Cattanach - Complaint No C06852 [2015] NZREAA 112 (7 May 2015)

Last Updated: 8 February 2016

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

And

In the Matter of Complaint No: C06852

In the Matter of David Cattanach

License Number: 10016258

Paul Scarfe

License Number: 10017136

Decision of Complaints Assessment Committee

Dated this 7th day of May 2015

Complaints Assessment Committee: CAC 402

Chairperson: Marjorie Noble

Panel Member: Jane Ross

Complaints Assessment Committee

Decision finding unsatisfactory conduct asking for submissions on orders

1. The Complaint

1.1. On 12 January 2015 the Real Estate Agents Authority (the Authority) received a complaint against David Cattanach (Licensee One) and Paul Scarfe (Licensee Two) from Complainant One and Complainant Two.

1.2. Licensee One is a licensed agent under the Real Estate Agents Act 2008 (the Act) and, at the time of the conduct, was engaged by Hobsonville Realty Limited t/a Harcourts Westgate (the Agency).

1.3. Licensee Two is a licensed agent under the Act and, at the time of the conduct, was engaged by the Agency.

1.4. On 20 January 2015 Complaints Assessment Committee 402 (the Committee) considered the complaint and decided to inquire into it under section 78(a) of the Real Estate Agents Act

2008 (the Act).

1.5. Subsequent to that decision to inquire, on 23 March 2015 the Committee held a hearing on the papers and considered all the information that had been gathered during the inquiry.

1.6. The complaint relates to a property (the Property).

1.7. The Complainants are two of three executors of Complainant One’s late mother’s estate. The third executor is Complainant One’s sister, Ms. A. Complainant Two is executor as a family friend and does not benefit financially from the estate. Complainant One had expressed an interest in buying the Property herself prior to it being marketed but in order to obtain a fair price for the estate, solicitor Mr. D, suggested putting it to the open market by way of auction. Ms. A was opposed to her sister buying the Property.

1.8. The details of the complaint are that during the sale by auction of the Property, the Licensees exerted undue and unfair pressure on Complainant One, and that neither Licensee acted in accordance with the Complainants’ instructions in execution of the reserve document.

1.9. In particular, the Complainants advised that on the day prior to the auction of the Property, the Complainants met at the Agency’s office and signed a Seller Reserve Form. They set the reserve price at $585,000. Ms. A did not attend this meeting or sign the reserve form. None of the executors had written authority to sign on each other’s behalf.

1.10. At the auction the following day, Complainant One and Ms. A attended. Complainant Two did not as she was unavailable but made it clear that she could be contacted if required. Prior to the start of the auction, Ms. A told the Licensees that she wanted the reserve set at $525,000. Complainant One did not agree and stated that at $525,000 she would buy the Property herself, which Ms. A was still unhappy with. Complainant One stated she would agree to a reserve at $555,000 but Ms. A did not agree to this and it was not acted on. Ms. A did not sign the reserve form at $585,000.

1.11. The auction started and bidding proceeded between three parties including Complainant One. When bidding reached $511,000, Licensee Two, the auctioneer, paused the auction. Complainant One states that the Licensees separated her from her sister and pressured her to change the reserve to $525,000. She states that she was bullied and emotionally blackmailed and eventually did sign the reserve at $525,000.

1.12. Licensee One left then returned stating that he now had an offer at $525,000, being the reserve price. Complainant One says that this was not the reserve price she had stated and that she was stunned. Licensee One then left again and returned to say the offer had been increased again and was now $530,000. Licensee Two told Complainant One that he needed to close the auction but that she could still continue to bid herself. The bidding reopened; Complainant One made no further bid and the Property was sold to the other bidder. The Licensees had not been able to contact Complainant Two at this time, so subsequently Licensee Two signed the sale documents on behalf of all the executors.

1.13. Complainant One states that she had not agreed to sell the Property for $525,000 or even close to that figure. Complainant Two stated later that she would not have agreed to lower the Reserve from $585,000. Complainant One states that she felt unduly pressured to sign the reserve form and was not advised of the consequences of doing so. The Complainants say that the Licensees took advantage of Ms. A who is mentally unwell, suffers from anxiety, and is on medication.

1.14. The Complainants are also unhappy with how the Agency marketed the Property and the wording used in its advertising.

