Duties of disclosure revisited: don’t be quiet about noisy neighbours

Facts

In 2015, Ms Thillagaratnam (the plaintiff) purchased a ground floor, strata titled apartment in Perth, Western Australia (the apartment) from Mr Doan and Ms Nguyen (the sellers) before discovering that the upstairs neighbour, Mr Pratt, engaged in extreme anti-social behaviour. This included banging the floor of his apartment with a hammer, playing load music, and yelling and shouting verbal abuse.

The plaintiff issued proceedings against the sellers in the Supreme Court of Western Australia seeking to rescind the contract of sale and obtain damages for breach of contract, fraudulent misrepresentation and misleading or deceptive conduct. The sales agent was not a party to the proceeding, although this decision clearly has implications for sales agents.

The sellers had bought the apartment in 2010 and had rented it out, apart from a 14 month period when they had occupied the apartment. Mr Pratt had lived in the upstairs apartment since 1980. The sellers maintained that they had only experienced Mr Pratt’s conduct on three occasions and had no knowledge of any other incidents.

However, the plaintiff submitted that she moved into the apartment, following some renovations, and immediately experienced Mr Pratt’s bad behaviour. She stated that Mr Pratt would “torment” her with his behaviour “all day, almost every day”. She alleged that she was living in a state of constant fear, to the point that she obtained restraining orders against Mr Pratt and she eventually vacated the apartment in 2017.

The sale contract included clause 10.2(c) of the Joint Form of General Conditions for the Sale of Land, which was a warranty that “the seller does not know of anything which will materially affect the Buyer’s use or enjoyment of the Strata lot or of the common property comprised in the Strata Scheme.” The sellers had not disclosed Mr Pratt’s disruptive conduct to the plaintiff, either in the sale contract or before the contract was entered into. The plaintiff argued that by not disclosing Mr Pratt’s behaviour, the sellers had breached the sale contract.

The plaintiff also alleged that the sellers had misrepresented, through their agent, that the apartment included an enclosed courtyard area when it did not. The agent had published an advertisement that stated that the apartment included a “huge secure courtyard”. However, the fence of the courtyard had been constructed without the authority of the strata title company and the courtyard area was not for the exclusive use of the owner of the apartment.

Issues before the Court

  1. Did the sellers’ failure to disclose their knowledge of Mr Pratt’s conduct constitute a breach of contract?
  2. Did the sellers make a fraudulent misrepresentation by representing to the plaintiff that they did not know of anything which could materially affect her use or enjoyment of the apartment?
  3. Did the sellers’ representations in respect of the use or enjoyment of the apartment and the presence of a secure enclosed courtyard constitute misleading or deceptive conduct pursuant to s 18 of the Australian Consumer Law (ACL), or, alternatively, s 18 of the Australian Consumer Law (WA) (ACLWA)?
  4. Is the plaintiff entitled to rescission of the contract and/or damages?

Decision

Justice Curthoys held that the plaintiff was entitled to rescind the contract on the basis of breach of contract and on the basis of fraudulent misrepresentation. However, the claim for misleading or deceptive conduct failed as the plaintiff did not establish that the sale was anything more than the private sale of property and thus the transaction lacked the required commercial nature.

Justice Curthoys commented in the course of the decision that the point of litigation was to obtain actual and not merely theoretical relief. His Honour noted the sellers had sold their family home to meet legal fees and any judgement against them was likely to drive them into bankruptcy. The plaintiff was therefore unlikely to be able to obtain actual relief and likely be left with a significant legal bill. His Honour commented that this case illustrated the folly of litigation, and that consideration should have been given to suing Mr Pratt in nuisance.

Breach of Contract

Justice Curthoys held the evidence established that the sellers were aware of Mr Pratt’s behaviour, despite their insistence that he was a “normal” neighbour. Two previous tenants provided evidence that they were harassed the entire time they lived in the apartment and they had vacated the property early as a result. One tenant stated that he called the police on average once a week during the eight months that he lived in the apartment.

There were also emails and other correspondence demonstrating the extent of Mr Pratt’s harassment of the sellers whilst they lived at the apartment, despite their insistence that they only experienced three incidents. His Honour held that Mr Pratt’s conduct was clearly extreme and that the sellers had not disclosed his behaviour as they knew it would affect the sale of the apartment.

