Barfoot & Thompson Ltd v Real Estate Agents Authority [2014] NZHC 2817; [2015] 2 NZLR 254; (2014) 15 NZCPR 650 (13 November 2014)

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IN THE MATTER	of an appeal under s 116 Real Estate Agents Act 2008
BETWEEN	BARFOOT & THOMPSON LIMITED Appellant
AND	REAL ESTATE AGENTS AUTHORITY (CAC 20007) First Respondent
AND	RICHARD AND EVETTE CAMPBELL Second Respondent

Hearing:	2 October 2014
Appearances:	T D Rea for the Appellant M J Hodge/K H Lawson-Bradshaw for the First Respondent
_Judgment:	_{13 November 2014}

This judgment was delivered by me on 13 November 2014 at 11.00 am pursuant to Rule 11.5 of the High Court Rules.

BARFOOT & THOMPSON LIMITED v REAL ESTATE AGENTS AUTHORITY (CAC 20007) & ORS [2014] NZHC 2817 [13 November 2014]

[1] The appellant was found guilty of unsatisfactory conduct under s 72 of the Real Estate Agents Act 2008 (the Act) by virtue of breaches of r 6.4 of the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009 (Rules), and s

50 of the Act, for failing to disclose a death by suicide in a property to subsequent purchasers of that property.¹

[2] The facts are not in dispute and were summarised by the Tribunal in its decision as follows:²

[3] The property at 21 Amaretto Avenue, Dannemora, Flat Bush, Auckland, had been managed by the property management division of Edwards Realty Ltd (trading as Century 21) from 2009. During a tenancy, and prior to the property being listed for sale, one of the tenants committed suicide in the garage.

[5] In December 2011, the property was listed for sale with both Century 21 and Barfoots. Century 21’s branch manager, Annette Edwards, then informed the Barfoots salesperson, Jitender Setia, that a former tenant had committed suicide in the garage. Ms Edwards also visited Mr Setia’s branch manager, Grant Sykes, and told him about the suicide.

[6] Mr Sykes consulted with Mr G Barfoot, a director of Barfoots who decided that no information about the suicide needed to be disclosed in the course of marketing the property. He concluded this on the basis that the suicide was a personal matter which only related to the occupants of the property and, particularly, in light of media restrictions and public policy issues around suicide. Also, Mr Barfoot considered that the suicide had no relevance to the condition of the property. Accordingly, he advised Mr Setia that it was the position of Barfoots that there was no need to disclose the suicide to prospective purchasers.

[7] On 21 January 2012, the complainants entered into an agreement to purchase the property. They understood that the property was vacant but had formerly been tenanted. The agency did not inform the complainants that there had been a suicide at the property.

[8] Five months after taking possession of the property, the complainants put the property back on the market having (they now say) felt uneasy in the

property and that it was “dark and felt sad and depressing”. They subsequently entered into an unconditional sale of that property. After a “sold” sign went up at the property, a neighbour enquired of them whether they had re-sold so quickly because of the suicide. The neighbour indicated that he had previously discussed the suicide with Mr Setia.

[9] After becoming aware of the suicide, the complainants disclosed this to the subsequent purchasers from them. Those purchasers decided not to move into the property and re-listed it for sale prior to settlement with the complainants.

[3] The appellant seeks a reversal of the Tribunal’s decision on three grounds. It

(a) erred in finding that the appellant breached its supervisory obligations under s 50(1) of the Act;

(b) applied an incorrect test for “fairness” under r 6.4 by accepting a test proposed by the first respondent to the effect that disclosure is required to be made where a matter is “finely balanced as material to the purchasing position”; and

(c) erred in not exercising the discretion available to it to decide that there should be no further action taken in respect of the second respondents’ complaint in circumstances where:

(i) suicide is a sensitive personal information of the parties concerned and has no relation to the physical attributes of a property, its title, legal use or physical enjoyment;

(ii) the fact of a suicide at the property is a feature that is distinguishable from all previous decisions by the Tribunal;

(iii) no guidance, or no sufficient guidance, had been given to the industry by the Authority; and

(iv) the decision whether to disclose was taken at the highest level of management at the Appellant and involved a judgment call being.

[4] On a general appeal, the appellate court has the responsibility of considering the merits of the case afresh.³In Austin, Nichols & Co Inc v Stichting Lodestar,

Elias CJ stated that the appellate court must reach its own opinion “even where that opinion is an assessment of fact and degree and entails a value judgment”.⁴She continued:⁵

If the appellate Court's opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court's assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.

