A couple have successfully claimed they were misled into purchasing a $9.58m off-the-plan apartment in Melbourne due to misleading representations made by the property developer.

Off-the-plan, Off-guard: Misleading or Deceptive Conduct in Property Marketing

Published On 01/04/2022 | By Preetha Varadharajan | Consumer protection, Litigation

A couple have successfully claimed they were misled into purchasing a $9.58m off-the-plan apartment in Melbourne due to misleading representations made by the property developer.  On 18 March 2022,the Federal Court handed down its judgment in Ripani v Century Legend Pty Ltd [2022] FCA 242, confirming that Century Legend Pty Ltd (Century Legend) knowingly misled the Ripanis through visual representations of the proposed apartment known as renders, which it used in its marketing brochures.  This constituted a breach of s 18 of the Australian Consumer Law (ACL) and resulted in the rescission of the contract.

The decision is currently on appeal by Century Legend, with damages stayed pending the appeal, on the issues of valid rescission in the absence of election and the meaning of loss and damage under the ACL.  A hearing date for the appeal is yet to be listed.

Key Takeaways

  • This decision is likely to provide useful guidance for marketing collateral in residential developments, especially in light of the ACT government’s recent decision to increase the minimum threshold for no stamp duty to $600,000 for off-the-plan purchases and the NSW government’s off-the-plan scheme that allows for payment of transfer duty to be deferred if the property is occupied for six months continuously.
  • His Honour referred to numerous written emails exchanged between the parties and notes kept by the architects to make his finding in favour of the Ripanis. This case serves as a reminder that any oral representations made in the course of purchasing off-the-plan properties should always be accurate and documented in writing in case of future disputes.
  • His Honour drew out key principles relating to disclaimers and exclusion clauses which will be relevant for future cases. Disclaimers must not use ‘vague, ambiguous and meaningless’ language and must be drawn in the ‘clearest possible way’ to parties that may be adversely impacted by them.
  • The decision reminds developers and associated parties (such as architects and real estate agents) to maintain open and transparent communication with prospective purchasers regarding their property and ensure they are taking extra care when making representations about off-the-plan properties.  The decision also reminds developers to closely review the representations being made by their associated parties, as those representations might be found to be made on behalf of the developer.

Facts

In 2016, Walter and Nina Ripani (the Ripanis) became interested in purchasing Apartment 14.01 in the proposed Victoriana building.  Century Legend was the developer of the site upon which Victoriana was to be constructed.  The off-the-plan apartment was advertised via marketing brochures prepared by Century Legend and CBRE, a real estate firm, and included prominent visual images called ‘renders’ of how the apartments will look like upon construction.  The Ripanis were especially attracted by a particular image known as the ‘hero render’, which depicted a seamless free span opening between the inside of the living area and the outside terrace of Apartment 14.01.  The hero render was used as a “priority image” in numerous marketing materials.

Throughout both pre-contractual and post-contractual negotiations, it became evident that the seamless free span opening on which the Ripanis had based their purchase decision was impossible to construct in a way that would bear resemblance to the render.  In April 2020, the Ripanis commenced proceedings against Century Legend, claiming that the representations conveyed by the render in conjunction with oral representations were misleading or deceptive under s 18 of the ACL.

Ripanis’ Arguments

The Ripanis’ case drew on evidence supporting the following three claims:

  1. The hero render conveyed representations that a free span opening and seamless transition between the indoor and outdoor areas would exist in Apartment 14.01;
  2. The Ripanis’ relied on these representations when making their decision to enter the purchase contract; and
  3. The Ripanis would not have entered into the contract if they did not believe that Apartment 14.01 contained the free span opening.

Federal Court Decision

Did the hero render convey false representations in relation to the free span opening?

First, his Honour established that images such as the hero render can convey representations with reference to the well-known phrase, ‘a picture is worth a thousand words’.

His Honour accepted evidence that Century Legend had prior knowledge that the free span opening was impossible to construct and failed to promptly notify the Ripanis of this.  His Honour pointed to three emails sent by architects contracted by Century Legend which expressly warned of the dangers associated with the hero render and the impression it could give to potential purchasers on the free span opening.

His Honour dismissed Century Legend’s arguments that the render constituted a mere artist’s impression and the disclaimer contained in the marketing brochure, finding that the words ‘artist’s impression’ is insufficient to prevent an image or action from conveying a representation – the words can communicate that the finished apartment may not accord with the image in all details, but the words do not suggest that key elements of the render will not be constructed or are not intended to be constructed.

