18 July 2019

How not to buy a development site

On Tuesday, the Queensland Court of Appeal dismissed all grounds of appeal in QM Properties Pty Ltd v Belscorp Pty Ltd [2019] QCA 138.

QM Properties was the appellant and plaintiff in the original claim, claiming it was the victim of Belscorp’s misleading or deceptive conduct.

This case involved a complex set of facts, but the general background was this:

  1. QM Properties is a very experienced property development business run by Mr Jon Haseler. It was one of the largest privately owned property development companies in Queensland. It had about 100 employees with offices in Brisbane City and Burpengary.
  2. Belscorp was a small property developer company run by Mr Tosh Murphy with a couple of employees from an office in Nerangba.
  3. In 2007 (just prior to GFC), Belscop was getting out of the property development business and QM Properties was doing the opposite by trying to buy more properties for development. Employees of Belscorp met with employees of QM Properties and described details of a number of properties which Belscorp was interested in selling to QM Properties. One of those properties was a property at Albany Creek with prospects of being subdivided into 28 residential lots (the proposed subdivision).
  4. The Belscorp employees represented to the QM Properties employees that, although the Council had raised issues regarding the proposed subdivision, the issues raised had been sufficiently addressed so that the proposed subdivision could go ahead.
  5. Belscorp offered to accept $3.835million for the Albany Creek Property and gave QM Properties only a few days to decide whether to enter into a contract to buy the property for that sum.
  6. Jon Haseler then asked a few of QM Properties’ most senior staff to check whether what had been represented about the property was in fact the case. Then he went off on holidays with the expectation that if his staff found anything contrary to what was represented, they would let him know. Otherwise, he would approve the acquisition of the Albany Creek property by QM at the price proposed by Belscorp.
  7. The QM Properties senior staff rushed the job and either didn’t identify the falsity of the representation, or did identify it and didn’t tell Mr Haseler. QM proceeded to sign a contract to purchase the property.
  8. The truth was that the property could not be subdivided in any feasible way. It was flood prone and had large power lines running across the middle of it. It was only worth $700,000.
  9. QM Properties found this out after entering into the contract and tried to get out of the contract by suing Belscorp alleging breaches of sections 52 and 53A of the Trade Practices Act (misleading or deceptive conduct).

The Court found that Belscorp’s representations were false and that they were made to induce QM Properties to enter into the contract to buy the property. However, there was a fatal flaw in QM Properties’ case. It was that Mr Haseler did not actually rely on the representations to reach his decision to sign off on the purchase. It was the conduct of his own staff that he relied on.

Misleading or deceptive conduct claims are often harder to win than they seem on the surface. Proving the false representation is often the easy part. A plaintiff must also prove that the conduct was relied on and caused the detriment that the plaintiff complains of.

This means that Belscorp is entitled to $2.943million from QM Properties, being the contract price, less the actual value of the land (because QM never completed the purchase). Belscorp will also be entitled to its costs, as well as interest at the statutory rate (7% to 10%) for the 12 year period since the sale contract was entered into.