[5] This does not mean that the appellate Judge should be “uninfluenced” by the lower court.⁶What influence the lower court’s reasoning should have is for the High Court’s assessment. As Elias CJ stated in Austin, Nichols:⁷

The High Court Judge was obliged to reconsider the issue. He was entitled to use the reasons of the Assistant Commissioner to assist him in reaching his own conclusion, but the weight he placed on them was a matter for him.

Did the Tribunal err in finding that the appellant breached its supervisory obligations under s 50(1) of the Act?

(1) A salesperson must, in carrying out any agency work, be properly supervised and managed by an agent or a branch manager.

(2) In this section properly supervised and managed means that the agency work is carried out under such direction and control of either a branch manager or an agent as is sufficient to ensure-

_{“peripheral” but found that an incorrect direction to a
salesperson could constitute}

⁴_{Austin, Nichols & Co Inc v Stichting Lodestar
[2007] NZSC 103, [2008] 2 NZLR 141 at [16].}

improper supervision and management.⁸It concluded that the appellant had breached s 50.

[8] In Mr Rea’s submission, s 50 is directed towards process. He referred to Hutt City Ltd v Real Estate Agents Authority, where the Tribunal reversed a Complaints Assessment Committee’s finding of unsatisfactory conduct against an agency for breach of s 50 of the Act, in circumstances where a salesperson had prematurely handed over keys to purchasers when her branch manager was attending a funeral. ⁹

The Tribunal was satisfied that the branch manager insisted on and achieved high

management standards and the appellant’s management systems could not be faulted. However, an agent had succumbed to human pressure. Mr Rea noted that in the present case the correct course of action was uncertain given an absence of industry guidelines and the subjective nature of the decision. In those circumstances attention to the intent of s 50 was warranted, he said.

[9] Mr Rea submitted that the effect of the Tribunal’s decision in this case is that an agency will always breach its duty of supervision if, despite following a careful and thorough decision-making process, it arrives at an outcome with which the Committee does not agree. That cannot be right, he said. An incorrect decision by an agency does not automatically indicate a failure in supervision and management practices, particularly where the decision can only be judged on a case-by-case basis. There must be a distinction between substance and process.

[10] Mr Rea accepted the proposition that an incorrect direction to a salesperson could constitute improper supervision and management but contended that, in the present case, the decision the appellant faced was unclear. The fact that Century 21 had decided to disclose the information to prospective purchasers did not make it an industry standard. The Tribunal accepted that this was a grey area. It was satisfied that the appellant had in place a high level of supervision.

[11] Mr Rea pointed out that the Tribunal specifically made a finding of competency. There was no finding of a breach of the Act. The only breach related to

a rule. In those circumstances, the Tribunal erred in finding a breach of s 50, he said, given that, pursuant to s 50(2) of the Act, incompetent real estate work and a breach of the Act are both express elements of the definition of “properly supervised and managed”.

[12] Mr Hodge did not disagree that the requirement in s 50 is to have processes and structures in place to ensure proper supervision and management. He conceded that a finding that disclosure should have been made in this case did not have to be viewed as a supervision failure.

[13] Section 50 requires a salesperson to be supervised and managed and that such supervision and management is “proper”. What that means is set out in s 50(2). A salesperson’s work must be carried out under a branch manager or agent’s direction and control sufficient to ensure competence and compliance with the Act. The approach of the Hutt City case is the correct one. That is, the enquiry must consider the supervision and management itself. The fact an error has occurred is not conclusive evidence of a breach of s 50.

[14] In its determination, the Committee accepted that there was a high level of supervision but disagreed with the outcome of that supervision:¹⁰

The Committee accepts that the Agency did treat the decision, regarding whether to disclose the information to prospective purchasers or not, with the degree of seriousness it deserved.

[15] The Tribunal also accepted that there was a high level of supervision in place:¹¹

We accept that [the appellant] has in place a robust system of minimum qualifications, training and supervision... We also accept that whether there should be disclosure of the suicide by the agency in marketing the property was carefully addressed at senior management level and by Mr G Barfoot in

¹⁰Decision of Complaints Assessment Committee (CAC20007) Complaint No: C00953, 5

¹¹Campbell v Real Estate Agents Authority (CAC20007), above n 2, at [21] and [61].

particular... That agency then made a judgment call based on a variety of thoughts and factors which included its view that there was a clear legal obligation of confidentiality for the vendor.

We emphasise that Mr G Barfoot and some of his managers and licensees gave earnest and sincere thought to the proper and fair way to handle disclosure, or non-disclosure, of the suicide in terms of their marketing of the property.

[16] Given those findings, it is difficult to understand the conclusion that there had been a breach of s 50. Simply because there was a finding of a breach of r 6.4 does not automatically mean that the supervision and management was insufficient to ensure competence and compliance with the Act. It is clear that the concern of the Tribunal was with the decision taken at management level. Had that decision been different, then presumably the Tribunal would have been satisfied with the adequacy of the same supervision and management. That demonstrates the problem with the approach. The focus was on the outcome of the system rather than the system itself.

