Plaintiffs v Defendants

Plaintiffs v Defendants - [2007] VSC 172 - VSC 2007 case summary — Zoe

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The parties and the claims

1 On 17 April 2003 the plaintiffs, Mr and Mrs Walker ("the Walkers"), agreed to sell their home at 49 Garden Road, Donvale to the defendants for $640,000. The home was on a block of approximately one acre, with an extensive, rustic garden. Mr Walker is a former teacher and building trades education consultant, now retired. The first defendant, Mr Masillamani, and the second defendant, Ms Liu, are husband and wife. They migrated to Australia from Singapore in 1997. They conduct a substantial fruit export business. For reasons Ms Liu attributed to the then position of their business[1], they had difficulty in arranging the necessary finance to complete the purchase of the house. Ultimately, in addition to other finance, they obtained vendor finance in the sum of $30,000 from the plaintiffs. The plaintiffs took a mortgage to secure the repayment of this sum. The contract was settled on 25 August 2003 and the mortgage was executed and took effect on that same day.

2 The sum of $30,000 was due to be repaid, with interest, on 1 October 2003. The repayment was not made. No amount of capital or interest has been paid by the defendants to the plaintiffs pursuant to the mortgage. The plaintiffs have brought this proceeding by writ to recover possession of the property and for associated relief under the mortgage.

3 The defendants do not deny the mortgage or their omission to make any payments pursuant to the mortgage.[2] However, they say in substance that because Mr Walker allegedly represented to them before the sale that, in effect, the house was in sound condition whereas in fact it had certain alleged termite damage, they do not owe the plaintiffs any monies and they have a counterclaim for damages against the plaintiffs. The counterclaim also includes a claim against Ripley Real Estate Pty Ltd ("Ripley"), the real estate agent which acted for the plaintiffs in the sale of the property. Ms Kerry Burge is the principal of Ripley. The claim against Ripley is based on representations allegedly made by Ms Burge, also said to be inconsistent with the alleged termite damage. There are cross-claims between the Walkers and Ripley which would only need to be considered in the event that the defendants had some success in their defence and counterclaim.

Legal representation of the defendants and the pleadings

4 The trial of this proceeding presented challenges because Mr Masillamani and Ms Liu were not legally represented at the hearing. However, they had had legal representation in relation to the subject matter of the proceeding before it commenced and were represented in the proceeding from time to time during its interlocutory stages. Indeed, a total of 6 different legal firms have acted for the defendants from time to time in relation to the subject property. I mention these matters for three reasons: first, because they go to the appropriateness of adhering in this case to the usual rule that the relevance of evidence and submissions be judged against the pleadings, despite the absence of legal representation for the defendants at the trial; second, because they have significance in relation to certain omissions on the part of the defendants to lead particular kinds of evidence; and third, because they may have a bearing on costs.

5 Three firms of solicitors acted for the defendants successively in relation to the financing of the purchase and the conveyancing in 2003. A fourth firm, Plaza Legal, commenced to act for the defendants in late October 2003 following the service of demands under the mortgage. Plaza Legal were still acting for the defendants in early June 2004 when the Walkers, having themselves engaged new solicitors, renewed their demands under the mortgage and threatened to commence proceedings in this Court.

6 On 18 June 2004 Ms Liu personally commenced a proceeding against the Walkers and Ripley at the Victorian Civil and Administrative Tribunal claiming relief in relation to the alleged termite damage. The Walkers' writ in the present proceeding was issued on the same day. Plaza Legal did not accept service of the writ. Ultimately the Walkers obtained an order for substituted service. On 3 August 2004 the VCAT proceeding was struck out as against the Walkers for jurisdictional reasons. I gather that, as against Ripley, it was later discontinued because of the pendency of these proceedings.

7 Mr Masillamani and Ms Liu filed an appearance personally in this Court on 27 August 2004. They then continued to represent themselves (including by the filing of pleadings) until 28 January 2005 when Fetter Gdanski, solicitors, came in to represent them. On 31 January 2005 Fetter Gdanski obtained leave on the defendants' behalf to join Ripley and to file and serve an amended defence and counterclaim. Such a pleading was duly filed.

8 Subsequently, in April 2005, Fetter Gdanski were replaced by Lim Whalen & Co. An affidavit of Ms Liu dated 10 May 2005 (which was tendered in evidence by the Walkers at the trial) states that all of the solicitors previously acting for her and her husband had told them that because of "something called 'caveat emptor'" they "could make no claim against Mr and Mrs Walker or that it would be very difficult for [them] to claim against the Walkers".[3] However, Ms Liu said, they had since seen Mr Wikrama SC and he had advised "that we had an extremely good claim against Mr and Mrs Walker, both for fraudulent misrepresentation and fraudulent concealment and that we also had the other claim against them on the ground that Ms Burge was acting as their servant or agent".[4] Ms Liu's affidavit had been filed in support of an application for leave to put on a further amended defence and further counterclaim drawn by Mr Wikrama SC. Leave was granted and a pleading dated 19 May 2005 was filed and served accordingly. The counterclaim was initially quantified solely by reference to alleged rectification costs. However, by further and better particulars filed on 10 July 2005, an alternative claim was made for damages based on the alleged diminution of value of the property.

9 Lim Whalen and Co continued to act for the defendants in relation to certain further interlocutory steps, including discovery, interrogation, certain notices to admit which had been served by the Walkers, directions as to the Court Book, witness statements and setting down for trial. However Lim Whalen and Co obtained leave to cease to act on 13 December 2005. Since then the defendants have not had legal representation.

10 At the trial, Mr Masillamani took on the role of "counsel" for himself and his wife, although Ms Liu also made some submissions. Both gave sworn evidence. Mr Masillamani is a fluent English speaker. Ms Liu has more difficulty with English, but did not seem to require an interpreter and none was sought. On the other hand, there was medical evidence to the effect that in February 2006 Ms Liu had had severe symptoms of anxiety and was not fit to give evidence at that time. The then trial date had been vacated on that basis. It was not put to me by Mr Masillamani that his wife's problem had persisted up to the time of the trial, nor was any application made to further adjourn the trial, but Ms Liu appeared to be somewhat tense in giving her evidence and in making her submissions, and I have endeavoured to make due allowance in her and her husband's favour accordingly.

