Natraine Nominees Pty Ltd v Charles Corsie Patton and Robert Hodges Estate Agency Pty Ltd [2000] VSC 303

Supreme Court of Victoria|2000-08-03|Before: Smith, J

Sale of land - restrictive covenant - interpretation of covenant - false and misleading conduct - opinion - rescission - damages.

The plaintiff Natraine Nominees Pty Ltd, is the trustee company of a family trust of the Natilli family. Michael Natilli acted for it in purchasing a property at 3 Milroy Street East Brighton on 19 June 1999. The vendor was Mr Patton the first defendant. The agents acting for Mr Patton were Robert Hodges Estate Agency Pty Ltd, the second defendant.

The plaintiff purported to rescind the contract by solicitor's letter of 29 July 1999 relying on alleged misrepresentations on the advertising board on the property and a brochure handed to prospective purchasers including Mr Natilli. It has brought these proceedings seeking a declaration against the first defendant as to the due and proper rescission of the contract of sale and an order for the return of the deposit of $39,400 paid by it. It also seeks damages in respect of alleged misrepresentations. It alleges a duty of care owed by the defendants to it and breach of that duty. The plaintiff also relies against both defendants upon alleged breaches of s 53A Trade Practices Act 1974 and s 52 of the Trade Practices Act 1974 and s 11 of the Fair Trading Act 1999 It also alleges that the second defendant was a person who aided, abetted, counselled or procured the contravention of the Trade Practices Act provisions. The damages claimed were particularised at $169,500.

The plaintiff on occasions has purchased and re-developed real estate property. Mr Natilli himself has conducted the business of property developer for many years through the plaintiff and other entities, in addition to carrying on business as a plumber.

Early in June 1999, Mr Natilli noticed an advertising board on the property of 3 Milroy Street Brighton East advertising that property for sale. On the property was a house built early in the 20th century. The block was a corner block. The advertising board asserted the following "A GREAT TWO UNIT DEVELOPMENT (STCA) ". It is common ground that "STCA" was well known to mean "subject to Council approval".

On about 12 June 1999 Mr Natilli attended the property to inspect it. He was handed a brochure by a Mrs Laird, a real estate consultant in the employe of the second defendant. It too asserted that the property was "A GREAT TWO UNIT DEVELOPMENT (STCA)".

These two statements about a two unit development are the alleged misrepresentation.

At the time Mr Natilli inspected the property on 12 June 1999, a statement under s 32 Sale of Land Act 1962 had not been prepared. I accept, however, that there were documents including copies of the certificate of title available on the premises. They were not inspected by Mr Natilli. On the day of the auction, 19 June 1999, Mr Natilli attended the premises and briefly looked at the papers that were available including the s 32 statement. I am satisfied, however, that he did not read them closely and in particular that he did not read the detail on the certificate of title. If he had, he would have noted the following:

"ENCUMBRANCES REFERRED TO THE COVENANT contained in Instrument of Transfer Number 1026116 in the Register Book that no building may be erected on the above described land except a brick building to be used exclusively as a residence or dwelling house only or outbuildings of any material in connection with such brick building."

In his opening remarks at the auction on 19 June 1999, the auctioneer, Mr Taylor, referred to a number of matters including the certificate of title and read the above details of the encumbrance. He went on to say, however, as was his view, that this restrictive covenant was a brick only covenant - that is the only constraint imposed was that whatever was built must be of brick. The auction proceeded and the plaintiff, through Mr Natilli, was the successful bidder purchasing the property for $394,000.

Over the weekend following the auction, Mr Natilli read the contract documents more closely and read the notification of the encumbrance and was unclear as to its meaning. He delivered the documents to his solicitor. On the following day his solicitor telephoned him asking him what use he was proposing for the property, knowing that Mr Natilli and his companies were generally involved in purchasing properties for re-development. He informed his solicitor that he was intending to erect a two unit development. His solicitor told him that he didn't think this was possible because of the encumbrance. There was then correspondence between his solicitor and the vendors' solicitors and his solicitor and the agent. The vendor and the agent maintained that the restrictive covenant did not prevent a two unit development. The plaintiff refused to proceed with the contract and purported to rescind it.

