Hold the champagne: The real domain of disclaimers

January/February 2018 edition

Agents pass a lot of information to purchasers in the process of negotiating and closing a sale. But before you start popping champagne corks to celebrate the commission coming your way, take a moment to consider the disclaimers you have in place.

By PETER MORAN, Partner at Colin Biggers & Paisley (which is a panel lawyer of QBE).

Imagine this. You've just met with a vendor who’s eager to sell. They’ve caught wind that the market is cooling and want to sell before the market goes south. The price the vendor wants is pushing the upper limit and finding a buyer won’t be easy. But you're confident you can put together a marketing campaign that emphasises the positive aspects of the property. After all, the vendor has given you lots of information and you have the expertise of a great marketing team to draw upon.

Be careful though. The language you use and the information you provide during the marketing campaign could potentially end up being criticised as being misleading. A disgruntled purchaser may allege they were misled by something you said or did.

So what can you do to protect yourself?

Disclaimers can be used as a means of limiting your liability, however they must be worded carefully and used cautiously – and there’s no one-size-fits-all formula.

Limiting liability with disclaimers

Often, marketing materials aren’t prepared by the agent, but by third parties such as photographers, copywriters and floor planners from information obtained from the vendor. But just how accurate is that information?

Consider the High Court decision in Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60, where the agent’s marketing brochure included inaccurate information. The agent had prepared the brochure based on information given to them by the vendor. That information included a survey diagram indicating the property’s boundaries.

The purchasers, relying on the information provided to them, purchased the property. It later transpired that the diagram was inaccurate. They sought the return of their deposit and pursued the agent for misleading and deceptive conduct.

The agent argued that they had simply passed on information about the property given to them by the vendor, and relied on a disclaimer which appeared on the front and back of the brochure that 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.”

The High Court observed that the purchasers were sophisticated buyers who had access to a variety of professional services. This fact, combined with the wording of the disclaimer, resulted in a finding that it would have been plain to a reasonable purchaser that the agent was not the source of the misleading information. Therefore, the agent was found not to have engaged in misleading and deceptive conduct.

One size doesn’t fit all

Since the decision in Butcher, many agents have sought to shield themselves from liability by including a similar disclaimer on their marketing material.

But does a disclaimer like this always allow an agent to escape liability?

It might, but it’s not a particularly strong shield against liability. Each case will revolve around the relevant facts and circumstances, and a disclaimer is just one factor a court will consider.

The agent's conduct as a whole (throughout the entire transaction), will be considered, as will the characteristics of the property, the purchaser's knowledge and sophistication, as well as the nature of the representation or conduct complained about.

Given the ease with which many facts can be verified by an agent, it’s unlikely that an agent will be able to escape liability by simply pointing to a disclaimer and saying: “That's what the vendor told me”.

When conduct overrides a disclaimer

The most recent decision on the issue is Makings Custodian Pty Ltd v CBRE (C) Pty Ltd [2017] QSC 80.

In that case, the Supreme Court of Queensland found an agent liable for misleading a purchaser about the financial performance of a shopping centre on the Gold Coast, notwithstanding the use of a disclaimer in similar terms to that employed in Butcher.

Before deciding to buy the shopping centre, the purchaser made enquiries with the agent and a brochure was supplied. The purchaser then asked for further information and the agent sent a number of emails to them with further information, one of which included an Information Memorandum. The Information Memorandum (which included details of net rental for the centre and the rent payable under each lease) had been prepared by the agent and the agent’s logo was prominently displayed.

The Supreme Court of Queensland found that the Information Memorandum could not be said to convey an impression that the agent was merely passing on its contents from the vendor. Further, the disclaimer was buried deeply in legal text towards the back of the document and there was no evidence that the purchaser had read it. Accordingly, the disclaimer was given no effect by the court. The decision is now on appeal.

The lesson

While disclaimers should be included in marketing material, agents should not place too much reliance on their effectiveness. For example, a disclaimer will not be effective in cases of intentional deception.

But even in ordinary cases, agents must still take reasonable care to ensure that what is being represented about the features of a property is true, and that they do not engage in conduct that is misleading. This is particularly the case if the information being represented is easily verifiable. Failing to ensure that marketing materials and statements made to potential purchasers are accurate invites litigation long after the post-commission champagne has stopped flowing.

Realcover is underwritten by QBE Insurance (Australia) Ltd and managed by JLT
DISCLAIMER
The information contained in this article, which is current as at the date of publication, provides only a general overview of subjects covered. It is not intended to be taken as legal advice or advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisors regarding specific coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies.

     
 

Tips to avoid potential claims

  • Always use robust disclaimers.
  • Ensure that disclaimers are large enough to be read.
  • Include disclaimers on every document that contains information about a property.
  • Make it clear that the agent is relying on information provided by a third party and has not checked the accuracy of the information.

If the worst should happen and a claim is made against you alleging misrepresentation, it’s important to have the right professional indemnity insurance in place.

To discuss your professional indemnity insurance needs, please contact Realcover by speaking with a JLT representative on 1800 990 312 or email realcover@jlta.com.au