How you can lose your property sale

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Much has been written in recent times about the ability of auction bidders, who after winning an auction bid have a change of heart. Some “experts” have suggested that they should refuse to sign a Contract and walk away. In my view this is dangerous advice because in most parts of Australia auctioneers may be able to legally sign a Contract for Sale on behalf of a reluctant buyer, and also a seller. Even if there is no signed post-auction contract, a winning bidder who has a change of heart may still wind up defending a damages suit – as happened to experienced property investor Jack Singh.

Details about the property sale case

This case has been widely reported but basically Singh was the winning bidder at the auction of an expensive home in Western Australia. His bid was $3.6M. The reserve price of $3.9 M was not reached. As is usually the case the auctioneer took instructions and then advised that the property was “on the market” and if there were no more bids, it would be sold. The bidding was re-opened, no other bids were made, and he “knocked the property down”, in other words, sold it, to Singh.

Singh was an experienced and smart property player. When presented with the Contract to sign, Singh asked if the sellers would accept a 60 day settlement. When reminded that the auction terms required settlement in 30 days, Singh said he did not intend to buy the property and left.

What did the sellers lawyers do?

Lawyer’s letters flowed demanding he sign the contract and pay the deposit. Neither happened and of course settlement did not take place. The property was put back on the market, did not sell and was subsequently rented out. Singh was sued for damages on account of his misleading and deceptive representations with respect to future matters contrary to Section 4 of the Australian Consumer Law. There were two key parts to the seller’s claim:

  • firstly that Singh’s bid was a misleading and deceptive statement as to a future matter and,
  • secondly, that his conduct in allowing the auction to continue without withdrawing his bid, together with his saying and doing nothing to indicate he was not proceeding, misled the sellers and “other persons associated with the auction.”

The sellers relied on the overall effect of Singh’s conduct.

Judges view matter somewhat differently to normal people and the making of the bid, the judge found he was not a breach of Section 4 because he was satisfied that the bid not only constituted a representation that Singh would comply with the auction conditions to complete the purchase, but also demonstrated an intention to acquire the property with Singh having the financial means to do so. “It was an honest representation,” His Honour somehow concluded.

He then went on to look at his “post-bid conduct.”

“I find that conduct (including silence),” the judge ruled, “to have been misleading and deceptive in any event.”

Singh in the meantime had argued that, at the point when the auctioneer returned and asked for other bids, he decided not to proceed with his bid. He had however not withdrawn the earlier bid, even if he was able to.

Singh claimed that when he and his wife went into the property after the auction, he was ‘confused and shocked’ and thought he was being invited to re-negotiate the price. For an experienced person such as Singh this was plainly ridiculous. However, in the judge’s view, Singh could still reasonably have been expected to take steps to ensure “his new position” was understood by the auctioneer: “His silence would have misled as to his intentions at that point, or would have misled as to his state of mind at that point as to whether he considered he had acquired the property.”

What was the outcome for the sellers?

Unfortunately for the sellers the next question was whether their post-auction losses were “because of” Singh’s misconduct. The trouble was, although the judge decided his bid was genuine and not misleading, Singh’s later mischievous silence caused a loss only of an “opportunity” to restart the auction. As this loss was of “theoretical significance”, the sellers claim was sadly dismissed.

This case is unusual in the extreme and anyone attending an auction and being the winning bidder could rightly be expected that they will have to stump up and sign the Contract, pay the deposit and complete the contract. If you have any concerns about the bidding process at an auction please contact our property team at Sajen Legal.

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