[17] The finding that the appellant’s supervision and management practices did not reach the required standard and the appellant was in breach of s 50 of the Act is therefore reversed.

Did the Tribunal apply an incorrect test for “fairness” under r 6.4 by accepting a test proposed by the first respondent to the effect that disclosure is required to be made where a matter is “finely balanced as material to the purchasing position”?

A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or fairness be provided to a customer or client.

[19] Mr Rea did not contend that the rule was ultra vires. Rather, he said that it was the interpretation of the rule that was the issue.

[20] In determining what fairness entails, the Tribunal agreed with the first respondent in holding:¹²

...where a matter is finely balanced as material to the purchasing decision, the correct course is to err on the side of disclosure as a matter of fairness. If that threshold is reached, disclosure must be made.

[21] In Mr Rea’s submission, the effect of such a decision by the Tribunal is wide- ranging and effectively creates a presumption in favour of the purchaser, where such a presumption cannot be found in the plain meaning of the rule.

[22] That approach meant that there was no consideration of fairness to the family of the deceased. The appellant contended that this was an incorrect approach to the issue and that the Tribunal should instead have considered the issue of fairness in the wider context of occupants and vendors of the property.

[23] In Mr Rea’s submission, previous Committee and Tribunal decisions serve as useful guidelines to agencies and licensees when dealing with rare or complex issues. This case involved a novel situation, at least for the appellant, with no industry guidance on how to approach this matter. The fact that a suicide occurred at a property (being an entirely intangible matter) is a feature which is distinguishable from all previous decisions by the Tribunal involving duties of disclosure under r

[24] The Committee in its decision said it was concerned that “the advice that the Agency gave to the Licensee regarding disclosure of suicide at the property was not in line with current industry training or current accepted best practice”.¹³However, Mr Rea said that there is, in fact, no industry training on this very sensitive issue.

[25] The appellant had said that it routinely disclosed matters adverse to its financial interests and accordingly that the property’s value was not a factor in its decision-making process. The Tribunal in its decision nonetheless suggested that the

_{impact of such a disclosure on the property’s price may have
unconsciously been a}

¹³Decision of Complaints Assessment Committee (CAC20007) Complaint No: C00953, 19 July

factor in the appellant’s decision not to disclose. There was however, Mr Rea submitted, no evidence before the Committee or Tribunal upon which it could form the view that disclosure of suicide in a property would adversely affect the property’s price.

[26] Mr Rea addressed the circumstances of the case and suicide generally. In his submission suicide is an intensely personal and sensitive issue and cannot be considered in any way a tangible factor affecting a property in contrast to leaky home issues or potential neighbouring developments. He said suicide is not such an unusual event as to require disclosure.

[27] Mr Rea suggested that, if the approach of the Tribunal is upheld, agents will need to undertake significant due diligence including intensive and intrusive questioning of vendors. He pointed out that disclosure of such an issue is not an obligation to which vendors are subject. Vendors will be likely to forgo the use of real estate agents, sell their properties privately and thus undermine the public good associated with the changes brought into effect by the Act, in Mr Rea’s submission.

[28] Mr Rea said that agents are not properly trained or qualified to deal with these issues. Furthermore, he surmised that agents will not know whether an issue is of significance to a prospective purchaser and will fall back on racial stereotypes in order to decide whether to disclose or not. The alternative is that blanket disclosure will be made.

[29] Mr Rea referred to the guidance offered by the Tribunal in its decision that an issue such as suicide should be discreetly told to a prospective purchaser showing a sufficient level of interest. He referred to the practical problems associated with this, for example, what would happen in the case of an auction?

[30] In Mr Rea’s submission, the Tribunal fell into error by extending reasonable expectations as to disclosure beyond any other decisions in any comparable jurisdiction. He accepted that the Rules were modelled on the Fair Trading Act 1986 but said the Tribunal’s application of r 6.4 had gone beyond the notion of misleading and deceptive conduct.

[31] Mr Rea then considered the various cases. He did not address the American cases as they involved claims against vendors for breaches of common law duties.

[32] The only New Zealand case approaching these facts, in Mr Rea’s submission, is Deverick v Hedley, a decision of the High Court declining to strike out a claim for alleged misleading and deceptive conduct.¹⁴In that case, Mr Hedley had agreed to purchase a property from Mr Deverick. Just before settlement, Mr Hedley had found out that the previous owners were a homosexual couple, one having died from AIDS. Mr Hedley claimed that the failure to disclose this amounted to misleading and deceptive conduct under the Fair Trading Act. The Court declined to strike out the claim on the basis that such a claim depended very much on its facts and

circumstances. Mr Rea referred to the high threshold that an applicant must meet in a strike out application and said this was, therefore, an unsurprising result.

