Lessons for purchasers and vendors from the Ridgway decision

Following the Court of Appeal decision of Ridgway Empire Limited v Grant[1], which upheld the High Court decision of Palmer J, the vendor was ordered to pay the purchaser approximately $500,000 in repairs for pre-contractual misrepresentations as to the weathertightness of a unit.

Case summary

Jill Grant (Ms Grant) purchased a residential unit in Auckland in 2009 from Ridgway Empire Limited (Ridgway) who had owned the property since 2003. The unit was occupied by Ridgway’s director, Aaron Ridgway (Mr Ridgway), until 2007. Mr Ridgway marketed the unit to Ms Grant. Mr Ridgway was unaware of the fact that the unit was leaking and was a leaky building at the time of sale, yet made a direct statement to Ms Grant that “the unit does not leak” and “it is not a leaky building”.

The Court of Appeal (upholding findings made by Palmer J in the High Court) held that:

  • Mr Ridgeway’s statement was an unqualified representation of fact which, although innocently made, was false; and
  • Mr Ridgway’s assurance was intended to induce Ms Grant to enter into the agreement to purchase and she reasonably relied on it in doing so.

Ms Grant entered into the sale and purchase agreement in reliance on representations made by Mr Ridgway that the unit is not a leaky building.

Why was it a misrepresentation?

A misrepresentation is a statement of present or past fact (not opinion) that is relied on and induces another person to enter a contract.

Misrepresentation was established in this case because:

  • Mr Ridgway made a direct statement that the unit did not leak.
  • Leaks were discovered in 2011 and it was clear there had been issues for an extended period.
  • Mr Ridgway had superior knowledge of the state of the unit having owned it since 2003 and having carried out renovations in 2004 in which leaks were discovered.
  • His superior knowledge included knowledge that the unit had suffered serious leaks in the past leading to significant water ingress to the timber framing behind the walls, ceiling and in the lounge. He did not disclose all the material facts known to him and provided Ms Grant with a safe and sanitary report, which did not disclose the leaks, to support his unqualified assurance.
  • The statement was clear, unequivocal and unqualified. Ms Grant relied on it and was reasonable in doing so given Mr Ridgway’s superior knowledge of the unit.
  • As Mr Ridgway was aware of the unit’s history of leaks, he could not claim that his statements were an expression of opinion because he withheld information that he knew about the property.

What does this mean for vendors?

Where a vendor makes a clear and unequivocal statement, and is in a position to know the absolute correctness of the statement made, the purchaser is not under an obligation to ask follow up questions for clarification from the vendor.

Nonetheless, this decision cannot be taken as completely lifting the burden off the purchaser. The principle of ‘caveat emptor’ (“buyer beware”) still applies, and a purchaser will not have recourse from a vendor that was not in a position to know the absolute correctness of a statement made.

A contractual misrepresentation is where a representation has been made by one contracting party to another that then induces the other party into the contract.

Vendors ought to be cautious of any such representations, as a misrepresentation is treated in the same way as a breach of a term of a contract and entitles the induced party, who reasonably relied on the representation, to damages.

[1] [2019] NZCA 134.

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