A restatement of the principle ‘buyer beware’

 Friday, October 23, 2015

A restatement of the principle ‘buyer beware’

A decision of the Supreme Court of South Australia has highlighted the importance of purchasers making complete inquiries before entering into a Contract of Sale. This case also illustrates the risks involved with allowing a third party agent to negotiate aspects of a sale on behalf of a vendor.

The case of Pirie Street Stage 1 Pty Ltd v Trotman & Anor and Stewart involved an off the plan purchase which went awry. After the purchaser failed to settle the contract on the date due for settlement (which was some two years after the contract was entered into), the vendor issued proceedings for loss and damage. By counterclaim, the purchasers alleged that representations had been made to them as to the commercial viability of the transaction by a mortgage broker. As is the common trend in the industry, the developer had touted its project to the mortgage broker, who in turn, it was alleged, spruiked the project as a great investment opportunity to the purchaser. It was further alleged that these representations made by the broker were false, misleading and constituted an inducement into the contract by the vendor. The mortgage broker was also joined to the proceedings.

In its ruling, the Court drew a distinction between a “selling agent” and a “direct agent”, or, a mouth piece of the vendor. It was ruled that no party really the had the intention of binding the vendor to the representations made by the mortgage broker. The case may have been decided differently if the vendor had a closer relationship to the broker and intended (or was deemed to have intended) to be bound by representation made on its behalf. As to the alleged misrepresentations, the Court held that these statements constituted puffery (i.e. not to something to be taken seriously) and were not intended to be relied upon. If the representations were more precise and substantial, the case that they formed part of the contract of sale may have been stronger.

Whilst the current litigious trend is to issue proceedings for misleading and deceptive conduct in such circumstances, this case highlights the importance of properly documenting all contractual terms prior to signing. This is particularly important were representations are made by a third party agent who is not a party to the contract.

If you would like to discuss any of the issues raised by this case or the principles more generally, please contact Jack Hobbs of our litigation and property department.