Wood & Anor v Balfour & Anor

District Court of NSW|2010-04-27

For the reasons that follow, I do not accept these submissions.

The defendants were not present when the plaintiffs and their appointed pest inspector attended the premises to carry out a view and inspection of the premises. They were not required to be present, and after the various viewings and the pest inspections, no questions were asked of the defendants by anyone concerning any aspect of the state of the premises.

For the plaintiffs' argument concerning the existence of a representation to succeed as claimed, it must be held that not only silence on the part of the defendants, but also their deliberate absence from the premises during inspections was contrived to avoid questioning or making unsolicited disclosures, so as to also amount to a representation. There is no evidence that vendors commonly remain on the premises at times of viewing by prospective purchasers or when pest inspectors engaged on behalf of prospective purchasers attend to carry out their inspections. Common experience suggests the contrary.

There is no evidence that anyone on behalf of the plaintiffs ever drew to the attention of the defendants that the plaintiffs were, by the circumstances of their own viewings and as a result of the pest inspection they had commissioned, acting in reliance of an impression or a gained understanding of the absence of visible signs of termite damage to the premises, when taken together with the silence of the defendants on that subject, constituted reasonable basis for an assumed representation. I consider that proposition to be fundamentally untenable in the context of a vendor/purchaser transaction for the sale and purchase of land, involving as it did, specific contractual terms which are in evidence.

For the foregoing reasons, I have concluded that the concealment work in the affected areas of the house, as described in the plaintiffs' submissions, did not constitute the contended representation that those areas were free from termite damage, as has been argued on behalf of the plaintiffs. For the same reasons I do not consider the concealment works to constitute a conscious misrepresentation of the termite status of the premises.

Consideration of Issue 5 - Identification of the representees

With regard to Issue 5, the plaintiffs contended that they were the relevant representees for the representation they contend had been made to them by the defendants. They also claim that indirectly, the representation they allegedly relied upon, was also made to their pest inspector, who was at all times acting on behalf of, and reporting to, the plaintiffs. In this context I take the reference to an "indirect" representation to be a reference to an uncontroversial relationship of agency between the pest inspector as agent and the plaintiffs as principals.

I have difficulty accepting the submission that the plaintiffs became the representees of the defendants when they inspected the house and when their agent, the pest inspector, reported back to them. There are two obvious difficulties with such a submission in the context of a sale of real property.

First, Special Condition 3 in the contract for sale specifically excludes the existence and the availability for reliance of a representation so based.

Secondly, the very terms of the pest inspector's report, which makes numerous references to suspected or possible concealed termite activity, in my view totally undermines the claimed existence or reasonable availability of such a representation.

Thirdly, in my view, a fundamental obstacle in the path of the plaintiffs' argument that they were relevant representees, is the fact that the works in question, and upon which the plaintiffs rely for the existence of the representation, were carried out and left static years before the house was marketed for sale. In those circumstances, where there were no active steps taken by the Balfours to assert the house was free of termite damage, and their silence on the subject could not reasonably in the circumstances amount to a representation, I am compelled to the view that no relevant representation arose, as asserted by the plaintiffs.

Accordingly, I find that there were no relevant representees. In my view, the evidence does not support the proposition that in the circumstances of this case, work carried out years before a house was marketed for sale would be a sufficient basis for a dormant state of representation to become enlivened at the time the house was marketed for sale. For such a position to arise, I consider that as a pre-requisite, a solid basis for finding a fraudulent intent must first be shown to exist on the part of the defendants. Such a finding has to be based on the requisite standard of proof which I consider to be absent in this case.

I find that at the time the work was undertaken by Mr Balfour, there were no relevant representees for an alleged representation. I also find that this remained the position once the house was placed on the market for sale. In this latter regard, I consider that Special Condition 3 of the contract for sale, to which I will later refer in greater detail, confirms this position as it makes clear to prospective purchasers, the terms on which the defendants were selling their house, including the term that the purchasers would be relying on their own inquiries as to the state of the premises.

I shall return to this topic in further detail in my consideration of Issue 7.

Consideration of Issue 6 - Duty to disclose repairs to termite damage

The consideration of Issue 6 involves an alleged duty on the part of the defendants to disclose the concealment works.

The plaintiffs have submitted that the defendants were only ever under a duty to disclose the repairs of the termite damage to the timbers of the house because the manner of the repairs that had been carried out on the house had the effect of concealing a patent defect.

The plaintiffs further submitted that if, as a result of concealing a patent defect, the work carried out thereby, amounted to a proper or genuine "repair", then the duty to disclose would not arise.

As to what constitutes a proper or genuine "repair", the plaintiffs submitted that the test that best applied in the circumstances is as was outlined in John McGrath Motors (Canberra) Pty Ltd v Applebee [1964] HCA 1; (1964) 110 CLR 656 at 659.

The plaintiffs submitted that the defendants have conceded that the work undertaken to the bedroom beam did not contain any element of "repair."

In my view that submission made on behalf of the plaintiffs makes too much of that so-called concession. I consider this to be so because in my view, the work of covering the termite damaged timbers to conceal the damage from view, plainly constituted a repair. Whilst such a repair is not a renewal, much like a panel-beater filling and then painting over a dent in an automotive body panel is a repair, as distinct from renewal by the installation of a new replacement panel, I consider that changing the aesthetic state of the surface of termite damaged timbers on view in order to improve the amenity of the house, constitutes a repair.

I do not accept the plaintiffs' semantic argument that the work involved in covering of the termite damage was not a repair, notwithstanding the concession by Mr Balfour that was adverted to on behalf of the plaintiffs.

The submissions on behalf of the plaintiffs as to whether Mr Balfour's work comprised a "genuine repair" are in my view, unrealistic. The submissions were to the effect that with the exception of the family room beam, the non-genuine nature of the repair can be inferred from the fact that Mr Balfour made no efforts to determine the extent of the termite damage to the bedroom beam, the bathroom rafter or the family room joists. The underlying and untenable assumption of that submission is that Mr Balfour had not formed an opinion on the matter or, alternatively, any opinion he held on the extent of the damage was by its nature, fundamentally unreasonable. There is no adequate foundation in the evidence for such assumptions.

Further, the argument advanced on behalf of the plaintiffs also proceeded on the premise of Mr Balfour's concession that he knew that termites entered a house from the ground and could travel through the timbers of a house. The essential criticism upon which that argument proceeded was that because the defendants took no steps to determine the damage to the timbers of the house, this must be seen as the indication of the non-genuineness of the repairs that were undertaken by Mr Balfour.

In my view the plaintiffs' submission on this issue is flawed for at least two reasons.

First, by this argument the plaintiffs seek to impose on a home handyman repairer the same, if not a higher duty, than might apply to a professional or tradesman repairer. In this regard, the argument relied upon by the plaintiffs ignores the reality that not only does a repair task involve a range of options and potential costs associated with the task, but ultimately, it is entirely a matter for the owner as how to proceed to effect the repair. Paradoxically, this very same point was acknowledged and relied upon by the plaintiffs in their submissions concerning the formulation of the quantum of their claimed damages.

Secondly, the submission made on behalf of the plaintiffs entirely ignores the effect of the evidence of Mr Balfour, which I accept, to the effect that after he had arranged for the pest inspection treatments of the house for termites in 1995 and especially in 1997, he understood that the termites had been eradicated, with the result there was no longer any active infestation of the timbers of the house. The reasonableness of Mr Balfour's understanding has been confirmed by the experts called in the plaintiffs' case, who confirmed that the damage evident on the post-2004 invasive examination, was due to past termite activity.

