- Real estate agency, Hocking Stuart Richmond, recently admitted to underquoting house prices and contravening the Australian Consumer Law (ACL).
- The small business must pay a substantial penalty and the legal costs of Consumer Affairs Victoria.
- The business misled and deceived consumers as part of its marketing and sales strategy and had no culture of compliance with the ACL.
- The onus is on a business to know and understand its legal obligations. The consequences of not doing so can be severe.
High on the list of accusations often made against real estate agents is that they understate the price of property they are trying to sell, to increase interest from potential purchasers. These accusations are often false, but unfortunately, that was not the case in the recent legal action against Hocking Stuart (Richmond) Pty Ltd (Hocking Stuart Richmond).
On 6 October 2016, Hocking Stuart Richmond admitted contravening the Australian Consumer Law and Fair Trading Act 2012 (VIC) (the Act). The Act establishes that the Australian Consumer Law applies as a law of Victoria. This case offers useful lessons for all businesses – including that non-compliance with the law can occur in the absence of malicious intent and the necessity of creating a workplace that is knowledgeable about its consumer law responsibilities.
The Director of Consumer Affairs Victoria (Consumer Affairs) initiated legal action against Hocking Stuart Richmond – a small franchise of Hocking Stuart Pty Ltd and licensed agent under the Estate Agents Act 1980 (VIC). Consumer Affairs alleged that the agency engaged in misleading and deceptive conduct in breach of section 18 of the ACL and also contravened section 30(1)(c) of the ACL, which prohibits false or misleading representations about the price payable for land.
The alleged offending concerned the sale of eleven residential properties in Richmond and Kew during 2014 and 2015. Consumer Affairs contended that the agency had underquoted the price range of these properties when marketing and advertising them both online and in the Redbook, a publication distributed by the Hocking Stuart franchise network.
As the Court noted, the practice of underquoting can occur in several ways:
- advertising or advising a prospective buyer of a sale price that is lower than the auction reserve price;
- advertising or advising a prospective buyer of a sale price that is lower than the agent’s estimated sale price;
- advertising or continuing to advertise a sale price that is lower than a genuine offer refused by the vendor; or
- giving an inaccurate appraisal of the current value of a property.
In this instance, Hocking Stuart Richmond deliberately created an ‘enticing (albeit fictional and illusory) marketing web’ with the aim of creating the ‘illusion of a bargain’. In essence, the source of the agency’s offending conduct was its marketing and sales strategy. While Consumer Affairs did not allege that Hocking Stuart had the intent to mislead or deceive consumers, the Court nonetheless noted that the lengths the agency went to suggested a conscious decision to engage in the problematic conduct.
On 6 October 2016, Hocking Stuart Richmond admitted all of the allegations made by Consumer Affairs. The judge, Justice Middleton, imposed a pecuniary penalty on the agency of $330,000.
The Court was of the opinion that this amount took away the value of the commissions earned on the sales of the eleven properties, as well as imposing an additional penalty. The Court felt that the size of the penalty satisfied the aim of deterring other agencies from engaging in the same conduct, while also taking due account of the small size of Hocking Stuart Richmond.
The agency was also required to pay the costs of Consumer Affairs in bringing proceedings, estimated to be between $80,000 and $90,000. The Court also ordered Hocking Stuart Richmond to adopt a compliance program, which would help the agency understand its obligations under the ACL and foster a culture of compliance.
What Did the Court Decide?
In outlining his reasons for the size of the penalty, Justice Middleton described the nature of Hocking Stuart Richmond’s contraventions as serious.
He noted that, in the context of the sale of residential property, the price is a critical piece of information. Buyers must be able to rely on accurate pricing to make an informed purchasing decision. As a result of the agency’s efforts to create the ‘illusion of a bargain’:
- many consumers would have been “significantly inconvenienced, disappointed and deceived” and might have missed opportunities to purchase other properties;
- other vendors may have missed out of traffic from potential buyers; and
- real estate agents of those other properties would also have been affected by the conduct.
The Court also noted that the offending conduct involved senior levels of the agency, including its owner and director. The fact that Hocking Stuart Richmond produced no evidence to demonstrate the agency’s culture of compliance with, or understanding of, its consumer law obligations made matters worse. However, the franchisor, Hocking Stuart Pty Ltd, does offer training programs to its franchisees.
Some believe that the kinds of consumer law contraventions committed on the part of Hocking Stuart Richmond are not isolated. Consumer Affairs Victoria recently completed a series of inspections of real estate agencies throughout the state, examining approximately 1400 property files and attending 200 random auctions. The Herald Sun reported in August 2016 that the regulator has thirteen other investigations into underquoting underway.
For its part, the NSW government recently introduced new provisions into the Property Stock and Business Agents Act 2002 (NSW) to prevent real estate agents from underquoting prices for property. Agents cannot underquote in advertisements for residential property or in the representations they make to buyers or prospective buyers. Agents must also keep records of quotes and be able to substantiate estimates of selling prices. These new provisions came into effect in NSW on 1 January 2016.
What Does the Law Say?
As noted above, Hocking Stuart Richmond contravened sections 18 and 30 of the ACL. Section 18 concerns misleading and deceptive conduct.
Section 18 was included in the ACL to promote and encourage the accuracy of information in the marketplace. Case law clarifies and expands on the type of conduct that is misleading and deceptive or likely to mislead and device. In broad terms, conduct is misleading and deceptive if it is likely to lead a consumer into error. The case of Hocking Stuart Smith highlighted a significant point about this ACL provision: intent is not necessary to establish a breach of section 18. The question is whether the conduct does, in fact, mislead or deceive or is likely to do so.
What Can We Learn From Hocking Stuart Richmond?
The facts of Hocking Stuart Richmond offer valuable lessons for all businesses, not merely real estate agents. The agency breached its consumer law obligations in pursuit of a marketing and sales strategy.
The agency’s desire to create the illusion of a bargain for the relevant properties was the reason it advertised properties at underquoted prices. Also, the lack of any culture of compliance with, or understanding of, the agency’s obligations under the ACL meant that Hocking Stuart Richmond did not apply the necessary internal checks and balances to its plan.
Almost all businesses have marketing and sales strategies – and this case is a reminder of the real need for businesses to foster a culture of compliance with legal obligations. That includes employers becoming informed of their responsibilities and providing any appropriate training to team members.
While taking those steps may involve time and cost to business, being proactive could potentially save the cost of a penalty and the bad publicity that a case like the one against Hocking Stuart Richmond has attracted nationwide.
Unsure about whether your marketing and sales strategy is in line with the ACL? LegalVision’s consumer lawyers are more than happy to assist. Call us today on 1300 544 755 or fill out the form on this page.