Real estate agents play a pivotal role in guiding clients through complex property transactions. With that responsibility comes a duty to ensure the accuracy of the information provided. A Supreme Court of NSW case highlights serious consequences that can arise if not carefully handled, explained by Property and Commercial Law Senior Associate, Tobie Mitchell.
What happened in Chen v Chu?
In the case of Chen v Chu [2024] NSWSC 1139, the Supreme Court ordered real estate agent Gary Chu to pay over $7.4 million in damages to the Chen family. The court found that Chu had engaged in misleading and deceptive conduct and made false representations in breach of the Australian Consumer Law and the ASIC Act.
The Chen family initially intended to purchase a single off-the-plan apartment to live in. However, Chu persuaded them not only to buy that property but to invest in 28 additional apartments from the Ralan Group, a developer for whom Chu acted as a senior consultant.
He also encouraged them to release their deposits as unsecured loans to the developer in exchange for high interest returns.
Unbeknownst to the Chens, Ralan was insolvent. When the company collapsed, the family lost more than $7 million in deposits. The court found that Chu had made the representations himself, was not merely passing on information, and had actively discouraged the Chens from seeking legal advice.
Why this matters for agents
This case is a stark reminder that agents can be held personally liable for the representations they make, even if they believe they are simply relaying information from a third party.
The court rejected every defence Chu raised, including claims that he was a mere conduit, that disclaimers in contracts protected him, and that others should share the blame.
The judgment reinforces that:
- Agents must not make statements they cannot verify,
- Disclaimers will not necessarily protect you if your conduct is misleading,
- Encouraging clients to avoid legal advice can significantly increase your liability, and
- Courts will scrutinise your conduct and credibility closely.
What counts as misleading and deceptive conduct?
Section 18 of the Australian Consumer Law prohibits conduct, in trade or commerce, that is misleading or deceptive or likely to mislead or deceive.
Many agents assume misleading and deceptive conduct only occurs when someone deliberately lies. In reality, the law is much broader.
Under section 18 of the Australian Consumer Law (ACL), a person must not engage in conduct that is misleading or deceptive, or likely to mislead or deceive. Importantly, the question is not whether the person intended to mislead someone. Instead, the court looks at the overall effect of the conduct on the person receiving the information.
Misleading conduct can arise from:
- Making statements that are inaccurate or unverified,
- Presenting assumptions or opinions as established facts,
- Omitting important information that would affect a client’s decision, or
- Creating a false impression through words, conduct, marketing material, or silence in circumstances where clarification should have been provided.
For real estate agents, this can be particularly risky because buyers and sellers often rely heavily on information provided during negotiations. Even casual comments can become problematic if a purchaser later alleges they were induced to enter a transaction based on those representations.
For example, an agent may expose themselves to risk by making statements such as:
“The development is financially secure.”
“The apartments will definitely increase in value.”
“You don’t need a lawyer to look at the contract.”
“The developer has never had any financial problems.”
“This property can definitely be developed into townhouses.”
Unless the agent has independently verified those matters and is qualified to provide that advice, such statements may create significant liability.
Conduct, not just words
A key takeaway from the case law is that misleading conduct is not limited to express representations. Courts assess the entirety of a person’s conduct.
This means liability can arise from: emails and text messages; marketing brochures and advertising campaigns; statements made during open homes or inspections; responses to purchaser enquiries; or the failure to correct information known to be inaccurate.
An agent who repeats information supplied by a developer, vendor, consultant, or third party is not automatically protected because the information originated elsewhere. If an agent adopts that information as their own, endorses it, or presents it with confidence as though it has been verified, they may still be personally liable if it turns out to be false.
Why disclaimers are not a complete defence
Many marketing materials contain disclaimers stating that purchasers should make their own enquiries and should not rely on representations made by the agent.
While properly drafted disclaimers can be helpful, courts generally assess the conduct as a whole. A disclaimer will not necessarily protect an agent who has made strong verbal assurances that contradict or undermine the disclaimer.
The decision in Chen v Chu demonstrates that courts are willing to look beyond contractual wording and examine what was actually said and done. If a purchaser reasonably relied on representations made by an agent, a disclaimer may provide little protection.
Personal liability can be significant
One of the most striking aspects of the decision was that the court imposed personal liability on the agent. The damages awarded exceeded $7.4 million, demonstrating that legal exposure is not always limited to the agency business itself.
For agents, this highlights the importance of understanding that trust and enthusiasm must be balanced with caution. A desire to help a client secure a transaction should never override the obligation to ensure representations are accurate, verifiable, and appropriately qualified.
Practical implications for you
Whether you are selling a single apartment or a large-scale development, the principles from this case apply. Clients rely on your advice and often make life-changing decisions based on what you tell them. If that advice turns out to be wrong or misleading, the consequences can be severe.
Here are some practical steps to protect yourself and your clients:
- Be clear about your role: Make it known when you are passing on information from a third party. Avoid presenting opinions or projections as facts.
- Encourage legal advice: Never discourage clients from seeking independent legal advice. It is not only in their best interests, but it also helps protect you.
- Avoid making financial representations: Do not comment on investment returns, developer solvency, or financial arrangements unless you are qualified and authorised to do so.
- Keep written records: Document your communications and advice. If you are relaying information from a developer or third party, make that clear in writing.
- Review your marketing materials: Ensure that brochures, emails, and other promotional content do not contain statements that could be construed as misleading.
By understanding your obligations and working with the right legal team, you can protect your clients, your business, and your professional reputation.
Attwood Marshall Lawyers – your local property experts
At Attwood Marshall Lawyers, we work closely with real estate agents to help them understand their legal obligations and reduce risk. Our team regularly advises on agency agreements, disclosure obligations, and marketing compliance. We also assist agents in navigating complex transactions, particularly in the off-the-plan space.
If you are unsure about the accuracy of information you are providing, or if you want to ensure your practices are sound, we are here to help. A quick check-in with our team can save you from costly disputes.
If you would like assistance reviewing your practices or if you have questions about your obligations under the Australian Consumer Law or the Property and Stock Agents Act, please contact our Property and Commercial Law Department Manager, Jess Kimpton, on direct line 07 5506 8214, email jkimpton@attwoodmarshall.com.au, or call our 24/7 phone line on 1800 621 071.