[33] Mr Rea submitted that it would be dangerous to interpret that case as endorsing disclosure in such a situation. The Court merely found that “it could not be said that Mr Hedley’s claim under s 9 of the Fair Trading Act 1986 is incapable of success” due to the fact that evidence from real estate agents was to be called at trial.¹⁵

[34] Mr Rea then addressed the decision Hinton v Commissioner of Fair Trading saying it was the most relevant case being a disciplinary decision in the context of the Australian Fair Trading Act 1987.¹⁶The undisclosed facts in that case, a triple murder, were obviously considerably more gruesome than the present case and the agent had made a conscious decision to market the property on a misleading basis. Mr Rea accepted that, in the circumstances of that case, disclosure needed to be

[35] Mr Rea confirmed that the appellant’s case is not that only tangible physical issues need to be disclosed. It is accepted that there will be cases which reach a point on the spectrum where there is duty to disclose a matter of such gruesome

¹⁶Hinton v Commissioner for Fair Trading, Office of Fair Trading (GD) [2007] NSWADTAP 17.

[36] Mr Rea accepted, therefore, that there were extreme circumstances in which disclosure of a highly traumatic occurrence needed to be made. Mr Rea stressed that the obligation should apply in an exceptional cases only. In support of that he referred to the decision of the Supreme Court of Victoria in Charles Lloyd Property Group Pty Ltd v Buchanan where the Hinton case was described as “extreme”.¹⁷

[37] In Mr Hodge’s submission r 6.4 is not limited to disclosure of physical defects. Where fairness requires disclosure of a non-physical defect, then failure to do so will be a breach of r 6.4.

[38] Mr Hodge noted that the appellant accepted there were cases where a matter which does not involve the structure of a house requires disclosure. The issue is at what point in the spectrum disclosure should be made.

[39] That disclosure had been made to other potential purchasers through Century

21 led, Mr Hodge submitted, to the conclusion that disclosure was required in this case. Century 21 had disclosed the fact of the suicide but they struggled to sell the property. That, Mr Hodge said, demonstrates that there were in fact members of the public to whom the fact of suicide was an issue. The reaction of the second respondents and their purchasers confirmed it was a material issue notwithstanding that the suicide had occurred in a garage 12 months prior to sale.

[40] Mr Hodge considered overseas authorities and said they demonstrate that purchasers of residential properties are legitimately concerned not only with physical defects to property but also non-physical defects. While these authorities are almost all in the context of civil claims for damages, rather than disciplinary proceedings about acceptable industry standards, he submitted they indicate that disclosure of non-physical defects in properties is a significant consumer protection issue.

[41] Mr Hodge emphasised that the Act is consumer protection legislation and there is nothing unusual about rules of conduct for a profession diverging from the common law.

[42] In Mr Hodge’s submission it is misconceived to say that, unless there already exists an express rule specifically dealing with the particular circumstances in issue, there cannot be a disciplinary finding. Industry rules will typically be general in nature and it is for professionals in the industry to apply them to circumstances as they arise.

[43] As to how “fairness” should be interpreted and whether it might have been preferable for any charges to have been brought under s 72(a) (the standard of a reasonable member of the public) or (d) (work regarded by agents of good standing as being unacceptable), in Mr Hodge’s submission, the touchstone is the reasonable member of the public test.

[44] Mr Hodge disposed of Mr Rea’s concern about the need for agents to make very personal enquiries relatively easily, pointing out that Century 21 had obviously achieved this. Furthermore, suicides are not every day events and the issues could appropriately be managed, he said. So far as the fear of vendors not using estate agents is concerned, Mr Hodge pointed out that the better the reputation of estate agents and the more ethical and transparent their behaviour, then the more confidence members of the public will have in them.

[45] The Committee found that Barfoot had engaged in unsatisfactory conduct by not disclosing the suicide to Mr and Mrs Campbell and said:¹⁸

The Committee does not accept the Agency’s submission that Rule 6.4 only relates to matters pertaining to the land and its condition, rather than anything to do with the occupants of a property. It is clear that disclosure of a suicide has an impact on the perceived value of a property by prospective purchasers and thus the Committee finds that in fairness that information should be provided to those buyers.

Simply put, we think that the fair thing was, quite clearly, for Barfoots to disclose in succinct and general terms the sad event to reasonably interested prospective purchasers; because for many people the suicide event would be off-putting and affect use and enjoyment of the property.

