Bank not Obliged to Disclose Property Valuation to Loan Customers

by Stuart O'Neill

ACCC V Oceana Commercial Pty Ltd & Ors [2003] FCA 1516

The Federal Court of Australia has recently dismissed a claim by the ACCC that the Commonwealth Bank was obliged to provide certain investment loan customers with the contents of its valuation of the investment property, or otherwise alert them that they may have paid too much for the property so that they might seek their own advice.

The claim was brought as part of a major action by the ACCC against 13 respondents involved in a property marketing scheme (the “NAPC scheme”) which the ACCC alleged contravened the Trade Practices Act 1974 (Cth) for being misleading and deceptive against buyers.

Whilst the proceedings contain no real surprises regarding the allegations of misleading and deceptive conduct against the promoters of the scheme, the ACCC’s claims against the Commonwealth Bank were the first of their kind in the Federal Court. Presiding Judge Kiefel’s findings are therefore of considerable interest to institutional lenders who loan funds to buyers of investment property.

The NAPC scheme involved Gold Coast personalities Christopher Bilborough and Dudley Quinlivan and associated companies Oceana Commercial Pty Ltd, Coral Reef Group Pty Limited, National Asset Planning Corporation Pty Ltd and Investlend Pty Ltd. The scheme followed the marketing format recently scrutinised by the Queensland Office of Fair Trading in which interstate buyers are sourced via telemarketing campaigns, then invited to property investment seminars and encouraged to acquire Queensland investment property often at heavily inflated prices.

The action, reported at ACCC v Oceana Commercial Pty Ltd & Ors [2003] FCA 1516, specifically concerned the marketing and sale of residential units at Chevron Island, Surfers Paradise, to buyers named Mr and Mrs Gleeson from Cairns in northern Queensland. The units had been marketed and sold in 1997 and 1998.

The Commonwealth Bank had provided investment loan funds to the Gleesons for the purchase of the units. The bank held a valuation which suggested the Gleesons had paid too much for the property. That information had not been disclosed to the Gleesons and the bank had not advised the Gleesons to obtain independent legal or financial advice about their decision to buy the units.

The ACCC’s claims against the Commonwealth Bank were twofold, firstly that the bank was guilty of misleading or deceptive conduct, and secondly that the bank had acted unconscionably, in not disclosing the contents of its valuation or taking steps to alert them to the matters to which its valuer had adverted.

Ordinarily the relationship of banker and customer does not carry with it any fiduciary obligations on the bank’s part and the customer is not reasonably entitled to expect that the bank will disclose information in its knowledge against the bank’s interests to protect the customer’s interests.

The Court stated that, in the absence of some special feature of the relationship, there is no reason to impose on the bank an obligation of the kind asserted by the ACCC. For Mr and Mrs Gleeson, their relationship with the bank was simply that of lender and borrower. The bank was never their advisor and they never relied on it as such.

The Court observed that the Gleesons would have expected the bank to obtain its own valuation so that it might assess the value of the security offered. They could not have had an expectation that the valuation would be provided to them or that the bank would volunteer advice about the wisdom of the purchase they had undertaken.

The bank’s terms and conditions also clearly advised the Gleesons that the bank would not be disclosing its valuation. They were not to infer from the bank’s offer of a loan to them any representation from the bank about the property’s value. They were reminded that the bank took no responsibility for any decision they may make to enter into a contract, although this had already occurred. If they had any doubt about any matter, they were advised to seek the services of a financial counsellor or legal advisor.

On this basis, the ACCC’s allegations of misleading and deceptive conduct against the bank were wholly dismissed.

