The main duty and first duty of the agent is to follow the principal’s instruction. For example, an auctioneer must obey his/her principal’s instructions regarding the reserve price. Problems arise where the principal’s instructions are ambiguous. The safe course is for the agent to clarity the instructions before proceeding. Otherwise he/she may well be liable for negligence and not following his/her principal’s instructions. The agent would be liable for any loss suffered by the principal because of his/her negligent actions or breach of contract.
However, the agent is not obliged to perform an act that is contrary to statute or illegal at common law.
An agent has been instructed to evict a tenant because the principal requires vacant possession. He/she should not do so if it puts the principal or agent in breach of landlord and tenant legislation.
Peterson v Moloney (1951) 84 CLR 91 gives an authoritative description of the duties of an agent:
In connection with sales and purchases of property the word “agent” is apt to be used in a misleading way….When a person is employed to find a buyer of property, he is commonly said to be employed as an agent, and the term “estate agent” is a common description of a class of persons whose business is to find buyers for owners who wish to sell property. But the mere employment of such a person under the designation of agent does not, apart from the general rule that the employer will be responsible for misrepresentation made to him, necessarily create any authority to do anything which will affect the legal position of his employer…In the present case it is clear that the plaintiff employed Pulbrook to find a purchaser for her house and its contents. But it must, we think, be regarded as settled law that an agent employed to find a purchaser has no implied authority to receive the purchase money in the sense that a receipt by him is a receipt by his principal and will therefore, discharge the purchaser….On the other hand, the act of the agent in receiving the purchase money may, if he purported to receive it on behalf of the vendor, though without authority, be subsequently ratified by the vendor.
An agent has limited authority to make some representations and supply information about the property being sold. The agent should make sure that the information being supplied is correct and not to misrepresent the qualities or attributes of the property. To do so may leave the agent or his/her principal liable to an action from a third party.
In Maxwell v Vincent (1890) 16 VCLR 154 the auctioneer stated that the vendor would make roads, lay on water and fill up gullies within three months. However, these terms were not in the contract and subsequently the purchaser failed in proceedings for breach of contract. However, it is doubtful that such a decision would apply today and such promises could easily be a collateral contract Jameson v Kinmell Bay (1931) 47 TLR 593. However, oral statements before submitting the property to auction will most likely not become enforceable Maralinga v Major Enterprises (1973) 128 CLR 336.
The agent may have apparent (ostensible) authority as well as actual authority. Actual authority is express authority under the contract (agency agreement). Apparent authority is created by a representation by the principal. If the agent acts within the scope of this authority the principal will be liable. The importance of apparent authority is that the purchaser is unaware of the actual agency agreement between the vendor and the agent and is dependent on the actions the agent and vendor. In practice there is little scope for apparent authority as agents are usually enjoyed to act as negotiators between the vendor and purchaser rather than entering into a binding contract on behalf of the vendor.
In Overbrooke v Glencombe  3 All ER 511 O instructed auctioneers to sell real estate by auction. The auction brochure contained details of the p0roperty and the general conditions of the sale. This included that the auctioneer had no authority to make or give representation or warranty in relation to the property. A few days before the auction, the auctioneer informed the purchaser that there were no town planning schemes or plans for compulsory acquisition of the property. After successfully bidding for the property at auction the purchaser ascertained that the property was within an area that might be included in a slum clearance scheme. However, the purchaser was unable to relieve himself of the contract because of the misrepresentation because the exclusion clause was pointed out to him at the start of the auction.
An agent contracts with his/her principal to act with due care and skill. The agent should have acted and displayed such skill and knowledge in acting for the vendor as would be reasonably expected in listing, advertising, conducting inspections and negotiating with prospects.
This is an implied term in the agency agreement. In Westra v Bailey (unreported, Supreme Court of NSW) B instructed an estate agent to sell his residential building which was used as a boarding house with numerous occupants. The vendor agreed to sell it with vacant possession However because of the Landlord and Tenant Act 1948 it was impossible to obtain vacant possession. The purchaser was entitled to obtain damages from the vendor after an expensive process of evicting and settling with the current occupants. The agent was required to fully indemnify the vendor for not acting with reasonable care and skill.
An agent selling below reasonable market value is in breach of the obligation to perform his/her duties with skill and care if he./she does not advise his/her principal with reasonable accuracy regarding the value of the property.
However, as values are never certain an agent is not liable for a small reduction in value. The difference would have to be substantial.
