Abstract

This article analyses a case in which Burns & Associates Solicitors acted for the successful defendant defending a claim of misrepresentation under the Australian Consumer Law (ACL) and in tort. Belscorp Pty Ltd won the case even though the Court found that it had made misrepresentations prior to the contract being formed. This case warns parties that it is not enough for a party alleging misrepresentations under the ACL or in tort to prove that representations were made and those representations were false. Rather, to succeed, a party must also prove that they relied on the representation, and this caused them damage.

This article analyses QM Properties Pty Ltd v Belscorp Pty Ltd [2018] QSC 158 to show the importance of adducing objective evidence to prove reliance and causation, the often forgotten elements of misrepresentation cases.

Key points

1. The Queensland Supreme Court case of QM Properties Pty Ltd v Belscorp Pty Ltd shows that a party alleging misrepresentations under the ACL or in tort will fail to succeed unless they can prove that they relied on the representation and such reliance caused them loss and damage.
2. To prove reliance and causation, it is not enough for a party to simply swear that they relied on the misrepresentation when entering the contract.
3. Rather, the court carefully scrutinises the objective facts when deciding whether a party has in fact relied upon the misrepresentations, and whether the reliance on the representations caused that party to act differently to the way it would have acted if it had known the true facts.
4. A failure to prove reliance and causation can have catastrophic legal and commercial consequences.

The facts

1. QM Properties v Belscorp was a fact rich case involving a three week trial in the Supreme Court of Queensland.
2. QM were a sophisticated, large, experienced and well-resourced developer of land in southeast Queensland.
3. Belscorp was a small enterprise, having considerably less experience, expertise and resources in property development relative to QM.
4. Belscorp offered to sell a pool of properties to QM on an all or nothing basis for $22 million, with settlement to occur within seven days of contract.
5. QM and Belscorp entered into separate contracts of sale for each property in the property pool.
6. Under the contract of sale, which gave rise to the dispute, a property was sold by Belscorp to QM for $3.35 million, with settlement to occur within seven days. The contract, like the other contracts for the sale of the pool of properties, was subject to a cooling off period, but not the usual due diligence clause. Each of the contracts for sale of the properties in the property pool did not expressly state that those contracts were subject to all contracts settling.
7. Prior to entering into the contract the subject of the dispute, Belscorp made representations as to the state of the development of the property and the stage at which the development process had reached.
8. Belscorp also supplied its project files for all properties in the pool of properties.
9. The Court held that Belscorp misrepresented the nature of the property before QM had entered the contract of sale subject to the dispute.
10. QM settled on all contracts for the sale of properties in the property pool except for the one contract for the sale of the property the subject matter of the dispute.
11. QM refused to settle the contract for the sale of the property subject to the dispute, arguing that it was entitled to relief for misleading or deceptive conduct under the predecessor of section 18 of the ACL and for misrepresentation in tort.
12. QM failed in its claim because it failed to prove that it relied upon Belscorp’s misrepresentations and it failed to prove that it would have acted differently if it had known the true state of the nature of the development of the property.
13. The following analyses why QM failed to prove reliance and causation.

Reliance

1. The court held that QM’s misrepresentation case, based on the ACL and in tort, failed because it did not prove that it relied on what was said by Belscorp in deciding to enter into the contract.
2. This finding was made by the Court despite QM swearing that they relied on the misrepresentations. The Court made this finding, having regard to the following factors.
3. QM were very experienced property developers and were one of the largest private developers in Queensland, with a large staff and substantial resources. By contrast, Belscorp was a very small developer, with less experience, expertise and resources. As a result, it was unlikely that QM, with its superior experience, resources and expertise, would rely upon the representations made by Belscorp. This tended to show that QM relied upon its own experience, expertise and resources in entering the contract, rather than relying upon Belscorp’s representations.
4. QM was familiar with the properties that had been offered and therefore had its own knowledge of the nature and quality of the properties offered. This tended to show that QM relied on its own knowledge of these properties, rather than relying upon Belscorp’s representations.
5. The contract had a short settlement of seven days and did not contain the usual due diligence clause. This reflected that QM were prepared to take the risk and rely upon their own investigations, not Belscorp’s representations.
6. The deal was very attractive to QM and QM’s experienced staff could make quick assessments of the land offered in the short settlement period. This tended to show that QM relied on its own investigations and were driven by the attractiveness of the deal, rather than Belscorp’s representations.
7. QM had sufficient time to investigate whether Belscorp’s representations were true and they undertook these investigations. This indicated that QM relied upon its own investigations, rather than Belscorp’s representations.
8. Despite the contract being subject to a five day cooling off period, QM elected not to terminate the contract under the cooling off period. This indicates that QM relied on its own investigations, as they had sufficient time to undertake the necessary enquiries to reveal what had been represented to them was not correct.
9. QM had its own ideas of the value of the land offered independent of Belscorp’s representations. This evidence showed that QM did not rely upon Belscorp’s representations.
10. QM were not impressed by Belscorp and did not consider Belscorp to be a competent developer. This evidence showed that QM did not rely upon Belscorp’s representations about the land.
11. The representations made by Belscorp were very general representations about the land and its state of development. This was evidence that QM did not rely upon these general representations in entering into the contract.
12. QM relied upon itself as it performed its own assessment of Belscorp’s project file. The project file clearly showed that Belscorp’s representations as to the state of the development of the land had many gaps and deficiencies. Anyone reviewing Belscorp’s project files would observe that there were outstanding development issues. This shows that QM would not have relied upon Belscorp’s representations.
13. QM inspected the property and it was obvious from that inspection that there were development issues with the property. This evidence shows that QM did not rely upon Belscorp’s representations.
14. The controlling mind of QM made his decision for QM to enter the contract in reliance upon QM’s employees advising that the properties should be purchased. This evidence showed that QM relied on its own investigations and did not rely on Belscorp’s representations.

Causation

1. Further, the Court held that QM’s claim based on misleading or deceptive conduct under the ACL and misrepresentation in tort failed because QM did not prove causation.
2. To succeed either in its ACL misleading or deceptive conduct case, or its tort case, it was necessary for QM to prove that, had it known the true state of affairs about the property, it would have been prepared to lose the benefit of purchasing the pool of properties that were offered by Belscorp to QM.
3. Belscorp offered a pool of properties, including the property subject to the contract, under separate contracts of sale on an all or nothing basis. That is, Belscorp would only settle all the contracts for the sale of each of the properties in the pool of properties if all of those contracts settled.
4. QM did not adduce any evidence to the effect that QM would have acted any differently had the misrepresentations not been made.
5. Indeed, there was no evidence adduced by QM that it would have been prepared to lose the benefit of purchasing all the land in the property pool as a result of the misrepresentations made in respect of the property subject to the contract of sale.

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Contact us if you have a potential claim for misleading or deceptive conduct under section 18 of the ACL or misrepresentation in tort. Also, if such claims are brought against you, please contact us, as we have succeeded in these types of actions for both plaintiffs and defendants.