Home » High Court Warns on Disclaimers

The High Court has delivered a warning that business must carefully consider the effect that representations made in advertising material have on the public, to avoid offending Section 52 of the Trade Practices Act 1974 (Cth). In addition, the Court has made it clear that disclaimers may not be relied on with impunity where corporations are otherwise in default of the Act.

Judgment in Butcher v Lachlan Elder Realty Pty Limited[1] was delivered on 2 December 2004. In the circumstances, the Court, by a 3 to 2 majority, found that the conduct of a real estate agent, in including certain incorrect material contained in an advertising brochure which induced the purchaser to enter into a contract, was not misleading and deceptive conduct as defined in s52. Further, the Court found that the agent was entitled to rely on a disclaimer, which appeared in fine print on the advertising brochure, to answer a claim under s52.

Relevant facts

The agent was appointed to sell a prestige residential property which fronted Pittwater at Mona Vale, North of Sydney.[2] The agent prepared a marketing brochure which consisted of a single sheet of paper with material on each side. Relevantly, it included a survey diagram of the property that had been supplied to the agent by the vendor.

The bulk of the front of the brochure consisted of a photograph of the rear of the land, taken from Pittwater, showing boats moored at a jetty, then a lawn, then a metal picket fence with a gate, then the house. Two smaller photographs were inset on the bottom left quarter of the page. One of those photographs, taken from the verandah of the house, showed part of a swimming pool, lawn, the metal picket fence and gate, more lawn, the jetty and Pittwater.[3]

The swimming pool was situated between the house and Pittwater. It was some distance away from the house and was enclosed by the fence and gate which appeared in the photographs. It was accepted that the survey diagram conveyed the impression that the swimming pool was contained wholly within the land. However, due to changes over time in the high water mark, that was not the case.

The location of the high water mark was important to the purchasers, who had informed the agent of their intention to relocate the swimming pool closer to the fence to create a larger yard.

The brochure also contained some writing including, at the bottom of the page in small black type against a white background, the words:

"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."[4]

Reasons

The majority (Gleeson CJ, Hayne and Heydon JJ who delivered a joint judgment) found that in the circumstances, the conduct of the agent was not misleading and deceptive within the meaning of s52. The matters which the Court considered to be relevant were:

1. No representation by the agent
   The Court found that by including the survey plan in the brochure, the agent did no more than communicate what the vendor was representing, without adopting it or endorsing it. That was made clear by the nature of the survey diagram and the disclaimer which appeared at the bottom of the page.[5]



2. The nature of the parties
   The parties were, on the one side, a company director and his de facto wife who were sophisticated in business and in real estate investment. On the other side, the relevant party was a suburban real estate agent - a franchisee of L J Hooker.[6]
   
   The majority reasoned that it is a matter of common experience that questions of title to land can be complex, both legally and factually, and are quite outside what suburban real estate agents hold themselves out as doing and are likely to be able to do.[7]



3. The character of the transaction.
   The transaction was the purchase of very expensive property, to be used as an investment - a means of gaining future profits.[8]



4. The contents of the brochure.
   The trial judge found that potential purchasers would be likely to assume that the survey diagram had been taken from an identification survey report. Not only was it plain that the diagram had not been made by the agent, 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.[9]



5. Extreme consequences of the purchasers' arguments.
   The majority was concerned that the effect of accepting the purchasers’ argument would be to endorse the proposition that when a real estate agent produces a brochure offering land for sale by a vendor, the agent represents that the vendor had good title. However, they considered that could not be the intention of the Act.[10]

Disclaimers

The majority considered that it would have been plain to a reasonable purchaser that the agent was not the source of the survey diagram. The agent did not purport to do anything more than pass on information supplied by another. It both expressly and implicitly disclaimed any belief in the truth or falsity of that information. It did no more than state a belief in the reliability of the sources.

The purchasers, while acknowledging that each case depends on its own facts, sought to rely on authority from the Federal Court that "disclaimers of this nature are not likely to overturn the effect of otherwise misleading and deceptive conduct."[11]

Particularly, in John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd,[12] the agent created a marketing document which showed that the net lettable area of a building being offered for sale was 180 m2. In fact, the net lettable area was 137.4 m2. The disclaimer provided:

"The information contained herein has been prepared with care by our Company or it has been supplied to us by apparently reliable sources. In either case we have no reason to doubt its completeness or accuracy.
However, neither John G Glass Real Estate Pty Limited, its employees or its clients guarantee the information nor does it, or is it intended, to form part of any contract. Accordingly, all interested parties should make their own enquiries to verify the information as well as any additional or supporting information supplied and it is the responsibility of interested parties to satisfy themselves in all respects."[13]

There the agent had unsuccessfully contended that the only representation it made was that it had obtained the information in the brochure from the vendor. It had not endorsed or approved the information in the brochure and it was no more than a conduit.

