Overview of the facts

A decision of the District Court of New South Wales has highlighted why a legal disclaimer is not always enough to protect a vendor from liability for misrepresentations, especially if the disclaimer is worded too broadly.

In the case of WG Riverview Pty Ltd v Ireland [2019] NSWDC 79, the purchaser of a bull at auction was awarded more than $200,000 in damages after it was discovered by DNA testing that the bull, for which they had paid $18,000, had an unknown sire, rather than the advertised sire.

It was not known how the bull came to have a different sire and there was no suggestion the vendor acted dishonestly.

As the bull’s parentage could not be established it could not be registered as a stud bull. This had two main consequences.

The first was that the bull was worth less than what was paid for it. The second was that the bull’s progeny could not be registered as stud cattle and were entitled to be registered as commercial cattle only. As commercial cattle the progeny were of lower value.

The vendor sought to rely on a disclaimer in the auction catalogue that provided the vendor did not assume any responsibility for the correctness of the information of the animals in the catalogue. However, the Court held that the disclaimer was worded too broadly to protect the vendor.

Calculation of loss and damage

The starting point for assessing the loss and damage was the difference between the price paid for the bull ($18,000) and its true value (having regard to its unknown sire). The parties agreed that the difference was $13,154 – i.e. the true value of the bull was $4,846.

The second component of the loss and damage was economic loss. In simple terms, the purchaser claimed the difference between what the bull’s progeny would have sold for if the bull’s parentage was as advertised (i.e. as stud cattle), and what the bull’s progeny actually sold for (i.e. as commercial cattle).

The Court determined that one season was an appropriate period in respect of which to calculate the economic loss. The parties had agreed that the difference in price for male progeny was $5,513 per head and for female progeny was $2,076 per head.

As the bull sired 28 male and 25 female progeny during the season, the total difference in prices was $206,264.

The court then reduced the amount by $19,226.12 to allow for certain costs the purchaser would have incurred if the progeny were sold as stud cattle.

Outcome

All up, the net loss and damage awarded to the purchaser was $200,191.88. If that wasn’t enough for the vendor, they also had to pay the purchaser’s legal costs, as is usual when a person is unsuccessful in litigation.

Lessons

There are two main lessons to take away from this case.

The first is that a claim for loss suffered by a purchaser as a consequence of the misleading and deceptive conduct of a vendor, or for breach of warranty by a vendor, can greatly exceed the price payable under the contract.

In general terms, a purchaser is entitled to be put in the position they would have been in had the vendor held up their end of the bargain. In this case, putting that principle into effect resulted in the purchaser being put into the same financial position they would have been in if the first season’s progeny would have sold as stud animals.

The second is that disclaimers, particularly when worded broadly, will not always protect against misrepresentations.

The Droughtmaster Stud Breeders Society has identified this and has amended their catalogue and online disclaimers as a consequence of this case. The Society has also sought to provide greater clarity around pedigree by introducing a scale system for classifying pedigrees – from full parental verification by DNA to no DNA verification.

It is imperative to ensure any disclaimers a vendor has in place are worded correctly to reduce the potential liability of the vendor.

Failure to do so could leave a vendor liable for damages which are well in excess of the contract price.

Conclusion

Hillhouse Legal Partners has a growing agribusiness practice and can provide advice on matters from the sale of livestock and drafting of appropriate disclaimers through to the sale and purchase of large scale cattle stations.