A vendor's silence in relation to contamination may not always constitute misleading or deceptive conduct. The recent NSW Supreme Court decision in Vitek v Estate Homes Pty Ltd [2010] NSWSC 237 (Vitek) confirms that silence will be misleading or deceptive only if what was said and the context in which it occurred gives rise to a reasonable expectation of disclosure.
The facts
Mr and Mrs Vitek as vendors and Estate Homes Pty Ltd as purchaser entered into a contract for the sale of a commercial property at Redfern, NSW. The contract provided for an extended settlement with a view to Estate Homes obtaining development consent for the carrying out of certain works on the property for residential purposes.
The vendors used the property as a showroom and workshop for the sale and installation of burglar alarms for motor vehicles. In obtaining development consent for this use, the vendors had obtained a contamination report that identified that the property had been used in the past as a petrol station and that it was possibly contaminated. The report was not provided to the purchaser.
The vendors eventually terminated the contract for the purchaser's failure to comply with a notice to complete. The purchaser purported to rescind the contract on the following grounds:
- breach of warranty, in that the planning certificate under section 149 of the Environmental Planning and Assessment Act 1979 (NSW) (EPAA) annexed to the contract failed to specify the true status of the land in relation to contamination;
- that the vendors, knowing that the land was contaminated, annexed to the contract a section 149 certificate stating that the land was not contaminated and thereby caused and induced the purchaser to enter into the contract, and
- that the vendors' representation constituted misleading or deceptive conduct in contravention of section 42 of the Fair Trading Act 1987 (NSW).
The vendors commenced proceedings in the NSW Supreme Court claiming that the purported rescission was a repudiation of the contract and sought forfeiture of the deposit and damages. The purchasers cross-claimed seeking a declaration that Estate Homes had validly rescinded the contract and that the vendors had breached the Fair Trading Act 1987 (NSW), plus damages and consequential relief under that Act.
Vendor satisfied statutory obligations of disclosure
In NSW, section 52A of the Conveyancing Act 1919 (NSW) requires a vendor to attach certain prescribed documents to the contract for the sale of land. One of these documents is a planning certificate under section 149 of the EPAA. In addition to the requirements to attach a section 149 certificate, the Conveyancing (Sale of Land) Regulation 2005 (NSW) prescribes a number of warranties that will apply to the sale, including that the section 149 certificate discloses the true status of the land.
The Contaminated Land Management Act 1997 (NSW) (CLMA) prescribes additional matters that are to be specified in a section 149 planning certificate. These include whether the land is declared significantly contaminated, or is subject to a management order, an approved voluntary management proposal, or a site audit statement. In Vitek, the section 149 certificate stated 'no' against each of the prescribed CLMA matters. However, the certificate also included a note that stated:
Barrett J held that Estate Homes had received from the vendor all the disclosures and warranties required by the sale of land legislation and, therefore, the vendors had fully discharged their statutory disclosure obligations.
No representations by silence
The purchasers alleged that, by the inclusion of the section 149 certificate in the contract, the vendors had represented (by silence) that the property to the knowledge of the vendors was not actually or potentially contaminated for the purposes of the Council's development control plan. Also, that the vendors were not aware of any matters, facts or circumstances which may have indicated that the property was actually or potentially contaminated.
Essentially, the purchaser was alleging that the section 149 certificate only disclosed part of what the vendors knew about the contamination status of the land and their misleading and deceptive conduct lay in their failure to communicate the balance of their knowledge.
In order to determine if the alleged silence constituted misleading or deceptive conduct, Barrett J considered the context in which the silence was maintained and whether there was a reasonable expectation that disclosure would be made and the silence broken. He found that the vendors knew that the land had in the past been used as a petrol station and were aware that the land was possibly contaminated. However, Barrett J also found that the purchaser knew about the possible contamination by virtue of its experience in building and property development, its own inquiries of the council, and its receipt from the vendor of all disclosures and warranties required by the sale of land legislation.
Barrett J concluded that the circumstances were not such as to justify any expectation on the part of the purchaser that the vendors would volunteer the limited additional information they had about the potential for contamination obtained from their own investigations and dealings with the local council.
In reaching his decision, Barrett J distinguished the decision of Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd* that found that a lessor of contaminated land had engaged in misleading or deceptive conduct under section 52 of the Trade Practices Act 1974 (Cth). In that case, the lessor failed to disclose to the lessee that the land was contaminated in circumstances where the lessor was aware of the lessee's intention to use the site for a school and where extensive discussions had occurred between the parties to identify the advantages of the site for the lessee's purposes.
In Vitek, the vendor did not engage in extensive discussions with the purchaser in an endeavour to comprehensively point out the advantages of the site for the purchaser's purposes. On this basis, Barrett J held that there was no conceivable basis on which silence could be actionable under section 42 of the Fair Trading Act 1987 (NSW) as there was no suggestion that anything should have been volunteered or disclosed in response to some reasonable expectation of the purchaser.
Implications
This decision has consequences for both purchasers and vendors. For purchasers, it demonstrates the importance of comprehensive due diligence pre-exchange. For vendors, it highlights the need to satisfy statutory disclosure obligations in relation to land contamination. But importantly, vendors should be cautious about entering into discussions about the quality and prospective use of land, as incomplete disclosure may form the basis of a claim for misleading or deceptive conduct.
* (2005) 189 FLR 14; 215 ALR 625.
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