The first question to be considered is the proper construction of the restrictive covenant. If the defendant's construction is accepted, it is common ground that the plaintiffs claims must fail and the defendants are entitled to judgment against the plaintiffs. If the plaintiffs construction is accepted then other issues arise, namely issues concerning:

? the alleged misleading and deceptive conduct. ? the alleged negligent misstatement ? the alleged false description of the characteristics of the land ? rescission

It should be noted that the case has proceeded to trial on the question of liability only and the assessment of damages has been deferred pending the outcome of the trial on the issue of liability.

Issue of construction of the restrictive covenant

It is common ground that in construing the covenant

"the words shall be given their meaning in common vernacular use and not regarded as terms of art to be given some special meaning."

(See for example Mann, C. J. in Re Marshall and Scott's Contract [1938] VLR at 89).

For the plaintiff it was put that consistently throughout there is reference to the singular. The covenant starts "no building may be erected on the above described land except a brick building". Counsel submitted that the reference was to the singular and in particular to a single brick building as being the only permitted structure. He referred to the fact that the covenant then went on

"to be used exclusively as a residence or dwelling house only".

He submitted that plainly this meant the use was to be restricted to a single residence or a single dwelling house.

For the defendants it was conceded that the covenant restricted any building to a single brick building. They argued, however, that when considering the use to which that building could be put the use was not restricted to a single residential unit. It was put that a residence and a dwelling house for the purpose of the restrictive covenant could include a number of units provided they were all within the one building.

In further argument, counsel for the defendants argued that reference to "a residence" was simply a reference to residential purposes or use and not the number of residences involved. It was also submitted that the use of the expression "dwelling house" allowed for more than one residential unit within the house. Counsel drew attention to other points of construction which counsel submitted supported the defendant's construction. The first was that a reference to a single residence was superfluous if "dwelling house" was intended to refer to a single residential unit as such. Counsel also submitted that the reference to out buildings was not consistent with a single residence or dwelling house because that would have required words such as "out buildings in connection with such residence or dwelling house".

There have been many cases reported where restrictive covenants relating to construction of buildings and their use were considered. Counsel were unable to refer me to any directly in point. Counsel for the defendants drew my attention, however, to the case of Munns v Watson [1937] VicLawRp 36; 1937 VLR 178 where the restrictive covenant prevented the erection of any buildings "except a double fronted house with out buildings for residential purposes". That restrictive covenant was held not to prevent the construction of two separate residential units within the double fronted house. I was also referred to Kimber v Admans [1900] 1Ch. 412 where the covenant provided that "no house shall be erected on any part of the four plots of less value than £500". It was held that the covenant did not prohibit the construction of a building containing a number of flats. I was also referred to cases where the restrictive covenant limited development to "one" residence or building such as Re Marshall and Scott's Contract [1938] VicLawRp 22; [1938] VLR 98 or "a private residence" or "a private dwelling house". Ultimately, however, the question to be determined is one of construction of the covenant in question.

I note that on reading the restrictive covenant for the first time, without the benefit of authority, my initial impression was that the restrictive covenant forbade any development involving two units of residence. My initial impression was that it sought to confine development to a single brick building which contained within it a single residential unit. On further consideration, however, and having considered the authorities, I have reached a different conclusion.

I remain of the view that the reference to "a residence" was intended as a reference to a single residential unit. The problem facing the plaintiff, however, lies in the words "dwelling house". It is clear that this expression has been regarded as one which in ordinary colloquial language is capable of applying to a single building containing more than one residential unit. I refer to Ilford Park Estates Ltd v Jacobs [1903] 2 Ch. 522; Kimber v Admans above; A G v Mutual Tontine Westminster Chambers Association (1876) 1 Ex.D. 469, 475; Re Marshall & Scott's Contract [1938] VicLawRp 22; [1938] VLR 98, Ex parte High Standard Constructions Ltd [1929] 29 SR NSW 274

I note that the reasons for judgment of Mann, C. J. in Re Marshall & Scott's Contract (above) might be thought to assist the plaintiff. His Honour, in particular, after commenting that the expression "dwelling house" is a composite phrase, referred to the judgment of Harvey, C. J. in Equity in Ex parte High Standard Constructions Ltd (above) where his Honour said that there was a great deal to be said for the view that the phrase "dwelling house" meant "a house designed and constructed as a house to be dwelt in by one family". The covenant in that case was in terms that there should not be built on the land "any building save one dwelling house". There was erected on the land a brick villa with a tile roof which was divided into two dwellings by a brick wall running from the front to the rear but extending only up to the height of the ceiling and not up to the roof. It did not run in a straight line from the front to the rear but was broken in such a way that it would not be readily possible to create a party wall easement or to create separate titles. There was no means of communications between the two dwellings and each had a separate entrance. Mann, C.J. held that the building in the case before him comprised two dwellings and a building comprising two dwellings was not a single dwelling house and so infringed the covenant. Mann, C.J. noted that he based his decision, inter alia, on Ex parte High Standard Constructions Ltd (above) and Rogers v Hosegood [1900] 2 Ch 388.

