Lewis v Orchid Avenue Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Lewis v Orchid Avenue Pty Ltd [2014] FCA 739

Citation: Lewis v Orchid Avenue Pty Ltd [2014] FCA 739
Parties: ANDREW PETER LEWIS and MIA TERESA LEWIS v ORCHID AVENUE PTY LTD (ACN 118 752 346)
File number: QUD 135 of 2012
Judge: DOWSETT J
Date of judgment: 11 July 2014
Catchwords: COMPETITION LAW – misleading and deceptive conduct – contract for sale – alleged representations as to capital growth and financial prospects – whether representations made – whether reliance – cross-claim for damages.
Legislation: Trade Practices Act 1974 (Cth) ss 51A, 52, 82, 87
Federal Court of Australia Act 1976 (Cth) s 51A
Dates of hearing: 27, 28 and 29 May 2013
Date of last submissions: 29 May 2013
Place: Brisbane
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 174
Counsel for the Applicants: Dr AJ Greinke with Mr G Watson
Solicitor for the Applicants: k2 Law
Counsel for the Respondent: Mr P Morrison QC with Mr G Handran
Solicitor for the Respondent: Hickey Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION

QUD 135 of 2012
BETWEEN:

ANDREW PETER LEWIS
First Applicant

MIA TERESA LEWIS
Second Applicant
AND:

ORCHID AVENUE PTY LTD (ACN 118 752 346)
Respondent

JUDGE:

DOWSETT J

DATE:

11 JULY 2014

PLACE:

BRISBANE

REASONS FOR JUDGMENT

THE CONTRACTS

  1. On 16 October 2009, the applicants (“Mr Lewis” and “Ms Lewis”) entered into a contract (the “unit contract”) with the respondent (“Orchid Avenue”) for the purchase of a residential unit (the “unit”) in a block of units then being built on the corner of Surfers Paradise Boulevard and Orchid Avenue at the Gold Coast.  The unit was identified in the unit contract as Lot 22506 on an attached plan.  At or about the same time, they also entered into a furniture package contract with Orchid Avenue (the “furniture package contract”).  In these reasons, I need not, in general, distinguish between the two contracts.  I shall refer to them collectively as the “contracts”.

    RESCISSION, DETERMINATION, AVOIDANCE AND REPUDIATION

  2. On 9 September 2011 the Lewises purported to terminate or avoid the contracts pursuant to nominated statutes and/or other unspecified grounds.  They also purported to reserve their rights in respect of unspecified false and/or misleading statements which had allegedly induced them to enter into the contracts.

  3. On 16 September 2011 Orchid Avenue purported to terminate the contracts upon the basis that Mr and Ms Lewis had defaulted in performance of both.  Orchid Avenue also purported to forfeit the deposit paid pursuant to the unit contract, and to reserve its right to recover from Mr and Ms Lewis any deficiency between the purchase price and any price on re‑sale.

    THE PROCEEDINGS

  4. On 23 February 2012 Mr and Ms Lewis commenced proceedings in this Court, seeking an order pursuant to s 87 of the Trade Practices Act 1974 (Cth) (the “Trade Practices Act”), declaring the unit contract void ab initio, and related relief. They also sought an order that Orchid Avenue release, or…

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Details
Case
[2014] FCA 739
Decision Date

CaseChat Overview and Summary

In Lewis v Orchid Avenue Pty Ltd, the primary dispute concerns the validity of alleged oral representations made by Mr Hendrick, a representative of Orchid Avenue, regarding capital growth and financial prospects, and whether these representations influenced the plaintiffs' decision to purchase a unit in the Orchid Tower development. The matter was heard in the Federal Court of Australia. The plaintiffs, Mr and Mrs Lewis, claim that they were misled by the defendant's representations, which induced them to enter into a contract for the purchase of a unit in Orchid Tower. They further contend that they relied on these representations when deciding to swap their existing property for the new unit. The defendant, Orchid Avenue, denies making any such representations and argues that any reliance by the plaintiffs was unreasonable.

