1. This year the Court of Appeal handed down the controversial
decision in Advisory Services
Pty Ltd (t/a Ray White St Albans) v Augustin & Anor [2018] VSCA 95,
dealing with real estate agent’s fees.
2. The case
concerned the disclosure requirements for real estate agents to be able to
collect commission on the sale of real estate.
3. In the result,
the Court of Appeal concluded that the particular agents in question in the
case had not met their disclosure obligations, and as a result were not
entitled to collect their commission of $385,000.
4. As you might
imagine, proposed legislative reform to overcome this problem was rapid, but will
be of no use to the agents in that case, who are bound by the decision of the
Court of Appeal.
Background
facts
6. Stella and
Caroline’s defence at trial was, among other things, that Advisory was not
entitled to sue them for commission by reason of s 50 of the Estate Agents Act 1980 (‘the Act’),
which was said to be engaged because the sale authority under which Advisory
was appointed did not comply with s 49A(1) of the Act. Specifically, the
authority was said not to contain a ‘rebate statement’ as required under s
49A(4)(c), stating that the agent was not entitled to retain any rebate and
must not charge the client an amount for any expenses that was more than their
cost.
7. The trial judge
determined, as a preliminary matter, the question whether Advisory was entitled
to be paid commission notwithstanding that the authority did not contain the
precise wording of s 49A(4)(c). The judge found that Advisory had not complied
with s 49A(1) and that the authority was therefore unenforceable pursuant to s
50 of the Act. That finding disposed of the proceeding. Accordingly, judgment
was given in favour of Stella and Caroline.
8. The Court of Appeal
granted Advisory leave to appeal, but dismissed the appeal.
9. The relevant
legislative provisions are as follows:
Section 49A:
Section 50:
10. The authority
appointing Advisory did not contain a statement in the exact words set out in s
49A(4)(c).
11. The relevant
language in the authority was based on one of two forms approved by the
Director of Consumer Affairs Victoria and available for download by real estate
agents.
12. One of those forms
contained the words in s 49A(4)(c) and the other did not.
13. In accordance with
the latter form, the authority used in the present case stated, as item 6:
14. Item 8 of the
authority provided, under the heading ‘Agent’s role’, that the ‘Agent will
advertise, market, and endeavour to sell’ the property.
15. In the Particulars
of Appointment that formed the front page of the authority, there appeared a
section headed ‘Marketing Expenses’. Under that heading were the words
‘Advertising’, ‘Other Expenses’ and ‘TOTAL’, with a dollar symbol and space
after each expression. Each of these spaces was filled in with a handwritten
dash, which the parties agreed meant that the dollar amount in each instance
was zero.
16. At first
instance, Advisory submitted that it had strictly complied with the Act and, in
the alternative, that it had substantially complied with it and that
substantial compliance was all the Act requires.
17. It contended
that s 49A(4) should be read in context so that the rebate prohibition
statement in s 49A(4)(c) is not required to be included where the agent
will not receive any rebate. Similarly, it contended that where, as in the
present case, there are no expenses which the agent is to pass on to its
client, s 49A(4)(c) is superfluous and the statement as to expenses it
identifies is not required.
18. The trial judge
considered the consumer protection purposes of ss 49A and 50 of the Act
and authorities to the effect that they were to operate strictly so as to
preclude claims of the type Advisory made against Stella and Caroline in the case of
non-compliance.
19. The trial judge
found that the Act was to be construed strictly in favour of consumers so as to
advance its consumer protection objectives. The Act required that consumers be
advised of their rights, including that agents are not entitled to retain any
rebate, before entering into the contract.
20. The trial judge
found that, whether or not an agent is entitled to a rebate, s 49A(4)(c)
applies.
21. The trial judge
actually found that substantial compliance with the Act — by reasonably
conveying the intended message of s 49A(4)(c) — would have sufficed.
22. However, she
found that the applicant had not substantially complied with the Act, because
the authority did not convey the information that:
23. The trial judge also
rejected a further argument advanced by Advisory that a rebate statement would
comply with s 49A(4) if it was in a form approved by the Director or if it
contained the words in sub-section (4)(c). She held that the word ‘and’
indicated unambiguously that both requirements needed to be satisfied.
