The liability of selling agents for false information in promotional brochures

Not only do selling agent’s face the distrust often heaped on commission based sales professionals,[1] but they also must often rely on others for the information which they provide to potential buyers.  So what happens when that information is inaccurate or misleading?

Generally, where a plaintiff brings a claim in relation to a brochure which contained false information about a property, both the vendor and the selling agent who prepared the brochure will be pursued for misleading and deceptive conduct even if the agent merely passed on the information. 

This article focuses on the factors which may result in liability for misleading and deceptive conduct pursuant to s 18 of the Australian Consumer Law[2] for selling agents due to material contained in a promotional brochure.

When is information in a brochure likely to be misleading?

Whether conduct is misleading or deceptive will depend on the circumstances of each case.[3]  The court will generally apply one of two methods in determining whether the conduct was misleading or deceptive.  Generally, the conduct will be considered from the perspective of an ordinary member of a class of persons.  Occasionally, where ‘monetary relief is sought by a plaintiff who alleges that a particular representation was made to identified persons, of whom the plaintiff is one’,[4] the court will inquire as to whether a reasonable person in the specific position of the plaintiff would have been misled or deceived.  The second approach takes into account factors such as the sophistication and economic position of the plaintiff.[5] 

Once the court has satisfied itself that the reasonable person in the circumstances of the plaintiff would have been misled, it will then consider if the plaintiff reasonably relied on that information.[6]

The 2004 High Court decision in Butcher considered whether a selling agent can be said to have engaged in misleading or deceptive conduct where the agent has merely passed on to the buyer false information provided by the vendor.

In Butcher a selling agent’s promotional brochure provided inaccurate information.  The selling agent had prepared the brochure based on information given to it from the vendor.  This information included a survey diagram obtained from the vendor’s solicitors which indicated a rear boundary fence on the water side of the swimming pool, and the high-water mark beyond.

The buyers, in reliance of the information provided to them, had decided that the property could be developed as an investment property and planned to realign the swimming pool at the rear of the property and to construct a substantial entertainment area.  The buyers successfully bid at the auction after completing inspections with expert advisers who relied on the information contained in the brochure.  It later transpired that the diagram was inaccurate, and the buyers were subsequently advised that they could not realign the swimming pool.

The buyers then sought, and obtained, a court order for the return of their deposit plus interest from the vendor and pursued the selling agent for misleading or deceptive conduct.

The selling agent argued that it had simply passed on information about the property from the vendor, and relied on its disclaimer which appeared on the front and back of the brochure and read, “All information contained herein is gathered from sources we deem to be reliable.  However, we cannot guarantee its accuracy and interested persons should rely on their own enquiries”.[7]

The court observed that the purchasers were “intelligent, shrewd and self-reliant”,[8] and had engaged “appropriate professional advisers”.[9]  That fact combined with the words of the disclaimer, resulted in the court finding that it would have been plain to a reasonable purchaser that the agent was not the source of the information said to be misleading.[10]  The finding in Butcher relied on the principles from Yorke v Lucas,[11] that an agent is not liable for misleading or deceptive conduct, if false information which forms the basis of the representation was provided by the vendor to the agent, provided the agent only passes on the false information without endorsing its veracity.[12] Where the agent endorses and adopts the representation it will be found liable as it acts as more than a mere “conduit”.[13]

Important factors in the liability of selling agents

While Butcher found that the selling agent, in preparing and distributing the brochure, had not engaged in misleading and deceptive conduct but had merely passed on the information provided by the vendor, this does not mean that a selling agent cannot be found to have engaged in misleading and deceptive conduct where they have prepared similar materials.  Each case will revolve around the relevant facts and circumstances. 

In recent years, case law has indicated the following factors are relevant to the question of whether or not a selling agent can be held responsible for misleading or deceptive information in a brochure:

  • the nature of the information;
  • the expertise of the agent;
  • whether any disclaimers effectively qualify the information;
  • whether the agent has adopted or endorsed the information in the process of effecting the sale; and
  • the characteristics of the buyer and their understanding or perception of the information.[14]

Nature of the information and expertise of the agent

This factor is important where the representation is of a type that a reasonable buyer would have:

  • read and relied upon when entering the contract; and
  • considered to be within the expertise of the agent and, therefore, verified by the agent.

