What Is Required to Sue a Real Estate Agent For An Error or An Omission?

A Real Estate Agent May Be Liable For Harm That Results From Unreasonable Errors or Omissions By the Real Estate Agent Which Occur Within the Course of Providing Advice and Guidance to a Client.

Understanding When Real Estate Agents May Be Sued For Professional Negligence Including Special Evidence Needs

Real Estate Agent Explaining Details In circumstances where a real estate agent commits and error or an omission within advice and guidance that is contrary to the advice and guidance that would be provided by a reasonably acting real estate agent, liability for professional negligence may arise to compensate for the harm, if any, suffered by a client who was relying on the real estate agent.

The Law

Within the Court of Appeal case of Krawchuk v. Scherbak, 2011 ONCA 352, as well as the Lippa v. Colletta, 2017 ONSC 1122, and Wemyss v. Moldenhauer, 2003 CanLII 19103, cases, among many others, a real estate agent may be held liable for failure to adequately render professional service, meaning failing to act in accordance to the standards of a reasonable real estate agent.  Specifically, these cases state:

[125]  To avoid liability in negligence, a real estate agent must exercise the standard of care that would be expected of a reasonable and prudent agent in the same circumstances. This general standard, a question of law, will not vary between cases and there is no need for it to be established through the use of expert evidence: see Wong v. 407527 Ontario Ltd., 1999 CanLII 3788 (ON CA), [1999] O.J. No. 3373, 179 D.L.R. (4th) 38 (C.A.), at para. 23; Fellowes, McNeil v. Kansa General International Insurance Co., 2000 CanLII 22279 (ON CA), [2000] O.J. No. 3309, 138 O.A.C. 28 (C.A.), at para. 11. The translation of that standard into a particular set of obligations owed by a defendant in a given case, however, is a question of fact (Wong, at para. 23; Fellowes, at para. 11). External indicators of reasonable conduct, such as custom, industry practice and statutory or regulatory standard, may inform the standard. Where a debate arises as to how a reasonable agent would have conducted himself or herself, recourse should generally be made to expert evidence.

[30]  The general standard of care applicable to real estate agents is a legal question.  It does not vary from case to case.  Simply put, a real estate agent must exercise the standard of care that would be expected of a reasonable and prudent agent in the same circumstances.  As the Court of Appeal has held, however, the translation of that general standard to a particular factual matrix is a question of fact:  Krawchuk v. Scherbak, 2011 ONCA 352 at para 125.

[18]  A real estate agent has a duty to act with reasonable care and skill in reviewing the terms of a purchase agreement with his client.  That duty includes the obligation to specifically draw to the client’s attention, any provisions in the agreement that are contrary to the client’s interest or instructions given by the client: Sanhart Holdings Ltd. v. Chassis Service & Hydraulics Ltd. (1997), 1997 CanLII 12181 (ON SC), 36 O.R. (3d) 328 at 341 (Ont. Ct. J. Gen. Div.).

Expert Evidence Needed

To prove that a real estate agent failed to provide services in accordance to the standards of a reasonable real estate agent an expert opinion is usually required.  The opinion of an expert will be used to explain to the court what the real estate agent did and what should be done in a similar circumstance by a reasonably acting real estate agent.  The need for an expert opinion was explained in the cases of Krawchuk, Lippa, Fischer v. Volpe, 2016 ONSC 6326, where it was said:

[130] The jurisprudence indicates that, in general, it is inappropriate for a trial court to determine the standard of care in a professional negligence case in the absence of expert evidence. See Zink v. Adrian, 2005 BCCA 93 (CanLII), [2005] B.C.J. No. 295, 37 B.C.L.R. (4th) 389 (C.A.), at para. 43, Southin J.A., concurring; Gauvreau v. Paci, [1996] O.J. No. 2396 (C.A.), at para. 1; Precision Remodeling Ltd. v. Soskin, Soskin & Potasky LLP, [2008] O.J. No. 2560, 2008 CanLII 31411 (S.C.J.), at para. 57Dinevski v. Snowdon, [2010] O.J. No. 2516, 2010 ONSC 2715, at paras. 68-69; Adeshina v. Litwiniuk & Co., 2010 ABQB 80 (CanLII), [2010] A.J. No. 125, 24 Alta. L.R. (5th) 67 (Q.B.), at paras. 160-75.