11 Although at earlier times Mr Masillamani and Ms Liu had made various other allegations and claims (including by correspondence, at VCAT and in superseded pleadings), they acknowledged[5] before me that they were now putting their case on liability wholly and exclusively in the way set out in the further amended defence and further counterclaim dated 19 May 2005 prepared by Mr Wikrama SC. Leave was given to them to make three minor corrections to the document.[6] Further, it was accepted by their opponents that they could rely on the abovementioned alternative claim for damages based on the alleged diminution of value of the property.[7] In the circumstances, it is desirable to set out the (corrected) counterclaim in full:

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15. Shortly thereafter Burge met Edison and Liu at the property and took them through the house on a tour of inspection and in the course of the inspection Liu enquired from Burge: "Are there any snakes or white ants or bugs in the property?" Burge then represented and warranted to Liu: "No", thereby meaning that there were no snakes or white ants or bugs in the dwelling on the property. Burge then continued on: "This house is perfect; it only depends on whether it is the right size for you and your family", thereby reinforcing her statement that there were no snakes or white ants or bugs in the property.

16. Further and/or in the alternative at the time of the making of the said representations and warranties the first defendant intended and well knew and ought to have known that Edison and Liu would rely on the said representations more fully referred to in paragraph 15 above and would be induced thereby to enter into the said agreement for sale more fully referred to in paragraph 18 herein.

17. Further and/or in the alternative at the time of the making of the said representations and warranties Burge acting for and on behalf of Ripley intended and well knew and ought to have known that Edison and Liu would rely on the said representations more fully referred to in paragraph 15 above and would be induced thereby to enter into the said agreement for sale more fully referred to in paragraph 18 herein.

18. Acting on the faith of and relying on the truth of the representations more fully referred to in paragraphs 14 and 15 hereof, Edison and Liu on 17 April 2003 entered into an agreement to purchase the property for $640,000.

19. The said purchase price of $640,000 was payable by a deposit of $64,000 on the signing of the contract and the balance of the purchase price of $576,000 was paid on 25 August 2003.

20. Edison and Liu duly completed the said contract on 25 August 2003 and went into possession of the property.

21. The said representation referred to in paragraph 14 above by the first defendant was false and was made fraudulently or recklessly not caring whether the same was true or false as the first defendant, acting for himself and his wife, well knew, the house was not of sound construction and there was something wrong in that the house had suffered extensive termite damage.

22. By reason of the said fraudulent misrepresentation, Edison and Liu ("the Plaintiffs") have suffered loss and damage.

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17 Notwithstanding their acknowledgement that their case was limited to their pleaded allegations, the defendants did from time to time thereafter raise or re-raise other matters of apparent complaint against the other parties. Thus during cross-examination of Mr Walker[8], and during the cross-examination of Ms Burge[9], Mr Masillamani raised the use of the word "immaculate" in an advertisement for the property published on behalf of Ripley in a local newspaper.[10] However, the defendants gave no evidence that they relied on the wording of the advertisement at the relevant time; and they did not seek to amend their pleadings further to cover this matter. In any event, I do not think that there was anything misleading or actionable in the advertisement. The use of the word "immaculate" was mere puffery. Alternatively, I would agree with Ms Burge's comment that, in its context in this real estate advertisement, the word "immaculate" did not mean "perfect" but rather "neat and clean and beautifully presented".[11] That was the way in which Ms Burge said she saw the property[12], and there was no evidence to indicate that such a description was inaccurate.

18 Further, the defendants made passing reference to certain alleged defects in the house apart from the alleged termite damage (including a complaint about a septic tank and a complaint about the sub-floor ventilation of the premises). Once again, these were not the subject of evidence of the kind necessary to support a claim for compensation; and no application to amend the pleadings in this respect was made.

19 There was also a suggestion by the defendants that on a particular occasion Mr Walker had deliberately (and presumably dishonestly) distracted Mr Masillamani when he was about to lift the carpet at a point in the house where the floorboards had been damaged by termites and had been replaced with cheaper flooring: see Mr Masillamani's cross-examination of Mr Walker.[13] However, it became clear that this incident was alleged to have occurred after the settlement of the sale. Hence it could not constitute actionable misrepresentation. It was not the subject of any pleadings or of any application to amend. In any event, Mr Masillamani did not himself give any sworn evidence that the incident occurred, and, having considered his cross-examination of Mr Walker on the matter, I would accept Mr Walker's version of events, which was entirely innocent. In due course I will come to what I understand to be a separate allegation of fraudulent concealment, being the allegation set out in paragraph 22 of the counterclaim, based on the mere fact that the floorboards were covered by carpet.

"Caveat emptor"

20 It will be noted that the counterclaim does not allege that the Walkers (or Ripley) were under an independent[14] duty (either at common law or under statute) to reveal the existence of the alleged termite damage prior to the sale being completed. This is of course consistent with the well known principle of law (of particular application to the sale of land) summarised in the maxim "caveat emptor"[15] and with the advice which was apparently given to the defendants, repeatedly, by their numerous former legal advisers, including, it would seem, Mr Wikrama SC (who in drawing the counterclaim alleged fraud against the Walkers, as distinct from breach of an independent duty of disclosure[16]).

21 Nevertheless, in oral submissions made during the trial (especially towards the end) and in written submissions sent to the Court (without leave) after judgment was reserved, the defendants said that they did not agree with the doctrine of "caveat emptor" and invited the Court to overturn it or ignore it and find in their favour on that basis.

