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:
  1. it deals with how a valuation should be undertaken in a “two tier market”; and
  2. 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 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.  


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