1.15. The Complainant requested a remedy, being: that

(i) the sale be cancelled or, if this is not possible, that a full refund of commission is made;

(ii) compensation is made for emotional blackmail and loss of sale proceeds at $30,000.

Response: Licensee One

1.16. Licensee One responded to the complaint against him. In particular, the Licensee commented that he attended the auction in his capacity as business owner of the Agency. He strongly objected to the accusation by the Complainants of “strong-arm” tactics against Complainant One, and alleged that all his communication with her on auction day was conducted with Ms. A present.

1.17. The Licensee advised that he initially spoke with Ms. A prior to the auction, when she told him that she would be happy to achieve a sale at $525,000, the figure she had wanted on the reserve form. The Licensee says he then invited Complainant One to join the conversation and asked her what her reserve figure was based on, as all feedback had been “ in the early

5’s”. Complainant One justified her position and believed she was right in her thoughts. At this time Licensee One states that he decided with Licensee Two that, with the permission of Ms. A and Complainant One, they would call the auction, all parties knowing that the auction would be stopped for further discussion when the highest bid was reached.

1.18. The auction was stopped at a bid of $511,000 and the Licensee states that he, Licensee Two, and Ms. A went back over all the evidence and reports in regard to sales, following which Complainant One decided to adjust her reserve to $525,000 and signed accordingly. Licensee One comments that when he subsequently presented an offer of $530,000 to Complainant One and Ms. A they were both very happy to accept that offer.

1.19. Licensee One believes that at the close of the auction both he and Licensee Two felt they had done an excellent job for their vendors and had “acted professionally throughout in these very difficult circumstances”.

Response: Licensee Two

1.20. Licensee Two responded to the complaint against him. In particular, he categorically refuted the statements made by Complainant One in regard to undue and unfair pressure and maintains that at all times he did act in accordance with the client’s instructions. Licensee Two states that in addition to being a licensed real estate agent he is also a Justice of the Peace, and acts according to the oath that he has sworn.

1.21. The Licensee met the Complainants at the Agency office the day prior to the auction. Ms. A was delayed and did not arrive. All parties (including Ms. A by phone) agreed to consider the reserve set without her. Details were to be discussed with Ms. A the following morning. The Licensee states he explained in detail to the Complainants what would happen at the auction and what the possible outcomes were. Complainant Two advised at this time that she would not attend the auction due to work commitments. Licensee Two states that he advised those present that with a signatory absent post sale, he had the right to sign on the vendor’s behalf. It was made clear to the Licensee at this meeting that Complainant Two had no financial interest in the Property, and she appeared to him to simply agree with Complainant One on all matters.

1.22. At the auction the following day, Licensee Two states that he and Licensee One spoke to Complainant One and Ms. A to explain the reserve set process from the previous day, and the auction procedure for the day. Licensee Two states that he observed friction between the sisters, that the meeting was tense and uncomfortable, but that both Licensees acted in a professional manner. Ms. A would not agree with the reserve set by the Complainants and did not sign the reserve document.

1.23. The auction began and when bidding slowed at $511,000 Licensee Two paused the auction and both Licensees spoke to Complainant One and Ms. A. Licensee Two states he explained that it would be difficult to push the buyer up from $511,000 with a reserve of $585,000. After discussion with Licensee One, the top bidder increased his offer to $525,000. Licensee Two states that he then gave Complainant One and Ms. A options, being either to decrease the reserve to achieve an unconditional sale, or to pass the Property to the highest bidder and negotiate. Both Licensees also spoke to Complainant One about continuing to bid if she wanted to. Licensee Two states that at this stage both Complainant One and Ms. A agreed to an amended reserve of $525,000 and both initialed the change on the reserve authority. At this time both the Licensees also asked Complainant One and Ms. A if they needed to consult with Complainant Two, as the third executor, but Licensee Two says that they were assured that she had no financial interest and the decision was theirs.

1.24. Licensee One spoke again to the highest bidder who increased his offer to $530,000. The bidding was re-opened, and Licensee Two believes he made it very clear that the Property was now for sale and invited any further bids in several different styles of speech before dropping the hammer and declaring the Property sold.

