Real estate agent was ‘mere conduit’ of vendor in passing on information to prospective purchaser

Legal Directions

Background facts

Mrs Hyder, the plaintiff, was the buyer of residential property in Ginahgulla Road in the Sydney suburb of Bellevue Hill. She sued the vendor’s real estate agent, McGrath Sales Pty Ltd (McGrath), alleging misleading and deceptive conduct in relation to alleged pre-sale misrepresentations concerning the availability of parking at the property. She alleged contraventions of s18 of the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010 (Cth)).

The property, which was Lot 4 of a subdivision, was a ‘battle-axe’ lot with a two car garage and an area in front of the garage with enough room for a further two cars to be parked. It included a strip of land which was one third of the width of the driveway and had rights of way over the other two-thirds of the strip. The owners of the two other properties had the benefit of rights of way over Lot 4‘s portion of the strip, making the strip of land a shared driveway. However, if cars were parked on Lot 4’s portion of the strip, there was still sufficient room over the other two-thirds of the strip to pass through with ease. Public parking was not permitted in Ginahgulla Road.

McGrath, which was retained to sell the property for the vendor, listed it online and created a printed brochure wherein it described the property as having a ‘Double garage plus private off-street and driveway parking’. The online advertisement also included a site plan which depicted three cars parked end to end on Lot 4’s strip which was subject to the rights of way. Underneath the site plan the following notation appeared:

Scale in metres, indicative only. Dimensions are approximate. All information contained herein is gathered from sources we believe to be reliable. However, we cannot guarantee the accuracy and interested persons should rely upon their own enquiries.

The printed brochure described the property as having ‘plentiful parking’ and also included the site plan with the above disclaimer. Mrs Hyder viewed both the online advertisement and the brochure.

Mrs Hyder’s evidence was that one of her prerequisites for a suitable property for purchase was that it had multiple parking spaces. She sought damages from McGrath for misleading and deceptive conduct, alleging its misrepresentations regarding the availability parking at the property had induced her to buy the property overvalue.

At First Instance

Based upon the evidence at trial before the trial judge, it was accepted that McGrath had advised Mrs Hyder’s husband, Mr Hyder, orally that the strip of land was a ‘private parking’ area exclusive to the property. However, Parker J did not accept that McGrath advised the Hyders that the ‘private parking’ added value to the property. Nonetheless, it was a selling point. His Honour found the oral statements made by McGrath, along with the advertising, constituted a representation that the property had exclusive use of the shared driveway for parking.

Parker J then considered whether McGrath was a mere conduit of the information and if so, did not engage in misleading conduct. He determined that there was no evidence before him to suggest that the information came from a third party and that McGrath was simply passing it on for ‘what it was worth’. In respect of the disclaimer on the advertisements (upon which McGrath relied), Parker J determined that a reasonable reader would not have seen the disclaimer as ‘undermining the representation of exclusivity which arose from the placement of the cars on the diagram.’

Notwithstanding the above, Parker J was not satisfied that misleading conduct by McGrath caused Mrs Hyder loss, as she alleged. The evidence at trial indicated that Mrs Hyder purchased the property for more than the valuation the Hyders had obtained. Mr Hyder’s evidence was that he was prepared to pay the increased price due to Mrs Hyder’s emotional attachment to the property. Parker J found that it was at least equally likely that, even if the Hyders correctly understood the parking situation, they would have still proceeded with the purchase.

Alternatively, His Honour said any loss would need to be reduced by two-thirds on the basis of the contributory negligence of Mrs Hyder and Mr Hyder, acting on her behalf, in failing to take reasonable care in protecting their interests by making their own inquiries as part of the pre-contract negotiations.

On Appeal

The Court of Appeal identified several factors which were relevant in considering whether McGrath was acting as a ‘mere conduit’:

Nature of the parties 

  • Mr and Mrs Hyder were both wealthy and intelligent people who had experience and success in property development
  • McGrath was a suburban real estate agent without any legal or valuation expertise (as acknowledged by Mr Hyder in his evidence).

The character of the transaction

  • This was the purchase of an expensive residential property and a reasonable person would expect ‘considerable care’ to be taken by purchasers in verifying information which they considered to be of importance to them in the purchase
  • McGrath knew that Mr Hyder had obtained advice from a solicitor and a valuer in respect of the purchase
  • The information in question was of a nature that it would not have been expected to be within the real estate agent’s own knowledge.

Disclaimer 

  • The relevant marketing material contained a disclaimer, which covered the information contained in the diagram, contrary to the findings of Parker J
  • The special conditions in the purchase contract amounted to a ‘clear warning’ to Mr and Mrs Hyder not to rely upon statements made by McGrath.

The Court of Appeal held that reasonable purchasers in Mr and Mrs Hyder’s position would have taken the information provided to them both orally and from the marketing material to be merely the passing on of information from the vendor regarding parking on the strip and as a result, found that McGrath did not engage in misleading conduct.

Conclusion

While the real estate agent in this case was ultimately successful in defending itself from allegations of misleading conduct, all real estate agents should still take particular care as to what statements are made to prospective purchasers and the basis upon which those statements are made. Where information is provided that is outside its direct knowledge or expertise, the agent should make that clear and suggest the purchaser makes their own enquiries.

Further information / assistance regarding the issues raised in this article is available from the author, Christine Westlake, Associate, or your usual contact at Moray & Agnew.


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