His Honour held that the sellers had breached clause 10.2(c) of the sale contract in failing to disclose Mr Pratt’s behaviour and that the breach went to the root of the agreement. The reference in the clause to “anything” affecting “use or enjoyment” was sufficiently broad to encompass the conduct of other residents.

Furthermore, Mr Pratt’s behaviour was not something that would be apparent from an inspection to the strata lot, the strata plan, or the by-laws, and therefore was not excluded from clause 10.2(c). Given the finding that the sellers had actual knowledge of Mr Pratt’s behaviour, His Honour found it unnecessary to consider whether imputed knowledge would fall within clause 10.2(c).

Fraudulent Misrepresentation

Justice Curthoys stated that in an action for fraudulent misrepresentation, the plaintiff must prove:

  • A false representation of fact;
  • That the representation was made fraudulently;
  • That the representor intended for the representee to act on the representation; and
  • That the representation induced the representee to enter the contract as a result of which the representee suffered loss.

His Honour was satisfied that by signing the contract, accepting the offer and acknowledging they had received a copy of the General Conditions, the sellers had represented to the plaintiff that they did not know of anything which would materially affect the plaintiff’s use or enjoyment of the apartment. Given their knowledge of Mr Pratt’s conduct, this constituted a false representation of fact.

The sellers’ execution of the contract despite their knowledge that Mr Pratt could materially affect the use or enjoyment of the apartment was at the very least, made recklessly, not caring without whether it was true or false and therefore His Honour held that it was made fraudulently.

Given that the representation was directed at the plaintiff as the buyer of the apartment, it was clear that the sellers intended the plaintiff to rely upon that representation. He was satisfied that the representation induced the plaintiff to enter into the contract. Therefore, the sellers had made a fraudulent misrepresentation.

Misleading or Deceptive Conduct

The claim for misleading or deceptive conduct concerned the sellers’ silence in relation to Mr Pratt’s conduct and the representation that the apartment included a large secure courtyard. The wording of both s18 of the ACL and s18 of the ACLWA require that misleading or deceptive conduct occur in trade or commerce.

His Honour held that the private sale of land, particularly residential property, is not ordinarily regarded as being in trade or commerce. The plaintiff submitted that as the apartment was not intended to be the sellers’ family home, it should be characterised as an investment property and therefore the sale occurred in trade or commerce.

However, His Honour held that the isolated sale of an investment property is insufficient in itself to lead to the conclusion that the sale occurred in trade and commerce. Overall, His Honour was not satisfied that that sale was anything more than the private sale of property and therefore the plaintiff’s claim in relation to misleading or deceptive conduct failed.

Remedies

The plaintiff sought recission of the sale contract on the basis of the breach of contract and because of the fraudulent misrepresentation. The sellers submitted recission was not appropriate as the plaintiff had affirmed the contract by remaining in the apartment despite the knowledge of Mr Pratt’s conduct and she had been elected to the council of owners.

His Honour concluded that neither of these matters amounted to affirmation of the contract and simply showed that the plaintiff did not walk away lightly. The sellers also submitted that recission was inappropriate due to the renovations that the plaintiff had done to the apartment. However, His Honour stated that the apartment remained substantially the same and, if anything, the renovations could only have improved the apartment.

His Honour held that the measure of damages would be the same for both fraudulent misrepresentaion and breach of contract. This involved placing the plaintiff in the position she would have been had her enjoyment of the apartment not been impaired by Mr Pratt’s conduct.

His Honour held that the plaintiff was entitled to rescind the contract and that her associated calculations for her claim for loss and damage were broadly correct. He ordered that the parties attempt to agree to appropriate orders and costs.

Conclusion

Although the sales agent was not a party to the proceeding, this decision is a reminder that sellers (and their sales agents) have a duty to disclose all facts which may materially affect a propsective buyer’s decision to purchase a property.

When completing a Property Occupations Form 6 Appointment and reappointment of a property agent, resident letting agent or property auctioneer, agents should pay particular regard to Item J of the Items Schedule (Facts Material to the Sale of the Property).

This Item requires agents to take reasonable steps to find out and verify any facts material to the sale of the property and to set out any relevant matters in the space provided. Agents should also draw their clients’ attention to Clause 8 of the Essential Terms and Conditions (Disclosure of Relevant Facts).

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