Buyers successful in claim to recover funds from real estate land scheme

In the recent decision of Crozier v Key to Australia Pty Ltd & Anor [2024] QCAT 240, the Queensland Civil and Administrative Tribunal (the Tribunal) considered a claim by two New Zealand residents (the Croziers) arising out of representations made by a licenced real estate agent and agency, Mark Scarrott (Scarrott) and Key to Australia Pty Ltd (Key).

The Croziers’ claim was one of 17 claims made under the Agents Financial Administration Act 2014 (Qld) (AFA Act) relating to the conduct of Scarrott and Key regarding the proposed purchase of some 20 lots at Pimpama on the Gold Coast.

This decision relates to the Croziers’ claim to recover the loss of funds paid to Scarrott and Key from the Claim Fund established under the AFA Act (the Claim Fund).

Background

The Croziers met with Scarrott between March and May 2019, during which time the following representations were alleged to have been made:

“(a)   A substantial profit could be made by investing in a real estate scheme regarding land which the Council had pre-approved for subdivision.

(b)     An initial investment of $104,200 was required from the Croziers. The Croziers advised Scarrott that they could only afford $40,000 to invest. Scarrott advised the Croziers that he would commit to the balance of funds required for the scheme.

(c)     A deposit would have to be paid to the vendor to secure the block of land. Scarrott and Key would facilitate the subdivision of the land, including lodgement of plans.

(d)     Scarrott and Key would on-sell the subdivided lot for the Croziers without the necessity of the Croziers having to pay for the balance of the land purchase.

(e)     The outcome for the Croziers would be an estimated return of 164.11% from the sale of the subdivided lots.

(f)      The subdivision of individual lots, development of the subdivided parts of the lot and the sale of the subdivided lots could be achieved in 6 months.

(g)     The funds paid by the Croziers to Key/Scarrott would be paid into and held in a trust account.

(h)     Key committed to a refund option to the Croziers by way of a letter from Key signed by Scarrott dated 9 May 2019.”[1]

The Croziers’ committed to purchase lot 491 Pimpama Village (Lot 491), based upon the representations made by Scarrott and executed a put and call option agreement with Eagle Street Finance Pty Ltd, Leda (the vendor) in the amount of $290,000. On or around 27 May 2019, the Croziers paid $40,000 to Key.

The Croziers were subsequently advised by Scarrott that settlement would happen before Christmas 2019. In April 2020, the Croziers were advised that settlement of the put and call option agreement was being exercised by the vendor.

In August 2020, the Croziers were advised that the vendor had terminated the put and call option agreement. The Croziers have not been able to contact Scarrott after 7 September 2020.

Decision

The Tribunal made a number of findings regarding Scarrott and Key, including the following:

(a)     There were no formal arrangements for any of Scarrott and Key to market the vendor’s land at Pimpama, and Scarrott and Key did not have any authority from the vendor to negotiate with any buyers of the vendor’s land at Pimpama on behalf of the vendor.

(b)     Notwithstanding the above, it is almost certain that the vendor was aware of Scarrott’s activities and there would have been numerous interactions between Scarrott and the vendor’s representatives in 2019 and 2020.

(c)     All funds were paid into the business account of Key to Australia Pty Ltd ATF Scarrott Family Trust. Scarrott informed clients that this was a “trust account”. The Croziers believed that the funds were being paid into a real estate agent’s trust account to be held pending payment of the deposit under the put and call option agreement and payment of the expenses to facilitate the subdivision of Lot 491.

(d)     Development applications were made in relation to six lots at Pimpama on 26 August 2019. A number of concerns were raised by the Gold Coast City Council (the Council) in September 2019, and Scarrott was advised that the applications may have to be amended. Notwithstanding this, Scarrott continued to market lots at Pimpama on the basis that Council approval to subdivide was just a formality.

(e)     No development application was ever lodged for the subdivision of Lot 491.

(f)      Scarrott initially expected the subdivision approval process with the Council to take 3 to 4 months. However, the process took much longer and eventually the developments applications were rejected by the Council.

(g)     Scarrott admitted that Key’s business was running at losses of between $75,000 and $120,000 per month and he was desperate for further sales so investors would provide funds to keep the scheme going.[2]

The Tribunal held that Scarrott made the following representations to the Croziers:

1. Scarrott and Key discovered land parcels in Pimpama Village that could be configured into smaller lots.
2. These land parcels “would be approved by council to be divided into three townhouse residences”.[3]
3. Scarrott and Key planned to reconfigure the land parcels in Pimpama Village into 3 smaller lots and on-sell them to generate a substantial profit for investors.
4. The Croziers could participate in this scheme by securing an option to purchase Pimpama Village land and investing $40,000 with Scarrott and Key (on the basis that the lots would be on-sold before the Croziers were required to complete the purchase).[4]

The Tribunal stated that the promise of approval of the subdivision of Lot 491, the development of Lot 491 and the on-sales of the subdivided lots before the Croziers were required complete the put and call option agreement was “impossible to achieve”.[5]

The Tribunal found that in making the above representations, Scarrott was “purposefully being vague, and he failed to properly explain or disclose the underlying issues and problems involved.”[6]

The Tribunal referred to the previous Appeals Tribunal decision Airstrike Industrial Pty Ltd v Robertson[7] when discussing false and/or misleading representations in the form of silence or non-disclosure of a relevant fact, which held:

“…for there to be a representation by silence the representee must establish that there was some relevant fact or matter within the knowledge of the representor and the representor chooses not to disclose the fact or matter to create a false impression.”[8]

The Tribunal held that the above representations by Scarrott were false or misleading and had he fully explained the process to the Croziers, they would not have committed to purchase Lot 491 and transfer $40,000 to Key.

The Claim Fund

In order for their claim to succeed, the Croziers had to satisfy the provisions of section 82 of the AFA Act. The Tribunal considered, amongst other things, whether there was a breach of section 82(1)(g) of the AFA Act. The relevant consideration in this matter was whether there was a contravention of section 212 of the Property Occupations Act 2014 (False representations about property).

The Tribunal held that the “scenario fits squarely into s 212 of the POA.”[9]  Accordingly, the Tribunal held that Scarrott contravened section 82(1)(g) of the AFA Act.

The Tribunal determined that the Croziers had lodged a valid claim in accordance with section 82 of the AFA Act, and allowed the amount of $40,000 for their claim, with Scarrott and Key ordered to reimburse the Claim Fund in the amount of $40,000.

Conclusion

This case serves as a timely reminder for agents to ensure that they are aware of their duties under the AFA Act and POA.Agents should refrain from making representations that may lead a purchaser into error.This includes any failure to properly explain relevant facts or matters within their knowledge such as to create a false impression.  

Read another property sales article: Conjunctions and referral arrangements in real estate.

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