Litigation and Dispute Resolution Insights

08 February 2005

Here's the information… for what it's worth: Disclaimers and the TPA

By John Powell.

Key Points:
Disclaimers in a brochure together with other steps were effective in limiting liability, but that does not mean that any disclaimer will suffice in all circumstances. "Conduct" under section 52 does not need to contain a representation to breach the section.

Many commercial activities involve one party passing on someone else's information, but when does passing on information become conduct that is, or is likely to be, misleading or deceptive?

The obligations imposed by section 52 of the Trade Practices Act 1974 (Cth) cannot be avoided, but in the High Court's decision in Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60 disclaimers in a real estate agent's brochure were effective in preventing liability for conduct which normally would have rendered the agent liable under the Act. The split decision however leaves considerable uncertainty on the issue.

While it arose in the context of a residential house sale, the principles discussed by the High Court have broad application to anyone who passes on information without making independent inquiries to check its truth, and so is particularly important for a substantial portion of the commercial community. It affects many activities, including:

  • tenders where the principal passes on information to prospective tenderers "for what it's worth"
  • agents handling leases of commercial and retail premises who often give information to prospective tenants
  • business brokers; and
  • advertising agencies and publishing houses who frequently act as conduits of information for other parties.

Sun, sea, and survey diagrams

The facts are simple enough. Mr Butcher and Ms Radford wanted to buy a house worth around $1 million to renovate and sell on. An employee of Lachlan Elder Realty Pty Limited showed them a glossy brochure advertising a waterfront property, which had colour photos showing the house, lawn, jetty and a swimming pool on the bay side.

A surveyor's diagram made nearly 20 years before the sale was included in the brochure. It showed the bay side boundary of the property as the mean high-water mark ("MHWM"), this boundary being on the bay side of the swimming pool. The agent did not commission the diagram. The vendor gave his solicitors the old survey report to be included in the draft contract; the agent obtained a copy of the draft contract from the solicitors, and reproduced the diagram from the survey report that came with the draft contract.

Along with the blurb, photos and survey diagram, the brochure also bore two disclaimers. The first said:

"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."

The second was the same except that it named the brochure's designer, not the real estate agent.

The couple liked what they saw and spoke to the agent during inspection visits about their planned renovations, including moving the pool. They then bought the property for $1.36 million.

Before completion, however, they discovered that the MHWM went right through the pool, and not outside it as they had believed. This meant they had less property than they thought, and could not move the pool. They sued the vendor and the agent for allegedly breaching section 52 of the Trade Practices Act.

What the majority had to say

At the High Court level, the issues had been reduced to whether the agent had breached section 52 or had been simply passing on the vendor's information and nothing more (the vendor's liability was not at issue).

Where the conduct is directed to specific, identifiable people, a court should look at the character of the particular conduct of the particular agent in relation to the particular purchasers, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known. The conduct is the conduct as a whole, that is, everything relevant the agent did up to the time when the purchasers contracted to buy the land must be taken into account.

Importantly, all five judges held that "conduct" for the purposes of section 52 extends beyond "representations".

The majority (Chief Justice Gleeson, Justices Hayne and Heydon) found that the agent merely communicated the vendor's representations without adopting or endorsing them because of three things:

  • the nature of the parties: the buyers were wealthy, intelligent, shrewd and self-reliant, whereas the agent was a suburban real estate agent which was not a specialist in land law, nor did it hold itself out as independently verifying the land details.
  • the character of the transaction: this was a major purchase of expensive property by people who had professional advisers including an accountant, solicitors, architects, builders and building consultant.
  • the contents of the brochure: the diagram was clearly a surveyor's drawing and not one produced by the agent, and the disclaimers were repeated, easily readable and unambiguous. It was plain to a reasonable purchaser that the agent was merely a conduit for information.

"This Court might just as well fold up the Act and put it away"

The decision has already attracted criticism - from the judges in the minority, Justices McHugh and Kirby. In separate judgments, they took a very different view of the case, and of the effectiveness of disclaimers where conduct has allegedly breached section 52.

First, they disagreed with the majority's characterisation of the conduct. As Justice McHugh pointed out, the agent chose to include the diagram without identifying the surveyor, which suggested that it had adopted the survey diagram as its own. It knew of the purchasers' intention to relocate the swimming pool, and that its subsequent conduct was likely to induce the purchasers to buy the property.

The disclaimers were not enough to modify otherwise misleading conduct, as they were too small and unobtrusive (particularly compared to the glorious colour pictures and the survey diagram). By accepting that the disclaimers did modify the conduct, said Justice Kirby, "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".

To disclaim or not to disclaim?

Will this decision lead to a gutting of consumer protection law and a flood of disclaimers, as Justice Kirby predicts? Probably not. Although the decision has recognised the effectiveness of disclaimers in a brochure, it does not mean that any disclaimer will suffice in all circumstances.

The first thing to remember is that section 52 can be breached irrespective of the company's intention to mislead or deceive. A disclaimer therefore might express a company's bona fides, but it won't by itself absolve the company from liability.

The question will always be whether the disclaimer effectively modifies the conduct so that it is not misleading, and that is a matter of fact. The complexity of that question is shown by the way that the High Court split 3-2 in answering it. To modify otherwise misleading and deceptive conduct, it would seem that disclaimers must:

  • be clearly displayed
  • clearly directed to relevant content (and avoid blanket exclusions)
  • be precise about what matters' accuracy is being disclaimed
  • disclaim personal knowledge and ensure the agent's name is not used with the information or give the source of the information
  • clearly state that the materials is being passed on for what it's worth
  • be effectively and meaningfully brought to the attention of the consumer – remembering that the effectiveness of any disclaimer will also depend upon to whom the conduct is directed; and
  • not be limited or negated by other conduct which suggests endorsement of materials.

Other relevant matters are:

  • The gravity of the issue that is sought to be "merely passed onto" the other party.
  • The degree to which the reproduction of material may have involved editing and adoption.
Disclaimer
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states or territories.
John Powell
John Powell