1.25. Post auction, Licensee Two asked Complainant One and Ms. A if they were happy, in the absence of Complainant Two, for him to sign the sale documents on their behalf. He states that they were both happy to agree to this and that at no time was there any talk about

either of them being unhappy with the price achieved. Licensee Two also asked at this time if Complainant One and Ms. A would be happy to extend the settlement date to be a week later than the date on the auction agreement. Both agreed verbally to this. When questioned by the Investigator as to whether or not there was an authority for the executors to sign for each other if required, Licensee Two responded that this was never discussed.

2. What we decided

Licensee One

2.1. The Committee found that Licensee One has engaged in unsatisfactory conduct under section

89(2)(b) of the Act. The decision was also made with reference to the Real Estate Agents Act (Professional Conduct and Client Care) Rules 5.1 (skill, care and competence), 9.1 (act in clients best interest) and 9.2 (undue or unfair pressure).

Licensee Two

2.2. The Committee found that Licensee Two has engaged in unsatisfactory conduct under

89(2)(b) of the Act. The decision was also made with reference to Real Estate Agents Act (Professional Conduct and Client Care) Rule 5.1 (skill, care and competence), 9.1 (act in clients best interest) and 9.2 (undue or unfair pressure).

3. Our reasons for the decision

3.1. On the complaint against Licensee One, the Committee found, pursuant to section 72 of the Act, that the conduct of the Licensee would reasonably be regarded by agents of good standing as being unacceptable.

3.2. The Committee concluded:

(a) The Licensee was made aware on auction day of the tension between Complainant One and her sister and also of the fact that Ms. A had not agreed to, or signed, the reserve that had been set. Complainant Two could not be contacted at this time, and therefore there was no consensus when the Licensees advised that the auction should proceed and no consensus on a change in the reserve price when the highest bid was reached.

(b) With knowledge of the tension between the sisters and the fact that Complainant Two (the third executor) was not party to the proceedings, the pre-auction discussion between Licensee One and Complainant One regarding the high reserve set by the Complainants, and the subsequent pressure to reduce the reserve with the auction on hold, may well have been perceived as bullying by Complainant One; who was potentially already stressed about the auction and the animosity from her sister.

(c) The Licensee had a duty of care to the Agency’s clients which should have extended to clarifying each of the three executor’s positions at each decision point, or ensuring that a written authority was in place for a decision to be made on behalf of each other.

(d) The Committee was concerned that Licensee One, as Agency owner, did not discuss the fact that there was no written authority for the Complainants and Ms. A to sign for each other if one was not present. The ‘client’ in this case was three people, and only two were present to give instructions as to whether the reserve was valid and

whether the auction should proceed. Complainant One and Ms. A did not agree on the reserve price but the auction was started without this being resolved, with the intent of seeing “what sort of money was available from the market.” Licensee One knew that Complainant Two, as the third executor, was not present and unless contacted by phone could not be party to any discussions when the highest bid was reached. Complainant Two was not able to be contacted and the instruction to reduce the reserve to $525,000, and the subsequent instruction to sell at $530,000, was only made by two of the three executors.

(e) Complainant One advises in her response to the Investigator that Complainant Two states she would not have agreed to the $525,000 reserve and would not have accepted the final offer at $530,000. Rule 9.1 required the Licensee to act in accordance with the client’s instructions which could not happen if those instructions were unknown.

(f) The Licensee was obviously aware of the animosity and tension between Complainant One and her sister, and his response to the Investigator concludes by noting the “very difficult circumstances.” The Licensee’s challenge to Complainant One’s reserve figure required her to justify herself in the face of her sister’s opposition, and pressure from both Licensees to review her figure downwards. She did appear to offer a compromise of $555,000 as a reserve but Ms. A did not agree and this figure was not acted on. Subsequent pressure was applied after further analysis when bidding was paused, to reduce the reserve to $525,000. Complainant One did initial the change but later stated she “wasn’t sure what was happening and didn’t think it was going to have any impact whatsoever.” Complainant One felt she had signed under pressure and the consequences of a lowered reserve were not properly explained.

