OPINION: THE Supreme Court of New South Wales recently ruled in Zhang v VP302 SPV & Others that the buyers of an off-the-plan property were entitled to a rescission of their contract and a deposit refund because the estate agent for the developer had engaged in misleading and deceptive conduct.
These inexperienced investor-buyers had relied on baseless representations in newspaper advertisements that the value of the inner Sydney terrace units being marketed by the agent would double in five years.
A major law firm soon issued a media release suggesting that, in a falling market, off-the-plan buyers might try to get out of deals done years earlier by relying on pre-contractual misrepresentations.
Property developers and their agents were warned “to carefully check the wording of their advertisements or other representations” to make sure they were “based in fact”, while any statements regarding future value must have a “reasonable basis” with further information being provided to qualify those representations.
However when sellers’ agents get found out on their porkies, some buyers will still settle but later sue the lying agent. (See: Were Hoges & Linda Dudded By A Dodgy Agent?)
In one case from the Australian Capital Territory a marketing agent, a developer and others faced lawsuits from disgruntled buyers years after they had settled on their investment purchases.
The Judge in that case found that a glowing statement in a marketing brochure was a “mere puff” (as was an invitation to “participate in one of the strongest growth industries in Canberra”), so nothing about the brochure (titled Investment Report Canberra International Hotel) nor any of the other marketing activities constituted misleading or deceptive conduct.
In the course of giving jugement for the defendants in three rescission and damages actions, His Honour reviewed the Australian case law relating to false/misleading representations in property sales, and took into account these remarkable propositions from the Courts:
· A representation is not necessarily misleading or deceptive if predicted events do not occur.
· A company may act honestly and reasonably yet still contravene Section 52 (misleading or deceptive conduct) of the TPA because intention is not essential for a breach of that section.
· The question for a Court is not simply whether people were mislead.
· A representation is not necessarily misleading or deceptive if predicted events do not occur.
· The Court decides if conduct is misleading or deceptive on the particular facts and in light of the incidents and character of commercial behaviour.
· It is acceptable not only that puffery is part of the ordinary stuff of commerce but also that some evasion is expected from people resisting disclosure of confidential information.
· Silence may be misleading if you do not tell the other person something you know in circumstances where you have a duty to disclose or where the other person reasonably expects you to be forthcoming.
· Misleading or deceptive conduct must induce or be capable of inducing error.
· Claimed losses must be caused and materially contributed to by the misleading conduct.
· Later losses may be recoverable if culpable conduct induces not only the initial purchase but also subsequent activity in relation to a property.
By Tim O’Dwyer, Queensland solicitor and consumer advocate.*
Australian Property Journal