The central legal issues before the court were whether the alleged representations were indeed made, and if so, whether the plaintiffs reasonably relied on them when entering into the contract. The court had to assess the credibility of the evidence provided by both parties and determine whether there was a causal link between the alleged misrepresentations and the plaintiffs' decision to proceed with the purchase. Additionally, the court needed to consider the plaintiffs' cross-claim for damages, which sought compensation for any losses incurred due to the alleged misleading and deceptive conduct.

In delivering the judgment, the court carefully examined the evidence and testimonies presented by both parties. It found that there was no clear and convincing evidence that the alleged representations were made in relation to the Orchid Tower unit specifically. The court concluded that while the plaintiffs had expressed an expectation of capital growth, there was insufficient proof that this expectation was based on specific representations by the defendant. Furthermore, the court held that the plaintiffs' reliance on any such representations, if they existed, was not reasonable given the information available to them at the time of the transaction. Consequently, the plaintiffs' claim for misleading and deceptive conduct was dismissed.

The court did not find it necessary to rule on the cross-claim for damages, as the primary claim was unsuccessful. No further orders were made in relation to the cross-claim.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

In July 2009 Mr Lewis seems to have thought that he and his wife had “equity” of over $200,000 in the Perth house. Mr Cameron’s strategy assumed a 90% borrowing ratio of its estimated value of $1.1 million, yielding an “equity” of $171,000 which might be applied in paying the deposit on the unit and associated expenses. Assuming a lending ratio of 80% on the unit, Mr Cameron’s calculations showed a shortfall of $54,651. By this stage, Mr Lewis knew that Perth lenders were willing to lend only up to 60% of a unit’s value. The Decision to Acquire the Orchid Tower Unit On 29 July 2009, Three Sixty (Ms Barlow’s employer) wrote to Mr and Ms Lewis, forwarding the draft contracts relating to the Orchid Tower unit. I infer that by this time, Mr Lewis had identified the benefit of deferring the time for settlement, presumably because of the emerging problems with finance. Hence it seems that by that time he no longer expected that the 20% capital appreciation would occur in time for him to raise the necessary finance against any increased value of the unit. Further, even if such appreciation were realized, it would yield a figure of $1,118,400. If the Lewises were to borrow 80% of that amount, the loan would be $894,720, not $932,000. Of course, they may have hoped to borrow a larger amount, but there is no evidence of any such expectation. The Lewises seem not to have considered the possibility that the Orchid Tower unit would not be as valuable as the Boulevard Tower unit. It was at least possible that a non‑penthouse unit in the Orchid Tower might not be as attractive a letting proposition as a penthouse unit in the Boulevard Tower, particularly as the former unit was smaller than the latter. Mr Lewis said that there were significant additional services available in the Orchid Tower. That may well be so. Of course, the listed prices for the Orchid Tower units were above the price at which the Lewises were offered both units. However it seems that the price of the Boulevard Tower unit had been reduced in order to induce a quick sale so that the marketers could say that all units in that tower had been sold. Mr Ogilvie was willing to sell the Orchid Tower unit to the Lewises at the same price as that at which they had been offered the Boulevard Tower unit. I draw no conclusion as to the relative values of the units. I observe only that the Lewises seem not to have addressed the possibility that, whatever Mr Hendrick had said to them, it might not apply to a purchase of the Orchid Tower unit, or to an acquisition which was to be settled in two and a half years’ time rather than one and a half, with the increased risk of fluctuations in the market prices. The Lewises seem to plead that the alleged oral representations were made concerning the acquisition of any unit in the Hilton development. The evidence does not disclose whether Mr Hendrick was, at the relevant times, aware of the actual unit which was being offered by Ms Barlow. Mr Lewis said that at the initial meeting at the Ray White office, Mr Hendrick said something about “positive gearing”. However, according to him, the capital appreciation figure of 20% was mentioned later, at the Hilton sales office, apparently after Ms Barlow’s presentation in which the unit may have been identified. The case seems not to have been conducted, by either side, upon the basis that the alleged representations did, or did not relate to a specific unit. However one would have expected that if the Lewises, in considering the purchase of the Boulevard Tower unit, were influenced by certain representations, they would, in considering the swap, have considered whether those representations applied equally to the Orchid Tower unit.Receipt of the Contracts, Questions and Responses

Ratio Decidendi

Legal Principle Established

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