(g) Although Licensee One had not been involved with the executors prior to auction day, it would have been immediately apparent to him that only two of the three executors were present for decision making and signing. Complainant One and Ms. A’s assertions when questioned that “the decision is ours,” as Complainant Two had no financial interest in the Property, should not have been accepted verbally. A written power of attorney should have been sought or at least a telephone contact guaranteed for Complainant Two, in order to ensure valid decisions were made in a possibly contentious situation. Only two of the three executors made a decision in four instances in regard to: (i) the reserve set (ii) the lowering of that reserve (iii) the acceptance of the final offer and (iv) the verbal change of settlement date. Failure to ensure all three signatories agreed to relevant decisions and documents potentially left the contract open to be challenged.

3.3. On the complaint against Licensee Two, the Committee found, pursuant to section 72(a) of the Act, that the Licensee’s actions fell short of the standard that a reasonable member of the public is entitled to expect from a reasonably competent licensee.

3.4. The Committee concluded:

(a) The Licensee was made aware of the tension between Complainant One and her

sister and also that Ms. A had not, and would not, sign the reserve form. He was also aware that Complainant Two would not be attending the auction as she had informed him of this the previous evening. Licensee Two accepted a verbal assurance that Complainant Two did not need to be included in any decisions as she had no financial interest in the Property. The ‘client’ was the three executors but instructions to start the auction without an agreed reserve, to lower the reserve price, to accept the final offer, and to agree to a change of settlement date, were all made by only two of the three executors.

(b) Licensee Two, along with Licensee One, was party to the discussion held with Complainant One prior to the auction in regard to the reserve of $585,000, where she was required to justify her price and her reasons for not lowering it. The Licensee was also party to the subsequent discussions with Complainant One to lower the reserve when bidding was paused. Both discussions may well have been perceived as undue and unfair pressure by Complainant One in a tense and stressful situation.

(c) The Licensee had a duty of care in the execution of the reserve set and the auction process. The Licensee was made aware at the reserve meeting that Complainant Two would not be present at the auction, and although she was potentially contactable and appeared to agree with Complainant One in most matters, Licensee Two should have requested that she sign a power of attorney document to ensure that each of the three executors was represented at the auction. This would have been particularly prudent in view of the disagreement with Ms. A over the reserve price, and the tension which existed between the sisters.

(d) Licensee Two had a duty of care to the client. The ‘client’ in this case was three

people and only two were present to give instructions as to whether the reserve was valid and whether the auction should proceed. Complainant One and Ms. A did not agree on the reserve price but the auction was started without this being resolved, with the intent of seeing “what sort of money was available from the market.” Licensee Two knew that Complainant Two, as the third executor, was not present, and unless contacted by phone could not be party to any discussions when the highest bid was reached. Complainant Two was not able to be contacted and the instruction to reduce the reserve to $525,000, and the subsequent instruction to sell at $530,000, was only made by two of the three executors. Complainant One advises in her response to the Investigator that Complainant Two states she would not have agreed to the $525,000 reserve and would not have accepted the final offer at

$530,000. Rule 9.1 required the Licensee to act in accordance with the client’s

instructions which could not happen if those instructions were unknown.

(e) The Licensee was aware of the animosity and tension between Complainant One and her sister, and appeared to Licensee One to be worried about the situation on the day of the auction. The Licensee was involved with Licensee One in the discussion over reserve price with Complainant One, where she was put in a position that required her to justify her reasons for a higher reserve figure in the face of her sister’s opposition, and pressure from both Licensees to review her figure downwards. She did appear to offer a compromise of $555,000 as a reserve but Ms. A did not agree and this figure was not acted on. Subsequent pressure was applied after further analysis when bidding was paused, to reduce the reserve to $525,000. Complainant One did initial the change but later stated she “wasn’t sure what was happening and didn’t think it was going to have any impact whatsoever.” Complainant One felt she had signed under pressure and the consequences of a lowered reserve were not properly explained. The Licensee believes that he did not exert undue or unfair pressure but the Committee considers that it is likely that the perception of the Complainant is that he did.

