Members of the firm were involved in 2011 in two decisions of the Auckland High Court in relation to the Fair Trading Act 1986 (“FTA”).

MOK v BOLDERSON

In Mok v Bolderson (2011) 13 TCLR 209 (HC) (PDF), Fiona McLaren argued the appeal against a decision of the Weathertight Homes Tribunal (“WHT”), which had refused to find a pre-purchase inspector (“PPI”) liable to the purchaser of a home that turned out to be a ‘leaky’.  Surprisingly, this was the first time the High Court had been asked to consider a PPI’s liability in the leaky building context.  Whata J allowed the FTA part of the appeal, holding the PPI, Alan Bolderson, liable for 25% of the homeowner’s losses.

The Court found the Tribunal had applied the wrong test to FTA liability and held the report constituted “misleading and deceptive conduct” under s 9, both for what it did say and what it failed to say.  In a slightly curious twist, the negligent misstatement claim based on the same report was referred back to the WHT to make findings about liability and, more significantly, causation.

The facts

In 1999, Mr Mok and Mrs Ho were fairly recent immigrants and wisely cautious home buyers.  Upon finding a home they liked, they made its purchase subject to receiving a satisfactory pre-purchase inspection report from a builder.

Mr Bolderson was the sole director of House Inspections Limited.  He and his company had specialised in providing PPI reports for many years by 1999 and Mr Bolderson was a member of the Master Builder’s Association.

Mr Bolderson’s report identified some problems with the property, but considered it was overall “generally sound”. Mr Mok and Mrs Ho required the vendors to agree to repair the vast bulk of these problems (the others were not particularly significant) and proceeded to buy the property.

However, the report had failed to draw attention to the potential weathertightness implications of some of the attributes Mr Bolderson observed, such as cracks in the monolithic cladding.  Moreover, in parts the report was plain wrong, such as advising that there were flashings to windows when this was not always the case.

A few years later, Mr Mok and Mrs Ho found they had a major problem on their hands which was going to cost hundreds of thousands of dollars to fix.

The FTA claim

The Court made three significant findings regarding the FTA and its application in these circumstances:

1. The policy underlying the FTA is to “insist on acceptable standards of conduct by those in trade”. (Both sides agreed that the report was provided “in trade”);
2. The extent to which the report might be considered misleading was informed by its purpose, namely to “specifically advise the purchasers about the condition of the house so they could rely on it”.  It was insufficient to show that with the benefit of hindsight the report was wrong; the report’s limitations as to scope were relevant and its views were not guarantees;
3. The FTA’s policy objective was best achieved by “assessing whether the report was reasonably based on information available to an expert at the time of the inspection”. The Court expressly refused to apply “a supposed ‘industry standard’ of the time” and adopted an objective standard.

Applying an objective standard

The standard applied by the High Court was what a reasonable and prudent pre-purchase inspector ought to have known based on the information available.  This signalled a significant departure from the approach taken by the Tribunal which had rejected both claims against Mr Bolderson on the basis that the standard of the report was commensurate with other reports at that time and, indeed, the evidence suggested it was of a higher quality than most of its era.

The Court found that in 1999 – 3 years before the Hunn report came out – Mr Bolderson ought to have kept up to date with the information published by the building watchdog BRANZ, particularly as regards weathertightness concerns posed by monolithically clad houses.  By not doing so, Mr Bolderson could not say that his opinion was reasonably based on the information available to him.

The FTA remedy

The WHT had found the vendor, Blake Boyd, liable as the project manager in charge of building the house and had ordered him to pay slightly under $269,000.  However, Mr Boyd appeared to be insolvent, so Mr Mok and Mrs Ho were naturally eager to recoup their losses elsewhere.

In negligence claims, awards are sometimes reduced because a claimant is partly at fault.  Under the FTA, the Court can apportion liability for damages according to its assessment of a party’s culpability in relation to other parties, even if those other parties are not before the Court.  Although the majority of constructing parties had never been involved in the proceedings (many of the corporate parties had gone under), the Court found they were substantially the cause of Mr Mok and Mrs Ho’s loss.

Obviously such assessments are intensely discretionary.  In this instance, the Court considered 25% fairly reflected Mr Bolderson’s share of liability.

Conclusion

From a purchaser’s perspective, this case highlights the importance of having a suitably worded condition in a sale and purchase agreement where a building report is sought.  The clause must make it possible for the purchaser to discontinue the sale where a PPI suggests there is or could be a serious problem.  For pre-purchase inspectors this case is a warning that a failure to keep up to date with relevant, accessible information– the ‘Schultz defence’ ‘I know nothing’ is not a defence – however widespread that may be in the industry.