Brochures prepared by a selling agent will often contain a mixture of both puffery and definitive factual information such as measurements and existing ascertainable facts.  It is this second category of information which is most likely to be the focus of a misleading and deceptive conduct claim.  This is because, where a brochure outlines facts with specificity and they are incorrect, they are more likely to have been relied on by the buyer.  Common examples of this include the misdescription of the area of a property,[15] the net lettable area[16] or the location of a development.  This type of information tends to fall into the category of facts which a reasonable person would consider to be within the expertise of a selling agent.[17]

Additionally, selling agents involved in the sale of off the plan properties should be aware that information concerning future matters such as the design, physical features, size and location of a development may also give rise to a claim in misleading and deceptive conduct.  In this type of scenario liability will only arise where the selling agent had no reasonable grounds for making the statement.[18]

Finally, agents who profess a particular expertise will likely have a harder time arguing that they merely passed on information.[19]  

Disclaimers

Selling agents should continue to incorporate, but not heavily rely on, disclaimers.  Overall it appears that their effectiveness against claims for misleading and deceptive conduct have been marginal but since the decision in Butcher there is some uncertainty as to their efficacy.[20]

Adoption or endorsement of the information

Whether a court will find a selling agent has adopted or endorsed the information contained in a misleading or deceptive brochure will depend in part on the above elements and the circumstances of the case.  In particular, a court will consider:

  • the point in the transaction the buyer was given the brochure;
  • how the buyer then used the brochure; and
  • whether the selling agent was aware that the buyer was relying on the information contained in the brochure in a material way.  

Conclusion

Selling agents must be careful when preparing promotional materials for the sale of property based on information provided by other parties such as the vendor. 

Particular care should be taken where the agent holds itself out as having particular experience, or the information is of the type that may be seen as being within the expertise of a selling agent, as the information may then be viewed by a court as having been adopted or endorsed by the agent, rather than being merely passed on. 

Disclaimers should continue to be included, but due to the uncertainty that cases such as Butcher demonstrate, the efficacy of such a disclaimer should not be heavily relied on.  The cases indicate that a disclaimer which discloses that the selling agent is not the source of, and has not verified the accuracy of the information are likely to be more effective than a disclaimer that simply seeks to exclude liability associated with reliance on the information.

Selling agents should ensure that they obtain warranties from suppliers of information as to the correctness of the information supplied.

In addition, selling agents should obtain indemnities from such suppliers in respect of loss that the agent may suffer as a result of the use of that incorrect information.



[1] See Roy Morgan Research, Image of the Professions Survey 2016, http://www.roymorgan.com/findings/6797-image-of-professions-2016-201605110031.

[2] forming schedule 2 of the Australian Competition and Consumer Act 2010 (Cth) (ACL), as with s52 of the former Trade Practices Act 1974 (Cth) (TPA).

[3] See Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 (Gibbs J).

[4] Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, [36].

[5] For instance in Butcher the court found the plaintiff was “intelligent, shrewd and self reliant” whilst in Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199, the plaintiffs were found to be “ordinary readers who were not sophisticated investors and who were not likely to read the material with a close and rigorous scepticism”; see generally Butcher 605 (per Gleeson CJ, Hayne and Heydon JJ), 623 (per McHugh) and 646 (Kirby J).

[6] Butcher.

[7] Ibid, [91].

[8] Ibid,, [41].

[9] Ibid,, [45].

[10] Ibid, [40] per Gleeson CJ, Hayne and Heydon JJ.

[11] Yorke v Lucas (1985) 158 CLR 661

[12] Ibid,, 666.

[13] Gardam v George Wills & Co Ltd (No 1) (1988) 82 ALR 415, 427.

[14] See Christensen, Duncan, Stickely, “Avoiding responsibility for misleading brochures – Is it simply a matter of disclaimer?” 16 (2008) APLJ 24.

[15] Basheer & De Conno Pty Ltd v Corani (2005) 92 SASR 468.

[16] Havyn Pty Ltd v Webster (2005) 12 BPR 22,837.

[17] Issues such as the title or legal boundary of a property are viewed as factually and legally complex issues which would likely be outside the expertise of an average suburban real estate agent: see Butcher; Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112.

[18] See Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1.

[19] For example agents who hold themselves out as advisors to ‘institutional investors and to developers of major properties’; see John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd (1993) ATPR 41-249.

[20] Generally a disclaimer in marketing material will have not prevent a representation from being held to be misleading and deceptive.  See Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535.