In my view, Mr Balfour was entitled to believe, reasonably, that at the time he carried out the works which had the effect of concealing from view the damage due to termite activity in the bedroom beam, the bathroom rafter, and the front balcony floor joists, that the result of the pest extermination work he had commissioned had resulted in the eradicating of active termites. In these circumstances, I do not consider it was necessarily incumbent upon him, as was argued on behalf of the plaintiffs, that he should have taken steps to determine the extent of the termite damage before effecting the repairs that have been described. I do not accept he was under any such duty. It was entirely up to him as to how he might approach the task of effecting repairs, both as to the nature of the repairs and also as to the extent of the repairs. In doing so, I do not consider that Mr or Mrs Balfour had any fraudulent intent or the intention to misrepresent the structural integrity of the premises.

Having reached these conclusions, I reject the submission made on behalf of the plaintiffs that the repairs in question that were undertaken by the Balfours, were not genuine.

In my view, it follows that the defendants were not under a legal duty to disclose to the plaintiffs the nature, extent, or rationale behind such repairs, unless they had been specifically asked to do so, either by questions from the plaintiffs, or through questions asked by persons acting on their behalf, namely their conveyancing solicitor, or the pest inspector whom they had engaged to inspect the premises.

There was no reason as to why the plaintiffs or someone acting on their behalf could not have asked questions concerning the history of repairs to the structures of the house, including any repairs that might have been made due to past termite damage. No such questions were pursued either by, or on behalf, of the plaintiffs either before the contract for sale was entered into, or by interrogatories issued during the preparation of the case for trial.

I do not accept that the defendants ever believed that the repairs they had effected to the premises were not genuine repairs. I come to this view based not only on my assessment of the truthfulness of the evidence given by Mr and Mrs Balfour, but also on an objective consideration of whether a reasonable person in the position of the defendants would have honestly believed the repairs undertaken were truly genuine : John McGrath Motors (Canberra) Pty Ltd v Applebee [1964] HCA 1; (1964) 110 CLR 656 at p 659, following Akerhielm v De Mare (1959) AC 789 at p 805.

On that assessment, I find that the Balfours honestly held the view that the repairs they had effected over time, were genuine repairs. I find that belief to have been based on Mr Balfour's understanding, which was proven to be correct, to the effect that the termites which had caused the damage, had been successfully eradicated from the premises. The plaintiffs have not persuaded me that the affected structures, which were the subject of repairs, were to Mr Balfour's understanding at the time, structurally unsound due to termite damage such that the repairs in question could not be reasonably considered to be genuine and as such, required disclosure to purchasers.

Accordingly, since I have found that the repairs in question were genuine, I also find that no duty reasonably arose for the defendants to make the disclosures that are now contended for on behalf of the plaintiffs.

Consideration of Issue 7 - Whether non-disclosure of repairs amounted to the alleged representation

Consideration of Issue 7 concerns whether non-disclosure of the repairs amounted to a representation as claimed on behalf of the plaintiffs.

On behalf of the plaintiffs it was submitted that by the silence of the defendants, at the time of, or shortly prior to, the time of the parties entering into the contract, the defendants represented that the relevant timber sections of the house were free from termite damage.

In developing this argument, on behalf of the plaintiffs it was asserted that whilst the defendants were not obliged to remove the cladding they had applied, or to undo any concealment work they had previously undertaken, or to take any other action to disclose that the subject timber sections were termite damaged, nevertheless, by their silence, the defendants must be taken to have misrepresented the true position which, but for the concealment work, amounted to a patent defect.

In response to those submissions, the primary position of the defendants was that there was no representee for the claimed representation attributed by the plaintiffs to the defendants, as asserted. In support of that position Mr Rayment referred to Spencer Bower, Turner and Handley, Actionable Misrepresentation, 4th ed (2000) Butterworths at para 11 p 4: "A representation is a statement made by, or on behalf of, a person (the representor) to, or with the intention that it shall come to the notice of, another person (the representee) which relates, by way of affirmation, denial, description or otherwise to a matter of fact. Thus there are two essential elements in a representation:

(i) a communication between two or more persons (ii) relating to a fact, past or present."

Mr Rayment also referred to the following elaboration by the learned authors of the first of the above requirements, namely the element of communication, as follows: "It takes two to make a representation just as it takes two to make a contract. A statement is a soliloquy which is overheard, or in a diary or other private document which is surreptitiously read, has not been made to the eavesdropper or busybody and is therefore no representation. There must be two parties, a representor and a representee."

It is against that background that I have approached the analysis of the claims made on behalf of the plaintiffs. In doing so, for the reasons that follow, I have reached the conclusion that the submissions made on behalf of the plaintiffs are necessarily flawed in a number of material respects.

First, silence of itself cannot constitute a representation, especially where the alleged representors were not present in order to choose whether or not to remain silent at the times the claimed representees were said to have been the recipients of the claimed representation. The undisputed evidence is that the Woods never saw the Balfours at the premises before entering into the contract. Similarly, neither did the pest inspector who had been engaged by the Woods. In both instances, the undisputed evidence is that no enquiries were made by or on behalf of the Woods of the Balfours, nor were there any enquiries made of anyone acting on their behalf. There were no relevant interchanges between them prior to entering into the contract. Therefore, the existence of any alleged representation has to be determined from an examination of the relevant conduct of the Balfours. In my view their conduct on the facts as I have found them, did not reveal or amount to a representation as claimed.

Secondly, as I have already found, the works concealing the visible signs of termite damage were undertaken over a number of years in 1983, 1999 and in 2000, which was well before the Balfours contemplated actually selling their home so as to trigger a representation of the kind that has been asserted on behalf of the plaintiffs. The facts of this case are therefore quite different to a situation where, for example, a vendor might take steps to effect temporary repairs such as wallpapering over cracks in a wall, knowing full well that this would only temporarily serve to hide structural defects, doing so with the specific intention of inducing a sale to a purchaser who remained in ignorance of the underlying problem. In contrast, in this case, the defendants effected the works which concealed the damage from past termite activity for the specific purpose of improving the amenity and enjoyment of their house by covering up the sight of that damage. They did so with the intention of continuing to live in it for some time, and they did just that. The only thing that changed was that the new owners started effecting alterations which led them on a path of more invasive and destructive investigations, a course they were advised to follow before the sale, but declined to pursue.

Thirdly, the only evidence of the appearance of the premises being specially prepared for sale, was the laying of new carpet and the repainting of the internal doors to freshen up the appearance of the paint on those doors prior to marketing the house for sale. I consider that this latter work was much more remote in time to the concealment work relied upon by the plaintiffs, which suggests to me that the intentions behind the these two different categories of work were quite different, the first being to improve the amenity of the house to continue to live in it, and the second being to improve the prospects of the house being sold at a suitable time and for a suitable price. In coming to this view I recognise the possibility that these two categories of work could have been connected by a common motive, but I have discounted that possibility because in my view, the time interval that separated when these works were carried out, renders the prospect of a relevant connection between them, to be somewhat remote.

Accordingly, using the nomenclature adopted by the defendants from the learned authors of Spencer Bower, Turner and Handley, I find that the relevant works undertaken by the defendants, or more precisely, Mr Balfour, to conceal from view the past activity of termites, remained a soliloquy falling short of a relevant conversation between the parties so as to amount to a representation capable of being relied upon by the plaintiffs, as claimed.

When the claimed representation, as relied upon by the plaintiffs is analysed, I consider that it is revealed to be of a constructive nature rather than being of a factual character. This is evident from paragraphs 6 and 6A of the amended statement of claim, which states: "6. The Concealment Work was conduct that amounted to a representation by the defendants that the Property was free of termite damage or alternatively that any damage to the Property caused by termites was of a minor nature limited to the sub-floor area of the lower ground floor, and that the structural integrity of the Property was not compromised, (the Representation).

6A. Alternatively, in failing to disclose that they had carried out the Concealment work, the defendants conduct by their silence amounted to the Representation."

