Barfoot & Thompson Limited - Complaint No C03049 [2013] NZREAA 276 (18 November 2013)

Last Updated: 16 September 2014

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

And

In the Matter of Complaint No: C03049

In the Matter of Barfoot & Thompson Limited

License Number: 10018521

Decision of Complaints Assessment Committee

Dated this 18th day of November 2013

Complaints Assessment Committee: CAC20003

Chairperson: Marina Neylon Deputy Chairperson: Alison Wallis Panel Member: John Auld

Complaints Assessment Committee

Decision finding unsatisfactory conduct

1. The Complaint

1.1. The Committee has exercised its power under section 78 (b) of the Real Estate Agents Act 2008 (the Act) to initiate an inquiry and investigate an allegation in regards to Barfoot & Thompson Limited (the Company Licensee).

1.2. The Committee has recently dealt with two separate complaints by members of the public against salesperson Licensees engaged by the Company Licensee. Both cases involved the purchase of a Client’s property by a salesperson engaged by the Company Licensee.

1.3. During the investigation of those matters it came to the attention of the Committee that the in- house policy of the Company Licensee appears to be inconsistent with its fiduciary obligations to its Clients. Specifically; when a salesperson Licensee wishes to purchase a property that is owned by a current Client of the Company Licensee, those Licensees are instructed that they should contact the Client directly to ascertain the current situation with the property. The Licensees are then authorized to commence and control all negotiations between themselves and the Client provided that the provisions of section 134 to 137 of the Act have been complied with.

1.4. The Committee’s concern is that the Company Licensee’s in-house policy is contradictory to its fiduciary obligations to their Client/principal and therefore a breach of the Professional Conduct and Client Care Rules (the Rules), in particular Rules 6.1 and 9.1.

1.5. In particular, the Committee is concerned that the Company Licensee does not require the Purchaser/Employee to negotiate through the listing salesperson or if this was the potential Purchaser/Employee, through the listing Branch Manager.

1.6. The Committee determined to clarify the Company Licensee’s position and policies where a Client’s

property is purchased by a person engaged by the Company Licensee.

1.7. The Committee received a response from Solicitors on behalf of the Company Licensee. The response denies any breach of duty by the Company Licensee.

2. Material Facts

2.1. The Company Licensee is a limited liability company licensed under the Act which has operated in the greater Auckland area for 90 years. The Company Licensee currently engages over 1400 salesperson Licensees and hundreds of support staff and managers.

2.2. The Committee has received and considered two complaints regarding the purchase of a Client’s

property by a Company Licensee employee over the past year.

2.3. Both Complainants believed that they had been disadvantaged by the Company Licensee and we paraphrase their concerns as follows;

2.3.1. The Purchaser/Employee had access to personal information about the Client that was unavailable to other Purchasers, and this information weakened the Client’s negotiating position.

2.3.2. The Clients felt pressured by the Purchaser/Licensee to accept their advice rather than seek independent advice.

2.3.3. The Purchaser/Licensee had a conflict of interest and therefore they could not truly represent the Client.

2.3.4. The negotiations on the price advantaged the Purchaser/Employee because the Clients had less experience or knowledge of the market.

2.3.5. The Company Licensee charged a commission for what the Complainant’s believed

amounted to a private sale.

2.4. The Company Licensee submits that the sales in question have been completed in line with the legal requirements for acquisition of a Client’s property by a “related person”; being compliance with sections 134 to 137 of the Act, and that therefore there is no breach of the Act or the Rules.

2.5. The sections quoted relate to the Client’s provision of consent to the acquisition of their land by a Licensee and the safeguard of a valuation being provided to the Client. Failure to abide by these sections of the Act may result in the cancellation of the sale and, or the refund of the commission.

2.6. The Company Licensee submits that compliance with these sections of the Act is the sole requirement for maintaining the integrity of their fiduciary relationship with the Client in such a sale.

2.7. The Company Licensee submits that a sole trader Licensee could not provide such an alternative to his/her Clients and therefore a decision against the Company Licensee, if made, would be discriminatory.

2.8. The Committee agrees that the Company Licensee is entitled to a commission from the sales by virtue of its compliance with sections 134 – 137 of the Act.

3. Relevant Provisions

72 Unsatisfactory conduct

For the purposes of this Act, a Licensee is guilty of unsatisfactory conduct if the Licensee carries out real estate agency work that—

(a) falls short of the standard that a reasonable member of the public is entitled to expect from a reasonably competent Licensee; or

(b) contravenes a provision of this Act or of any regulations or rules made under this

Act; or

(c) is incompetent or negligent; or

(d) would reasonably be regarded by agents of good standing as being unacceptable.