It is his/her duty to inform the principal of all offers made and particularly higher offers. Failure to communicate a higher offer before contract is liable to the vendor for the difference. The entire range of agent’s duties are subject to the need of due care and skill. Agents should have professional liability insurance to cover him/herself against a claim for damages.
The agent has a fiduciary relationship with his/her principal. This means that he/she must act in the interests of his/her principal and not adversely affect the principal. The agent cannot make a secret commission, act for other parties and only receive commission from his/her principal out of the agency.
“The rule of undivided loyalty is relentless and supreme” Meinhard v Salman (1928) 62 ALR 1.
See Rules of Conduct which cover rules of acting in good faith.
The agent should not make a secret commission or a profit beyond the commission. A secret commission is any financial advantage enjoyed by the agent over and above that to which he/she is properly entitled. This is illegal under statute and in the Rules of Conduct.
The agent should disclose to the principal any matter that may affect the principal’s judgment. For example, a change in value of the property caused by a new government law.
The agent must fully disclose to the principal any conflict between the agent’s duty and interest. The principal’s informed consent can then be obtained. Do not forget that a secret commission is only illegal if secret. If the principal is notified of the commission by the agent and the principal allows the agent to act proceed and act as his/her agent then there is n o illegality.
The agent must not divulge confidential information obtained during the course of the agency as this would be a breach of his/her fiduciary relationship with the principal. See Rules of Conduct.
The agent must keep his client’s monies separate from the agent’s money and to account to the principal for all monies received and expended on the principals’ behalf. There are also statutory obligations in this regard relating to the use of trust accounts.
If the agent directly or indirectly makes a profit by purchasing the property through a subagent or other party and the agent profits from the transaction on resale, that constitutes breach of his duty and a secret profit.
In Blackham v Haythorpe (1917) 23 CLR 156 the agent was employed to sell land to the Crown. In these negotiations the agent learnt that the crown would be prepared to pay about $10/acre. Instead of negotiating with the Crown the agent arranged the grant of an option to a subagent and the land was sold to the subagent for $5/acre. The purchaser sold the land to the Crown for $10/acre. The original vendor succeeding in recovering from the agent and subagent the $5/acre profit because the agent had breached his fiduciary duty by not disclosing material facts and making a profit from the transaction.
To make sure that he/she is acting properly the agent should not be involved in buying the land at all. There is always the suspicion that the agent has engineered the process to his/her advantage:
“if as in the present case the agent sells at what he knows is a gross undervalue without making any attempt to find a purchaser who is prepared to pay a reasonable price, he has failed to exercise due diligence in his employment, in respect of which failure he would be liable to an action for damages. This liability would ar9ise even in the absence of a breach of fiduciary relationship involved in the fact that, as I have held, the sale was virtually to the agents themselves” - Lungghi v Sinclair  WAR 172 at 176.
Therefore the agent must make full and accurate disclosure of material facts before obtaining the principal’s consent in entering into a contract for sale but he/she must also disclose all material facts of which the agent became aware before completion of the sale.
This act covers all types of agents and it makes the giving and receiving of secret commissions illegal. A principal offence is for an agent without the principal’s full knowledge and consent to accept or obtain any gift or consideration as an inducement or reward for any act, forbearance, favour or disfavour in relation to the principal’s affairs or business, or for the obtaining for any person an agency or contract for or with the principal - s4.
The Crimes Acts also has provisions against secret commissions. These are usually couched in the language of corruption. For example, in the NSW Crimes Act 1900 “corruptly receiving commissions and other corrupt practices”.
The principal must reimburse his/her agent for any expense that has been properly incurred by the agent in the course of the agency agreement. Further, the principal must indemnify the agent against losses or liabilities incurred whilst performing the agency under the agency agreement.
However, the agent cannot claim such monies and protection if he/she acts in a negligent manner or outside the scope of the agency agreement.
The first and most important step is to ascertain what are the terms of the agency agreement. That is, the answer is to construe the terms of the agency agreement according to the rules of contract.
If the agency agreement simply instructs the agent to sell the property or find a purchaser without any other express terms, the agent is only entitled to commission on successful completion of the sale.
Where clear express terms state that some other event is necessary before remuneration is paid before completion, the contract should be enforced on those terms. The amount of remuneration can be either a fixed amount or more commonly a ratio of the sale price. Fees are now completely deregulated.
Remuneration is usually payable to the agent if during the agency period he/she effectively introduces to the principal a purchaser of the property who subsequently enters into a binding contract. Usually commission is only payable from the purchase price which involves completion of the sale to a purchaser introduced by the agent.
