In the decision of Orchid Avenue Pty Ltd v Goode and Barber, off-the-plan buyers were successful in establishing misleading and deceptive conduct by the developer’s agent and obtained orders for recovery of the deposit together with accretions and costs.
In August 2009, the defendants entered into a contract to buy a unit in the Hilton Apartments Surfers Paradise. The defendants did not complete the contract and the plaintiff terminated and forfeited the deposit.
The unit was ultimately resold at a significantly lower price and the plaintiff claimed damages for breach of contract, including loss of value on resale of the unit and the costs of resale including agents commissions.
The defendants were successful in establishing that they were induced to enter into the contracts by misleading and deceptive conduct by the real estate agent acting on behalf of the plaintiff and were successful in obtaining orders under the Trade Practices Act setting aside the contracts ab intio and reclaiming their deposit monies with interest and costs.
The facts were unremarkable and reflect a sales process and scenario played out thousands of times each time a new development is sold “off the plan”.
The defendants were buyers to whom representations were made by a sales agent of the developer including as to:
- Rent and returns on the property ($1000 per night at 80% capacity); and
- That buying off-the-plan was attractive form of investment because when the building was completed the unit would be worth an increased price.
The Court found that the representations alleged were made and that the buyers relied upon them in entering into the contracts
The role and failings of the buyers’ lawyer
The defendants were also guided by the agent to a lawyer who was one of a panel to whom such work was referred on a regular basis.
The Court was further critical of the advice given by the “independent solicitor” because of a failure to provide appropriate warnings and give proper and independent advice to the buyers.
Exclusion clauses ineffective
The Court dismissed the argument by the developer that the provisions of the contract excluded any liability for representations made by the developer’s agent finding that to give effect to such a defence would be a “travesty of justice and contrary to the intention and spirit of the Trade Practices Act now encompassed by the Australian Consumer Law”.
Commissions on resale unlawful as exceeded PAMDA
The Court also commented that the claim for commission in the plaintiff’s damages claim was illegal and could not be recovered in any event because it was in excess of the prescribed amount under PAMDA and commented that;
“…it is plainly not recoverable, for two reasons. First, because it would be contra bonos
mores for such an illegal payment to be recoverable, the plaintiff essentially relying
on its own illegality as the basis for this part of its claim. Second, in my opinion,
the contractual provisions entitling the plaintiff to reimbursement in respect of
expenses of the resale are to be naturally interpreted as confined to lawful expenses.”
In this instance, the agency’s fees on resale included advertising and marketing fees significantly in excess of that prescribed under the PAMDA. The maximum lawful entitlement was $15,950 whereas the amount claimed was in excess of $30,000.
The decision is one of a very few in recent times following the collapse in unit prices in the Global Financial Crisis when a buyer has been successful in avoiding a damages claim for failing to settle an “off-the plan” contract. Many of these cases never get to trial and are settled by buyers conceding defeat rather than face the delay in costs of a trial on the issues.
However-each case turns on its own facts, and this decision sends a warning to developers and agents that courts will accept credible evidence by purchasers as to misrepresentations by authorised agents and will follow a long line of authorities in rejecting exclusionary clauses in contracts.
There is a further reminder that in such cases, damages will be based on what is lawfully able to be recovered-and resale costs for real estate agents’ commission in excess of prescribed PAMDA limits are not recoverable.
We can help
Whether you are a buyer seeking to avoid a contract because of misrepresentations made by a selling agent or a developer looking to make sure that your sales process and documentation is water-tight, we can assist you with practical and strategic advice and commercial solutions.
Contact Michael Sing, Special Counsel at Rostron Carlyle.