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Supreme Court 26 February 2001

Clancy v Prince & 2 Ors

[2001] NSWSC 85

Fraud & dishonesty

Citation: Clancy v Prince & 2 Ors [2001] NSWSC 85; (2001) NSW ConvR 55-981; [2001] ANZ ConvR 354
Court: Supreme Court of New South Wales, Equity Division
Date: 26 February 2001
Judge(s): Santow J

Background

A purchaser entered into a contract to buy a strata-titled residential property in Cremorne, New South Wales. The property included a garage on common property to which the purchaser had exclusive use. A laneway ran alongside the garage and appeared, from its presentation in advertisements and at inspection, to provide rear access to the garage from a public road.

In fact, the laneway was a private road. No public right of access existed, and no easement over the laneway was offered to the purchaser at no cost. When the purchaser discovered this after exchange, she cancelled the contract. The vendor treated her cancellation as a wrongful repudiation, forfeited the deposit, and resold the property.

The purchaser sued the vendor directly for fraudulent misrepresentation and misleading conduct under the Fair Trading Act 1987 (NSW). She also sued the estate agency and its principal for misleading or deceptive conduct under the Trade Practices Act 1974 (Cth). Each defendant cross-claimed against the others for indemnity or contribution in the event of liability.

  • Whether the vendor made a fraudulent misrepresentation at general law by failing to disclose, and positively implying, that the laneway was a public road
  • Whether the vendor's conduct breached section 42 of the Fair Trading Act 1987 (NSW)
  • Whether the estate agent's conduct, including misleading advertisements, breached section 52 of the Trade Practices Act 1974 (Cth)
  • Whether the vendor and the agency principal were "involved" in each other's contraventions under section 75B of the Trade Practices Act
  • Whether the purchaser validly rescinded the contract or, as the vendor alleged, wrongfully repudiated it
  • Whether section 55(2A) of the Conveyancing Act 1919 (NSW) was relevant to the purchaser's entitlement to rescind
  • Whether, as between the defendants, any right of indemnity or contribution arose

Decision

Santow J found that the vendor had made a fraudulent misrepresentation. The laneway appeared to the ordinary observer to be a public road, and the vendor knew otherwise. Rather than correcting this impression before contract, the vendor allowed it to persist. The court held that this silence, combined with the overall conduct, amounted to fraud at general law under the principles in Derry v Peek and Edgington v Fitzmaurice.

The vendor's conduct also breached section 42 of the Fair Trading Act 1987 (NSW). Advertisements for the property suggested rear laneway access was available, and those representations were misleading or deceptive, or at least likely to mislead or deceive. The estate agency's conduct, including allowing a misleading advertisement to remain published without correction, independently breached section 52 of the Trade Practices Act 1974 (Cth). The vendor and the agency principal were each found to have been "involved" in the relevant contraventions for the purposes of section 75B of the Trade Practices Act.

The court rejected the vendor's contention that the purchaser had wrongfully repudiated the contract. The purchaser was entitled to rescind because the misrepresentation was material and had induced her entry into the contract. A non-reliance clause in the contract did not protect the vendor from a finding of fraud. The contract was declared void ab initio, and the purchaser was entitled to recovery of her deposit plus damages and interest.

On the cross-claims, the court declined to order any contribution from the estate agency or its principal in favour of the vendor. Contribution would have been incongruous where the vendor was the prime mover in the deception and the only party against whom fraud was specifically found. The court applied the maxim that no cause of action arises from a person's own fraudulent wrong, and noted that to order contribution in those circumstances would be contrary to principle and to equity.

Orders Made

  • Declaration that the purchaser validly rescinded the contract and that the contract is void ab initio
  • Order that the vendor refund the deposit to the purchaser
  • Order for damages and interest in favour of the purchaser, calculated to the date of judgment
  • The purchaser entitled to judgment against the first, second, or third defendant
  • If the purchaser elects judgment against the vendor alone, no contribution or indemnity available from the estate agency or its principal
  • If the purchaser elects judgment against the estate agency and/or its principal, the vendor to bear half by way of contribution at general law
  • Costs to follow the event, with the court indicating it would hear the parties on whether indemnity costs should be ordered
  • Parties directed to produce formal orders within ten days

Key Takeaways

  • Fraudulent misrepresentation can arise not only from a positive false statement but from the deliberate creation and maintenance of a false impression, including through silence where the representor knows the other party is mistaken about a material fact.
  • A contractual non-reliance clause will not shield a vendor from a finding of fraudulent misrepresentation at common law; the courts will not permit a party to use such a clause as a mechanism to profit from its own fraud.
  • Under section 75B of the Trade Practices Act 1974 (Cth), both a vendor and an agency principal may be "involved" in a corporation's contravention of section 52, attracting accessory liability even where the primary contravening conduct was that of the corporate agent.
  • Where a vendor has been found guilty of fraud as the principal wrongdoer, equity and statutory principle together preclude that vendor from obtaining contribution from a co-tortfeasor whose role was secondary; the court applied the maxim that no action arises from a claimant's own fraudulent wrong.
  • Misleading advertisements for real property, prepared or permitted by an estate agent acting for a vendor, can independently constitute a contravention of section 52 of the Trade Practices Act even if the agent felt constrained by the principal's instructions not to withdraw them.

Legislation and Cases Referenced

Legislation:
- Conveyancing Act 1919 (NSW), ss 55(2A), 88K
- Fair Trading Act 1987 (NSW), ss 42, 72
- Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6
- Strata Schemes (Freehold Development) Act 1973 (NSW), s 20
- Trade Practices Act 1974 (Cth), ss 52, 72, 75, 75B, 87

Cases:
- Derry v Peek (1889) 14 App Cas 337
- Edgington v Fitzmaurice (1885) 29 ChD 459
- Lloyd v Grace, Smith & Co [1912] AC 716
- Hamilton v Whitehead (1988) 166 CLR 121
- Mallan v Lee (1949) 80 CLR 198
- Holman v Johnson (1775) 1 Cowp 341
- Argy v Blunts and Lane Cove Real Estate (1990) 26 FCR 112
- Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535
- Burke v LFOT Pty Ltd [2000] FCA 1155
- Hanave v LFOT Pty Ltd (1999) 168 ALR 318
- Clark Equipment Australia Limited v Covcat Pty Ltd (1987) 71 ALR 367
- Street & Hills v Retravision (NSW) Pty Ltd (1995) 56 FCR 588
- Heydon v NRMA Ltd & Ors (NSWCA, 21 December 2000, unreported)