Misleading and Deceptive Conduct

"I'm telling you, the fish was THIS big!"

There are serious consequences for making incorrect or misleading representations.

A case about a $16.85M apartment on the Gold Coast which was decided in January, 2016 dealing directly on this subject is the perfect example to use: http://archive.sclqld.org.au/qjudgment/2016/QSC16-005.pdf

The developer commenced marketing units in the “Soul” Development at Surfers Paradise in 2006.

In April, 2006 the developer entered into an “off the plan” contract to sell the penthouse apartment for a price of $16.85 Million. In July, 2012 the developer finished the development and called on the buyer to settle. The Buyer sought an extension of settlement for nearly 2 years to which the developer agreed and applied penalty interest.

In October, 2012 receivers and managers were appointed to the rights, property and undertaking of the developer. The reference to developer in this article includes the receivers and managers.

The buyer failed to attend settlement and the developer terminated the contract for the buyer’s breach. The developer forfeited the deposit, reserved their rights under the contract and commenced proceedings in the Supreme Court of Queensland.

The buyer counterclaimed the proceedings on the ground of misleading and deceptive conduct.

He said, she said

So, what was this conduct?

The real estate agent fell in the cross fire.

The buyer claimed that:

• The agent told him that any offer would be conditional upon the developer satisfying proof of value of the penthouse.
• Various representations were made about the sale prices for other penthouse apartments.

The agent denied making these statements.

However, the buyer’s argument was that based on these statements he was satisfied that the penthouse was worth $16.85 million and decided to buy it on the strength of those statements

Getting down to the nitty gritty

To prove that the conduct was misleading and deceptive, the buyer had to prove that:

• In all the circumstances the conduct was misleading and deceptive
• That he relied on the conduct
• And that as a result of that reliance, he suffered a loss.

Proving the Elements

The words alleged to have been spoken must be proved with a degree of precision. Each element of the cause of action must be proved to the reasonable satisfaction of the court (i.e. the court must feel persuaded that the statements were in fact made).

As stated above, the agent’s position was that the allegations were false.

After considering all of the evidence the Court found that there was inconsistency in the agent's answers. However, the court was not persuaded that the representations were made despite the inconsistencies in the agents evidence. This was because the evidence did not substantially support the buyer’s allegations.

Proving reliance

To prove reliance it had to be proved that the buyer relied on the representation in entering into the contract and there must be a sufficient connection to satisfy the concept of causation.

The buyer said:-

• That he had a high regard for the developer and saw the developer as knowledgeable in the marketplace
• He said that but for the representations made he would not have entered into the contract
• And he did not obtain external advice as to the value of the apartment or the prudence of the purchase because of what he was told

Based on the evidence before it, the court found:

• That representations about comparative sales and comparable features of properties falls into a class of representations calculated to induce a person to enter into a contract.
• Regard must be had to all of the circumstances

The court said:

• It is commercially illogical and inherently improbable that in deciding to purchase a $16.85 million asset a buyer would not have obtained external advice
• The circumstances of the case indicated that the buyer did not attach any importance to the statements made by the agent
• As a result he failed to satisfy the causative threshold.

There were a number of circumstances that the court considered about the buyer. These were that:

• The buyer was an experienced businessman
• He had built up a $100 million dollar business between 1994 – 2007 including acquiring other businesses
• During that time he undertook due diligence for those acquisitions
• He made no inquiries about the other penthouse sales and appeared to show no interest in them
• His financial position started to deteriorate in early 2010 and he started to sell a number of his assets
• He was actually looking to on-sell the penthouse and was looking for a sale price of $22-25 million – but this was before he was aware that the alleged representations were false.
• He didn’t confirm with the developer or anyone else at the time the representations were made
• And finally, there was no evidence of any complaint by him until the court proceedings started

Entire Agreement clauses

Another matter raised during this case which you may find interesting is that:

• The developer brought to the courts attention that the contract contained an ‘entire agreement’ clause and some other clauses which expressly denied the buyer from any pre-contract representations.
• The court found that entire agreement clauses are not sufficient to take away the buyer’s rights and stop pre-contract representations

The decision

The Court ultimately found that:

• The buyer’s counterclaim for misleading and deceptive conduct was rejected
• The developer validly terminated the contract
• The deposit was forfeited
• The buyer was ordered to pay the developer $14 million including interest of almost $1.5 million
• And the poor bugger also had to pay the developer's legal costs

Take out your notebook

Clearly this was a good result for the developer and the agent.

However - all circumstances are different and the court will consider each matter on a case by case basis.

The important points to take from this case are:

• To ensure that you document and save everything – this includes all emails, telephone conversations and text messages
• If you tell a person something in your course of business that becomes incorrect or redundant then you should contact them immediately to correct the position
• If you are not certain or sure about something then tell the person to obtain external advice
• Be careful on giving your opinion or expressing your beliefs – as these can convey that you hold information or other facts to justify that opinion
• Entire Agreement clauses can’t remove the potential liability for misleading conduct