Pryor - Complaint No CB7038803 [2013] NZREAA 130 (9 July 2013)

Last Updated: 4 May 2014

In the Matter of Part 4 of the Real Estate Agents Act 2008

And

In the Matter of Complaint No: CB7038803 and CB7038776

In the Matter of Jeremy Pryor

Licence Number: 10003199

and Success Realty Limited

Licence Number: 10018602

Decision of Complaints Assessment Committee

Dated this 9th day of July 2013

Complaints Assessment Committee: CAC20004

Chairperson: Paul Morten

Deputy Chairperson: Michael Vallant

Panel Member: David Russell

Complaints Assessment Committee

Decision on Orders

1. Background

1.1 The 157.7 ha farm property that is the subject of this dispute was bought at auction by the

Complainant for $3.625 million, following a marketing campaign by Success Realty Ltd (the agency).

1.2 Marketing material contained the following representation: “1.7 km of private river frontage on one of the most picturesque rivers in the area, yet so close to town, must surely be a huge attraction for any prospective purchaser.”

1.3 That representation was wrong: there is a Crown “marginal strip” bordering all the river frontages on the property. The marginal strip is 20 m wide. The Conservation Act 1987 provides that public access and recreational use are among the purposes of marginal strips.

1.4 The Committee found the Agency guilty of unsatisfactory conduct. Although the Licensee, Mr Jeremy Pryor, was not responsible for the misleading marketing material, the Committee found him guilty of misleading conduct as well.

2. Relevant Provisions

2.1 Having made a finding of unsatisfactory conduct against the Agency and the Licensee, the

Committee must now decide what orders, if any, should be made under section 93 of the Act. Section 93 provides:

93 Power of Committee to make orders

(1) If a Committee makes a determination under section 89(2)(b), the Committee may do 1 or more of the following:

(a) make an order censuring or reprimanding the licensee;

(b) order that all or some of the terms of an agreed settlement between the licensee and the complainant are to have effect, by consent, as all or part of a final determination of the complaint;

(c) order that the licensee apologise to the complainant; (d) order that the licensee undergo training or education;

(e) order the licensee to reduce, cancel, or refund fees charged for work where that work is the subject of the complaint;

(f) order the licensee:

(i) to rectify, at his or her or its own expense, any error or omission; or

(ii) where it is not practicable to rectify the error or omission, to take steps to provide, at his or her or its own expense, relief, in whole or in part, from the consequences of the error or omission;

(g) order the licensee to pay to the Authority a fine not exceeding $10,000 in the case of an individual or $20,000 in the case of a company;

(h) order the licensee, or the agent for whom the person complained about works, to make his or her business available for inspection or take advice in relation to

management from persons specified in the order;

(i) order the licensee to pay the complainant any costs or expenses incurred in respect of the inquiry, investigation, or hearing by the Committee.

(2) An order under this section may be made on and subject to any terms and conditions that the Committee thinks fit.

3. Discussion

The functions which the imposition of a penalty serves:

3.1 The Committee, when determining whether or not to make an order under Section 93(1), must have regard to the functions which the imposition of a penalty serves in professional disciplinary proceedings:

a) Promoting and protecting the interests of consumers and the public generally

3.2 Section 3(1) of the REAA sets out the purpose of the legislation. The principal purpose of the 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". One of the ways in which the Act states it achieves this purpose is by providing accountability through an independent, transparent and effective disciplinary process (Section 3(2)).

b) Maintenance of professional standards

3.3 This function has been recognised in professional disciplinary proceedings involving other professions (for example, in medical disciplinary proceedings: Taylor v The General Medical Council (1990) 2 A11 ER 263; and in disciplinary proceedings involving valuers: Dentice v The Valuers Registration Board [1992] 1 NZLR 720. A useful summary of relevant purposes is at page 724-725.

