Misleading and deceptive conduct by breach of contractual warranties and conduct

Peters Properties Maddington Pty Ltd v Keen [2019] WASC 138, highlights that a breach of contractual warranties may also be misleading and deceptive conduct.

Peters Properties operated a truck and trailer rental business on land in Maddington. To satisfy its need for additional land for its growing business, it purchased adjacent land from Keen under a contract of sale. Keen operated a business of a transport depot and heavy haulage driver training school.  

The contract contained a buyer’s acknowledgement that the buyer was aware the seller was seeking a retrospective planning approval for hardstand for the transport depot on the rear portion of the property and that the seller would complete any works the local authority reasonably required within 45 days of written notification from the council.

A planning approval was issued subject to certain conditions which Keen did not comply with. Keen argued that they did not receive information in respect of the conditions and was only concerned that the planning approval was granted, despite correspondence from the local authority in respect of conditions that needed to be satisfied. The court commented on the fact that for a property worth over $2million, it was extraordinary that Keen was not concerned to know what conditions were attached to the approval. Settlement of the land occurred, and Peters Properties entered into a lease for the permitted use of ‘truck and trailer rental, trailer sales.’

Peters Properties claimed breach of warranties specified in general conditions 9.1 and 9.2 of the 2011 Joint Form General Conditions of the contract. The warranty in general condition 9.1 requires actual knowledge of a current demand or requirement relating to the land. In this instance, the court was satisfied that Keen did not have actual knowledge of the conditions attached to the approval and there weren’t any circumstances that would reasonably lead someone to inquire about current demands or requirements in respect of the land.

However, a breach of warranty existed under general condition 9.2, which was a representation about a state of affairs that existed at the contract date. By providing the warranty, Keen promised that the new owner could lawfully continue to use the land in the manner it was being used at the contract date. The use was not lawful unless it was in accordance with the conditions to which the planning approval had been granted. The state of affairs existing at the contract date was false, and as a result, the warranty was a representation considered to be misleading and deceptive. 

Keen also made misleading or deceptive representations by conduct. By conducting a business of a transport depot and heavy haulage driver training school on the land, Keen had represented that they were lawfully entitled to conduct such business on the land. The conduct that induced this representation was the parking of motor vehicles on the land for payment, providing driver training services from the land, the land was not fenced off or separated in respect of the part that was subject to planning approval. Peter’s Properties was induced by the conduct and completed settlement based on the contractual warranties and representations.

Peters Properties was awarded damages for loss of value of the land as a result of the planning approval, the costs of complying with the planning approval conditions and damages arising from penalties imposed for the failure to comply with the planning conditions. The court measured damages on the basis that damages are generally assessed by reference to the detriment suffered as a consequence of reliance upon the contravening conduct, rather than the amount required to make good the expectation created by the conduct.

Key takeaways

If approvals are sought in respect of land, the registered proprietor or the purchaser (if the land is being sold) should turn their minds to compliance with the conditions imposed in respect of such approvals.

Sellers using the joint form general conditions for the sale of land in Western Australia need to be mindful of the warranties contained in general conditions 9.1 and 9.2.  This case concerned the 2011 version of the joint form general conditions for the sale of land.  However, general conditions 9.1 and 9.2 of the 2011 general conditions are in the same form in the 2018 joint form of general conditions for the sale of land.

General condition 9.2 is a representation as to fact and does not depend on the seller’s actual knowledge.  Sellers should, therefore, ensure that the representations and warranties are correct (especially the representation and warranty in general condition 9.2(b) – that the use of the land is lawful).

The 2018 joint form general conditions for the sale of the land differ from the 2011 version (in respect of general condition 9) in that a buyer has a right to terminate the sale contract if the breach of the representation or warranty in general condition 9.2 unreasonably affects the proposed use of the property by the buyer or materially affects the value of the property.  In the context of this case, the buyer may have been able to terminate the sale contract because of the breach of general condition 9.2 if the 2018 joint form general conditions for the sale of land had applied to the sale contract.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.