On behalf of the defendants, I consider that the submissions made by Mr Rayment have correctly broken down the essential elements of the claimed representation as follows: "… the Property was free from termite damage [" the first element "] or alternatively that the damage to the property caused by termite damage was of a minor nature limited to the sub-floor area of the lower ground floor [" the second element "], and that the structural integrity of the Property was not compromised [" the third element "]."

When the effect of the claimed silence of the defendants is examined in the light of the pleaded claim, some important features of the formulated claim emerge.

The first feature is the absence from the evidence of a factual basis within the evidence for all three elements of the pleaded claim. Correctly, the pleading must assert facts, and it does so. However, when the evidence is examined, the facts relied upon by the plaintiffs are only revealed to be facts drawn as inferences, namely a construction of facts. In my view, in this case, this represents an insufficient basis upon which to infer fraudulent intent.

The first element to the effect that the premises were free from termite damage was never actually stated as a fact by the defendants, or by anyone acting on their behalf. It is a conclusion sought to be relied upon by the plaintiffs by way of construction of the circumstances in order to provide the foundation for an asserted representation that the premises were free of termite damage. It is a construed fact, not a fact conveyed as a representation. In that context, silence ought not be construed as a representation. The situation might be different if a question or discussion had been raised to the effect of whether or not, in the past, to the knowledge of the defendants, the premises had ever been affected by termites. If the response of the defendants in the situation of that example was one of silence, then such silence could arguably give rise to a claimed representation that the premises were free of termite damage. However, that example was not the case here.

The second element namely, the alternative allegation to the effect that the degree of termite damage was minor, and limited to the sub-floor of the lower ground floor, is in my view, a conclusion drawn by Mr Wood, rather than being an actual statement made by the defendants or by anyone acting on their behalf, to the effect that only the sub-floor area was affected by termites and only to a limited degree. This much is clear from the evidence of Mr Wood by which he explained his interpretation of the pest inspection report he had commissioned. This second element is simply a re-iteration of Mr Wood's selective interpretation of what he took to be the meaning of the pest inspection report. That is a constructed view which he has concluded. It was not a factual assertion by the Balfours to him, or not denied in his presence, in circumstances where it was clear to the parties that any words uttered, or any silence maintained, would form the basis of a reliance on such conduct, as a prelude to, or an inducement to, enter into a contract.

The third element, being an alleged representation received by a civil engineer in the position of Mr Wood, to the effect that the structural integrity of the premises was not compromised, is, in my view, an incredible allegation. This is so particularly since before he entered into the contract, Mr Wood had before him the pest and building inspection report which he commissioned. Page 8 of that report, made reference to the inspector's opinion that the structure of the building had settled over time and was not plumb and square. I find it difficult to see how, on a fair reading of the pest and building inspection report, other than through an artificially formulated and inappropriately selective legal construction of events, it could be reasonably said that Mr Wood, upon whom Mrs Wood was reliant, could have seriously maintained a credible opinion that by silence, a representation had been conveyed to the effect that the property was structurally sound.

The defendants did not concede the work that was carried out to conceal from view the damage to timbers from past termite activity, constituted a representation that in respect of the four areas of the house where such work was carried out, the house was free from termite damage, or that any termite damage was limited to the sub-floor area of the house or that the structural integrity of the house was not compromised.

The defendants have submitted that the allegations so made by the plaintiffs have been cast too widely for the context and do not arise from the conduct alleged, in that covering up the damage to the described areas could not amount to a representation about the rest of the house. For the reasons I have outlined, and in view of the evidence given by Mr Clarke and Mr Capaldi to the effect that an unblemished timber surface says nothing to the observer about the extent of, or existence of, termite damage to other timbers in the house, I accept those submissions.

On the specific question of the significance of silence in the context of a claim for misleading and deceptive conduct, silence can be a matter of significance, as was stated by Black CJ in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at p 32 in the following terms: "Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of mere silence or of a duty of disclosure can divert attention from that primary question. Although "mere silence" is a convenient way of describing some fact situations, there is in truth no such thing as mere silence because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed."

In this case, a number of salient features inform the question of whether a duty to speak arose on the part of the Balfours, so as to provide a context for an evaluation of the effect of silence on their part.

The first such factor is that the present circumstances under consideration are a transaction for the sale of land that was conducted at arm's length, to which all the parties should be taken to have appreciated that the doctrine of caveat emptor was to have application. Furthermore, a real estate agent was acting for the Balfours, both the vendors and purchasers were independently represented by solicitors, and the parties had expressly acknowledged Special Condition 3 of the contract for sale of the land in question.

The second such factor is that there were no dealings between the Woods and the Balfours personally, and specifically there were no questions asked by the Woods, regarding the extent of any past termite damage or if there was any present termite activity. Furthermore, there was a reasonable expectation, which was fulfilled in this case, that interested purchasers would arrange, consistent with the relevant provision of the contract for sale, for a professional pest and building inspection in order to inform themselves of any relevant matters relating to the activity of termites or structural problems that might impact on risks associated with the purchase of the property.

The third such factor was that at the time the property was marketed, there was no evidence of current termite activity. This served to confirm the reasonableness of the Balfours' understanding that at the time they effected the covering works, there was only ever past termite activity, which had been successfully treated and eradicated. It was in this context that the relevant concealment works relied upon by the plaintiffs as evidence of the representation in contention, respectively occurred beforehand, in 1983, 1999 and in 2000, which was well before the date on which the parties entered into a contract for sale of the property.

The fourth such factor was Mr Balfour's understanding that the bedroom beam had as much termite damage then, as has now been revealed to be the case after destructive investigation. Mr Balfour considered the family room beam to have been properly repaired and the Balfours themselves saw fit to live in the property for a number of years, during which time it was in the same condition in which it was sold to the Woods. This was in circumstances where it is evident that Mr Balfour and Mrs Balfour were house proud people and had fastidiously kept their home well maintained, rendering it unlikely that they would have had any misgivings about the adequacy of the repairs that they had undertaken, or concerning the condition of the property at the time of sale.

On behalf of the defendants, Mr Rayment addressed the question of the significance of silence concerning the spectre of what repairs, or to use a more neutral term, what work, must be disclosed to prospective purchasers when selling land on which a dwelling house has been constructed. He submitted that there was no clearly defined line of demarcation as to what must be disclosed, and what need not be disclosed. He submitted that it was this very reason that the doctrine of caveat emptor has been held to apply in all cases short of deliberate and active concealment. That submission is undoubtedly correct.

Guided by the remarks of Black CJ in Demagogue Pty Ltd, and by the foregoing analysis of the facts and the applicable principles, in my view, in the circumstances of this case, silence on the part of the defendants concerning the matters relied upon by the plaintiffs, did not constitute a relevant representation. Accordingly, there was no obligation on the part of the defendants to make the disclosures now contended for by the plaintiffs in this litigation.

Accordingly, I find that the non-disclosure by the Balfours, of the repairs and covering works that they had carried out on the timbers in question, did not amount to a relevant representation as alleged by the plaintiffs.

Consideration of Issue 8 - The effect of caveat emptor and Special Condition 3 on the claimed duty to disclose

The consideration of Issue 8 involves an evaluation of the effect of caveat emptor and Special Condition 3.

In their defence to the claim by the plaintiffs, the Balfours argued that the maxim of caveat emptor applied to the transaction by which they had sold the house to the Woods, as did Special Condition 3 of the contract for sale. As a result, the Balfours claim by way of defence, that in this particular transaction, the Woods acknowledged that they were reliant on their own inquiries, rather than being reliant upon anything that might have been represented to them by, or on behalf of, the Balfours.

The Woods submitted that these defence arguments were effectively answered by their claim that a fraud had been perpetrated against them, the contended fraud being the non-disclosure of the concealed termite damage having the effect of rendering such defences unavailable to the defendants.