22 The defendants referred to no conventional authority on the point, but they handed up, and made submissions about, a copy of a brief internet version of an article apparently published in the Sydney Morning Herald on or about 12 November 2005.[17] The article stated that certain real estate agents called Hinton were fined $20,900 for not disclosing to the purchasers of a house that a notorious murder had been committed in the house in recent times. It further stated that the Hintons were appealing against the fine.

23 Because the defendants were unrepresented, I thought it right to follow up the reference to the Hinton case myself. It turns out that the details of the case are now ascertainable from decisions of the NSW Administrative Decisions Tribunal published on Austlii.[18] In substance, the article was correct. The Hintons and the incorporated real estate agency which they operated were ordered by the NSW Commissioner of Fair Trading to pay between them monetary penalties totalling $20,900 as a disciplinary sanction under the Property, Stock and Business Agents Act 2002 (NSW) on the basis of findings of misrepresentation, misleading and deceptive conduct and failing to act honestly, fairly and professionally. The findings were based principally on deliberate non-disclosure of the history of the house. The decision of the Commissioner was upheld by the ADT both at first instance and on appeal.

24 However, nothing in the Hinton case throws any doubt on the continued force of the "caveat emptor" principle as applicable to the private vendor of a house property under the common law of Australia. Rather, the case related to the statutory obligations of real estate agents, particularly in New South Wales, albeit that those obligations were closely linked to more general statutory prohibitions on misleading and deceptive conduct. Indeed the Appeal Panel of the ADT appeared to accept that "the vendor does not have an independent duty to the purchaser".[19]

25 I will return to the Hinton case later when dealing with the statutory claims against Ripley. For the moment I would observe that nothing in it suggests to me that to continue to confine the defendants to their case as pleaded in the counterclaim would deprive them of any prospect of success which they might otherwise have had or would in any other way cause them injustice, notwithstanding that they were not legally represented at the trial.[20]

Resolution of the issues

26 For the reasons to be given below, I have decided that, in substance, issues (a) - (e), (i) and (l) should all be decided in favour of the Walkers and Ripley and against the defendants. This means that the other issues either do not arise or do not need to be decided and that judgment must be given for the Walkers and Ripley against the defendants. Nevertheless I will, in due course, address certain submissions made in relation to those other issues.[21]

Issues (a) and (b)

27 The first two issues relate to the allegations in paragraph 14 of the counterclaim concerning the conversation to which Mr Walker was a party on the occasion of the first inspection. Contrary to the apparent import of paragraph 14, the defendants no longer say (if they ever did) that Mr Masillamani was involved in or heard the relevant conversation.

28 Ms Liu says that the conversation occurred in the street outside the property with both parties being on foot. On the other hand Mr Walker says that it occurred through his car window when he was backing his car out of the driveway of the property (with Mrs Walker in the passenger seat). For reasons to which I will come, I do not think that I can place much reliance on Ms Liu's evidence at all, whereas I consider that Mr Walker was a reliable witness generally. Further, I do not think it is likely that Mr Walker would have left his property on foot to speak to a potential purchaser when he knew the agent was on her way. It is much more likely that he was approached by Ms Liu as he was departing the property in his car, as he asserts; and I so find. Mrs Walker did not give evidence, but I note and accept Mr Walker's evidence[22] that he and his wife have been married for 41 years; that Mrs Walker was in hospital at the time of receiving the letter of accusation dated 25 September 2003 from the defendants[23], that she has had an ongoing illness for some years; and that, in order to help her cope, he has tried to avoid telling her too much about this matter. Even if Mrs Walker's health had not been of concern, it would not have been particularly surprising that she was not called, because the most significant difference between the parties in relation to issues (a) and (b) is not as to what was said but as to what was implied by the words said.

29 Apart from something said by Ms Liu in the course of submissions towards the end of the hearing (to which I will return[24]), it was apparently common ground that the relevant statements of Mr Walker were volunteered rather than made in answer to specific questions. In his witness statement (which was later duly adopted) Mr Walker acknowledged saying to Ms Liu that his father-in-law (not his father), who was a builder, had built the house and that the house featured Daniel Robertson (not Donaldson) bricks. According to his witness statement, Mr Walker was unable to recall any other significant matters that were discussed on that day. I gather that the defendants now accept that Mr Walker referred to his father-in-law rather than his father, and to Daniel Robertson bricks rather than Donaldson bricks.

30 The evidence as to whether Mr Walker also said that his father-in-law had built the house "with best materials" was vague. In paragraph 3 of the abovementioned affidavit of 10 May 2005, Ms Liu swore that Mr Walker "represented to me that his father had built the house with best materials using Donald Robertson [sic] bricks and other good materials. By this he was implying that the building had been built with the best materials and there was nothing wrong with its construction". Incidentally, this affidavit was not put forward by the defendants as a witness statement but rather was tendered by the Walkers as containing certain admissions by the defendants (on other matters) against their own interests.

31 Ms Liu was asked in her evidence-in-chief what had happened when she first arrived at the property. She said:

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36 On the evidence referred to above, I am prepared to accept that, although Mr Walker may not have actually used the expression "best materials" or "good materials", he at least implied that the house had been built with materials that were of the best quality for a house of its type. With greater hesitation, I would be prepared to accept that Mr Walker implied that his father-in-law, being a builder, had built the house well and that, in that sense, the house was "of sound construction". However, I am not satisfied to the necessary level of satisfaction that Mr Walker was implying that the house remained structurally sound. Moreover I am far from satisfied that Mr Walker was implying that there was "nothing wrong" with the house. I do not think that anyone could reasonably draw that inference from what he said. The house was over 25 years old. To say or imply that it was built with the best materials and had been well built is very distant from saying or implying that there was "nothing wrong" with it.

Issues (c) and (d)

37 There was a sharp conflict both in the pleadings and in the evidence concerning what was said as between Ms Liu and Ms Burge on the occasion of the first inspection.

38 It is common ground that Ms Liu asked Ms Burge a question which included a reference to either "white ants" or "termites". Indeed Ripley now says that Ms Liu asked three questions about snakes and insects, whereas the defendants refer to only one such question. However there is controversy about the exact words of the question or questions and, moreover, about the terms of Ms Burge's answer or answers.

