Real estate agents: mere conduits? October 4, 2018
Reasonable purchasers in the position of the Hyders would have taken from their inspection of the property, the relevant marketing material and their oral communications with McGrath that the information that it provided in respect of parking was obtained from the vendor and that McGrath was not guaranteeing its accuracy.
Misleading and deceptive conduct – whether McGrath was a “mere conduit”
- In challenging the primary judge’s conclusion that “there was nothing in the representations to suggest that they came from a third party and McGrath was merely passing them on for what they were worth” (see  above), McGrath relied first on the following statement of the plurality in Yorke v Lucas (1985) 158 CLR 661 at 666;  HCA 65:
“If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive.”
- McGrath then relied upon the decision in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592;  HCA 60, in which a suburban real estate agent provided to prospective purchasers a sale brochure which reproduced a survey diagram that inaccurately depicted a swimming pool as being wholly within the property that was to be auctioned. The brochure included a disclaimer stating that the information on which the brochure was based had been obtained from sources which the agent believed to be reliable but that its accuracy could not be guaranteed, and interested persons should rely on their own enquiries.
- The High Court found that the agent had done no more than communicate what the vendor was representing, without either adopting or endorsing it. The majority at  held that when applying the Yorke v Lucas principles, “it is important that the agent’s conduct be viewed as a whole”, and emphasised at  that “the agent’s conduct” was to be characterised by considering the “nature of the parties, the character of the transaction contemplated, and the contents of the brochure itself”.
- As to the nature of the parties, their Honours noted at  and  that the purchasers were wealthy, “intelligent, shrewd and self-reliant”, and that the respondent was a suburban real estate agent not holding itself out “as possessing research skills or means of independently verifying details” about properties. The character of the transaction was a purchase of “very expensive property, to be used as an investment”. As well, the brochure contained the disclaimer referred to above and it was plain that the survey included in the brochure had not been prepared by the agent. Their Honours concluded at  that “[t]he agent did not purport to do anything more than pass on information supplied by another or others” and “both expressly and implicitly disclaimed any belief in the truth or falsity of that information”. It did not therefore engage in misleading or deceptive conduct.
- Another case McGrath relied upon was Dalton v Lawson Hill Estate Pty Ltd  FCAFC 169; (2005) ATPR 42-079, in which the Full Federal Court found at  that a reasonable purchaser would not have expected a real estate agent, who held himself out as having “local knowledge”, to have “specific knowledge of the area of the plantation of vines on particular properties”.
- The Court observed at :
“The Purchaser contended that the area of vine planting was ‘one of hard physical fact’ and that a prospective buyer was entitled to assume that a statement as to a ‘hard physical fact’ had been verified by the agent (see John G. Glass Real Estate Pty Ltd v Karawi Constructions Pty Limited  ATPR 41-249…at 41, 359). However, if the expression ‘one of hard physical fact’ is intended to signify ‘an uncontroversial matter, admitting of only one answer’, it must be said that the question of how the area of land planted with vines is to be described is not a matter of ‘hard physical fact’. Whether access areas (headlands and sidelands) or only the trellised areas are to be included was debateable. In any event, it would be unreasonable to attribute to an agent responsibility for every representation which can be correctly described as going to a matter of hard physical fact.”
- In John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd (1993) ATPR 41-249, a real estate agent included in a brochure (which featured the name and logo of Mr Glass’s real estate agency) information, sourced from the vendor, that the net lettable land of the property in question was 180m2 when it was in fact less. Moreover, the brochure included the following statements:
“REAL ESTATE AGENTS SPECIALISING IN:
• Commercial and industrial sales, leasing and management
• Prestige residential properties
• Real estate consultants to Institutional investors and to developers of major properties
The information contained herein has been prepared with care by our Company or it has been supplied to us by apparently reliable sources. In either case we have no reason to doubt its completeness or accuracy.
However, neither John G Glass Real Estate Pty Limited, its employees or its clients guarantee the information nor does it, or is it intended to form part of any contract. Accordingly, all interested parties should make their own enquiries to verify the information…”
- The Court found that as the real estate agents had held themselves out as, inter alia, “consultants to institutional investors”, potential purchasers of properties would not expect them simply to be passing on information about the property “for what it is worth and without any belief in its truth or falsity” (at 41,359). Moreover, to use the language in Dalton (see  above), the Court held that the net lettable area of a building was one of “hard physical fact”, that it was a factor essential to determining the profitability, and therefore value, of a commercial building, and that a purchaser would ordinarily expect, to quote the terms of the disclaimer, that the agent would have no reason to doubt the completeness or accuracy of the information provided (ibid). In all the circumstances, including that the agent was providing information in a persuasive form with a view to achieving a sale, the Court held that the agent had engaged in misleading and deceptive conduct and was no “mere conduit” (ibid).
