Cambridge & Ors v Christina Burcher Real Estate Pty Ltd t/a Remax Profile Real Estate & Ors [2015] QCAT 18

CITATION: Cambridge & Ors v Christina Burcher Real Estate Pty Ltd t/a Remax Profile Real Estate & Ors [2015] QCAT 18 PARTIES: Andrew Cambridge Cheryl Cambridge Malcolm Pullen Dorothy Pullen (Applicants) v Christina Burcher Real Estate Pty Ltd t/a Remax Profile Real Estate Christine Burcher a.k.a. Christina Penrose Homebuyers Agent Pty Ltd Rodney Westerhuis (Respondents) APPLICATION NUMBER: GAR220-14 MATTER TYPE: General administrative review matters HEARING DATE: On the Papers HEARD AT: Brisbane DECISION OF: Member Paratz DELIVERED ON: 21 January 2015 DELIVERED AT: Brisbane ORDERS MADE: 1. The Claim against the Claim Fund made on 20 May 2013 is rejected. CATCHWORDS: PROPERTY AGENTS AND MOTOR DEALERS ACT – CLAIM AGAINST THE CLAIM FUND – where purchasers of land bought a house at auction – where the respondents were the real estate agents engaged on the sale – where the house was advertised as suitable for student/homestay accommodation – where the purchasers had legal representation – where no evidence of independent investigation conducted by the purchasers – where the Real Estate Agent relied on signed lease agreements provided by the vendors – whether an entitlement to claim against the fund Property Agents and Motor Dealers Act 2000 (Qld), s 470, s 530(a), s 574 -- 1 of 13 -- 2 Sustainable Planning Act 2009 (Qld) Residential Services (Accreditation) Act 2002 (Qld), s 9(1) The Criminal Code (Qld), s 24 Residential Tenancies and Rooming Accommodation Act (Qld) 2008 National Australia Bank Limited v McGill [2010] QCAT 478 APPEARANCES: This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act). REPRESENTATIVES: APPLICANTS: represented by: Self-Represented RESPONDENTS: represented by: Carter Newell Lawyers REASONS FOR DECISION [1] Malcolm Pullen, Dorothy Pullen, Andrew Cambridge and Cheryl Cambridge (the Claimants) purchased a house at 19 Player Street, Upper Mount Gravatt in Brisbane. [2] The house was initially purchased at a public Auction on 10 November 2012 by Andrew and Cheryl Cambridge. Several versions of a Contract in writing were entered into and signed, with a final version which included Malcolm and Dorothy Pullen as purchasers, dated 1 December 2012 for $700,000. The sale settled on 10 December 2012. [3] The Real Estate Agent for the sale was Christina Burcher Real Estate Pty Ltd t/as REMAX Profile Real Estate in conjunction with Homebuyersagent Pty Ltd. Rodney Westerhuis was a sales representative for REMAX Profile Real Estate. [4] The original sales brochure for the Auction, which was published by REMAX Profile Real Estate, contained the following words: Cash cow … $5,300 per Month Rental Return! Purpose built and council approved for multipurpose home/office or student/homestay accommodation this large, solid home is one for the astute investor. There is nothing but quality here in this master built, family sized home in a great position! [5] At the time of the sale, there were multiple leases which had been entered into in respect of the property. The Contract expressed that Tenancies were shown at Annexure “A”. -- 2 of 13 -- 3 [6] Annexure “A” listed six separate areas with Weekly Rent and Bond shown. The Front Right and Front Left areas had been crossed out. The areas were: Front Right: (Jonathan McCannon) 08.02.2012 – 07.02.2013 ($180.00 rent; $360 bond) Front Left: (Yoojin Song) 08.08.2010 - 22.10.2012 ($250 rent; $525 bond) Single 1: (Nitika Rai) 04.03.2010 - 22.11.2012 ($140 rent; $280 bond) Single 2: (Dee Desai) 05.06.2010 - 04.06.2013 ($140 rent; $280 bond) Back Master: (Julia Song) 03.08.2012 – 02.12.2012 ($265 rent; $530 bond) Flat, with studio (Brooke) 14.01.2012 – 27.10.2012 ($350 rent; $700 bond) [7] The Claimants were represented in the conveyance by a firm of Solicitors, whose office was in Mount Gravatt. [8] The Claimants received a “Show Cause” notice from the Brisbane City Council dated 13 March 2013 with respect to a believed breach of the Sustainable Planning Act 2009 (Qld). The notice stated (amongst other things) that: a) The Council reasonably believed that the building provided share accommodation and was no longer being used for the purpose it was originally designed, built or adapted for under the Building Code of Australia (BCA), namely a Class 1a building (a detached house) b) The Council further believed that the use of the building now constituted a Class 1b building under the BCA, and that the building was no longer being used by a single common household group c) Council records indicate there had been no engagement or approval from a Building Certifier for a Class 1b building on the premises; and d) A Class 1b Building is defined as “a boarding house, guest house, hostel or the like” e) Therefore, Council reasonably believed that the use of the premises was unlawful [9] The Claimants received an “Official Warning” from the Department of Housing and Public Works dated 12 April 2013 stating that