The concept of "dwelling house" was discussed in Ex parte High Standard Constructions Ltd (above). In that case the restrictive covenant provided:

"(a) that only one house shall be erected upon the land hereby transferred; . . . "

The proposed plan involved the erection of a building two stories in height divided into eight self contained flats with a passage in the middle of the building and the roof as one constructional unit overall. The entrance to all the flats was to be contained in a common portico. His Honour analysed the plan and the restrictive covenant in the following terms:

"The front portico is like the common archway covering the front doors in that case [Ilford Park Estates Ltd v Jacobs above] and it does not in my opinion convert the whole building into one dwelling house. Each flat is a self contained unit with its own front door and each constructionally distinct in every respect. The proposed building also offends against the covenant in that in my opinion the four flats of each floor of the building divided by the passageway are as much two dwelling houses as two semi-detached houses would be."

Harvey, C.J. in Equity adopted the analysis of Swinfen Eady, J. in Ilford Park Estates Ltd v Jacobs (above). Harvey, C.J. in Equity, went on to state the following:

"In the present covenant it is clear that 'house' is not used as a synonym for building. The erection contemplated is a house as the main building with possible subsidiary buildings. Looking at the restrictions on the use of the buildings I think that an ordinary layman would conclude that by 'house' in this covenant was meant a dwelling house. The primary meaning of the word 'house' I take to be a dwelling house for a family and the use of the word to describe office buildings such as the familiar Challis House or Wingello House in Sydney is a secondary use of that word. In my opinion the question whether a building occupied as several residential flats can or cannot be properly described as one dwelling house depends upon the nature of its construction. Two semi-detached houses side by side even though under one roof cannot in my opinion be regarded as one dwelling house within the meaning of such a covenant. I agree with Swinfen Eady, J., that it is impossible to differentiate the case of one house superimposed upon another and the case of two houses laterally adjacent to one another. When there is no common front door or staircase, no internal communication, when the residential units are structurally separate in every respect, they must, in my opinion be regarded as separate dwelling houses within the meaning of a simple covenant such as the present. On the other side of the line would be the not uncommon case of an ordinary two story dwelling house let as two flats, one lessee having the ground floor and the other the staircase and the upper floor, and both using the same entrance hall. Such a building is built as one dwelling house and one dwelling house it remains for the purpose of a covenant not to build more than one dwelling house. The border line case is where a house is erected with a common front door opening on to the street, common entrance hall and staircase leading to various self contained flats each closed by one door of its own. It may be that in the absence of any controlling context such a building would not be offensive to a covenant only to erect one dwelling house."

It seems to me that the critical point that emerges from these authorities is that the words "dwelling house" in their colloquial and ordinary meaning can include a building in which there is more than one residential unit depending upon the layout and structure of the building. Thus, the structure in Re Marshall & Scott's Contract (above) was such that two dwelling houses were created. But applying the same analysis, a building that for exterior purposes appears to be one house containing a single entrance could contain within it two residential units and not offend the restrictive covenant. The word "unit" in this content ordinarily refers to an accommodation unit in a building or group of buildings.

I am unable to point to anything in the restrictive covenant itself which would suggest that the words "dwelling house" should be read down from what appears to have been accepted for many years to be the ordinary meaning of the words. On the contrary, as counsel for the defendants has pointed out, to construe "dwelling house" so as to confine it to a single residence would render the reference to "a residence" superfluous. I also note that the covenant does not qualify the words "dwelling house" with words such as "one", "single" or "private".

The question to be determined is whether the representations made in the advertising board on the property and in the brochure handed to Mr Natilli of "a great two unit development" were putting forward a development forbidden by the restrictive covenant. If the construction I have accepted be correct, the represented two unit development was not forbidden by the restrictive covenant. A single building could be erected containing two units without breaching the covenant. To describe it as "a great" two unit development was probably an exaggeration in the circumstances. Nonetheless, applying this construction, the plaintiff cannot demonstrate a misrepresentation in the above statements. Accordingly the plaintiff fails at the threshold in makings its claims.