[47] Given that the fairness requirement is imposed in a rule its interpretation should follow the tenor and principles of the Act. It must also be interpreted in the context of the other considerations relevant to a finding of misconduct under s 72 of the Act.

[48] I agree with the appellant, that the correct approach to determining what, in fairness, should be disclosed, is not to “err on the side of caution” whenever a matter is finely balanced as material to the purchasing decision, as was suggested by the Tribunal.

[49] I am not satisfied that is a helpful or accurate expression of the test. Where a matter is finely balanced then, in the context of disciplinary proceedings where the emphasis is on the maintenance of the proper professional standards and the protection of the public through specific and general deterrence,²⁰the doubt should weigh in favour of the party whose actions are under scrutiny.

[50] While the test accepted by the Tribunal might be an appropriate rule of thumb in practice, it is not a correct interpretation of r 6.4. The Tribunal has not merely provided a more detailed definition of “fairness” which will guide whether future fact situations fall foul of the standard within r 6.4. It has effectively grafted onto the rule an additional requirement, namely that where the issue of what “fairness” demands is in doubt, a licensee must disclose the information. The reading in of such a rule is not appropriate or justifiable. An evaluation of what “should by... fairness” be provided to a client must be undertaken in the particular circumstances

[51] The Explanatory Note to the Real Estate Agents Bill referred to the age of the

1976 Act and to the “significant risk posed to consumers from real estate activity”:²¹

The Real Estate Agents Act 1976 is over 30 years old and lacks many of the modern consumer protection features associated with more recent legislation. It provides for a system of industry self-regulation that lacks independence, transparency, and accountability. This, combined with the significant risk posed to consumers from real estate activity such as mishandling of funds, poor contractual advice, misleading representations, conflicts of interest, and misuse of information, make it essential to provide a regulatory framework that affords consumers an adequate level of protection.

The new regulatory framework will ensure that real estate agency services are offered only by suitably licensed person, having regard, in particular, to the need to protect consumers and that licensees meet strict eligibility criteria (including meeting fit and proper person requirements and passing the appropriate examinations) and are subject to clearly specified and strict rules of conduct in their business dealings. The framework provides a modern, independent, and robust complaints and disciplinary regime that will offer consumers a transparent, low-cost option for seeking remedies if things go wrong.

(1) The purpose of this Act is to promote and protect the interests of consumers in respect of transactions that relate to real estate and to promote public confidence in the performance of real estate agency work.

(a) regulating agents, branch managers, and salespersons: (b) raising industry standards:

[53] I agree with the Authority that fair disclosure to assist consumers in making informed decisions is an important part of that protection.

[54] Although many of the cases involve claims against vendors for breach of common law duties, an analysis of relevant decisions in New Zealand and overseas jurisdictions provides valuable insight into how these issues have been approached.

[55] The facts of the only New Zealand case referred to by counsel, Deverick v

[56] This case was decided prior to the Act coming into force. The High Court dismissed the appeal against the refusal to strike out because the facts and circumstances surrounding the matter were not before the Court and in light of the proposed evidence to be given at trial. The Court accepted that there was no general duty on prospective vendors and their agents to disclose that properties had formally been tenanted by homosexual couples, or that a former tenant had died, or a deceased

Suggested duties of disclosure of those matters could not stand as they would cut across modes of living and dealing with death common in society.

[57] The Court indicated that the only basis on which the claim could survive was if it were arguable that there was a duty to disclose matters because they occurred in relation to AIDS and it was arguably misleading and deceptive conduct not to disclose that fact.²⁵

[58] Hinton v Commissioner for Fair Trading involved disciplinary proceedings.²⁶

The Appeal Panel of the New South Wales Administrative Decisions Tribunal held that the estate agent should have disclosed to the purchaser that a triple murder had occurred in the property three years earlier. Not doing so constituted a concealment

_{of a “material fact” under s 52 of the Property, Stock and
Business Act 2002 (NSW).}

²⁶Hinton v Commissioner for Fair Trading, Office of Fair Trading (GD), above n 16, at [49].

[59] The Court emphasised that the Act's focus on consumer protection must inform the approach taken to the interpretation of its provisions. The Court considered that:²⁷

...real estate agents would recognise that for some purchasers at least the fact that the property had been the site of very gruesome and widely- publicised events would turn them away. In fact, Mr Hinton, an experienced real estate agent, recognised from the outset that some care needed to be adopted in the presentation of this property so as not to draw attention to the fact that it was the site of the Gonzales' murders and a specific strategy was adopted to address that issue, namely prospective purchasers would be told that it was a deceased estate, save if they asked directly if it was the Gonzales' home in which case they would be told it was.

