Should estate agents tell you if the house is haunted?

In my previous story on common taboos that affect property values, I touched on haunted houses being one type of stigmatised properties.

To expand on haunted houses further, I will relate the story of a detached house in Old Klang Road's Overseas Union Garden (OUG) in Kuala Lumpur from the late 1970s.

After I moved to OUG in 1973, I was told that strange things were happening in a detached house located a few roads away from us. My neighbour told me that occupants of that house did not stay long.

Every few months, the occupants would move out to be replaced by new ones who would also leave after a short stay, until it was left vacant when the last occupants left in a hurry after staying for less than a month.

The detached house was left vacant for a long time. There were rumours that it was haunted. Stories were told of lights in the house being switched on and off, and strange noises coming from the house at night that sounded like crockery being broken and furniture being moved around.

The detached house was condemned and stigmatised as a "haunted house". A few months later, I was told that some Christians had bought the house.

Who were these people who dared to buy and then live in a house that was haunted? I made enquiries and discovered they were Christians who wanted to use the property as their church's Mission House.

Some months later, I met a friend who said he was visiting the Christians at the "haunted house". I wasted no time and asked him: "How did the Christians manage to cleanse and rid the house of the spirits?"

My friend told me what happened, as narrated to him by the Christians:

"On the first night after they moved in, they heard someone talking to them and said, 'We live here … you cannot stay here … you have to go'.

"The Christians answered, 'You cannot stay here anymore … Jesus is with us and Jesus is now in control here … you will have to leave this house immediately.'"The spirits did not go immediately … There were still manifestations of their presence in the house.

"Undaunted, the Christians remained in the house and went about their daily lives in the house as normally as they could.

"The struggles between the Christians and the spirits went on for some time until one day the manifestations suddenly stopped.

"At that point in time, the Christians knew the spirits had left the house. The spirits did not return to the detached house from then on."

Buyers caught unaware

Whether you believe in the existence of sprits or otherwise is up to you, but when you buy a property, you must think ahead to the time when you eventually want to sell it. There are Malaysians who do believe in the existence of spirits. When you do not thoroughly investigate a property's background and buy one that is "haunted by spirits", you will have difficulty selling the property or you will likely be forced to sell it below market price because it is perceived as a "haunted property".

After having diligently made the necessary investigations, and you still cannot be certain if the property is haunted, you would ask the real estate agent and/or the seller the million ringgit question: "Is the property haunted?"

Do you expect the real estate agent and/or the seller to tell you the truth and say, "Yes, it is haunted?" The Seller and/or the real estate agent most probably will not tell you it is.

You are now in a dilemma. Should you or should you not go ahead to buy the property?

You decide to take a risk and go ahead to buy that property. Some months later, you and your family begin to experience unusual things happening in the house. Your family hears noises at night like the footsteps of someone walking up and down the staircase. After some time, you and your wife decide that the family has to move out and live elsewhere.

Agents' liability

Can you hold the seller and/or the real estate agent responsible for causing you to buy a "haunted house"?

The seller, the real estate agent and their lawyers will tell you they are not responsible for what happened to you. Buyers beware - "you buy at your own risk" is what they will say.

I will not comment on the responsibility and liability, if any, of the seller. I will focus on the responsibility and liability, if any, of the real estate agent to you, the buyer, vis-à-vis your purchase of the "haunted house".

Donoghue v Stevenson [1932] UKHL 100

This case is very important as it sets a major precedent, namely the legal concept of Duty of Care. As a result of this case, the legal principle of Duty of Care was formed.

All manufacturers of products bear responsibility for any damage that their products cause even if the sufferer did not buy the product themselves (it might have been a present).

Furthermore, this principle extends not only to manufactured products but also to services provided.

The Duty of Care principle as enunciated in Donoghue v Stevenson applies to "physical damage or loss" suffered by a victim as a result of someone else's negligent act. The duty of care does not apply if the victim suffered purely "economic loss".

This was the law in England until another legal principle of Duty of Care was set by the House of Lords in England in 1964 in Hedley Byrne v Heller (1964) AC 465.

Hedley Byrne v Heller (1964) AC 465

H was an advertising agent who had provided a substantial amount of advertising on credit for E. If E did not pay for the advertising, then H would be responsible for such amounts. H sought assurances from E's bank that E was in a financial position to pay for additional advertising.

E's bankers gave a favourable report, but inserted a disclaimer that the report was given "without responsibility". On the strength of the report, H placed additional orders on behalf of E which was eventually not paid by E.

H sued E's bankers for damages under the Tort of Negligence.

The House of Lords held that: "A negligent, although honest, misrepresentation, may give rise to an action for damages for financial loss even if there was no contract between the advisor (person giving the advice) and the advisee (person receiving the advice) and no fiduciary relationship. The law will imply a duty of care when the advisee seeks information from an advisor who has special skill and where the advisee trusts the advisor to exercise due care, and that the advisor knew or ought to have known that reliance was being placed upon his skill and judgment".

(Note: This case established the Doctrine of Negligent Misrepresentation, but in this case, the disclaimer effectively barred the claim)

Penang High Court Case on Duty of Care

The principles laid down in Hedley Byrne v Heller were applied in 1994 by Malaysian Courts in a Penang High Court case. A copy of the Penang High Court Judgment may be obtained from the writer at enquiries@ecptl.com

This case is very important as it sets a precedent, namely the application of the legal concept of Duty of Care as laid down by the House of Lords in Hedley Byrne v Heller on the conduct of real estate agents in Malaysia.

Estate Agent J offered to let one-half portion of a premise to N who later alleged that during negotiations, the former, by conduct or implication represented to N that the landlord and/or owner had a good title to the premises and it was not subject to any foreclosure proceedings.

It turned out later that the premise was indeed subject to foreclosure proceedings.

The Penang High Court held that: ".. in Hedley Byrne (post 1956), the House of Lords had recognised the existence in equity of a duty of care arising from fiduciary relationship as in the case of a solicitor and his client, for misrepresentation".

The Judge said:

"I must admit that is a far cry from the facts in this case. Because, here, while I have no doubt that a fiduciary relationship between the Appellant (N) and the Respondent (Estate Agent J) did exist, what happened here was not an active misrepresentation, not even a careless mis-statement as in the Hedley Byrne case. Here, it was non-disclosure.

"This is not a case of a friend telling another friend that there is a house for rent. This is a case of a professional firm, holding out to be a professional with expertise in its field, earning its income as such professional. They know that people like N would act on their advice. Indeed, I have no doubt that they would hold out to be experts in the field and are reliable. It would be a sad day if the laws of this country recognise that such a firm, in that kind of relationship, owes no duty of care to its client yet may charge fees for their expert services.

"In the circumstances, I think I am fully justified in taking the view that J in this case owed a duty to N to disclose that there was a foreclosure proceeding pending. I think the provision of s. 3 of the Civil Law Act 1956, especially the proviso thereto, allows me to do so".

In conclusion, the Judge allowed the appeal by N.

Applying Hedley Byrne v Heller

The Judge in his judgment very clearly crystallised the issue of Duty of Care of real estate agents in Malaysia towards their clients.

He very clearly spelled out the extent of the responsibility of real estate agents vis-à-vis losses suffered by their clients due to their misconduct including active misrepresentation, careless misstatement and non-disclosure of important facts and information.

As a result of this case, clients of real estate agents in Malaysia who suffer financial and other losses due to the misconduct of these real estate agents, including active misrepresentation, careless misstatement and non-disclosure of important facts and information, can and should act and claim for compensation from these errant real estate agents.