24. The Court of Appeal
commenced their analysis of the question of construction of the Estate Agents Act 1980 by referring to
some further provisions of the Act.
25. At paragraphs 39
and 40, they noted:
Section 49A(4) can
also be seen to have a more specific purpose. Its concerns as to disclosure
regarding rebates and expenses reflect earlier substantive provisions.
26. The Court of Appeal
then set out the relevant parts of 48A and 48B and noted at paragraph 42 that:
27. At paragraph 43,
the Court of Appeal concluded that “viewed in that light, the requirement that
the statement be contained in the engagement or appointment can be seen as
ensuring that the client is advised as to the existence of the prohibitions”.
28. The question in this
case concerned whether the legislation requires notice to the client in
circumstances where the prohibitions cannot, by virtue of the particular
arrangements between the estate agent and the client, be breached in any event.
29. In paragraph 44,
the Court of Appeal found it to be significant that “the notice is required to
be in the engagement or appointment which is itself required to be signed by
the client under s 49A(1)(a). This indicates an intention that the client have
an opportunity to read the statement before, rather than after, signing the
engagement or appointment. Section 49A(1)(b) calls for the agent to have
informed the client before signature that the commission and payment in respect
of outgoings are subject to negotiation. It is apparent that Parliament
intended that the client be aware of the existence of the prohibitions in the
context of being able to negotiate the terms of commission and payments in
respect of outgoings.
30. In those
circumstances, the Court of Appeal concluded that:
31. The Court of Appeal
concluded that the purpose of s 49A(4) was not served by Advisory’s suggested
construction. The objection that the provision of information irrelevant to the
arrangement between the parties might be confusing disappears once it is seen
that the information is to be provided before that arrangement is finalised.
32. The Court also
concluded that the text and structure of the sub-section is contrary to Advisory’s
construction. Section 49A(4)(c) is expressed as a statement about the agent’s
entitlement and obligation in respect of rebates and expenses, in general
terms. Those terms mirror the substantive provisions already referred to. It is
not, in terms, confined to rebates and expenses for which the particular
engagement or appointment provides. The use of the word ‘any’ to describe both
the rebates and the expenses tells against Advsiory’s submission that ‘any
rebates’ in para (c) refers only to such rebates as have been specified as ones
to which the agent is entitled, under para (a).
33. The Court concluded
that it would have been a simple matter to add conditional language to para
(c), comparable to that in para (b), had it been intended that the obligation
to provide the two statements only apply where an entitlement to a rebate was,
or was likely to, occur or where the agent was entitled to charge for expenses,
respectively.
34. The Court of Appeal
concluded (at paragraph 49) that:
35. The Court noted
that this conclusion was fatal to the proposed appeal. The authority simply did
not say that the agent was not entitled to retain any rebate. Despite the
heading ‘No rebate will be received’, the text went on to say, as s 49A(4)(a)
contemplates, only that no rebate would be, or was likely to be, received. This
fell well short of saying that a rebate could not be retained. There was no
statement at all in respect of the agent’s obligation with respect to expenses.
The rebate statement therefore did not contain the information required by s
49A(4)(c). As a result, s 49A(4) was not satisfied and s 50 was attracted.
36. It follows that the
appeal failed.
Consequences
38. As a result, an
amendment to the Estate Agents Act
1980 is now proposed.
39. Unfortunately for
Advisory, its claim for commissions of $385,000 cannot be covered by
legislative reform. It is bound by the Court of Appeal decision.
40. It is expected
that most other commissions claimed under the incorrect form available from the
Consumer Affairs web site will be covered by the proposed reforms.
WG Stark
Hayden Starke Chambers
1. This year the Court of Appeal handed down the controversial
decision in Advisory Services
Pty Ltd (t/a Ray White St Albans) v Augustin & Anor [2018] VSCA 95,
dealing with real estate agent’s fees.
2. The case
concerned the disclosure requirements for real estate agents to be able to
collect commission on the sale of real estate.
3. In the result,
the Court of Appeal concluded that the particular agents in question in the
case had not met their disclosure obligations, and as a result were not
entitled to collect their commission of $385,000.
4. As you might
imagine, proposed legislative reform to overcome this problem was rapid, but will
be of no use to the agents in that case, who are bound by the decision of the
Court of Appeal.