HAMID v ENGLAND & BARFOOT & THOMSON

Hamid & Ors v England & Ors (2011) 12 NZCPR 844 (HC) (PDF), another recent decision of Whata J in the Auckland High Court, illustrates how real estate agents can be held liable if they choose to withhold negative information they possess about a property they are marketing for sale.  Mike Thornton acted for the homeowners.

The facts

Recently married, Mr and Mrs Hamid were establishing their new home in Auckland.  They responded to a Barfoot & Thompson advertisement in the Property Press for the middle of three townhouses on a shared driveway on the North Shore.

The agent, Bruce England, was marketing the property on behalf of his family trust, but he did not personally own it.

The Hamids were cautious home buyers and aware of the leaky building crisis.  Upon asking Mr England if there had been problems with the property, he responded that the house had had “no leaks”, or words to that effect.  Mr England also made a written price comparison between the property he was marketing and the sale price achieved for the neighbouring townhouse without disclosing that the neighbour’s home had been fully reclad at vast expense just before it went on the market.

Most significantly, Mr England had obtained two building reports for the property, but only disclosed one report when the Hamids first came to see the property.  The other report showed a high moisture reading.

Reassured about the weathertightness of the property on the basis of the above, the Hamids (through family trusts) purchased the property.

The Hamids later discovered from the owner of the neighbouring townhouse that he had recently reclad his property because it was a leaky building.  They had to confront the probability that their townhouse was also a leaky building as it was built contemporaneously, to a similar design and with the same cladding materials.  This was eventually confirmed, to their horror.  The Hamids chose not to fix the house as they could not face this disruption, having recently retired.

The Hamids sued Bruce England, Barfoot & Thompson and the vendor (the trustee).

Was the agent and/or the vendor "in trade"?

The primary defence of all three defendants was that Bruce England had at all times made it clear that he was selling the property privately; if so, then even if he had misled and deceived the Hamids (which he denied), they had no remedy against him because he was never "in trade".

The circumstances advanced in favour of a private sale private were that the Hamids first saw the property briefly on TradeMe, which did not refer to Barfoot & Thompson (not disputed) and Mr Hamid’s alleged repeated insistence that the sale must proceed privately (strongly disputed).

Whata J had no difficulty disposing of this submission which was completely at odds with the facts, namely:

1. That the property had been advertised twice in the Property Press under the Barfoot & Thompson logo;
2. The Hamids went to the property during a Barfoot & Thompson open home advertised by a number of signs bearing Barfoot & Thompson’s logo; and
3. Mr England presented himself to them as a Barfoot & Thompson agent.

Whata J held that while the agreement for sale and purchase had indeed been marked “Private Sale”, this occurred after the alleged misleading and deceptive conduct by Mr England, which, if it had occurred, occurred while he was acting “in trade”.

However, Whata J held the vendor was not “in trade”, so was not bound by the Fair Trading Act, however misleading and deceptive Mr England’s conduct might have been.

Misleading and deceptive conduct

His Honour then considered the issue of whether Bruce England had misled and deceived the Hamids in breach of the Fair Trading Act.  There were two central allegations.

The first was the price comparison, but His Honour did not agree that it was misleading or deceptive.

The second key allegation was that Mr England’s failure to disclose the building investigation report containing the high readings was misleading and deceptive.  The Court agreed, particularly given this was coupled with Mr England’s assurance that the property did not leak.

The remedy

Barfoot & Thomson was found to be liable for Mr England’s actions as its agent as well as Mr England personally.

The court apportioned liability by holding Mr England liable for 80% of the Hamids’ losses and Barfoot & Thompson for 20%.

The defendants submitted that the Hamids had been careless in purchasing the property.  Whata J held that this was correct in relation to three issues:

1. Mr Hamid signed a private agreement which His Honour said should have put him on notice of the extent to which he could rely on what Mr England told him;
2. He was a sophisticated purchaser and ought to have known that he could not expect Mr England or Barfoot & Thompson to warrant the weathertightness of the property;
3. He relied mainly on the first moisture report, which Mr England did not author, in deciding to purchase the property.

As a result, the court deducted 25% from what the Hamids would otherwise have been awarded.

Conclusion

Agents must be cautious in statements they make to prospective purchasers. If they deliberately conceal negative information about a property, they may breach the Fair Trading Act.  Agents are now under a positive obligation to make all necessary enquiries as to the condition of a property.  It remains to be seen whether this, and the result in this case, will cause agents to lift their game in terms of their pre-sale behaviour.