The plaintiffs concede that the rule of caveat emptor applies to contracts for the sale of land and in their written submissions, they cite Stonham, Vendor and Purchaser, (1964) Law Book Co and Williams, Vendor and Purchaser 4th ed, Lightwood, Sweet & Maxwell. In this regard paragraphs [510] to [514] of the plaintiffs' written submissions on this issue stated: " 510. The rule of caveat emptor (let the buyer beware) and 'latent & patent defects' is described in Stonham Vendor and Purchaser (Law Book Co 1964) as follows at page 228 and following: The rule of caveat emptor applies to contracts for the sale of land. The purchaser takes that which he sees, or which, as a prudent and diligent purchaser, he ought to have seen, and is not entitled to have anything better. He is bound to exercise a reasonable degree of caution and, therefore, if there be anything in the representation made by the vendor calculated to excite suspicion, or to require explanation, or investigation, the purchaser is put upon his guard, and must bear the consequences of his own neglect in not making further investigations.

Latent and patent defects A patent defect is a defect that a purchaser is likely to discover if he inspects the property with ordinary care. A latent defect is one which a purchaser, inspecting the property with ordinary care, would not be likely to discover. Whether a defect is latent or patent is a matter of degree. It is not enough that there exists on the land on object of sense, that might put a careful purchaser on inquiry, but in order to be a patent defect, the defect must either be visible to the eye, or arise by necessary implication from something visible to the eye.

What the vendor must disclose The vendor is under no obligation to disclose patent defects in the quality of the property, whether such defects be pure defects of the physical condition or quality of the property, or defects of title; but the vendor's title being a matter which is, or ought to be within his knowledge, he is bound to disclose to a purchaser other defects of title, at any rate, if he is, or ought to have been aware of them.

At page 231 Stonham continues regarding patent defects with regard to the quality of the land as opposed to title:

Concealment of patent defects by Vendor The vendor must not actively conceal defects in quality that would otherwise be patent, (Shirley v Stratton (1785) 1 Bro CC 440 128 ER; Fry, s.715), as for example plastering up a defect in a wall and papering it. A representation by the vendor that a house is substantial and well built relieves the purchaser from the necessity of inspecting the house for himself, although the defect is patent. A vendor must not lull a purchaser's suspicions, if inquired of respecting defects known to the vendor, by giving misleading answers, or answers lacking in frankness. Conduct calculated to mislead a purchaser regarding some material fact, or to divert him from inspection or inquiry, which would discover a defect, known to the vendor, may be fraudulent, and may be ground for avoiding the contract at law, as well as resisting specific performance.

In Williams 'Vendor and Purchaser' 4th Ed, by John Lightwood, Sweet & Maxwell at page 759, the author refers to caveat emptor : With regard to mistakes in what may be termed the quality of the land sold, as for example, whether it is fit for growing corn, grazing cattle, or for building, or whether a house or other building is in good repair or well drained, the reader must bear in mind the following distinctions: The rule is caveat emptor . The purchaser should inspect and make inquiries concerning the property which he is buying. If he omits this precaution, he buys at his own risk and cannot complain of the defects in the quality of the thing, unless they are not discoverable by inspection and materially interfere with the enjoyment promised by the contract, or offered by any representation which induced the contract, or are fraudulently concealed.

And further at page 761: In equity however, the rule has been suggested that a latent defect of quality, which is not discoverable by any inspection or inquiry that a prudent purchaser might reasonably be expected to make, and is known to and not disclosed by the vendor, is a good ground for refusing to grant specific performance at the vendor's suit. But it is submitted that this rule is too broadly stated, and is properly subject to the qualification that the defect must be such as will materially interfere with the enjoyment promised by the contract or the vendor's representation, or the concealment must be fraudulent

And at page 764: … … If the vendor represents that a house is in good repair, or is not damp, or that the drains are in good order, or the cellars dry, or that a farm is in a high state of cultivation, or sells land as being fit for building purposes, or as business premises, then any latent defect, which prevents this representation from being fulfilled, will be a good ground of objection by the purchaser to his completing the contract. If however, the defect was patent or obvious, then the purchaser may be obliged to perform the contract, notwithstanding the representation, on the ground that he must be taken to have bought with notice of the defect. But any active concealment of defects which would otherwise be discoverable by inspection is a fraud; and if a purchaser is deceived thereby he may avoid the contract accordingly. Thus if cracks in the walls of a house are papered or painted over with intent to conceal them, and the house is then sold, though without any warranty or verbal representation as to its state of repair, to a purchaser who has inspected it, the contract is voidable for fraud. And any conduct calculated to misled a purchaser with respect to some material fact, or to divert him from inspection or inquiry, which would discover a defect known to the vendor, is equally fraudulent, and may be a ground for avoiding the contract at law as well as resisting its specific performance.

And at page 766: Not only is there no legal obligation upon a vendor of land to disclose to the purchaser any defects known to him in the quality of the thing sold, but further the vendor is not bound to disabuse the purchaser of any erroneous belief, which the purchaser has formed, and which the vendor knows the other has formed, as to the quality of the purchased property. A vendor may well sell a house, which has got dry rot in all the woodwork and is badly drained, to a purchaser, who knows nothing of these defects, but believes to the knowledge of the vendor that the house is in good repair and well drained, and yet the purchaser will not be entitled to claim the rescission of the contract; provided always that the vendor made no representation as to the quality of the thing sold, and did not actively conceal the defect.

Accordingly it is submitted that active concealment of a patent defect is an exception to the doctrine of caveat emptor .

If the plaintiffs can prove to the Court that the defendants actively concealed a patent defect, as pleaded, the defence of caveat emptor , is not available."

It is clear from the foregoing submissions that for the plaintiffs to succeed in this case, they must show the defendants have acted fraudulently in actively concealing the visible signs of damage from termites with the intention of deceiving a prospective purchaser.

Consequently, on behalf of the plaintiffs it was argued that the principle of caveat emptor will not apply to defeat the claim of the plaintiffs in the circumstances under consideration as there has been a fraudulent concealment perpetrated against them. Consistent with that submission, the plaintiffs claim that Special Condition 3 of the contract for sale will not protect the vendor in circumstances where the "purchaser buys the property relying on his own inspection" if the inspection is effectively restricted by the vendor having actively concealed patent defects.

In my view the foregoing submission contains a fallacy in that the plaintiffs were aware of the "restricted" nature of an inspection in that any non-invasive inspection would be limited to a visual inspection, and after that visual inspection they were advised to seek an invasive inspection. They declined to pursue that course.

The plaintiffs have submitted in answer to the reliance by the defendants on Special Condition 3 of the contract for sale, that they rely upon the decision of Burchett J in Oraka Holdings Pty Ltd v Leda Holdings (1997) ATPR 41-558 at page 43,717 where his Honour stated: "It cannot be thought that the very agreement that was obtained by a misrepresentation can be made good by incorporating in it a further misrepresentation falsely asserting that it was not procured by the means which were in fact employed. The agreement that so seeks to sustain itself was obtained by a misrepresentation, and no verbal magic of an added clause can change that. Many authorities have made this clear."

In view of the factual findings I have made, to the effect that the Balfours did not engage in the conduct of actively concealing patent defects with the intention of deceiving purchasers, including the plaintiffs, I conclude that the foregoing submissions on the authority cited are of no assistance to the plaintiffs in this case.

First, Special Condition 3 of the contract for sale provided: "The property together with the appurtenances thereto is sold in its present state of repair and the purchaser acknowledges that he buys the property relying on his own inspection, knowledge and enquiries and that he does not rely on any warranties or representation made to him by or on behalf of the vendor. The purchaser shall not call upon the vendor to carry out any repairs whatsoever in relation to the property hereby sold."

This necessarily means that the purchasers were on clear notice that they had to make their own inquiries as to the condition of the premises. Such potential inquiries were not necessarily restricted to visual inspection, but also contemplated the possibility of asking relevant questions, including of the vendors and their own pest and building inspector. The one important inquiry that they made was to obtain the pest inspection report. In my view the commissioning of that report was evidence of the fact that Mr and Mrs Wood understood the importance of Special Condition 3 of the contract.

