will get what they are paying for.
diligence is demonstrated by the 2004
Australian High Court decision in
Woolcock Street Investment Pty Limited v
CDG Pty Limited [2004] HCA 16.
building and offices in Townsville
(Complex) from the trustee of a
property trust some years after the
complex was built. There was no
warranty in the sale contract that
the complex was free of defects,
and there was no assignment of
the trustee's right against those
responsible for any such defects.
About a year after the purchase, the
Complex showed signs of structural
distress due to subsidence either
of the foundations or the soil upon
which they were built. CDG was the
trustee in 1987 to assist with design
of the Complex. There was evidence
that CDG had recommended to the
trustee that a geotechnical report
be obtained as to the load bearing
capacity of the structure, and the
trustee had refused to incur the
expense. It was likely that the
subsidence was unlikely to cause any
physical harm to anyone and that the
only loss was economic.
that CDG did not owe a duty to
Woolcock. Woolcock's vulnerability
to risk and its ability to protect itself
from that risk was a key factor in
determining whether CDG owed it
a duty of care to avoid economic
loss. The court found that Woolcock
as a commercial investor was able
to protect itself from the risk of
subsidence. It could for example have
obtained an expert's report before
purchase or negotiated appropriate
neither and this was sufficient to
negate any liability.
a failure to conduct due diligence or
obtain suitable warranties may deny
access to other relief. When taken with
the provisions of the Competition and
Consumer Act 2010 which give effect to
proportional liability (rather than simple
joint and several liability, and reductions
for loss due to a claimant's failure to take
reasonable care), it is clear that a buyer
in Australia who cuts corners with their
due diligence, largely does so at their
own risk.
diligence exercise should be to ask the
prospective purchaser for:
advertisements, communications from
the agent etc., which have induced
His practice includes advising on a variety of issues for businesses
including acquisitions and disposals, joint ventures, contracts and
employment arrangements, international supply and distributorship
arrangements and associated disputes and regulatory issues.
Level 18, St. James Centre
111 Elizabeth Street
Sydney, Australia 2000
+61 2 9221 1117 Fax
codea.com.au