134 Contracts for acquisition by Licensee or related person may be cancelled

(1) No Licensee may, without the consent of the Client for whom he or she carries out real estate agency work in respect of a transaction, directly or indirectly, whether by himself or herself or through any partner, sub-agent, or nominee, acquire the land or business to which the transaction relates or any legal or beneficial interest in that land or business.

(2) No Licensee may, without the consent of the Client, carry out or continue to carry out any agency work in respect of a transaction if the Licensee knows or should know that the transaction will, or is likely to, result in a person related to the Licensee acquiring the land or business to which the transaction relates or any legal or beneficial interest in that land or business.

(3) The Client’s consent is effective only if—

(a) given in the prescribed form; and

(b) the Client is provided with a valuation in accordance with section 135.

(4) The Client may cancel any contract—

(a) made in contravention of subsection (1); or

(b) brought about by agency work carried out in contravention of subsection (2).

(5) No commission is payable in respect of any contract of the kind described in subsection (4), regardless of whether the Client cancels the contract.

(6) The Client may recover any commission paid in respect of any contract of the kind described in subsection (4) as a debt.

(7) For the purposes of this section, a person who is the Client of an agent in respect of a transaction is also the Client of any branch manager or salesperson whose work enables the agent to carry out real estate agency work for that Client.

(8) This section and section 135 have effect despite any provision to the contrary in any agreement.

135 Client to be provided with valuation

(1) For the purposes of section 134(3), the Licensee must give the Client a valuation made at the Licensee’s expense.

(2) The valuation must have been made by—

(a) an independent registered valuer; or

(b) in the case of a business, by an independent chartered accountant.

(3) The Licensee must give the Client the valuation either—

(a) before seeking the consent of the Client; or

(b) with the agreement of the Client, within 14 days after obtaining that consent.

(4) Every consent given under section 134 without the valuation being supplied to the Client in accordance with subsection (3) is ineffective.

(5) Any contract to which the Client is a party and to which the consent relates is voidable at the option of the Client if—

(a) the Client gives his or her consent in accordance with subsection (3)(b); and

(b) the valuation, when supplied, is greater than the valuation specified in the prescribed form of consent as the provisional valuation.

137 Meaning of Licensee and person related to Licensee in sections 134 to 136

(1) In sections 134 to 136, Licensee includes, in the case of an agent that is a company, every officer and shareholder of the company.

(2) For the purposes of sections 134 to 136, a person is related to a Licensee if the person is—

(a) a partner of the Licensee under a partnership agreement: (b) an employee of the Licensee:

(c) a branch manager or salesperson engaged by the Licensee: (d) the Licensee’s spouse or civil union partner:

(e) the Licensee’s de facto partner:

(f) a child, grandchild, brother, sister, nephew, or niece of the Licensee or of any person referred to in paragraphs (d) or (e):

(g) any other child who is being, or is to be, cared for on a continuous basis by the

Licensee or any person referred to in paragraph (d) or (e):

(h) a grandparent, parent, uncle, or aunt of the Licensee or of any person referred to in paragraph (d) or (e):

(i) an entity that has an interest in the Licensee or an entity (not being an entity listed on the New Zealand Stock Exchange) in which the Licensee has an interest.

The Professional Conduct and Client Care Rules 2009 and 2012

Both state:

Rule 6.1 An agent must comply with the fiduciary obligations to his or her Client arising as an agent.

Rule 9.1 A Licensee must act in the best interests of a Client and act in accordance with the

Clients instructions unless to do so would be contrary to the law.

4. Discussion

4.1. The Company Licensee submits that the Courts have held that fiduciary obligations are met if the Client has given informed consent to a potential conflict of interest such as acquiring a property from which sale they will receive a commission.

4.2. The Committee respectively disagrees with the narrow application of this principle to the concerns expressed by the Complainants and to the consumer protection purposes of the Act and the Code.

4.3. A fiduciary obligation requires the highest level of care and good faith. The Committee has taken the view that an agent should do all it can for its Client, rather than all it can get away with.

4.4. The Company Licensee stated in their response to the original complaints that the Clients could have chosen not to deal with the Purchaser/Employee (refuse the offer) or could have cancelled the agreement if the valuation was below the agreed price. The Company Licensee is correct in this, however the Committee finds such a black and white response is indicative of the perceived lack of care shown to these Clients.