Secondly, on 11 August 2004 Mr and Mrs Wood signed the acknowledgment embedded in Special Condition 3 of the contract for sale and on 13 August 2004 they agreed to buy the house on these terms which included Special Condition 3. They have not sought to argue that they did not understand the meaning and effect of that condition.

Thirdly, I consider that Mr Wood, and therefore Mrs Wood who was relying upon Mr Wood's judgment, dismissed without adequate consideration, the obvious and repeated warnings and alerts contained within the pest inspector's report they had commissioned concerning suspected concealed termite damage. It is clear that they relied upon their own, or more accurately, Mr Wood's judgment, on the state of repair and structural integrity of the house, and the risk of the extent to which the house may be affected, including structurally, by concealed termite damage. In my view, a fair reading of the pre-purchase pest and building inspection report placed the Woods on clear notice of the potential for the timbers of the house to be affected by concealed termite damage. The plaintiffs made no other inquiries after being placed on notice by the terms and content of that report, and clearly relied upon the very limited, and in my view artificial, interpretation that Mr Wood had placed on the pest inspector's report.

Fourthly, the argument based on the cited passage by Burchett J in Oraka involves a circular argument. It pre-supposes the existence of a misrepresentation at the outset. In this case I have found there was no such misrepresentation. I am not persuaded that the decision in Oraka has any application to this case.

I have concluded that the plaintiffs have failed to establish fraud on the part of the defendants. They have failed to demonstrate that the defendants set about to actively conceal visible signs of termite damage with the intention to deceive purchasers. Accordingly, I find that in this case, neither Special Condition 3 nor the operation of the maxim caveat emptor have been abrogated or displaced. Accordingly, I find there was no relevant duty that arose to oblige the defendants to disclose the fact of earlier termite activity in the premises and the extent of the damage that may have arisen from that termite activity.

Consideration of Issue 9 - Alleged falsity of the claimed representation

Consideration of Issue 9 involves an evaluation of the alleged falsity of the claimed representation.

The plaintiffs have submitted that the defendants not only represented that the subject timbers of the house were not termite damaged at the date of the contract, but they also submitted that such representation was false, as the expert evidence was that the subject timbers were extensively damaged before 1997.

The basis of that submission was that after the sale of the premises to the plaintiffs, both the plaintiffs and their experts found the property to have been extensively damaged by termite activity, such damage having most probably arisen before 1997.

In my view, this argument by the plaintiffs invokes and introduces impermissible considerations of hindsight gained from a retrospective analysis of the relevant events. The only logical basis upon which a submission could proceed to the effect that the property was "extensively damaged by termites" would be from the retrospective analysis obtained through the substantial destructive inspection undertaken by the plaintiffs and their engaged experts after the purchase of the premises in August 2004.

In my view, in these circumstances, it is entirely impermissible to use the knowledge gained by the plaintiffs in this way to impute to the defendants, knowledge of extensive damage, especially in the context of allegations of fraudulent conduct. In this regard, I consider that analysis of the question of whether or not the defendants were aware of extensive damage from termite activity so as to fairly base an allegation that they falsely represented to the contrary, should be guided by looking forward or prospectively along the lines discussed by Hayne J in Vairy v Wyong Shire Council at [126], p 461, and not with considerations of hindsight, which is the manner in which the submissions made on behalf of the plaintiffs have proceeded.

This means that any assessment of the state of the knowledge of the defendants as to the extent of termite damage to the house should be made on the basis of what the defendants were likely to have known prior to the sale to the plaintiffs, and not according to what was later found to be the case by the plaintiffs on a destructive investigation of the timbers of the house, which in effect involved the house being partly dismantled and cut apart.

On taking the Vairy approach that I have identified, I reject the plaintiffs' submission that the defendants falsely represented to the plaintiffs that the subject timbers were not termite damaged as alleged. I find that the Balfours did not make the alleged, or for that matter, any false representations to the Woods, as to the condition of the timbers of the house as at 13 August 2004.

Consideration of Issue 10 - Knowledge and belief of defendants concerning termite damage concealment

Consideration of Issue 10 is based on the premise of there being a false representation and relates to whether the defendants knew the house was affected by serious termite damage, and if so, did they know they were making a representation to the contrary.

The plaintiffs drew attention to the historical context in which the defendants had discovered termite damage to the house, namely in the years 1983, 1995, 1997, 1999 and 2000. In their submissions, the plaintiffs also pointed to some of the detail of the degree of knowledge the defendants were "at all material times" asserted to have had concerning termite activity.

It was upon these foundations that the plaintiffs sought to mount an argument that the defendants knew they were making a representation that the subject beams were not termite damaged. The argument was that when the defendants had acted in the manner alleged by the plaintiffs, they also knew that such a representation was contrary to their knowledge or honest belief, such that the alleged representation should be characterised as a misrepresentation, having been made fraudulently, because there were problems associated with the concealment works in question, namely, they were "not genuine repairs".

In making that argument, the plaintiffs seek to bring the circumstances of their case within the application of the principles enunciated in the authorities concerning cases of deceit : Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337 and the authorities which have been earlier identified as having followed and interpreted that decision.

In the paragraphs that follow, I set out my analysis of this submission, and my analysis of the basis on which it has been made.

The plaintiffs submitted that the overheard statement attributed to Mrs Balfour by Mrs Doyle to the effect "I suppose we should notify someone" is evidence that "suggests a strong inference that the defendants were aware the house had termite damage".

I have given careful consideration to the inference sought by the plaintiffs concerning the evidence of Mrs Doyle. In my view the inference sought is not the only such inference that arises. The statement recounted in the evidence of Mrs Doyle was not specific, and could have referred to a number of things, even allowing for the possibility that it was said to have been made to someone Mrs Doyle assumed was a pest control tradesman. I consider the snippet of conversation relied upon by the plaintiffs to be too flimsy a basis upon which to infer the foundations for fraudulent conduct. The incompleteness of the recalled remark is prone to be taken out of context and there was no evidence of the full or a fuller context.

Accordingly, in my view, the submission relied upon, being based only on a snippet of a conversation, does not rise above mere speculation : Luxton v Vines [1952] HCA 19; (1952) 85 CLR 352. I do not consider the imprecise and imprecisely recalled evidence of Mrs Doyle to represent a sufficient basis for discrediting the evidence of the defendants in order to base a contrary finding of fraud to the required standard : Briginshaw v Briginshaw [1938] HCA 38; (1938) 60 CLR 336.

Having reviewed the evidence of Mrs Doyle I conclude it has no probative value. Had I come to the opposing view I consider that her evidence is of such a limited ambit, without an adequate context, it being only a snippet of a conversation she claims to have overhead. I consider that it is the kind of evidence that ought to be excluded under s 135 of the Evidence Act 1995 because its potential for prejudice on account of its limited scope, outweighs any potential probative value.

In my view the submission made by the plaintiffs on the issue under analysis relies upon an incorrect interpretation of the evidence of Mr Balfour, who stated that in 1983, when he was repairing the front balcony timbers and extending that balcony, he thought he was dealing with a dry rot problem created by the moist conditions in which those timbers were located. Paragraph 40 of the plaintiffs' submissions dated 14 April 2010, which addressed the issue under present analysis refers to an awareness on the part of the defendants of "damaged termite joists in the front balcony three years after constructing their home". That summation is an incorrect one, as Mr Balfour's evidence was that he only realised the front balcony problem was due to termites rather than dry rot much later.

