A decision in the Supreme Court in NSW, Mr Zhang and Ms Liu v
VP302 SPV Pty Ltd and Ors1, serves as a reminder to
those involved in off the plan property sales to exercise caution
when making representations to potential buyers that predict or
give an opinion regarding future matters. Representations of this
kind that are made without a reasonable basis and that induce a
party to enter into a contract could result in the contract being
In September 2003, Mr Zhang and Ms Liu purchased a four-storey
terrace for $1,070,000 off the plan from a company named VP302 SPV
Pty Ltd (Developer) and paid a deposit of
$107,000. The Developer had engaged a real estate agent to market
the property development in which the terrace was located.
The agent placed an advertisement on behalf of the Developer
claiming, amongst other things, that the development was
"acclaimed by Sydney Morning Herald to be the number one
district amongst three areas which is going to double in value in
five years" (Representation).
By July 2005, the Sydney property market had fallen
substantially from its 2003 level and Mr Zhang and Ms Liu had not
completed the purchase. The Developer issued a notice requiring
them to complete but Mr Zhang and Ms Liu refused to comply with the
notice, claiming that they had been misled into entering into the
contract. They sought a refund of their deposit, which the
Developer refused to provide. The agent released the deposit to the
Mr Zhang and Ms Liu commenced legal action to recover the
deposit and cancel the contract on various grounds including that
they had been induced to enter into the contract by the
Representations. Under the Trade Practices Act, as the
Representation was in the nature of a prediction and was made on
behalf of the Developer, the Developer was responsible for proving
that it had a reasonable basis for making the Representation. If
the Developer was unable to show that it had reasonable grounds,
then the contract could be set aside.
The Developer defended the claim by arguing that the
Representation was mere 'puffery', meaning the sort of
enthusiastic statements often seen in advertising that are not
meant to convey anything meaningful. The Developer also argued that
if Mr Zhang and Ms Liu had relied on the advertisement, then
that reliance was unreasonable. The Developer did not lead evidence
that there was a reasonable basis for the prediction that values of
the development would double in five years and instead relied on a
newspaper article as the basis for the Representation.
The Court's Finding
The Court found that:
The Representation was not 'puffery' because it was
capable of being proved correct or incorrect.
The information contained in the newspaper article on which the
advertisement was based, was well out of date (by about
18 months) by the time the advertisement was published.
The newspaper article, when considered as a whole, did not
support the Representation.
Mr Zhang and Ms Liu had relied on the Representation in
deciding to enter into the contract. The fact that they may have
been naive in doing so did not alter the Court's decision.
Consequently, the Developer was found to have engaged in
misleading or deceptive conduct in contravention of the Trade
Practices Act and Fair Trading Act by its agent
causing the advertisement to be published without having a
reasonable basis for making the Representation which it contained.
The Court ordered the contract to be set aside and the deposit to
What Does It Mean?
The Court's decision highlights the need to have reasonable
grounds for making predictions about matters such as the future
value of property developments, rental prospects and the
performance of surrounding areas. Otherwise, any contracts entered
into on the basis of such predictions could be set aside.
To avoid your contracts being set aside, you must ensure that at
the time that it is made the person making the prediction (whether
that is you or your agents):
is qualified to make the prediction
has made all reasonable inquiries into matter the subject of
believes that the prediction is true
keeps record of the materials supporting the prediction,
relies on up to date and credible materials if making a
prediction based on those materials.
1.  NSW SC 3
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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