39 I turn first to the pleadings. The allegations against Ms Burge are set out in paragraph 15 of the counterclaim. That paragraph, especially when it is read with paragraphs 16-18, suggests that Ms Burge's response to Ms Liu's question was directed at, or heard by, both of the defendants. However, that was not the defendants' case in fact. They claimed that the conversation was between Ms Liu and Ms Burge alone, and that Mr Masillamani was some distance away and did not overhear it[33].

40 The counterclaim alleges that Ms Liu asked: "Are there any snakes or white ants or bugs in the property"? On the face of things, this was an alleged inquiry about live snakes or white ants or bugs, not an inquiry about termite damage to the house. On that basis, even if Ms Burge had answered "No", she would not thereby have been representing that the house was free from termite damage. In contrast to paragraph 14, paragraph 15 does not expressly allege that what was said by Ms Burge contained some relevant implication. In particular, it does not expressly allege that Ms Burge was implying that the house was free from termite damage. Nor does any other paragraph of the counterclaim indicate with any clarity that such an allegation is being made against Ms Burge. To the contrary, paragraph 15 speaks of Ms Burge "reinforcing her statement that there were no snakes or white ants or bugs in the property". Indeed, nowhere does the counterclaim clearly specify the respect or respects in which the "representation" allegedly made by Ms Burge was erroneous or deceptive or misleading. However, given the further allegation in paragraph 15 that Ms Burge went on to say that the house was "perfect", and given that the defendants' claim as a whole is based on alleged termite damage, and having regard to what might perhaps be said about the tenor of paragraph 31 (read with the particulars to paragraph 22), I am prepared, with some hesitation, to assume in favour of the defendants that the counterclaim as a whole should be read as alleging that Ms Burge implied that the house was free from termite damage.

41 I turn now to the evidence on these issues.

42 Once again, the onus of proof was on the defendants. Although they did not allege fraud (or knowledge of any falsity) against Ms Burge/Ripley, they did allege negligent misstatement and also misleading and deceptive conduct within the meaning of the Trade Practices Act/Fair Trading Act[34]. In Watson v Foxman[35], McLelland CJ in Equity said:

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"Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as "misleading") within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence of absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not... attained or established independently of the nature and consequence of the fact or facts to be proved" including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen [1940] HCA 20; (1940) 63 CLR 691 at 712.

Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a cause of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration. That is the position in the present case. There is no contemporaneous document in evidence which supports the making of any such promise or representation as is relied on and no other satisfactory corroboration."

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In my view, this latter evidence was recent invention on the part of Ms Liu. I do not accept that Ms Liu intended to ask about existing structural or other termite damage to the house. Nor do I accept that she understood Ms Burge to be referring to termite damage (or its absence) in her answer (whatever it was[45]).[46] Ironically however, it seems that Ms Burge did believe that Ms Liu's question was intended to include a reference to termite damage, because when asked by her own counsel why she was so clear in her recollection about these matters, Ms Burge said that she was always very particular in her answers to any question "to do with a building".[47]

51 In any event, I am not satisfied that Ms Burge answered Ms Liu's question or questions by saying "No". Nor am I satisfied that Ms Burge continued on: "This house is perfect; it only depends on whether it is the right size for you and your family". I find it quite implausible that anyone (including Ms Burge or any other real estate agent in the position of Ms Burge) would give a simple, categorical, negative answer to the compound question: "Are there any snakes or white ants or bugs[48] in the property"? I say this whether or not the person concerned believed that a part of the question was about termite damage. No-one with any sense would represent that a rustic property like this was free from snakes, white ants and bugs (or spiders). Further, I find it quite implausible that the person concerned would then go on to say that the house was "perfect" (in the sense of being perfect in every way). Such a statement would not only be unusually cavalier, it would not be logically responsive to the question asked, which, although it included the word "or", was a compound inquiry about snakes, termites and bugs (or spiders).

52 While I do not need to determine whether Ms Burge's version of the conversation is wholly accurate, I do find Ms Burge's version of events far more plausible than Ms Liu's.

53 Ms Burge asserted in evidence that the inspection took place on Tuesday 15 April 2003, not (as the defendants insisted) on Saturday 12 April 2003. Ms Burge said that she had been in San Remo on 12 April 2003 and could not have been at Donvale at the relevant time. She said that her business diary confirmed this. I accept her evidence in this regard in preference to the defendants' evidence.

54 In paragraph 10 of her witness statement (which she duly adopted), Ms Burge said that Ms Liu first asked her: "Are there any snakes, spiders or anything"? and she answered: "I have not seen any but it does have a beautiful garden"; that Ms Liu later asked "Are there any snakes, spiders or termites"? and that she answered: "I would not know, I am not an expert"; and finally that Ms Liu asked "Now are you sure there are no snakes, spiders or termites"? and that she answered: "I would not know, I am not an expert. You would have to check that out for yourselves".

55 This evidence was supported by Ms Burge's oral evidence[49] (which I accept) that until well after the completion of the sale she did not know of any termite damage at the property. That evidence in turn was consistent with Mr Walker's evidence[50] (which I also accept) that he did not ever tell Ms Burge that there had been a previous termite problem at the property or that there was termite damage in the house. I infer that the matter had simply never been discussed between Mr Walker and Ms Burge. This makes it all the more unlikely that Ms Burge would have given a categorical negative response to Ms Liu's question.

