Australia: Thrills, Spills And Litigation: Are Development Applications A TPA-Free Zone?

Key Points:
In the absence of a commercial relationship between the parties, the lodgement of a development application is not conduct "in trade and commerce" and is therefore not capable of being misleading and deceptive under the Trade Practices Act. Developers do not owe purchasers or developers of adjoining land a duty of care to avoid economic loss occasioned by inaccurate statements in development applications.

The NSW Supreme Court's long-awaited decision in Street & 7 Ors v Luna Park Sydney Pty Limited & 3 Ors [2009] NSWSC 1 has important implications for all developers and property owners.

Background To The Litigation

Sydney's famous Luna Park sits on the harbour in a prime position close to the Harbour Bridge. In its unique harbourside location, Luna Park is placed in close proximity to highly sought-after real estate, both residential and commercial.

After Luna Park re-opened in 2004, a group of local residents joined with a developer to sue Luna Park Sydney Pty Ltd (LPS), as well as three other defendants involved with the operation of Luna Park.

Three-Pronged Claim Against Luna Park

The plaintiffs' underlying objection was to the level of noise emanating from Luna Park. However, in order to overcome legislative restrictions protecting Luna Park from noise nuisance claims, the plaintiffs decided to frame their claim on the following causes of action:

• section 52 of the Trade Practices Act 1974 (Cth) (TPA claim);
• the Crown Lands Act 1989 (NSW) (Crown Lands claim); and
• the tort of negligent misrepresentation.

The plaintiffs' actions centred on two development applications (DAs) lodged by the second defendant. The DAs were silent as to the intention to locate thrill rides in an extension to the north of the Luna Park site. Section 52 of the Trade Practices Act is a consumer protection provision that prohibits conduct, in trade and commerce, that is misleading or deceptive or is likely to mislead or deceive. The plaintiffs argued that the defendants' DAs constituted misleading or deceptive conduct in contravention of section 52 of the Trade Practices Act. In the alternative, the plaintiffs claimed that the second defendant made negligent misrepresentations in relation to the location of rides.

The residents claimed that they suffered damage by purchasing their properties on the misapprehension that only children's rides would be located in the northern extension, and paid more than their properties were worth if affected by a proposal to operate thrill rides in the extension. The developer claimed that it converted its property to a residential apartment block, when, had it known of any proposal to operate adult thrill rides in the extension, it would have instead retained it for commercial uses, which would have been more financially beneficial.

The developer argued that the second defendant remained silent as to any intention to locate and operate thrill rides in the northern extension. The developer not only relied on the absence of any such intention having been expressed in the DAs but also alleged that from about June 2001 and continuously to July 2002, the second defendant represented that a safe enclosed children's rides area would be constructed in the northern extension. The continuing representation was said to arise from the second defendant's silence after the lodgement of the first DA and its failure to inform the developer that larger rides would be operating in that area.

In addition, the plaintiffs argued that the location and operation of adult thrill rides in the northern extension of Luna Park were contrary to the 1998 Plan of Management, thereby contravening section 114(2) of the Crown Lands Act.

Not Misleading, And Not In Trade Or Commerce Either

In relation to the TPA Claim, Justice Brereton found that neither DA was misleading or deceptive. In reaching his decision, he started by emphasising that "in considering whether the alleged representations were conveyed, the whole of the context, and the whole of the document, are relevant" and then pointed out that:

Even if a DA contained this sort of representation, it could not breach the Trade Practices Act as the relevant conduct was not "in trade or commerce". Justice Brereton found that:

• the representations in the DAs were not directed towards persons who had a potential or actual trading or commercial dealing or transaction with the second defendant - there was no potential or actual trading or commercial dealing or relationship between the second defendant and the consent authority; and
• even if the representations were considered to be directed to owners and occupiers of potentially affected properties, they were not persons who had a potential or actual trading or commercial dealing or transaction with the second defendant.

In relation to whether the second defendant's silence could amount to misleading or deceptive conduct, Justice Brereton confirmed that silence could constitute misleading or deceptive conduct and that the circumstances in which silence may be misleading or deceptive are not limited to those in which there is a legal obligation to make disclosure such as in the context of fiduciary relationships. However, he found that:

In the specific facts of this case, he did not find that it was reasonable to expect that the second defendant would disclose its intention to locate certain rides in the northern extension. However, he made some general statements specifically related to landowners:

The Crown Lands Claim

Justice Brereton held that the operation of rides in the northern extension was not a contravention of section 114(2) of the Crown Lands Act as the section was directed to the Luna Park Reserve Trust and not LPS as the operator of the park. Additionally, he found that the Plan of Management did not exclude the operation of adult thrill rides in the northern extension.

Did The DAs Contain Negligent Misrepresentations?

Finally Justice Brereton held that there was no duty of care owed to the plaintiffs (as potential purchasers or developers of neighbouring properties) to avoid foreseeable risk of economic loss caused by inaccurate or misleading statements in the DAs.

Implications

In the absence of a commercial relationship between the parties, a development application in NSW cannot be challenged on the grounds that it contains misleading and deceptive statements in breach of the Trade Practices Act. Where there is a commercial relationship between the parties, this decision does not preclude the possibility that a failure to disclose relevant facts may amount to misleading conduct by silence.

Additionally, developers do not owe purchasers or developers of adjoining land a duty of care to avoid economic loss caused by inaccurate statements in development applications.

Developers should be aware that it is an offence under clause 283 of the Environmental Planning and Assessment Regulation 2000 for any person to make any statement, knowing it to be false or misleading in an important respect in relation to any document lodged with a consent authority.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.