Morris v Real Estate Agents Authority [2016] NZHC 2383 (7 October 2016)

Last Updated: 8 November 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-176 [2016] NZHC 2383

BETWEEN	WALLACE LIONEL MORRIS Appellant
AND	THE REAL ESTATE AGENTS AUTHORITY Respondent

Hearing:	28 June 2016
Appearances:	R O Parmenter for Appellant C P Paterson for Respondent
Judgment:	7 October 2016

_{JUDGMENT OF PAUL DAVISON J}

This judgment was delivered by me on 7 October 2016 at 10am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Meredith Connell, Auckland

MORRIS v THE REAL ESTATE AGENTS AUTHORITY [2016] NZHC 2383 [7 October 2016]

[1] The appellant is a licensed salesperson under the Real Estate Agents Act 2008 (the Act).

[2] He appeals the decision of the Real Estate Agents Disciplinary Tribunal (the

Tribunal), wherein it was found that he was guilty of misconduct pursuant to s

73(c)(iii) of the Act by wilfully or recklessly contravening the following rules contained in the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012:

(a) Rule 6.1: a licensee must comply with fiduciary obligations to the licensee's client;

(b) Rule 6.2: a licensee must act in good faith and deal fairly with all parties engaged in a transaction; and

(c) Rule 6.4: a licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or in fairness be provided to a customer or client.

Background

[3] The appellant is a shareholder in and a salesperson for Space Realty Ltd.

[4] On 12 June 2012, the appellant, as “advisor”, attended a meeting held by the

trustees of the Maranatha Charitable Trust (MCT).

[5] The trustees of MCT are Mr Massam and Ms Ruissen.

[6] The appellant was well known to Mr Massam, but not Ms Ruissen.¹

[7] At the time of the meeting, MCT owned 63 Great North Road (“the Battery

_{Building”); 65 Great North Road (“Maranatha Building”) and 3 Pollen Street. The}

1. Mr Ruissen met the appellant for the second time on 12 June 2012, having previously met him on 16 December 2011.

purpose of the meeting was to discuss options in respect of MCT’s properties. Ms

Ruissen explained:

Options discussed included retaining and renovating the properties, or selling the properties and reinvesting the funds. One of the options discussed, should the Great North Road Properties be sold, was the Trust investing in the 297A Church Street site.

The meeting minutes record that I asked [the appellant] for his advice on the options.

He advised that money spent renovating the Great North Road Properties might not be recovered in any future sale. He also gave advice on the possibility of selling the 63 Great North Road site separately.

...

The minutes record that “after considerable discussion”, we agreed to seek to sell the Great North Road Properties at a premium and that we authorised [the appellant] to “continue negotiations to that end.”

The minutes further record that it was agreed that proceeds from the sale of

the Great North Road Properties could be used... for the purchase of the

297A Church Street property

[8] In December 2012, MCT sold its properties to Cawthray Motors Ltd, which owned an adjacent property. (I note that the appellant and Mr Massam had in May

2012 already approached its owner, Mr El Pinto, about his company’s possible

purchase of the properties).

[9] The complaint against the appellant is that he failed to disclose at the meeting of 12 June 2012, his prior dealings with Mr Massam in relation to the trust properties. The allegations date back to May 2012.

May 2012

[10] On 16 May 2012, MCT entered into an agreement to lease the Battery Building to William Hughes Ltd. The appellant was the director and majority shareholder of William Hughes, and he signed the lease agreement on its behalf. He also gave a personal guarantee of his company’s obligations under the lease.

[11] For MCT, only Mr Massam signed the lease agreement. Ms Ruissen was not

involved in, and had no knowledge of, the transaction. I note that in Ms Ruissen’s

affidavit, she said she believes that she had knowledge of and signed “every other MCT lease for tenancies at the Great North Road Properties”. From this, it is clear that Mr Massam had failed to disclose the execution of the lease to his co-trustee, Ms Ruissen.