56 Mr Hamlyn-Harris asked Ms Burge[51]:

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She answered "No". Mr Hamlyn-Harris did not go on to ask her explicitly whether she had said: "This house is perfect; etc". Nor did she otherwise expressly deny this part of Ms Liu's allegation against her. On the other hand, Mr Masillamani did not put to her in terms that she had said that the house was perfect.[52] I raised this matter with Mr Hamlyn-Harris during final submissions. He responded that the absence of an explicit reference to the point in the witness statement might have been due to the fact that the witness statement was originally drawn in 2004 (ie before the counterclaim was drawn). I do not have regard to that suggestion, there being no admissible evidence in support of it. However I do accept Mr Hamlyn-Harris' submission that the witness statement purports to state exhaustively what Ms Burge said to Ms Liu in response to her question or questions, and that this amounts to a clear implicit denial of the allegation that she said that the house was "perfect". Further, the same may be said in relation to Ms Burge's additional evidence-in-chief to which I am about to refer.[53]

57 In fairness to the unrepresented defendants, and because this aspect of the case depended on credibility, I asked Ms Burge to recount her recollections of the relevant events in her own words without the benefit of her witness statement. Ms Burge did so.[54] She needed little or no prompting by questions and her evidence was quite faithful to the order and language of her witness statement, but I did not get the impression that she was merely parroting a learned speech, although she may well have read over her witness statement many times prior to the giving of her evidence.

58 In dealing with a topic raised during cross-examination by Mr Masillamani, namely whether Ms Burge was aware at the time of the negotiations that, about a year earlier, the whole of the City of Manningham (in which the house was located) had been declared liable to infestation by termites, I thought that Ms Burge was unduly reluctant to be forthcoming. However, my concern in this regard was of a minor order. Certainly it does not cause me to reject her evidence about the critical conversation.

59 Overall Ms Burge was an impressive witness.

Ms Liu's credit

60 By contrast, Ms Liu was not an impressive witness. Apart from the sheer implausibility of her central allegations against Ms Burge, I found several other aspects of her evidence unsatisfactory. I have referred to some such aspects already. Without being exhaustive, I will mention a few more.

61 Ms Liu is an experienced international businesswoman. According to her husband's evidence, she had the principal conduct of their fruit export business.[55] According to paragraph 38 of the defendants' written submission delivered on 30 August 2006 (without leave), the business has exported millions of dollars worth of fresh fruit from Australia since 1997, albeit that it is claimed that Ms Liu does business with Australian growers on a handshake. Ms Liu told Mr Clarke that she considered that the cost of rectification of the alleged termite damage was the entire amount spent on works at the house over the period of three years during which works were done, being an amount in excess of $150,000.[56] But plainly that was not so. The works produced an extensive renovation of the house. The renovation was much the same as had been planned before the discovery of the alleged termite damage.[57] Ms Liu also claimed that the defendants' intention was merely to do minor patch up work, not a renovation[58], but the original plans (which were signed by Ms Liu) show that this was not so. Ms Liu was evasive about the extent of her knowledge of the plans, and about her signature on the plans.[59] Notwithstanding that the defendants had had ample opportunity to secure expert evidence about the cost, or the added cost, of rectification of the alleged termite damage, and had previously had access to much legal advice about their claim, they adduced no such evidence. Moreover, a building expert called by Ripley, Mr Lorich, who had watched a video created by the defendants to show the state of the alleged termite damage as at a time when preliminary building works had exposed the internal timbers of the house[60], and who had also inspected the property at a later stage (after the renovations were completed), gave evidence to the effect that there was little if any termite damage that had not already been competently repaired, and that any remaining damage could be repaired quickly and cheaply, certainly for less than $1,000.[61] There was no evidence to the contrary given by any qualified building expert. (Indeed, in April 2006, the defendants had foreshadowed calling a pest control expert called Adrian Holtz "to confirm the condition of the property as seen on the DVD before he proceeded to treat the property against termites".[62] They failed to call him, and I found Mr Masillamani's explanation of this entirely unsatisfactory.[63]) I accept Mr Lorich's evidence. I consider that Ms Liu's evidence (and the defendants' claim generally) was grossly exaggerated in this respect.

62 Another example of Ms Liu being prepared to say whatever she thought might help her cause is provided by the matter to which I referred in passing in paragraph 29 above. As there mentioned, it had apparently been common ground throughout the proceeding that Mr Walker's alleged representations had been volunteered rather than made in answer to specific questions. However, at the very end of the hearing, after all the evidence had been concluded (the defendants having previously been given every opportunity to adduce relevant evidence) and while making submissions in supplementation of her husband's submissions, Ms Liu suddenly purported to remember that she had asked Mr Walker to confirm that he meant that his house was "very good" and that Mr Walker had said "Yes". Naturally I stopped Ms Liu from going on with this. However this was, in my view, a transparent attempt to bolster her case by recent invention.

63 Other matters were put by Mr Clarke and Mr Hamlyn-Harris as going to the credit of both Ms Liu and Mr Masillamani, but there is no need for me to deal with any more of them.

Conclusion on issues (c) and (d)

64 I consider that significant parts of Ms Liu's evidence were inherently implausible, and I regard her as an unreliable witness. To the extent that Ms Liu's evidence was to the effect that Ms Burge represented that there were no termites in the property or that there was no termite damage in the house or that the house was "perfect", I do not accept Ms Liu's evidence. I am not satisfied that Ms Burge gave any answer to Ms Liu's questions other than a non-committal answer. In other words, I am not satisfied that Ms Burge made any representation of the kind alleged.

[72]

65 I have indicated above that I would be prepared to find that Mr Walker implied that the house had been built with materials that were of the best quality for a house of its type and that the house had been soundly built; but that I am not satisfied that Mr Walker implied that the house remained structurally sound and, much less, that he implied that there was "nothing wrong" with it.

66 The evidence does not satisfy me (to the standard required in relation to an allegation of fraud or at all) that anything which Mr Walker said or implied was false. Indeed there was no evidence at all that the house had not been built with materials of the best quality or that it had not been soundly built. That alone means that the allegation of fraudulent misrepresentation based on paragraph 14 of the counterclaim must be rejected.