3.4 Although in respect of different professions, the nature of the unprofessional or incompetent conduct which will attract disciplinary charges is variously described, there is a common thread of scope and purpose. Such provisions exist to enforce a high standard of propriety and professional conduct; to ensure that no person unfitted because of his or her conduct should be allowed to practise the profession in question; to protect both the public and the profession itself against persons unfit to practise; and to enable the profession or calling, as a body, to ensure that the conduct of members conforms to the standards generally expected of them.

3.5 In the Committee's view this function is also applicable in the disciplinary processes under the

REAA.

c) Punishment

3.6 The Committee accepts that a penalty in a professional discipline case is primarily about the maintenance of standards and the protection of the public. However in the Committee's view there is also an element of punishment - indicated by the power the Committee has to impose a fine (Section 93(1)(g)); or make an order of censure (Section 93(1)(a)). The element of punishment has been discussed in the context of other professional disciplinary proceedings (see Patel v Dentists Disciplinary Tribunal (High Court, Auckland, CIV 2007-404-1818 Lang J 13 August 2007).

3.7 At paragraph [27]-[28], the judge said:

Such penalties may be appropriate because disciplinary proceedings inevitably involve issues of

deterrence. They are designed in part to deter both the offender and others in the profession from offending in a like manner in the future. I therefore propose to proceed on the basis that, although the protection of the public is a very important consideration, nevertheless the issues of punishment and deterrence must also be taken into account in selecting the appropriate penalty to be imposed ....

d) Where appropriate, rehabilitation of the professional must be considered

3.8 The Committee regards its power to make an order requiring a Licensee to undergo training or education as indicative of this function applying in the context of professional disciplinary processes under the REAA.

3.9 The Committee acknowledges that when making an order under Section 93, the order/s made must be proportionate to the offending and to the range of available orders.

Submissions:

3.10 We have received submissions from legal counsel acting for the complainant on the one hand, and for the Agency and the Licensee on the other.

3.11 The Complainant says that they have ended up owning a property which does not meet its needs, and that those needs were made known to the Licensees before purchase.

3.12 It claims it has suffered a significant financial loss. There is no evidence of actual diminution of value, and the complainant accepts that High Court authority (Quin v the Real Estate Agents Authority [2012] NZHC 3557) means that the Committee does not have the power under section 93 to order the Licensee is to pay compensation to the Complainant for any such diminution in value in any event.

3.13 But in Quin, the High Court said that the Licensee could have taken steps to provide relief, in part, from the consequences of her conduct by incurring the marketing and conveyancing costs, had the Complainants in that case put the property back on the market and sold it. Other consequential costs, the Court observed, depending on reasonableness, might also have fallen on the Licensee.

3.14 The Complainant says it wants to sell the property. It proposes that the Committee makes initial orders, on an interim basis, with final orders to be considered once marketing and auction has run its course. Draft interim orders, requiring the agency, if called upon, to act in respect of the re-sale of the property (on terms set out in the draft order) have been provided to the Committee. The draft orders reserve leave to the Complainant to make further submissions to the Committee regarding final orders should it choose not to appoint the agent as its agent; or should the agency be terminated for any reason.

3.15 In addition, the Complainant seeks an order that the Licensees pay $3290.55, to cover legal costs incurred. Copies of invoices are attached. The invoice refers to time and attendance records. They have not been provided to the Committee.

3.16 The Complainant seeks a further $1000 in respect of the costs it has incurred in preparing its submissions.

3.17 Finally, the Complainant submits a fine ought to be imposed, but makes no submissions on quantum.

3.18 The Licensees submit that there is no evidence to support the submission that the property does not meet the Complainant’s means, or that it has suffered a significant financial loss. They state

that there is no evidence the Complainant would not have bought the property but for the misrepresentation; or that the Complainant actually paid more for the property as a result of the misrepresentation. They submit that it is unlikely the complainant could have purchased any other property, with access to a similar sized river with no marginal strip, in order to meet its undeclared “needs”.