The Court considered that the decision was distinguishable on two bases, namely:

1. the agent expressed an expertise and would not be regarded by potential purchasers as merely passing on the information "for what it is worth and without any belief in its truth or falsity." [15]


2. the calculation of area was "one of hard physical fact."[16] That was not the case in relation to the line shown on the survey diagram.

Further, the Court considered that the disclaimer "did not go as far" as in the present case as “its opening words, unlike any words in this brochure, acknowledged that the agent had prepared some of the information."[17]

The majority indicate that a properly worded disclaimer may take the conduct complained of outside the scope of s52 of the Act by making clear that the representations which are contained in the advertising material did not originate with the agent. Or, in the words of the majority, that the disclaimer may "make clear who is and who is not the author of misleading or deceptive conduct."[18]

Dissenting judgments

The case is remarkable for the divergence of opinions expressed in the 3 sets of published reasons. In a dissenting judgment Justice McHugh considered the principles which apply when a corporation expressly or impliedly disclaims any belief in the truth or falsity of a representation in circumstances where it is alleged to have engaged in misleading and deceptive conduct under s52. His Honour concisely stated the test as follows:

1. The complainant must rely on the representation or conduct.


2. If a material representation is made (or if certain conduct occurs) which is calculated to induce the complainant to enter into a contract and that person in fact enters into the contract, an inference arises that the person was induced to do so by the representation or the conduct.


3. The inference may be rebutted by showing, for example, that the complainant, before entering into the contract, had actual knowledge of the true facts and knew them to be true or that the complainant did not rely on the representation or the conduct.


4. The representation or conduct need not be the sole inducement. It is sufficient that it played some part, even if only a minor part, in contributing to the formation of the contract.[19]

His Honour went on to say that the intent of the corporation is not relevant for the purposes of s 52. As a result, a disclaimer as to the truth or otherwise of a representation does not, of itself, absolve the corporation from liability.[20]

This is not to say that a disclaimer should be ignored for the purposes of assessing whether a contravention of s 52 has occurred. As Miller notes, the conduct must be considered as a whole.[21] Further, a disclaimer is only effective if it actually modifies the impugned conduct such that the conduct as a whole may be seen as not misleading. His Honour noted that "the case law suggests that disclaimers that appear in fine print at the foot of marketing brochures are rarely effective to prevent conduct from being found to be misleading or deceptive. If misleading conduct has induced a contract, that fact cannot be negated by the mere circumstance that there is a statement to the contrary." [22]

In considering the conduct as a whole, His Honour found that the agent could not disclaim personal responsibility for the information conveyed in the survey diagram and the disclaimer did not operate to obliterate the effect of Lachlan Elder's misleading or deceptive conduct.

Agents will not take any further comfort from the strenuous dissenting judgment of Justice Kirby, who considered that he had formed "a different conception of the intended operation" of s52 than the majority.[23] His honour reasoned that “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."[24]

His Honour found that the agent intended to make the representations which were conveyed by the inclusion of the survey diagram in the marketing brochure. Those representations were of importance to the purchasers and were not mere puffery. His Honour rejected the reliance which the majority placed on the circumstances of the parties, which he considered to be "extraneous to the issue of whether a corporation, dealing with the purchaser, has breached its own anterior and separate legal obligation not to engage in "conduct that is misleading" under the Act."[25] He also considered that the “extreme consequences” which the majority perceived, were beyond the scope of the question in issue. [26]

His Honour concluded that "ordinary people cannot be converted to reading hidden messages contained in tiny print" and that the small print used for the disclaimer in the brochure suggested to the ordinary person that it was insignificant and that they did not need to read it. [27]

Conclusion

Although the agent was found not to have contravened s52 of the Act, the Court has reaffirmed that each case must be determined on its facts.

It is clear that business should take care to consider the disclaimers which appear on their published material, which should be tailored to meet the circumstances of the case. Here a particularly brief waiver which appeared in small print was held to be effective. Business should consider the application of a disclaimer each time a document is created, as the High Court has made clear that one size does not fit all.



[1][2004] HCA 60
[2]Pittwater is a large bay to the north of Sydney separated from the ocean by a narrow peninsula
[3]Note 1, 8
[4]Note 1, 7
[5]Note 1, 40
[6]Note 1, 41 & 42
[7]Note 1, 43
[8]Note 1, 45
[9]Note 1, 47
[10]Note 1, 59
[11]Note 1, 61
[12](1993) ATPR 41-249
[13]Note 1, 62
[14]Note 1, 64
[15]Note 1, 65
[16]Note 1, 68
[17]Note 1, 68
[18]Note 1, 61
[19]Note 1, 150
[20]Note 1, 151
[21]Miller RV, Miller's Annotated Trade Practices Act, 25th ed, Lawbook Co 2004.
[22]Note 1, 158
[23]Note 1, 172
[24]Note 1, 172
[25]Note 1, 190
[26]Note 1, 197
[27]Note 1, 217