Knowledge

15 June 2017

Agent suffers $1.6M judgment for misrepresentation

In a decision handed down just a few weeks ago, a real estate agent has been ordered by the Supreme Court to pay the sum of $1,640,252.00 after a finding of misrepresentation in connection with the sale of a shopping centre.

The purchaser of the shopping centre made a claim against two defendants; firstly the property manager of the centre (“manager”) and secondly the real estate agent (“agent”).  The claim was that the defendants had misrepresented the financial performance of the centre, and therefore how much it was worth.

The decision considers and builds on existing authority including:

  • the decisions of Yorke v Lucas where it was held that an agent is not liable for misleading or deceptive conduct where they are merely passing on information from vendor to purchaser without actually endorsing the information; and
  • the decision in Butcher v Lachlan Elder Realty, where it was held that inaccurate information contained in an agent’s brochure did not mislead the purchaser.  In that case, the brochure contained a disclaimer that the information contained within it was not guaranteed to be accurate and that interested persons should make their own enquiries. The purchaser had engaged professional advisers.

Misrepresentation

The court made a finding that the agent had made misrepresentations to the purchaser by:

  • preparing an information memorandum which stated that the total nett rent received in the year ending 2009 was $607,175.04 per annum (where the actual amount was $297,896.00);
  • stating that nett rent had risen due to annual rent review to $619,630.00;
  • stating that the total outgoings for the centre were $106,140.00 and that, apart from land tax, all outgoings were recovered from or billed to the tenants (total outgoings were actually $190,000.00 and not all were recovered from tenants); and
  • stating that the centre would yield a return on investment between 8% and 10%.

The reality of the situation was that the centre had performed poorly since it had been opened, and this was not disclosed in the memorandum.

The court found that the representation was made by the agent, and was not simply the agent passing information from the manager to the purchaser, without any belief in its truth or falsity. The court emphasised that:

  • the information memorandum stated on the front page that it was prepared by the agent and displayed the agent’s banner, address and contact details;
  • the logo of the agent was also present on each page of the memorandum.  This had the effect that the agent was putting the information forward as its own;
  • even though one of the documents disclosed was branded with the manager’s logo, the fact that the document also bore the logo of the agent constituted an endorsement of the information prepared by the manager; and
  • by assisting the purchaser to calculate a purchase price based on the rental figures in the memorandum, this constituted an endorsement by the agent that this figure was accurate. The agent calculated the purchase price of $6.9 million based on the nett rental income of $619,630.0. The actual value of the centre, as determined by a valuer at trial, was $4.94 million.

The court determined that this information was relied upon by the purchaser and that, had the representations not been made, the purchaser would not have agreed to purchase the centre. Despite commenting that the purchaser had been naïve and overly trusting, the court found that it was the misrepresentation which was the direct cause of the loss suffered by the purchaser.

It should be noted that the misrepresentation claim against the manager failed because the agent had only disclosed part of the report and not the entire report prepared by the manager.  The court made a finding that, had the entire report been disclosed to the purchaser, it would not have been misleading. Instead, it was the use of part of the report by the agent which was misleading.

Use of a disclaimer by the agent

A finding of misrepresentation was made despite the fact that the memorandum contained a disclaimer to the effect that the agent had not verified the information, was merely passing it on, and that the purchaser should not rely on the information, but should satisfy themselves as to any conclusions.  The court considered that this disclaimer, contained at the end of page 38 of a 39 page document, was not sufficient to warn the purchaser that the information contained within should not be relied on as being accurate. This case was distinguished from the decision in Butcher where the disclaimer was reasonably prominent on each page of the two page brochure, such that it effectively warned persons reading the brochure that they should make their own enquiries. The court also considered that the agency branding on the documents, and the oral endorsement by the agent of the information, was inconsistent with the disclosure statement.

Defence of contributory negligence

The agent raised a defence, which ultimately failed, of contributory negligence on behalf of the purchaser who did not conduct due diligence in relation to the purchase. The defence failed on a technical point because the defendant had not shown that any further enquiries made by the purchaser would have made a difference.

Lessons to be learned

This case should serve as a caution to agents about rebranding and distributing information that has been supplied to them by a third party, including reputable managing organisations.  Agents should also consider whether any disclaimer notice contained within documents is sufficiently prominent to effectively alert a reasonable person that the information within the document is simply being passed on, and has not been verified. Agents should be careful not to endorse or adopt the information of third parties orally or through emails.

Decision: Makings Custodian Pty Ltd v CBRE Pty Ltd [2017] QSC 80.

For further information, please contact:

Nigel Hales
Accredited Specialist – Property Law
Partner, Miller Harris Lawyers

Email:  nigelhales@millerharris.com.au
Direct Phone:  (07) 4036 9731

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