OCEANA
ACCC v Oceana
[2004] FCAFC 174 - two tier market
This is a case
quite different to Maurici, one where the full bench of the Federal
Court of Australia shows complete understanding of the principles and
practice of valuation. This case is of particular interest for two
reasons:
- it deals with how a valuation should be
undertaken in a
“two tier market”; and
- it shows that
a lender does not have a duty to reveal it's valuation to the borrower.
The case concerned
the purchase of a Gold Coast unit in 1996 by Mr & Mrs Gleeson for
$164 900. The ACC argued that the system of marketing used by the
vendors contravened the Trade Practices Act 1974 under s52 as well as
the Queensland Fair Trading Act 1989. The Commissioner argued that
misrepresentions were made in the marketing scheme as to the present
and future values of the units being sold.
The Commonwealth
Bank provided funds to the Gleesons and it was alleged:
..that,
by reason of the valuation, the Bank knew that a marketing scheme had
been used in the sale to the Gleesons and that as a result the
purchase price was well above the unit's market value. The Bank's
liability was said to derive from its failure to tell the Gleesons of
these matters” - p7
.
The ACCC was
originally unsuccessful with the primary Judge and then appealed to
the full bench of the Federal Court.
THE
VALUATION QUESTION
The ACCC claimed
that misleadings statements were made concerning the prices at which
units were being offered for sale. To support this claim, market
valuations were provided by a local valuer which showed generally,
that there was no change in value between 1998 and 2002. Spencer
was used as the test of market value. The valuer noted that there
were 14 unit blocks subject to the marketing schemes involved in the
litigation. He stated:
An examination
of sales and resales of units within these developments and within
similar developments shows that resales are generally at prices 20%
to 25% less than the initial purchase pri
ce.
Sales in the
subject development (Chevron Palm Waters) showed, except for one
exception, a fall in value on resale. However, the problem was that
the resales occurred 2-4 years after the initial purchase price.
The marketing
scheme included a spreadsheet analysis that showed an 8% growth per
annum. However, subsequent sales did not show anywhere near that
growth rate. However the Court was concerned with the use of
subsequent sales so long after the date of purchase as evidence of
misleading statements made in 1998:
60
Thus he concluded that the market value of each unit, as at the date
of the first sale, was the same as at September 2002. That decision
was based on sales occurring after 1997/98 and trends in purchase
prices between 1991 and 2001, most of which information would not
have been available in 1997/98. It is therefore difficult to see how
Mr Brett's approach applies the prescription by Griffith CJ in
Spencer that one should
:
...put
yourself as far as possible in the position of persons conversant
with the subject at the relevant time and from that point of view to
ascertain what, according to the then current opinion of land values,
a purchaser would have had to offer for the land to induce such a
willing vendor to sell it, or, in other words, to inquire at what
point a desirous purchaser and a not unwilling vendor would come
together
.
61
Similarly, his approach pays no regard to the observation by Isaacs J
that circumstances arising after the relevant date are to be ignored.
-
at page 20.
Counsel for the
defence successfully argued that the only properties available for
sale to investors at that date were properties in the price range
that the Gleesons paid. The Valuer's defence was that the buyers were
not informed and therefore, did not meet the criteria under the
willing buyer theory. However, this argument could not be sustained
because he had not interviewed the purchasers involved in the other
sales.
The Court
stated:
Prices will vary
from time to time, and so it is necessary to fix a relevant date as
the date of valuation. Market value must be fixed having regard to
considerations in the market on that day. This approach leads to the
conclusion that Mr Brett's valuations do not reflect market values in
1997/98. He has conceded that at the relevant times, a purchaser
would have had to pay substantially more than his valuations. - page
23 .
And
further:
69
There was further cross-examination concerning this matter. At this
stage, we point out that whatever the deficiencies of contemporaneous
sales prices, they have the distinct advantage of being information
which was available to potential purchasers at the relevant time. Mr
Brett's exercise relied upon information which was not so available.
-
page 24
The Court did not
support the contention that interstate buyers were at a disadvantage
or were ignorant of market prices compared to their Gold Coast
cousins:
74
it seems that Mr Brett assumed that all contemporaneous sales were
infected by techniques used in their marketing. Yet he had no
concrete evidence of whether particular units were so marketed, or
how effective such techniques may have been. He seems to have assumed
that marketing techniques of a certain, but unidentified, type would
generally produce inflated sale prices. He also seems to have assumed
that purchasers were ignorant of sustainable price levels. We see no
reason why purchasers of new units on the Gold Coast in 1997/98
should be assumed to have been any more or less ignorant than
purchasers in any other market. The only justification for such
assumption seems to have been that many of them did not live on the
Gold Coast or in Queensland . We find it difficult to see any
justification for this approach. It may reflect the Commissioner's
case that inter-state purchasers were “pressured” into sales
without proper information, rather than an objective approach to
valuation. -
page26
The Court further
criticised the Valuer for not at least using the capitalisation
method as a check on value as the units were being sold and marketed
as investment properties. New units were most desirable in this
regard because of extra taxation benefits.
MARKETING
TECHNIQUES
The Court stated
that it is difficult to distinguish between unreasonable methods of
marketing and “aggressive” marketing:
A
more fundamental issue is whether all sales techniques necessarily
undermine the comparability of sale prices. A real estate agent is
presumably permitted to promote his or her product in some way
without inevitably being accused of effecting a sale at more than
market value in the sense in which Mr Brett used that term. There is
also the possibility that prevalent techniques may affect market
value