Department officers had detected an unregistered residential service operating from 9 January 2013, and required the service to cease operating by 26 April 2013. It advised of an alleged offence of conducting an unregistered service under s 9(1) of the Residential Services (Accreditation) Act 2002 (Qld). [10] It appears that on or about 29 April 2013, the Claimants adopted the proposition that the property could not be used for any purpose other than as a single unit residence, and rented the property out at $2,200 per month as a single unit residence.1 1 Submissions of the Chief Executive at [32]. -- 3 of 13 -- 4 [11] The Claimants lodged a Claim against the claim fund on 20 May 2013. The facts on which the claim was based, and the amount of the claim, were described as:2 Contract price of the house based on agents information and printed brochure Property value @ $700,000 based on information Actual value on non approval $540,000 Difference $160,000 Rent 10/06/2013 $2,400/mth – Shortfall $2,900 per month x 12 months = $34,800 per annum x 5 yrs $314,000 Total Claim [12] In an attached explanation,3 the Claimants refer to the statements in the brochure, and to comments made at the time of the Auction by the Auctioneer, Mr Rod Westerhuis who verbally reiterated the description of the property as advertised in the sales brochure, and stated: On this day (the Auction day) we entered into an unconditional contract under auction conditions to purchase the property based on representations made and our calculations of the value of the property based on these representations. [13] The Claimants then set out their claim as follows: We therefore estimate our financial damages and losses to this date are: (1) $160,000 being the difference in the property value, not being as represented for its described use. (2) Subsequent loss of rental based on rental appraisal of $2,400 per month, therefore showing a shortfall of $2,900 per month, equalling $34,800 per annum. (3) We took out a 20 year loan to purchase this property and reasonably conservatively estimate our losses in the first 5 years of owning this property will be $174,000. (4) Total claim is $314,000. With respect to the guidelines of the claim procedure and “potential” losses, we feel that our losses are now a continual and ongoing loss. [14] The Office of Fair Trading wrote to the Claimants on 10 July 2013 advising that s 55 of the Property Agents and Motor Dealers Act 2000 (Qld) (the Act) provided that the maximum claim amount payable for a single claim from the Claim Fund is $200,000. The Claimants amended their claim amount to $197,200 on 26 July 2013. 2 PAMD Form 50, 5. 3 Attachment dated 15 May 2013. -- 4 of 13 -- 5 [15] The claim was processed by the Office of Fair Trading, no settlement was reached, and the Claimants gave notice on 14 October 2013 that they wanted to proceed with the claim. The claim was referred to the Tribunal on 2 July 2014 for determination pursuant to s 488 of the Act. [16] Directions were given on 3 July 2014 for the filing of material. No further material was filed by the Claimants. The Respondents filed submissions in response on 5 September 2014. The Claimants did not file any reply to the response. [17] The Directions provided that any request for an oral hearing was to be made by 5 September 2014, and that if there was no application for an oral hearing that the matter would be determined on the papers not before 3 October 2014. No such request was received. This is the decision on the papers. [18] In order to make a claim against the fund, the Claimants have to show that they have suffered financial loss because of the happening of an event pursuant to s 470 of the Act. [19] The contravention of s 574 is referred to in s 470(1)(a). Section 574 refers to “False representations about property”, and provides that: (1) A licensee or registered employee must not represent in any way to someone else anything that is false or misleading in relation to the letting, exchange or sale of property. [20] The section goes on to refer to reasonable grounds, and provides: (4) Also, if a person makes a representation in relation to a matter and the person does not have reasonable grounds for making the representation, the representation is taken to be misleading. (5) The onus of establishing that the person had reasonable grounds for making the representation is on the person. Submissions by the Agents [21] The Respondents are the Real Estate Agency itself, the Real Estate Agent, and the Auctioneer. I shall refer to them collectively as “the Agents”. [22] Submissions were made on behalf of the Agents by their Solicitors on 5 September 2014. These submissions were not in the form of Statements of Evidence, and contained substantial allegations of fact. However, the Claimants did not make any Reply to these submissions, so there is no challenge to the Agents submissions on fact. [23] The agents argue that they were at all times reliant on information provided by the Sellers (Gary John