Purchasers beware

Loss of a chance to bid at auction is not an attributable loss recoverable under section 74P Real Property Act 1900

A recent decision the NSW Supreme Court has further clarified losses recoverable due a caveator’s refusal to withdraw a caveat. Those losses are recoverable under section 74P(1)(c) Real Property Act 1900 (NSW) (RPA).

In Thomson v Golden Destiny Investments Pty Ltd (No 3) [2016] NSWSC 78, the Court held that ‘losses attributable’ to a caveat do not extend to an inability to buy land at auction because an ill founded caveat prevented a settlement. Put plainly, the chance to bid at an auction and the alleged loses that flowed from it were not recoverable.

Facts

Mr and Mrs Alonso (Alonsos) entered into a land sale contract with Golden Destiny Investments Pty Ltd (GDI) on 23 April 2014 for the sale of six properties in Turramurra (Turramurra properties). Settlement was to occur on 22 July 2014 (initial settlement date).

Four days prior to the initial settlement date New Galaxy Investments Pty Ltd (NGI), lodged caveats over the Turramurra properties, effectively preventing settlement. NGI relied on its interest in the Turramurra properties arising from an agreement with GDI. In separate proceedings the Court determined that the agreement with GDI was not a valid caveatable interest. ¹Largely as a consequence of NGI’s refusal to withdraw the caveats, settlement for the Turramurra properties did not occur until 3 July 2015 (actual settlement date).

Between the initial and actual settlement dates, the Alonsos asserted that they were forced to seek additional finance to realise their intention of buying a property in Collaroy following settlement due to strength of the Sydney property market.

The Alonsos sought compensation from NGI under section 74P of the RPA for the loss of a chance or opportunity to buy a property at auction as a consequence of the delay in settlement of the Turramurra properties due to NGI’s actions in refusing to withdraw its caveat.

Mr Alonso gave evidence that he and his wife had identified five Collaroy properties they would have purchased (identified properties). The compensation claim was characterised as the difference between the average purchase price of the identified properties as at the initial settlement date and the price of the identified properties as at the actual settlement date.

Decision

The decision turned on the evidence adduced before the Court as to whether the opportunity to purchase a Collaroy property at auction presented, on the balance of probabilities, a “substantial, and not merely speculative, prospect of acquiring a benefit”.²

Stevenson J accepted that Mr and Mrs Alonso would have, in all probability, “taken the opportunity” to attend and bid at one or more of the auctions.

However his Honour found that the plaintiffs had not established that this opportunity presented anything more to the Alonsos than a speculative return. In delivering his judgment, Stevenson J commented that there was a dearth of specific evidence going to the nature of the properties and the manner of their sale, including the number of persons at each auction or the manner in which the bidding proceeded. Ultimately his Honour found that the Alonsos’ evidence was “aspirational” rather than demonstrative of a substantial prospect of a commercial benefit.³

Key learning

This decision indicates that in most circumstances, the loss of a chance to bid at auction on a property because a settlement was delayed by an unjustified caveat will not be a loss recoverable under section 74P(1)(c) of the RPA. This loss described in this situation is outside what section 74P(1)(c) of the RPA seeks to capture.

The decision also highlights the need for sound evidence of losses that are ‘real’ and ‘not speculative or aspirational’ in order to successfully recover losses under section 74 of the RPA.

This article was written with the assistance of Rebecca Griffiths, Law Graduate.

¹Thomson v Golden Destiny Investments Pty Ltd [2015] NSWSC 1176 per Sackar J at 644
²Thomson v Golden Destiny Investments Pty Ltd (No 3) [2016] NSWSC 78 at 46, citing Sellars v Adelaide Petroleum NL [1994] HCA 4 per Brennan J at 364.
³Ibid, at 52.