Wood v Balfour
[2010] NSWDC 139
•9 July 2010
CITATION: Wood & Anor v Balfour & Anor [2010] NSWDC 139 HEARING DATE(S): 15, 16, 17, 18, 19, 22, 23, 24, 25, 26, 29 March and 27 April 2010
JUDGMENT DATE:
9 July 2010JURISDICTION: Civil JUDGMENT OF: Levy SC DCJ DECISION: 1. Verdict and judgment for the defendants;
2. The plaintiffs are to pay the costs of the defendants on the ordinary basis unless otherwise ordered;
3. The exhibits may be returned;
4. Liberty to apply on 7 days notice if further orders are required.CATCHWORDS: TORTS – action framed in deceit – purchase of domestic dwelling – premises affected by past termite activity – purchasers claimed vendors acted fraudulently to cover up and conceal damage due to past termite activity to induce purchasers to buy – whether deceit established – relevance of maxim of caveat emptor – operation of Special Condition 3 of contract for sale – standard of proof required to establish deceit – equivalent to an allegation of fraud - DAMAGES – measure of damages – valuation of property assuming no termite damage compared to valuation taking into account termite damage. LEGISLATION CITED: Evidence Act 1995, s 135 CASES CITED: 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
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 442TEXTS CITED: Spencer Bower, Turner and Handley, Actionable Misrepresentation, 4th ed (2000) Butterworths
Stonham, Vendor and Purchaser, (1964) Law Book Co and Williams, Vendor and Purchaser 4th ed, Lightwood, Sweet & MaxwellPARTIES: Lee Darryl Wood (First plaintiff)
Lesley Jayne Wood (Second plaintiff)
David John Balfour (First defendant)
Judith Yvonne Balfour (Second Defendant)FILE NUMBER(S): 4285 of 2008; 2008/319042 COUNSEL: Mr E White (Plaintiffs)
Mr D Rayment (Defendants)SOLICITORS: Robilliard & Robilliard (Plaintiffs)
Redmond Hale Simpson (Defendants)
Table of Contents
A. INTRODUCTION Nature of the case [1] Factual background [2] – [6] Issues for determination [7] – [8] Elements of the tort of deceit [9] – [13] Credibility of testimony [14] Summary of findings [15] – [19] B. EVIDENCE REVIEW Overview of evidence [21] – [24] Pre-purchase pest and building inspection report [25] – [56] Overview of exhibits [57] – [59] Summary of oral and affidavit evidence [60] – [247] Non-expert evidence
[61]
Mr Lee Wood
[62] – [133]
Mrs Lesley Wood
[134] – [149]
Mrs Christine Doyle
[150] – [151]
Mr David Balfour
[152] – [220]
Mrs Judith Balfour
[221] – [231]
Mr John Balfour
[232] – [235]
Mr John Redding
[236] – [239]
Ms Kim Balfour
[240] – [241]
Mr Nick Rubbi
[242] – [244]
Mr Alan Green
[245] – [247] Expert evidence
[248] – [317]
Mr Shane Clarke
[249] – [266]
Mr Anthony Capaldi
[267] – [294]
Mr Geoffrey Doble
[295] – [307]
Mr Kenneth Adams
[308] – [317] C. FINDINGS ON ISSUES CALLING FOR DECISION Consideration of Issue 1 – Discovery by plaintiffs of termite damage [319] – [333] Consideration of Issue 2 – Covering works carried out by defendants [334] – [382] Consideration of Issue 3 – Whether covering work was concealment [383] – [410] Consideration of Issue 4 – Whether there was a relevant representation [411] – [421] Consideration of Issue 5 – Identity of representees [422] – [429] Consideration of Issue 6 – Whether defendants had a duty to disclose [430] – [448] Consideration of Issue 7 – Whether non-disclosure was a representation [449] – [476] Consideration of Issue 8 – Caveat Emptor and Special Condition 3 [477] – [491] Consideration of Issue 9 – Alleged false representation [492] – [498] Consideration of Issue 10 – Knowledge of termite damage by defendants [499] – [515] Consideration of Issue 11 – Intention of the defendants [516] – [527] Consideration of Issue 12 – Alleged reliance by plaintiffs on representation [528] – [548] Consideration of Issue 13 – Quantum of damages [549] – [556] Conclusions concerning alleged deceit [557] – [562] D. DISPOSITION & ORDERS Disposition [563] Orders [564]
A. INTRODUCTION
Nature of case
1. 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.
Factual background
2. On 13 August 2004 the Woods purchased from the Balfours a domestic dwelling house in Kareela, NSW. The house in question had been owned, and continuously occupied by the Balfours, for 24 years from the time it was built in 1980 until the time it was purchased by the Woods. Following the sale and purchase, the Woods discovered that the house was considerably more affected by termite damage than they originally thought might have been the case.
3. The Woods claimed that key indicators to the termite damage that they ultimately found to affect the house had been deceitfully concealed prior to the sale. That claim was denied by the Balfours, who acknowledged that there had been past termite activity in the house which had been treated, and that there had been cosmetic work undertaken to cover the damage.
4. The Woods claimed that before the sale to them, the Balfours had undertaken “non-genuine” cosmetic repairs in three areas of termite damage to timbers within the house. The Woods claimed that, with fraudulent intent, the Balfours concealed from view the nature and extent of the termite damage to the house, such that the Woods were induced into purchasing the property for a valuation that was in excess of the true market value. The Balfours denied any such fraudulent conduct.
5. In their defence to the claim by the Woods, the Balfours relied upon a number of factual matters, as well as upon the maxim of caveat emptor. They also rely upon Special Condition 3 of the contract for sale which acknowledged that the Woods relied upon their own inquiries and not any representations that may have been made to them. The Woods had previously taken proceedings to recover damages from the author of a pre-purchase pest and building report that had been commissioned by them before they entered into the contract for sale to the purchase of the house, claiming they had been misled by that report.
6. In view of the allegations of fraud made by the plaintiffs, this has necessarily required that I incorporate into my judgment a detailed exposition of the factual and opinion evidence given by the respective witnesses, before setting out my findings on the issues calling for decision.
Issues for determination
7. I consider that the following distillation of the issues pose the relevant questions for determination in this case:
Issue 1: The timing, nature and extent of the termite damage found on the serial inspections carried out on the premises after the purchase of the property by the plaintiffs. My findings on this issue are set out between paragraphs [319] to [333] of these reasons;
Issue 2: The timing, nature and extent of the work undertaken by the defendants to cover the visibility of termite damage in the premises before the sale to the plaintiffs. My findings on this issue are set out between paragraphs [334] to [382] of these reasons;
Issue 3: Whether the work undertaken by the defendants to cover the visible signs of termite damage to the affected parts of the premises should be characterised as concealment work, and if so, in what sense should it be described as concealment work. My findings on this issue are set out between paragraphs [383] to [410] of these reasons;
Issue 4: Did the alleged concealment work in the three particularised areas of the premises constitute a representation by the defendants that those parts of the premises were free from termite damage, and if so, when did the claimed representation relevantly arise. My findings on this issue are set out between paragraphs [411] to [421] of these reasons;
Issue 5: Identification of the relevant representees of the claimed representation. My findings on this issue are set out between paragraphs [422] to [429] of these reasons;
Issue 6: On a consideration of the timing of the work carried out by the defendants, and assuming the defendants reasonably believed that repairs had been carried out adequately, were the defendants under any legal duty to disclose the repairs of the termite damage to the plaintiffs. My findings on this issue are set out between paragraphs [430] to [448] of these reasons;
Issue 7: Whether non-disclosure by the defendants that they had carried out the alleged concealment work amounted to the alleged representation. My findings on this issue are set out between paragraphs [449] to [476] of these reasons;
Issue 8: Does the principle of caveat emptor or Special Condition 3 of the contract for the sale of the property operate to exclude or to otherwise abrogate any duty, which might otherwise have arisen on the part of the defendants to disclose the repairs to the termite damage. My findings on this issue are set out between paragraphs [477] to [491] of these reasons;
Issue 9: If the representation was made as claimed, was it false, having regard to the condition of the property as at 13 August 2004. My findings on this issue are set out between paragraphs [492] to [498] of these reasons;
Issue 10: If the claimed representation was false to the knowledge of the defendants, did the defendants know that the premises had any serious termite damage; if so, did the defendants know that they were making a representation to the contrary; did the defendants believe that there was any problem with the work that they had performed on the premises to cover visible signs of termite damage. My findings on this issue are set out between paragraphs [499] to [515] of these reasons;
Issue 11: If the representation was made by the defendants as is claimed by the plaintiffs, was it made with the intention that it be relied upon by the plaintiffs. My findings on this issue are set out between paragraphs [516] to [527] of these reasons;
Issue 13: Did the plaintiffs suffer damage caused by reliance on the alleged representation. My findings on this issue are set out between paragraphs [549] to [556] of these reasons.Issue 12: Did the plaintiffs act in the reliance of the alleged representation; what was the effect on the plaintiffs of the retention by them of a pest inspector prior to entry by them into the contract for sale for the purchase of the property; what was the relevance of the pest inspector’s pre-contract report which revealed that he suspected the existence of “concealed termite damage” to the dwelling. My findings on this issue are set out between paragraphs [528] to [548] of these reasons;
