The Risks of Failing to Settle Off the Plan Contracts

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Juniper Property Holdings No 15 Pty Ltd v Carmelo Caltabiano (No 2) [2016] QSC 005 is another recent Queensland Supreme Court decision that highlights the risks of purchasing off-the-plan apartments without first exercising significant due diligence or making further enquiries to confirm representations made by selling agents. The case also focuses the mind on the risks of failing to settle off the plan contracts without being very confident about having a proposer basis for doing so.

The defendant in this case failed to substantiate allegations of misleading or deceptive conduct engaged in by Juniper when selling a multi-million dollar Surfers Paradise penthouse. As a result the defendant was hit with an order to pay $15, 603, 755 in damages to Juniper.

The decision highlights the necessity for buyers documenting (and including as a contract term) any representations made by sellers when purchasing off the plan. The case also demonstrates the need to make further enquiries and research into not only the properties that are being purchased, but the project developers themselves, surrounding developments and council plans. It may be necessary to engage solicitors for this purpose.  The case also cautions against the inclusion of ‘non-reliance’ clauses by sellers in their contracts.

The Story

Prior to April 2006, Juniper Property Holdings No 15 Pty Ltd (“Juniper”) marketed, constructed and sold modern high-rise apartment buildings located within a new Surfers Paradise development called “Soul”. The Soul building was one of three new and highly-publicised high-rise buildings constructed on the Gold Coast between 2002 – 2006. The other two buildings included the glitter strip’s “Q1” and the “Jade Complex”.

In April 2006 Carmelo Caltabiano  displayed interest in buying Soul’s penthouse apartment off the plan. Mr Caltabiano was an experienced businessman who had developed a $100 million portfolio between 1994 and 2007.

The penthouse was 1,043 square metres and selling for approximately $16 million.

In June 2006 Mr Caltabiano contracted with Juniper to purchase the penthouse for $16.85 million and, after the penthouse’s construction, Juniper became the registered owner on 7 June 2012. In the years proceeding, however, Mr Caltabiano failed to pay the contract price.

Failure to settle the off the plan contract and pay the Contract Price

The penthouse was originally planned to settle in August 2012. Mr Caltabiano, however, failed to settle on this date and thereafter numerous occasions between 2012 and 2014. This was either by not showing up to settlement, failing to pay the purchase price when attending settlement, or requesting that settlement be postponed.

Eventually, on 19 March 2014, the Juniper terminated the contract and brought an action against Mr Caltabiano to claim the contract price.

Juniper mitigated its losses and sold the apartment for $7 million. The amount claimed, therefore, included the loss of the contract profit of $8,817, 552, the forfeiture of the deposit, interest under the contract in the sum of $3, 843, 184 and costs.

Mr Caltabiano counter-claimed that Juniper had engaged in misleading or deceptive conduct under the Trade Practices Act 1974 (Cth) (“TPA”) and claimed for the return of the deposit, damages under s87 of the TPA, interest under the CPA and costs.

The Representations

Mr Caltabiano alleged that he did not offer to buy the penthouse unconditionally. That is, Mr Caltabiano said that on 22 April 2006 he informed Mr Daniels, a selling agent for Juniper, that any offer made on the Soul penthouse was conditional upon “Juniper evidencing proof satisfying the defendant that the sum of $16.85 million was reasonable value for the penthouse.”

Mr Caltabiano alleged that two days later, in response to a request of proof of ‘reasonable value’,  Juniper represented:

  1. The Penthouse in the Gold Coast Beach Front ‘Jade’ complex sold for $20 million;
  2. The Penthouse was better than the Jade Complex Penthouse as the Jade Complex Penthouse was of a similar floor area but was only 15 stories high and flanked by two buildings that impacted the view; and
  3. The Penthouse in the Q1 complex was sold in 2002 for $7.8 million and was half the floor size of the [Soul] Penthouse.

These representations were allegedly given orally, however, Mr Caltabiano failed to document any of the conversations.

Misleading or Deceptive Conduct

Misleading or deceptive conduct was previously prohibited under section 52 of the TPA. The TPA has now been renamed the Australian Consumer Law (“ACL”) which is located in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (“CCA”).

Misleading or deceptive conduct is now prohibited under section 18 of the ACL.

Issue Before the Court?

