A court verdict on soured Queenstown property deals is a clear warning that buyers should ignore verbal promises by sellers.
Five out-of-town investors face throwing away hundreds of thousands of dollars on apartments they’ll never own, following a Court of Appeal ruling released last week.
The five investors and others bought $72,000 share stakes in a company promoted by the now-defunct McEwan Group to develop the Bowen View complex on Queenstown Hill.
In 2005, when McEwan had trouble raising development finance for the project, investors were further urged to “buy outright or underwrite [apartments]” on $1 deposits.
They’d never have to settle their purchases, the investors were assured – it was a wrinkle to get funds flowing from the Bank of Scotland International (BOSI) so the complex could be completed and on-sold.
However, the property boom began fading and McEwan Group went broke without Bowen View being on-sold – so in 2009 BOSI began chasing the shareholder-investors to honour their apartment purchase agreements.
Get lost, the investors told BOSI, we were told we’d never have to settle the deals – and apartment prices have dropped anyway.
Plummeted would be more accurate: one investor who’d signed for a unit at $1.1 million in 2005 had it valued in 2008 – at just $535,000.
Last week’s Court of Appeal verdict completely overturned a High Court decision last October that was in favour of the investors.
In the earlier judgment, reported by Mountain Scene at the time, Justice Toogood said: “[No investors] had intended, initially, to be owners of apartments in Queenstown.
“They’d purchased shares in what was essentially an investment company, intending to make profits out of the development rather than in actually acquiring property.
“They were urged to enter into the sale and purchase agreements, not because it was believed owning a unit would be a sound investment, but because their [$72,000 shareholding] was under threat through the relatively low sales and the inability of the McEwan Group to secure adequate funding in the absence of a higher level of sales,” the judge said.
Initially finding for the investors last year, Justice Toogood said the High Court case ultimately turned on the McEwan company not completing the apartments in line with the sale and purchase agreements.
“[The company] breaches were material and substantial – they justified the [investors’] refusal to settle,” he ruled.
We disagree, the three Appeal Court judges now say – the McEwan company breaches were “not material or substantial” and could readily have been compensated for.
The breaches were insufficient excuse for investors to back out of their deals, the Appeal Court verdict says.
As for investors being able to count on verbal promises of not having to settle apartment purchases, the Appeal Court rejects that entirely, saying: “It is clear that a defence based on an alleged oral term is not available where that term would contradict the written agreement subsequently entered into.”
In plain language, what’s written takes precedence over what’s spoken.
The case now returns to the High Court.
It is expected to rule on how much investors owe BOSI in damages for backing out of buying the apartments – and that’s almost certainly to be in the hundreds of thousands of dollars.