I think it desirable, however, that I state the conclusions I have reached on other issues as they have been argued before me. Further the construction issue is one on which views can differ - as has occurred in this case. I turn, therefore, to the other issues and do so making the assumption, for the purpose of discussion, that a two unit development would breach the covenant.

I turn, therefore, to the claims brought under s 52 of the Trade Practices Act and s 11 of the Fair Trading Act. Making the above assumption, the statements in the brochure and on the advertising board on the property were incorrect. Plainly, the plaintiff, through Mr Natilli, relied upon them in deciding to purchase the property. Did they constitute misleading or deceptive conduct?

The defendants argue that they were statements of opinion and that, viewing the statements in the context of the total conduct of the defendants, they should not be regarded as constituting misleading and deceptive conduct.

The defendants argue that the reference to "STCA" was a warning to potential purchasers that they should consult the relevant Council to establish to what use the property could be put and ascertain any restrictions that might be imposed on its development. As to that it does not seem to me that that reference did more than alert a prospective purchaser to the normal Council approval procedures and did not alert any purchaser to the possibility that there might be a restrictive covenant or any other restriction of that kind which would prevent a two unit development occurring.

Perhaps of more significance are the arguments based on the conduct of the defendants in making available information to the plaintiff including the disclosure of the covenant. I accept that a copy of the certificate of title on which the comment was recorded was available to Mr Natilli when he visited the property on 12 June 1999. I also accept that a s 32 statement which disclosed the restrictive covenant was available as from early in the week immediately prior to the auction and was on display to people on the day of and shortly prior to the auction at the premises. I accept that Mr Natilli skimmed through the documents on that occasion but did not read them closely. Mr Natilli in fact did nothing to investigate the possibility of restrictions on the use of the land prior to the auction. I am satisfied, however, that if Mr Natilli had queried the effect of the restrictive covenant with any of the representatives of the second defendant, they would have told him that in their view the covenant was simply a brick only covenant and did not limit the number of units that could be put of the property. This in fact was what occurred when the auctioneer, Mr Taylor, read the covenant out during the preliminaries to the auction. Having read the covenant to the gathering, he then indicated that in his view what the covenant meant was that any further development of the property had to be in brick. At no time did the agent alert any prospective purchaser to the possibility of an argument that the covenant would restrict any development to one building or might prevent more than one unit of residence on the property.

The defendants rely upon a disclaimer which was set out in the brochure warning purchasers of the need to conduct their own investigation. It is put that this prevented anything that might have been said when viewed in the context of all the advertisements and statements given to prospective purchasers, including Mr Natilli, from being misleading and deceptive. In my view, it did not do so because it was printed in such small print as to be likely to be ignored or overlooked. I accept Mr Natilli's evidence that he didn't see it. In addition it was not contained upon the advertising board set up on the property (Lezam Pty Ltd v Seabridge Australia Pty Ltd & Anor [1992] FCA 206; (1992) 35 FCR 535, 556 - 557).

The defendants also argued that there were a variety of methods available to be used to remove the covenant and, thus, the representation was correct - a two unit development was possible, subject (e.g. to Council action if S 6(2)(g) of the Planning & Environment Act 1982 was used). I do not consider, however, that the statements made should be interpreted in that sense.

In the end the conduct under consideration was the expression of an opinion. The question to be determined is whether that conduct was misleading or deceptive. Authority would indicate that provided the opinion was honestly held and that there was a rational basis for the opinion, the conduct is not to be regarded as misleading and deceptive. (Global Sportsman Pty Ltd v Mirror Newspapers Ltd [1984] FCA 180; (1984) 2 FCR 82; 55 ALR 25, 30-1; Bateman v Slayter (1987) 71 ALR 553 at 559; Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd [1987] FCA 332; (1987) 78 ALR 193, 242. I accept that the second defendant honestly held the opinion expressed. Assuming, however, that the construction on which it was based was incorrect, it did not have reasonable grounds for that opinion.

As to the first defendant, he argues that his sale of the property was not conduct in trade or commerce - the contract was a private one. This would appear to be so and, accordingly, he could not be found liable in damages under the provision of the Trade Practices Act or the Fair Trading Act.

Representations concerning characteristics of the land or the use to which it is capable of being put or may lawfully be put

Again, I assume that the restrictive covenant did not permit the construction of two units.

