Benchmark - Real Estate Cases & Commentary
Misleading and deceptive conduct
• NEW Misrepresentation of a future matter
• Concealment and non-disclosure of termite damage
• Failure to disclose vendors's potential inability to complete sale
• Vendor of rent roll failed to disclose relevant facts
• Necessity to exercise due care in negotiations
Mark Bain Constructions developed a luxury block of units at Sunshine Beach, Queensland. A number of purchasers, including Mrs Avis, signed contracts to buy apartments in the block off the plan. The purchasers had been introduced to the property by real estate agents. At the time the purchasers signed the contracts, there was nothing obstructing the beach views that the apartments would have. The agents told the purchasers that there would be spectacular uninterrupted beach views. In due course, the sales completed, and the purchasers moved in. By this time, however, a new building had been constructed, which substantially obstructed the beach views.
The purchasers sued Mark Bain Constructions, and the estate agents, claiming that there had been misleading and deceptive conduct.
Before trial, the purchasers settled their claims against the estate agents.
The trial judge in the Supreme Court of Queensland found that the agents had misrepresented the situation, with the authority of Mark Bain Constructions, and that the purchasers had signed the contracts in reliance upon what the agents had said. The trial judge made orders for compensation against Mark Bain Constructions.
Mark Bain Constructions appealed to the Court of Appeal of Queensland.
The Court of Appeal agreed that the agents had engaged in the misrepresentation of a future matter. The Court of Appeal also agreed with the trial judge that the agents had actual authority (as distinct from apparent authority) from Mark Bain Constructions to tell the purchasers that the apartments would have uninterrupted beach views. That is, the contract between the agents and Mark Bain Constructions actually gave the agents the authority to make the statements on behalf of their client. The Court concluded that the authority to market a property must include the authority to make representations about the quality of the property.
The Court of Appeal also agreed with the trial judge that the misleading statements by the agents had caused the purchasers to buy the apartments.
Mark Bain Constructions argued that the purchasers should be estopped from complaining about the misrepresentations, because they had signed contracts in which they said they did not rely on any matters beyond those described in the contracts of sale. The Court of Appeal rejected this argument, and said it could not succeed unless Mark Bain Constructions proved that it had relied, when deciding whether to exchange contracts, upon the purchasers’ statements in the contracts of sale.
However, the Court of Appeal held that the trial judge had erred in calculating the damages payable to the purchasers. It allowed a reduced amount of compensation.
Mark Bain Constructions Pty Ltd v Avis  QCA 100
Mr and Mrs Balfour owned a home in Sydney. They discovered termite activity in the timbers of the home, and had the home treated by a pest control company. They later discovered three further areas of termite damage, and then took steps to repair and cover the damage in each of these areas. They later sold the house to Mr and Mrs Wood.
After buying the house, Mr and Mrs Wood discovered the termite damage.
The Woods sued the Balfours in the tort of deceit, alleging that the concealment and non-disclosure of the termite damage constituted a fraudulent misrepresentation that there was no serious termite damage to the property. The Woods also alleged the Balfours knew this representation was false and intended to deceive the Woods.
At the trial in the District Court of NSW, the judge rejected the Woods’ claim, holding the alleged representation was not made, and, even if it had been made, it had not been false, and the Woods had not relied on it.
The Court of Appeal held that, by making the property available for inspection by prospective purchasers the Balfours had represented they had not knowingly concealed any major termite damage that was not available to see in plain sight, and which compromised the structural integrity of the property.
The Court also found that the property did have such damage.
However, the Court of Appeal also found that the Balfours were unaware of the damage, both when Mr Balfour did his work that covered it up, and when they sold the property. Therefore, the Balfours had not acted dishonestly.
The Court of Appeal therefore dismissed the Appeal and the trial judge’s decision that the Balfours were not liable to the Woods was upheld.
Wood v Balfour  NSWCA 382
A real estate agent (known in the USA as a real estate broker) concluded a sale, acting for the vendor. The sale price was US$749,000.00. However, the property was encumbered in an amount of US$1,141,000.00 – greater than the sale price. The vendor could not make up the shortfall, and, naturally, the lenders did not agree to give up their interest in the property without their loans being paid in full. The sale, therefore, fell through because the vendor could not give a clear title. The purchasers had sold their previous house in reliance on the contract to buy the property, and they then sued the real estate agent.
At first instance, the Superior Court of California held that the agent, as a matter of law, owed no relevant duty to the purchasers. The purchasers appealed to the Californian Court of Appeal.