...which in essence states that it is not possible for an agent to know the foibles and superstitions of all potential purchasers as there are almost endless possibilities as to what might be material. We agree that it is not possible to determine in advance the scope of “material” for the purposes of s 52 as it will be peculiar to any particular case and fact situation. This does not however render the provision inoperative or requiring a narrow interpretation and there are other provisions that operate in a similar manner, for example s 52 of the Trade Practices Act.

While an agent will not always know the intangible factors that bear on a decision to purchase that is not what is required by the section. Absent a specific question from the purchaser or the independent determination by the agent (as was the case here), the question is an objective one to be viewed in all the circumstances. This will necessarily involve a question of reasonableness providing protection for agents from a purchaser seeking to rely on the provision for whimsical or unreasonable claims of materiality.

[61] The Court considered that it was not necessary to determine the parameters of what is a “material fact”. However it noted that the following factors would be relevant: the agent's treatment of the fact; whether the fact is able to be independently ascertained; whether the fact is likely to impact on price; the reaction of other purchasers to the fact; whether the fact results in the property being in a rare

The agent must be especially careful that the purchaser is informed of matters which could not be revealed through undertaking usual enquiries. Agents should be wary of failing to disclose anything which is particularly unusual about the physical or historical aspects of the property (including usage, ownership). It is significant that murders, especially of the kind in this case, are rare. Anything rare or unusual such as would distinguish the property from other similar properties is likely to be material.

[62] Importantly in that case, there was evidence that the agents had appreciated that the fact of the murders was one to be explained or dealt with as part of its advertising campaign and further that independent valuers considered it was a fact that would impact on the value of the property:³¹

Here the knowledge of the agent that it was a matter relevant to a campaign, the valuation evidence and the evidence of impact on other purchasers are sufficient to determine that the fact was a material one.

[63] Hinton was referred to by the Supreme Court of Victoria in Charles Lloyd Property Group Ptd Ltd v Buchanan.³²In that case the purchaser sued the vendor under the Fair Trading Act to annul the sale contract on the ground that it was misled and deceived by the pre-contractual silence of the vendor. The vendor did not disclose that two years before the contract a young man had committed suicide in a forested area on the land. The vendor said he did not intend to hide the fact; he simply did not think it mattered.

[64] The plaintiff ’s case was framed as following from the determination of the proceedings in Hinton. However, the Court noted that “[g]reat care must be taken with the Hinton case”:³³

It is hard to question, in the context of a family dwelling, the materiality of the fact that a triple murder had occurred. It is easy to imagine the unease which any agent might have in keeping that sort of fact to himself. It is self- evidently something which would repel a purchaser regardless of cultural, personal or ethnic background. From that finding, it likewise comes as no surprise that the member came to the conclusion that, applying the Demagogue test, there would be a reasonable expectation of disclosure.

Beyond the obvious, I cannot engage in some psychological comparison between a suicide in a forested part of undeveloped land with a triple murder in a suburban dwelling, or the sensitivities of a family home buyer as distinct from land for subdivision and development.

[66] The Court granted the vendor’s application for summary dismissal, primarily on the basis that after having found out about the suicide, the purchaser extended the completion date of the contract.

[67] In Sykes v Taylor-Rose, the respondents were advised that they were under no obligation to disclose the fact that a child who had been kept as a slave in the 1980s had been murdered in the house. ³⁵The appellants bought the property for 83,000. They became aware of the murder after a documentary aired speculating that body parts of the murdered child remained buried in the property. They subsequently sold the house for £75,000, having disclosed the murder. This was said to be £25,000 less

than the market value would otherwise have been. The appellants sued the respondents for misrepresentation, as they had answered “no” on a seller’s property information form to the question: “Is there any other information which you think the buyer may have a right to know”?

[68] The trial Judge had concluded that the respondents were not under a duty to disclose that the murder had taken place at the property, nor what had happened. He rejected the submission that the principle of caveat emptor is nearing the end of its useful life. That point was not appealed.

[69] Regarding misrepresentation, the Court of Appeal held that as there was no dispute that the answer to question in the form was honestly given, there was no relevant misrepresentation.

[70] In Reed v King the contract for sale and purchase was rescinded on the basis of a failure to disclose that the property had been the site of a multiple axe murder of

a woman and her four children 10 years previously. ³⁶Here the Court noted that the stigma associated with the property had a real affect on its market value.³⁷

[71] In Van Camp v Bradford a purchaser brought an action against the vendor and real estate agency for concealment of material facts.³⁸As between the plaintiff and the agent the Court of Common Pleas held that real estate agents had no affirmative duty to speak up and disclose knowledge of crimes which had taken place at the property of which they were aware.