8. Each of these issues bears close examination.
Elements of the tort of deceit
9. The tort of deceit is a form of misrepresentation that “has been held to lie whenever one person, by a knowingly false statement, intentionally induced another to act upon it to his detriment” : Fleming, JG, The Law of Torts, 9th ed, 1998, p 695. In this case there was controversy over the role of silence as a form of representation in the tort of deceit.
10. The principle in Derry v Peek has been consistently followed and applied with re-statement and refinement. A recent UK Court of Appeal re-statement appears in AIC Ltd v ITS Testing Services (UK) Limited [2006] EWCA Civ 1601; [2007] 1 All ER (Comm) 667, where at [256]-[257] Rix LJ stated:
“256. As for the element of dishonesty, the leading cases are replete with statements of its vital importance and of warnings against watering down this ingredient into something akin to negligence, however gross. The standard direction is still that of Lord Herschell in Derry v. Peek (1889) 14 App Cas 337 at 374:
"First, in order to sustain an action in deceit, there must be proof of fraud and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it be true or false."
257. In effect, recklessness is a species of dishonest knowledge, for in both cases there is an absence of belief in truth. It is for that reason that there is "proof of fraud" in the cases of both knowledge and recklessness. This was stressed by Bowen LJ in Angus v. Clifford [1891] 2 Ch 449 where he said (at 471):
"Not caring, in that context, did not mean not taking care, it meant indifference to the truth, the moral obliquity of which consists in a wilful disregard of the importance of truth, and unless you keep it clear that that is the true meaning of the term, you are constantly in danger of confusing the evidence from which the inference of dishonesty in the mind is to be drawn – evidence which consists in a great many cases of gross want of caution – with the inference of fraud, or of dishonesty itself, which has to be drawn after you have weighed all the evidence."
258. And in Armstrong v. Strain [1951] 1 TLR 856 at 871 Devlin J, after a full citation of passages in earlier authorities which stress the need for dishonesty (also called actual fraud, mens rea, or moral delinquency), said this about the necessary knowledge:
"A man may be said to know a fact when once he has been told it and pigeon-holed it somewhere in his brain where it is more or less accessible in case of need. In another sense of the word a man knows a fact only when he is fully conscious of it. For an action of deceit there must be knowledge in the narrower sense; and conscious knowledge of falsity must always amount to wickedness and dishonesty. When Judges say, therefore, that wickedness and dishonesty must be present, they are not requiring a new ingredient for the tort of deceit so much as describing the sort of knowledge which is necessary."
259. Moreover, whether it is in the matter of identifying the relevant misstatement or in the finding of a dishonest mind, it is necessary to bear in mind the heightened burden of proof which bears on the claimant…”
11. 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.
(2) The elements of misrepresentation are as follows:
(i) there must be a statement or conduct conveying a representation which is false in not according with the true facts, past or present;
(ii) thus a promise or assurance for the future cannot be presently true or false, and does not of itself constitute a misrepresentation; see, for example, Civil Service Co-operative Society of Victoria Ltd v Blyth (1914) 17 CLR 601;
(iii) however statements of intention or opinion are capable of being a misrepresentation and indeed fraudulent, where the state of the maker’s mind is not consistent with them, so that the person does not hold the opinion professed; Edgington v Fitzmaurice (1885) 29 ChD 459 where Bowen LJ said (at 483) “a misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact”;
(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;
(v) while mere non-disclosure of facts, even facts material and important, is not itself a misrepresentation, a misrepresentation is capable of being found not only in some positive statement but also in conduct intended to convey a particular impression which is false or where a statement is literally true but, because it does not tell the whole truth, gives a false impression; see for example Jennings v Zilahi-Kiss (1972) 2 SASR 493 per Bray CJ at 507-8 who held that a fraudulent misrepresentation was found where units were described as flats without revealing that they were registered as a lodging house and governed by a requirement which precluded cooking on the premises for “a flat in which one cannot lawfully cook is not, in my opinion, a flat at all”;
(vii) the representation must be of a material fact such that, in the case of fraud, the representation must be a real inducement to the party claiming reliance; see for example, Australian Steel & Mining Corporation Pty Limited v Corben [1974] 2 NSWLR 202.”(vi) the representor must have intended the representee to rely upon the representation, as for example in inducing the representee to enter into a contract, reliance being a question of fact with the burden of proof resting upon the person claiming the misrepresentation; and
(3) For a misrepresentation to be also fraudulent, it must be shown that, “a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false”; Derry v Peek (1889) 14 App Cas 337 at 374 per Lord Herschell.(5) Fraud must be distinctly alleged and proved according to a civil standard of proof, with the standard of proof rising with the gravity of the imputation.”(4) So if a representor deliberately shuts his eyes to a fact or purposely abstains from its investigation, the representor is not honest and he is just as liable as if he had knowingly stated a falsehood; Derry v Peek (supra) at 376.
12. I shall respectfully follow these statements of principle.
13. The standard of proof of deceit, as with fraud, is the civil standard on the balance of probabilities. In the context of this case, proof of an allegation of fraud will require a high degree of satisfaction on the civil standard : Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336.
Credibility of testimony
14. In my assessment, all of the witnesses who gave evidence in the proceedings, including the interested parties, did so truthfully and honestly, to the best of their respective abilities and knowledge of the relevant facts. The determination of the issues in this case was dependent on the interpretation to be placed on the juxtaposition of events and circumstances. The differing perspectives of the events in question have obviously influenced the respective positions the parties adopted towards the issues in the litigation. At the outset, counsel for the defendants identified the ultimate issue to be that one man’s repair is another man’s concealment. I have analysed these differing perspectives when arriving at my findings on the issues calling for decision.
Summary of findings
15. I have summarised my findings on the matters calling for decision as follows.
16. During the course of carrying out renovations to the house, the Woods discovered termite damage to beams, joists and to a rafter. That damage had beforehand been concealed and was not apparent on a superficial non-invasive visual inspection of these structures. The work on these structures in the house was carried out by Mr Balfour in the period 1999-2000. Whilst the work in question could be properly characterised as work carried out in order to conceal termite damage, in the circumstances, I do not consider that such concealment work amounted to a representation, either generally, or to the Woods in particular, that the house was free of termite damage.
17. I have concluded that the work in question was reasonably described as repair work. I have concluded that, in the circumstances, the Balfours were under no legal duty to disclose to the Woods, the fact that such work had been undertaken. In my view, the maxim of caveat emptor or buyer beware applied to the circumstances to negate any such claimed legal duty, as did Special Condition 3 of the contract for sale of the property, which specifically acknowledged that the Woods were not relying upon any representations made to them by the Balfours.
18. I have concluded that no false representations were made to the Woods as has been claimed, either with the intention to deceive as claimed, or otherwise. I have found that the Woods relied on their own judgments and interpretation of the expert pest control advice they had commissioned, and therefore in the legal sense, as distinct from the factual sense, I have found that the Woods have suffered no recoverable loss. For these reasons I have determined the issues calling for decision in favour of the defendants.