Artes and Chunrong Xu) when preparing the listing data for the purpose of marketing the property, and representing the specific attributes of the property.4 4 Agents submissions 7 October 2014 at [9]. -- 5 of 13 -- 6 [24] The agents submit that they took the seller’s verbal instructions in relation to the property’s attributes during an inspection of the property in or around 10 October 2012, and were informed by the sellers as follows:5 (1) The property was purpose-built and council-approved for share accommodation. The sellers explained to the respondent sales agent, Mr Rod Westerhuis, that if the passage between the upper level and lower level was blocked, then the property would fall under different legislation, requiring additional approvals which would be costly and it was uncertain as to whether such approvals could be obtained. On this basis, the sellers explained that they kept the passage unlocked to remain compliant with legislation for its current use. The sellers further informed the sales agent that the property had previously been inspected due to complaints from neighbours who did not like people coming and going. The sellers advised that they had all of the necessary fire evacuation plans and manuals in place such as to comply with the legislative requirements. These documents were shown to the sales agent during the initial inspection. (2) The property had seven bedrooms and five bathrooms. (3) The property was generating rental income in the order of $1,325 per week. A spreadsheet was provided by the sellers to substantiate the rental income, and tenancy agreements were requested by the sales agent by way of further verification. Those agreements were subsequently provided to the sales agent by the sellers. [25] The agents submit that they sent an email to the sellers on 11 October 2012 providing a link to the advertising text for online publication, and that the sellers responded that day seeking an amendment to the number of bathrooms, but did not instruct that the reference to council approval was in any way inaccurate. [26] The agents submit that: 14. Having sighted the residential tenancy agreements and other documents which supported the sellers’ assertions as to the rental income being achieved at the property, the respondents had no reason to believe that the sellers’ representations concerning the currency of council approval were in any way inaccurate and, on this basis and pursuant to clause 7.4 of the appointment, the respondents were not obliged to undertake additional searches in this regard. [27] The clause of the Appointment Form referred to (PAMD Form 22a), which was signed by the sellers on 10 October 2012, provides in clause 7 as follows: 7.1 The client states that: (1) the property is the Client’s own property; (2) the Agent is entitled to sell the property on behalf of the client; and (3) the particulars about the Property contained in the property description details are correct 5 Ibid at [11]. -- 6 of 13 -- 7 … 7.4 This clause 7 does not oblige the Agent to undertake searches with public authorities [28] The Agents submit6 that on or around 22 October 2012, the sales agent received a telephone call from the local council to advise that the reference to the council approval may not be accurate; and that the sales agent took immediate steps to remove the reference to the council approval from its marketing material by withdrawing marketing brochures and updating all online advertising. [29] The Agents make specific denials as to the brochure: The respondents deny that the applicants were provided with a brochure at the auction of the property which contained information which was inaccurate, as alleged or at all. The respondents maintain that they did not distribute brochures at the auction as the brochures had been withdrawn following the telephone call from the local council on 22 October 2012. [30] The Agents deny that representations were made at the auction of the property to the effect that the property had council approval to be used as a student/homestay accommodation and that it was capable of generating lawful rental income of $5,300 per month.7 [31] The Contract which was displayed at the Auction had Annexure A, with the four areas not crossed out as showing a rental income of $3,580 per month. [32] The property was bought under unconditionally under auction conditions. Following the Auction the original buyer’s financier directly contacted the Agents and advised that the original buyers did not have the financial means to purchase the property. [33] Following discussions, the original contract was rescinded and a new contract entered into, naming the additional buyers, to enable finance to be obtained. [34] The Agents deny that they misrepresented the property or caused financial loss. They submit that if the Agents did misrepresent the property, that they took reasonable steps to satisfy themselves that the description of the property, as provided by the sellers, was accurate, insofar as they had regard to the supporting material provided by the sellers and, therefore, had reasonable grounds to believe that the description of the property’s attributes was correct in all respects. Submissions by the Claimants [35] The Claimants have provided a Valuation of the property by Peterson Valuation Services Pty Ltd dated 1 December 2012. The purpose of the valuation is stated as “To determine the market value of the property for possible litigation”. 