When does innocent representation become actionable misrepresentation?

Timothy Bates of Auckland law firm Legal Vision.

Timothy Bates of Auckland law firm Legal Vision examines a case concerning the purchase of a leaky unit that invoked clauses in the Contract and Commercial Law Act.

This month’s article reviews the recent Court of Appeal decision of Ridgeway Empire Ltd v J Grant. This was an appeal by Ridgeway of the earlier High Court decision of Justice Palmer.

The brief facts of this case are summarised as follows:

A  Ms Grant purchased a residential unit from Mr Ridgeway in 2009.

B  Ridgeway Empire Ltd had owned the unit since December 2003, and its director (Mr Ridgeway) had lived in the unit since 2007.

C  Thereafter, he moved into the adjoining unit.

D  Mr Ridgeway marketed the sale of the unit. He showed Ms Grant through the unit and spoke to her directly about the unit.

E  Prior to entering into the purchase agreement, Ms Grant asked Mr Ridgway whether the unit leaked, and whether it was a leaky building.

F  He replied to the effect it did not leak and was not a leaky building.

G  Although Mr Ridgeway did not know it at the time, the unit was leaking and was a leaky building.

H  In early 2004, Mr Ridgway had carried out alterations to Unit 4 and discovered water had been leaking from the fourth floor deck. The wood was found to be wet but not rotten at that time. Mr Ridgway obtained a safe and sanitary report which recorded the deck was safe and sanitary.

I  This report was supplied by Mr Ridgeway to Ms Grant, but there was no explanation of the fact that repairs had been carried out because water was leaking from the deck above. The failure to disclose this fact was critical to the Court of Appeal’s eventual finding.

J  Significantly, the leaks ultimately discovered had their origins from this deck.

In the High Court, Justice Palmer found that the comments in F above by Mr Ridgway were an unqualified representation of fact which was false, though innocently made.

The Judge also found that the assurance was intended to induce Ms Grant to enter into the agreement to purchase, and she reasonably relied upon it in doing so.

In the High Court, Ms Grant was awarded:

damages of $474,101 being the repair costs, and

general damages of $25,000 for stress and anxiety.

On appeal, Mr Ridgeway argued that there was no actionable misrepresentation, with the statement in F being nothing more than opinion, not an actionable representation of fact.

He was merely stating his opinion based upon his experience of owning and living in the unit.

The court referred to section 35 of the Contract and Commercial Law Act 2017. The enquiry to be made was as to what a reasonable person would have understood from those words in the circumstances.

The court noted that where a party with superior knowledge takes it upon itself to make a representation of fact without qualifying it by reference to the basis for its assertion, it will generally have to accept the consequences of being wrong.

Ultimately, the Court of Appeal dismissed this ground of appeal and found that since Mr Ridgeway had made these unqualified representations of present fact, he must accept the consequences of them being shown to be false.

Even if the parties should be taken to have understood that Ms Grant was merely enquiring about Mr Ridgeway’s knowledge of weathertightness issues, the problem for Mr Ridgeway is that he did not disclose all material facts known to him.

He failed to tell her about the serious nature of these leaks from the past, but instead provided her with a safe and sanitary report which did not refer to these leaks.

Mr Ridgeway also argued on appeal that it was not reasonable for Ms Grant to rely upon these statements, because she ought to have done her own more thorough due diligence on the unit’s weathertightness or made the agreement conditional upon a building report.

This ground of appeal was also dismissed on the basis that the statements from Mr Ridgway in response to her question as set out in F was clear and unequivocal.

She relied upon this representation and this induced her to enter the contract.

The comment was made by the court that if Mr Ridgeway was to avoid liability in this instance, he would have had to have disclosed all material facts known to him, bearing on this issue.

The appeal was dismissed, and the damages amount was upheld, as Mr Ridgeway had not provided any evidence of betterment in the repair costs.

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision or Building Today to anyone who relies on the information contained in this article.

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