19. My review of the oral and affidavit evidence is located between paragraphs [60] to [317] of these reasons.
B. EVIDENCE REVIEW
20. In the paragraphs that follow, I set out my summary of the review of the evidence.
Overview of evidence
21. The evidence was largely presented in affidavit form but there was extensive cross-examination. The case proceeded over 12 days, including a day set aside for the reading of the voluminous tendered materials, photographs and reports that were tendered. In addition to the compendious exhibits and numerous photographs exhibited to these affidavits, the parties relied upon the contract for sale entered into between them. There were 14 affidavits read.
Affidavit evidence
22. The 7 affidavits read in the case for the plaintiffs comprised:
(a) The affidavit of Lee Darryl Wood, sworn on 13 February 2009;
(b) The affidavit of Lee Darryl Wood, sworn on 9 September 2009;
(c) The affidavit of Lesley Jayne Wood, sworn on 15 February 2009;
(d) The affidavit of Anthony Capaldi, a builder, sworn on 16 February 2009;
(e) The affidavit of Shane Maxwell Clarke, a pest inspection expert, sworn on 10 September 2009;
(g) The affidavit of Geoffrey Doble, an engineer, sworn on 4 September 2009.(f) The affidavit of Kenneth Adams, a valuer, sworn on 4 February 2009;
23. The 7 affidavits read in the case for the defendants comprised:
(a) The affidavit of David Balfour, sworn on 17 April 2009;
(b) The affidavit of Judith Balfour, sworn on 17 April 2009;
(c) The affidavit of John Balfour, the defendants’ son, sworn on 13 April 2009;
(d) The affidavit of Kim Balfour, the defendants’ daughter, sworn on 9 April 2009;
(e) The affidavit of John Redding, sworn on 14 April 2009;
(g) The affidavit of Nick Rubbi, sworn on 5 February 2009.(f) The affidavit of Alan Green, sworn on 14 April 2009;
Oral evidence in plaintiffs’ case
24. Not all of the affidavit evidence was the subject of challenge by cross-examination. Oral evidence was adduced from the following 12 witnesses:
(a) Mr Lee Darryl Wood, the first plaintiff;
(b) Mrs Lesley Jayne Wood, the second plaintiff;
(c) Mrs Christine Doyle; a resident in a neighbouring property;
(d) Mr Anthony Capaldi, a consultant builder engaged by the Woods;
(e) Mr Jeffrey Doble a consultant civil engineer engaged by the Woods;
(g) Mr Shane Maxwell Clarke, a pest consultant engaged by the Woods;(f) Mr Kenneth Charles Adams, a consultant valuer engaged by the Woods;
(h) Mr David John Balfour, the first defendant;
(i) Mrs Judith Yvonne Balfour, the second defendant;
(k) Mr John Redding, a neighbour and cousin of Mr Balfour.(j) Mr John Balfour, the eldest son of the defendants;
Pre-purchase pest and building inspection report
25. The affidavit of Mrs Wood, sworn on 6 July 2006, annexed a report from Ausinspect dated 11 August 2004. That report was described as a “non-destructive property and pest inspection report.” That report, which followed the pre-purchase inspection of the house by Mr Stephen Koelewyn, comprised 65 pages of closely typed comments arising from the inspection of the house carried out at the request of the Woods. The report was printed in different coloured inks at various sections.
26. The sections of the report that were printed in green ink denoted the area so described to be satisfactory. Sections printed in black ink were denoted to be acceptable, or alternatively, where improvements were recommended but not necessarily required. Sections printed in blue ink denoted a need for monitoring and repair and denoted a fair or below average standard. Sections printed in red ink denoted that components of the house were either poor and well below average and needing attention, or were of major concern, denoting significant deficiencies or defectiveness requiring correction or denoting safety issues where a component or condition of the house was considered to be unsafe and in need of attention. In some ways this colour-coded system created some scope for confusion to the reader of the report. There were considerable portions of the report printed with red text.
27. Since the Ausinspect pest inspection report looms large in the consideration of the issues in this case, despite the detail necessarily involved in the exercise, I consider it relevant and important to set out in the paragraphs that follow, the relevant references within the report to suspected or concealed termite damage, together with the context of those references.
28. The pest inspection report comprised two parts. The first part was entitled “Pre-purchase Property Inspection Report” and was located between pages 3 and 25 of the report. The second part was entitled “Non-destructive Structural Pest Inspection Report” and was located between pages 39 and 56 of the report. The remaining pages of the report comprised captioned photographs, some generalised pest information and a detailed glossary of terms.
29. The first page of the pest inspection report, which comprised a summary page, relevantly stated : “These are brief summaries only and should not be relied upon without reading the full detailed report and the full detail of each item in the body of the report.” Within that brief summary there was printed in red ink, terms such as “Termite Damage – Apparent”; “Termite - Conducive conditions observed”, “Termite treatment – Recommended” and “Ant Capping - Partially Unsatisfactory.”
30. These items on the summary page were annotated with cross-references to particular pages located within the report. In addition, the second bullet point on the summary page was printed in black ink and stated : “The structure appears to have settled over time and is not plumb and square, concealed termite damage suspected.”
31. Page 6 of the report comprised a table of contents that noted 76 sections to the report. There were numerous references within the report to termite issues.
32. Page 8 of the report made reference to “concealed termite damage suspected” in juxtaposition to a reference to the structure of the building having settled over time and not being plumb and square : Paragraph 4.2. On the same page the report stated “Mature well-established trees and stumps within close proximity (50 metres) of inspected structures should be test drilled for inspection and the possible location of termite nests”: Paragraph 5.1.
33. Page 9 of the report referred to the kitchen flooring being in need of repair and stated “conceded (sic for concealed) termite damage is suspected” : Paragraph 5.21.
34. Page 10 of the report made mention of the possibility of moisture in some locations being possible sites which could attract termite damage : Paragraphs 5.46 and 5.47. On the same page, reference was made to timbers attached to the external walls having direct contact with the ground, suggesting that “termites could go undetected” : Paragraph 5.71.
35. Page 11 of the report referred to the finished level of paths attached to the external walls as being finished above the damp course and the internal floor levels, the suggestion being that “termites could go undetected” : Paragraph 5.77. Similar termite related remarks were made with respect to the location of a metal garden shed against the western wall of the house : Paragraph 5.78. On the same page reference was made to some ant capping, variously described as being incompletely soldered and being corroded, suggesting that termites could gain concealed entry to flooring timbers in the house : Paragraphs 5.84 and 5.85. On the same page reference was made to “…Markings that are similar to markings of termite mod (sic for mud) trails that have been cleaned were observed within the sub-floor”: Paragraph 5.88. On the same page, reference was made to plant roots and other plant matter having been observed under the building and it was noted that termites “could use roots or other plant matter to gain, concealed entry and/or to breach existing termite barriers” : Paragraph 5.90.
36. Also on page 11, reference was made to significant amounts of creosote which was suspected as having been “used to control termites and possibly concealed past termite workings” : Paragraph 5.92. Again, on the same page, reference was made to the north wall of the sub-floor of the premises having “a significantly higher risk of concealed termite entry to timber framing of dwelling” as well as a reference to the possibility that “termite damage may have gone undetected to the high side of the sub-floor” : Paragraphs 5.95 and 5.96.
37. Page 12 of the report referred to a stump under the front timber decking as having “evidence of past termite damage” and having been “coated with creosote” : Paragraph 5.98. On the same page reference was made to “decking timbers have ground contact and termites could go undetected” : Paragraph 5.99. On the same page there was a reference to the effect that the “sandstone retaining wall against the base of front wall could provide termites with concealed entry points” : Paragraph 5.101. On the same page, referring to timber floor framing that had been treated with creosote in numerous areas the report stated “It is suspected that attempts have been made to conceal the fact that past termite damage exists” : Paragraph 5.102.