In relation to the ACCC’s claim of unconscionable conduct, the ACCC sought the following injunctions against the bank:
    ‘…22. An order that CBA be restrained, for a period of five years, from lending money, whether secured or not, to a person for that person to purchase property where CBA knows, or has been informed, that the person buying the property has been misled or deceived by the vendor or its agents as to the market value of the property to be acquired, unless CBA shall have first informed the person in writing of such knowledge or information and the person has advised CBA in writing that it has considered the knowledge or information provided by CBA and wishes to continue with its application to borrow money to purchase the property.
    23. An order that CBA be restrained for a period of five years, from lending money, whether secured or not, to a person for that person to purchase property as an investment where CBA knows or has been informed that:
    (a) the purchase price is more than 10% greater than any valuation of the property obtained by CBA and the person does not reside in the same town or city as the property being sold; or
    (b) the purchase price is more than 15% greater than any valuation of the property obtained by CBA,
    unless CBA has first recommended in writing to the person that the person obtain independent professional advice as to the value of the property to be purchased and the person has subsequently informed CBA in writing that he or she is satisfied that the purchase price represents fair local market value. …’

Both of these injunction applications were dismissed with the following comments (in summary terms) provided by Kiefel J:
  • The first injunction sought in paragraph 22 requires the bank to provide advice whenever someone informs it that a customer has been misled as to the value of the property. It does not allow for any consideration on the part of the bank as to the reliability of the advice and the likelihood that their customer has been influenced in that way.

  • The injunction sought in paragraph 22 is further likely to involve the bank in a breach of its contractual obligations to the valuer.

  • The order sought in paragraph 23 is even more problematic. Ten or fifteen per cent may not reflect a substantial difference between purchase price and valuation. It would depend on the amount of the purchase. In any event it was difficult to see how the ACCC could justify the figures.

  • The orders sought were intended to frame a practice for all banks which would require them to insist upon their customers obtaining valuations. It would prevent the customers from proceeding with a bank loan even if they considered that it was in their interests to do so notwithstanding advice as to value. Further, the injunctions appeared to be premised upon a purchaser being in a position to make a choice without litigation. That is not the real situation into which a bank is to be required to participate.

The Court stated that the Gleesons were under no special disadvantage vis-à-vis other borrowers because it appeared they had an opportunity to make an informed judgment about their purchase of the residential units. The ACCC had not suggested that the Gleesons had been actively misled by the bank, but only asserted their lack of knowledge about the value of the property. Whilst the Court accepted that the bank could be taken to know that purchasers were perhaps persuaded to pay more, the ACCC did not establish that the bank knew they were told a falsehood about the price or value of the property.

The Court stated that the knowledge that the bank had, without more, would not have required it to disclose its valuation or the advice it had received. The disadvantage that the Gleesons apparently laboured under did not seriously affect their ability to make a judgment as to their interests. Kiefel J observed that Mr and Mrs Gleeson were educated, intelligent people, well able to comprehend that the price sought for a property may not be the same as its market value.

The ACCC did not establish on the evidence that the Gleesons were unable to obtain the information which it says they needed. On that basis, the Court held that Mr and Mrs Gleeson were not under any special disability such as would prevent them from obtaining the very advice which the ACCC alleges the bank should have provided to them. All the Gleesons had to do was seek advice from a valuer on the Gold Coast.

Kiefel J stated that the bank could not be said to be acting contrary to good conscience when it had told the Gleesons that it would not be providing the valuation and that they should draw no conclusion about a property’s value because the bank is willing to advance the monies sought. The bank had clearly removed itself from the position of adviser to avoid placing itself in a position where it might be held responsible for the steps then taken by the purchaser on the basis of the advice.
For these reasons, the Court held it could not be said that the bank was guilty of unconscionable conduct. Accordingly, the ACCC’s claim in that regard was dismissed.

The findings strongly affirm that institutional lenders are generally not required to disclose their property valuations to investment loan customers. However, where the lender has established a relationship with a customer as an advisor and the customer shows reliance on the bank’s advice or other conduct, the position will be different.

The decision also highlights the evidentiary difficulties faced by regulators in succeeding with claims of misleading and deceptive conduct, and unconscionable conduct, involving property marketing schemes.

The Court’s conclusions are of considerable comfort to lenders who provide funds to investors that they suspect may be paying too much for their investment properties.

Despite the findings, however, lenders and their agents and representatives still need to be vigilant in their dealings with borrower customers not to conduct themselves in a way that may lead the customers to rely on their advice or expect advice to be given about property values or other commercially sensitive information relating to particular transactions. Where a lender suspects that a customer is paying too much for an investment property, even more care should be taken.


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