"Off-the-plan" decision against developer goes on appeal

Earlier in the year [1], we analysed a decision [2] of the Federal Court involving a claim brought by the buyers of an “off-the-plan” apartment against a developer for misleading and deceptive conduct.

The buyers were successful in their claim at first instances and the developer subsequently appealed the Court’s decision at first instance to the Full Bench of the Federal Court. In this article, we consider the decision on appeal, which was handed down late last month[3]. 

FACTS

Century Legend Pty Ltd (Century Legend) was the developer of an apartment complex situated at 20-21 Queens Road, Melbourne, upon which it proposed to construct a multi-storey apartment building to be known as ‘the Victoriana’. In 2016, Century Legend prepared promotional materials to be used in marketing the Victoriana “off-the-plan.” These materials, including indicative floor plans, a scale model of the Victoriana, and renders (or artist’s impressions) of the building and apartments, were available for inspection by prospective buyers.

On 1 April 2017, the Ripanis signed a contract (the Contract) to purchase an apartment “off-the-plan”. They agreed to pay $9.58 million for the apartment, subject to an agreed floor plan. One render of the subject apartment depicted a large free span opening between the living areas and outside terrace, with no differentiation between the interior and exterior floor level. This render was additionally used as the “hero render” for the promotion of the development generally.

The apartment could never have been built in that way. The developer knew that was the case. When the Ripanis learned that the apartment could not be constructed with the free span opening, they sought to terminate the contract.

The central question was what, if any, reliance the Ripanis could reasonably have placed upon the hero render.

ISSUES AT FIRST INSTANCE

The Ripanis’ case was essentially that the representations conveyed by the “hero render” were misleading or deceptive within the meaning of s 18 of the Australian Consumer Law. The key questions at the trial were:

1. Did the render convey the representations as alleged, that there would be a free span opening and seamless transition between the internal living areas of the apartment and the terrace?
2. Did the Ripanis rely upon any representations conveyed by the render at the time they entered into the Contract to purchase the apartment?
3. Would the Ripanis have entered into the Contract to purchase the apartment had they not believed at the time that the apartment would be constructed in conformity with the image depicted in the render?

DECISION OF THE FEDERAL COURT AT FIRST INSTANCE

The primary judge held that the conduct of Century Legend was misleading and deceptive within the meaning of s 18 of the Australian Consumer Law. His Honour accepted that the render conveyed the representations as alleged by the Ripanis, and the Ripanis’ understanding at all relevant times prior to entering into the Contract was that the apartment would be constructed in conformity with the render, including the free span opening. It was accepted that the free span opening was of significant attraction to the Ripanis, who were specifically looking for an apartment with an outdoor space for entertaining guests.

Further, his Honour noted that Century Legend had been advised that the free span opening in the “hero render” could not be constructed due to engineering challenges. Thus, his Honour considered that the misleading and deceptive conduct by Century Legend was intentional. The Court ordered that the $9.58 million contract be rescinded.

ISSUES ON APPEAL TO THE FULL BENCH OF THE FEDERAL COURT

Century Legend filed a notice of appeal. It sought leave to appeal on four (4) grounds:

1. The primary judge erred in rejecting Century Legend’s evidence that its architect informed in Ripanis in around June 2017, prior to the Contract being entered into, that the free span opening could not be constructed as depicted in the render;
2. The primary judge erred in finding that the exclusions clauses in the Contract were ineffective in negating any misrepresentation or misleading or deceptive conduct;
3. The primary judge erred in concluding the Ripanis were entitled to statutory recission of the Contract pursuant to s 243(a) of the Australian Consumer Law; and
4. The primary judge erred in the exercise of discretion by concluding that the Ripanis were entitled to equitable recission.

DECISION OF THE FULL COURT OF THE FEDERAL COURT

Ground One: Rejection of the evidence of Kate Hart.

A representative of Century Legend’s architect, Ms Hart, gave evidence at first instance that she informed the Ripanis that the free span opening could not be constructed. She alleged that this conversation took place prior to the Contract being entered into. The Ripanis unequivocally denied that any such conversations took place.