[131] In Walls v. Ross, [2001] B.C.J. No. 1641, 2001 BCPC 187, at paras. 66-74, Stansfield A.C.J. offers a lengthy discussion of the circumstances in which expert evidence will be necessary to define the standard of care in the real estate professional context:

Counsel for the realtors in this case argued I could not find negligence in the absence of expert evidence as to the standard of care the law requires of realtors in circumstances such as those disclosed by the evidence in this case. The claimant did not call any such expert evidence.

In Roberge v. Huberman [(1999), 172 D.L.R. (4th)] it was argued that absent expert evidence there was "no evidence" upon which the court could determine the standard of care in a solicitor's negligence action. Esson J.A., said:

(at para. 54) the trial judge referred to no authority in support of the proposition that, without expert evidence as to the "appropriate documentation", there was no evidence of breach of the standard of care. In this court, the defendants made no effort to support that conclusion. In my respectable view, it cannot be supported.

(and at para. 58) . . . What the court was called upon to do . . . was to consider and assess, with the assistance of counsel's submissions, any evidence that was adduced by the plaintiff which was potentially [page628] relevant to the question whether there had been a breach of duty by the solicitor. That process involves the court applying its experience and knowledge in the way that judges and juries do every day, most often without expert evidence.

It is clear there can be cases in which expert evidence is not required to prove a realtor's failure to meet what the court will determine to be the standard of care expected of realtors in particular circumstances. An example is Brown v. Fritz, 1993 CanLII 1475 (BC SC), [1993] B.C.J. No. 2182 (B.C. S.C.), about which I will say more in due course.

It seems that whether expert evidence is or is not required is a question which falls to be determined on the facts (and most especially, one imagines, the egregiousness of the conduct or the very specialized or technical nature of the activity) in the particular case. So, for example, in Shaak v. McIntyre and others, [1991] B.C.J. No. 2607, Sept. 6, 1991, Vancouver No. A852424 (B.C.S.C.) Madam Justice Ryan (then of the trial court) dealt with a case of alleged negligence by a solicitor for failing to advise a plaintiff to obtain a survey certificate where the plaintiff called no evidence of the standards of the profession in that regard. She observed that:

[T]here may be cases where the defendant has so clearly fallen below the standard required of him or her that expert evidence is not required

although she said on the facts before her that "this is not one of those cases".

In Haag v Marshall (1989), 1989 CanLII 236 (BC CA), 61 D.L.R. (4th) 371 (B.C.C.A.), Mr. Justice Locke, concurring with two others in the result in a case of alleged solicitor's negligence, said:

[t]he professional evidence led in this case was unsatisfactory . . . nowhere was it said that what was not done fell short of a professional standard of conduct. In cases of professional negligence above all, with the many difficult and varied situations met, if a plaintiff hopes to succeed on the grounds of lack of competency it must be fairly demonstrated that it has fallen below an established standard or practice in the profession.

To similar effect in Mileos v. Block Bros. Realty Ltd. and others, unreported, September 30, 1994, Vancouver No. C913338, Mr. Justice Thackray, in the context of alleged realtor's negligence, said (at page 8):

. . . I am of the opinion that the onus is on the plaintiff to show that there was a certain standard of care required by the real estate agent and the agency, that that standard was breached, and that the breach caused damages. No evidence was called to establish the standard.