67 For completeness, I would add that in any event there was no satisfactory evidence that the house did not remain structurally sound. As mentioned above, Mr Lorich said, and I accept, that any unrepaired termite damage visible on the video was minor and easily and cheaply repaired. He also said, and I accept, that none of the termite damage was structurally significant.[64] In addition he said, and I accept, that what appeared in the video and what he saw on inspecting the property more recently was consistent with a minor termite infestation some 20 years before, and no further infestation.[65]

Issue (f)

68 Since, as indicated above, I am not satisfied that Ms Burge made the representations alleged against her, the question of their falsity or otherwise does not arise. I note in passing that, in any event, there is some authority to suggest that a statement by a real estate agent that a house is "perfect" should, at least in some circumstances, be regarded as mere "puffery", insufficient to support a claim of misrepresentation.[66] If it matters, Mr Masillamani initially conceded that there were no live termites in the house at the time of the sale[67], although he later backtracked by saying that no live termites had been seen at that time (or since).[68]

Issue (g)

69 Similarly, as I am not satisfied that anything said or implied by Mr Walker was false, the matters raised by issue (g) (comprising several questions as to the state of Mr Walker's mind and as to whether the defendants reasonably relied on what he said) do not arise. I should add that I am certainly not satisfied that Mr Walker acted dishonestly in any way on the occasion in question. I accept his evidence that the only known termite attack on the house had occurred some 18-20 years previously; that the damage had been expertly investigated and repaired; that the house had been appropriately treated at that time; and that there was no detectable sign of further damage or infestation in the intervening period. There was no evidence that Mr Walker was even mindful of the earlier incident at the time of the pre-sale inspection. Further, as already mentioned, I accept that the termite damage exposed on the video was minor and easily and cheaply repairable. Accordingly, on any view, there is no basis for a finding that Mr Walker acted dishonestly or fraudulently on the occasion in question.

Issue (h)

70 Once again, because I am not satisfied that the representations complained of in relation to Ms Burge were made at all, no occasion arises to consider issue (h), which relates to the elements of the tort of negligent (innocent) misrepresentation.

71 On the other hand, Mr Hamlyn-Harris made detailed submissions to the effect that, whatever Ms Burge may have said, there was no common law duty of care owed by Ripley to the defendants. He summarised those submissions in a 10 paragraph written outline which he handed up on the last day of the hearing. It is of course unnecessary for me to rule on this question. However, in view of the significant amount of time spent on the matter, I would address it, albeit briefly.

72 In summary, it was submitted that no duty arose because:

[76]

Issue (i)

75 Although I have seen the video and heard the defendants' florid descriptions of the alleged termite damage, I accept (as I have already indicated) the evidence given by Mr Lorich to the effect that the video showed only minor unrepaired damage; that the damage shown was not structural; that the remaining unrepaired termite damage could have been rectified easily and cheaply, certainly for well under $1,000; and that there was no indication of recent termite attack.[77] There was no evidence that satisfied me that any other parts of the woodwork of the house (ie apart from those parts which were shown on the video) were likely to have been affected by termite damage, significantly or at all.

76 At the hearing, the defendants were given several opportunities to seek to support a rectification claim. They virtually abandoned it, with Mr Masillamani acknowledging[78] that on the available records it was "impossible" to quantify the cost of rectification of the termite damage alone. Later, after much discussion[79], one invoice was singled out as possibly attributable to termite damage alone.[80] It had earlier been tendered by the Walkers for their own purposes. It was for $935. The "details of works" specified on the invoice were "To demolished [sic] dividing walls between lounge and dining rooms and terminate power". (My emphasis.) Mr Masillamani contended that this invoice related to the removal of one termite-damaged internal wall that would not have been removed had it not been so damaged. However the evidence in this regard was vague.[81] Moreover, I note the reference to "walls" (plural) in the invoice. In my view, the fact that, despite all of their opportunities, the best that the defendants could do was to point to this one invoice is, if anything, confirmatory of the evidence of Mr Lorich to the effect that the termite damage was minor and easily and cheaply repairable.

77 On the basis of my findings set out in the previous paragraph above, I am satisfied that the cost of rectification of the termite damage would have been well under $1,000.

Issue (k)

78 The defendants called a registered valuer, Mr Trevor Penry, to give evidence about the alleged diminution in value of the property due to the alleged termite damage. Mr Penry had seen the video. He opined that the house had been rendered worthless and that the true value of the property as at the date of sale was land value only.

79 Once again, it is unnecessary for me to make findings about Mr Penry's evidence. However, I should record that it was subjected to heavy criticism by counsel for the Walkers and Ripley (based in part of the evidence of another valuer, Mr Kilby, called by Ripley), and, in substance, I accept their criticisms. Mr Penry's evidence was based on the proposition that if potential purchasers had been informed of the underlying termite damage they would have become so concerned about the structural integrity of the house that they would have offered land value only. Mr Penry's thesis depended on the proposition that the known termite damage was extensive and significant and that knowledge of it would have caused purchasers to become fearful of unknown additional damage. However, when asked to assume the correctness of Mr Lorich's opinion about the nature of the damage and the cheapness of repairing it, Mr Penry acknowledged that, on that basis, his own approach could not stand.[82] Given my acceptance of Mr Lorich's evidence, I would give no weight to Mr Penry's evidence.[83]

Issue (l)

80 Mr Walker testified that the same carpet had been in place in the house since the house was built in the 1970s.[84] I accept that evidence. Putting aside the matter already dealt with in paragraph 19 above, nothing was put to Mr Walker by Mr Masillamani to suggest that the carpet had been used as a means of fraudulent concealment of termite damage. In these circumstances the allegation of fraudulent concealment in paragraph 23 of the counterclaim is utterly unmaintainable.

Issue (m)

81 The question whether Ms Burge or Ripley owed a common law duty of care to the defendants has already been dealt with in paragraphs 71-73 above.

Issue (n)

82 Being unsatisfied that the alleged representations of Ms Burge/Ripley were made at all, there is no occasion for me to consider whether they constituted negligence.

Issue (o)

83 Mr Hamlyn-Harris submitted that, in acting as the real estate agent of the Walkers in relation to the prospective sale of the property, Ripley's conduct was not conduct "in trade or commerce" for the purpose of the Trade Practices Act 1974 (Cth) or the Fair Trading Act 1999 (Vic).