6 Ibid at [18]. 7 Ibid at [23]. -- 7 of 13 -- 8 [36] The valuer made the following remarks:8 This is a highset brick and tile dwelling with low headroom downstairs. I have attached the RP Data record with accommodation and internal photographs captured from agents on line marketing sites. This describes 7 bedrooms and 5 bathrooms. My inspection reveals only 5 bedrooms with 2.4 metre head height and 4 bathrooms upstairs with 2.4 metre head height. The purchasers inform me that they purchased this property based on income returns listed by the Auctioneer at auction on 1st December 2012 when they purchased the property “under the hammer”. They have asked me to prepare this valuation by comparison with similar residences sold for single unit occupation. I assess the value on this basis at $540,000. Submissions of the Chief Executive [37] The Chief Executive made submissions on 2 July 2014. [38] The Chief Executive submitted that it was open to the Tribunal to find that the Agents had made a representation that the property had council approval to be used as student/homestay accommodation, and was generating lawful accommodation of $5,300 per month, because it was contained in the brochure which the Agents distributed. Further, it submits that it is open to find that the representation was false or misleading. [39] The Chief Executive submits, based on the premise that the brochure was distributed after the Agents were advised by the Council on 22 October 2012 of the falsity of the representation, and that the representation was made at the Auction, that: a) It would be open to the Tribunal to find that the Agents did not have an honest, reasonable yet mistaken belief of in the truth of the representation within the meaning of s 24 of the Criminal Code, and b) In all the circumstances, an event as defined in s 470(1) of the Act occurred [40] As to causation, the Chief Executive submits that the Claimants would need to show a causal link between the Event and the Financial Loss under s 488(2)(b). It submits that the key question to determine is whether or not there was anything in the transaction that should have put the Agents on notice to conduct their own searches/due diligence.9 [41] It submits that there were several aspects of the transaction that should have put the Claimants on notice to undertake their own inquiries: 8 Peterson Valuation Services, 12. 9 National Australia Bank Limited v McGill [2010] QCAT 478 at [13]. -- 8 of 13 -- 9 a) The particular importance of the use of the property for student/homestay accommodation b) The ability to terminate the Contract under Clause 7.7 of it, up to 2 business days before the settlement date, if the present use was not lawful c) The notice in PAMDA Form 30C affixed to the front of the Contract which recommended the buyers obtain their own independent valuation and legal advice [42] It submits that there is no evidence that the Claimants conducted their own inquiries, and that their failure to do so is a significant factor that caused them to suffer a financial loss and not the representation. [43] As to financial loss, it submits that the claim for rental loss is not a type of loss that the Tribunal can consider under the Act, and that the Claimants are claiming twice in effect for the same loss by also claiming for capital loss. It submits that the difference between what the Claimants paid and what the property’s actual value was, as at 1 December 2012, will account for the property’s income generating potential. [44] It alternatively submits that if the claim for rental loss can be maintained, that the Claimants have not mitigated their loss by obtaining approval, or by renting the property to no more than four persons. [45] It refers to s 488(3)(a)(i) of the Act which states that any amount payable to the Claimants from the Claim Fund must be adjusted to account for any neglect or fault on their part. It submits that it is open to the Tribunal to find that if the Claimants had conducted inquiries to ascertain whether or not the property carried the requisite Council approval, that they would not have purchased it as they did. Discussion [46] The Claimants have not filed any Statements of Evidence. There are several important issues, relevant to the reliance they placed on the alleged misrepresentations, that they have not established: a) What representations were made at the actual Auction? b) What searches and/or legal advice did they make or obtain before purchasing at the Auction? c) What searches and/or legal advice did they make or obtain before entering