Where the commission is only earned on completion the agent may not be able to claim commission if the sale falls through because of the refusal of one of the parties to proceed. If the purchaser wrongly fails to proceed the agent is not entitled to commission even though the vendor can claim compensation according to the terms of the contract. This is because the sale was not completed and the vendor is not obliged to take proceedings to specific performance.
However, if the sale is not completed because of the fault of the vendor the agent may be entitled to commission. This has been interpreted to mean that although the vendor could have completed, he/she wrongfully refused to complete.
There are a number of other special terms that can apply. The most common two are:
introducing a ready, willing and able purchaser
introducing a purchaser who enters into a binding contract.
This term allows the agent to receive commission if contracts are not signed. In Christie Owen v Rapacioli  2 All ER 311 the court held:
(1) The decision whether the commission is payable depends on the terms of the contract and on ordinary rules of construction.
(2) When the agreement between principal and agent is for
commission to be payable on the introduction of a person ready, able
and willing to purchase, the commission is payable if a sale actually
results, but may become payable when the transaction becomes abortive.
(3) Commission is payable when a person who is able to purchase is introduced and expresses readiness and willingness by an unqualified offer to purchase, though such offer has not been accepted and could be withdrawn. In connection with the third proposition, it is to be assumed that the offer is one within the terms that the agent has been authorised to invite; also, that the offer is not withdrawn by the applicant, but is refused by the vendor.
Commission will not be paid if the offer is subject to conditions.
Commission is payable when there is good reason to suppose that the person introduced by the agent would have been able to compete the transaction and the vendor could have investigated the purchaser’s ability to complete before entering into the contract.
The agent must have carried out some minimal work to be entitled to commission. There must be a sale that has resulted wholly or in part from the efforts of the agent. For example, by introducing the subsequent purchaser. This principle still applies even if the subsequent sale was caused largely by the efforts of the principal.
“Where the substance of the conduct of the agent relied on is the introduction to the property of the person who later becomes a purchaser, in a sale not effected by him, there still remains a question of fact to be decided by reference to the particular circumstances of the case whether the introduction and the manner of doing so brought about the sale. Resolution of this question of fact will require a consideration of all that was done leading to the sale as it in fact occurred. It will not be sufficient to go no further than a consideration of what the agent did by way of introducing the person who later purchased. The question is whether what the agent did brought about the particular sale, as it in fact occurred. This requires a consideration and evaluation of all circumstances which may have had some causal relationship with the sale” - Berben v Hedditch (1982) ANZ Conv R 535.
Not only must there be a causal connection but there must also be a contractual connection between the introduction of the agent and the ultimate buyer. For example, if the intending purchaser decides to lease the property instead of buying it the agent cannot claim rent commission as there is no property management agreement to permit this.
Sole agency is normally the appointment of the agent as sole selling agent and to the exclusion of all other agents. It does not preclude the vendor from selling the property him/herself.
An exclusive agency confers an exclusive right to sell to the exclusion of all other agents as well as sale by the vendor.
Both agreements generally have a time period for example, 3 months.
The most usual form for a conjunction agency is where the vendor appoints a sole or exclusive agent but that agent then permits one or more other agents to introduce prospective purchasers on the basis that the sole agent will be the selling agent entitled to full commission from the vendor. The agent pays an agreed proportion of the commission to the conjunction agent whose client becomes the purchaser. It is in the nature of a subagency.
Multiple listing has proved to be a popular method of selling in NSW. It is a cooperative system run through the REI. An agent is appointed as exclusive agent for a specified period. The lsi9itng agent is required to forward the listing to Multilist within 48 hours after the vendor has signed the authority. The listing including a photograph of the property is distributed to all Multilist members in the district or area where the property is situated. Any Multilist member can introduce purchasers to the property listed through Multilist as an automatic conjunction. Where the ultimate purchaser is introduced by the listing agent he/she is entitled to 100% commission whereas if a another member introduces the final purchaser he/she is entitled to a share of the commission.
An agent may still lose his/her commission that he/she is otherwise entitled to through:
breach of fiduciary duty
guilty of misconduct
made a secret profit.
A defence may be that the breach of fiduciary duty was unintentional.
A tort is a civil wrong and both principal and agent may liable for tort committed by the agent. The most important tort toady for the real estate agent is negligence caused by a careless act or omission. Therefore, in addition to a contractual obligation to act with due care and skill the agent can be liable for negligence.
