The NSW District Court in Kumar v Sydney Western Realty Pty Ltd & Anor (No. 2)  NSWDC 446 awarded $100k in damages to a first-home buyer after finding that her conveyancing lawyers and real estate agent failed to advise her on the habitability of a granny flat. Attwood Marshall Lawyers Commercial Litigation Senior Associate Jade Carlson discusses professional negligence and warns real estate agents of the consequences of misleading and deceptive conduct, unconscionable conduct and negligence.
After purchasing a property and discovering the second residence was uninhabitable, a buyer who bought the property thinking it included two habitable residences that she could rent out, has succeeded in a professional negligence claim against her conveyancing lawyer, and real estate agent acting in the sale of the property (Agent).
The Agent promoted the property as a house that also offered a granny flat. The Agent also marketed the opportunity to obtain dual sources of income for an investor. However, the Contract for the sale of the property, which the Seller’s lawyer sent to the Agent, included a notice from Blacktown City Council stating that the property’s garage was not approved for habitable use as the slab floor level had inadequate freeboard protection against flooding (Notice).
The Notice was contained in a development consent attached to the agency agreement under which the Agent marketed the property. The buyer inspected the property and received a copy of the Contract for Sale, including the development consent. The buyer agreed to purchase the property before reading the Contract or getting legal advice. She was loaned money on the basis that she would be able to obtain a rental income from the granny flat.
She leased the granny flat and was subsequently fined and required to carry out rectification works pursuant to the Notice.
Causes of action
Claim against the Agent
The Plaintiff commenced proceeding against the Agent seeking damages for:
- misleading or deceptive conduct in contravention of section 18 of the Australian Consumer Law (ACL);
- unconscionable conduct; and/or
In relation to the first two claims, the buyer argued that because the Agent was aware of the Notice and continued to represent that the granny flat was satisfactory for habitable purposes and a potential source of income, it had engaged in misleading and deceptive conduct in contravention of section 18 of the Australia Consumer Law (ACL) and/or in the alternative unconscionable conduct.
Concerning the claim in negligence, the buyer argued that the Agent was under a duty of care in making representations to her about the granny flat and failed to take reasonable precautions to avoid the risk of her suffering loss if the granny flat was not deemed habitable.
The Conveyancing Lawyer
The buyer’s claim against the conveyancing lawyer was for professional negligence. The primary question before the court was whether the conveyancing lawyer was negligent in its failure to advise the buyer on certain conditions contained in the Contract for Sale.
The buyer argued that the lawyer owed her a duty of care to make inquiries with the Council as to the status of the granny flat and to advise on its habitability, contents of the Contract, and in relation to the buyer’s ability to lease the granny flat.
The decisions at trial
The buyer was successful in obtaining a judgment against the Agent. The District Court considered the Agent had made unqualified representations about the rental income to be derived from the granny flat and had held out that the buyer might acquire a dual income stream upon purchasing the property, in contravention of section 18 of the ACL.
In relation to the buyer’s claim against the Lawyer, the court contemplated whether the conveyancing lawyer had breached a duty of care to the buyer and was contributorily negligent. In determining the content of the duty, the fact that Plaintiff was a first-time home buyer acquiring the property for investment purposes was relevant. In addition, the conveyancing lawyer knew that the property comprised two residences that his client planned to rent out.
The court ultimately found that the lawyer owed a duty to consider the Contract for the sale and identify terms or clauses that were unusual or pernicious to the purposes of the buyer, or which might be inimical to her interests. He was then obligated to advise her on any such matters. Considering the general considerations under s5B of the Civil Liability Act 2002 (NSW), the Plaintiff was at risk of harm created by the occurrence of the Council issuing the Notice. Accordingly, the lawyer was explicitly obliged to inform his client of the Notice and its repercussions.
The buyer was found to have contributed to 15% of her damages since she agreed to purchase the property before reading the Contract’s development consent or obtaining legal advice.
Damages of $101,631.22 were awarded for the diminution in the property’s value, the cost of rectification, payment for stamp duty, and the fine apportioned between the conveyancing lawyer (75%) and the Agent (25%). The buyer was not entitled to recover lost rent.