- In CH Real Estate Pty Ltd v Jainran Pty Ltd; Boyana Pty Ltd v Jainran Pty Ltd  NSWCA 37; (2010) 14 BPR 27,361 Basten JA at - (Beazley JA, as her Honour then was, agreeing) found that where a real estate agent has held his or herself out as being a commercial agent, a reasonable purchaser would be entitled to assume that a representation in a brochure to the effect that a property was a “solid investment” was information being supplied by the agent, and not merely information being passed on.
- In Borzi Smythe Pty Ltd v Campbell Holdings (NSW) Pty Ltd  NSWCA 233, a purchaser had agreed to a purchase price of $920,000 after a period of negotiation, during the course of which the real estate agent informed the purchaser that higher offers had been made by a third party. That representation was made on the instruction of the vendor’s son, and proved to be false. In making the representation, the agent however disclosed the source of the information. On this basis, the Court found at  (per Beazley JA, Handley AJA agreeing) that the agent was a mere conduit of information and that this would have been apparent to the purchaser.
- In light of these authorities, the following matters are in my view relevant to a determination of whether in the present case McGrath was a “mere conduit” or alternatively engaged in misleading and deceptive conduct.
- First, as in Butcher, the Hyders are apparently wealthy and intelligent people. Mr Hyder had had considerable experience and success in property development. On the other hand, McGrath is a suburban real estate agent which, as Mr Hyder acknowledged in his evidence, did not profess any legal or valuation expertise (Butcher; cf John G Glass Real Estate and CH Real Estate).
- Secondly, the nature of the transaction was a purchase of an expensive residential property in relation to which a reasonable person would expect considerable care to be taken by the purchasers in verifying matters concerning the property that they considered to be of importance. In fact, as McGrath knew, Mr Hyder obtained advice from a solicitor and valuer in relation to the purchase. Mrs Hyder also provided a certificate under s 66W of the Conveyancing Act 1919 (NSW) (concerned with “cooling off” periods) stating that a lawyer had explained the effect of the contract to her. Lot 4’s legal entitlement to parking spaces outside the property’s apparent boundaries was a matter about which a prospective purchaser could reasonably have been expected to obtain legal advice, rather than relying upon statements of a vendor’s real estate agent.
- In addition, the nature of the information in question (that is, the entitlement to exclusive parking on the “private parking” strip) was, as in Dalton, not such as would be expected to be within the real estate agent’s own knowledge or expertise but, rather, was something that it was likely to have obtained from the vendor. Mr Hyder confirmed in his evidence that he believed that the information would have been obtained by McGrath from the vendor (see  above). The “private parking” signs located on the strip tended to suggest that the vendor was a likely source of McGrath’s information. The present case is thus distinguishable from CH Real Estate where the commercial agent represented that a property was a “solid investment” (see  above) and more like Borzi Smythe where the source of the information was disclosed (see  above).
- Thirdly, all of the relevant marketing material contained a disclaimer comparable to that in Butcher. I do not agree with the primary judge that the language of the disclaimer “would naturally be understood as relating to boundaries” and not dealing with the use of land at all (see  above). To the contrary, I consider that the words “[a]ll information” in the disclaimer indicated its breadth and, relevantly to the present case, that it covered what was indicated in the diagram concerning parking.
- It should be noted in this context that the disclaimer in John G Glass (see  above) was more limited than that in the present case. In John G Glass, the disclaimer contemplated that the information may have been either “prepared with care” by the agent itself or sourced from others. In the present case the disclaimer associated with the diagram (see  above) indicated that the latter was the case.
- Fourthly, as the primary judge said when considering contributory negligence, special conditions 9.4 and 9.5 of the purchase contract were a “clear warning” to the Hyders not to rely on statements by McGrath (see  above).
- In response to McGrath’s Notice of Contention, Mrs Hyder emphasised that in Butcher the inaccurate survey diagram was contained in the same document as the disclaimer, whereas in the present case there were oral representations made without accompanying disclaimers. I do not consider this factual difference to be of significance. The disclaimer in the written material constituted a relevant part of the transactions between the Hyders and McGrath, notwithstanding that it was not repeated orally. As in Butcher and Borzi, it was part of the circumstances from which the conclusion could be drawn that the agent did not endorse the information that was conveyed.
- Nor do I accept that, as Mrs Hyder submitted, there is a material distinction between the present case and Butcher because McGrath’s logo appeared on the diagram which referred to parking whereas the professional surveyor’s (and not the real estate agent’s) name appeared on the diagram considered in Butcher. It was clear that in the present case McGrath was not providing the information as to parking from its own knowledge, or based on its own expertise, but rather was passing on information believed by Mr Hyder to have been obtained from the vendor.
- For these reasons, I would uphold the Notice of Contention. Reasonable purchasers in the position of the Hyders would have taken from their inspection of the property, the relevant marketing material and their oral communications with McGrath that the information that it provided in respect of parking was obtained from the vendor and that McGrath was not guaranteeing its accuracy. They would have understood that McGrath was merely passing on information from the vendor regarding parking on the strip. As a result I conclude that McGrath did not engage in misleading or deceptive conduct and that Mrs Hyder’s appeal from the primary judge’s dismissal of her proceedings should itself be dismissed.