In Bells Pty Ltd v WJ & HL Crittle Pty Ltd [2024] NSWCA 221 the purchaser complained that a vendor engaged in misleading and deceptive conduct in connection with an Exclusivity Agreement relating to a proposal that the purchaser should enter into a put and call option. The Exclusivity Agreement granted the purchaser a 3 week due diligence period.
Clause 3 of the Exclusivity Agreement provided that:
“During the Exclusivity Period:
(a) the Vendor must:
…
(ii) allow Mayrin and its agents and authorised representatives access to such information held by the Vendor as is necessary to complete due diligence in relation to the proposed purchase of the Property;
(iii) assist Mayrin and its agents and authorised representatives as far as possible in the due diligence process;
(iv) ensure that the information provided to Mayrin for the purposes of completing its audits and enquiries in relation to the Property is accurate and not misleading;…..” (emphasis added)
The purchaser obtained a high level contamination investigation during the due diligence period which stated that “[a]lthough there was no evidence of widespread filling or flytipping on site based on a review of the historical aerial photographs and the site walkover inspection, localised impacts from these activities could exist”.
The purchaser proceeded to enter into the put and call option, paying a call option fee of $26.4m.
After entering into the option the purchaser obtained a comprehensive contamination report which disclosed the existence of 3 pits on the land, filled with (among other things) asbestos, tyres and dead animals, which had been covered over and grassed, and which would cost approximately $4.2m to remediate.
The purchaser commenced proceedings against the vendor alleging that the vendor had engaged in misleading and deceptive conduct in breach of Schedule 2 to the Competition and Consumer Act 2010 by failing to disclose the existence of the pits and their contents. The purchaser argued that the above provision of the Exclusivity Agreement imposed a positive obligation on the vendor to disclose the existence of the contamination.
The court at first instance, and unanimously in the Court of Appeal, decided that the vendor had not engaged in misleading and deceptive conduct.
In relation to the underlined words, the Court held:
(a) at [119] that the word “allow” did not mean “provide”: “allowing access to books in a library, for example, is very different to providing those books…”;
(b) at [120-121] that the trial judge did not err in construing “assist” so that it did not impose on the vendor a positive duty of disclosure;
(c) at [125] that the words “as far as possible” do not “impose an obligation of voluntary disclosure of anything that might be relevant to (or even of anything that might be understood to be of interest in relation to) the due diligence process. In other words I consider that the words “as far as possible” qualify the extent of the assistance to be provided. I do not accept that “assistance” in the due diligence process imposes a positive obligation of disclosure which extends to a pro-active obligation to disclose matters to the appellant’s attention whether or not an enquiry had been made as to those matters and whether or not the failure to disclose them would in the circumstances be misleading”.
In summary, the Court found that the circumstances (including indications in the put and call option deed and annexed draft contract for sale of land that the principle of caveat emptor would apply) did not give rise to positive obligation to disclose, and that the circumstances did not give rise to a reasonable expectation of disclosure, which in turn meant that there was no conduct that was misleading or deceptive, or likely to mislead or deceive.
The case provides useful insight in relation to the drafting and negotiation of the due diligence/ disclosure conditions in the context of transactions of this kind.
Download PDF here – Failure to disclose during due diligence not misleading or deceptive conduct
Disclaimer: This article is a general summary with focus on issues of interest to the authors. It is not intended to be used as legal advice.
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