[12] The lease was negotiated by the appellant’s own firm, Space Realty.

[13] The term of the lease was four years, commencing on 1 June 2012, with an annual rent payable of $51,560 (plus GST). It is not disputed that the appellant’s company never paid any rent. (I note it was alleged before the Tribunal that this lease was a sham, and that the appellant had colluded with Mr Massam in signing it, knowing it would be used in support of a finance application to the bank. However, the Tribunal was not satisfied the lease was not genuine, and further, the appellant himself “did not seem to liaise with [the bank] over the matter”.)

[14] On 22 May 2012, Mr Massam “or nominee”, entered into a sale and purchase agreement for the purchase of 297A Church Street.

[15] The vendor’s agent was Space Realty and the appellant himself was the selling agent, and thereby was entitled to receive a sales commission.

[16] On 23 May 2012, Mr Massam, writing on behalf of MCT, advised the bank that the Battery Building had been leased “which gives some certainty about income”. He advised of MCT’s intention to sell its properties, and requested to increase MCT’s borrowings because “we have found a building that would be suitable [for purchase]... [and] which we are negotiating to buy”. He provided the bank with further material on 28 May 2012. Ms Ruissen was not involved in any correspondence on this matter, and it is clear that she had not been informed by Mr Massam of his actions or the existence of the agreement to purchase the 297A Church Street property, which was clearly the property that Mr Massam was referring to as being that which the Trust was “negotiating to buy”.

[17] Some days later, and relying upon the information regarding the leasing of the Battery Building contained in Mr Massam’s letter, the bank increased MCT’s borrowing facility from $150,000 to $350,000.

[18] On 29 May 2016, Mr Massam used MCT’s increased overdraft facility to pay a deposit of $150,000 to “Space” pursuant to the agreement of 22 May 2012 for the purchase of 297A Church Street.

[19] On 31 May 2012, Space Realty invoiced the owner and vendor of 297A Church Street (an unrelated third party) for the payment of commission on the sale of the property.

[20] On 1 June 2012, and without Ms Ruissen’s knowledge or consent, Mr Massam, acting on behalf of MCT, signed a listing agreement with Space Realty appointing it as MCT’s agent to sell MCT’s properties (the agency agreement). It included an estimated sales commission of $160,000.²

The allegations against the appellant, and the Tribunal’s decision

[21] Ms Ruissen said that:

At the time of the 12 June 2012 meeting, I had not been made aware of any of the following matters, none of which had been disclosed to me, either by Mr Massam or [the appellant]:

(a) That Mr Massam had already signed, unconditionally, a sale and purchase agreement, dated 22 May 2012... to purchase 297A Church Street...

...

(b) That Mr Massam and [the appellant] had already signed an agency agreement, dated 1 June 2012, giving [the appellant’s] company authority to market and sell the Great North Road Properties, for a fixed commission of

$130,000 plus GST.

...

(c) That [the appellant’s] real estate company, Space Realty Ltd, was the selling agent for 297A Church Street and entitled to a commission on any sale.

² This is the figure appearing in the agreement.

...

(d) That Mr Massam and [the appellant] had signed a lease agreement, dated

16 May 2012, purporting to lease the Battery Building to a company controlled by [the appellant] (William Hughes Ltd) at a rent of over $50,000 per year.

...

(e) That Mr Massam, on behalf of the Trust, had successfully applied to the

[bank] to increase the Trust’s borrowing on the Battery Building by

$200,000 – providing in support of that application a copy of the William

Hughes Ltd lease signed by [the appellant] – with the purpose of the increased borrowing being to finance payment of the deposit on the 297A Church Street purchase.

...

(f) That Mr Massam had already paid a $150,000 deposit for the purchase of

297A Church Street, using Trust funds, $46,000 of which was payable as

commission to [the appellant’s] real estate company as the selling agent.

...