84 Once again, it is unnecessary for me to express any conclusion on this legal question. However, in deference to the submissions put, I would observe that, in my opinion, Ripley clearly was acting "in trade or commerce". Ripley was engaged in a commercial activity, designed to gain revenue for itself, presumably in the form of commission. In Butcher v Lachlan Elder Realty Pty Ltd[85], a case relating to the sale of a domestic residence through a suburban agent, Gleeson CJ, Hayne and Heydon JJ observed:

[86]

Costs

93 Mr Clarke, for the Walkers, foreshadowed that his client would, if successful, be seeking costs on an indemnity basis, relying on cases such as Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd[100], Shepherd v National Mutual Life Association of Australasia Ltd[101] and Ugly Tribe Co Ltd v Sikola.[102]

94 Further or alternatively, Mr Clarke foreshadowed that he would in any event be applying for orders that the defendants pay the costs, including the legal costs, incurred by the Walkers in seeking to enforce their rights under the mortgage, relying on clause 11 of the Memorandum of Common Provisions; and that he would be seeking orders that such legal costs be awarded on a "solicitor and own client" basis pursuant to that clause.

95 At the hearing I said I would expect the parties to be in a position to argue the question of costs, including any special orders as to costs, shortly after the handing down of judgment.

96 Subject to any submissions on the part of Mr Masillamani and Ms Liu, my provisional view is that costs should follow the event, ie that they should pay the costs incurred by the Walkers and Ripley. As to whether any costs should be awarded on an indemnity basis, I would invite the parties to have regard to the judgment of Hargrave J in Masha Nominees Pty Ltd v Mobil Oil Australia Pty Ltd (No 2)[103], the judgment of Redlich J in Aljade and MKIC v OCBC[104], and the judgment of the Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority.[105] As to whether any costs should be awarded on a "solicitor and own client basis" pursuant to clause 11 of the Memorandum of Common Provisions, I would invite attention to Elders Trustee and Executor Company Ltd v EG Reeves[106]; Citibank v Pirrotta[107] and Perpetual Trustees Australia Ltd v Barker.[108]

Form of Judgment

97 There will be judgment for the plaintiffs (the Walkers) on their claim for recovery of possession of the property pursuant to the mortgage, together with appropriate consequential orders. As to the counterclaim there will be judgment for the defendants by counterclaim (the Walkers and Ripley). I will hear the parties as to the appropriate form of such judgments and as to appropriate consequential orders and as to costs.

[87]

[1] Transcript 193.

[2] Transcript 18-20, 356, among other places.

[3] Affidavit dated 10 May 2005, para 16.

[4] Affidavit dated 10 May 2005, para 18.

[5] Transcript p 201-202.

[6] The corrections were to paragraph 29(b) (to refer to s 53A of the Trade Practices Act 1974 rather to s 53 thereof); to paragraph (1) of the prayer for relief against the Walkers (to insert therein a reference to paragraphs 23 and 24 of the statement of claim); and to paragraph (2)(b) of the prayer for relief against Ripley (to insert a reference to "the characteristics of the property").

[7] Ultimately, as explained below, the alternative claim of 10 July 2005 based on alleged diminution of value became the defendants' principal claim in relation to damages.

[8] Transcript 428.

[9] Transcript 465-466.

[10] Exhibit M 3.

[11] Transcript 466. Compare Mitchell v Valherie [2005] SASC 350.

[12] Ibid.

[13] At transcript 394-396. See also the abovementioned affidavit of Ms Liu dated 10 May 2005, para 9.

[14] That is, independent of any question asked of them or of any statement volunteered by them or of any other particular circumstances.

[15] "Let the buyer beware": see Kadissi v Jankovic [1987] VR 244 at 260; Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; [2003] 216 CLR 515 at 523, 592 [227]; and Eighth SRJ Pty Ltd v Merity, unreported, SCNSW, Young J, 25 March 1997, BC9701110 at 10-11; Wikrama, Voumard's Sale of Land, 5th ed, at [7110].

[16] See paragraph 8 above. Compare the defendants' initial letter of complaint to the Walkers dated 25 September 2003 (Exhibit W 46) in which they complain about alleged fraudulent non-disclosure by the Walkers of the alleged termite damage but do not suggest that the Walkers themselves (as distinct from Ripley) made any positive misrepresentation.

[17] Transcript 699-704.

[18] Hinton & Ors v Commissioner for Fair Trading [2006] ADT 257 (1 September 2006); Hinton & Ors v Commissioner for Fair Trading, Office of Fair Trading [2007] NSWADTAP 17 (3 April 2007).

[19] [2007] NSWADTAP 17 (3 April 2007) at [82].

[20] As to the role of the Court in relation to unrepresented litigants, compare Rajski v Scitec Corporation Pty Ltd, unreported, Court of Appeal, NSW 16 June 1986 at 27 per Mahoney JA, quoted with approval in Minogue v Human Rights and Equal Opportunity Commission [1999] FCA 85; (1999) 84 FCR 438 at 446 [28].

[21] In deference to the detailed submissions made; and in case the same might bear on costs.

[22] Transcript 436-437.

[23] See footnote 16 above.

[24] Transcript 716. I will return to this matter when dealing with Ms Liu's credit.

[25] Transcript 144.

[26] Transcript 147.

[27] Transcript 382-383.

[28] Transcript 383

[29] Transcript 384.

[30] [2005] VSCA 51; (2005) 33 Fam LR 193 at [1].

[31] [2006] HCA 51; (2006) 36 Fam LR 1 at [39], [114], [151], [211].

[32] [2006] HCA 51; (2006) 36 Fam LR 1 at [211].

[33] See also paragraph 4 of the abovementioned affidavit of Ms Liu dated 10 May 2005.