The submissions made on behalf of the plaintiffs criticise the defendants for having "purposely abstained from enquiring as to the extent of termite damage in the house" so as to preclude "any honest belief about the extent of termite damage" in the house after 1999, apparently basing that submission on the acknowledgment by Mr Balfour that he understood, when he found the termite damage in the upstairs bathroom rafter, that termites wrought their damage by working their way from the ground up to the highest point in the house. The plaintiffs also rely on these same matters for their assertion that "in failing to determine the extent of the damage the defendants could not have had an honest belief that they had effected genuine repairs" and, claiming there was no "repair" element associated with the front balcony joists and the upstairs bathroom rafter, and that the repair to the upstairs bedroom beam was not "adequate". The plaintiffs' submissions were also critical of whether the work carried out to the family room beam "can amount to a repair".

In my view, the submissions on behalf of the plaintiffs are flawed, and should be rejected for the reasons that follow.

First, in relation to the work on the front balcony joists, the submissions made on behalf of the plaintiffs on the issue under present analysis ignore completely the fact that the work undertaken by Mr Balfour on the front balcony joists was not simply repair work as was asserted. That work also relevantly involved extensions to that balcony and decking timbers. This fact casts an entirely different complexion on the appearance of Exhibit "K" and the surrounding joist extensions from which that exhibit was cut. The criticisms made on behalf of the plaintiffs also appear to proceed upon the incorrect premise that Mr Balfour's work should have been performed to the standard expected of a tradesman. That cannot be the standard to which a home handyman must be held to be accountable in circumstances such as these.

Secondly, I consider that the plaintiffs have approached the analysis of the adequacy of the repairs in question undertaken by the defendants from the perspective that might have been expected in a case alleging negligence rather than fraud. In this regard they seek, inappropriately in my view, to criticise the extent of the work and the approach taken by the defendants to the work, as if the defendants were under a duty to carry out the work of repairing the visible signs of termite damage by way of renewal or replacement of the affected structures rather than by covering the damage, as was the case. In my view that approach is incorrect. It was open to the defendants to carry out the repairs in any reasonable manner they sought fit, and in my view they did just that. This is why a purchaser should proceed with the maxim caveat emptor in mind.

Thirdly, it appears that the plaintiffs are seeking to sustain an allegation of fraud by reference to a failure to make enquiries in the face of termite damage. I consider that approach entirely ignores the evidence of Mr Balfour, to the effect that after the termite treatments in 1995 and 1997 he believed, correctly according to the subsequent expert evidence commissioned by the plaintiffs, that the termite infestation of the property had been properly and effectively treated. On that basis, which I accept on the facts of this case, it was open for Mr Balfour to regard the termite activity on the premises as having been eradicated, leaving him free to cover the visible signs of damage. He was not then obliged in those circumstances, to carry out an investigation of the extent of the damage in the manner and to the extent that was subsequently undertaken by Mr Wood - or at all. It was entirely up to him as to how he sought to cover the visible signs of such damage particularly as it has not been demonstrated that Mr Balfour knew that there were structural problems to do with safety as a result of the termite activity. It is noteworthy that the opinions to this effect were only enabled by a partial dismantlement of the house, which revealed far more detail than was available to Mr Balfour.

Fourthly, I consider that the plaintiffs have sought to characterise the motives behind the repair works in question through the prism of suspicion fuelled by a methodologically flawed retrospective analysis in the context of litigation rather than applying a measured forward looking rational analysis of the kind required by Vairy. The analysis advanced on behalf of the plaintiffs has been informed by knowledge acquired after the events, but used by the plaintiffs to impugn the conduct of the defendants in retrospect, in an impermissible way.

I therefore reject the plaintiffs' attack upon the defendants concerning their state of knowledge and belief of the extent of termite damage to the premises and the characterisation as inadequate, of the repair works carried out by the defendants that covered the visible signs of such damage. I reject the submission that these circumstances amounted to fraudulent concealment or misrepresentation on the part of the defendants, as has been alleged.

Consideration of Issue 11 - Whether the defendants intended that the plaintiffs would rely upon the claimed representation

The consideration of Issue 11 proceeds upon the premise that there was a relevant representation and that it was made with the intention that it would be relied upon by the plaintiffs.

The plaintiffs have submitted that the alleged representation made by the defendants was made with the intention that it be relied upon by the plaintiffs.

In developing this particular submission, the plaintiffs contended that it was open to the defendants at all times, either by them personally, or through their agent, to disclose the termite damage to the subject beams, or to disclose the fact that they had carried out work to clad the subject beams, prior to contracting with the plaintiffs.

The argument advanced on behalf of the plaintiffs draws upon the evidence of Mr Balfour to the effect that before he contracted with the plaintiffs he had told the pest inspector from the firm Themen about damage to the sub-floor of the premises. The plaintiffs also draw upon Mr Balfour's evidence that he had disclosed this fact to the pest inspector from Themen so that Themen could "provide a thorough report". The plaintiffs point to the evidence of Mr Balfour where he stated that he had "told Themen all that I could think of at the time", as the proffered explanation for not disclosing details of the other works he had carried out.

The plaintiffs have seized upon this evidence and have sought to cast it into a turpitudinous light, claiming that this allegedly incomplete disclosure by Mr Balfour provided evidence of his intention to conceal the evidence of termite damage in the house. In seeking that construction on these events as a finding, the plaintiffs also drew upon the evidence of Mr Balfour having engaged Copes Pest Control prior to contracting with the plaintiff, arguing that this engagement was something of a "dummy run" or a test inspection to ascertain whether the other termite damage to the timbers of the house would be discovered on a purchaser's pest inspection. I assume that the presumed motive for such a course, although unstated in the submission, is that such a course would result in a more advantageous sale price being achieved.

On behalf of the plaintiffs, it was contended that this evidence, together with the evidence of Mrs Doyle, gives rise to a compelling inference that Mr Balfour intended to convey the representation that there was no termite damage to the remainder of the timbers in the house and that he intended that the plaintiffs rely upon that representation.

For this submission, the plaintiffs relied upon the decision of Krakowski v Eurolynx Properties Pty Ltd [1995] HCA 68; (1995) 183 CLR 564 and submitted that the sense in which a representation is understood by the representee, is relevant to a determination of the question of whether the representation induced the representee to act upon the representation.

The plaintiffs also rely upon the decision in Gould v Vaggelos [1985] HCA 85; (1984) 157 CLR 215, particularly the remarks by Wilson J at [3] p 236 which summarises the 4 elements required to show a misrepresentation, citing paragraphs [1028] and [1029] of Cheshire and Fifoot on the Law of Contract, 4th Australian ed Butterworths. These elements are reliance on a representation calculated to induce the representee to enter into the contract, not relevantly rebutted by the representee's own knowledge and comprising a relevant contribution to the formation of the contract.

I consider that the submissions made by the plaintiffs on this issue are flawed, for the reasons that follow.

First, in my view, the cited authorities of Krakowski and Gould are of no assistance to the plaintiffs in this case because it also requires an examination of the intentions of the person making the claimed representation. In that regard, I have found that there was no intention on the part of the defendants to convey the claimed representation and I have also found that the circumstances do not justify the inference that a representation was made. It was common ground that Mr Balfour left a copy of the Copes report, Exhibit "W", at the house after the settlement for the information of the plaintiffs. In my view that action is inconsistent with an intention on his part to perpetrate a deceit. Further, the construction the plaintiffs seek to have placed on the evidence of Mrs Doyle for proof of the knowledge of the falsity of the claimed representation, involves impermissible speculation which requires rejection. Neither of these circumstances support a conclusion that Mr Balfour, as a claimed representor, intended that the Woods, as representees, would rely upon the contended representation.

Secondly, for its acceptance, the submission pre-supposes the existence of a duty to disclose the fact of termite damage to purchasers and/or pest inspectors engaged on behalf of purchasers. On the contrary, I have found that the maxim of caveat emptor and the effects of the agreed Special Condition 3 of the contract for sale negates the existence or the operation of the contended representation. I have also found that the plaintiffs have failed to demonstrate, on any standard of proof, that the defendants acted fraudulently to render the effects of caveat emptor and Special Condition 3 inoperative in this case. I have also found that in the circumstances, the claimed silence on the part of the defendants did not amount to a representation that the house was free of termite damage, as was contended by the plaintiffs.