Background
facts
5. Advisory
Services Pty Ltd (“Advisory “) operated as a Ray White real estate agency
in St Albans. The first respondent, Stella Augustin (by her litigation guardian
Michael Baczyk) (“Stella”) owned the property known as 382 Greens Road, Keysborough and had
appointed the second respondent, Caroline Augustin (“Caroline”) as her attorney
and agent. In that capacity, Caroline signed an exclusive sale authority on
behalf of Stella appointing Advisory as the real estate agent for the sale of
the property. Advisory sold the property but the purchaser defaulted under the
contract. The property was sold again, not by Advisory but, it asserted, during
the period of the exclusive sale authority. A dispute arose and Advisory sued
Stella and Caroline in the County Court for commission in respect of both
sales, in the total amount of $385,000.
6. Stella and
Caroline’s defence at trial was, among other things, that Advisory was not
entitled to sue them for commission by reason of s 50 of the Estate Agents Act 1980 (‘the Act’),
which was said to be engaged because the sale authority under which Advisory
was appointed did not comply with s 49A(1) of the Act. Specifically, the
authority was said not to contain a ‘rebate statement’ as required under s
49A(4)(c), stating that the agent was not entitled to retain any rebate and
must not charge the client an amount for any expenses that was more than their
cost.
7. The trial judge
determined, as a preliminary matter, the question whether Advisory was entitled
to be paid commission notwithstanding that the authority did not contain the
precise wording of s 49A(4)(c). The judge found that Advisory had not complied
with s 49A(1) and that the authority was therefore unenforceable pursuant to s
50 of the Act. That finding disposed of the proceeding. Accordingly, judgment
was given in favour of Stella and Caroline.
8. The Court of Appeal
granted Advisory leave to appeal, but dismissed the appeal.
9. The relevant
legislative provisions are as follows:
Section 49A:
49A
Offence not to give certain information about commission
(1) An estate agent must not obtain, or seek to obtain, any payment from
a person in respect of work done by, or on behalf of, the agent or in respect
of any outgoings incurred by the agent unless—
(a) the agent holds a written engagement or appointment that is signed by
the person (or the person’s representative); and
(b) before obtaining the person’s signature to the engagement or
appointment, the agent ... informed the person (or the person’s agent or
representative) that the commission to be paid to the agent under the
engagement or appointment and any money to be paid by the person in respect of
outgoings were subject to negotiation; and
(c) the engagement or appointment contains—
(i) details of the commission and outgoing that have been agreed; and
...
(iii) a rebate statement that complies with subsection (4); and
...
Penalty: 100 penalty units.
...
(4) A rebate statement complies with this subsection if it is in a form
approved by the Director and it contains—
(a) a statement of whether or not the agent will be, or is likely to be,
entitled to any rebate in respect of—
(i) any outgoings; or
(ii) any prepayments made by the person engaging or appointing the agent
(the client) in respect of any intended expenditure by the agent on the
client's behalf; or
(iii) any payments made by the client to another person in respect of the
work; and
(b) if such an entitlement will, or is likely to, occur, details of—
(i) the goods or services to which the rebate relates; and
(ii) the name of the person providing the rebate; and
(iii) the amount of the rebate that will be attributable to the
engagement or appointment, or if that amount is not known at the time the
statement is made, an estimate (in dollars) of the amount; and
(c) a statement that the agent is not entitled to retain any rebate and
must not charge the client an amount for any expenses that is more than the
cost of those expenses; and
(d) any other statements or details required by the regulations.
Section 50:
50 Commission
(1) An estate agent is not entitled to sue for or recover or retain any
commission or money in respect of any outgoings for or in respect of any
transaction unless—
...
(b) the agent has complied with section 49A(1) with respect to the
engagement or appointment to undertake the transaction and is not in breach of
section 49A(2) with respect to the engagement or appointment;
...
10. The authority
appointing Advisory did not contain a statement in the exact words set out in s
49A(4)(c).
11. The relevant
language in the authority was based on one of two forms approved by the
Director of Consumer Affairs Victoria and available for download by real estate
agents.
12. One of those forms
contained the words in s 49A(4)(c) and the other did not.
13. In accordance with
the latter form, the authority used in the present case stated, as item 6:
Item 6: Rebate Statement – No Rebate will be received
*The Agent will not be, or is not likely to be, entitled to any rebate. A
rebate includes any discount, commission, or other benefit, and includes
non-monetary benefits.