An agent showing leased premises to a prospective purchaser has an obligation to lock up and leave the premises as he/she found them. The agent would be liable for any loss suffered by the tenant through the agent’s negligence.
The liability of a principal for an agent’s tort is founded on a similar basis for when he/she is liable in contract. When the agent has acted in accordance with his/her express or implied authority and properly carrying out the agent’s functions then most likely the agent will be entitled to complete indemnity from the principal in tort. However, where the principal is liable for a tort committed within the agent’s ostensible authority and the conduct clearly constituted a breach of the agent’s duty (eg defrauding s third party by the wrongful appropriation of money) the ultimate liability would rest on the agent.
A representation of fact is fraudulent where it has been made either with knowledge of its untruth or recklessly or carelessly as to whether not it is true. If the fraudulent misrepresentation has induced a third party to act to his/her detriment the agent is liable for damages in tort. The representation can be by words or conduct. If the fraudulent misrepresentation is made within the scope of the agent’s authority the principal is also liable for damages.
The agent can still use hyperbole or puffing. A purchaser cannot rely on an expression of opinion or mere puffing by the vendor or his/her agent. Puffing usually applies to terms and statements that a reasonable man would know not to be true. For example, “this is the best house in the world” or general statements such as “this house is substantial and convenient”.
An innocent misrepresentation is one made innocently without any intention to deceive or mislead. In Brown v Raphael  1 Ch 636 the Court of Appeal ordered rescission of the contract in favour of the purchaser where a statement was made that constituted a innocent misrepresentation but vitally affected the subject mater of the sale. An agent could be liable to his/her principal for breach of contact of agency where an unauthorised innocent misrepresentation to a third party involved the principal in financial loss or damage.
Negligent misrepresentation is probably the most important area that the agent is subject and vulnerable to in recent times. A course of action in damages exists in respect of a negligent misstatement in breach of duty of care by an inquirer who relied on the statement to his/her detriment. This is known as the Hedley Byrne principal. Hedley Byrne v Heller  AC 465.
The High Court has attempted to contain the bounds of the rule in Mutual Life v Evatt (1968) 122 CLR 556 and in Shaddock v Parramatta City Council (1981) 150 CR 225.
The Federal Court recently handed down its decision in Rennie v Defence Force Retirements and Death Benefits Authority involving the issue of negligent advice. The principles of the tort of negligent advice have long since been established and it is clear that an agent can be held liable for negligent advice provided by its employees. The principles were authoritatively stated by Mason J in the High Court in Shaddock v Parramatta City Council (1980-81) 150 CLR 225 at 250 as follows:
“Whenever a person gives information or advice to another upon a serious matter in circumstances where the speaker realizes or ought to realize, that he is being trusted to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to act on that information or advice, the speaker comes under a duty to exercise reasonable care in the provision of the information or advice he chooses to give.”
The plaintiff (“R”) was a colonel in the Australian Army and wrote to the Defence Force Retirement and Death Benefits Authority (“the Authority”) which administered the Defence Force Retirement and Death Benefits Act. He was then aged 48 and was considering options for his future, both within the Army and at retirement. In a letter R asked specifically for advice in relation to the effect of the transfer on his pension entitlement. He requested as clear and accurate a statement as possible of such effects because of the substantial amounts of money at stake.
The Authority wrote back to R advising that if he transferred to the Staff Corps he would on retirement at the age of 55 receive a pension calculated at 54.91% of his rate of pay at retirement.
On 7 April 1975 R applied for transfer to the Staff Corps and wrote to the Department of Defence noting that although this would result in a loss of pension of $733 per annum or around 4% such a loss would be eliminated on promotion. On 15 June 1978 R was informed that the earlier advice had been incorrect. The true position was that in order to qualify for a pension at that rate R would have to serve to age 57 which he was unable to do in the Staff Corps. As a result of the transfer he stood to lose around 12.5% of his pension.
The Rennie case represents merely the application of well established principles of the tort of negligent misstatement. However, the case does serve as a powerful reminder to all those who give professional advice to exercise care when giving information. While it is not possible to define “reasonable care” it is suggested that agents who provide advice to purchasers and vendors take care to ensure that all relevant facts are known and understood, that any relevant law is known and understood and that advice is expressed clearly and accurately.
In some circumstances it may be appropriate to qualify any advice given or to warn that no reliance should be placed on it without obtaining independent advice. It is also important to accurately record advice which is given as the failure to do so may mean that there is no evidence available to contradict a version of events favourable to a person seeking to make a claim.
