Under the Australian Consumer Law and its predecessor, the Trade Practices Act 1974 (Cth) (“the TPA”), it is unlawful to make representations in trade or commerce which are “misleading or deceptive”.

The Federal Court case, Mercland Investment Group Pty Ltd v Duncalm Pty Ltd [2012] FCA 183, explored the implications of describing something on the market as “brand new” and analysed the circumstances in which vendors are under an obligation to disclose information pertaining to the quality of goods and property.

Background

Mercland Investment Group (“Mercland”) entered into a Contract of Sale with Duncalm Pty Ltd (“Duncalm”) for the purchase of a parcel of land comprising a petrol station and a variety of fast-food outlets (“the Service Centre”).

Before its sale Duncalm engaged engineers to advise on the design of the car parks and driveways. Not all the specifications stipulated in the designs were followed. In fact, inferior materials and construction methods were used to cut down on costs. This made the pavements more susceptible to damage and caused the concrete to break upon pressure.

The decision to construct the car parks and driveways in this way rendered them unsuitable for use by heavy vehicles, despite the fact that truck operators represented the substantial volume of the Service Centre’s overall business.

The Information Memorandum (“the Memorandum”)

Although Duncalm became aware that areas of the Service Centre had begun to deteriorate, preparations for its sale went ahead. It prepared a Memorandum which was made available to the public. It stipulated, among other things, that the Service Centre:

• was “Brand New”;
• had been “completed in August 2005”; and
• was a “major regional truckstop facility”.

The Memorandum did not make reference to the original designs of the Service Centre, and did not state that those designs had been departed from. Furthermore, no details regarding the actual construction methods were disclosed, and it was not conveyed that the Service Centre complied with any particular construction standards or specifications.

Prior to the auction, directors of Mercland visited the site to carry out a physical inspection. Although it was evident that the Service Centre contained defects (demonstrated by the concerns expressed by other potential buyers), no enquiries were made as to the quality of its construction and no independent site inspection was arranged.

The Dispute

Mercland purchased the Service Centre in August 2006. It was not long before it discovered that the car park had begun to break up. Mercland alleged that Duncalm had engaged in misleading and deceptive conduct, namely because:

1. they described the Service Centre as “Brand New”;
2. they implied that the Service Centre was fit for its purpose – that is, it was suitable to be used by trucks and other heavy vehicles;
3. the sale was induced by the silence of Duncalm in failing to inform Mercland that the concrete was breaking up; and
4. as prospective purchasers, Mercland had a reasonable expectation that it would be told if the original designs had been departed from in such a substantial way.

Findings

Duncalm had not engaged in misleading or deceptive conduct in contravention of the TPA. The following findings were made: 

1. The expression, “Brand New”, is a “descriptive statement of age” – it is not a warranty of quality. Whilst it may be expected that there could be a connection between the age of something and its performance, this is not always the case. Anything new can be defective as much as anything second-hand can be in perfect working condition. Consider the situation where you purchase a new car and despite it being new, it could break down and need repairs;
2. Mercland was not paying for anything more than it observed or was stated in the Memorandum. Duncalm did not convey that the Service Centre was in excellent condition. There was no warranty as to the quality of the construction and there was no suggestion, express or implied, that the Service Centre was fit for purpose;
3. Justice Edmond stated that Mercland was “not a prospective purchaser bidding from afar, ignorant of what was on site and totally reliant on promotional material provided to it”. The TPA does not require a party to commercial negotiations to volunteer information that will assist a party of equal bargaining power or competence in making a decision to buy. Strictly speaking, Mercland was an astute investor and failed to exercise the level of prudence that an investor in its position would exercise. Had it made proper enquiries and Duncalm not been honest, such actions would constitute misleading and deceptive conduct; and
4. It was obvious to all including Mercland that the Service Centre contained faults. What was designed or planned is irrelevant and there was no duty to disclose mere “suggestions”. Mercland’s decision to purchase the Service Centre was based on its own erroneous assumptions.

Lessons

The decision in the case is testament to the old expression, “buyer beware”. Some words of wisdom for prospective purchasers:

• The descriptors, “new” or “brand new”, are synonymous with age, not condition;
• Where information provided is silent on quality, do not assume the condition or state of repair of the property is satisfactory;
• Do not rely on vendors to disclose information that might influence your decision to buy; and
• Do some homework – do not be afraid to make enquiries and organize an independent inspection.

This article is intended to provide general information only and is not a substitute for legal advice. To obtain legal advice tailored to your situation please contract Rudstein Kron Lawyers.