progressed by the WAPC at the time the respondents Property Valuation Report was being prepared for HBS; 19.12 Submissions from the public (which includes Government) closed on 4 May 2007 which was 24 days prior to the provision of the respondents Valuation Report to the HBS. NB The details of 19.1 thru 19.12 have all been provided to the respondents.

No breach alleged 14 The respondents complain that the applicants do not plead what conduct of the respondents is said to be misleading or deceptive. They simply make a bare assertion that the Report itself is misleading or deceptive. 15 The respondents point to the fact that the statement of claim itself (by para 15) makes it clear that the applicants were offered a full refund if they withdrew from acquiring the property after provision of the extract of the Report. 16 The respondents also complain that the applicants admit that they received only extracts of the Report but do not plead which sections of the Report they received. The respondents, therefore, complain that they are unable to understand how any conduct on their part was misleading or deceptive. They are unable, by a process of deduction, to determine which part of the Report was disclosed to the applicants and what representations, if any, were conveyed to the applicants by that disclosure. Accordingly, it is complained that the pleading is embarrassing and fails to disclose a reasonable cause of action such that it should be struck out. This aspect of the complaint is made out, in my view. 17 Additionally, the respondents complain that it has not been asserted that the conduct was in trade or commerce, although it seems highly likely that the conduct was in trade and commerce. 18 In my view, the applicants must disclose what part of the Report they received although the statement that they relied upon the Written Representations makes it clear that they received that part. They should also identify precisely what conduct of McGees was in trade and commerce (although, again, this would seem fairly obvious), and what conduct constituted a breach. These modifications are easily addressed.

A managed investment scheme? 19 A number of other complaints are made including the fact that the respondents cannot discern whether the investment scheme operated by Frasers was a managed investment scheme. If so, an interest in the scheme would constitute 'a financial product' for the purposes of s 1012B and s 1012C of the Corporations Act 2001 (Cth) (CA): s 764A(1)(ba) CA. In those circumstances, Frasers would be required to issue a product disclosure statement to the applicants before they became legally bound to require an interest in the scheme. The respondents say that any product disclosure statement issued by Frasers to the applicants may only have included a statement made by or based upon a statement made by the respondents where they had given their consent for the statement to be so included. Accordingly, the respondents say that if the extracts from the Report were provided to the applicants as part of a product disclosure statement, then McGees did not consent to the disclosure of that information contained within the Report to the applicants and the disclosure of the information was made in contravention of the CA and cannot, therefore, have constituted conduct by the respondents in trade and commerce. 20 In my view, these are matters for the respondents to deal with by way of a defence. They are not matters which the applicants should have to address at the outset in their statement of claim. I would not uphold this complaint.

Causation 21 The respondents also note that the applicants plead that: (a) at some unspecified time each of them paid a $6,000 EOI fee and $37,000 for the purchase of a share of the property; (b) they were offered a full refund if they withdrew from acquiring the property; (c) in reliance on the un-pleaded representations contained within the Report, they elected to proceed with the development of the property; (d) they have suffered loss and damage by reason of the misleading or deceptive conduct and negligence; and (e) loss and damage consists of investments made by the applicants in the purchase and development of a property. 22 None of those matters, according to the respondents, are sufficient to establish causation as the applicants have not pleaded material facts which establish how they could lawfully have elected not to proceed with their investment in the property and that they were entitled to a full refund if they withdrew from acquiring the property. Therefore, the respondents contend that the applicants' claim is based on un-stated facts and does not disclose a reasonable cause of action. 23 In my view, there has been sufficient pleaded in the amended statement of claim to show causation. The applicants do not rely on a legal entitlement to a refund; rather they plead that it was offered and they would have taken it. The matters to which the respondents refer are matters which may be raised by way of a defence or on which the respondents would put the applicants to proof.