I therefore reject the submission made on behalf of the plaintiffs to the effect that the defendants intended that the plaintiffs rely upon the contended representation.

Consideration of Issue 12 - Whether the plaintiffs acted in reliance on the alleged representation

A consideration of Issue 12 presumes the existence of a relevant representation and an alleged reliance by the plaintiffs on such an alleged representation where they obtained their own pre-purchase pest inspection report which revealed the suspected existence of "concealed termite damage".

On behalf of the plaintiffs it was submitted that they had in fact relied upon the contended representation. They claim such reliance arose because their pest inspector had not discovered the extent of the termite damage in the house, and in turn, their reliance on their pest inspector's report led them to enter into the contract for sale with the defendants. The claim is that they would not have contracted to buy the house from the defendants if they had known of the extent to which the house was affected by termite damage.

The plaintiffs developed that submission to assert that the effect of their retention of a pest inspector was that they relied upon that inspector to discover any termite damage to the property and to advise the plaintiffs accordingly. [Emphasis added]

It appears to me that this submission on behalf of the plaintiffs has been overstated, as the pest inspector engaged by the plaintiffs was engaged to carry out a non-invasive visual inspection according to the Australian Standard. As such, he could have only ever identified visible signs of termite activity and pointed to suspected concealed termite activity, which is precisely what the plaintiffs' pre-purchase pest inspection report did. That report could not have identified "any termite damage", as has now been contended on behalf of the plaintiffs. [Emphasis added]

The plaintiffs have submitted that although their retained pest inspector did not discover the relevant damage, his failure to do so does not sever the causal nexus between the alleged deceit on the part of the defendants, and the damage sustained by the plaintiffs.

In making that submission the plaintiffs referred to the report prepared by their pest inspector and claimed that their interpretation of that report was reasonable. In this regard they claim it is not open to the defendants to avoid their liability to the plaintiffs on the basis that the plaintiffs should have interpreted that report differently.

The plaintiffs submitted that but for the concealment of the termite damage, the pest inspector engaged on their behalf would have seen the visible damage located on the two relevant levels of the house, as well as the suspected damage in the sub floor, and the inspector would then have notified the plaintiffs that the house was "extensively" termite damaged. It is difficult to accept that submission in the absence of evidence being called from the pest inspector in question, as to what was likely to occur in those hypothetical circumstances.

The plaintiffs further argued that but for the alleged concealment, the termite damage to the house would have been obvious, and an invasive inspection would not have been necessary. They further argued that in any event, there is a compelling inference that an invasive inspection would have been refused by the defendants if it had been requested. The basis of the submission is not clear as that question was not asked of the defendants in those terms during cross-examination of them in these proceedings.

In the circumstances outlined, I find that the submission that the pest inspector relied upon the alleged representation must be rejected. The pest inspector was not called by the plaintiffs to support that contention and I conclude from the terms of his report that he relied upon his own skills and stated observations, and not on any alleged representation. Otherwise, the basis for his rejected recommendation for an invasive inspection would be difficult to understand.

Although I have found that there was no relevant representation as was contended on behalf of the plaintiffs, it is nevertheless necessary that I address the question of alleged reliance by the plaintiffs. In this regard, for the reasons that follow, I have concluded that I do not accept that there was any relevant reliance as alleged on behalf of the plaintiffs.

In this regard, I accept the submission made by the defendants that the plaintiffs were so keen to buy the property in question that they did not rely upon the warnings evident within the pest inspector's report which they had commissioned. I find that instead, they relied upon the very limited, and in my view artificial interpretation placed on that report by Mr Wood.

In view of the contents of the pest inspector's report, which I have summarised between paragraphs [25] to [56] of my reasons, I conclude that the reading and interpretation of that report by Mr Woods unfortunately ignored numerous, significant and clearly expressed warnings that ought to have alerted him to the fact that concealed termite damage could be present in the house, and that in order to address this risk, an invasive inspection was recommended. I find that Mr Wood exercised his own judgment in considering and assessing the risk that the house may have been affected by termite damage, and in this regard he chose to act in reliance of his own judgment, rather than on any alleged representation.

I have come to this view because it is clear that the plaintiffs not only did not seek to ask any questions of the pest and building inspector whom they had engaged, but also chose not to seek to ask the Balfours anything about the termite history or other structural history of the house. In my view it is clear that Mr Wood based his judgment on his own interpretation of the pest and building inspection report. In my view, these circumstances clearly confirm that Mr Wood had made up his mind to go ahead with the purchase based on his own judgment.

In my view, the correctness of this analysis is confirmed by the evidence of the plaintiffs that they were planning to carry out extensions and alteration works to the house, and had assumed, incorrectly as things turned out, that any termite damage they believed may have been present in the house, could have been manageably dealt with according to their intended renovation plans and within the renovations budget they had allocated at the time they formulated their offer to purchase the property.

I also consider that the correctness of my view that Mr Wood was determined to proceed with the purchase and to take the risk regarding the extent of any termite damage to the house, is demonstrated by the relative speed with which the purchase proceeded.

In this regard, the contract for sale was initially signed by the parties on 11 August 2004, with a proviso that allowed for a pest inspection report to be obtained by the plaintiffs. The contemplated pest inspection took place on the same day, and the resultant report, which was very compendious, was also issued on 11 August 2004. The contract for sale was then perfected on 13 August 2004, which then bound the plaintiffs to the sale. I consider that the relative rapidity of these events, having regard to the very detailed content of the 65 page pest inspection report, indicated that Mr Wood was determined to proceed with the transaction, notwithstanding the warning signs and indications of concealed termite damage that were clearly evident within the pest inspection report he had commissioned.

Accordingly, I find that there was no causal nexus between any asserted representation that was said to have been made by the defendants, and any asserted reliance on such alleged representation.

Instead, I find that the plaintiffs took upon themselves the risk that termite damage might be encountered in the premises, as is evident from their awareness that the pest inspector, whom they had engaged on their behalf, had found evidence of termite damage in the sub-floor area and had, correctly as things turned out, drawn attention to the possibility of there being other concealed damage from termite activity. In deciding to proceed with the purchase, I find that the plaintiffs took upon themselves the risk that they might encounter termite damage in the house. I find that unfortunately for them, the risk they undertook later materialised when they started their renovations, with devastating financial consequences for them.

The fact remains that the plaintiffs had made their own enquires before the purchase, and it was their own enquiries, and their own interpretation of the results of those enquiries, which ultimately led them to the decision to buy the house.

In any event, even if I am in error in my findings interpreting the relevant events concerning whether or not there was a relevant deceit or fraudulent misrepresentation on the part of the defendants, I nevertheless find that the Woods did not rely on the alleged misrepresentation. Instead, I find that Mr Wood relied upon his own interpretation of the pest and building inspector's report, and on his own judgment about the extent of any likely termite damage to the premises. I find that Mrs Wood relied upon her husband's judgment on the issue. As a result, I find that there was no relevant reliance as claimed, and as a result, there is "no case" of inducement or reliance on any misrepresentation as alleged : Gould v Vaggelos, per Wilson J at [3], p [236], citing Cheshire and Fifoot on the Law of Contract, 4th Australian ed, Butterworths.

In view of these findings, it is unnecessary for me to address and analyse the authorities relied upon by the plaintiffs in the remainder of their submissions.

Consideration of Issue 13 - Whether the plaintiffs have suffered damage

A consideration of Issue 13 relates to the quantum of the claimed damages.