38. Page 12 of the report also made reference to the fact that although actual termite activity was not observed at the time of inspection, past termite damage was in fact observed at the time of inspection and “it is suspected that concealed termite damage may exist and further invasive inspection should be considered to determine if termite damage and/or termite activity exists” : Paragraphs 5.103 to 5.105. Page 12 of the report also made reference to the results of thermal imaging carried out by the pest inspector. It was noted that “Walls had multiple thermal inconsistencies and the “timber joists of rear timbre (sic for timber) decked balcony have deep decay apparent in timber sections when viewed thermally” : Paragraphs 5.111 and 5.112.
39. At page 13 the report stated “Termite damage to the concealed wall frames is suspected” : Paragraph 9.5. In this regard, the pest inspector annotated the report to state that it was not possible to comment upon the condition of the concealed timber wall frames, noting that it was possible that concealed damage to the timber frames may exist and would only become evident if or when linings were removed, or where possible, with the aid of non-destructive inspection equipment to gain access to those areas.
40. Page 14 of the report referred to the kitchen as having cork flooring with evident bounce and creaks of concern, noting that “concealed termite damage is suspected” : Paragraph 14.3.
41. Page 16 of the report referred to the surrounds of the ensuite shower tap spindles needing proper sealing because “Moisture to this location could attract concealed termite damage” : Paragraph 19.9.
42. Page 20 of the report identified timbers attached to the external walls having direct contact with the ground and suggested that this was a site where “termites could go undetected”. Attention was also drawn to the dampcourse soil levels at the external wall where “termites could go undetected” and where there was an area of accumulated silt at a drainage place that needed to be cleared because there was “a high risk of termite entry to the timbers of building” : Paragraph 31. On the same page, attention was drawn to the sub-floor timbers needing to be removed because this was a location which “could attract and/or conceal termite damage and/or activity” and where it would be prudent to consider “a termite preventative treatment because if termite activity is concealed in timbers these termites may cause future damage”. In addition, attention was also drawn to the limited access available to the high side of the sub-floor due to limited clearance, suggesting “termite damage may have gone undetected at the time of inspection” : Paragraph 35.
43. Page 21 of the report made the observation that “Timber framing has direct contact with the ground and termites could go undetected” and the presence of creosote was noted to have been used, it having been a form of termite treatment. Attention was also drawn to the south/east corner of the sub-floor having damaged timber sections and being in need of repair. Reference was again made to problems with the ant capping where “termites could go undetected.” Reference was again made to plant roots and plant matter observed under the building, which could be a means by which termites could “gain concealed entry” to the premises. On that page, attention was also drawn to the timber floor framing having been treated with creosote in numerous areas, noting the suspicion that “attempts have been made to conceal the fact that past termite damage exists” : Paragraphs 35.6 to 35.20.
44. Page 22 of the report identified settlement of the building over time as having occurred and as having been considered to be excessive, leading to the recommendation that the ground stability should be tested by a geo-technical engineer : Paragraph 36.6. On the same page, attention was drawn to the presence of timber garden sleepers and/or timber retaining walls having direct contact with the ground and in places where termite activity could be concealed, as these places would naturally attract termites. On the same page, attention was also drawn to plant growth over the carport area which “could have provided termites with concealed entry to carport timbers” : Paragraph 40.3.
45. Page 23 of the report identified the external timbers of the decking having “ground contact and termites could go undetected” : Paragraph 42.3. On the same page, the stump under the front deck was identified as having “evidence of past termite damage, the stump has been coated with creosote” : Paragraph 42.5.
46. Between pages 25 and 38 of the pest inspection report, there are many photographs of the property with incorporated captions that illustrated the observations made by the pest inspector, and which were detailed in the report. Some of those photographs variously make mention of possible or suspected or undetected termite activity, or the risk of such activity : Pages 27, 29, 30, 34, 35, 36 and 37.
47. In the non-destructive structural pest inspection section of the report, paragraph 54 identified and explained those areas of the dwelling which were either not inspected, or where visual inspection was limited, because of the nature of the access due to its design and construction.
48. Relevantly, paragraph 55, which dealt with visual evidence of dormant/inactive subterranean termites, stated:
“ 55 Visual Evidence Of Dormant /Inactive Subterranean Termites:
55.1 Termite Damage –Apparent
55.2 Visible evidence of dormant/Inactive termite activity was sighted at the time of the inspection, due to our observation of conditions conducive to termite activity and/or concealed termite entry at the time of our inspection, a real possibility exists that termite damage does exist as documented research carried out in 1982-83 shows that at least 1 in 5 New South Wales properties have a history of termite damage (Hadlington & Gerozisis), if aged termite damage is inactive and dry then current termite detection technology is generally unable to detect this dormant/inactive termite damage .”
49. At page 41, the report stated that there was no visual evidence of current termite activity found at the time of inspection : Paragraph 56. The annotations to that paragraph made it clear that where visual evidence of inactive termite workings and/or damage was located, it was possible that termites may still be active in the immediate vicinity.
50. At page 42 the report outlined the limitations of the inspection undertaken because of covered or exposed but inaccessible parts of the woodwork within the dwelling. On the same page, the report “strongly recommended” an invasive termite inspection due to termite damage having been observed, highlighting the need for a determination of “the full extent of the termite damage and to determine the location of entry points and to endeavour to locate any termites nest.” In this regard the report highlighted that “Damage may only be found when wall linings, cladding or insulation are removed to reveal previously concealed timbers” : Paragraphs 56.4.5 and 56.4.6.
51. Page 43 of the report referred to the dwelling being at “a higher than normal risk of possible termite activity at sometime in the future” : Paragraph 57.1. On the same page, it was noted that there were areas in the house that were conducive to subterranean termites : Paragraph 59. In particular, the report stated that all areas “not accessible and/or obstructed for inspection are to be considered as conducive” to termite activity : Paragraph 59.3.
52. Within the 47 sub-paragraphs of paragraph 59 of the report, there was repeated mention of termite related issues ranging from conditions conducive for termites, suspected termite damage, conditions possibly attractive to termites, conditions that may permit termites to go undetected, conditions obstructing visual inspection to detect termites, the potential high risk for termite entry into the timbers of the building, markings consistent with termite trails having been cleaned away from the sub-floor, the past use of creosote so as to control termites and to possibly conceal past termite workings, concealed entry points for termites and observed termite damage. That observed damage was stated to relate to the tree stump located under the front deck.
53. Of particular interest in paragraph 59 of the report were the following matters :
“ 59.39 Timber framing has had what appears to be creosote applied in numerous areas. It is suspected that attempts had been made to conceal the fact that past termite damage exists .
59.40 It is suspected that concealed termite damage may exist and further invasive investigation should be considered to determine if termite damage and/or termite activity exists.
…
59.44 Concealed termite damage to framing of dwelling is suspected.
59.46 Kitchen flooring appears to have concealed termite damage when viewed thermally.
[ Emphasis added ]59.47 Walls had multiple thermal inconsistencies .”
54. Page 49 of the report made reference to a recommendation for a more invasive physical inspection of the house. The report indicated the availability of such an inspection for a fee. The report indicated that there were many limitations to an inspection that was only non-destructive in nature. The more invasive types of inspection were described as involving tapping, testing, forcing or gouging of suspected accessible timbers, including by cutting access holes to relevant structures. That sort of testing required the consent of the owner of the property and involved extra expense, ranging from an extra $600 to an extra $1500, apparently not including any make good costs : Paragraph 62.1.
55. Page 51 of the report indicated that many types of construction styles could not enable the ready detection of termites, as the design of some properties were such that detection of termites by a pest inspector was made difficult, if not impossible : Paragraph 64.8.
56. The report indicated that the visual inspection revealed no apparent borer activity : Paragraph 66 on page 52. The report went on to identify the presence of localised wood decay fungi on some external timbers, some partially unsatisfactory and corroded ant capping, as well as inadequate sub-floor ventilation : Paragraph 67 on page 53, paragraph 70 on page 54 and paragraph 71 on page 55.
Overview of exhibits
57. The Woods’ exhibits were tendered in the series “A” to “Y”. The defendants’ exhibits were tendered in the series “1” to “11”.
