In Cross & Ors v Peebles  QCA 26 Cross Country Realty Pty Ltd (the Applicant Corporation) held a property agents and motor dealers licence pursuant to the Property Agents and Motor Dealers Act 2000 (Qld) (PAMD Act) and was a “residential property agent” for the purposes of the act. The Applicant Corporation marketed and sold residential properties in new developments in Queensland, primarily to interstate investors.
The Applicant Corporation formed part of a corporate group (the Group) which included a marketing company (Park Trent Investments) and finance provider (Easy Plan). The executive officers of the Applicant Corporation were directly concerned with the management of the Group.
The Applicant Corporation and Park Trent Investments would enter into agreements with the property developer prior to marketing the particular development. These agreements would ordinarily stipulate that the Applicant Corporation and Park Trent Investments would be paid a fee by the developer in exchange for advertising the properties.
In the particular transaction in 2002, prospective purchasers of a lot in the proposed community titles scheme, “Lakeside on Varsity” at Varsity Lakes, Gold Coast were provided with a Form 27b (now replaced by the current PAMD Act Form 27c), which specified the benefit that the “developers consultants” were to receive. Importantly, neither the precise dollar fee that was to be received from the sale, nor the name of “Trent Park Investments” was disclosed to the buyer. The benefit was only described in a formulaic manner, namely:
- For the ‘Selling Agent’, a commission of 5% of the first $18,000 and 2.5% of the balance purchase price, and
- For the ‘Developers Consultant’, a fee of up to 1.5% of the purchase price with respect to each service provided. The services included, but were not limited to - consultation and advisory, drafting and preparation of promotional material, co-ordination and supervision of service providers and liasing with real estate agents. Owing to a complaint made in 2004, the Office of Fair Trading alleged 38 counts against the Applicant Corporation of failing to disclose to a prospective purchaser of residential property the amount of a benefit that a person then expected to receive in connection with the sale of a property.
Relevantly, section 138(1)(c) of the PAMD Act specifies that a residential property agent is required to disclose:
“the amount, value or nature of any benefit any person has received, receives, or expects to receive in connection with the sale, or for promoting the sale, or for providing a service in connection with the sale, of the property”.
Issues in Dispute
In the first instance, the District Court considered the following two issues:
- Whether the description of each of the recipients of respective benefits was sufficient to satisfy section 138(1) (c) PAMD Act, and
- Whether the description of what was to be received by the ‘developer’s consultant’ was sufficient to satisfy the requirements. There was however no issue that standard REIQ commission to be received by the selling agent was sufficient.
Decision of the District Court
Judge C F Wall QC held in the first instance as follows:
- Section 138(1)(c) was not satisfied as the description of Park Trent Investments as the “developers consultants” was not prescriptive enough to identify the name. It was considered immaterial that Park Trent Investments may have been known to a potential buyer as the marketing company through interactions that occurred during the course of the transaction, and
- The formulaic description of the benefit to be received by Trent Park Investments was inaccurate and insufficient to adequately satisfy the requirements of section 138(1)(c).
Decision of the Court of Appeal
Judge of Appeal Gotterson with Judge of Appeal Fraser and Judge Henry concurring, held on appeal that:
- The disclosure of the identity of the recipient of benefits by name was considered to not be required for the purposes of section 138(1)(c) and the Form 27b, however an identification of the “person” by their function will suffice.
In coming to this conclusion, the court referred to the examples provided within section 138(1)(c) which makes explicit reference to the person’s status and the function they may perform.
- The court however dismissed the Applicants’ appeal as the formulaic description of the benefit to be received by Park Trent Investments as stated in the Form 27b was considered to be inaccurate. The description was also not in compliance with the notes described on the Form 27b (now expounded in the Form 27c), with which strict compliance is necessary. To comply with these notes, the value and nature of the benefit must be accurately described at the time of disclosure, this being either an exact dollar amount or a reasonable estimate of the final amount based on the purchase price at the time of disclosure.
- It was also found that an accurate calculation of the amount of the benefit was able to be calculated at the time of disclosure, given the purchase price was known when the unsigned sale contract was provided. Despite the applicant’s arguments that the purchase price was likely to change, an estimate should have been made on the price that was disclosed with the contract.
This decision serves as a timely reminder of the fiduciary relationship that exists between an agent and client, in which an agent must act free from the influence of any interest that may conflict with their client’s best interests. In this regard, it is thoroughly important for Queensland agents to comply with the requirements of both section 138 PAMD Act and the current Form 27c Selling Agents Disclosure to Buyer. Due regard should also be had to the implications that may stem from non-compliance;
To highlight the national importance of agent’s disclosure, a comparison can be drawn to other states as follows:
Under Section 47 of the Property, Stock and Business Agents Act 2002 (NSW), where a NSW agent refers their client for professional services, they are required to:
- detail any relationship the agent has with the service provider, and
- disclose whether any consideration will be received and the amount, value and nature thereof.
A NSW agent must also disclose any benefits a person is likely to receive conditional on whether the property is sold, whereby the agent has referred their client to the person. Similar to the PAMD Form 27c, a Section 47 form is required for such disclosures in NSW.
Under section 12 of the Estate Agents (Professional Conduct) Regulations 2008 (VIC), a Victorian agent must avoid any potential conflict of interest and disclose any personal or commercial relationship with a supplier of goods and services where recommended to the principle by the agent. An agent further commits an offence under the Estate Agents Act 1980 (VIC) (EAAct) if he/she obtains a beneficial interest in the property, unless written acknowledgement is obtained of the vendor.
In addition to the General or Exclusive Sale Authority an agent, when acting on a sale, must provide the following disclosures to the vendor, where applicable:
- A “Disclosure of Conflict of Interest to Vendor” form is to be provided to the vendor by the agent to notify of any beneficial interests to be obtained, and
- A “Rebate Statement” is to be provided under section 48A and 49A of the EAAct whereby any discount, commission or other benefit from another person (including nonmonetary) is to be received by the agent in accordance with the sale.
Under section 24C(2) of the Land and Business (Sale and Conveyancing) Act 1994 (SA) (LBSC Act), an agent must, where not already disclosed in a sales agency agreement, disclose to the client:
- The nature, source and amount of any benefit the agent receives or expects to receive from a third person to whom the agent has referred the client or with whom the agent has contracted with, and
- The nature, source and amount of any other benefit any person receives or expects to receive in connection with the sale or purchase.
Under regulation 22 of the Land and Business (Sale and Conveyancing) Regulations 2010 (SA), the prescribed form that an agent must use for disclosure purposes is a “Form R2: Disclosure of Benefits.”
Further, section 24G of the LBSC Act makes it illegal for an agent to obtain a beneficial interest in land (or business) that the agent is authorised to sell. An agent is also unable to obtain commission or expenses for the sale where the agent obtains a beneficial interest in the land (or business).
In order for an agent to obtain a beneficial interest and also be paid commission and expenses, they must first obtain the approval of the Commissioner of Consumer Affairs under sections 24G(5) and 24G(9) respectively of the LBSC Act.
On a final note, it is important to highlight that the Queensland Government has drafted new industry specific legislation that will split the PAMD Act, which currently covers licensing of seven industries, into four industry specific acts. The aim of these amendments is to reduce regulatory burden and considerably improve compliance and regulation. As it stands, the current consultation draft section 86 of the Property Occupations Bill 2013 (Qld) looks likely to replace the existing section 138 PAMD Act in terms of agents disclosure.