When can a real estate agent be liable for statements made to a property purchaser - Part two

In August 2017, we wrote about a recent decision where the Supreme Court found a real estate agent was liable to a purchaser of a shopping centre for misrepresentations made to the purchaser during its sale. 

Appeals were filed in respect of that decision by both the agent and the purchaser. The Court of Appeal has now delivered its judgment in respect of both appeals¹.

Appeal by agent

The real estate agent who acted for the seller appealed against the decision on a number of grounds. The agent (Orchid Avenue Realty Pty Ltd) was not successful in relation to the following arguments:

1. the case was not conducted in accordance with the pleadings, and consequently, there was a failure to extend procedural fairness to the agent;
2. the agent had done no more than “pass on” information to the purchaser that had been prepared by the property manager or supplied by the seller. While the appeal Court accepted that some documents had originated from the property manager, it endorsed the trial Judge’s findings that the agent had done much more than simply “pass on” information without any representation as to its truth or falsity. This was because, amongst other things, the agent had made statements that went well beyond information in the documents, the agent amplified the information in them and the agent endorsed purchase price calculations based on incorrect information;
3. the purchaser contributed to its own loss;
4. one of the directors of the seller of the centre was jointly responsible for the loss suffered by the purchaser;
5. the trial Judge had adopted the incorrect measure of damages, by failing to take into account the value of the centre at the time of trial, rather than its value at the time it was purchased; and
6. interest on the judgment had been incorrectly awarded.

The agent also appealed the finding that the claim against them was not an apportionable claim pursuant to the Trade Practices Act 1974 (TPA) and the Civil Liability Act 2003 (Qld). The agent argued that the seller of the shopping centre was a concurrent wrongdoer for the purposes of those acts, meaning that some part of the agent’s liability to the purchaser could be apportioned to the seller.

The trial Judge found that the facts at hand fell squarely within the ambit of an earlier decision of the Queensland Court of Appeal - Hadgelias Holdings and Waight v Seirlis² - to the effect that where a real estate agent and a seller perform a single set of acts which cause the subject (purchaser’s) loss, they were not concurrent wrongdoers so as to attract the application of the TPA (with a similar finding in respect of the Civil Liability Act).

The Court of Appeal considered the Hadgelias decision and its potential application to the facts at hand. Justice Gotterson noted that it will not always be the case that every act of a real estate agent and a seller in a sales transaction will constitute a single set of acts. Where a seller has itself contravened section 52 of the TPA (now section 18 of the Australian Consumer Law) by acts or omissions which have no direct counterparts in conduct on the part of the agent, it is inappropriate to characterise those acts or omissions and the agent’s conduct as all within a single set of acts or omissions which caused the purchaser’s loss.

Here, the Court of Appeal found that the conduct of the seller (the provision to the agent of a tenancy schedule, notice of annual estimate of outgoings and an updated tenancy schedule) was not part of a single set of acts in which the agent participated. As a result, the agent and the seller were concurrent wrongdoers - meaning that both were, to some extent, responsible for the purchaser’s loss.

The agent’s appeal was allowed in respect of this point and the Court of Appeal found that the agent should be liable for 80% of the damages assessed in favour of the purchaser. This argument was important to the agent, because it had the effect of reducing their liability to the purchaser in circumstances where the seller itself was deregistered.

Appeal by purchaser

The appeal by the purchaser dealt with two issues.

The first issue was whether or not the costs incurred by the purchaser in acquiring the shopping centre should have been deducted from the damages awarded to the purchaser. This aspect of the appeal was unsuccessful.

Secondly, the purchaser had settled separate litigation against the property manager, resulting in a payment of $349,748.00 to the purchaser. The trial judge reduced the damages by this amount. The purchaser argued that the damages should not have been reduced because the subject of that claim against the property manager was the failed collection of rent after settlement of the centre. The purchaser therefore argued that any loss it suffered arising from the property agent’s non-collection of rent was unconnected with the loss it incurred by purchasing the centre. The Court of Appeal agreed that the damages should not have been reduced by the amount of $349,748.00, and therefore increased the primary amount of damages to $1,990,000.00. As noted above, the agent was responsible for 80% of that amount, namely $1,592,000.00.

Take away points

The Court of Appeal decision is important. It provides guidance as to how the Queensland Courts are likely to consider claims of proportionate liability in general, and in particular, the liability between the seller of a property and a real estate agent where incorrect representations have been made to a purchaser. The Court of Appeal also made it clear that if the seller’s conduct is separate to that of the agent, then it is likely that liability to a purchaser will be apportioned between the seller and the agent.

Otherwise, the appeal decision does not affect the primary finding in the trial decision, namely the agent being found liable to the purchaser for representations which were made during the course of the sale transaction. As we noted in our previous article, where an agent prepares a brochure such as an information memorandum (IM), they can be found liable to a purchaser if the brochure is not accurate. This can even be the case in circumstances where the brochure contains a disclaimer or an express clause which identifies the sources of information contained in the brochure. To the extent that agents prepare or provide brochures, information or IM’s to potential purchasers, they should be aware of a risk of being found responsible for misleading or deceptive conduct to a purchaser if the information is later found to be wrong. In considering such a claim, a court will look at the extent to which an agent prepared, adopted or endorsed the relevant information.

Should you require any advice in relation to the decision, or the provision of property information to potential purchasers, please do not hesitate to contact Partner, Darrell Jardine, our Litigation & Dispute Resolution team or our Commercial Property team.

<sup>1. Makings Custodian Pty Ltd & Anor v Orchid Avenue Realty Pty Ltd; Orchid Avenue Realty Pty Ltd v Makings Custodian Pty Ltd & Ors [2018] QCA 33
2. [2015] 1 Qd R 337</sup>