In Shaak v. McIntyre (supra), Madam Justice Ryan said:

[t]he (selling) broker is under a duty to check information of which he or she is in doubt (or ought to have been in doubt) before passing it on to the purchaser . . . The selling agent must also check the completeness and accuracy of all information which it is usual or customary for brokers to verify. In the case at bar there is no evidence of the usual or customary information which selling agents check. I cannot find that (the selling agent) fell below that standard, whatever it may be. (emphasis added) [page629]

The same difficulty was identified by Mr. Justice Drost in Snijders v. Morgan, unreported, January 27, 1997, Nelson No. 4747 (B.C. S.C.) where he said:

it is alleged that (the selling realtors) were negligent in failing to properly investigate the nature, identity and extent of the property they advertised for sale. There is no evidence whatsoever of that being a duty or responsibility that the law or the custom or the nature of that business imposes upon persons in that type of business in this province.

Similarly, . . . the allegation that they were negligent in failing to advise the Plaintiffs that a plot plan or survey should be obtained at any time, and more particularly once they became aware that a misdescription of the property was involved, there is no evidence of a standard of care that would impose upon them a duty to so advise the Plaintiffs accordingly.

A review of the cases referred to in these reasons suggests that unless conduct is particularly egregious, the court likely requires expert evidence of the usual or customary standard in the real estate industry regarding:

a) the kind of information that must be checked or verified by realtors, where it has not been demonstrated that the realtor had cause to doubt the information;

b) a duty to take positive steps to confirm the nature, identity and extent of the property they advertise, including any duty to recommend a purchaser secure a plot plan or survey; and

c) a duty to recommend that the purchaser secure an inspection regarding the soundness of premises, including any structural defects.

[132] While the authorities discussed above indicate that, as a general rule, it will not be possible to determine professional negligence in a given situation without the benefit of expert evidence, they do indicate two exceptions to this general rule.

[133] The first exception applies to cases in which it is possible to reliably determine the standard of care without the assistance of expert evidence. As explained by Southin J.A., at para. 44 of Zink, this will be the case only where the court is faced with "non-technical matters or those of which an ordinary person may be expected to have knowledge".

[134] This exception is not engaged in this case, a case that involves the determination of obligations arising out of a property with unique issues, an SPIS that contained incorrect representations negligently made and a dual agency relationship -- issues that cannot be said to be of a non-technical nature within the knowledge and experience of the ordinary person.

[135] The second exception applies to cases in which the impugned actions of the defendant are so egregious that it is obvious that his or her conduct has fallen short of the standard of care, even without knowing precisely the parameters of that standard: see [page630] Cosway v. Boorman's Investment Co., [2008] B.C.J. No. 2081, 2008 BCSC 1482, at para. 35. As can be seen, this second exception involves circumstances where negligence can be determined without first identifying the parameters of the standard of care rather than identifying a standard of care without the assistance of expert evidence.

[32]  There is scant evidence in the record upon which the court could make the determination.  Evidence will often be presented of trade custom or practice.  Sometimes there is a statutory standard that must be met.  The Court of Appeal has directed, however, that, in general, it is inappropriate for a trial judge to determine the standard of care in the context of an allegation of professional negligence in the absence of expert evidence:  Krawchuk, as above, at para. 130.  There are two identified exceptions to this general requirement:

(a)  Where the standard of care may reliably be determined in the absence of expert evidence, such as where the case is about non-technical matters that an ordinary person may be expected to have knowledge about; and,

(b)  Where the conduct of the defendant is so egregious that it obviously falls below the standard of care.

See Krawchuk, as above, at paras. 132-135.

[45]  In a professional negligence claim, the burden is on the plaintiff to prove that the defendant’s conduct fell below the standard of care. Evidence must be led to establish the appropriate standard of care in the circumstances. Mr. Fischer did not provide expert evidence to establish the applicable standard of care for a buyer’s agent.