(f) Licensee Two had met two of the executors prior to auction day at the auction

reserve set, and knew that Complainant Two would not be present for decision making and signing at the auction. Complainant One and Ms. A’s assertions when questioned about Complainant Two that “the decision is ours,” as Complainant Two had no financial interest in the Property, should not have been accepted verbally. Licensee Two had missed an opportunity to get a written power of attorney signed the previous evening and should have ensured at this point that at least a telephone contact was guaranteed for Complainant Two, in order to ensure valid decisions were made in a possibly contentious situation. Only two of the three executors made a

decision in four instances in regard to: (i) the reserve set (ii) the lowering of that reserve (iii) the acceptance of the final offer and (iv) the verbal change of settlement date. Verbal assurances were not sufficient and failure to ensure all three signatories agreed to relevant decisions and documents in writing potentially left the contract open to be challenged. The Committee has serious concerns that when questioned by the Investigator about the lack of written authority, Licensee Two responded that it was never discussed. It was the Licensee’s duty to realize the necessity for a written authority, to discuss the matter and ensure that the authority was drawn up and signed by all executors.

3.5. The Complainants also expressed some concerns in regards to how the Agency marketed the Property and the wording used in its advertising. These concerns were addressed by the listing agent, Mrs. M, who is not included in the complaint. She stated that the solicitor for the estate required the Property to be sold, and that he had felt the best way to sell the Property fairly was by way of auction. During the lead up to the auction some problems were encountered with the Property and the three executors were given the option of changing the marketing strategy. The decision was made to continue with the auction in order to have the Property sold before Christmas. The wording referred to was when the Property was advertised as a “do-up,” which the Complainants seem to feel devalued the Property. Mrs. M stated that the term is commonly used as a strategy to create tension among buyers and allows them to see the opportunity and potential to add value to a property. She said that at no time were they inferring that the house was unlivable or untidy, just that it was original, dated, and could be renovated.

4. Request for submissions on orders:

4.1. 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. Refer to Appendix 1.

4.2. The Licensees and the Complainants may file submissions on what orders, if any, should be made. The Complainants may file submissions first within 10 working days from the date of the decision. These submissions, if any, will then be provided to the Licensee, with a timeframe for filing final submissions

4.3. The Committee requires the CAC Administrator to obtain a record of any previous disciplinary decision in respect of the Licensees and, if any such decision exists, provide it to the Committee.

5. What happens next

5.1. The Committee will consider all submissions and issue a decision on orders.

Your right to appeal

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

Publication

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

Signed

Jane Ross

Panel Member

For Complaints Assessment Committee 402

Real Estate Agents Authority

Date: 7 May 2015

Appendix 1: Relevant provisions

The Real Estate Agents Act 2008 provides:

Section 89 Power of Committee to determine complaint or allegation

(1) A Committee may make one or more of the determinations described in subsection (2) after both inquiring into a complaint or allegation and conducting a hearing with regard to that complaint or allegation.

(2) The determinations that the Committee may make are as follows:

(a) a determination that the complaint or allegation be considered by the

Disciplinary Tribunal:

(b) a determination that it has been proved, on the balance of probabilities, that the licensee has engaged in unsatisfactory conduct:

(c) a determination that the Committee take no further action with regard to the complaint or allegation or any issue involved in the complaint or allegation.

(3) Nothing in this section limits the power of the Committee to make, at any time, a decision under section 80 with regard to a complaint.

Section 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.

Section 93 Power of Committee to make orders

(1) If a Committee makes a determination under section 89(2)(b), the Committee may do one 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.

Section 111 Appeal to Tribunal against determination by Committee

(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 the notice given under section 81 or 94.

(2) The appeal is by way of written notice to the Tribunal of the appellant's intention to appeal, accompanied by—

(a) a copy of the notice given to the person under section 81 or 94; and

(b) any other information that the appellant wishes the Tribunal to consider in relation to the appeal.

(3) The appeal is by way of rehearing.

(4) After considering the appeal, the Tribunal may confirm, reverse, or modify the determination of the Committee.

(5) If the Tribunal reverses or modifies a determination of the Committee, it may exercise any of the powers that the Committee could have exercised.

The relevant provisions from the Real Estate Agents Act (Professional Conduct and Client Care) Rules

2012 are:

Rule 5.1 A licensee must exercise skill, competence, and diligence at all times when carrying out real estate work.

Rule 9.1 A licensee must act in the best interests of client and act in accordance with the

client’s instruction unless to do so would be contrary to law.

Rule 9.2 A licensee must not engage in any conduct that would put a prospective client, client, or customer under undue or unfair pressure.