The Court of Appeal held that, where the vendor knows of facts that materially affect the value of a property, the vendor must disclose these facts to the purchaser. Furthermore, if the vendor’s agent is also aware of those facts, that agent is under the same duty. This principle applies, not only where the material fact is that the property has a physical defect, but also where the material fact is one that means there is a high likelihood that the sale will not be able to complete. The purchasers had alleged that the agent knew about the substantial over-encumbrance. Therefore, the facts alleged by purchasers were sufficient to impose a legal duty on the agent. he Court of Appeal reversed the judgment of the Superior Court.
It is uncertain whether this case would be decided in the same way in New South Wales. Under section 52 of the Trade Practices Act 1974 (Cth) (applicable to companies), or section 42 of the Fair Trading Act 1987 (NSW) (applicable to people generally), a company or person acting in trade or commerce must not engage in conduct that is misleading or deceptive, or that is likely to mislead or deceive.
It is clear that, in certain circumstances, silence can constitute misleading and deceptive conduct. Indeed, silence by a real estate agent on a matter important to a purchaser has been held by the Administrative Decisions Tribunal to constitute misleading and deceptive conduct. This occurred in the disciplinary proceedings that arose after the house in which Sef Gonzales had murdered his parents and sister was sold without the agents disclosing this history to the purchasers (Hinton v Commissioner for Fair Trading  NSWADT 257). The ADT held that the test was whether, in all the circumstances, purchasers would have a reasonable expectation that the matter would be disclosed.
It might therefore be the case that, where a real estate agent knows that there is a high chance that the vendor will not be able to complete the sale, and does not disclose this fact to the purchaser, the agent will be held to have breached either Section 52 or Section 42.
Holmes v Summer (Court of Appeal of California)
The plaintiff was a licensed real estate agent which agreed to purchase the first defendant’s rent roll. There was a delay in obtaining the required authorities from the relevant landlords to allow the plaintiff to act on their behalf. As it turned out, some of the landlords then did not continue on the roll.
The plaintiff sued the vendor of the rent roll, as well as the solicitor who had acted for it on the sale.
The Supreme Court of Queensland held that the solicitor had fulfilled his duty of advising about the inadequacy of the contract to prevent landlords leaving the roll. The solicitor did not have a duty to advise the purchaser, in bald terms, whether or not to sign the contract. The claim against the solicitor, therefore, failed.
However, the Court held that the vendor of the rent roll had engaged in misleading and deceptive conduct by not disclosing that certain landlords would not provide the plaintiff with authority to act for them. Therefore, the plaintiff was successful against this vendor.
Silkzoom Pty Limited v Property Shop Port Douglas Pty Limited  QSC 343
The purchaser of a rental roll commenced proceedings against the former property manager claiming that she engaged in misleading and deceptive conduct in trade or commerce. The purchaser alleged that it had relied on the defendant’s misrepresentations concerning the likely losses from the rental roll, when buying that part of the business. The purchaser claimed compensation for loss of rental management income and the re-sale value of the rent roll.
The defendant, a property manager, was not employed by the vendor at the time of sale although she still undertook some unpaid property management work at their request. After being told that the company’s rental roll had been sold to another real estate agency, the defendant sought permission to inform the landlords of the change in ownership. Permission was granted and she telephoned 30-35 landlords to notify them that the business was being sold to the new agency. She informed the landlords that the management contracts would be referred to the new agency, but that the landlords were at liberty to take their business elsewhere. The Magistrate found that she was not acting as a servant or agent for any party when making those calls. The sale of the rental roll to that real estate agency fell through.
When a new purchaser was located, the liquidator referred the enquiries concerning the rent roll to the defendant. The plaintiff asked the defendant what the losses there would be as a result of the liquidation. The defendant stated that she believed that four to six properties would be lost. She was aware that two properties had at that time been lost. She inadvertently failed to inform the plaintiff about her previous telephone calls to the landlords. These discussions were informal in nature. The Magistrate found that the defendant was not employed by any party at this time.
A sale price was negotiated. The defendant worked for four hours as a consultant for the vendor, readying the files for handover. She charged the vendor for that work. 28 properties were lost to the first agency who agreed to buy the rental roll; however, the Magistrate did not accept that they were lost as a result of the defendant’s telephone calls to the landlords.
The purchaser’s claim was dismissed. The Magistrate held that the defendant’s conduct was as a whole likely to mislead or deceive, however, the claim could not succeed because that conduct was not ‘in trade or commerce’. The Magistrate found that the defendant’s silence with respect to the telephone calls to the landlords could not be considered misleading and deceptive conduct because it was inadvertent.
The purchaser appealed to the Supreme Court which dismissed the appeal.
Structured Property Pty Limited v Tirli-Bennett  VSC 129