[Mr Massam] did not ask me, as co-trustee, to sign either the application to increase borrowing with [the bank], or the Battery Building lease with William Hughes Ltd, or the listing agreement for the Great North Road Properties with [the appellant’s] company Space Realty Ltd.

[22] The appellant denied any breach of the standards of professional conduct.

[23] In reply to Ms Ruissen’s allegations, he said it “it would have been quite

wrong to have told anyone” about Mr Massam and/or nominee having purchased

297A Church Street because:

[Mr Massam] would have liked to convince his fellow trustee [Ms Ruissen] to buy the building but that he was going to buy it if the Trust didn’t. As things stood, when the deal was signed, John Massam was the purchaser (or his nominee)... If I had blurted it out at a trustees’ meeting, John would have been quite justified, in my view, in laying a complaint against me for breaching his confidence.

[24] The appellant said he had entered into the listing agreement to sell MCT’s properties because he was informed by Mr Massam that “in the trustees’ meeting of March 2012, he had been given the go ahead to start looking...”

[25] As regards William Hughes’s non-payment of any rent due pursuant to its lease of the Battery Building, the appellant said that because renovation work was

underway it had been agreed between him and Mr Massam that William Hughes would not pay any rent until the renovations were complete.

[26] The appellant also said from his “earlier meetings” with Mr El Pinto, that he knew that Mr El Pinto was not prepared to go ahead with the purchase of the properties if there were any long-term leases in place, which was why when requested by Mr Massam, the appellant’s company had “surrendered a valuable property right and agreed that our lease was at an end.”

[27] The appellant also maintained:

a. Whether Mrs Ruissen agreed to the purchase of Church Street was not my problem. It would not assist her decision-making in any way if she knew or didn’t know that Mr Massam had an agreement on it in his own name... I wasn’t going to breach a purchaser’s confidence.

b. It mattered not to the discussion about selling Maranatha [Battery] Building that my company leased a part of it. My company was a tenant and was bound. If they sold, I’d be bound to the new owner.

[28] After setting out a fairly detailed summary of facts and the parties’ submissions, the Tribunal found the appellant guilty of misconduct. The Tribunal explained:

[75] We can understand that the [appellant] thought he only needed to take instructions from Mr J Massam for MCT as a prospective vendor. However, he knew that, at material times, Ms Ruissen was the other trustee and, as such, shown as a co-owner of the properties of MCT. A licensee must realise that he (or she) cannot ignore the existence of a co-vendor and it is concerningly [sic] deficient to do that.

[78] With regard to [s 73(c)(iii)], the [appellant] either knew, or should have inferred, that Mr Massam had leased the Battery Building to William Hughes Ltd and intended to have 297A Church Street purchased by the trust, but the then other trustee of MCT was oblivious to these strategies. In that context he attended the MCT trustees’ meeting of June 2012 as if an independent advisor and gave the trustees advice regarding the sale and purchase of real estate; and, furthermore, he had conflicts of financial interest being entitled to substantial commission on the sale contract of 297A Church Street, which had already been entered into by Mr J Massam whether for himself or MCT, and any profit made by William Hughes Ltd from subletting MCT’s Battery Building would belong to [the appellant].

[79] The effect of RR 6.1. 6.2, and 6.4 overlaps. In terms of R 6.1, the [appellant] owed a duty of trust to a vendor, Ms Ruissen, to keep her informed of his activities on behalf of the Trust and he failed to do that. In terms of R 6.2, the [appellant] excluded Ms Ruissen from information she

needed in her role as a trustee and vendor and it was unfair (and incompetent) that the [appellant] did not treat with her. In terms of R 6.4 there was a concerning withholding of information which “should by law or fairness” have been provided to her by him.