into the new Contract which named additional buyers? [47] The claimants are aware of the Directions made in this matter. On 24 July 2014 Mr Andrew Cambridge telephoned the Registry to inquire about progress on the matter. He advised that he did not have a copy of the Directions made on 3 July 2014, which were posted out on 4 July 2014, but confirmed that the address they were sent to was correct. -- 9 of 13 -- 10 [48] Mr Cambridge advised that Mr Malcom Pullen was ill. He was advised that the Claimants Statements of Evidence were due to be filed by 8 August 2014 and that it was up to them as to the material which they filed, including any medical matters as appropriate, and it was suggested that he consider obtaining legal advice on the matter, if appropriate. The Directions were reposted to him on 25 July 2014. [49] The property is at 19 Player Street, Upper Mount Gravatt. I note that Andrew and Cheryl Cambridge show their address on the Claim Form as 14 Player Street, Upper Mount Gravatt; and the address of Malcolm and Dorothy Pullen as 12 Player Street, Upper Mount Gravatt. [50] The Agents submit that the Claimants were sophisticated local investors:10 Furthermore, the applicants had informed the sales agent that their family owned a number of properties in the same street as the subject property and, as they had grown up in the area, they were very familiar with all of the surrounding properties. The applicants clearly did not present as vulnerable first-home buyers who lacked an understanding of regular conveyancing processes and they knew, or ought to have known, that it would be prudent to have regard to all contractual terms and conditions prior to bidding at the auction of the property. [51] It appears that the original buyers did not take several critical steps that a prudent buyer would take before buying under Auction conditions. There is no evidence that they made any searches as to the lawful use of the property, or obtained any legal advice in that regard; and it appears that they had not obtained financial approval for the purchase before buying at the Auction under an unconditional Contract. [52] There is an implication that the Claimants had regard to the initial representations made in the advertising as to the lawful use of the property, and the rental income, and their local knowledge of the area, but made no independent inquiries as to the accuracy of the initial representations, or as to whether the previous use was lawful. [53] The Sellers were clearly operating the property as a multiple dwelling without authority, and generating substantial rental income from that use. It is public knowledge that the unlawful use of houses for dense student accommodation (often involving foreign students) in that area (which is close to Griffith University), was a matter of public debate and concern, and that the authorities were “cracking down” on such uses. [54] The Claimants were obviously attracted by the relatively high yield apparently available on the property by way of rental return. If the property had returned a rental of $5,300 per month as they allege, that would be $63,600 gross rent per year. On a purchase price of $700,000 that would appear to provide a gross yield of about 9%, which is a very high return for residential property, and probably more than twice the return to be normally expected on a single residence. This is indicated by the subsequent rental as a single residence at $2,200 per month, which is $26,400 per year. That appears to be a gross yield of about 3.8%. 10 Agents submissions 7 October 2014. -- 10 of 13 -- 11 [55] The sellers had provided the Agents with material in relation to the rentals they had in place. In an email dated 21 October 2012 from Ms Shirley Xu to Mr Rod Westerhuis she attaches the rental agreements for the property. She also comments as to the bonds: Extra information: all the bonds will be return to the tenants after selling the property and they can lodge a new bond with the new owner of the house [56] There is no evidence that the bonds were paid to the Residential Tenancies Authority as required by the Residential Tenancies and Rooming Accommodation Act 2008 (Qld). It is possible from the wording of the email that the sellers in fact had retained the bonds. If this occurred, then had the Claimants inquired with the Residential Tenancies Authority prior to entering, or settling, the contract, they would have become aware that the rental situation was not regular. [57] The Agents have not provided any valuation evidence as to the value of the property, but their Solicitors have requested that if the Tribunal finds that a claim against the fund was made out, that they reserve their client’s right to adduce independent valuation evidence to assist with the assessment of any alleged loss.11 [58] One of the Claimants, Andrew Cambridge sent a very curious email to the Office of Fair Trading on 14 October 2013 which contained the following advice: Another situation has developed in that a