Negligence 24 In relation to the claim in negligence, the respondents submit that the plea is not open to the applicants in circumstances where relief in negligence is not claimed in the original application. This is an amendment. The plea is open. 25 The respondents complain that the applicants have failed, however, to plead the material facts which would establish that : (a) the respondents owed the applicants a duty of care; (b) the content of any such duty of care; (c) the respondents breached that duty; and (d) the breach of duty caused the applicants loss or damage. 26 Dealing specifically with the context of the alleged negligent provision of the advice, the respondents argue that it is necessary for the applicants to plead that the advisor making the statement knew or ought reasonably to have known that: (a) the information or advice would be communicated to the plaintiff either individually or as a member of an identified class; (b) the information or advice would be so communicated for a purpose that would be 'very likely' to lead the plaintiff to enter into a transaction that the plaintiff did enter into; and (c) it would be 'very likely' that the plaintiff would enter into such a transaction and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound. Reliance is placed on Esanda Finance Corp Ltd v Peat Marwick Hungerfords (Reg) (1997) 188 CLR 241 where Brennan CJ said (at 252) (footnotes omitted): The uniform course of authority shows that mere foreseeability of the possibility that a statement made or advice given by A to B might be communicated to a class of which C is a member and that C might enter into some transaction as the result thereof and suffer financial loss in that transaction is not sufficient to impose on A a duty of care owed to C in the making of the statement or the giving of the advice. In some situations, a plaintiff who has suffered pure economic loss by entering into a transaction in reliance on a statement made or advice given by a defendant may be entitled to recover without proving that the plaintiff sought the information and advice. But, in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound. If any of these elements be wanting, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use reasonable care in making the statement or giving the advice. 27 In relation to these complaints, in my view, the respondents' complaints are made good and the pleading is deficient. 28 To the extent that the applicants have relied upon authority supporting their contention that they are entitled to claim damages in negligence, that is not the issue presently under consideration. The real question is whether they have pleaded all the necessary material facts and particulars in support of such a claim. In my view, they have not and should amend if they can do so. 29 Much of the written submissions in reply for the applicants raised factual matters. Those factual matters were also replicated in an affidavit. Neither of the submissions nor the affidavit can be a substitute for what purports to be a statement of claim. The applicants also rely upon a number of aspects of guidance notes from the Australian Property Institute. This material may conceivably be relevant to the question of the standard of care and whether the standard of care was met. I do not need to consider it at this stage as the primary debate concerns the structure and conduct of the pleading.

Disclaimer 30 The applicants also rely upon various authorities which make it clear that a disclaimer or qualification may have little or no effect on the impact of a misrepresentation but whether it is of assistance to a respondent or not will require analysis of all the factual matrix. That is a matter for later consideration. It was not necessary, in any event, for the applicants to plead the disclaimer in their amended statement of claim. If it is to arise, it will be by the respondents' defence.

Outcome 31 In relation to the remainder of these additional complaints, however, some latitude must be given in circumstances where the applicants appear in person and in circumstances where it is not particularly evident that any prejudice would be suffered by the respondents. There is no evidence of such prejudice. 32 With the exception of those (several) matters on which I have indicated that I do not think the respondents are sufficiently embarrassed so as to strike out the pleading, the respondents overall complaints are correct and the amended statement of claim must be struck out. 33 As I indicated in the course of oral exchanges with Mr Boase, the consequence of that is that the proceeding remains on foot but there should be a repleading of the amended statement of claim taking into account those aspects on which the respondents have succeeded. I will give leave for Mr Boase to re-plead it.

CONCLUSION 34 The following orders will be made: 1. The amended statement of claim will be struck out. 2. The applicants will have leave to re-plead a statement of claim to be filed and served within 28 days. 3. Costs of this application are reserved. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.

Trade Practices Act 1974(Cth)

Fair Trading Act 1987(WA)

Boase v Sullivan Commercial Pty Ltd trading as McGees Property [2010] FCA 1441

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