What to do if you are a victim of professional negligence, misleading and deceptive conduct, or unconscionable conduct
Professional negligence occurs in many circumstances. If you have put your trust in a professional who has provided you with incorrect advice who has not advised you in relation to something you consider necessary or caused you a detriment in some way, you may be entitled to financial compensation.
Many professionals are required by law to fulfil their contracts by following the letter of the law, and failing to do so, opens them up to negligence claims.
To make a professional negligence claim, a person will need to satisfy the court that:
- There was a duty of care owed by the professional
- The professional breached their duty of care
- They suffered loss or damage because the professional breached the duty
Professionals must provide advice and represent clients with reasonable care and skill. A professional who fails to do so may be found negligent and subject to disciplinary measures.
The conduct of lawyers is regulated by specific legislation in each state and territory. Similar regulations apply to all professionals across all industries, whether you are an accountant, engineer, builder, real estate agent, or any other person offering professional services.
The Legal Services Commission (LSC) must assess all complaints lodged. Though they will dismiss unfounded or baseless complaints. The LSC will mediate applicable consumer disputes and must investigate other conduct complaints, which may amount to either unsatisfactory professional conduct or professional misconduct.
Misleading and deceptive conduct under section 18 of the ACL
What is considered misleading or deceptive conduct?
Section 18 of the ACL states that “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive conduct or likely to mislead and deceive”. This prohibition is not limited to the supply of goods or services and creates a broad, economy-wide norm of conduct.
Predicting the future – Statements that are made projecting or forecasting the future can be deemed misleading and deceptive. For example, if a seller of a business states that the company will make one million dollars a month and the seller possesses no reasonable ground for such an assertion.
Silence as conduct – Omissions or silence concerning relevant information can also amount to misleading or deceptive conduct. For instance, a property developer’s failure to disclose material information about real estate can amount to misleading and deceptive conduct.
There are a number of consequences a person may face if a court finds that person is in breach of section 18 of the ACL.
Section 236 of the ACL provides damages be ordered in favour of those who suffered a loss or injury because of misleading or deceptive conduct.
The ACL also gives courts broad powers to order an injunction restraining a person from continuing in its misleading or deceptive conduct, and also an interim injunction pending the final determination of a claim under section 18 of the ACL.
There are some cases where a Court will void a Contract based on the conduct of one of the parties before making the Contract.
For a successful claim in unconscionable conduct, the innocent party must prove that:
- the innocent party was subject to a notable disadvantage “which seriously contributes to the ability of the innocent party to make a judgment as to their own self-interest”, such as in Commercial Bank of Australia v Amadio (1983) 151 CLR 447;  HCA 14 (High Court of Australia).
- The other party must unconscionably take advantage of that notable disadvantage.
As to the consideration of whether a party was unduly influenced, there are two types of undue influence:
- Actual undue influence, where you can prove that one person exerted influence over another to have them enter the Contract
- Presumed undue influence, which is a deemed relationship of influence where one party is causative to the other party. The realms of undue influence and unconscionable conduct overlap and the line between the two is often blurred.
Only a Court can decide if unconscionable conduct or undue influence has occurred. As a result, if you feel you have been a victim of this, there are few options except to litigate or file a complaint with ACCC. Conversely, if you have greater bargaining power and enter an agreement, it is essential to ensure that a Court may undermine none of the risks of your actions being viewed as unconscionable. It is important to be aware of actions a Court might consider unconscionable, so that you can, where possible, avoid engaging in those actions or avoid entering contracts with a party engaging in those actions.
Attwood Marshall Lawyers – experts in resolving disputes that arise from professional negligence
Attwood Marshall Lawyers’ dispute resolution and litigation team are skilled at providing the best possible advice in professional negligence matters. We can provide our service on a “No Win, No Fee” basis for approved cases if you have suffered damages because of a professional’s negligence.
We assess all claims immediately to advise of the prospects of success in making a claim for damages and can help clients understand if their matter is worth pursuing.
If you are involved in a professional negligence dispute, please contact our Commercial Litigation Department Manager, Amanda Heather, on (07) 5506 8245, email firstname.lastname@example.org or free call 1800 621 071 to find out where you stand.