58. The Woods tendered a number of pieces of timber and related structures that had been removed from the house during the course of the post-purchase investigation of the extent of the termite damage. In addition a number of pre and post-purchase photographs were tendered, as were pre and post-purchase pest inspection reports.
59. The Balfours tendered a number of photographs, the Contract for Sale of the property, two pre-purchase pest inspection reports and a list of works undertaken by the plaintiffs since the purchase of the property. The defendants also tendered as Exhibit “10”, a piece of timber that was removed by the plaintiffs and which formed part of the plaintiffs’ Exhibit “F”.
Summary of oral and affidavit evidence
60. In the paragraphs that follow I set out my overview summary of the non-expert and the expert evidence.
Non-expert evidence
61. My review of the non-expert evidence proceeds in the order in which that evidence was adduced.
Mr Lee Wood – first plaintiff
62. The first plaintiff, Mr Wood, stated that he inspected the house before the contract for sale was exchanged on 13 August 2004. Mr Wood believed that he had inspected the house twice before the purchase. He had signed the contract for sale on 11 August 2004, which was about a week after first seeing the house. He stated that he liked the position of the house, its location, the particulars of the house and the fact that it was close to friends who lived in the area. He also agreed that his wife liked the house because of what it had to offer their family. He agreed that before deciding to buy the house, they considered and decided upon carrying out some renovations to it, with the assistance of his father. He swore three affidavits and he also gave oral evidence.
63. Mr Wood is a civil engineer. At the time of the exchange of contracts, he had some 26 years of experience in civil engineering projects as a project manager. In that capacity his work involved him in carefully reading reports on construction-related matters. It emerged by way of background that Mr Wood had some experience of termites, having used preventative termite treatments in the form of termite sprays before July 2004. He stated that he was aware that termites could be difficult to detect, that they ate wood, lived within wood and that they could travel along the stand of a piece of wood.
64. The first affidavit from Mr Wood was sworn on 13 February 2009. That affidavit annexed another affidavit that he had previously sworn on 6 July 2006 in earlier proceedings that he and Mrs Wood had taken against the pest and building inspector who carried out the pre-purchase inspection on the house. The 6 July 2006 affidavit of Mr Wood annexed a series of 4 photographs showing views of timber within the house. The 13 February 2009 affidavit also annexed a builder’s plan of the house and 42 coloured photographs of the timbers and structures of the house that are relevant to the issues in the case. There was a further affidavit from Mr Woods sworn on 9 September 2009, which he had prepared in response to the affidavits sworn by the defendants. Mr Wood also gave oral evidence. He was extensively cross-examined.
First affidavit of Mr Wood – 6 July 2006
65. In the 6 July 2006 affidavit from Mr Wood, which was prepared for the purposes of pursuing his earlier claim against the pest and building inspector, he set out the background to the purchase of the house from the defendants. Mr Wood said that it was in late July 2004 when he became aware, from his wife, of the house being for sale. After inspecting the house with his wife and with his father, who was a retired carpenter, he obtained a pest and building inspection report and reviewed the detail of that report. His assessment of the report at the time was that it appeared to be professional, well set out and contained a good deal of information that would allow him to come to an understanding of possible faults and repairs required for the house. The report, which numbered 65 pages, was printed in a colour-coded style of presentation.
66. Mr Wood said that from his reading of the report, he gained an understanding, amongst other things, that the inspector had reported that concealed termite damage in the house was suspected. He stated that the manner in which he read the report, by which he saw that there were no references, printed in red ink, to actual termite damage to the house, he assumed that no serious defects or concerns were identified because otherwise, they would have been written up in red, according to his understanding of the style of the construction of the report. He noted that the report had described termite damage to the sub-floor area and suspected damage to the kitchen floor area but that description was given without an indication as to severity of damage. To the extent that the report identified rotting in timber balconies, Mr Wood stated that he did not regard that to be significant, as he had already formed the intention to remove and replace those parts of the timberwork of the house during proposed renovations he had planned.
67. At paragraph 20 of his 6 July 2006 affidavit, Mr Wood set out some references to the places in the pest inspection report where past and possibly concealed termite damage was mentioned. He explained that he assumed from the report that the extent of the termite damage was limited to the sub-floor area of the house, and that it may have extended up into the joists of the kitchen floor. He inferred from this that the non-identification of termite damage to other areas in the house, such as the exposed timber beams, gave him comfort that these elements must have been inspected and found not to contain termite damage or evidence of termite activity.
68. Furthermore, Mr Wood stated that he understood that as termite damage was suspected to be present in the kitchen floor, he expected that some concealed termite damage would have occurred to the timber frame of the house, but as the extent of the damage identified appeared localised, he believed that the extent of any wall damage would, in turn, also be localised.
69. Based upon these beliefs, Mr Wood reasoned to himself that because of his experience in the building industry, and because he intended to himself perform much of the rectification work he had planned, he estimated the maximum budget of $10,000 to cover the cost of materials and labour for the rectification of any termite damage. He and Mrs Wood had also budgeted approximately $30,000 for renovations for a new kitchen, a new bathroom and to repair the termite damage to the lower level floor and some walls. The assumptions behind these budgetary allowances were not identified, explained or explored, and it was therefore not possible to reach any conclusion as to the reasonableness or otherwise of this estimated expenditure.
70. Mr Wood explained that the foregoing reasoning lay behind his negotiations by which the original asking price for the house was reduced from $830,000 to $775,000, which was the contract sum ultimately agreed upon between the parties.
71. Mr Wood stated that after the sale was completed, and after he and his family moved into the house, he commenced renovations in early January 2005. He stated that at that time he found termite damage in the sub-floor joists directly in the centre of the rumpus room and in an area that was not noted in the pest inspection report as having been affected by termite damage.
72. Once he became alerted to the problem of concealed termite damage in the house, Mr Wood then started upon a course of invasive investigation for termite damage. This involved him removing internal walls, timber cladding of beams, and the removal of and refitting of joists. At that stage, he decided to remove the entire ground floor ceiling and associated structures to properly inspect the property to determine the true extent of the termite damage. It was then discovered that the termite damage was extensive and had affected every third joist of the entire first floor timbers. During these investigations, which were extensive, Mr Wood found no evidence of any live termites or any live termite nests.
73. Mr Wood said that in about mid-June 2005, he decided to embark upon a course of tapping the entire exposed timber beam in the lounge or family room of the house. He then tapped all of the beams in the kitchen, main bedroom, entry room, the main roof supporting beams within the family room and the upstairs bedroom and bathroom beams. He said he detected hollow sounds, by which he said he identified the presence of termite damage. He then formed a strong suspicion that all of these timbers were all termite damaged. He said that he then realised that the termite damage had extended from the sub-floor of the house through every level of the structure to the roof. These events led Mr Wood to seek out and confront the pest and building inspector who had prepared the pre-purchase inspection report that he had commissioned.
74. These events led Mr Wood to believe that the termite damage in question had occurred before he had purchased the house. It was those events that led Mr Wood to commence proceedings against the author of the pre-purchase pest and building inspection report.
75. The remainder of the 6 July 2006 affidavit of Mr Wood was directed at matters and issues connected with that earlier litigation against the pest inspector. No evidence was led by the plaintiffs concerning the rationale behind, or the reasons for, or the reasonableness of, the settlement of the proceedings that had been initiated and resolved against the author of the pre-purchase pest and building inspection report.
Second affidavit of Mr Wood – 13 February 2009
76. In his 13 February 2009 affidavit, Mr Wood annexed a copy of his 6 July 2006 affidavit, along with a series of 42 printed pages of colour photographs of various aspects of the exposed timberwork within the house, showing different areas and degrees of termite damage. Also annexed to that affidavit was an annotated draftsman’s plan of the original building, with various areas of termite damage highlighted by Mr Wood in different colour-coded highlighter markings.
77. In his 13 February 2009 affidavit, Mr Wood again explained the understanding he had gained from his reading of the pre-purchase pest and building inspection report, re-iterating the explanation he gave in his 6 July 2006 affidavit. He also reiterated the course of events by which he discovered the termite affected areas of the house when he embarked upon the course of the renovations he had planned.
