But a just-released Court of Appeal decision found Rahal was liable to pay significant damages under the Fair Trading Act to the couple for the losses they suffered after they were “locked into ownership” of a leaky property that was worth less than their mortgage and which they could not afford to repair.
“Mr Bhargav and Ms Kharjuria were not able to sell to move to a leak-free home, were forced into a negative equity situation, living in sub-standard housing with their young family, and having to repair the property themselves,” the decision says.
Davinder Singh Rahal had argued that the house was sold by his company, which was now in liquidation, and that he should not be personally liable for damages after the deceptive sale.
The couple’s lawyer, Sarah Wroe, told the Herald the decision was significant in that it found Rahal could not hide behind the “corporate veil” of his company, which was now in liquidation.
The finding that Rahal was personally liable for the couple’s loss meant they could now pursue him directly for the damages.
“This decision shows the courts will enforce fair trading legislation to compensate buyers who are misled,” Wroe said.
“It is bad news for vendors who hide defects, then try to hide behind their company to avoid liability.”
‘Smelt damp and mouldy’
Rahal and his wife were the sole directors and shareholders of First Trust Ltd (FTL), which bought the Goodwood Heights property in 2019.
An earlier High Court judgment by Justice Anne Hinton found Rahal was aware the property suffered from water damage when he bought it, and that he authorised cosmetic repairs to conceal the defects before selling it to Ameet Bhargav and his wife Renu Khajuria in March 2020 without disclosing the weather-tightness problems.
Rahal accepted that parts of the property “smelt damp and mouldy” when he viewed it, but said he thought this was what made it a “do up”.
He denied being told by the selling agent that it was a leaky home and said he would never have bought it if he knew it leaked.
Justice Hinton disagreed, ruling that Rahal had authorised “cover-up works” and that his failure to disclose that information “constituted misleading and deceptive conduct”.
The couple launched legal action in 2021. FTL and Rahal were found jointly liable and ordered to pay total damages of $900,000.
At last year’s Court of Appeal hearing, Rahal’s lawyer, Andrew Grant, described his client as a “very old, sick man”.
While Rahal was the director of the vendor company, he “personally did not have sufficient involvement” in the sale process to “pierce the corporate veil and sheet home liability to him”.
Grant told the court that real estate agent Gary Bal had handled the sale and had since entered into a settlement with the couple.
The couple paid $665,000 for this home in Goodwood Heights, Manukau, in March 2020. It turned out to be infested with rot. Photo / NZME
Rahal’s business partner, Ranjay Sikka, had acted as an agent of FTL and overseen the renovation, Grant said.
“This is not a case in which Mr Rahal was solely driving activities of this company.”
However, Wroe argued Rahal was the “puppet master” and should be held liable for his actions.
While there were two FTL directors, “for all intents and purposes, it was a one-man band”.
Wroe said Justice Hinton found Rahal to be an unreliable witness who gave “implausible” evidence by claiming he did not know the property leaked.
The trial heard evidence that Rahal was shown “visible” water damage when he viewed the property, but told an agent “it would not be a problem” because he would fix it as he’d done with other investment homes.
Davinder Rahal was found to have knowingly sold a leaky home to a young couple in Goodwood Heights, Manukau, in March 2020.
“He was well aware of the entirely false condition of the property as it was being presented to the purchasers,” Wroe said.
“This was a case of deliberate deception of a young couple buying their first home.”
Learning that their home leaked had been a huge blow for the couple, who were forced to live in a damp, mouldy property with a young baby.
They had taken on a 30-year $600,000 mortgage for a home that was worth only $480,000 and were in no position to buy back into the market.
“They were immediately locked into a negative equity situation,” Wroe said. “The plaintiffs would not have bought had they known the truth. They would have walked away.
“This is an exceptional case. We haven’t been able to find a similar level of deception and the quite tragic outcome for this young couple and their family.”
The Court of Appeal decision found there was “more than enough evidence” to show Rahal was sufficiently involved in the misleading and deceptive conduct to warrant personal liability.
“Mr Bhargav and Ms Khajuria were effectively locked into retaining the leaky property, living in it, enduring the physical and mental health consequences of doing so with their family, and repairing the property.”
Their plans, hard work and savings were “completely derailed” by the deliberately misleading and deceptive conduct of Rahal and his company.
“Accordingly, Mr Rahal is liable for the costs of remediation and consequential losses.”
The court awarded the couple $688,868.40 for breach of the Fair Trading Act and $103,107 for consequential losses.
However, on appeal, an earlier award of $80,000 for general damages was substituted with an order for $35,000.
Lane Nichols is Auckland desk editor for the New Zealand Herald, with more than 20 years’ experience in the industry.
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