- The appellants (the Krakowskis) purchased a commercial property from the First Respondent (Eurolynx) on the basis that the property had a new tenant who had agreed to pay an amount in rent ($156,000 per annum) that met the appellant’s requirement of a 10 per cent return on investment.
- That figure for rent appeared in the copy of the lease attached to the vendor’s statement under section 32 of the Sale of Land Act 1962 (Vic), which was drafted by Eurolynx’s solicitors (Mallesons) and signed by one of Eurolynx’s employees. It was also a condition of the contract of sale.
- However, Mallesons and Eurolynx failed to disclose that there was a separate agreement with the tenant which provided for a three month rent- free period and a significant contribution from the owner towards the tenant’s fitout costs.
- Upon becoming aware of the non-disclosure, the purchasers purported to rescind the contract, and then brought an action against the vendor for deceit and, in the alternative, misleading or deceptive conduct. They also sought a declaration of rescission of the contract.
- The trial judge decided that there was neither fraud nor misleading or deceptive conduct by the vendor.
- On appeal, the Victorian Full Court found that the purchasers had been induced to enter into the contract through a material misrepresentation by the vendors, but that there was no fraud.
- The Full Court also held that this misrepresentation constituted misleading conduct under s 52 of the Trade Practices Act, but it declined to set aside the contract, since it was of the view that damages would afford adequate compensation.
- Was there misleading and deceptive conduct by the vendor due to the non-disclosure of the seperate agreement?
- The High Court held that the case was not merely one of non-disclosure of the separate agreement.
- There was an active representation by Eurolynx that the copy of the lease provided to the Krakowskis contained the whole of the agreement between Eurolynx and the tenant, and in particular that the figure of $156,000 for rent that was in that copy of the lease was the true rent.
- Eurolynx’s failure to fully disclose all aspects of its leasing arrangement with the tenant (its “half-truth”) constituted fraudulent and misleading conduct. This was sufficient for Krakowski to rescind the contract and recover the purchase price.
“This was not a case in which a defendant had simply not disclosed a fact; it was a case in which negotiations for sale of unit 12 had taken place on the footing that a lessee for the property on offer had been found who was willing to pay a rent of $156,000 for a lease of that property. By its s 32 statement and by the proffered contract of sale, Eurolynx had disclosed that the lease affected unit 12 and the question was whether that statement carried the representation that the terms of the instrument of lease contained the contractual arrangement between lessor and lessee or, putting the representation in another but identical way, whether the terms of the instrument of lease were unaffected by any other agreement between the lessor and lessee. In Tapp v Lee, Chambre J said:
“Fraud may consist as well in the suppression of what is true, as in the representation of what is false. If a man, professing to answer a question, select those facts only which are likely to give a credit to the person of whom he speaks, and keep back the rest, he is a more artful knave than he who tells a direct falsehood.”“
The full text is available here: https://jade.io/j/?a=outline&id=188379
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