78. Mr Wood then went on to detail what he described as four areas of concealment of termite damage to the structures of the house. The first such area was the exposed bedroom beam which supported the roof. The second such structure was the exposed beam in the family room, which ran across and above the windows. The third such area was a rafter in the upstairs bathroom. The fourth such area concerned the veranda joists. Mr Wood gave detailed descriptions of the termite damage to these structures, including cross-references to the photographs that were exhibited to his second affidavit.
79. Mr Wood described a telephone call in which he spoke to Mr Balfour about the termite damage and in which he sought to question Mr Balfour about some details. He recounted his version of a conversation with Mr Balfour, in which he descended into the vernacular, following which Mr Balfour terminated the call.
80. In his 13 February 2009 affidavit, Mr Wood stated that had he been aware of the damage to the bedroom beam, the bathroom rafter, the family room beam and the veranda joists, he would have known that the termite damage to the house was more extensive than that which he believed had been notified to him in the pest inspection report. Mr Wood also stated that if he had been aware of this concealed damage, he would have requested an invasive investigation to determine the full extent of the damage to the property. He concluded by stating that if he had known of the full extent of damage to the property, he would not have purchased it from the defendants.
Third affidavit of Mr Wood – 9 September 2009
81. In his 9 September 2009 affidavit, Mr Wood described the work that he had undertaken on the premises since he had sworn his last affidavit. In particular, he described removal of timber cladding that had been affixed to the beams in the upstairs bedroom and in the family room. He had carried out that work on 17 May 2009.
82. In his 9 September 2009 affidavit, Mr Wood set out his specific responses to the 17 April 2009 affidavit of the first defendant Mr David Balfour. In the course of setting out his responses to Mr Balfour’s affidavit, Mr Wood annexed 55 prints of coloured photographs of relevant structures in the premises to which he referred in making his responses. Mr Wood stated that this series of photographs was variously taken on May 5, 13, 17, and 6 September 2009. I will refer to the detail of this affidavit following my review of Mr Balfour’s affidavit that was sworn on 17 April 2009.
Oral evidence given by Mr Wood
83. In the paragraphs that follow I set out a summary of the oral evidence given by Mr Wood.
84. In his oral evidence, Mr Wood was taken through the detail of the work he carried out on the house in removing the cladding timbers and coverings from the relevant points where they had been installed. These cladding timbers were in the upstairs bedroom and the family room. Mr Wood described the removal of the painted filler plug located in the upstairs bathroom rafter. Mr Wood also described the process of removal of the pieces of flooring joists and related timbers located under the house at the abutment point of the front timber deck. Serial photographs of these areas, once uncovered, were largely self-explanatory once this background evidence was understood. In his evidence, Mr Wood related these photographs to the building plan of the house. That plan was located at Tab 2 of Mr Wood’s affidavit sworn on 13 February 2009.
85. Mr Wood agreed that he was aware that one could walk into a living area of the house and see no blemish on timbers, yet it could still be possible for the interior of the cladding of the walls to be affected by termites. He qualified his pre-purchase knowledge of termite activity as being minor knowledge. In this regard, he agreed that he knew, before the contract had been entered into, that termites could get into wood and migrate from one piece of timber into another piece in the surrounding area.
86. Mr Wood also agreed that he was aware, before he entered into the contract, that if there was some termite damage in one area of a house, it was quite possible that termites could have migrated and caused damage to some other area of the house. He acknowledged that this could be so despite a walk-through visual inspection giving no indication of the existence of termite damage. He agreed that even though he had inspected the house and couldn’t see any termite damage within the house, it was quite possible that the various timber beams inside the walls could have been riddled with termite damage.
87. In this regard, his evidence was as follows:
“Q. And so it was quite possible, as far as you were aware, pre-contract, that if there was some termite damage in one area of the house, it was quite possible that the termites could have migrated and caused damage to some other area of the house.
A. Correct.Q. And that would all be without anyone walking through the living parts of the house, knowing that.
A. That could be.Q. So as far as you were concerned, before contract, that was quite possible.
A. Possible, yes.Q. So in other words, it was quite possible, as far as you were concerned, when you first inspected the house, that even though you couldn't see any termite damage inside the house, it was quite possible that the various timber beams inside the walls could have been riddled with termite damage.
A. Possible.Q. And you wouldn't have known about it, just by looking at the seemingly unblemished surfaces of the living areas of the house.
A. That's why I engaged a pest expert.Q. Yes. So you knew that it was possible, on your own visual inspection, that while you could see nothing, there could be plenty of termite damage to the house.
A. That's why I engaged the pest expert, to undertake an inspection for me.Q. It was for that very reason that you retained the pest inspector.
A. Correct.Q. And in fact, you knew the reason that you retained the pest inspector was because you knew you couldn't rely on your own visual inspection.
A. I relied on his expertise.Q. Could you focus on the question. The reason that you retained the pest inspector was because you knew you couldn't rely on your own inspection.
A. Correct.Q. And you knew that an unblemished interior in a house did not mean that the house was free from termite damage.
A. Correct.Q. No, no. This is pre-pest inspection. Let's just wind it back a minute, okay. Pre-contract, pre-pest inspector, you knew, didn't you, that an unblemished interior in a house did not mean that any termite damage to the house was in a limited area.Q. And you knew that it did not mean that termite damage was in a localised area.
A. Based on the information given to me by the pest inspector--
A. Correct.”
88. In cross-examination Mr Wood was taken through the detail of the 11 August 2004 pest and building inspection report which arose from his retainer of the pest inspector who had inspected the house for him. He initially acknowledged that he had read the report carefully as the following evidence shows:
“ Q. All right. Did you read the report?
A. Yes, I did.Q. It was in two parts, wasn't it?
A. Yes, I believe.Q. Did you read both parts?
A. Yes, I did.Q. Did you read them carefully?
A. Yes, I did.Q. Did you look at the photographs?Q. Did you read them in their entirety?
A. Yes, I did.
A. Yes, I did. ”
89. Mr Wood confirmed that he did not take steps to speak with the pest inspector after reading the pest inspector’s report. Mr Wood sought to qualify his process of reading, interpretation and understanding of the pest inspection report by reference to the colour-coded format of the report, which provided the reader with different types of emphasis to various aspects of the report. I shall return to these matters of qualification when dealing with the relevant issues calling for consideration regarding Mr Wood’s pre-purchase knowledge of termite activity within the house.
90. A good deal of the cross examination of Mr Wood was taken up with questions concerning his interpretation of the content and meaning of the pre-purchase pest inspection report he had commissioned, including the basis for his subsequent decisions and actions concerning the intention to purchase the house after he had read that pest inspection report.
91. In the course of that cross-examination, Mr Wood explained his interpretation of clause 5.107 of the pest inspector’s report as suggesting “the house hadn’t been affected dramatically by termite infestation”. He further explained “There’s not the warning signs saying ‘you’ve got damage everywhere’. He couldn’t find it otherwise he would have wrote it. I believe he would have wrote it and that’s why he identified the only place he had found it was in the tree stump”. Mr Wood denied that his explanation of his interpretation of the pest inspection report was not genuine. In denying the falsity of his interpretation, he also denied that his interpretation was tortuous and involved contextual contortions.
92. In explaining his interpretation of the pest inspector’s report, Mr Wood placed emphasis upon mention within the report of the suspicion of concealed termite damage rather than actual damage from termite activity. In this regard his evidence was:
“WITNESS: I read that report that a building and pest expert would actually identify all the areas of damage or concern so I could actually read them and actually find out exactly where they all are.
RAYMENT
Q. All right.
A. He only identifies in that whole report is the tree stump. Otherwise I ask why hasn't he identified anywhere else.Q. What I want to suggest to you, sir, is that the reason that he included the general comment at 5.105 as distinct from the specific reference to the stump was because he was putting you on notice that this property was termite damaged?
A. I can't come to that conclusion based on the information that he's put in the report.Q. And that in fact on a fair reading of it you as an engineer ought to know that if someone has made a general comment like that you should make proper inquiries?
