In September 2007 Derek Eckford and wife Gale were enticed by a sign advertising the sale of undeveloped lots in the Avalon@Coolum estate.
They drove up to the hilly subdivision to find the site office and were instantly attracted by the panorama that extended in the distance to the east, the Pacific Ocean and to the south, Mount Coolum.
The sales brochure handed to them showed 17 of the 60 blocks – including lot 10 on which the Ken Guy Real Estate site office was situated – had been “sold” at the prices stated on the list.
Sales agent Mark Boulter explained lot 10 was a prime location because the three lots on its southern boundary had been sold subject to building covenants limiting the maximum height of any residence on those blocks. That would prevent “for all time” – he clarified – any home built on those lots impinging on the outlook from lot 10.
The price list noted for lot 10: “Great sea views/build envelope” and “Sold” “$895,000”.
Derek and Gale – on a road trip from their base in Dubbo – enthusiastically accepted Boulter’s offer to approach developer Six Mile Creek Pty Ltd to explore the possibility of the existing lot 10 contract being cancelled given its buyer had apparently been “delaying settlement”.
They were sent the contracts in early October and signed up for the buy in November at the list price of $895k under a contract that annexed a building covenant setting out height restrictions for homes on several other lots including 17, 18 and 19.
The true sales history for the estate was that most agreements – including a put and call option arrangement with a marketing entity – had fallen over due to absence of finance and none in that part of the estate had settled. The contracts in place at the time of the Eckfords’ sign up remained conditional, were supported only by nominal deposits and had been the subject of numerous finance extensions.
Derek and Gale settled their purchase in January 2008 – with funds borrowed from son Jason under an arrangement requiring repayment with interest on their death – and completed construction of their residence at the end of 2010.
Some eight years later following the death of his mother, Jason Eckford discovered that the conditional contracts for the sale of lots 17, 18 and 19 containing the height restriction covenants the buyers had been assured would apply “forever”had crashed and that McLaughlin had re-sold them later to third parties at much lower prices on contracts which contained no height restrictions at all.
Derek commenced proceedings in the Federal Court in Sydney in early 2017 against Six Mile and its owner Danny McLaughlin claiming damages for fraudulent misrepresentation and compensation for misleading and deceptive conduct. He also sought an injunction to direct the developer to prevent construction on lots 17, 18 and 19 to any height above that specified for those lots in the building covenant.
Eckford claimed that had they known the true state of affairs, he and his wife would never have acquired the block nor would they have built on it, ie a “no-transaction” case.
The developers conceded that representations as to height restrictions applicable to the adjoining blocks had been made but defended the claim on the basis they had been true at that time.
They also argued that the list prices next to the description “sold” in the pricelist was merely a statement that contracts had been entered into at those prices, not a representation that any of the transactions had been completed.
Justice Steven Rares had no difficulty in concluding after the eight-day trial that the “sold” price representations were taken as representations that settled sales had occurred at those prices and such statements were likely to have been intended to be interpreted in that way.
His honour’s 80-page judgement concerns itself with identifying the representations the Eckfords had relied on and how to determine the compensation to which they might be entitled.
Valuer John Leeson testified that in his opinion, lot 10 had a value at contract date with the adjoining allotments’ height restrictions in place of $615k but with no height restrictions applicable, $525k.
The court found that the buyers had indeed relied on the “sold” price statements made by the agent at the site office and in the price list. Ditto in respect of the height restrictions applicable to the development of the allotments on the southern boundary.
Because fraudulent misrepresentation was pleaded, the court also had to decide whether the developer had made the statements intentionally to deceive.
McLaughlin was aware – so found his honour – that had he disclosed to the Eckfords that the former buyer of lot 10 had been unable to complete, their attraction to the estate “would be likely to diminish”. And had they been told so many other deals had collapsed they might have concluded that the list prices for the lots were “uncommercial or unrealistically high”, he concluded.
The Six Mile owner indeed knew and had told others that the contracts for lots 17, 18 and 19 were “all a joke” but, so wrote the judge, he wanted to use them as a means to market other lots. McLaughlin’s explanation had been “that’s the way real estate works”.
By way of compensation, the buyer sought $800k – to recoup the difference between the total of the purchase and construction costs of about $1.85 mil and the value of the developed site at trial of $1.025 mil – plus expenses associated with the purchase.
He also claimed the interest due on his son’s loan at 4% above the RBA cash rate compounding annually as specified in the loan document. Even though none had been demanded in the more than 11 years leading up to the trial, it was clear in his honour’s view that interest would eventually be payable and calculated it at $1.15 mil which he ordered the defendants to pay.
Interest was also allowed on the construction cost claim at the statutory pre-judgement rate, totalling $593k.
Justice Rares awarded Eckford – a little over 12 years after he and his late wife had signed up for the buy – $2.57 mil in total compensation.
Six Mile and McLaughlin had also attempted to defeat that Eckford’s claim on limitation grounds.
Arising out of the loss which occurred on settlement of the buy in January 2008, they asserted that the lawsuit commenced in February 2017 was out of time, having been started after the six years allowed.
Not so ruled the court. For the purposes of the fraudulent misrepresentation claim, it was not time-barred because it had been commenced within six years of the first occasion upon which Eckford had been “put on enquiry”.
“I am satisfied that Mr Eckford exercising reasonable diligence could not have discovered that the pricelist representation was fraudulent earlier than April 2012” when PRD – who had been appointed sales agent in place of Ken Guy – invited him to make a bid to acquire Lot 18.
His ruling to allowed the TPA action to proceed according to such timeline is worthy of attention. Notwithstanding the six year limitation period that applied to actions for compensation under TPA s 82 (1), there was no limitation period – Justice Rares observed – applicable to the exercise of powers conferred under TPA s 87 (1) ie to grant an injunction; or any ancillary relief including compensation under s 87.
Thus, even though he declined to grant the injunction sought – because compensation was an adequate remedy – the application for TPA compensation as relief ancillary to the injunction was not constrained by any time bar at all.
Eckford v Six Mile Creek Pty Ltd (No 2) [2019] FCA 1307, Rares J, 20 August 2019