Contributory Negligence

Sometimes when a real estate agent is sued, the real estate agent (or errors and omissions insurer of), will allege that the client, being the victim of the error or omission, was harmed by unreasonably relying upon the real estate agent and thereby an allegation of contributory negligence is made in an attempt to blame the client; however, as per Wemyss, a finding of contributory negligence by the client for unreasonably relying on the real estate agent will be rare. Specifically, in Wemyss it was stated:

[24]  The defendant further submits that Mr. Wemyss was contributorily negligent in failing to read the agreement for himself and in not seeking advice on the nature of the changes.

[25]  A purchaser is entitled to rely on the expertise of his real estate agent in entering into an agreement of purchase and sale.  Obviously, Mr. Wemyss could have sought legal advice before signing the agreement.  However, there was nothing complex about this transaction and it was clearly within the scope of the real estate agent’s duties to advise him as to the terms of the agreement.  Mr. Wemyss’ failure to obtain legal advice does not excuse Mr. Moldenhauer from liability for negligence and does not constitute contributory negligence.

[26]  I am also of the view that Mr. Wemyss’ own failure to carefully read the amendments to the agreement is not a basis for reducing the liability of his agent.  As between Mr. Wemyss and the vendor there is no question that Mr. Wemyss’ failure to read the agreement before he signed it is no answer to a claim by the vendor based on the agreement.  However, as between Mr. Wemyss and his professional adviser the situation is quite different.  Mr. Wemyss relied on his agent.  It was the agent’s job to review any changes to the agreement and advise his client accordingly.  It certainly would be wiser for a client to read the agreement carefully before signing, rather than to simply trust the agent to have protected his interest.  However, that does not change the duty of the professional adviser.  Further, I do not accept the argument that the adviser can reduce his liability by saying that if the client had been more careful he would have caught the adviser’s mistake.  In this situation, Mr. Wemyss did actually rely on his real estate agent to have read and understood any changes in the agreement he was being asked to sign.  Further, in my view, it was reasonable for him to have relied on Mr. Moldenhauer in this manner.  I therefore do not consider Mr. Wemyss to have been negligent in this situation.

[27]  I have been directed to only one case in which a plaintiff’s damages for negligence against a professional adviser have been reduced based on the plaintiff’s own contributory negligence: Winsham Fabrik Canada Ltd. v. Re/Max All Stars Realty Inc., [2001] O.J. No. 1478 (S.C.J.).  In that case, the plaintiff retained an agent to find a warehouse property of approximately 50,000 square feet.  With the assistance of that agent he entered into an agreement to purchase a property which was represented to be 46,600 square feet.  The purchaser’s agent relied on the vendor’s agents’ representations as to the size of the property and did not verify the size himself, nor did he advise the purchaser that the agreement should be conditional upon size being verified.  When the purchaser toured the building after the agreement of purchase and sale had been signed, he expressed a belief that the building appeared to be smaller than 46,600 square feet but was assured that the architect’s drawings would prove the accuracy of the represented size.  An inspection of the property was carried out, but the dimensions were not reviewed.  By the time stipulated for the waiver of the inspection condition the architectural drawings had not yet been produced.  The purchaser waived the condition.  Subsequently, the drawings were produced and they revealed that the building was 3000 square feet smaller than it had been represented to be.  The purchaser closed the deal but sued his own real estate agent and the agents for the vendor for damages.

[28]  Trafford J. determined the plaintiff’s damages to be approximately $142,000.00.  He found that the listing agents had negligently misrepresented the size of the property.  He further found that the plaintiff’s own agent was negligent for not having properly advised his client and not having verified the size of the building, which he knew was an important factor for his client.  However, he also held that the purchaser’s legal position changed significantly when he perceived at the time of the tour of the building that there was an actual risk of the building being smaller than represented.  He apportioned liability for the plaintiff’s agent at 50%, for the listing agents at 30% and the plaintiff at 20%.  There is no discussion of the legal foundation for a finding of contributory negligence in this context, apart from the following reference in dealing with the issue of the listing agent’s liability for negligent misrepresentation (at the end of paragraph 55):

Even where reasonable reliance on a misrepresentation has been proven, the representee may be contributorily negligent.  See Grand Restaurants Limited v. City of Toronto (1981), 1981 CanLII 3019 (ON SC), 32 O.R. (2d) 757; (1982), 1982 CanLII 3300 (ON CA), 39 O.R. (2d) 752 (C.A.).