The plaintiffs claim that they have suffered damage as a result of paying a price for their house equivalent to a property unaffected by termite damage, or at least affected by termite damage to a limited extent, in circumstances where the house they purchased was in fact badly affected by termite damage.

The plaintiffs claimed the quantum of their loss was the difference in value between such properties. Their claimed loss was quantified in the amount of $225,000, based on proper valuation principles. This roughly coincided with Mr Capaldi's estimate of the cost of demolition and repair in the sum of $223,388.76.

In making this claim the submissions made on behalf of the plaintiffs highlighted the fact that such damages for diminution in value will not come close to providing the plaintiffs with a new house. This measure of claimed damages does not provide "new for old". It was submitted that the plaintiffs were entitled to repair the termite damage to the house as and how they see fit. The fact that they have done so with the assistance of the first plaintiff's father, a carpenter, and the labour of the first plaintiff, which may have saved them money whilst also saving the cost of renting elsewhere if the house had been demolished, cannot have any bearing on the quantum of damages if they succeed.

I accept that the submitted method by which the plaintiffs seek to have their quantum of damages assessed is a reasonable method for assessment in this case. I accept this method notwithstanding the inherent guesswork and uncertainties evident within the valuation method introduced into evidence by the plaintiffs' expert, Mr Adams. Whilst the contended method of valuation involves a considerable number of uncertainties, and is necessarily imprecise, I consider that it nevertheless serves as a reasonable guide to form a basis upon which the claimed loss should be measured in this type of case.

That said, an outstanding quantum question nevertheless remains concerning the earlier settlement of the claim the plaintiffs brought against the pest inspector whom they had engaged to inspect the premises before the purchase. In that case, the character of the damages claimed by the plaintiffs was for the diminution in the value of the house due to the effect of undetected termite damage. Similar damages are now claimed in these proceedings, yet the plaintiffs received damages from the settlement of a claim in the earlier proceedings against the pest inspector.

A question has arisen concerning whether, by settling the claim against the pest inspector, the plaintiffs have received their measure of damages such that they are estopped from pursuing similar damages against the defendants. The plaintiffs have in effect acknowledged the force of that question by only claiming the difference between the sum of $225,000 and the conceded amount that was identified as having been received when they compromised the earlier proceedings they brought and resolved against the pest inspector.

As I have determined the issues calling for decision in this case against the plaintiffs, it becomes unnecessary for me to decide this last question. However, if it is ultimately found that I have erred in deciding the earlier questions arising in these proceedings, it is plain from my reasons, that if required, any residual quantum question can be readily resolved in an appeal as a consequence of my earlier finding on the reasonableness of the approach taken to the valuation issue.

I have concluded that whilst the work Mr Balfour had carried out on the house in response to detecting damage from past termite activity effectively concealed from view and visual inspection that there was such termite damage, except to the lower sub-floor area, he did so for aesthetic purposes, and not with the intention of deceiving prospective purchasers.

I have concluded that there were no relevant representations as claimed by the plaintiffs.

It is plain that when the Woods received a pest and building inspection report, they were on notice that there was suspected concealed termite damage in the house. I have concluded that in their enthusiasm to purchase the house, Mr and Mrs Wood chose not to follow up the recommendation made by their pest inspector that they have an invasive pest inspection of the house. I have concluded that they did so as a result of a limited and selective understanding of the contents of the pest inspector's report which recommended an invasive pest inspection as concealed termite damage to the timbers of the house was suspected.

I find that in taking that course, Mr and Mrs Wood undertook to themselves carry the burden of the combined effect of the maxim caveat emptor and the burden of the disclaimer within Special Condition 3 of the contract for sale of the property. This meant that they bore the risk that the house may have been affected by concealed termite damage, a risk that materialised from a state of latency to a state of patency, as became evident when they later commenced and proceeded to progressively undertake renovation work on the house.

Accordingly, although the extent of the termite damage ultimately uncovered in the house has become financially detrimental and burdensome to the Woods, in the context of the requirements for showing legal causation, I find that such financial detriment does not amount to damage caused or materially contributed to by, or arising from the alleged conduct of the Balfours, which the Woods have unsuccessfully sought to impugn as being a fraudulent misrepresentation, or deceitful.

The plaintiffs have failed to establish fraud, and therefore deceit, on the part of the defendants : Derry v Peek. In this regard, I have found that the defendants were neither fraudulent, reckless, careless or in any way dishonest, as is required to be shown according to the authorities I have cited at the outset of my judgment.

On the foregoing conclusions, I find that the plaintiffs have not made out their case of alleged deceit. The proceedings must therefore be resolved in favour of the defendants. It necessarily follows that the plaintiffs must pay the costs of the defendants.

I make the following orders: (a) Verdict and judgment for the defendants;

(b) The plaintiffs are to pay the costs of the defendants on the ordinary basis unless otherwise ordered;

(d) Liberty to apply on 7 days notice if further orders are required.

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CITATION: Wood & Anor v Balfour & Anor [2010] NSWDC 139

AIC Ltd v ITS Testing Services (UK) Limited [2006] EWCA Civ 1601; [2007] 1 All ER (Comm) 667 Akerhielm v De Mare (1959) AC 789 Angus v Clifford [1891] 2 Ch 449 Armstrong v Strain [1951] 1 TLR 856 at 871 Australian Steel & Mining Corporation Pty Limited v Corben [1974] 2 NSWLR 202 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 Civil Service Co-operative Society of Victoria Ltd v Blyth [1914] HCA 17; (1914) 17 CLR 601 Clancy v Prince & Ors [2001] NSWSC 85 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 CASES CITED: Derry v Peek [1889] UKHL 1; (1889) 14 AC 337 Edgington v Fitzmaurice (1885) 29 ChD 459 Gould v Vaggelos [1985] HCA 85; (1984) 157 CLR 215 Jennings v Zilahi-Kiss (1972) 2 SASR 493 John McGrath Motors (Canberra) Pty Ltd v Applebee [1964] HCA 1; (1964) 110 CLR 656 Krakowski v Eurolynx Properties Pty Ltd [1995] HCA 68; (1995) 183 CLR 564 Luxton v Vines [1952] HCA 19; (1952) 85 CLR 353 Oraka Holdings Pty Ltd v Leda Holdings (1997) ATPR 41-558 Oudaille v Lawson [1972] NZLR 259 Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 442

The plaintiffs, Mr and Mrs Wood, claim damages in tort for alleged deceit on the part of the defendants, Mr and Mrs Balfour, in connection with the purchase of a domestic dwelling : Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337.

Another re-statement appears in Clancy v Prince & Ors [2001] NSWSC 85, where at [61], Santow J conveniently summarised the principles for proof of a fraudulent misrepresentation as follows: "(1) To constitute a fraudulent misrepresentation, there must first be found all the elements of a misrepresentation.

(iv) a statement of law is not a representation of fact and could not therefore constitute a misrepresentation unless in stating what is necessarily an opinion (as to law) a person does not genuinely hold that opinion; falsely stating something as if it were one's opinion when it is not, is to make a misrepresentation of present fact, namely that one presently holds that opinion; see Oudaille v Lawson [1972] NZLR 259;

Fourthly, the suggestion that a thorough inspection was required, or that a pest controller should be contacted in 1983, assumes the problem was due to pest activity when that was not what Mr Balfour had understood at the time. Accordingly, in my view, the submission made on behalf of the plaintiffs in this regard represents a counsel of perfection driven by an impermissible hindsight analysis : Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 442 per Hayne J at [105].

I therefore see no cogent reason for rejecting the evidence of Mr Balfour as to the timing of his cladding and covering works that he described as having been carried out in 1999. In my view the submission that a termite alate swarm must have been observed "spewing" out of the timber, implying that the evidence of Mr Balfour was untruthful because he had not referred to it, is not the only inference available, and in my view it involves unwarranted speculation : Luxton v Vines [1952] HCA 19; (1952) 85 CLR 353.

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