Case Note: Chen v Chu [2024] NSWSC 1139
Overview
Chen v Chu [2024] NSWSC 1139 highlights the critical importance of misleading and deceptive conduct in property transactions and offers valuable guidance on affidavit practices. The court reaffirmed that recounting conversations using phrases like “to the following effect” is acceptable, provided it reflects the witness’s best recollection. This case underscores the need for accuracy in affidavit drafting and cautions legal practitioners to be precise when presenting conversations as evidence, especially in the context of disputed facts.
Case Summary
In Chen v Chu [2024] NSWSC 1139, the Owners, prospective apartment buyers, were financially capable of purchasing a penthouse apartment without financing. They were introduced to the property by a real estate agent, who subsequently convinced them to release their deposits as an unsecured loan to the developer at a 15% interest rate. Additionally, the agent induced the Owners to purchase 28 off-the-plan apartments in the same development, releasing the associated deposits to the developer.
The Owners later discovered that the developer was operating a Ponzi scheme, resulting in a loss of approximately $7 million. The Owners sued the real estate agent for misleading and deceptive conduct, alleging that the agent made numerous false representations about the developer’s financial stability and future prospects.
Key Issues
Misleading Representations by the Real Estate Agent: It was alleged that the real estate agent falsely claimed that:
- The Owners would receive VIP treatment.
- Their 15% annual interest on deposits would cover stamp duty.
- The deposits would fund construction and working capital for the developer.
- The developer had a strong financial standing, with good cash flow and profitable projects.
- The Owners did not need legal or financial advice because the contracts were standard.
The agent had no reasonable basis for these representations, and they were found to have induced the Owners to make decisions they otherwise would not have.
Impact of Misleading Conduct:
- As a result of the real estate agent’s false representations, the Owners released their deposits and invested in the off-the-plan properties, leading to a substantial financial loss. Without the misleading conduct, the Owners would have retained ownership of an unencumbered apartment in Lindfield.
Failure of Defences:
- Proportionate Liability Defence: The real estate agent argued that liability should be shared among other parties, such as the developer. However, while proportionate liability can apply to misleading conduct under s18 of the Australian Consumer Law (ACL), it does not apply to false representations about future matters under s29. The Court rejected the defence.
- Limitation Defence: The agent’s argument that the Owners’ claims were time-barred was also dismissed, and judgment was entered in favour of the Owners.
Court’s Observations on Affidavits
During the course of the trial, the Owners referenced the Federal Court decision in Kane’s Hire Pty Ltd v Anderson Aviation Australia Pty Ltd [2023] FCA 381, where Jackman J criticised the practice of recounting conversations in affidavits using direct speech prefaced by “to the following effect.” Jackman J argued that this practice was ethically problematic and could misrepresent the witness’s memory of the conversation.
However, Hammerschlag CJ disagreed with this critique. His Honour defended the use of phrases like “to the following effect” in affidavits, stating that such language ensures clarity by indicating that the witness is recounting their best recollection rather than the exact words used. He also noted that this approach fosters a disciplined recounting of conversations and enhances the credibility of the testimony.
While cross-examination can test the accuracy of recollections, the absence of contemporaneous documentation or corroborating evidence may pose challenges in proving conversations relied upon for causes of action. This issue is tied to the principle established in Briginshaw v Briginshaw (1938), where the court requires a reasonable level of satisfaction based on the nature and gravity of the fact in question.
Outcome
The Court awarded $7,438,548 in damages to the Owners, finding the real estate agent liable for misleading and deceptive conduct. The Court also ordered the Real Estate Agent to pay the Owners’ costs, subject to further submissions.
Key Takeaways for Practitioners
Affidavit Drafting Practices: The ruling reinforces that recounting conversations using direct speech prefaced with “to the following effect” is acceptable, provided that it reflects the deponent’s best recollection. Practitioners must ensure that affidavits accurately recount conversations, avoiding vague or overly general terms.
Misleading Conduct in Property Transactions: The case highlights the dangers of making representations about a developer’s financial standing without reasonable basis. Real estate professionals must ensure that they are not misleading prospective buyers, especially when making claims about future events.
Evidence in Disputed Conversations: The court will carefully scrutinise the accuracy of the conversations recounted in affidavits, and corroborating evidence or contemporaneous records will significantly strengthen a party’s position.
In summary, Chen v Chu serves as a cautionary tale for real estate agents and developers while also providing clarity on affidavit drafting practices in NSW.
More information
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