The primary judge identified a number of perceived weaknesses in Ms Hart’s evidence. These related primarily to Ms Hart’s failure to refer to the alleged conversation in any subsequent correspondence with the Ripanis or to any other party and her failure to make contemporaneous notes of the alleged conversation. Further, Ms Hart was somewhat unclear in her evidence on the amended floor plans and the order of events relating to those amendments.

On appeal, the Court did not agree with the primary judge’s conclusions about Ms Hart’s evidence. The Court said that Ms Hart’s recollections of her discussion with the Ripanis about various floor plan options and the fact that the free span opening could not be constructed were sufficiently detailed. It also held that her meeting notes accorded with Century Legend’s assertion that the Ripanis were made aware that the free span opening could not be constructed prior to entering into the Contract.

The Court therefore concluded that the primary judge erred in rejecting Ms Hart’s evidence. As this conclusion by the primary judge was a fundamental element of the liability finding, it followed that ground one of the appeal was successful.

Ground Two: The disclaimer clauses.

Century Legend contended that the disclaimer clauses in the Contract were effective to negate the effect of the misleading conduct conveyed by the render, and the primary judge erred in concluding otherwise.

On appeal, the Court agreed with the approach adopted by the primary judge. The Court referred to the reasoning of McHugh J in Butcher v Lachlan Elder Realty Pty Ltd[4] at [157] that “a disclaimer is only effective if it actually modifies the impugned conduct such that the conduct as a whole may be seen as not misleading, not because the disclaimer has any independent force of its own.”

Grounds Three and Four: Relief in form of recission of the Contract.

The primary judge primarily relied upon s 243 of the ACL in granting relief in the form of a recission, but reasoned that he would grant recission in equity in the alternative.

On appeal, Century Legend submitted that the Ripanis failed to adduce evidence as to any difference in value between the contract price for the apartment and its true value upon completion, only that there would have been a diminution in value. The primary judge reasoned that Century Legend did not lead any contrary valuation evidence, thus leaving open the conclusion that the Ripanis had suffered economic loss.

The Court agreed with the primary judge that the Ripanis had incurred the ‘substantial prejudice and disadvantage’ of being held to purchase an apartment that lacked the primary feature fundamental to their decision. As such, despite the error in the reasoning of the primary judge, this ground of the appeal failed.

The Court therefore held that appeal grounds two, three and four would not succeed.

THE FULL COURT’S DECISION

The orders made at first instance were set aside. Century Legend was granted leave to amend the grounds of appeal and the Court ordered there be a new trial of the proceedings, limited to the issue of whether the Ripanis continued to rely upon the misleading or deceptive conduct of Century Legend from the time that Ms Hart allegedly informed them about the inaccuracy of the render (in or about April 2017), to the date the Contract became unconditional in August 2017.

We will keep readers advised of the outcome.

Tips to remember when providing information to potential buyers:

• Care must be taken to ensure that all representations and statements made in relation to a property are accurate;
• You should act as conduits of information (pass on information obtained without adopting it as your own) and let the information speak for itself. Don’t put your own ‘spin’ on it;
• Obtain information from reliable sources only;
• Obtain written approval from the seller to disclose that information and have the seller verify (by signature) the accuracy of all advertisements before they are published;
• Disclose the source of the information to potential buyers;
• Put a disclaimer on all marketing material and ensure that you specifically draw potential buyers’ attention to the disclaimer. Make it clear that you have not independently verified the information being passed on and that you have not checked the accuracy of the information; and
• Encourage potential buyers to undertake their own investigations and seek professional advice.

References

[1] 6 April 2022 edition of the REIQ Journal

[2] Century Legend Pty Ltd v Ripani [2022] FCA 242

[3] Century Legend Pty Ltd v Ripani [2022] FCAFC 191

[4] (2004) 218 CLR 592; [2004] HCA 60.

Read some guidelines for off-the-plan unit sales here.

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