Developer’s marketing held to be misleading and deceptive

09 October 2012 Topics: Property and planning law

A recent decision by the Federal Court highlights the need for caution on the part of property developers when dealing with prospective tenants and purchasers.

It was held in Miletich v Murchie that comments made on behalf of the developer, both orally and in marketing material, to parties who then entered into a tenancy agreement were misleading and deceptive.

Background

The applicants were Jamaica Blue café franchisees. The franchisor was Foodco Group Pty Limited.

The respondents included the director of a shopping centre developer and the developer’s leasing agent. The developer went into liquidation during the course of the trial.

Foodco introduced the Jamaica Blue franchisees to the developer in connection with a potential site for the café that was identified in the developer’s shopping complex.

The franchisees attended the developer’s leasing suite, and were shown a detailed video of the proposed centre, various brochures, a model and enlarged plans. Various oral representations about the types of other tenants and the foot traffic in the centre were made.

Following the meeting with the developer’s representatives, the Jamaica Blue franchisees entered into a franchise agreement with Foodco, which commenced lease negotiations with the developer.

When the Jamaica Blue café commenced trading the centre was effectively untenanted. There was almost no foot traffic and the café never made a trading profit.

The franchisees brought an action for misleading or deceptive conduct under the Trade Practices Act 1974 (Cth) (which on 1 January 2011 was renamed the Competition and Consumer Act 2010 (Cth)) in relation to the representations about the types of tenants and level of tenancy in the development, and resulting patronage.

Issues

When considering the allegations of false or misleading conduct, the Court considered:

  1. Were the assertions made in the marketing materials, including the video and the brochure, as well as the oral statements made by the developer and its agents, representations as to future matters or mere ’sales talk’ that was obviously not intended to be relied upon?
  2. If the statements were representations, were they misleading or deceptive?
  3. Did the disclaimer in the brochure limit the developer’s liability?
  4. Did the franchisees rely on the misleading or deceptive representations when entering the lease?

Were the marketing materials and verbal discussions representations?

The Court held that they were all representations as they were intended to persuade prospective tenants. The detail in the material and discussions was intended to convey a specific idea of what the future business would look like.

Also, the inclusion of the tenancy mix in the leasing disclosure statements implied that negotiations were underway with other prospective tenants.

Were the representations misleading and deceptive?

The representations in question involved predictions and forecasts of likely trade. Under the legislation, representations about such ‘future matters’ are taken to be misleading or deceptive unless there were reasonable grounds for them.

The Court found that there were no such reasonable grounds so the statements were misleading and deceptive.

The Court also held that Foodco was not involved in the false or misleading conduct as there was no evidence that it had ever advised the Jamaica Blue franchisees that the material from the developer’s representatives was accurate.

Was the disclaimer effective?

The Court held that the disclaimer in the brochure was insufficient to limit the impression conveyed by the entirety of the marketing material and the discussions.

Fine print at the bottom of a marketing brochure would not dissuade a reasonable reader in the position of the franchisees from believing that the brochure contained representations that could be relied on.

Did the franchisees rely on the representations?

The Court was persuaded the franchisees would never have entered into the lease if they had known the actual state of affairs. They relied on the misleading and deceptive representations and suffered loss or damage as a result.

Implications for developers and agents

This decision is an important reminder to developers and sales and leasing agents of the importance of ensuring that marketing material and oral representations are accurate. Where forecasts about future matters are involved, it is important that they are based on reasonable grounds, and in practice the basis for the forecasts should be well documented.

The Federal Court of Australia judgment can be found here.

For further information on this topic, please contact Leanne Doxey or Katie Miller from our property, planning and environment team on +61 7 3231 2444.

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