Case Update: Alleged Misrepresentation of off-the-plan Gold Coast Penthouse

The sale of property ‘off-the-plan’ is a common way that property developers sell lots or apartments before their developments have been completed or the apartment building has been constructed.  While buying a property off-the-plan may result in a cheaper purchase price or more involvement in the appearance of the lot or apartment, there are also increased risks associated with an off-the-plan purchase.

Because a potential buyer cannot see the final product before signing a contract for an off-the-plan property, buyers often rely on representations made to them by the developer or their real estate agents either in person or through promotional material. The recent Queensland case of Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) (‘Juniper’)  shows the issues that purchasers can encounter when representations by a selling agent of off-the-plan apartments turn out to be false.

Background – Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2)

Juniper Property Holdings No 15 Pty Ltd (‘Juniper’) marketed, constructed and sold units in the ‘Soul’ development at Surfers Paradise. In 2006, Mr Caltabiano purchased the penthouse apartment in Soul ‘off-the-plan’ for $16.85 million after talking with Mr Daniels, one of Juniper’s sales consultants.  The penthouse was completed in 2012 and accordingly, Juniper gave notice to Mr Caltabiano of the settlement date.

For a period of two years, Mr Caltabiano failed to attend settlement and pay Juniper the agreed purchase price. Finally in 2014, after Mr Caltabiano again failed to effect settlement, Juniper elected to terminate the contract of sale and commence legal proceedings against Mr Caltabiano claiming damages for breach of contract.  Mr Caltabiano argued that he was entitled to rescind the contract because of misleading or deceptive conduct by Juniper’s sales consultant during the pre-contractual discussions.

Alleged misleading or deceptive conduct

Before signing the contract, Mr Caltabiano had several discussions with Mr Daniels in person and by phone about the penthouse. Mr Caltabiano alleged that in one of these discussions, he had told Mr Daniels that any offer would be conditional upon Juniper satisfying him that the purchase price was reasonable.  In response, Juniper allegedly made a number of oral representations to Mr Caltabiano about two penthouses in other apartment buildings on the Gold Coast.  Mr Caltabiano later discovered that the represented price and size of the penthouses were false.

Decision

The Supreme Court of Queensland (‘Court’) ultimately found that Mr Caltabiano had failed to prove on the balance of probabilities that the alleged representations had been made to him. In coming to its decision, the Court affirmed the comments of McClelland CJ in Watson v Foxman:

“[H]uman memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression …Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on [misleading and deceptive conduct]…in the absence of some reliable contemporaneous record or other satisfactory corroboration.”

In particular, the evidence of Mr Daniels and Mr Caltabiano’s solicitors did not support Mr Caltabiano’s version of the conversations. Accordingly, Mr Caltabiano’s counterclaim was dismissed and he was ordered to pay Juniper damages of over $14 million including nearly $1.5 million in interest.

Reliance on alleged representations

Even if the Court had found that the representations were made, for his counterclaim to succeed, Mr Caltabiano would still have needed to satisfy the Court that he relied on the representations. Instead of leaving this question unanswered, despite their finding, the Court proceeded to discuss whether Mr Caltabiano had in fact relied on the alleged representations.  While Mr Caltabiano argued that he relied solely on Juniper’s alleged representations in deciding to purchase the Soul penthouse on the basis that they were knowledgeable in the marketplace, because of his self-interest, the Court had to turn to other objective evidence to confirm his reliability.

Juniper argued that even if they had made the alleged representations to Mr Caltabiano, there were clauses in the contract that excluded pre-contractual representations from forming part of the agreement. In response to this argument, the Court held that “the fact that an entire agreement clause or non-reliance clause was included in the contract is not sufficient to demonstrate a break in the chain of causation between the alleged representations as misleading or deceptive conduct and the loss or damage suffered by the defendant if held to the contract.”

Nevertheless, the Court still found that on the balance of probabilities the alleged representations were not a cause of Mr Caltabiano entering into the contract for the following reasons:

• Since Mr Caltabiano was an experienced businessman familiar with due diligence enquiries when purchasing businesses, it was “commercially illogical and inherently improbable that in deciding upon a $16.85 million purchase [he] would not have obtained [external] advice because of reliance on the alleged representations made by [Juniper’s] sales consultant comprising comparisons with properties that [he] did not know anything about”;
• Because of deteriorating financial position, Mr Caltabiano was looking to on-sell the penthouse before learning that the alleged representations were false;
• Mr Caltabiano did not tell his sales agents about the alleged representations to support the value of the Soul penthouse;
• At the time, Mr Caltabiano did not confirm to anyone that the alleged representations were made;  and
• After learning that the alleged representations were false, there was no evidence that Mr Caltabiano had complained to Juniper about them before filing his defence to their claim.

Implications for buyers, sellers and agents

Juniper shows that purchasers of off-the-plan properties should ensure that any significant oral representations made to them by the seller or their agents about the property are clearly documented and confirmed in writing as early as possible. Without other reliable evidence to corroborate a buyer’s account, courts are unlikely to find representations were made to a buyer.

The decision also stresses the importance of buyers conducting their own enquiries to verify any representations made to them prior to signing a contract. For sellers and their agents, the Court again cautions them against relying on ‘entire agreement’ and/or ‘non-reliance’ clauses in their contracts.

If you would like further advice about pre-contractual negotiations or other matters relating to buying or selling property in Queensland, please contact us and one of our experienced property lawyers will be able to assist.