A. I read the report and on the basis of what he had actually put in the written word was on the understanding that it had damage in the stump. Otherwise he would have identified it otherwise.Q. It's a bit tortured, your interpretation, isn't it, sir?
A. I don't think so.Q. And the reason I want to put to you that it's tortured is because you were trying to explain away in proceedings against the inspector the fact that he put you on notice that this house was termite damaged, weren't you?
A. No.Q. And you're in all sorts of contextual contortions to explain your interpretation of the report?
A. No.Q. See clause 5.103 didn't give you any cause for concern about your interpretation of clause 4.2?
A. He suspects concealed damage. He says a further inspection should be considered to determine if termite damage and/or termite activity exists. So he doesn't--Q. So he considers--
A. So he doesn't know if it's there or activity has happened.Q. He also doesn't know that it's not there, does he?
A. Well, if he doesn't know, I would expect him to tell me otherwise and that's why - that's why I have an expert.Q. In other words, he doesn't know that it's not there, does he?
A. I can't - I can't assume for him.Q. He's your expert, sir, isn't he?
A. He was engaged by me, yes.Q. And you're the one saying he was misled by my clients' alleged representation, aren't you?
A. I'm saying that--Q. Aren't you, sir?
A. I am saying that the pest expert was denied the opportunity to have or inspect various aspects of this building, because of the cladding put against those accessible timbers and had they had the opportunity, he may have come to a different conclusion.Q. Your case is that there was a representation made and it misled you and it misled the inspector, isn't it?
A. Correct.Q. In this case here, in 5.103, you have him saying something which is irreconcilable with the representation you say my client has made.
A. I don't understand the question, sorry.Q. He's saying that in order to know, you have to have an invasive test.Q. He is saying that he can't discount the possibility of concealed termite damage, isn't he?
A. Correct.
A. He's suggests an invasive but he has found no other evidence except for the tree stump.”
93. When Mr Wood was asked to explain his thought processes that lead him to discount the need for an invasive pest inspection of the house he stated:
They may have come, yes, they may have damaged something, but there is no tell tale signs. There's not the warning signs saying, "You've got damage everywhere." He couldn't find it, otherwise he would have wrote it. I believe he would have wrote it and that's why he identified the only place he had found it was in the tree stump.”“Q. Where it says at 5.107 "concealed termite damage to framing of dwelling is suspected", are you able to recall now what your thought processes were that led you to discount the need for an invasive inspection?
A. When I go through the report, the pest inspector came to an indication that it was in the sub-floor area, only in the sub-floor area, and possibly in the kitchen floor area. From there, I came to the conclusion, because we were going to renovate that area, that if he couldn't find any damage in those areas, he couldn't find any other damage in any of the exposed timber beams throughout the house, I was of the belief that as he said in his report "one in five homes get affected by termites", the house hadn't been affected dramatically by termite infestation.
94. Mr Wood confirmed that pre-purchase, he knew it was possible to have an extreme case of termite damage without the structure in question collapsing. He also acknowledged that, as an engineer, suspected (termite) damage to the framing of a dwelling, as was adverted to in clause 5.107 of the pest inspection report, could be a reason why a structure would be described as not being plumb and square.
95. Mr Wood agreed that because the pest inspector could not find the extent of termite damage in the house, but found indicators of termite activity, namely the tree stump, he had been put on notice that there could be damage inside the framework that the pest inspector could not see. Mr Wood explained that he did not ignore this indication. He stated that he took this into account when he put the price together to make an offer to the Balfours, thus taking on board the risk that there could be damage inside the framework of the house.
96. Relevantly, Mr Wood stated:
“Q. You have your expert here saying that he suspects concealed termite damage to the dwelling. You see that.
A. I've think I've gone through that, yes.Q. To the framing of the dwelling.
A. Yes, he does say that.Q. He actually says concealed termite damage is suspected in many occasions in this report, doesn't he?
A. He suspects termite damage in the sub-floor area and then goes about writing a concealed termite damage to the frame. He mainly references the sub-floor area and that of the kitchen floor.Q. Mainly. You say "mainly", sir. Does that mean you acknowledge that there are other areas where he makes a general comment?
A. The only areas I can see as the general comment is what you've just read, 5.107.Q. All right. Mind turning over the page.
A. To which page?Q. Page 13.
A. Page 13, yes.Q. Look at 9.5
A. 9 - yes. Yes.Q. You've got walls not just in the sub-floor area, don't you?
A. Yes.Q. You've got walls in every level of the house, don’t you?
A. Yes.Q. He's telling you here that termite damage to concealed wall frames is suspected.
A. Yes.Q. You want to just consider then for a minute your thesis that he was saying that there was only concealed termite damage suspected to the sub-floor area.Q. So as far as you're aware, he's telling you he can't discount the possibility that there is concealed wall damage behind the wall frames throughout the house.
A. Correct.
A. That was my understanding from the reading of the report.”
97. This question of concealed termite damage was examined in some detail. Mr Wood conceded that he had been told about suspected concealed termite damage to the framing of the dwelling, as well as suspected concealed termite damage to the walls and frames of the house. Although he acknowledged that the inspection report made reference to possible concealed termite damage in some of the walls, he stated that he drew the inference that termite damage would be localised to the area identified, namely the sub-floor and the kitchen.
98. Mr Wood acknowledged that he did not think to contact the pest inspector to confirm any of these matters with him. Mr Wood stated that he did not disregard the prospect of termite damage, he simply thought that if there was identified damage, such damage would have been described in the report and it was not. He stated that he believed the damage was localised and although it could have extended out further, there “were no indicators that showed that it went further anywhere else.”
99. It became apparent that Mr Wood had taken this view because the termite inspector had not found any damage in the exposed timber beams at the highest point of the house, which is where he understood termites to habitually travel, namely from the ground level to the roof. Mr Wood explained that this led him to believe that termite damage was a localised infestation in the sub-floor and in the kitchen area of the house. When questioned on this further, Mr Wood conceded that when he read the pest inspector’s report before he purchased the house, he knew there was a possibility that there was termite damage from the bottom of the house to the top of the house. He acknowledged that he could not have thought that the house was free from termite damage because of the pest inspector’s report and findings concerning suspicions as to the presence of concealed termite damage in the sub-floor and kitchen floor areas.
100. Lengthy cross-examination then continued concerning Mr Wood’s interpretation of various aspects of the pest inspector’s report. The focus of Mr Wood’s answers to such cross-examination was the distinction between actual termite damage that was visible, and the emphasis to be placed on the possibility of there being concealed damage due to termite activity.
101. Part of the cross-examination focused on the significance of clause 35.20 of the pest inspector’s report. Mr Wood acknowledged that the inspector’s report would have given him a cause for suspicion that attempts had been made to conceal the fact that past termite damage existed. In the cross-examination of Mr Wood there was much verbal fencing over the significance to be attached to the word “suspected”:
“Q. What I've put to you, sir, was that there were a large number of incidences where your inspector suspected the existence of concealed termite damage.
A. I don't read that because - what I'm reading here, he is saying he couldn't find termite damage. Otherwise, he was obliged to write in his report that he has found it and this is the location of it.Q. Okay. Let's put it this way.
A. He suspects it and he keeps repeating that word "suspect" because of what he has found to date.Q. And you keep ignoring it, sir.
A. I'm not ignoring it. I'm reading the word of an expert who's telling me of whether he has found termite damage or has not. He has not found it, except in a tree stump. That's the only place in this whole 65-page report that he goes in - verbatim - and very much detail, one thing: a tree stump. That's where he was categorically certain he found termite damage.Q. Let's return to the proposition. What I'm putting to you is that, on a large number of occasions, your expert expressed the view that concealed termite damage was suspected in this report. Do you agree or disagree with that proposition?
A. I agree.Q. Right. As many as 25 times in this report, the expert says that concealed termite damage is suspected.
A. I don't know where you get the number 25 from, sorry. You'll find that there's duplication throughout the report in the Pest and the Building section, and they're verbatim. Are you classifying--Q. You've read this report a dozen times, haven't you?
A. Yes. I know - I've read the report because I was required to.Q. You've read it and re-read it and re-read it many times over, haven't you?