(*If entitled to a rebate, complete and attach the rebate statement
approved by the Director of Consumer Affairs Victoria, at the time of signing
this Authority. The statement can be downloaded at www.consumer.vic.gov.au)
14. Item 8 of the
authority provided, under the heading ‘Agent’s role’, that the ‘Agent will
advertise, market, and endeavour to sell’ the property.
15. In the Particulars
of Appointment that formed the front page of the authority, there appeared a
section headed ‘Marketing Expenses’. Under that heading were the words
‘Advertising’, ‘Other Expenses’ and ‘TOTAL’, with a dollar symbol and space
after each expression. Each of these spaces was filled in with a handwritten
dash, which the parties agreed meant that the dollar amount in each instance
was zero.
16. At first
instance, Advisory submitted that it had strictly complied with the Act and, in
the alternative, that it had substantially complied with it and that
substantial compliance was all the Act requires.
17. It contended
that s 49A(4) should be read in context so that the rebate prohibition
statement in s 49A(4)(c) is not required to be included where the agent
will not receive any rebate. Similarly, it contended that where, as in the
present case, there are no expenses which the agent is to pass on to its
client, s 49A(4)(c) is superfluous and the statement as to expenses it
identifies is not required.
18. The trial judge
considered the consumer protection purposes of ss 49A and 50 of the Act
and authorities to the effect that they were to operate strictly so as to
preclude claims of the type Advisory made against Stella and Caroline in the case of
non-compliance.
19. The trial judge
found that the Act was to be construed strictly in favour of consumers so as to
advance its consumer protection objectives. The Act required that consumers be
advised of their rights, including that agents are not entitled to retain any
rebate, before entering into the contract.
20. The trial judge
found that, whether or not an agent is entitled to a rebate, s 49A(4)(c)
applies.
21. The trial judge
actually found that substantial compliance with the Act — by reasonably
conveying the intended message of s 49A(4)(c) — would have sufficed.
22. However, she
found that the applicant had not substantially complied with the Act, because
the authority did not convey the information that:
The estate agent is not entitled to retain any rebate
and must not charge the client an amount for any expenses that
is more than the cost of those expenses. The information required to be
conveyed by s 49A(4)(c) is the agent is prohibited from
retaining any rebate or charging the client more than the amount charged to the
agent for any expenses, and that it must not do so. This is
different from a statement (whether express or implied) that it is not in fact
retaining any rebate in circumstances where no outgoings have been paid by the
agent to which a rebate relates.
23. The trial judge also
rejected a further argument advanced by Advisory that a rebate statement would
comply with s 49A(4) if it was in a form approved by the Director or if it
contained the words in sub-section (4)(c). She held that the word ‘and’
indicated unambiguously that both requirements needed to be satisfied.
24. The Court of Appeal
commenced their analysis of the question of construction of the Estate Agents Act 1980 by referring to
some further provisions of the Act.
25. At paragraphs 39
and 40, they noted:
A strong and
consistent theme of consumer protection runs through pt IV. Its provisions are
directed to the conduct of estate agents in their dealings with both clients
and third parties such as prospective purchasers. The provisions are concerned
with standards of conduct and transparency as to that conduct. As has been
seen, s 50 provides for significant sanctions for breach of some of the
provisions and s 49A(1) itself provides for a penalty. It is evident that these
provisions are directed to the general protection of persons, including
clients, dealing with estate agents.
Section 49A(4) can
also be seen to have a more specific purpose. Its concerns as to disclosure
regarding rebates and expenses reflect earlier substantive provisions.
26. The Court of Appeal
then set out the relevant parts of 48A and 48B and noted at paragraph 42 that:
Sections 48A and
48B are explicit prohibitions on certain conduct by estate agents. Section 48A
prohibits the retention of rebates in respect of outgoings, prepayments and
payments by the client to third parties, the three kinds later described in s
49A(4)(a). Section 48B prohibits an agent from charging for outgoings an amount
greater than the agent paid for those outgoings. It can be seen that the
statement in s 49A(4)(c) amounts to a paraphrase of these statutory
prohibitions.