It is also important to note that the Federal Court in Rennie emphasised that the defendant should have obtained legal advice which would have been available to it before providing the information. In the event that complex questions arise or if there is uncertainty about the accuracy of a matter involving legal interpretation it would be appropriate for legal advice to be obtained.
An agent is liable for the loss suffered by his principal for failing to comply with his principal’s instructions.
In Turpin v Bilton (1843) 134 All ER 641 the agent was instructed to insure a property was held liable when he failed to insure the property and it was damaged.
An agent is bound to exercise such care and skill as is usual and reasonably necessary for the proper performance of his duties under the contract of agency.
This may be expressly included in the contract or as an implied term ie. it will be read into the agreement as “there is undoubtedly an implied term as to competence arising from the nature of an agency contract and that would load to a further implication that the (agent) should act promptly”.
“It was their (the real estate agents) duty to at least to see that an inadequate consideration was not accepted without advising as to values” on a sale How v Carman  SASR 413. This doesn’t mean that an agent would be liable for a slight difference between the sale price and the current market value, but he/she would be if there is a large difference and the agent hasn’t advised as to the current market value.
Failure to communicate a higher offer before exchange of contracts with a purchaser at a lower price will lead to the agent being liable to the vendor for the difference between the two offers and loss of commission (Keppel v Wheeler  1 KB 577).
Delegation is only permitted where the agent has the Principal’s actual or implied authority.
There is a fiduciary relationship between the principal and the agent so that there must be no actual or even potential conflict between the personal interests of the agent and his duty to his principal:
“The rule of undivided loyalty is relentless and supreme” - Meinhard v Salmon (1928) 62 ALR 1 at 7. A principal is entitled to “the disinterested skill, diligence and zeal of the agent for his exclusive benefit” Robinson v Mollett (1875) LR 7 802.
The Agent should disclose all offers to his principal (unless instructed otherwise).
The Agent should disclose to his principal all matters that may affect the principal’s judgement.
In Georgieff & Anor V Athans (1981) 26 S.A.SR. 412 “the agent is bound to ascertain all available pertinent facts concerning the service or transaction he undertakes as agent”.
In Fitzgerald v Metcalfe  NZLR 486 Edwards “undoubtedly the duty of the (land agent), without any inquiry from the (vendor), (is) to communicate to him everything that (is) necessary to enable him to form his own judgement as to the capacity of (the purchaser) to complete the purchase”.
In Gardiners v Sutton (1984) unreported, Supreme Court of SA, “the agent is also under a duty to inquire into and disclose any factors affecting the. suitability of the purchasers such as his ability not only to pay the deposit and any cash balance but also to arrange the necessary finance”.
Full disclosure of any conflict between the agent’s duty and his personal interest must be made “to the principal and his informed consent obtained”.
Where an agent acts for both parties to a transaction that is, the vendor and purchaser or the lessor and lessee, this must be disclosed to both parties. In Fullwood v Hurley  1 KB 498 it was said that it is permissible to act for both parties after both parties have full knowledge of that fact. A consequence of such failure is the loss of commission and any loss suffered by the principal through the breach of duty - Dargusch v Sherley  Qd R 338.
An agent must not purchase property from his principal without a full disclosure of his interest to the principal..
In Lowther v Lord Lowther (1806) 33 ER 230; “an agent to sell shall not convert himself into a purchaser unless he can make it perfectly clear that he furnished his employer with all the knowledge which he himself possessed”.
In Lunghi v Sinclair  WAR 172 at 176 Mr & Mrs S were in partnership. A vendor instructed them to sell vacant land for a minimum price of 200 pounds. Mrs S bought the land for 200 pounds without attempting to find another buyer and then resold it for 850 pounds. They were made to account for the profit of 650 pounds and were disallowed their Commission.
The agent should not make any secret commission or profit beyond his agreed commission. There are NSW and Commonwealth statutes dealing with secret commissions.
A secret profit can be a bribe, a commission from a party to the transaction other than the principal (without the principal’s knowledge and informed consent) and any other benefit from the agency over and above the agreed commission.
The case of Regal (Hastings) v Gulliver  2 AC 134 made it clear that an agent will be liable for a breach of duty even though he did not act dishonestly.
The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit in no way depends on fraud. or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff. or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well intentioned, cannot escape the risk of being called upon to account (per Lord Russell, at pp 154-155).
Not to divulge confidential information acquired in the course of the agency.
To keep clients money separate from the agent’s moneys and to account to his principal for moneys received or expended on his behalf.