Commercial and Australian consumer law disputes – when will the court grant relief? – Consumer trading and unfair trading

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Commercial sales are often fertile ground for allegations of breaching the Australian Consumer Law, but a court will require more than a misleading statement to grant relief. A recent Queensland Court of Appeal case illustrates a common scenario.

In the recent case of Babstock Pty Ltd v Laurel Star Pty Ltd (No 5) (2024) QCA 3, the Queensland Court of Appeal considered the circumstances surrounding the sale of a real estate business and the buyer’s allegation that the seller had breached Australian Consumer LawLCD). The case is a recent example of a common scenario where a misleading statement does not necessarily entitle a party to injunctive relief.

Facts about the case

The dispute concerned the sale of a business with real estate based on two contracts, namely a business sale agreement and a lease agreement. The buyer claimed that the seller made a misleading statement in the sales information book provided to the buyer before the relevant contracts were signed.

Representations regarding reports on entry conditions (RCT) for properties included in the rent list. Among the statements submitted it was stated that

  • 100% of the ECR for properties on the rent roll was kept on file

  • ‘and it’

  • 100% of ECRs for properties on the rental list have been fully signed by all tenants and agency staff

  • ‘.

The buyer argued that he had entered into a lease on the basis of a declaration, had suffered loss and damage and was therefore entitled to have the lease declared void ab initio (ie void from the time the lease was entered into). Under the ACL, the buyer is entitled to this remedy if it suffers loss or damage as a result of the relevant deceptive conduct.

The trial judge found that the representations were misleading, that the purchaser had relied on the representations and that the purchaser’s reliance had caused it to be bound by the terms of the roll hire agreement.

The seller challenged these findings on appeal on the grounds that the buyer did not rely on the representation at the time the lease was entered into and any reliance did not cause the loss.

Decision of the Queensland Court of Appeal

On appeal, it was undisputed that the statements on the entry condition reports were misleading.

The real issue was whether the purchaser relied on the declaration in entering into the lease and whether that reliance was the cause of any loss suffered by the purchaser.

The court emphasized that the question of reliance on the thing was factual and required an examination of all the facts surrounding the buyer when concluding the contract.

In this case, the Court noted that the buyer’s sole agent demonstrated that she was not involved in the purchase and that her husband was the person involved in the negotiation and due diligence process on behalf of the buyer. This meant that the question of reliance turned entirely on the husband’s evidence.

The court took into account the following facts related to the transaction:

  • the husband’s evidence was that it is not critical that 100 per cent of the ERP is on file and signed by both tenants and managing agents

  • the husband knew that if the buyer intended to terminate the contract; it was the buyer’s duty under the due diligence clause to ascertain the truth of the statement and the state of the business

  • during the due diligence phase, the husband received a message alerting him to the fact that the statements were inaccurate, but did not raise this as a concern prior to entering into the contract

  • at the time the contract was entered into, the husband acknowledged that he knew that some of the cash registers were lost or incomplete.

The court considered that the above facts support the view that the buyer did not rely on the declaration when entering into the contract.

The court further emphasized that the buyer had a contractual right during the due diligence phase to reject the leases in circumstances where the relevant ECRs were not on file or had not been executed by both the tenants and the agency staff.

In circumstances where the purchaser was aware that the representations were not accurate and had the option to reject the leases that were the subject of the false representation, and yet chose to enter into the lease agreement, there was no basis for the lower court to conclude that the purchaser relied on the representations and that such reliance caused her to suffer loss.

The court emphasized that the remedy sought by the buyer, which is a declaration that the contract was void ab initio, is only available where the person has suffered or is likely to suffer loss or damage as a result of the misleading conduct.

In light of these findings, the Court ruled that the buyer had failed to prove the merits of the action and was therefore not entitled to the requested compensation.

Comments

There is no question that commercial sales transactions are fertile ground for allegations of ACL violations.

As happened in this case, sometimes parties to transactions make representations that are not necessarily correct.

However, this case demonstrates that a mere finding that one party made a misleading statement will not be sufficient to obtain relief under the ACL unless it can also be shown that the statement was relied upon and that such reliance caused the party seeking relief to suffer loss and damage.

This case serves as a reminder to sellers to ensure that all information provided to a potential buyer is accurate, can be easily substantiated, and that the transaction agreement places the onus as much as possible on the buyer to do their own due diligence. The case also shows that buyers should pause and carefully consider all contractual rights available during the due diligence phase and be prepared to exercise those rights to protect their interests. Buyers should always ensure that they actively engage in the due diligence process, verify all representations made by sellers and carefully assess the accuracy of information deemed critical to the transaction.

Cooper Grace Ward’s leading litigation and litigation team has significant experience in disputes involving commercial transactions. If you would like to discuss this article or any other business dispute please call or email one of the key contacts listed.

© Cooper Grace Ward Solicitors

Cooper Grace Ward is a leading Australian law firm based in Brisbane.

This publication is for information only and is not legal advice. You should obtain advice specific to your situation and not rely on this publication as legal advice. If there are any issues that you would like us to advise you on arising out of this publication, please contact Cooper Grace Ward Solicitors.

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