Quiet Achiever Investments v MDM Properties [2006] VSC 365
In the Supreme Court of Victoria, at a trial confined to liability, Whelan J held that a vendor's written income and return estimates for ski lodge suites were misleading and deceptive in contravention of the Trade Practices Act, because they did not bear a reasonable relationship as estimates to actual historic performance [8], [92], [110].
What the court decided
In 2003 Quiet Achiever bought six suites in a Dinner Plain lodge from MDM, which had bought the lodge from ACN in December 2002 [2]. Mr Hilberts, the second defendant, is a businessman associated with MDM [1]. Quiet Achiever sued MDM and Mr Hilberts over an estimates document sent by MDM's agent, under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1999 (Vic) and in negligence [6].
The document showed per suite gross letting income of $18,553.96 and a 9% net return [31]. It described 45% as the approximate three year average of actual historic occupancy, and the estimates as a guide only [31]. MDM in fact held only two and a half years of figures, which averaged 43.8% [35]. The average for the three prior years was in fact 45.43% [66]. The judge found the stated average therefore approximately accurate [68].
Whelan J held that the document necessarily represented that the estimates were genuine and had a reasonable factual basis [49], [55]. No representation was made that gross letting income was and would be the stated figure [52]. In Nella v Kingia Pty Ltd French J had asked whether an estimate bore a "reasonable relationship even as an estimate" to actual historic performance [59]. Whelan J found that approach of assistance despite factual differences [60]. Representations about the past, being estimates, were to be assessed much like representations as to the future [61].
Qualifying words formed part of the conduct to be assessed as a whole [56], [88], [89]. A Butcher argument failed, because MDM adopted and endorsed the information sourced from ACN (the former owner) and the problem lay in MDM's own analysis and presentation [2], [87]. Including the 1999/2000 airport construction year was not misleading [90]. MDM's methodology was reasonable if only two and a half years of financial statements were available, but that did not make its unexplained presentation not misleading [90].
The claim to three years of actual historic occupancy was untrue, and the failure to allow for payments to others was careless [90]. That honest mistake put gross letting income at $18,553 rather than $17,472 [79].
The critical considerations were that the document was not prepared with care in important respects and did not reveal the assumed direct correlation between annual occupancy rates and income [91]. Nor did it reveal the heavy reliance on an old financial statement, which produced the highest income estimate justifiable on the data held, or the widely variable occupancy history [91]. Its 9% return was outside the range of 6.36% to 8.2% that a careful analysis would have produced [91]. The misleading representations were that the figures had been prepared with care, that the document presented a fair assessment of income and that MDM had reasonable grounds for the income and return estimates [92]. MDM contravened section 52 of the Trade Practices Act [110].
Accepting evidence that Quiet Achiever's officers read the document as historic, the judge held section 51A was not applicable [93], [94]. His analysis would not alter if section 51A applied, as MDM had not established reasonable grounds [95]. Section 53A was not considered, counsel saying it added nothing [96].
The accessorial claim under section 75B(1)(c) failed because, beyond knowing that only two and a half years of figures were held, Mr Hilberts lacked the requisite personal knowledge [99]. The evidence established neither discrete misleading conduct by him personally nor a personal duty of care [100], [101]. MDM owed and breached a duty of care, though his Honour thought that claim probably superfluous [102]. Reliance was established, but other causation issues were deferred [103]. Whether Quiet Achiever would have gone ahead anyway was left for a further hearing [104].
The claims of MDM and Mr Hilberts against ACN, Mr Geiger and Mr Pelley failed, as the representations alleged were not made [7], [105]. Claims concerning the full year 2002 financial statement also failed [107], [108]. The claim against High Plains Management had been deferred by consent [8]. Orders were to follow after hearing from the parties [111].
Why it matters
An honest estimate labelled a guide only and not guaranteed can still mislead where, read as a whole, a combination of its stated basis, unrevealed assumptions and errors leaves it without a reasonable relationship to actual historic performance. Sale material should state its basis accurately and disclose key assumptions, data gaps and variability; readers should also check the current legislation.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.