The recent New South Wales Supreme Court case of Bruno Pisano v Georgia Dandris [2014] NSWSC 1070 demonstrates the potentially significant risks associated with vendors making false representations in relation to the sale of their property
Under the Australian consumer law, a person must not, in trade or commerce, engage in conduct that is misleading or likely to mislead or deceive. The vendors, in this case, contended that the sale of a family home is not in trade or commerce. The Court, however, found that the house had been renovated as an investment property to resell with financial gain which therefore amounted to trade or commerce.
Any loss or damaged occasioned as a result of the misleading or deceptive conduct may be recovered in court. The damage will be assessed as the cost of reasonable and necessary work to bring the construction in line with the representations, which in this case amounted to $1,171,124 including GST.
Factual background
Georgia Dandris and her husband, Patrick Williams, purchased a house in Dover Heights, New South Wales in December 2003 with an alleged intention “to live in the house as their family home”. Dandris obtained an Owner-Builder Permit from the Department of Fair Trading. The house was extensively renovated into a double-storey five-bedroom house with a tiled rooftop terrace with views of Sydney Harbour.
Dandris employed an architect to prepare development application documents for the Council, including the necessary plans. As owner-builder, she arranged for all works to be carried out and she contracted with all tradespersons. Ultimately, however, the building work was executed without detailed architectural plans or architectural supervision.
Dandris retained a real estate agent who advertised the property on Domain.com.au. After accessing the web advertisement, Bruno and Sia Pisano inspected the house with a representative from the estate agent. Both the web advertisement and the inspection brochure contained the following words:
BRAND NEW CUTTING EDGE CONTEMPORARY FAMILY RESIDENCE Offering every conceivable luxury for your absolute comfort and security, this stunning suburban oasis showcases state of the art technologies with fixtures and finishes of the highest standard. Offering 400sqm of seamlessly integrated indoor/outdoor living, no detail has been spared with this meticulously designed and built home.
The information contained in this brochure has been furnished to us by the vendors…we have not verified whether or not that information is accurate. We do not accept any responsibility to any person for its accuracy and do no more than pass it on. All interested parties should make and rely on their own enquiries.Written in small print on the reverse of the brochure and on the web advertisement was the following disclaimer clause:
The estate agent informed the Pisanos that the house was built above and beyond the standard home, that the builder was a real professional and was very meticulous, and that the house had been master-built for the builder to live in with the builder’s family. The Pisanos made an offer on the house which, after some negotiations, was accepted. The contract contained a special condition whereby:
The purchaser acknowledges that he/she is buying the property relying on his/her own inspections, knowledge and enquiries and not relying on any representation, warranty, statement or promise other than as set out in writing in this contract.
Attached to the contract was a Certificate of Home Warranty Insurance which referred to a defects inspection report, which stated:
The purpose of this inspection is to identify any areas where poor workmanship, incomplete works or rectification works are required and have been identified within this report. A further and concise report should be requested to investigate in greater detail prior to purchase…it is strongly recommended that a more comprehensive service be sought on areas/queries in this report.
The report also contained the following disclaimer:
No liability shall be accepted on account of failure of the Report to notify any problems in area(s)…of the property physically inaccessible for inspection…This report is NOT an all-encompassing report…It is a reasonable attempt to identify any obvious or significant defects…This report is not a Certificate of Compliance with the requirements of any Act, Regulation, Ordinance or By-Law…should you require any advice of a structural nature you should contact a structural engineer.
Only one item was identified in the report as requiring attention: the ground floor dining room door track, which was found to have water ponding. All other aspects of the house were “found to be completed in a good workmanship like manner and finished in good order.”
Shortly after the sale was completed and the Pisanos moved into the house, problems emerged.
The proceedings
The proceedings had three distinct but overlapping components. First, the Pisanos claimed damages from Dandris for breach of statutory warranties. Second, they claimed from both Dandris and Williams damages suffered by conduct engaged in trade and commerce which was misleading and deceptive or likely to mislead or deceive. Third, they sued Williams in negligence.
The misleading and deceptive conduct claim
Section 18 of the Australia consumer law, a schedule of the Competition and Consumer Act 2010(Cth), provides that a person must not, in trade or commerce, engage in conduct that is misleading or likely to mislead or deceive. A person may recover by action, under section 236, an amount of loss or damage suffered because of that conduct.
The Pisanos contended that the web advertisement, the brochure and by oral statements made by the agent, amounted to representations in trade and commerce that was misleading or deceptive or likely to mislead or deceive because they were false.
They alleged that as a result of relying on the misrepresentations, they suffered loss and damage in deciding to buy the house. Although the real estate agent was also sued, the claim was ultimately abandoned in circumstances where the agent was insolvent and without insurance. Moreover, albeit not discussed in the judgment, it appears that the agent may have been able to avoid a liability finding as on one view it merely passed on information supplied to it by the Dandris and Williams which it duly noted in the disclaimer clause.
First, Dandris and Williams submitted that section 18 did not apply because the “sale of a family home is not in trade or commerce”. Second, they submitted that the conduct complained of was not misleading or deceptive or likely to mislead or deceive because:
- they made disclaimers on the web advertisement and brochure
- the Pisanos acknowledged on the special condition of the contract that they were relying on their own inspections, knowledge and enquiries
- attached to the contract was the defects inspection report which advised that a further and concise report should be requested to investigate in greater detail prior to purchase and strongly recommended that a more comprehensive service be sought on identified areas
- they afforded the Pisanos the opportunity to inspect the house before purchase, which was taken up
- the Pisanos elected not to have their own professional pre-purchase inspection and
- the Pisanos were represented by an experienced solicitor on the purchase.
Third, they submitted that the Pisanos had not proved that they suffered any loss because of the conduct complained of, but rather they caused their own loss because they had a “cavalier approach to their own rights.”
In considering the claim, His Honour noted that the true issue was whether the misrepresentations which played a part in inducing the sale, thereby causing the Pisanos’ loss, were in trade or commerce.
A transaction involving the sale of a domestic residence will be in trade or commerce if, in all of the circumstances in which it occurs, It discloses a commercial or business character. This is a question of fact in each case.
Despite Dandris’ and Williams’ allegations, His Honour was satisfied that the house was renovated with the intention of improving the house for resale for financial gain. The sale, including its advertising, was the carrying into effect of their investment strategy and was considered conduct in trade or commerce.
The falsity of the representations was clearly established and it was found that the misrepresentations of Dandris and Williams played a significant part in inducing the Pisanos to purchase the house. The misstatements in the advertising material were undoubtedly intended positively to influence the reader to purchase the house. There was reliance on the misrepresentations and consequently, a causal link was established between the misrepresentations and the loss or damage flowing from entering into the contract.
Other claims
His Honour also found that the defects, which were the consequence of work not being performed in a proper workmanlike manner and materials supplied not being good and suitable for the purpose for which they were used, had been established. By reason of the defects which caused significant water ingress, the house was deemed not reasonably fit for occupation as a dwelling.
However, in relation to the negligence claim, His Honour concluded that, in these particular circumstances, Williams did not owe such duty to the Pisanos bearing in mind the salient features underpinning a duty of care to avoid economic loss.
Implications
Representations made when selling property must be made with caution. What may be conceived as an innocent advertising technique could amount to misleading or deceptive conduct under Australian Consumer Law and thus entitle the purchaser who relied on those representations to recover from the vendor potentially huge amounts in court.