3.19 The Committee agrees that there is a lack of evidence here. But the Complainant has advised it intends to take its compensation claim to the High Court. The Committee’s focus is on the conduct by the Agency and the Licensee. The marketing material focused on, and boasted about, the “huge attraction” of the “private river frontage”. In the Agency’s mind, this was a selling point, a significant point of difference from other properties. That representation, we have found, was wrong. The Agency, and to a lesser extent, the Licensee (who did not write the marketing material) must pay the consequences for that representation. We come back to this point later in the decision.

3.20 The Licensees oppose the making of any orders, on a number of grounds.

3.21 First ground: they say that the proposed interim orders represent a penalty disproportionate to their conduct. They make two points here, the first relating to costs they will incur, the second relating to where the conduct by the Licensee sits in the scale of seriousness of unsatisfactory conduct (which they describe as being at the lower end). In respect of the first point, they say that marketing costs would be approximately $8950 including GST. There would in addition be conveyancing and legal fees. They would have to forego a commission of approximately $98,625 (excluding GST).

3.21.1 Second ground: the proposed interim orders would leave liability at large, and would require the licensees to incur uncertain marketing and auction costs, but only if called upon.

3.21.2 Third ground: the complaint will still remain undetermined if the proposed orders are adopted, preventing finality.

3.22 The Committee has carefully considered whether it should make the interim orders proposed. It declines to do so. We favour finality. Whether or not we have jurisdiction to do so, the Committee would be reluctant to impose agency obligations on the Licensees, particularly against the background of this complaint, and threatened High Court action. Inevitably, there is a lack of trust between the parties. That is not a good basis for the parties to work together on the future sale of the property. If the Complainant wishes to sell the property, and recover its marketing costs as part of its High Court damages claim, that is up to the Complainant.

3.23 The Licensees submit that the unsatisfactory conduct here is at the lower end of the scale, and so does not justify the orders sought by the Complainant. They point to the fact that the Committee found no intention to mislead. They note that the Licensees were not aware that the marginal strip belonged to the Crown. They say that there is no evidence that exclusive use of the river was an essential matter to the complainant.

3.24 As to the last point, the Committee notes that it is not the use of the river that is an issue. The issue

is the representation of exclusive use of the land that runs down to the river’s edge.

3.25 The issue of the seriousness of the conduct is relevant not just to the interim orders proposed, but to whether or not the Committee should impose any orders on the Licensees. The Committee does not agree that the conduct falls at the lower end of the scale of seriousness. This was a high-end property. The marketing campaign focused on the benefits the buyer would get from the private river frontage. The purchaser has actually been misled by the misrepresentation.

3.26 In submissions made to the Committee when the Committee was considering liability, repeated here, the Licensees have argued that the marginal strip was “clearly indicated”. We disagreed then and we disagree now: neither the Licensees nor the Complainant were aware of the strip, which was not clearly indicated. If the presence of the marginal strip was “clearly indicated”, as the licensees submit, then that would have made a marketing campaign relying on the privacy of the river frontage particularly reprehensible.

3.27 The difficulty that the Licensees face, and which it appears that they are not prepared to accept, is that they had a duty to search the title, and to be familiar with information gained from that search: LB and QB v the Real Estate Agents Authority [2011] NZREADT 39. They failed to do so.

3.28 In Donkin v Real Estate Agents Authority & Morton-Jones [2012] NZREADT 44, the Tribunal considered a case where a property was marketed as “legal home and income”. The Tribunal stated at paragraph [8] that “....when advertising included a positive representation such as in this case, that the property is a legal home and income, then the agent must ensure that either;

a. they have made proper enquiries to ensure that the property is a legal home and income; or

b. they make it clear to any purchaser that this is a statement from the vendor and will need to be independently verified by the purchaser; or

c. they clearly inform the purchaser that there may be issues regarding this and they need to obtain independent legal advice.

3.29 The Agency took none of these steps.

3.30 At paragraph [9] the Tribunal made the point that an agent should make sure, before a positive representation was made, that they had at least taken some precautions to check the veracity of the representation. Clearly purchasers rely on an agent when making representations as to the state of the property. The agent's job is to ensure that the purchaser is not misled.