  • Did Juniper mislead Mr Caltabiano into purchasing the Soul penthouse? That is, could the Court void the contract pursuant to s 87 of the TPA because Juniper provided a misleading or deceptive representation to Mr Caltabiano as to the “reasonable value” of the apartment?
  • If yes, did Mr Caltabiano rely on this representation when deciding to purchase the penthouse?

Held

His Honour Jackson J held that Mr Caltabiano failed to prove on the balance of probabilities that misleading or deceptive representations were made by Juniper. Furthermore, his Honour held that even if the representations occurred, Mr Caltabiano could not prove that he relied on these statements when agreeing to purchase the Soul penthouse.

Mr Caltabiano was liable to pay $15,603,755.

The Court’s Reasons

  1. No Misleading or Deceptive Conduct

In coming to his conclusion, Jackson J discussed the flaws in Mr Caltabiano’s recount of events. Firstly, neither Mr Caltabiano, Mr Daniels or David Kortlang (the senior employee of Juniper) made any written documentations nor file notes about Juniper comparing penthouse prices between the Jade Complex, Q1 and the Soul building.

Jackson J also struggled to accept that Mr Caltabiano’s evidence that he, being an astute businessman with a history of buying and acquiring businesses and properties, accepted Mr Daniel’s alleged representation of the apartment’s market value without any other enquiries, advice and had no pre-existing personal knowledge about market conditions or value of the penthouse.  Jackson J commented that “[a]t first blush, it is an incredible story” that Mr Caltabiano purchased a $16.85 million apartment without making any further enquiries.

Jackson J cited McClelland CJ in Watson v Foxman (1995) 49 NSWLR 315 stating that,

…Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable a court to be reasonably satisfied that they were in fact misleading in the proved circumstances.”

In the same citation it was noted that “human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increased with the passage of time.” 

Thus, on the facts and lack of tangible evidence, Jackson J held that Mr Caltabiano failed to manifest “an actual persuasion” of the Court that the misrepresentations occurred. He also held that Mr Caltabiano “failed to prove on the balance of probabilities that either of the two representations alleged” about the Jade Complex or the Q1 were made.

It was therefore rejected that Junipers made misleading or deceptive representations.

  1. Reliance on the Alleged Representations as a Cause of Loss or Damage

His Honour noted that even if he was wrong on the first ground, Mr Caltabiano also failed to prove a causal connection between the representations and his loss.

His Honour noted that in order to prove reliance on the alleged representations which caused Mr Caltabiano’s loss, he had to prove that “but for” Juniper’s representations, he would not have entered into the contract to purchase the Soul penthouse.

Jackson J cited Razdan v Westpac Banking Corporation [2014] NSWCA 126 in stating that “courts are cautious in accepting assertions of reliance of this context because they are regarded as essentially self-serving.” His Honour therefore rejected Mr Caltabiano’s assertion that he relied on Juniper’s representations because “he had a high regard for Juniper and saw Juniper as knowledgeable in the marketplace” and found that it  was rather Mr Caltabiano’s opinion in hindsight.

His Honour next turned his attention to determining the class of representation made and whether it was “objectively likely to induce a person into a contract of purpose.” In doing this Jackson J rejected Mr Caltabiano’s submission that his failure to obtain external advice served to demonstrate his reliance on Juniper’s representation. His Honour noted that,

It is commercially illogical and inherently improbable that in deciding upon a $16.85 million purchase the defendant would not have obtained such advice because of reliance on the alleged representations made by the Juniper’s sale consultant comprising comparisons with properties that the defendant did not know anything about. This is where the defendant’s story is incredible.”

 Furthermore, Mr Caltabiano had planned to on-sell the apartment and failed to notify the agents as to the value of the Jade penthouse or the Q1 penthouse, which indicated that he did not attach any importance to the representations.

His Honour noted a further two factors that did not support the conclusion that Mr Caltabiano relied on the alleged representations. Firstly, Mr Caltabiano did not confirm with Juniper or anybody the representations made. Secondly, there was no evidence of any complaint by Mr Caltabiano after he learned of the false representations. It was not until the trial commenced that such complaints were raised.

Therefore, overall, “assessed with a critical eye, the evidence [did] not prove on the balance of probabilities that the defendant relied on the alleged representations”.

This article was written by Andrew Lind (Director).