The equitable right for parties to a contract for the sale of land to rescind has been considered in the matter of Zhang –v– VP302 SPV & Ors  NSWSC 73.
These proceedings arise from a contract for the sale of land entered into by the plaintiffs, Chao Zhang and Le Liu, to purchase 'off-the-plan' a residence yet to be constructed in the Victoria Park development in Zetland, Sydney ("the development").
Mr Zhang and Ms Liu, both immigrants from China with poor command of English, read advertisements for the development, placed in May 2003 in 2 Mandarin newspapers by the second defendant, Sydney Advance Realty ("the advertisements").
Among the representations made was that the area (Zetland) had been acclaimed by the Sydney Morning Herald as the primary of 3 areas set to double in value within 5 years.
In August and September of 2003, the plaintiffs discussed a potential purchase in the development with the third defendant, Ms Lisa Huo, an agent employed by Sydney Advance Realty. After allegedly telling the plaintiffs there were no more units left in their preferred building, Ms Huo suggested a more expensive four-storey terrace in the development ("the terrace").
The plaintiffs knew they would not be able to settle unless the property's value increased
Ms Hou was alleged to have made further representations to the plaintiffs, including that the terrace "would increase in value rapidly". When the plaintiffs indicated they could not afford the terrace, Ms Huo was alleged to have assured them that because it was an off-the-plan purchase the plaintiffs would have the opportunity, if they could not afford to pay the balance at settlement, of selling off-the-plan prior to completion for a profit.
An imprudent gamble
On or about 11 September 2003, the plaintiffs exchanged contracts for the purchase of the terrace. The purchase price was $1,070,000 with the deposit of $107,000 to be paid into Sydney Advance Realty as stakeholder.
Completion was due 14 days after the vendor served notice of registration of the strata plan, which occurred on or before 7 July 2005. Settlement was appointed for 21 July 2005, by which time the market had fallen substantially from September 2003.
The plaintiffs failed to complete. The vendors terminated the contract on 24 August 2005 and on 26 August 2005 released the deposit of $107,000 and accrued interest to the vendor.
The plaintiffs claimed recovery of the deposit
The plaintiffs claimed recovery of the deposit from Sydney Advance Realty, notwithstanding that it had been returned to the vendor. The recovery was claimed on grounds, inter alia, that the plaintiffs were induced into the contract by misrepresentations made by Sydney Advance Realty and Ms Huo, in contravention of section 52 of the Trade Practices Act 1974 (Cth) ("the Act").
Representations of Ms Huo
In the case of each of the allegations against Ms Huo, White J found that they were either without substance, or that the representations were not relied upon by the plaintiffs.
However, Ms Huo admitted to having repeated the representation made by Sydney Advance Realty in the advertisement, that is, according to the Sydney Morning Herald, the value of property in Zetland would double in 5 years.
The plaintiffs gave no evidence of having relied upon this representation to the extent it was made by Ms Huo, however His Honour's comments at  suggest that Ms Hou would not have been obliged to test the veracity of her employer's representations prior to passing them on to the plaintiffs.
Representations made by Sydney Advance Realty in the advertisements
White J found that the plaintiffs held the belief that the value of the terrace would increase in value prior to completion, and double in 5 years. It was further held that the advertisements placed by the second defendant materially contributed to that belief.
White J held there were no reasonable grounds for the representations made in the advertisements, on the following bases:
- In its original context (in the Sun Herald, not the Sydney
Morning Herald – however this inconsistency was not
pressed), the article to which the advertisements referred
suggested that the high-value developments in Zetland, Rhodes and
Wolli Creek (none were given primacy) would drive up the value of
other real estate in those suburbs.
Hereby, the high-value properties of the type the plaintiffs were purchasing were said to be the catalyst for the growth, and not in the class of properties which would experience such growth themselves.
- The article was published in February 2002, and well out of date by the time it was referred to by the second defendant in their advertisement of May 2003.
- By adopting the opinion of the author of the article, Sydney Advance Realty could not assert that they were simply conveying the opinion of the author for whatever it was worth.
Finding under the Trade Practices Act
In its defence, counsel for Sydney Advance Realty noted that the chain of causation was broken unless reliance on the representations was reasonable. White J found that mere naïveté or carelessness on the part of the plaintiffs was not sufficient to intervene in these circumstances.
By publishing the advertisements, White J found that Sydney Advance Realty had engaged in conduct that was misleading or deceptive, and that the plaintiffs were thereby entitled to recover damages for the loss occasioned under section 82 of the Act, and to have the contract rescinded.
Finding under the Contracts Review Act
White J also found that the contract, although being substantively just, was made unjust by the circumstances at the time it was made. Namely, that the plaintiffs were taking an imprudent gamble that the value of the property would rise before settlement, knowing full well that if it did not they would be unable to complete the purchase.
The plaintiffs were found to have been induced into this imprudent gamble by the misleading advertisements, and otherwise encouraged by Sydney Advance Realty into making the contract. White J found this to be sufficient for the contract to be rescinded under the Contract Review Act, although such orders were not necessary given the finding under the Trade Practices Act.
The Court, in ordering that the contract be rescinded and damages paid, granted relief to the plaintiff. This was despite their patent imprudence, and the speculative nature of the investment.
The market is likely to see many more such cases in the present climate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.