Most buyers would have been more circumspect than the New Zealand couple who signed up for a $930k off-the-plan purchase of a Hilton Surfers Paradise apartment in July2009, after lapping up the sales spin that “it would be worth $1.1 million when the building was complete” and would command “$1000 a night at 80% occupancy”.
Paul Goode and Christine Barber forked out their $5k holding deposit on the spot during a holiday visit to the glitter strip, for “the last two-bedroom apartment available at that price” in the Orchid Tower .
The next day, the (unnamed) sales agent escorted the pair along a “well-trodden path” to a local lawyer whose distinction appeared to be that he had authored a “buyer’s guide” for the tower but which – given its absence of cautionary advice – “might as well have been prepared for the developer”.
Without reading the pile of papers, nor having anything in them drawn to their attention, they duly signed the contracts and associated items for the nit and furniture buy.
Reality struck when their post-construction inspection of August 2011, made it obvious that the two bedder apartment could never achieve anything like $1,000/night rental.
They refused to settle notwithstanding finance was available, claiming through their new lawyers, they had been induced into the contract by misleading and deceptive conduct.
Twelve months later – after the developer re-sold the unit at $620k having received a mere $3.9k rent in the meantime – it sued the buyers for its re-sale loss.
The buyers defended the claim on the basis of the sales agent’s inducements.
The developers made no attempt to justify the representations that Goode and Barber both claimed had been made but instead flatly denied anything of the sort had been said at all.
The court simply had to determine whether the representations had been made and if so, had they been relied upon.
“This is not a situation where something subtly different from what was alleged could have been said without being misleading or deceptive,” noted presiding judge John McGill in Brisbane’s District Court.
His Honour found that all three representations had been made and that the developer was caught by the agent’s conduct in that “she had ostensible authority to make such statements”.
As to whether the buyers had relied on other information rather than the agent’s statements – an issue that has been the Achilles heel for other get-out-of-contract litigants – “there was no evidence that they in fact made any other investigations,” ruled His Honour.
“Astute investors might well been sceptical about the reliability of something that they were told and have made other investigations, but these defendants were obviously not astute”.
Judge McGill reserved his most scathing remarks for the solicitor to whom they had been referred by the agent to act on their behalf and the real estate office that handled the re-sale.
He doubted that the solicitor – unnamed the judgment and who was not in court to defend himself – “made any sort of attempt in a meaningful way” to protect the interests of the buyers.
“On any view of the matter, the solicitor meeting consisted of nothing more than some enquiry into their capacity to pay the price and the mechanical process of signing the contracts”.
“The fact that they had the ‘benefit ‘of ‘independent ‘legal advice” was irrelevant” to the issue of the buyers’ reliance on the agents’ statements because “there was no evidence of anything said or done that had the effect of interfering with the buyers reliance on what they had been told by the salesperson”.
Regardless of what the agent had told them, the developer contended, the contract clearly negated all sales representations if any had been made.
But the judge was satisfied that the buyers had not in fact read the contract, like probably will other buyers in the development, and that in any event a “no representations provision” cannot “whitewash” misleading or deceptive conduct in fact engaged in.
If that were not the case, he added, “real estate agents could mislead and deceive to their hearts content and the developers who employ them could still take the benefit of the resulting contracts”.
The court ordered the contract be voided ab initio and ordered the return of the deposit.
It noted in passing that the maximum lawful commission on the re-sale at $630k was $15,950k plus advertising etc expenses. However according to the disclosure notice 27c signed by re-sale agent Ray White Surfers Paradise, it charged an additional 4% of the sale price for “advertising, marketing and administrative fees for each sale”.
His Honour regarded this as a “a transparent attempt to evade” legislated maximum commission rates, “the payment and receipt of which was illegal”.
Other litigants in Gold Coast off-the-plan contract disputes have been able to convince a court that misrepresentations have occurred in sales but have failed when it came to proving ‘reliance’, ie that the agent’s statements alone were the clincher in securing their decision as to whether or not to sign up.
The hallmark of this case among so many other GFC-related terminations is that the “foolish and naïve” buyers did no significant research of their own and did not have – at least according to the judgment – effective legal representation . They also waited to be sued by the developer rather than taking on an arguably higher burden of being a plaintiff.
Probably not so “foolish” after all.