3.31 The Committee now turns to consider what orders it should make in respect of the Agency and the

Licensee.

Orders in respect of unsatisfactory conduct by the Agency, Success Realty Ltd

3.32 We disagree with the suggestion that no further orders are necessary.

3.33 The Committee accepts that publication of a finding of unsatisfactory conduct has adverse reputational effects.

3.34 The Committee considers that the facts of this case warrant an order censuring the agency under section 93 (1) (a) of the Act.

3.35 We do not consider that there is any merit in ordering the agent to apologise to the Complainant.

The Agency does not accept responsibility for its conduct. An apology is likely to have little relevance for either party.

3.36 Given that neither the Agency nor the Licensee was aware of the marginal strip, we do not consider that this is a case where an order that the licensees undergo training or education is necessary.

3.37 We have considered whether or not we should order the Agency to reduce cancel or refund fees charged for work. In this case, that would only benefit the Vendors, who are not the Complainants. The Vendors were aware of the marginal strip, but did not advise the Licensees about it. We do not blame them for that, but in the circumstances, we do not consider that it would be appropriate for them to gain a windfall from an order made in relation to fees charged for work done.

3.38 We do not consider this is an appropriate case for a section 93 (f) order, or any interim order, for the reasons already stated.

3.39 We note that we have the power to order a corporate licensee to pay a fine of up to $20,000. A fine is appropriate in this case. The Agency was responsible for the marketing material, which was wrong. Issues of deterrence arise, both in respect of the agency, and in respect of other members of the profession. Professional standards need to be maintained, and need to be seen to be maintained. In addition, this is the second offence by Success Realty Ltd for unsatisfactory conduct, a matter that we note has not been touched on by the Agency in its submissions. More about that below.

3.40 We note the Tribunal decision in Quin v Real Estate Agents Authority and others [2012] NZREADT

13, where the Tribunal imposed a $7000 fine on a licensee who misrepresented boundary lines. In Complaints Assessment Committee v Whiteford [2011] NZREADT 16, the Tribunal imposed a $4000 fine on a Licensee with limited financial resources who had failed to disclose he would benefit financially from the sale of the property (as the sole director and shareholder of the vendor company). Contrast, for instance, at the lower end of the scale, a fine of $2200 imposed by the Tribunal in Summit Real Estate Ltd v the Real Estate Agents Authority and another [2011] NZREADT 38, where a licensee had inserted a clause into a residential tenancy agreement purporting to entitle the Licensee to commission if the property was ultimately sold to a tenant or an associated person. We note this committee's decision in CB5695967; CB5696372; CB5696246; CB5755223 where we took as a starting point a fine of $7000 where Licensees had (innocently) misrepresented an apartment as just great for investors, when in fact it had a restricted ninety-day occupation condition on it. We discounted that to $6000 to take account of conduct by the purchaser. We imposed a fine of $3500 on the agent who assisted the purchaser.

3.41 We consider the starting point here is 50 % on the scale of “seriousness”. In Quin, the Licensee was aware that there were issues with access onto the property, but for various reasons failed to take proper steps to draw those issues to the attention of the purchasers. Had the purchasers known about the issues, they would not have bought the Property. In the case before us, Success Realty Ltd was not aware of the existence of the marginal strip, a mitigating factor, but misrepresented the status of the river frontage when marketing the property, an aggravating factor.

3.42 A further aggravating feature is that on 18 May 2011, the Agency was found guilty of unsatisfactory conduct arising from false advertising of its share of sales in certain markets specified in advertisements it had published: see CA4013778/CA4015281, Complaints Assessment Committee

10063. In its decision on penalty dated 26 July 2011, the Committee said the advertising was clearly directed at increasing the Agency’s market share on the basis of a suggestion to potential vendor clients that they were already dominant in the particular market. The Committee considered that there was, at the very least, a significant lack of care in the formulation of the figures presented to that market. A final determination which did not include a fine as one element would send an inappropriate “message” to the industry. A modest fine of $1000 was imposed on the two “linked” agencies which were the subject of that complaint.