[29]  In Grand Restaurants Limited v. City of Toronto, the plaintiff was the purchaser of a restaurant business.  The plaintiff contacted the City to determine whether there was an “active file” in connection with the property and in particular whether there had been any work orders.  The City replied that there was no file.  This advice was wrong.  There were outstanding work orders.  The trial judge, Trainor J., found that the City was liable to the plaintiff for negligent misrepresentation, applying the principles established in Hedley Byrne & Co., Ltd. v. Heller & Partners, Ltd., [1963] 2 All E.R. 575.  One of the components of that cause of action is reasonable reliance by the plaintiff on the representation of the defendant.  Trainor J. found that the plaintiff was reasonable in relying on the City’s representation.  However, he went on to hold that the plaintiff’s own conduct also contributed to the damages it sustained because it was aware of prior work orders stemming from a liquor licence application since withdrawn and failed to make appropriate inquiries to follow up on that information.  He drew a distinction between the reasonable reliance required to ground liability in the first place and the extent to which that reliance was excessive in the circumstances.  Of  key importance in the decision is the specific finding by Trainor J. that there was no contractual relationship between the plaintiff and the City: see page **. His decision on liability was founded entirely on Hedley Byrne. He also specifically noted, immediately before turning to a consideration of contributory negligence, that he was mindful of Supreme Court of Canada’s direction in Nunes Diamonds v. Dominion Electric Protection Co., 1972 CanLII 12 (SCC), [1972] S.C.R. 769 at 777-8, 26 D.L.R. (3d) 699 at pp. 727-8 that the basis of tort liability in Hedley Byrne is inapplicable to a situation where the relationship between the parties is governed by contract.

[30]  In applying the decision in Grand Restaurants of Canada to the facts of the case before him in Winsham Fabrik Canada Ltd. v. Re/Max, Trafford J. does not appear to have addressed the distinction between the claim against the listing agents (which was based on Hedley Byrne principles) and the claim against the plaintiff’s own agent (with whom the plaintiff had a contractual relationship).  In respect of the claim against the listing agents, it would have been in keeping with the principle relied upon in Grand Restaurants to reduce the damages recoverable against the listing agent (the representor) for negligent misrepresentation based on the representee’s failure to take reasonable steps to protect its own interest.  Thus, as between the listing agent and the purchaser’s agent, there may have been misrepresentations by the listing agent, which the purchaser’s agent relied upon to his detriment.  However, the purchaser’s agent also had a duty (which he breached) to independently verify the accuracy of the representations made.  One can therefore appreciate the logic of dividing liability as between the two agents, rather than putting 100% of the liability on the listing agent.

[31]  The same logic does not apply in determining liability as between the client and his professional adviser.  Here, the plaintiff had a contractual relationship with the defendant.  Part of the defendant’s obligation under the contract was to protect the interest of Mr. Wemyss in the purchase of the subject property, including (as specifically instructed) to ensure he could get out of the agreement if there was a problem with the septic system.  It is also part of the real estate agent’s obligation under the contract to advise the client as to the terms of the agreement, including any amendments to the agreement.  The client, in this case Mr. Wemyss, is entitled to assume that the agent (Mr. Moldenhauer) will perform his obligations under the contract.  In particular, he is entitled to assume that the agent will read and understand any amendments to the agreement and will draw to his attention anything of substance that will affect his interest.  It cannot be said in this context that Mr. Wemyss is himself negligent for relying upon Mr. Moldenhauer to do his job.  In particular, it cannot be said that Mr. Wemyss is negligent for not noticing that there had been a substantial change to the protection he would be getting under the amended inspection clause.  It may not be wise to put so much trust in the agent to perform his job properly, just as it may not be wise to undertake risky surgery based solely on the advice of one doctor.  However, if the advice of the doctor turns out to be negligent, the doctor is liable in damages.  It would not be correct to reduce the patient’s damages for his own contributory negligence on the theory that he would have been wiser to get a second opinion.  Likewise, in this case, it would have been wiser for Mr. Wemyss to read carefully every word of the amended agreement placed before him for his signature.  However, he was entitled to rely, and did rely, upon Mr. Moldenhauer to carry out that function.  His damages should not be reduced because he relied on Mr. Moldenhauer to act competently.