A. I've read it a couple of times, yes.Q. And you've done that in contemplation of being cross-examined about it?
A. Actually, no. Actually, no.Q. All right. If you look at clause 5.102, you agree that that is an expression of the suspicion that attempts have been made to conceal the fact that past termite damage exists.
A. It is suspected, yes.Q. That's the fourth expression of suspicion?Q. Yes. You agree that it's a suspicion. So that's number 4. If you look at--
A. Number 4 of?
A. Yes. He's suspecting attempts of being - again, he couldn’t find any damage, yes.”
102. It was clear from the evidence of Mr Wood that he had concluded that he did not need to seek to clarify the pest inspector’s report because the inspector “didn’t categorically state where the damage was or how bad the damage was, merely suspected” damage.
103. Mr Wood explained his recollection of reading the pest inspector’s report in the following terms:
Q. One of the impressions I gained from one of your earlier answers, which I am now outlining to you, sir, that you have an opportunity to address it, is that you read areas marked in red or printed in red as areas of concern.“Q. I just want to be clear on that answer. You prefaced it by saying, "Well, yes." Does that mean that you had an actual recollection of reading it or is it an assumption you make?
A. Your Honour, I can't recall every specific clause or dot point that's referenced. I can remember sitting down and going through the body of the - sitting down and reading the report on the pretence that I read the front page, I read the third page, the red one - all the different colours. I then read through the body of the reports. I can't recall specifically a clause or a phrase, or a wording, but I read the report to the best of my knowledge.
A. It was my major concern because when I go through to page 3, the expert is telling me, "These are - this is how I've rated or scaled my concerns and these are the areas you should actually concentrate and focus a lot of attention on because they are possible issues." So I started reading the report. I first of all go through the building section of the report, see of all those red highlighted areas. Say, what are the major issues I should be concerned about with this house? I go through the building section of the report and I use that. I then go through then the next section through and start reading the summary, the general observations, and then I actually then go into each section of the report in the building section from that.”
104. Against the background of Mr Wood’s pre-purchase understanding of the potential for termite damage to cause structural problems to a house, and his understanding that termite damage could render a structure dangerous, the following questions and answers reveal the focus that Mr Wood had adopted in considering the report of the pest inspector, as well as relying upon his own understanding of the significance to him of the distinction between suspected termite damage and actual termite damage :
“Q. Okay. But you know that termites can cause structural problems in dwellings. Surely as an engineer you knew that.
A. Yes.Q. So you knew that it was possible that termites could have rendered the structure dangerous, didn't you, before you purchased the house?
A. Possibly, yes.Q. So when you read this section were you worried?
A. Of?Q. The fact that--
A. Of termite activity or termite damage?Q. Termite damage. Were you worried?
A. I read the report. Yes.Q. 55.1 says it's apparent?
A. Correct.Q. Without qualification?
A. Correct.Q. Without specificity?
A. Correct.Q. Weren't you worried?
A. That's why I read the rest of the report in the pest section for, to find out where the pest expert found the damage.Q. Did you read 55.2?
A. Yes.Q.Q. That's in red, isn't it?
A. It is.
"Visible evidence of dormant/inactive termite activity was sighted at the time of inspection. Due to our observation of conditions conducive to termite activity and/or concealed termite entry at the time of our inspection, a real possibility exists that termite damage does exist."
Do you see that and it continues on?
A. Yes.Q. He is talking about the whole house there, isn't he?
A. He's talking about areas possibly yes of the house. It could have extended into areas that he could not see, yes.Q. At this level of generality, as far as you knew when you read this report he could have been speaking about the entire dwelling, couldn't he?
A. He was putting me on notice that termites could have gone through the portions of the house, yes.Q. Whole house?
A. Possibly, yes, and that's why I referred to the body part of the report to actually find where he found damage.Q. Which part gave you comfort? See, your affidavit doesn't say anything about reading the pest report, does it? Does it?Q. So the body part of which report?
A. Of the pest part of the report.
A. I've said earlier on that I read both - both reports.”
105. The evidence continued:
“Q. You're there told by your expert that the dwelling is considered to have a higher than normal risk of possible termite activity?
A. Yes.Q. Do you see that?
A. Yes.Q. Immediately underneath that you're told that there's no evidence of previous termite treatment?
A. Yes.Q. Did you put the two together and wonder if the place was riddled with termites?
A. No, I did not.Q. And your evidence to this court is you weren't worried?Q. So you're told by your expert that it's got a higher than normal amount of risk and that there's no evidence of previous termite damage?
A. That's correct.
A. No, I didn't say I was not worried. I then looked at the report and Mr Coellen could only suspect to find damage in the subfloor space or suspect to find it in the kitchen floor.”
106. Mr Wood acknowledged that the effect of parts of the pest inspector’s report was to draw to the attention of the reader the possibility that there were various aspects of the house that could provide an environment that was conducive for termites.
107. At the time of purchase, Mr Wood knew of the possibility that termite damage could extend into the frames of the house. The basis of that knowledge was the pest inspector’s report. However, Mr Wood stated that because the pest inspector’s report did not identify any accessible areas as being damaged by termites, he formed the view that any such potential for termite damage was limited to the areas the pest inspector had identified, which included the framing of the dwelling. Mr Wood agreed that the pest inspector’s report had placed him “on notice of the potential of damage suspected in the frames.” In considering the pest inspector’s report, Mr Wood stated that he understood that the inspector could not see behind the walls or in the sub-floor space, and therefore he had been placed on notice of possible concealed damage, because the inspector could not see where termites might have travelled. Mr Wood agreed that he had been placed under notice of suspected termite damage in the framing of the house.
108. When Mr Wood was asked about what he had gained from his first reading of the pest inspection report, and in particular the annotation next to the second photograph on page 37 of the report where it was stated “Concealed termite damage to framing of dwelling is suspected”, he interpreted the reference to suspected termite damage to mean, that the inspector was “not confident” about there being suspected damage as he had not found other visible evidence of termite damage to the accessible timbers in the house. When Mr Wood was asked what significance he placed on the caption to that particular photograph, he stated that he read the parts of the report that were printed in black ink and interpreted this style to mean that there weren’t structural concerns. He explained that when he read through the remaining part of the report, which was printed in red ink, he focused on the fact that the inspector had only found suspected damage, and had not identified any actual damage in the house, or damage to any of the accessible timber beams in the house.
483. 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.
484. 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.”
485. 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.
486. 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.”
487. 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.
488. 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.
489. 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.
490. 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.
491. 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
492. Consideration of Issue 9 involves an evaluation of the alleged falsity of the claimed representation.
493. 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.
494. 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.
495. 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.
496. 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.
497. 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.
498. 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
499. 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.
500. 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.
501. 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”.
502. 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.
503. 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.
504. 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”.
505. 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.
506. 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.
507. 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.
508. 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.
509. 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”.
510. In my view, the submissions on behalf of the plaintiffs are flawed, and should be rejected for the reasons that follow.
511. 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.
512. 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.
513. 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.
514. 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.
515. 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
516. 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.
517. 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.
518. 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.
519. 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.
520. 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.
521. 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.
522. 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.
523. 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.
524. I consider that the submissions made by the plaintiffs on this issue are flawed, for the reasons that follow.
525. 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.
526. 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.
527. 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
528. 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”.
529. 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.
530. 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]
531. 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]
532. 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.
533. 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.
534. 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.
535. 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.
536. 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.
537. 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.
538. 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.
539. 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.
540. 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.
541. 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.
542. 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.
543. 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.
544. 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.
545. 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.
546. 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.
547. 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.
548. 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
549. A consideration of Issue 13 relates to the quantum of the claimed damages.
550. 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.
551. 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.
552. 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.
553. 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.
554. 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.
555. 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.
556. 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.
Conclusions concerning alleged deceit
557. 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.
558. I have concluded that there were no relevant representations as claimed by the plaintiffs.
559. 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.
560. 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.
561. 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.
562. 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.
D. DISPOSITION AND ORDERS
Disposition
563. 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.
Orders
564. 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.(c) The exhibits may be returned;
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