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Two Tales of Estate Agents' Wilful Silence
 
Agents might heed the Appeal Panel’s general warning to be “especially careful” that buyers are informed of material matters not discoverable through “undertaking usual enquiries,” and to be wary of not disclosing anything “particularly unusual” about a property. STORY ONE FROM QUEENSLAND:When Chris and Mary Carr went house‑hunting they noticed tradesmen working on one of the houses they inspected. “The owners are still preparing the Bligh promptly prepared a contract containing the standard Law society / Real Estate Institute conditions, and suggested Carrs utilise one of the contract’s optional clauses. This made the contract, which Carrs happily signed, conditional upon satisfactory building/pest inspections of the property. Carrs’ building and pest inspectors reported that the house was in good condition. Although termite workings could be seen, there was no evidence of termites and no visual timber damage. A chemical barrier had been applied, but some areas had been missed. Carrs were not happy with this state of affairs, cancelled the contract and got their deposit back. This often happens with residential sales, except in the A.C.T. where sellers must supply building and pest reports to prospective buyers. What followed here was unusual. Carrs discovered that Bligh had not told the full story behind why tradesmen were at the property. What he knew (but did not disclose) was that the owners, before listing for sale, became aware of termites in the house. Pest controllers were engaged to undertake treatment and preventative programs while tradesmen were needed to repair the termite damage. Carrs would not have contracted to buy this property (and wasted good money on reports) if they’d known these facts first. What followed next was more unusual. Carrs complained to the local Fair Trading office which brought disciplinary proceedings against Bligh in a Consumer Tribunal. He was charged with breaching statutory Code of Conduct obligations by, firstly, failing to act fairly and, secondly, by engaging in misleading conduct. The first charge was quickly dismissed. The Tribunal found nothing unfair in Bligh’s not mentioning termites when he believed they had been eliminated and their damage repaired, and when he knew buyers would obtain an independent pest report. Before dismissing the second charge, and ruling that this selling agent’s silence did not amount to misleading conduct, the Tribunal summed up the case law on the subject:
Consequently the Tribunal considered whether the “matrix of facts” here meant Carrs were reasonably entitled to expect Bligh to disclose what he knew. One relevant factor was that, if Bligh disclosed the past discovery of termites, he would have to say more regarding their treatment and damage repairs. These questions followed:
The Tribunal’s answer in each case was: No. While it was accepted that termites and termite damage were of interest to Carrs, the critical factor (in exonerating Bligh) was that Carrs would be obtaining their own pest report.
Disappointingly the Tribunal did not consider a relevant Code of Conduct obligation on selling agents “to find out or verify the facts material to the sale… to avoid error, omission, exaggeration or misrepresentation”. Nor did the Tribunal consider an equally relevant statutory definition of “misleading”: that it “includes the wilful concealment of a material fact”. STORY TWO FROM NEW SOUTH WALES:Meanwhile Ron and Elaine Hanson are licensed estate agents who must regret their agency ever accepted an appointment to sell a home with a gruesome history. Their client was executrix of the wills of a couple who, with their daughter, had been murdered (by their son) in this house. Extensive media publicity ensued until the son was jailed for life shortly before the home was listed for sale. After discussing selling strategies with the executrix, and how these much-publicised crimes might affect saleability, Ron Hanson sought a solicitor’s advice. Was it necessary, asked Hanson, to tell buyers the home was a triple murder site? The solicitor advised not to reveal this. So Hansons agreed with the executrix that buyers could be told this was a deceased estate with overseas beneficiaries wanting it sold. Some prospective buyers recognised the property and lost interest, but a young couple soon contracted to buy it. Before settlement these buyers learnt the shocking truth, wanted out and complained to the agency and the Fair Trading Commissioner. Eventually, after nationwide media interest in this “murder house” sale, the executrix released the buyers and returned their deposit. The selling agents had no such lucky escape. Fair Trading took disciplinary action against them for non‑disclosure, made adverse findings and fined the agency $13,200, Ron Hanson $5,500 and Elaine Hanson $2,200. Rather than cop it sweet, all three sought a review. After a six‑day hearing the Commissioner’s findings were upheld. These were that, in breach of Fair Trading and Property Agents laws, the agency and Hansons misrepresented the sale by concealment of a material fact and engaged in misleading conduct. The agents appealed. Their primary argument was that, because they did not intend to withhold information, nothing was concealed. This got short shrift from the Appeal Panel because intent was not a necessary element of concealment. Anyhow the agents had positively decided not to disclose this was a triple‑murder site. It was not relevant that legal advice (albeit flawed) had been obtained: “Lack of knowledge, or incorrect understanding of, the law is no defence to a statutory obligation.” The Appeal Panel observed that a fact becomes “material” two ways. Firstly, in certain circumstances the agent knows it is material to the buyer. Secondly, by the objective application of “what a reasonably informed consumer with a fair-minded understanding of the real estate market, including the role of an estate agent, would regard as material”. This was a case of the second type. The Appeal Panel ruled that “material” is not limited to matters raised by buyers on whom there is no legal onus to raise “all specific matters” with agents. Rather the law is intended to protect consumers from agents’ misconduct especially when buyers are disadvantaged by lack of knowledge about properties. This comment from a United States court was cited favourably: “The law is not made for experts, but to protect the public – that vast multitude which includes the ignorant, the unthinking and the credulous, who, in making purchases, do not stop to analyse and too often are governed by appearances and general impressions.” A further issue concerned the relevant test for assessing silence as misleading conduct. Must there be a separate duty to disclose or a reasonable expectation of disclosure? The Appeal Panel opted (wordily) for the latter: “A reasonably-informed consumer taking into account what might fairly be understood by those experienced in real estate work to be facts that buyers might reasonably be interested in when deciding to buy.” Accordingly, it was held that the context in which this sale was made gave rise to a reasonable expectation that the murders should have been disclosed. No matter that the relevant statute did impose a positive duty to disclose material facts. Hence describing the house as a deceased estate was not enough in disclosing the background to the sale. Agents might heed the Appeal Panel’s general warning to be “especially careful” that buyers are informed of material matters not discoverable through “undertaking usual enquiries,” and to be wary of not disclosing anything “particularly unusual” about a property. To post your comment on this item, please return to
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OPINION
property for sale”, remarked estate agent Warren Bligh during this inspection. Chris and Mary had a second inspection a few days later and soon decided to buy the house.