4.5. The Complainants did not regard the purchase by a Company Licensee employee as unwanted or wrong. They merely draw a distinction between a willingness to sell to a person who acts as a representative of their agent and the unbalanced and unfair advantage of negotiating directly with that person.

4.6. The concerns raised by the Company Licensee’s Clients relate to important matters in the minds of those Clients. In particular that information can be gained by the Purchaser/Employee that is not available to other Purchasers. The Committee concedes that a Purchaser/Employee will always have access to more information about the property and the owner than any other Buyer but believes

that the Company Licensee could do more to ensure that its staff is not encouraged to contact a Client directly. Ideally staff should contact the listing salesperson or the branch manager to express their interest.

4.7. The Committee finds that a Purchaser/Employee cannot advise and protect the best interests of the Client when their own agenda is to buy the property on the most favourable terms they can negotiate for themselves. The Company Licensee’s policies do not recognise this conflict of interest.

4.8. The Complainants say that they felt pressured, that they knew their agent was not really working for them and that they felt out-gunned in negotiations. The Company Licensee then charged them a fee for service which they felt was not earned.

4.9. While the Committee agrees that a fee is due , the appearance of a conflict could be substantially reduced if the Company Licensee chose to amend its policy to create an arm’s length transaction by directing such purchases to be negotiated by the listing salesperson or the listing office Branch Manager as part of its in-house policies.

4.10. The Committee concedes that this is not a legal requirement and as such, may be a point which the Company Licensee chooses to appeal. However, we consider the consumer protection requirements of an agent have often outpaced or overlapped what the law requires. By way of comparison, we note the way in which multiple offers are now handled by the industry and that failure to adhere to these policies has resulted in unsatisfactory conduct being found against these Licensees.

4.11. The Committee notes that the Company Licensee is not unsympathetic to a change to its policies, even though the reason given would be to protect itself from future complaints rather than extend its duty of care. Should the Company Licensee decide to take such action, it is likely this would satisfy the Committee’s concerns in regard to the current complaints and potentially those future issues of a similar nature.

4.12. Finally, the Committee takes on board the point raised by the Company Licensee in regard to a sole trader being unable to provide a similar policy. The Committee does not believe that a consumer would be likely to complain in that situation as they would be aware that the sole trader is unable to defer negotiations to another party. However, the Committee would look at such a complaint with the same consumer focus as we believe we have taken on this issue and base our findings on the individual circumstances of the case.

5. Decision

5.1. After conducting an inquiry into the complaint, pursuant to section 89(1) of the Real Estate Agents Act 2008 (the Act), the Committee held a hearing with regard to that complaint. In accordance with section 90(1) of the Act, the Committee conducted the hearing on the papers, and pursuant to section 90(2) the Committee’s determination was made on the basis of the written material before it.

5.2. The Committee has determined under section 89(2)(b) of the Act that is has been proved, on the balance of probabilities, that Barfoot and Thompson Limited has engaged in unsatisfactory conduct.

6. Orders

6.1. The Committee will conduct a separate hearing on the papers to 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.

6.2. The Committee requires the Case Manager to obtain a record of any previous disciplinary decision in respect of the Licensee under either the Real Estate Agents Act 1976 or the Act, if any such decision exists, and provide it to the Committee, and the Licensee.

6.3. The Licensee may file submissions on what orders, if any should be made. The Licensee may file submissions within 10 working days from the date of the decision.

7. Publication

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

7.2. The Committee has deferred making any decision on publication until its hearing to decide what orders, if any, should be made.

8. Right of Appeal

8.1. A person affected by a determination of a Complaints Assessment Committee may appeal by way of written notice to the Real Estate Agents Disciplinary Tribunal (the Tribunal) against a determination of the Committee and must do so within 20 working days from the date of the determination.

8.2. The Committee has yet to finally determine this complaint because the parties are being given an opportunity to make submissions on orders before the Committee determines what orders should be made, if any.

8.3. The Committee considers that the 20 working day appeal period does not commence until it has finally determined this complaint by deciding what orders should be made, if any.

8.4. Appeal is by way of written notice to the Tribunal. Further information on filing an appeal is available by referring to the Guide to Filing an Appeal at www.justice.govt.nz/tribunals.

Signed

Marina Neylon

Chairperson

Complaints Assessment Committee

Real Estate Agents Authority

Date: 18 November 2013