[32]  The trial decision in the Grand Restaurants case was upheld on appeal with a brief endorsement.  It is therefore binding on me.  It is, however, an unusual case.  There will not be many situations in which the facts will support a finding that the plaintiff was reasonable to have relied on the representation made by the defendant (thus establishing the cause of action) and yet that the plaintiff was also negligent and contributed to his own damages.  Typically, the cases which have considered Grand Restaurants have noted the possibility of contributory negligence but found on the facts that there was no such negligence: see e.g. HongKong Bank of Canada v. Touche Ross Ltd. (1989) 1989 CanLII 2737 (BC CA), 36 B.C.L.R. (2d) 381, 74 C.B.R. (NS) 164 (B.C.C.A.); Kripps v. Touche Ross & Co, 1998 CanLII 3905 (BC SC), [1999] 3 W.W.R. 629, 56 B.C.L.R. (3d) 160, 41 B.L.R.(2d) 124 (B.C.S.C.); Canada (Federal Business Development Bank) v. Morris, Burk, Luborsky (1988), 38 B.L.R.1 (Ont. H.C.J.).  In one case, Perry v. Clintar, [1995] O.J.No.42 (Gen.Div.) there was a finding of contributory negligence similar to the finding made in Grand Restaurants. However, in all of these cases, the cause of action was negligent misrepresentation outside of any contractual relationship between the parties.

[33]  In my opinion, Grand Restaurants is authority for the application of principles of contributory negligence in a negligent misrepresentation case.  It therefore has no application to the case before me, which is not based on a Hedley Byrne type negligent misrepresentation.  Even though the cause of action before me is pleaded as negligence rather than breach of contract, there clearly was a contractual relationship between Mr. Wemyss and Mr. Moldenhauer.  The existence of that contractual relationship is an important element to take into account in determining their respective duties.  In my view, contributory negligence principles have no application to this situation.

[34]  Apart from Winsham Fabrik Canada Ltd. v. Re/Max All Stars Realty Inc., I am not aware of any case in which principles of contributory negligence have been applied in an action for damages for professional negligence.  Further, that is the only case I have found which has applied Grand Restaurants in a context outside of negligent misrepresentation.  The court in Winsham Fabrik does not appear to have considered whether the contributory negligence principles which applied against the listing agent (against whom the cause of action was negligent misrepresentation) should also be applied in the claim for professional negligence against the plaintiff’s own agent.  The decision is not binding on me.  In these circumstances, I must, with respect, decline to follow it.

[35]  Accordingly, I conclude that there is no legal foundation to reduce Mr. Wemyss’ damages based on contributory negligence.  Further, even if the rationale expressed in Grand Restaurants did apply, I find on the facts that it was reasonable in the circumstances for Mr. Wemyss to rely on Mr. Moldenhauer and that he was not contributorily negligent.

Summary Comment

When providing professional services to a client, such as advice and guidance in a real estate deal, a real estate agent must provide services in manner that is similar to what a reasonable real estate agent would do in a similar situation.  If the real estate agent fails to do so, and a client suffers harm as a result, the client may sue the real estate agent for the harm that resulted from the failure to meet the standard of a reasonably acting real estate agent.

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