[72] In the case of Milliken v Jacono decided earlier this year, the Supreme Court of Pennsylvania was asked to consider whether the occurrence of a murder/suicide inside a house constituted a material defect of the property, such that the estate agent’s failure to disclose it to the buyer constituted fraud, negligent misrepresentation or a violation of the Unfair Trade Practices and Consumer Protection Law.³⁹A material defect was described as being a problem with a residential property that would have a significant adverse impact on the value of the property or that involves an unreasonable risk to people on the property.⁴⁰

[73] The murder/suicide was highly publicised. The buyer learned that the murder/suicide had occurred in the house from her neighbour, after she had moved in. She claimed that, had she known of the incident, she would never have completed the purchase.

[74] The Court refused to hold that such a “psychological stigma” constituted a

The implications of holding that non-disclosure of psychological stigma can form the basis of a [claim] ... are palpable, and the varieties of traumatizing events that could occur on a property are endless. Efforts to define those that would warrant mandatory disclosure would be a Sisyphean task. One cannot quantify the psychological impact of different genres of murder, or suicide— does a bloodless death by poisoning or overdose create a less significant “defect” than a bloody one from a stabbing or shooting? How would one

treat other violent crimes such as rape, assault, home invasion, or child abuse? What if the killings were elsewhere, but the sadistic serial killer lived there? What if satanic rituals were performed in the house?

It is safe to assume all of the above are events a majority of the population would find disturbing, and a certain percentage of the population may not want to live in a house where any such event has occurred. However, this does not make the events defects in the structure itself. The occurrence of a tragic event inside a house does not affect the quality of the real estate, which is what seller disclosure duties are intended to address. We are not prepared to set a standard under which the visceral impact an event has on the populace serves to gauge whether its occurrence constitutes a material defect in property. Such a standard would be impossible to apply with consistency and would place an unmanageable burden on sellers, resulting in disclosures of tangential issues that threaten to bury the pertinent information that disclosures are intended to convey.

Moreover, considerations such as the time that has passed since the event, and changes and renovations made to the property, have a significant effect on the impact of the event. Some graphic events, having matured into historical curiosities, may even increase the value of the property. The possible fact patterns are endless and lead down a slippery slope—a slope we are not willing to descend. If there is to be a newly created duty to disclose psychological stigma, it should only be imposed with clear definition by the legislature after careful consideration of all aspects and ramifications of the issue.

[75] The Court also noted that it is nearly impossible to assign a monetary value to psychological stigma because this impact will vary greatly from person to person and dissipates over time.⁴²Thus an objective standard could not be justly implemented and using a subjective standard would be wholly unfair considering the unpredictable impact psychological stigmas have on prospective buyers.⁴³

[76] In the Hong Kong case of Jopard Holdings Ltd v Ladefaith Ltd and another, the Court considered that a real estate’s duty of disclosure should extend more broadly than just to murder:⁴⁴

It seems to me that if an estate agent acting for a purchaser knows or ought to have known of the occurrence of a tragic incidence in a property, and knew or ought reasonably to have known that this would materially affect the value of the property, that agent would owe a duty to alert its client to that fact.

[77] Here the Court considered that there was a duty to disclose to future purchasers that the vendor’s child had died in a tragic accident on the property a year earlier by falling from the balcony.

[78] The Hong Kong regime is very different from that pertaining in New Zealand. In that case the agent was the agent of the purchaser and owed the purchaser specific contractual obligations of enquiry and disclosure. I therefore put that case to one side.

[79] The issue in the present case is not whether there has been a breach of a common law duty resulting in a loss which should found in damages. It is about whether disclosure of the fact of the suicide to the purchasers was required as a matter of fairness under the Rules, which set minimum standards for licensees under the Act as part of achieving the Act’s consumer protection purposes.

[80] I accept this is a matter on which reasonable people can have different views. While some may be affected by it, others may be so to a lesser extent or, indeed, not at all.

[81] This is a very finely balanced decision. In favour of the appellant are the facts that the suicide took place in the garage, over 12 months before the sale, and the property had been occupied during that 12 month period. Furthermore, there was no industry standard or guidance available to assist in the decision as to whether the suicide required disclosure.

[82] As against that, one estate agency had decided that disclosure was required, although that is not determinative. More telling is the fact that the agency was unable to effect a sale. However, there could have been other reasons for that. The reaction of the second respondents and their purchasers provides evidence only after the event.

[83] Because the decision is so finely balanced and because there was no industry standard or guidance available, I conclude that it is inappropriate to find the appellant in breach of the rule.

[84] Both the appellant and the Authority asked the Court for some guidance as to the application the requirement of fairness in r 6.4. In the absence of more general evidence from the Authority, members of the profession and indeed members of the public, I am reluctant to attempt that exercise. The industry should undertake that exercise, hear submissions from those involved in the industry, who have considerably more experience and expertise in this area than I, and undertake wider consultation.