[80] We agree... that [the appellant] was highly conflicted at the 12 June

2012 meeting and must have known, or should have known, that he was unable to give objective real estate agency advice to the Trust and was likely

to mislead the owner (and prospective vendor) Ms Ruissen. He needed to

disclose his personal interests in the meeting’s agenda items and also the

actions he and Mr Massam had been taking on behalf of the Trust. He breached a clear duty of trust to the Trust and to Ms Ruissen. That seems to have been wilful but it was at least reckless in terms of s 73(c)(iii) of the Act. In the circumstances, it is arguable whether the [appellant] risked breaching any confidence due from him to Mr J Massam but, in any case, an adequate update could have been given to Ms Ruissen and it was misconduct to purport to be giving independent real estate advice to the Trust.

The grounds of appeal

[29] In his appeal, the appellant maintains his version of events, saying:

(a) Mr Massam “had purchased Church Street unconditionally in his own name... How and when [Mr Massam] intended to bring up the subject with Mrs Ruissen is up to him”. Furthermore, the appellant would have been in breach of his obligations to Mr Massam had he disclosed such “utterly confidential” information to Ms Ruissen.

(b) Ms Ruissen’s assessment and decision at the meeting of 12 June would in any event not have been affected, if the information which the Tribunal now deems relevant was made available to her.

[30] The respondent says the evidence clearly establishes the appellant is guilty of misconduct. In terms of the applicable rules, the respondent notes that before the meeting of 12 June 2012, the appellant had already entered into a listing agreement to sell the MCT properties so, on 12 June 2012, he was subject to the ordinary fiduciary obligations under r 6.1. Furthermore, he attended the meeting for the purposes of giving advice about possible real estate transactions so he owed a broader duty of fairness to the trustees arising from rr 6.2 and 6.4. His failure to disclose relevant information at the meeting was in breach of these rules, and properly constitutes misconduct.

Approach to appeal

[31] This is a general appeal so the approach as set out in Austin Nichols applies. This Court will reach its own opinion and:³

If [this 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.

[32] This Court will however be cautious when assessing the credibility and reliability of witnesses, given the Tribunal would have had the advantage of seeing and hearing them.⁴

Analysis

[33] I agree with the Tribunal’s reasoning.

[34] It is simply no answer for the appellant to say that a disclosure of the relevant facts, had it occurred, would have had no effect on Ms Ruissen’s decisions. Aside from being founded on speculation, such a submission is, in my view, misconceived and incorrect. This being a disciplinary proceeding, the central issue is not whether Ms Ruissen’s decision would have been any different had the relevant information been available to her, but rather is focussed on the appellant’s non- disclosure of relevant information at the meeting of 12 June. It is his conduct that is at issue, and which must be examined to determine whether the charge of misconduct has been established.

[35] I reject the submission that the appellant owed a duty of confidence to Mr Massam in his personal capacity, and that is why he was justified in failing to inform Ms Ruissen that (i) Mr Massam (or nominee) had already purchased 297A Church Street; (ii) a deposit of $150,000 had been paid using MCT’s funds; and (iii) the

_{appellant and/or Space Realty, was entitled to a commission on that sale.}

³ _{Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].}

⁴ See Nottingham v Real Estate Agents Authority [2015] NZHC 1616. See also, Robinson v Real Estate Agents Authority [2014] NZHC 2613 “... this Court should not lightly substitute its own standards for those set out imposed by the Tribunal.”

[36] The appellant says he believed Mr Massam entered into the sale and purchase agreement using his own name. I am not at all satisfied that this is correct. In my view, it is quite clear that when Mr Massam entered into the sale and purchase agreement of 297A Church Street, he did so for and on behalf of MCT. That is evident from the fact that he had previously arranged with the bank to raise an additional overdraft facility on MCT’s bank account, which he then used by drawing from MCT’s bank account to pay the required deposit of $150,000.

[37] As the sum of $150,000 was transferred directly from MCT’s bank account to Space Realty’s, the appellant must have well known that MCT’s funds were being used to pay the deposit, and he could not have been proceeding on the basis or understanding that Mr Massam was acting in his personal capacity, rather than as a trustee of MCT. At the very least, he wilfully turned a blind eye to what occurred.

