The High Court has handed down a case (Butcher v Lachlan Elder Realty, December 2004) concerning the use of disclaimer clauses. This case is of interest to valuers because it shows a more liberal trend by the Court in their acceptance of and in the interpretation of such clauses.
The case concerned the purchasers of waterfront land at Mona Vale (Mr Butcher & Ms Radford (the purchasers)) and the agent who sold the land through auction to Mr Butcher (Lachlan Elder Realty (the agent)). The purchasers relied on an old survey plan provided by the Agent reproduced on the sales brochure. It was subsequently found that the plan was inaccurate misleading them in believing that they would be able to move the swimming pool to a new location and thus carry out major improvements to the premises.
The purchasers sued the agent for damages for misleading and deceptive conduct under the Trade Practices Act on the basis that the brochure was misleading and illegal. The defence included a reliance on the two disclaimer clauses in the sale brochure.
The majority decision of 3 judges upheld the agent's defence while the minority of 2 judges would have disallowed the appeal. Therefore, the disclaimer clauses were recognised as being valid, offering adequate protection to the Agent. The disclaimer clauses were as follows:
Lachlan Elder Realty Pty Ltd ACN 002 332 247. All information contained herein is gathered from sources we believe to be reliable. However we cannot guarantee it's [sic] accuracy and interested persons should rely on their own enquiries.
And at the rear:
All information contained herein is gathered from sources we deem to be reliable. However we cannot guarantee it's [sic] accuracy and interested persons should rely on their own enquiries. Williams Design Associates ph (02) 9905 7372.
It was held that the disclaimers effectively state that the Agent was merely passing on information which had been obtained and that any intending purchaser should make their own enquiries before accepting such information.
Mr Butcher inspected the land in the company of an architectural designer Mr Elder, and later, with a builder. In the ensuring discussions about resiting the pool both experts agreed that it was possibly based on the information provided on the plan.
The purchasers bought the land at auction for $1.36m based on the belief that they could relocate the swimming pool.
Subsequently it was found that they could not move the pool and the position of the mean high water mark a shown on the plan was wrong. The purchasers reneged on the contract and the vendor claimed that the contract had been forfeited and therefore, he was entitled to the deposit.
The basis of the claim by the purchasers against the agent came under the Trade Practices Act for allegedly having engaged in conduct in contravention of s52. They sought damages under s82 for loss allegedly caused.
The majority held that the agent did not engage in conduct toward the purchasers which was misleading:
Whatever representation the vendor made to the purchasers by authorising the agent to issue the brochure, it was not made by the agent to the purchasers. The agent did no more than communicate what the vendor was representing, without adopting it or endorsing it. That conclusion flows from the nature of the parties, the character of the transaction contemplated, and the contents of the brochure itself.
The court decided that the class that the purchasers belonged to were that of a wealthy and astute class and the class of the agent was that of a professional agent well versed in most real estate matters. The representations made were about title, and suburban agents do not hold themselves out as possessing research skills or independent means of verifying title details of the properties they wish to sell. Further, they are not agents in the sense of creating legal relationships between their principals and others.
In regard to the survey plan on the brochure the court held that it was obviously a copy of a survey plan and not a sketch plan made by the Agent and “..the circumstances also negated any suggestion that the agent had adopted the surveyor's diagram as its own, or that it had verified its accuracy.” (p18)
The Court held that the disclaimers showed that the agent was trying not to make any representations about the accuracy of the information conveyed, save that it believed the sources of it to be reliable. If the disclaimers are examined from the point of view of a careful reader, they communicate the same message.
The question of the size of the disclaimers was raised in argument. The Court held that although they were in small type, the brochure was short and the disclaimers were there to be read. Only persons with very poor eyesight could not read them and there was no evidence that the purchasers had poor eyesight.
Nor was the positioning of the disclaimers misleading. The Court held that they were near enough to the picture of the back garden and the survey diagram and since it was on both pages clearly applied to everything on the respective pages.
The Court also the considered that the consequences of the appeal being successful would be too extreme:
“(If) it was accepted that if their arguments were sound, it must follow that when a real estate agent produces a brochure offering land for sale by a vendor, the real estate agent is representing that the vendor had good title. That would be so radical a conclusion as to suggest that even the wide words of s 52 could not bring it about; that in turn suggests that the principles that supposedly lead to that radical conclusion are unsound.” (p21)
The Court distinguished John Glass Real Estate, a case where the agents stated the wrong net lettable area of a building being offered for sale on the basis that that the Agents also described themselves as “consultants to institutional investors and to developers of major properties”. (p26) Further, in that case the net lettable area was something of hard physical fact and important to the buyer of a commercial property. Finally, the Court questioned the reasoning of the case.
The Court held that under the circumstances it was reasonable to expect the Purchasers to have examined the brochure in detail.
The minority judgments were delivered McHugh J and Kirby J. Mc Hugh J gave a very detailed analysis of how s52 of the TPA should be interpreted.
Held on p53:
In my opinion, the conduct that Lachlan Elder engaged in in selling the Rednal Street property was conduct that was likely to mislead the purchasers. Lachlan Elder put out a brochure containing an incorrect survey diagram in a context that suggested that it had adopted the survey diagram as its own. It knew of the purchasers' intention to relocate the swimming pool. It knew that its subsequent conduct in continuing to "endorse" the brochure was likely to induce the purchasers to buy the property because they believed that they would be able to move the pool to a location within the freehold boundary. Its conduct led the purchasers into error and was, therefore, misleading and deceptive.
The other minority judge Kirby J, delivered a scathing judgment critical of the majority. He stated that the majority’s decision has seriously undermined the application of the TPA and consumer law in Australia. Further, he gave a very good analysis of why, in his opinion, the disclaimer clauses were invalid. This ranged from size of type and positioning.
An essential difference of approach: At the heart of the difference between my reasons and those of the majority lies a different conception of the intended operation of the provisions of the Act invoked in this case. If, in a transaction such as was entered into between the parties, liability under the Act may be escaped in circumstances such as these (and particularly by reliance on a printed disclaimer of the kind involved in this case) this Court might just as well fold up the Act and put it away so far as dealings between real estate agents and purchasers are concerned. By similar printed disclaimers, such agents and others like them will walk straight out of the operation of the Act in many and varied circumstances.
This is a welcome case from the valuer's viewpoint. It allows the passing on of information provided by the client with a clear disclaimer that the information is as received by the valuer and the client should verify all pertinent facts contained in the information so provided. Bearing in mind the comments of Kirby J and the rule in Raine and Horne for a disclaimer to be effective it should:
that it is information provided by the owner and anybody using that
information should verify all relevant details before doing so.
Be placed in
the body of the report rather than a series of clauses at the end and
should be context sensitive, that is, placed after a relevant statement
is made by the valuer.
not be in
specific and not general standard form disclaimers.
If these rules are followed Butcher should now allow valuers to include information provided by the owner in their reports with greater safety than before. However, note that those who also hold themselves out as consultants and advisers are more vulnerable than a mere valuer.