[85] I am also mindful of the need for caution in making a general rule as a result of a specific case. Perceived wisdom is that such an approach generally results in bad law. The facts of this case have provided a useful framework, however, for considering this issue. As I have already noted, I am not satisfied that it was unreasonable for the appellant to decide not to disclose the suicide when it took place in the garage of the property 12 months prior to the sale and when the house had been lived in since the suicide. Two agencies of repute had different views. What is telling, however, is that the second respondents and their purchasers, when aware of what had occurred, decided to sell the property. That is real evidence of the attitude of two purchasers. That must lead to the conclusion that in their mind, anyway, fairness required disclosure.

[86] The issue has been well expressed by the Supreme Court of Victoria in the Charles Lloyd Property Group decision. In the context of determining what might be material, the Court discussed the difficulty of any such determination in advance on the basis it would be peculiar to any particular case and fact situation. The Court said the question is an objective one to be viewed in the circumstances.

[87] The appellant and Authority agreed that the fact a natural death had occurred in a house would not require disclosure. That is an everyday occurrence. But suicide, although sadly relatively common, carries with it feelings of unease and is generally regarded with some disquiet amongst most cultures.

[88] Any guidelines will also require reconsideration after time to account for changes in societal attitudes. For example, the circumstances surrounding Deverick v Hedley would, I suggest, be unlikely to cause disquiet in the current climate.

[89] I stress that the following is intended only as general guidance rather than to provide hard and fast rules. The particular case and fact situation must always be paramount. Furthermore, there is a need to consider questions of confidentiality and fairness to the vendor.

[90] With those considerations and caveats in mind, relevant considerations as to whether disclosure should be made would include:

(a) The fact that a murder, manslaughter or suicide has occurred at the property.

(b) The location of the event. It is reasonable to view a tragedy in the grounds of a property differently from one in a living area of a house.

(d) The circumstances pertaining after the tragedy. For example, whether the house has been lived in and, if so, for how long.

(e) The circumstances of the death and whether the death has a degree of notoriety (even if just in the local neighbourhood).

(f) The likely reaction of potential purchasers and the possible impact on price.

[91] I do not suggest that fairness would preclude disclosure of all events other than an unnatural death. There are other matters which in fairness should be disclosed in a particular case and fact situation. For example, a particularly vicious crime which has considerable notoriety should in my assessment be disclosed if only because it would not be fair for a purchaser from outside the locality to be ignorant of such an event in contrast to those with local knowledge.

Did the Tribunal err in not exercising the discretion available to it to decide that there should be no further action taken in respect of the second respondents’ complaint in the circumstances?

[92] In Mr Rea’s submission, the Tribunal should have exercised its power pursuant to s 111 of the Act whereby it can exercise the discretion of the Committee under s 80(2) to take no further action on a complaint.

[93] Mr Rea noted that, while decisions of disciplinary tribunals may result in orders having a punitive effect, this is not their purpose.⁴⁵

[94] Bearing that approach in mind the Tribunal should have exercised its discretion to take no further action, said Mr Rea.

[95] The Authority accepted that this is a case where the Tribunal could have decided not to take any further action. It would not oppose such a decision by the Court.

[96] The Authority acknowledged that the issue is a difficult one in a novel area. In those circumstances and given the findings of the Tribunal about the otherwise high standards employed by the appellant,⁴⁶such an outcome would be appropriate.

[97] The Authority was concerned to ensure that such a concession was not taken to mean that a consideration of the discretion is required by the Committee or the Tribunal in every case before proceeding to reach a decision under s 89 of the Act. However, where a licensee put forward factors relevant to the exercise of the

_{discretion, clearly they must be addressed. That approach was agreed by
Mr Rea.}

⁴⁵Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1 and

⁴⁶Campbell v Real Estate Agents Authority (CAC20007), above n 2, at [21], [56] and [61].

[98] Given the decision on the first and second grounds of appeal no decision is

required under this heading. The Authority’s concessions were appropriately made.

[99] For the reasons given the appeal is allowed. The decisions of the Committee, upheld by the Tribunal, that the appellant breached s 50 of the Act and was guilty of unsatisfactory conduct under s 72 are reversed.

[100] If costs cannot be agreed between the parties, the appellant is to file and serve a memorandum within 21 days and any response is required 14 days thereafter.

High Court of New Zealand Decisions

Barfoot & Thompson Ltd v Real Estate Agents Authority [2014] NZHC 2817; [2015] 2 NZLR 254; (2014) 15 NZCPR 650 (13 November 2014)