When can a real estate agent be held liable for misleading and deceptive conduct?

By 07/11/2018Contract
misleading deceptive conduct real estate agent

Real estate agents receive information from vendors which they may pass on to potential purchasers verbally and in writing (for example in online and printed marketing materials).

In what circumstances can the agent be held liable if the information is misleading or deceptive, contrary to section 18 of the Australian Consumer Law, and the purchaser relies on the information to purchase the property?

The key question is whether a reasonable purchaser in the position of the purchaser would have understood the agent’s representations as merely amounting to the passing on by it of information provided by the vendor.

If so, the agent cannot be held liable for misleading and deceptive conduct, as the agent acts as a ‘mere conduit’ of the vendor’s information.

A recent case in the NSW Court of Appeal

In 2015 Mrs Hyder purchased a large residential property in Bellevue Hill, Sydney, for $9.4 million. She later sued the vendor’s real estate agent, McGrath, for alleged pre-sale representations regarding the availability of exclusive ‘private off-street parking’ and ‘driveway parking’ at the property.

The Court of Appeal held that in all the circumstances McGrath was not liable for misleading and deceptive conduct:

1.  The Hyders were apparently wealthy and intelligent people, and Mr Hyder had considerable experience and success in property development. On the other hand, McGrath was a suburban real estate agent, who Mr Hyder conceded did not profess any legal or valuation expertise.

2.  The nature of the transaction was the purchase of an expensive residential property. A reasonable person would expect the purchasers to take considerable care to verify matters they considered to be of importance, rather than rely on the statements of the vendor’s real estate agent. Further, as McGrath knew, the Hyders had obtained advice from a solicitor and valuer in relation to the purchase.

3.  The nature of the information in question (the entitlement to exclusive parking) was, as Mr Hyder conceded, not such as would be expected to be within the real estate agent’s own knowledge or expertise, but rather was something that was likely to have been obtained from the vendor.

4.  McGrath’s online and printed marketing material contained a disclaimer: “All information contained herein is gathered from sources we believe to be reliable. However we cannot guarantee its accuracy and interested persons should rely on their own enquiries”.

5.  The purchasers acknowledged in the special conditions of the contract of sale that they had relied on their own inspection and investigation of the property, including as to its suitability, and not on any statements made by the vendor’s agent.

In conclusion the Court of Appeal held that reasonable purchasers in the position of the Hyders would have:

•  taken from their inspection of the property, the marketing material and their verbal communications with McGrath, that the information McGrath provided regarding parking was obtained from the vendor and that McGrath was not guaranteeing its accuracy;

• understood that McGrath was merely passing on information from the vendor regarding parking.

Accordingly McGrath did not engage in misleading and deceptive conduct.

Comment

The availability of the ‘mere conduit’ defence depends on all the circumstances.

Real estate agents have been found liable for misleading and deceptive conduct where:

•  the agent held itself out as a ‘commercial agent’ and represented in a sales brochure that the property was a ‘solid investment’

•  the agent held itself out as a ‘consultant to institutional investors’ and represented in a sales brochure that the net lettable area of the property was 180m2 when it was in fact less.

In these cases the Court found that in all the circumstances the agent was not acting as a ‘mere conduit’ of information supplied by the vendor.

Case citation

Hyder v McGrath Sales Pty Ltd [2018] NSWCA 223 (4 October 2018)

Further information

See my article “What is misleading and deceptive conduct?