27. At paragraph 43,
the Court of Appeal concluded that “viewed in that light, the requirement that
the statement be contained in the engagement or appointment can be seen as
ensuring that the client is advised as to the existence of the prohibitions”.
28. The question in this
case concerned whether the legislation requires notice to the client in
circumstances where the prohibitions cannot, by virtue of the particular
arrangements between the estate agent and the client, be breached in any event.
29. In paragraph 44,
the Court of Appeal found it to be significant that “the notice is required to
be in the engagement or appointment which is itself required to be signed by
the client under s 49A(1)(a). This indicates an intention that the client have
an opportunity to read the statement before, rather than after, signing the
engagement or appointment. Section 49A(1)(b) calls for the agent to have
informed the client before signature that the commission and payment in respect
of outgoings are subject to negotiation. It is apparent that Parliament
intended that the client be aware of the existence of the prohibitions in the
context of being able to negotiate the terms of commission and payments in
respect of outgoings.
30. In those
circumstances, the Court of Appeal concluded that:
It would be
surprising if the obligation to provide the client with notice as to the
substantive obligations resting upon the estate agent were not to apply unless
it transpired that the arrangement ultimately made between the parties provided
for the possibility of rebates being received or expenses being charged,
thereby raising the potential for those substantive obligations to be breached.
If that were the position, it would not be possible to decide whether the agent
was obliged to provide the client with the information in s 49A(4)(c) until the
terms of the arrangement were agreed. Yet the period of negotiation of the
arrangement, up until its signature, is the very time when the client might be
thought to benefit from the information in question.
31. The Court of Appeal
concluded that the purpose of s 49A(4) was not served by Advisory’s suggested
construction. The objection that the provision of information irrelevant to the
arrangement between the parties might be confusing disappears once it is seen
that the information is to be provided before that arrangement is finalised.
32. The Court also
concluded that the text and structure of the sub-section is contrary to Advisory’s
construction. Section 49A(4)(c) is expressed as a statement about the agent’s
entitlement and obligation in respect of rebates and expenses, in general
terms. Those terms mirror the substantive provisions already referred to. It is
not, in terms, confined to rebates and expenses for which the particular
engagement or appointment provides. The use of the word ‘any’ to describe both
the rebates and the expenses tells against Advsiory’s submission that ‘any
rebates’ in para (c) refers only to such rebates as have been specified as ones
to which the agent is entitled, under para (a).
33. The Court concluded
that it would have been a simple matter to add conditional language to para
(c), comparable to that in para (b), had it been intended that the obligation
to provide the two statements only apply where an entitlement to a rebate was,
or was likely to, occur or where the agent was entitled to charge for expenses,
respectively.
34. The Court of Appeal
concluded (at paragraph 49) that:
The correct
construction of s 49A(4)(c) is that the statements it describes must be
contained in the rebate statement required by s 49A(1) irrespective of whether
the agent will be, or is likely to be, entitled to any rebate or to charge any
amount by way of expenses. That construction emerges from the text, context and
purpose of the provision and is sufficiently clear so as not to be affected by
the fact that s 49A(1) provides for a penalty, or by the principle of legality.
35. The Court noted
that this conclusion was fatal to the proposed appeal. The authority simply did
not say that the agent was not entitled to retain any rebate. Despite the
heading ‘No rebate will be received’, the text went on to say, as s 49A(4)(a)
contemplates, only that no rebate would be, or was likely to be, received. This
fell well short of saying that a rebate could not be retained. There was no
statement at all in respect of the agent’s obligation with respect to expenses.
The rebate statement therefore did not contain the information required by s
49A(4)(c). As a result, s 49A(4) was not satisfied and s 50 was attracted.
36. It follows that the
appeal failed.
Consequences
37. Whilst the Director
of Consumer Affairs has apparently now rectified the incorrect form on his web
site, there are a large number of potential cases out there that have relied on
the relevant form, which was in existence between around 2011 and late 2017.
38. As a result, an
amendment to the Estate Agents Act
1980 is now proposed.
39. Unfortunately for
Advisory, its claim for commissions of $385,000 cannot be covered by
legislative reform. It is bound by the Court of Appeal decision.
40. It is expected
that most other commissions claimed under the incorrect form available from the
Consumer Affairs web site will be covered by the proposed reforms.
WG Stark
Hayden Starke Chambers
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