[38] In any event, even if one were to assume that Mr Massam had in fact actually purchased the Church Street property for himself, there is no evidence to suggest that he ever requested the appellant to maintain confidentiality of his involvement as purchaser..

[39] Furthermore, even if, for whatever reason, the appellant did owe a duty of confidence to Mr Massam personally, it was not open to the appellant to then put Mr Massam’s interests ahead of MCT’s. As the Tribunal rightly stated, this would have left the appellant in a “highly conflicted” position because of the competing fiduciary obligations he owed to MCT. If the appellant was acting under the mistaken belief that he had such obligations to Mr Massam, those obligations did not justify him actively misleading Ms Ruissen by remaining silent about what he knew while she was being given an entirely misleading picture of MCT’s situation by Mr Massam.

[40] At the very least, the appellant should have disclosed the conflict of interest that arose not only from his relationship and previous dealings with Mr Massam (if in his personal capacity), but also from Space Realty’s interests in being the selling agent in the sale and purchase of 297A Church Street (where he stood to make a

profit). I note here that I consider the appellant was wrong to have held himself out

as an “advisor” to MCT, when clearly, he had interests of his own.

[41] The appellant also failed to disclose that his company, William Hughes, had signed an agreement to lease the Battery Building with MCT (knowing that Ms Ruissen’s signature had not been obtained). He also failed to mention that despite his reasons, his company was not paying rent notwithstanding the terms of the lease agreement. Plainly, the appellant should have been open and transparent about the existence of the lease and the non-payment of rent, in circumstances where this information was so pertinently relevant to the purpose of the trustees’ meeting.

[42] Again, it is no answer for the appellant to say that he did not think it relevant to discuss his tenancy with MCT at the meeting when the issue of whether MCT should sell its properties was raised, on the basis that he thought that “if they sold, I’d be bound to the new owner.” Even if the appellant’s explanation were accepted, it nevertheless remains that his reasons for non-disclosure were dictated by his personal interests and certainly not by what was in the best interests of MCT.

[43] The appellant also failed to mention or refer to the fact that Mr Massam had already instructed him to sell the MCT properties, and that MCT had already entered into an agency agreement. In circumstances where the very purpose of the meeting was for the trustees to decide whether or not to sell the properties, his silence on the matter was totally misleading as it falsely represented that he had no knowledge of the fact that MCT’s decision to sell the buildings had already been made and carried into effect by Mr Massam having already signed the agency agreement.

[44] For the appellant to attend the meeting and participate in the discussions in the role of an advisor, in my view, meant that he deliberately involved himself in a process that he knew was misleading to Ms Ruissen in a number of respects. Such deceptive conduct is wholly inconsistent with professional standards, and the professional obligations and duties he owed to Ms Ruissen as a client and trustee of MCT. He obviously knew that Mr Massam had not disclosed the purchase agreement, the lease agreement or the agency agreement to Ms Ruissen, and yet he actively encouraged her to believe that the decision whether or not to sell the

properties was a “live” and as yet unresolved one. He conducted himself in this way when, all the while, he knew that his firm (and he personally) had been engaged by MCT to sell the properties, and he had even negotiated a special commission rate for the sale.

[45] The appellant also knew that his company, William Hughes, had entered into a lease of the Battery Building, and that the property at 297A Church Street was already the subject of an agreement for sale and purchase. Despite that knowledge, he remained silent about those matters at the meeting of 12 June, and conducted himself in a manner that actively obscured all of those arrangements from a trustee of the client he was purporting to advise, thereby misleading her.

[46] I consider his conduct to have been a reprehensible and egregious departure from the standards of professional conduct, plainly of the kind contemplated by and falling within the scope of rr 6.1, 6.2 and 6.4.

Conclusion

[47] For the reasons I have given, the appeal is dismissed.

[48] The respondent is entitled to costs on a 2B basis, as well as reasonable disbursements, as set by the Registrar.

Paul Davison J