[34] However, it seems from the pleading generally and from paragraph 18 of the abovementioned affidavit of Ms Liu dated 10 May 2005, that they were making a claim of "vicarious" fraud against the Walkers, based at least in part on the words allegedly used by Ms Burge. I will return to this.

[35] (1995) 49 NSWLR 315 at 318.

[36] Transcript 148.

[37] Transcript 162-163.

[38] Transcript 164.

[39] Ibid.

[40] Transcript 221-222.

[41] Transcript 222.

[42] Ibid.

[43] See further below.

[44] Transcript 223-224.

[45] See next paragraph below.

[46] Compare the findings of Young J in the comparable case of Eighth SRJ Pty Ltd v Merity, unreported, SCNSW, 25 March 1997, BC9701110, as summarised (and distinguished) by Sulan J (dissenting) in Mitchell v Valherie [2005] SASC 350 at [10]- [12].

[47] Transcript 460.

[48] The same applies if the reference was to "spiders" rather than "bugs".

[49] Transcript 454.

[50] Transcript 371.

[51] Transcript 454.

[52] At transcript 466 there was a discussion between them about the meanings of the words "immaculate" and "perfect", but this discussion related to the wording of the abovementioned newspaper advertisements.

[53] And, for that matter, the same may be said in relation to the evidence given by Ms Burge under cross-examination at transcript 473 and 483.

[54] Transcript 456-459.

[55] Transcript 234-235.

[56] Transcript 177-178.

[57] Transcript 159, 228-229, 292-293.

[58] Transcript 202.

[59] Transcript 205-207.

[60] The video was played in Court and I have taken it into account myself.

[61] Transcript 56 - 59.

[62] Transcript 333.

[63] Ibid.

[64] Transcript 56.

[65] Transcript 58, 75.

[66] Mitchell v Valherie [2005] SASC 350, at [80] per White J; at [117] per Layton J; cf at [5], [7], [17]-[20] per Sulan J.

[67] Transcript 189-190.

[68] Transcript 191, 227.

[69] Rawlinson & Brown Pty Ltd v Witham, unreported, SCNSW Court of Appeal, Kirby P, Mahoney and Sheller JA, 12 April 1995, BC9504448 at 17.

[70] Rawlinson, supra at 23.

[71] Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241, per Toohey and Gaudron JJ at 263.

[72] Ibid.

[73] Hill v Van Erp (1997) 188 CLR 159, per Brennan CJ at 167.

[74] Bryan v Maloney (1995) 182 CLR 609 at 618.

[75] [1990] VicRp 15; [1990] VR 161 at 171-172.

[76] [1952] 1 KB 232 at 246. Applied in Eighth SRJ Pty Ltd v Merity, unreported, SCNSW, Young J, 25 March 1997 BC9701110, supra, at 16-17. (Eighth SRJ was itself a case about undisclosed termite damage).

[77] Transcript 56-59, 75.

[78] Transcript 329.

[79] Transcript 586-600

[80] Exhibit W7.

[81] Transcript 289-291.

[82] Transcript 124, 126.

[83] For a similar conclusion in a comparable matter, see E.G and J. Johnson Pty Ltd v Zhithel [1996] QCA 266 (9 August 1996) at page 10 of 17 of the Austlii print per Fitzgerald P.

[84] Transcript 369.

[85] [2004] HCA 60; (2004) 218 CLR 592 at 602 [30].

[86] [1990] FCA 51; (1990) 26 FCR 112.

[87] [1990] FCA 51; (1990) 26 FCR 112 at 127-128. In addition, it seems that there was no dispute in the abovementioned Hinton litigation that the agent selling the "murder" house was engaged in trade or commerce: see, eg, Hinton v Commissioner for Fair Trading [2006] NSWADT 257 at [38], [140]; Hinton v Commissioner for Fair Trading [2007] NSWADT AP 17 at [58]- [60].

[88] Unreported, NSWSC, Young J, 25 March 1997, BC9701110 at 35.

[89] [2004] HCA 60; (2004) 218 CLR 592.

[90] At [32], [104], [179].

[91] At [32].

[92] Butcher at [107] per McHugh J (dissenting), quoting Gummow J in Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31 at 40-41.

[93] Demagogne Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31 at 32 per Black CJ. See also Steutel v Kimple Pty Ltd [2005] VSCA 312 at [22] per Chernov JA.

[94] [1992] FCA 557; (1992) 39 FCR 31 at 32.

[95] Ibid. See also [1992] FCA 557; (1992) 39 FCR 31 at 38-41 per Gummow J, esp at 41, citing Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53, 193 at 53, 195, per French J. See also Butcher, supra[2004] HCA 60; , (2004) 218 CLR 592 at [99]- [112] per McHugh J (dissenting), cf at [50] per Gleeson CJ, Hayne and Heydon JJ; cf Hinton v Commissioner for Fair Trading, Office of Fair Trading [2007] ADTAP 17 at [66]-[74].

[96] Hinton v Commissioner for Fair Trading, Office of Fair Trading [2007] ADTAP 17 at [64]-[65]; cf at [61]-[63].

[97] [1987] FCA 332; (1987) 78 ALR 193 at 241.

[98] Transcript 657.

[99] [2001] HCA 52; (2001) 206 CLR 459 at [13]. See also at [140] per McHugh J (with whom Gummow J agreed); Hinton, supra [2007] ADTAP 17 at [80]-[83].

[100] [1988] FCA 202; (1988) 81 ALR 397.

[101] Unreported, SCV, Hedigan J, 15 November 1994, BC9406421.

[102] [2001] VSC 189.

[103] [2006] VSC 56 at [6]- [15].

[104] [2004] VSC 351 at [30]- [37].

[105] [2005] VSCA 298 at [22]. See also Shaw v Yarranova Pty Ltd (No 2) [2007] VSCA 48 at [21], [24].

[106] (1988) 20 FCR 164.

[107] [1997] SASC 6472.

[108] [2004] SASC 58, esp at [33].

At a glance

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Judgment (87 paragraphs)

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Legislation Cited (24)

Cases Cited (15)