recent house next door (#17 Player) to the one in this claim (#19 Player) has sold for $745,000, mainly due to the precedent that was set on #19 Player. Should this change the nature of our claim and we still wish to proceed with the misrepresentation of the approved use can you discuss this with me please. [59] There is no further information as to the house at 19 Player Street, but if it is similar, and was sold as a single residence, for $45,000 more than the subject property, about a year later, then this brings into question the value of the subject property, as to whether the Claimants have suffered loss at all. [60] The Claimants need to establish that misrepresentations were made; that they relied on them; and that financial loss occurred; in order for them to base a claim against the fund. [61] Each of these elements is in doubt. [62] The Agents say that the original representation as to the use of the property was taken off the website on 22 October 2012, and that the brochure was not used thereafter or issued at the Auction. They deny that the representation was made at the Auction. [63] Whilst the Claimants allege representations were made at the Auction, they have not filed any statement of evidence to support that contention. The Agents 11 Letter Carter Newell Lawyers to QCAT 7 October 2014. -- 11 of 13 -- 12 deny that such a representation was made. In the absence of evidence, I cannot be satisfied that such a representation was made. [64] The submission of the Chief Executive that an event as defined in s 470(1) of the Act had occurred, is premised on the representation being made by the Agents after it received advice from the Council on 22 October 2012. As I am not satisfied that the representation was made after that time, and at the auction, I do not adopt that submission of the Chief Executive. [65] The Claimants have not indicated whether they made any enquiries prior to the Auction as to the lawful use of the property, or whether they were advised to make any enquiries but failed to do so. [66] It is puzzling why the Claimants would proceed to enter into a new Contract without raising the issue as to lawful use at that time, and without seeking to avoid the Contract on that basis. It is not apparent whether the Claimants had legal advice at the time of entering into the new Contract, but they did have legal advice at the time of settlement. [67] If the Claimants did obtain legal advice prior to entering into the new contract, it is conceivable they were appraised of the difficult situation they had placed themselves in by buying on the basis of an unconditional contract without exercising due diligence, and that they elected to proceed with the purchase rather face than the alternate of possibly being liable for a breach of contract. [68] It is also possible that the Claimants made a commercial decision to continue the operate the premises as the sellers had previously done, being aware that no approvals had been given. If they had received legal advice, then it is possible that they were aware that the property was not approved for multiple habitation, but elected to proceed, and therefore did not rely on a representation made by the Agent. [69] It is therefore not clear that the Claimants did rely on the representation in proceeding to settlement. [70] Whilst the Claimants have provided a valuation which states that the value of the property as a single residence at the time of sale was much lower than the sale price, there is the curiosity of the sale of the house next door for a higher amount, within about twelve months, which is unexplained. [71] I accept the submission of the Chief Executive that the claim as formulated does double-count for any alleged loss by claiming both a difference in capital value, and a loss of income. The property was subsequently rented as a single residence, so no loss of income for the property would have been suffered if it had been bought at the market price for a single residence. [72] The Claimants have claimed for loss of rent for 5 years, but no basis appears for the selection of that term, or justification of it. No calculation appears to substantiate or explain the amended claim for $197,200. [73] Given these uncertainties, I am not satisfied that the Claimants have suffered financial loss as claimed. -- 12 of 13 -- 13 [74] The Agents appear to have valid bases to show that they did have reasonable grounds for making the initial representation, therefore the representation would not be taken as misleading, as referred to in s 574(3) of the Act. [75] I am therefore not satisfied that a claim against the fund on the basis of a misrepresentation by the Agents which caused financial loss to the Claimants is made out. [76] Section 530(a) of the Act provides that the Tribunal may make an order in relation to a claim against the fund – allowing the claim, wholly or partly, or rejecting the claim. [77] I order that the Claim against the Claim Fund made on 20 May 2013 is rejected. -- 13 of 13 --