A Disclaimer Under the Microscope

Business, Journal, Sales,  Principals,  Salespeople

In the 2018 case of Hyder v McGrath Sales Pty Ltd (NSWCA 223), the NSW Court of Appeal considered a claim involving allegations of misleading and deceptive conduct by a real estate agent in relation to pre-sale representations about the availability of parking at a property.

In February 2015, Mrs Hyder purchased a $9.4 million residential property in Bellevue Hill, Sydney. McGrath Sales Pty Ltd was the sales agent engaged by the seller of the property. Over a year later, Hyder commenced proceedings in the NSW Supreme Court against the agent seeking damages for misleading and deceptive conduct in relation to representations made about the availability of parking at the property.

It was alleged one of the advertised features of the property was a double garage plus private off-street and driveway parking, which was a significant advantage in an area where the closest street parking was over 100m away from the property. In reality, the private off-street parking was actually a strip of land, which was one third of the width of a shared driveway used by two other properties. The remaining two thirds of driveway were of ample width for vehicles to use without using the property’s portion of the driveway. The strip of land in question had been used for parking almost exclusively by the previous owners of the property. At the time of purchase, there were in fact two signs on a wall abutting the strip stating “Private parking space 24” with 24 being a reference to the property’s street number.

The proceedings against the agent were dismissed in the first instance – the Judge decided that while the representations made by the agent regarding the car parking amounted to misleading and deceptive conduct, Hyder didn’t suffer any loss as a result. The Judge concluded that even if he’d decided Hyder was owed compensation, she would only be awarded $150,000 plus the amount of stamp duty paid on the excess price – this sum being reduced by two thirds to account for contributory negligence for her failure to conduct her own investigations into the availability of car parking at the property.

Hyder sought to appeal the Judge’s decision, stating he erred in his conclusions as to causation, the valuation of the property and also contributory negligence. The agent filed a notice of contention, seeking to support the Judge’s dismissal of the proceedings on the alternative ground that a reasonable purchaser in Hyder’s position would’ve understood that an agent’s representations concerning car parking would only amount to the passing on of information by the vendor, and not misleading or deceptive conduct. This is known as the “mere conduit” argument.

So, was the agent a mere conduit of the vendor’s information? Prior to purchase, Hyder viewed the property on about four occasions. She’d also seen online advertising and a printed brochure. The sales agent was responsible for both. The online advertisement stated the property included “private off-street and driveway parking” and included a site plan of the property, which depicted three cars parked in the strip which was subject to rights of way. All of the marketing material produced by the agent included a disclaimer which stated: “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 enquires.

The contract of sale also included a special condition which stated, inter alia, that the purchaser acknowledged they had relied upon their own inspections, investigations and advice and hadn’t relied upon any representations made by the vendor or his agent regarding the suitability of the property for the purchaser.

Whether a disclaimer clause in marketing material produced by a real estate agent is held to be effective depends upon the specific facts and circumstances of each case. For instance, in Butcher v Lachlan Elder Realty Pty Ltd,[1] a real estate provided a sales brochure of a property which depicted a swimming pool as being wholly within the boundaries of the property. The brochure contained a disclaimer similar to the agent’s disclaimer in this case, which stated that the information contained in the brochure had been obtained from sources that were believed to be reliable but their accuracy could not be guaranteed. The Court found in that decision that the sales agent had only communicated what the seller had represented and that it hadn’t endorsed the information.

Conversely, in CH Real Estate Pty Ltd v Jainran Pty Ltd,[2] a real estate agent represented a commercial property as a “solid investment” which was subsequently found to be a misleading and deceptive statement. In that instance, the Court found that a reasonable purchaser should be able to rely upon that representation as information supplied by the agent, rather than information that was merely being passed on.

Further, in Dalton v Lawson Hill Estate Pty Ltd,[3] it was held that a real estate agent who held themselves out as having local knowledge couldn’t be expected to have specific knowledge of a particular matter, in this case being an area of planted vines on a rural property being marketed for sale. The Court held that “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,[4] a real estate agent who held themselves out to be “consultants to institutional investors” and represented the net lettable land of a property as being larger than it actually was, was found to have engaged in misleading and deceptive conduct. In that instance, the agent had included a disclaimer in its marketing material which stated that the information had been supplied by apparently reliable sources and they didn’t have any reason to doubt its completeness or accuracy. The Court concluded that a factor such as the net lettable land is essential to the value of a commercial building, and as such a purchaser would expect the information supplied by the agent was complete and accurate.

Back to our original case and the Court of Appeal commented that Hyder and her husband were evidently wealthy and intelligent people and that Mr Hyder had significant experience in property development. It noted that it was a very expensive property, which was for their own residential purposes. The Court determined that given the nature of the transaction and the parties to the sale, it was reasonable to expect Hyder to undertake her own investigations in regards to information that she considered to be material to the purchase of the property. Further, it was an accepted fact that Hyder had received advice from a solicitor and a valuer in relation to the transaction. It therefore held that the primary judge did not err in finding that Hyder failed to establish that the agent’s conduct caused her loss. The Court of Appeal also held that it accepted the agent’s valuation evidence over the evidence tendered by Hyder and that the primary judge was correct in concluding that Mrs Hyder (and her husband) were contributorily negligent to a significant extent.

These factors, combined with the disclaimer included in the advertising, resulted in the Court dismissing the Appeal and upholding the agent’s notice of contention. The Court ultimately decided that any information concerning car parking at the property was obtained from the vendor and that the agent wasn’t guaranteeing its accuracy. It also concluded a reasonable purchaser in Hyder’s position would’ve understood the agent was merely passing on information from the vendor and that it didn’t, therefore, engage in misleading and deceptive conduct. The Appeal was dismissed, with costs awarded in the agent’s favour.

It is, of course, best practice to include a comprehensive written disclaimer on all marketing and advertising material distributed to potential buyers. However, as demonstrated in some of the cases referred to above, the inclusion of a disclaimer in marketing and advertising material doesn’t necessarily provide a defence to all claims of misleading and deceptive conduct. The nature of the transaction, the experience of the parties, the skills and expertise of the real estate agent as well as the information being represented are all key factors in determining whether a disclaimer can be relied on to absolve an agent of responsibility for passing on inaccurate information.

[1] (2004) 218 CLR 592.
[2] [2010] NSWCA 37.
[3] [2005] FCAFC 169.
[4] (1993) ATPR 41-249.

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