In the Queensland Court of Appeal’s recent decision in Central Highlands Regional Council v Geju Pty Ltd  QCA 038 the local council was held not liable for providing misleading information in the planning certificate to a third party buyer, overturning the Supreme Court’s decision.
Geju Pty Ltd (Geju), the respondent, entered into a contract to purchase vacant land in the belief that the land was zoned industrial. Before entering into the contract, Geju reviewed the council’s planning certificate obtained by the then current owner that sold the property to Geju. The certificate wrongly stated that the land was zoned industrial. In fact, the land was zoned rural.
The misrepresentation made by the council was crucial. Geju claimed that it suffered loss by entering into the contract in reliance on the council’s misrepresentation of the zoning information. Geju submitted that the land would have been more valuable if it had been zoned industrial.
It is clear that the council owes a duty to take reasonable care to supply correct information in a certificate to the entity who made a request for information. However, the council argued that it did not owe any duty of care to Geju, for the certificate was not requested by or issued to Geju.
The question was whether the scope of duty extends to Geju, a third party who did not make a request for information.
In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, it was held that there are some situations in which a third party may be entitled to recover economic loss. However, it is necessary for the third party to prove that:
- the provider of the information ought to have known that the information would be communicated to that third party as “a member of an identified class”; and
- it is very likely that the information would lead the third party to enter into a transaction in reliance on the information.
The principle is that the person who is claiming economic loss must prove that he is a member of an identified class of persons who would receive and rely upon the information. The respondent had to prove that the council ought to have known that the information would be communicated to it as a member of an identified class and that information led the appellant to enter into the transaction.
The Court of Appeal accepted the council’s submission that there was no rational way to define a class of which Geju was a member other than in broad terms.
The basis for the decision was, consistent with the council’s argument, that the class would be confined to those to whom the certificate is supplied who would be likely to be induced by the certificate to buy the land without further enquiry. A reasonable buyer should have made further enquiries to the council as to the correctness of the information provided by the council. The chairman of Geju was an experienced developer.
Geju failed to establish any of the elements held in Esanda to be essential for the existence of the duty:
- that the council ought to have known that Mayfair would pass the zoning information to someone else;
- that the council ought to have known that a third party would buy the lot in reliance upon the zoning information in the certificate; and
- that such zoning information would be likely to induce a potential buyer to buy the property.
The court did not accept Geju’s argument and allowed the appeal.