3.43 The Committee takes into account the fact that the Complainant took legal advice before purchasing the property at auction; that the marketing information contained advice that it had been compiled primarily from information supplied by the vendor or their agents, and that the agency was merely passing over that information; and that the Vendors failed to advise the Agency or the Licensee that the Property was subject to the marginal strip.

3.44 Taking all these factors into account, the Committee imposes a fine of $15,000 on the Agency.

3.45 In the committee’s decision referred to in paragraph 3.42 above, we note that the Complainant sought a contribution to legal costs of $2288.50. The Committee declined to make such an order. It

stated that the complaint processes under the Act were intended to be consumer friendly. It noted that while there might be exceptional cases where engagement of a lawyer by the Complainant was justified, and an order for contribution to legal costs might be made, the case in question was not one of them.

3.46 The Committee does not consider that this is a case where an order for contribution to costs is justified either, particularly when we have not been provided with time and attendance records, and it is unclear from the narration of the invoices that we have seen what work counsel for the complainant did in relation to the complaint (other than the preparation of the submissions on penalty).

The Licensee, Jeremy Pryor:

3.47 For similar reasons, the Committee considers it is appropriate to make an order censuring the

Licensee.

3.48 While the Licensee did not draft the marketing material, he had the same duty as the Agency to ensure that representations made in the marketing material were accurate; and that prospective purchasers were disabused of the representation that any purchaser would own the land right up to the edge of the water.

3.49 A fine is in order.

3.50 In Quin, where the Licensee knew about boundary issues, but failed to bring them to the attention of the purchasers, the Committee considered that the starting point was 70% of the maximum fine that could be imposed. The fine of $7000 was not varied by the Tribunal or the High Court.

3.51 The Committee considers that a fine of $3500 would be appropriate. The Licensee is less culpable than the Licensee in Quin. A fine of $3500 is consistent with the fine the Committee imposed on the licensee who assisted the purchaser in CB5695967; CB5696372; CB5696246; CB5755223.

4. Decision

4.1 The Committee makes an order censuring the Agency and the Licensee.

4.2 It fines the Agency $15,000. The fine is to be paid within 30 days of the date of this decision.

4.3 The Committee finds the Licensee $3500, to be paid within 30 days of the date of this decision.

5. Publication

5.1 One of the Committee's functions pursuant to section 78(h) of the Act is to publish its decisions.

Section 84 (2) gives the Committee a discretion to direct such publication of its decisions as it

considers necessary or desirable in the public interest.

5.2 Publication gives effect the purposes of the Act set out in section 3. The Act is designed to promote and protect consumers' interests, and to promote public confidence in the performance of real estate agency work. Those purposes are achieved by regulation; raising industry standards; and providing accountability through a disciplinary process that is independent, transparent, and effective.

5.3 The Committee regards publication of this decision, and its decision on liability, as desirable, because it will help achieve those stated purposes. It is in the public interest that the decisions be published.

5.4 It is essential that the industry recognises that before licensees make positive representations about properties as part of any marketing campaign, they must take all necessary steps to ensure that the positive representations are correct.

5.5 The Authority will publish the Committee’s decision after the period for filing an appeal has ended unless an application for an order preventing publication has been made to the Real Estate Agents Disciplinary Tribunal (Tribunal). Such an application can only be made as part of an appeal to that Tribunal. In order to ensure publication of the decision does not take place it is important that you serve a copy of your application on the Authority. Publication of the decision will not take place until the Tribunal has made a decision on the application.

6. Right of Appeal

6.1 A person affected by a determination of a Committee may appeal to the Tribunal against a determination of the Committee within 20 working days after the date of this notice.

6.2 Appeal is by way of written notice to the Tribunal. You should include a copy of this Notice with your Appeal.

6.3 Further information on filing an appeal is available by referring to the Guide to Filing an Appeal at

www.justice.govt.nz/tribunals. Signed

Paul Morten

Chairperson

Complaints Assessment Committee

Real Estate Agents Authority

Date: 9 July 2013