Here was a court case in Ontario which was a hot topic at a recent event in our office at Canadian 1st Realty. It caused some questions by our realtors:
How do you figure out the correct standard of care? Is a real estate agent negligent? If so, how is that to be proved?
In professional negligence cases, liability is based upon the professional falling short of the appropriate standard of care. In a sense, in a professional liability case, to say "......everybody is doing it...." is truly a defense in law.
So, first we have to prove the appropriate standard of care, and then we need to prove that the professional fell short of that standard. If that's the case, and injury to the plaintiff was occasioned, then that's negligence. Remember, that there's no such thing as "negligence in the air..". There must be an actual loss or damage for there to be negligence. Otherwise, it's just "bad conduct".
Recently, the Ontario Court of Appeal considered the proof required to establish negligence in the case of a real estate agent in Krawchuk v. Scherbak (2011).
In this case Ms. Weddell a real estate agent of 33 years experience was called upon to list a property for sale. She assisted the vendors, the Scherbaks in the completion of a Seller Property Information Statement. There were some foundation problems. Ms. Weddell noticed some sloping floors. The Scherbaks said that the foundation had settled about 17 years ago and had been fixed, and there were no problems since then.
Now, the question at issue is whether or not Ms. Weddel is placed upon further inquiry. Her view was that the vendors were honest and she had no reason to doubt them.
But, their honesty is really not the issue. They could be honest and hold a mistaken belief.
Proving The Standard Of Care
Consequently, the Court held that she should have pursued this matter further, and said the following:
• 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.
• 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.
• 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.
• 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.
The Law about Expert Witnesses
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:
• 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;
• 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
• a duty to recommend that the purchaser secure an inspection regarding the soundness of premises, including any structural defects.• 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.
There are two exceptions to this general rule.
a) cases in which it is possible to reliably determine the standard of care without the assistance of expert evidence.
b) 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.
So, basically the Court is saying that you need an expert to prove the standard of care for a professional, unless:
1) the conduct is simple and therefore obvious, or
2) the conduct is outlandish and therefore obvious.
The Court Determined the Standard of Care
The difficulty in this case is that there was no expert testimony about the standard.
The Court could either send the case back for a new trial or a trial solely on that issue, or attempt to determine the appropriate standard itself as falling within one of those two exceptions.
Here is what the Court observed in respect to the agent's conduct:
• Ms. Weddell had plenty of reasons to question the veracity of the Scherbaks' assurances that the settlement problems had long since been resolved.
• She was a real estate agent with 33 years experience specializing in residential houses.
• She knew that the house had a history of settlement problems and accordingly was underpriced.
• As well, her visual inspection of the property disclosed settlement problems, the manifestation of which was sufficiently significant that it prompted her to further question the Scherbaks.
• Against this background and Ms. Weddell's admission that she was "no home inspector", it seems to me that she had good reason to look behind the Scherbaks' representations.
We are dealing with an experienced agent.
She observed a problem, knew there was a history, and simply proceeded in a rather cavalier and reckless manner without regard for the consequences.
She was not a home inspector. She was not a contractor. And, neither were the vendors.
So, in a professional capacity she should make a reasonable recommendation to solve this problem and eliminate or reduce the risks.
That would have been straightforward. But, the agent took the easy way out and did nothing. In this case, the failure to act was fatal. Ultimately, the house needed to be torn down and reconstructed.
So, if there is a problem that you see, or that you know about, and you don't know the answer, then recommend that the matter be referred to someone who does. In this case a home inspector or contractor would easily have determined the problem. And they would have been less expensive than lawyers to handle to lawsuit.
Brian Madigan LL.B., Broker is an author and commentator on real estate matters.