Century Legend also relied on disclaimers to the effect that the brochure “is intended to be a visual aid and does not necessarily depict the finished state of the property or object shown… Purchasers must rely upon their own enquiries… Dimension and specifics are subject to change without notice. Illustrations and photographs are for presentation purposes and are to be regarded as indicative only.”  The disclaimer was on page 96 of the brochure, which the Judge accepted as being “hidden”.  His Honour criticised the lack of specificity in the disclaimer statements and observed that the word “indicative” fortifies the impression created by the render that the image depicts what the apartment may be expected to be like upon completion.  Moreover, Century Legend and CBRE failed to draw the Ripanis’ attention to the disclaimers, finding that “in circumstances where the disparity between the representation and the true state of affairs was so stark” it was necessary for the disclaimer to be drawn to the Ripanis attention “in the clearest possible way”.

Of interest was His Honour’s explicit observation that “it should not be expected that potential purchasers…would study a glossy marketing brochure with an eye to the fine print of a disclaimer at the back of a booklet“.  This emphasises the differing obligations under contract and consumer law – while parties to a contract are typically bound by the contract regardless of whether they have read it, this case suggests that disclaimer statements should be specifically drawn to the parties’ attention and expressed in clear, unambiguous terms.

Did the Ripanis rely on these representations?

Century Legend referred to exclusion clauses, arguing that they made clear that the marketing materials were not intended to be representations of what the apartment might look like and that the Ripanis did not reasonably rely on the representations.  However, the Judge found that in order to correct the impression created by the render, the exclusion clauses “would need to be so specific and explicit to have a corrective effect“, whereas the clauses in question were merely boilerplate provisions.

Further, Century Legend argued that the Ripanis should have been aware from pre-contractual discussions about floor plan options that the render was unrealistic.  His Honour rejected this argument, instead accepting evidence from the Ripanis that the pre-contractual discussions centred around internal layout with limited opportunity to discuss the free span opening or elevated features in the apartment.

His Honour also made reference to the evidence of Ms Hart, an architect contracted by Century Legend to work with the Ripanis on customising their apartment.  If Ms Hart’s evidence was accepted, her statements to the Ripanis would have had the effect of curing the misleading representations. However, His Honour specifically found that Ms Hart had the hero render was “to say the least, problematic” but failed to directly notify the Ripanis – instead, she provided warnings to Century Legend that they should improve the accuracy of the render.

Without any information to the contrary, it was established that the Ripanis relied on the representations contained in the hero render.

Would the Ripanis have entered into the contract but for the features conveyed in the hero render?

His Honour accepted evidence that the Ripanis had pre-contractual discussions with both Century Legend and CBRE in which they expressed their specific interest in the free span opening feature of the apartment.  This confirmed that their decision to enter the contract was heavily influenced by this feature.

Justice Anastassiou upheld the Ripanis’ claims and found that the Ripanis were likely to suffer loss or damage because of the contravening conduct under s 237 of the ACL.  Utilising the extended remedies available under the ACL, his Honour ordered for the contract to be rescinded, for the bank guarantee to be returned to the Ripanis and for Century Legend to pay damages, pre-judgment interest and costs of the proceedings.  His Honour referred to the loss that the Ripanis suffered due to entering the contract including the ‘disadvantage of incurring contractual obligations’ and the economic loss suffered due to a decrease in value of the apartment.

What now?

On 28 March 2022, Justice Beach ordered a stay of orders for Century Legend returning the bank guarantee to the Ripanis and for paying damages, pre-judgment interest and costs of the proceedings.  Century Legend is appealing the original decision and argues that the Ripanis did not suffer loss or damage as required under s 237 of the ACL, or under equity, to make an order of rescission.  In particular, Century Legend:

  1. Does not agree with the expert valuer engaged by the Ripanis to demonstrate that the apartment has depreciated in value; and
  2. Does not agree that an equitable remedy of rescission should be granted if the Ripanis did not elect to rescind the contract.

Image credit: Delhi Properties – Real Estate India – Unitech Grande by nancyarora2020  / Flickr / CC BY-SA 2.0 / Remixed to B&W and resized 

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About The Author

Preetha Varadharajan is a graduate in the Competition Dispute Resolution team in the Sydney office of King & Wood Mallesons.

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