The Federal Court has handed down a decision which is likely to have a significant impact on how developers are able to market apartments being sold on an “off-the-plan” basis.
Key takeaways from the case: Ripani v Century Legend Pty Ltd  FCA 242
- Developers must ensure marketing materials issued to potential purchasers of off-the-plan apartments are accurate. Inaccuracies could constitute a misleading and deceptive representation which would entitle a purchaser to rescind a contract of sale.
- Exclusion clauses in a contract of sale may not be effective at remedying misleading and deceptive representations made in marketing materials.
- General disclaimers about the adequacy or accuracy of information in marketing materials may not preclude such material from being found to be misleading and deceptive.
- Inscribing ‘artist impression’ on an image used in marketing materials does not preclude that image from being misleading and deceptive.
In 2017, Mr and Mrs Ripani (Ripanis), entered into a contract with developer, Century Legend Pty Ltd (Century Legend), to purchase a premium apartment in Melbourne’s CBD off-the-plan. Under the terms of the contract of sale, the Ripanis agreed to pay A$9.58 million subject to finalising a satisfactory floor plan.
In deciding to enter into the contract, the Ripanis relied heavily on marketing materials provided by Century Legend. These materials were important for the purposes of generating sales, given the apartments in question had not yet been built. This included a hard-bound brochure containing various computer generated images, known as ‘renders’ (the Brochure). The renders were used to illustrate what the apartment building, and various aspects of it, would look like once constructed.
The Brochure included the below render (Image: RotheLowman (accessed at http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2022/242.html)) which depicts a large free span opening between the inside of the living areas and the outside terrace of the apartment purchased by the Ripanis.
Despite extensive use of this render throughout its marketing campaign, Century Legend was aware it would be impossible to construct the Ripanis’ apartment in a way that would bear a reasonable resemblance to the render. In particular, the architect Rothe Lowman had informed Century Legend that the eight metre free span depicted could not be constructed due to development and structural requirements and would likely need to be closer to three metres.
The Ripanis commenced proceedings against Century Legend in the Federal Court alleging that Century Legend had engaged in misleading and deceptive conduct. The Ripanis sought relief (including rescission of the contract of sale) under the Australian Consumer Law and in equity.
Century Legend contested the claims made by the Ripanis on a number of bases. Notably, these bases were the existence of exclusion clauses in the contract of sale, the inscription of the words ‘artist impression’ on the render and a disclaimer included in the Brochure.
Justice Anastassiou found the renders provided to the Ripanis were misleading and deceptive and in contravention of section 18 of the ACL.
His Honour, upon reviewing the evidence put forward by the Ripanis and Century Legend, concluded:
- the render represented that there would be a free span opening and seamless transition between the internal living areas of the apartment and the terrace;
- the Ripanis relied upon the representation conveyed by the render at the time they entered into the contract of sale; and
- the Ripanis would not have entered into the contract had they not believed at the time that the apartment would be constructed in conformity with the render.
In responding to each of the defences raised by Century Legend, the Court held as follows:
- Exclusion Clause: as it is well accepted that exclusion clauses are ineffective at excluding the operation of the ACL, Century Legend made the novel argument that the clauses had the effect that no representations were made to the Ripanis. The exclusion clauses, which applied to both pre-contractual information and any representations made by Century Legend, were described by the court as ‘boilerplate’, and found to have no corrective or curative effect on the misleading impression created by the render.
This was ultimately because the exclusion clauses were not expressed in a manner that would make the Ripanis aware the render was not a true depiction of what their apartment would look like when constructed. In reaching this conclusion, it was remarked the exclusion clause contained an acknowledgment that the Ripanis had entered into the contract following an inspection of the yet-to-be constructed apartment.
- Artist impression: in the context of an off-the-plan sale where renders are a proxy for an inspection, the inscription of the words ‘artist impression’ on the renders did not have the effect of curing the misleading representation conveyed by the render.
- Disclaimer: the disclaimer, which was located towards the end of the Brochure and given no particular prominence, was described as vague, ambiguous and meaningless.
In light of this, and having not been specifically drawn to the Ripanis’ attention (i.e. “it should not be expected that potential purchasers, like the Ripanis, would study a glossy marketing brochure with an eye to the fine print of a disclaimer at the back of the booklet”), the disclaimer failed to cure the misleading and deceptive representation conveyed by the render.
As a consequence, the Ripanis were entitled to rescind the contract under sections 237 and /or 243 of the ACL and recover their losses from Century Legend. This included recovering interest and bank fees they had paid in connection with a bank guarantee provided to the developer.
A focus on consumer protection
It is instructive to compare some of the conclusions in this case with the position in New South Wales. In 2019, off-the-plan sales marketing was overhauled by the introduction of changes to the Conveyancing Act 1919 (NSW).
Under this regime, developer must serve a Notice of Changes if there is a change in a material particular that adversely affects the use and enjoyment of the lot. If the purchaser would not have entered into the contract had the purchaser been aware of the inaccuracy and would be materially prejudiced by the change, the purchaser can either rescind the contract or make a claim for compensation.
Importantly, the legislation allows the purchaser to rescind without giving any reasons, and there is no longer a need to bring proceedings in the Supreme Court to rescind contracts for such changes. The onus has shifted to the developer, who would need to incur costs bringing a claim against a purchaser if it considered a purchaser did not have the right to rescind.
To date, this legislation remains untested in the Courts however, as the market shifts there are likely to be cases that arise.
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