Section 53A of the Trade Practices Act prohibits the making of false or misleading representations in connection with the sale of an interest in land concerning, inter alia, the characteristics of the land or the use to which the land is capable of being put or may lawfully be put. If, properly construed, the restrictive covenant prevented a two unit development then it appears to me that the section was breached by the statements about two unit development by the advertising board and the brochure. The section of course does not apply to the first defendant. The subtleties of the opinion issue do not arise. The question is whether the representations were false or misleading as to the use to which the land could be put at the time they were made (Bowler v Hilda Pty Ltd (1998) 153 ALR 95, 110). In my view they were - assuming the above construction.

Reasonableness of the conduct of the plaintiffs' representative

The defendants pointed to a number of failures by Mr Natilli, the plaintiff's representative, to take steps to protect the interest of the plaintiff. They argue that to give the plaintiff relief under the Trade Practices Act or the Fair Trading Act is to give relief to a person who failed to use reasonable care for his own protection and that in that situation the legislation was not intended to give protection (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1981-1982) 149 CLR 191 at 199 and Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd [1987] FCA 332; (1987) 78 ALR 193 at 241).

As I understand the authorities the issue of the reasonableness of the behaviour of the plaintiff may fall for consideration in determining two issues. The first is whether a reasonable person would have been misled by the conduct in question. The second issue is causation and whether it may fairly be said that it was the plaintiff who was the architect of its own loss because it failed to exercise reasonable care.

So far as the first issue is concerned, I am satisfied that a reasonable person was likely because of the lack of clarity of the language of the covenant to have continued to be misled by the representation. An obvious check for a reasonable person was with the agent. If challenged the agents representatives would, however, have persisted in it with apparent honesty, great confidence, authority and ostensible expertise such as to discourage further enquiry. As to causation, that is an issue going to damages. As to that I should briefly state, at this point, that in my view Mr Natilli failed to exercise reasonable care in that he failed to read the title when it was on display on his inspection of the property and he failed to read the s 32 statement at the auction and failed to read the contract documents before signing them. As noted above, he read the papers over the weekend following the auction, read the covenant but did not understand it. He then went to see his solicitors and his solicitors then raised their concerns. By then it was too late. Nonetheless, his want of care would not in my view disentitle the plaintiff from a finding that there was a sufficient causal connection between the plaintiff's loss and the conduct of the second defendant. It is clear that Mr Natilli relied heavily upon what the agent had said.

Counsel for the defendants submitted that the failure to deliver requisitions within time resulted in the plaintiff loosing the right to rescind the contract (Nirens v McGuiness [1952] VicLawRp 3; [1952] VLR 13; general condition 1 of Table, The Transfer of Land Act 1958 - incorporated into the contract). It is unnecessary to resolve that question because the basis upon which the plaintiff asserts the right to rescind was not a contractual basis as such. Rather it is alleged that there was an innocent or negligent misrepresentation which entitled the plaintiff to rescission of the contract. One comes back to the claims based on the representations.

The defendants submit that a duty of care to the plaintiff did not arise. The duty of the agent to the vendor was one of a duty of care to the vendor not to the purchaser. Such a duty of care was put would place the agent in a position of conflict.

This may not necessarily follow, in my view, but in any event more is required, as was submitted by the second defendant. There would need to be evidence of known reliance or an assumption of responsibility by the agent (Hawkins v Clayton (1988) 166 CLR 539. The only evidence to suggest that there may have been a reliance communicated to the agent was evidence of a brief conversation between Mr Natilli and Mrs Laird as he was leaving the property in which he asked her whether it was correct that two units could be built. She replied that they could be. This appears on the evidence of Mr Natilli to have been a casual conversation and there was no reason for the agent to think that any significance was being attached to it. The conversation occurred in the context of the title being available at the premises and in the knowledge that a s 32 statement setting out all details would be available to the plaintiff. There is no evidence to support the conclusion that the agent assumed responsibility. Accordingly I am not persuaded that a duty of care arose.

If the restrictive covenant did forbid the erection of more than one unit in all circumstances, the only basis on which liability could be found, in my view, is under s 53A of the Trade Practices Act and the party liable would be the second named defendant.

For the above reasons, however, the covenant did not prevent the erection of a dwelling house containing more than one unit, and, therefore, the plaintiff cannot point to error in the relevant representations and its claim must fail.

Fair Trading Act 1999

Environment Act 1982

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Judgment (58 paragraphs)

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