Buyer of property unsuccessful in receiving relief for seller’s misleading and deceptive conduct

By Evelyn Marcou, Senior Associate, MST Lawyers

The Australian Consumer Law provides protection for certain buyers when sellers engage in misleading and deceptive conduct.  However, such protection often does not extend to buyers of residential property. 

A recent NSW Court of Appeal case looked at whether the vendor of a private home, who admitted misrepresenting the quality of the home, could be liable for a breach of this statutory provision.

Facts

The vendor and his wife had owned a home for several years. They obtained development consent to renovate it. The wife as owner builder, carried out the work over about two years and then advertised it for sale. A real estate agent was engaged to assist with the sale. After the property was sold it became apparent there was significant water penetration (contrary to representations as to the quality of the ‘rebuild’).

The representation to the purchasers had been made both by the vendor and by his real estate agent.

The Buyers sued the Sellers claiming a breach of section 18(1) of the Australian Consumer Law, which provides that:

“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

The issues

The Sellers accepted that the representations about the quality and standard of the renovations were misleading or deceptive.  The Sellers however argued that the conduct was not in “trade or commerce” and this meant that the Buyers were not entitled to the protection of section 18 of the Australian Consumer Law. 

At first instance, the Supreme Court of New South Wales disagreed and found that the Sellers were liable under section 18 of the Australian Consumer Law. 

The Sellers appealed.  The Court of Appeal agreed with the Sellers, and found that the conduct was not in “trade or commerce” and therefore the Buyers could not succeed under section 18 of the Australian Consumer Law. 

 Is the sale of a residential property a sale in “trade or commerce”?

 The Court of Appeal said no.  The Court explained:

“In ordinary circumstances, a person who sells his home, whether by private treaty or by auction and whether he conducts the negotiations personally or through a real estate agent, would not be said to be undertaking those activities in the course of a trade or business or in a business context.  Whether or not an estate agent is used and whether or not that agent advertises the house, by preparing brochures or other advertisements, and whether or not the agent sells by auction or merely negotiates by private treaty, the sale will normally remain a sale by the vendor of his house and not an act done in a business context.”

In the context of the Australian Consumer Law, “trade or commerce” requires the conduct to be in a commercial setting as opposed to a private setting, such as private sales between people who are not ordinarily in the business of selling that particular thing.  One must consider the character of the parties involved, the motivation for the transaction and the relevant person’s role in the transaction in order to determine this question. 

Sales of residential properties are often between a private person who has resided in the property for a length of time and a private buyer who then intends to reside in it for a length of time.  Neither the buyer nor the seller can be said to be entering into the sale in furtherance of a commercial purpose or business.  As such, these types of sales are generally considered not to be in “trade or commerce”. 

The position would be different, however, if a developer (who is in the business of developing and selling properties) is selling a new property as part of a development.  The fact that the sale is in furtherance of the developer’s business makes that type of sale transaction in “trade or commerce”.

For more information, please contact our Property & Leasing team by email property@mst.com.au or by telephone +61 38540 0200.