Philpott - Complaint No C06863 [2015] NZREAA 192 (14 July 2015)

Last Updated: 25 March 2016

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

And

In the Matter of Complaint No: C06863

In the Matter of Clement (Gerry) Philpott

License Number: 10013783

Decision of Complaints Assessment Committee

Dated this 14th day of July 2015

Complaints Assessment Committee: CAC 401

Chairperson: Nigel Dunlop Deputy Chairperson: Alison Wallis Panel Member: Rex Hadley

Complaints Assessment Committee

Decision finding unsatisfactory conduct asking for submissions on orders

1. The Complaint

1.1. On 17 December 2014 the Real Estate Agents Authority (the Authority) received a complaint against Clement (Gerry) Philpott (the Licensee) from the Complainant.

1.2. The Licensee is a licensed salesperson under the Real Estate Agents Act 2008 (the Act) and at the time of conduct was engaged by Barfoot & Thompson Limited, Mount Eden (the Agency).

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

1.4. The Complainant says that his interests were not well looked after by the Licensee. He believes that with better assistance from the Licensee he would have achieved a higher sale price for the Property.

1.5. There are two elements to the complaint, first, that the Comparative Marketing Analysis (CMA) prepared by the Licensee was deficient, and secondly, that the Licensee should have disclosed who lay behind the Trust purchasing the Property.

1.6. The background to the complaint is that the Licensee approached the Complainant asking whether or not he was interested in selling his Property, because he had an interested buyer (Mr. X). Although the Complainant’s Property was not at that time on the market, he expressed interest in selling.

1.7. The Complainant entered into a sole agency agreement with the Agency. A CMA was prepared giving an estimated sale price of $1,300,000-$1,700,000. The Complainant queried the Licensee as to why the CMA did not include mention of the sale of a nearby property for

$1,900,000. The Licensee pointed out differences between that other property and the

Property.

1.8. An offer was presented on behalf of the Trust. The Trust was effectively the alter ego of Mr. X, because Mr. X would take up residence on a successful purchase by the Trust. The Committee notes that in his response to the complaint, the Licensee refers to Mr. X being the buyer. The Licensee did not disclose Mr. X’s relationship with the Trust when the offer was presented to the Complainant. The offer was for $1,400,000. The Complainant counter offered $1,900,000. That counter offer was rejected. Negotiations broke down.

1.9. About a month later, the Complainant asked the Licensee whether the buyer was still interested in purchasing the Property. The answer was yes, and so the earlier agency agreement was renewed and another improved offer was presented, again in the name of the Trust. Negotiations occurred, and eventually a price of $1,675,000 was agreed upon.

1.10. The Licensee did not inform the Complainant of Mr. X’s identity, but the Complainant found out who he was shortly before settlement. The Committee is told that Mr. X is from a wealthy family. The Licensee does not suggest otherwise. The family is well known. Furthermore, Mr. X is the father of one of the owners of a property next door to the Property.

1.11. All of the above occurred in late 2012 to early 2013. The settlement occurred without difficulty. No complaint was raised at the time by the Complainant.

1.12. The Complainant invited the Licensee to meet him at a café on 29 October 2014. At that meeting the Licensee heard the Complainant’s concerns, as summarised in paragraphs 1.4 and 1.5 above, for the first time. The discussion was recorded without the knowledge or consent of the Licensee. More will be mentioned about that later.

1.13. The Complainant is seeking the repayment of the commission he paid to the Agency.

1.14. The Licensee responded to the complaint against him.

1.15. In relation to the CMA issue, he said that the other property had not been included because it had a higher capital value than the Property, had a much larger land size, had a bigger floor area, was on the sunny side of the street, was an easier site to improve, and had sold by tender involving two very keen purchasers, and thereby achieved an artificially high price.

1.16. In relation to the issue of Mr. X’s identity, the Licensee said that the Complainant was not interested as to who was the effective purchaser, and could have found out at any time by doing a Google search on the name of the Trust, and indeed may have done just that. He said that the Complainant had told him that he had learned about Mr. X being the purchaser from the neighbours’ children (Mr. X’s grandchildren).

1.17. The Licensee took strong objection to the discussion in the café in October 2014 being surreptitiously recorded by the Complainant.

2. What we decided

2.1. On 12 January 2015 the Complaints Assessment Committee (the Committee) considered the complaint and decided to inquire into it.

2.2. On 26 May 2015 the Committee held a hearing on the papers and considered all the information that had been gathered during the inquiry.

2.3. The Committee found the Licensee has engaged in unsatisfactory conduct under section

89(2)(b) of the Act in relation to the identity of the purchaser, but not in relation to the CMA.

2.4. The Committee was provided with a copy of the recording of the October 2014 café conversation. Section 88 of the Act provides that a Complaints Assessment Committee may receive evidence whether or not it would be admissible in a court of law. It decided not to listen to the recording, and has not done so on account of it being made without the knowledge or permission of the Licensee.

3. Our reasons for the decision

3.1. The Committee’s views in relation to the CMA can be very briefly stated. It considers that the reasons given by the Licensee not to include the other property in the CMA, as outlined in paragraph 1.15, are entirely convincing.

3.2. In relation to the name of purchaser however, the Committee agrees with the Complainant, and disagrees with the Licensee. Section 72(a) of the Act outlines that a licensee is guilty of unsatisfactory conduct if they carry out real estate agency work that falls short of the standard that a reasonable member of the public is entitled to expect from a reasonably competent licensee.

3.3. The fact that Mr. X was the effective purchaser of the Property was information which the Complainant should have been informed by the Licensee. It was information directly relevant to the Complainant’s negotiation strength in relation to Mr. X. It hardly needs to be stated, that when negotiating with buyers, sellers consider that their hands are strengthened if it is known that the buyers have the financial means to pay premium prices. Furthermore, that negotiating strength increases if it is known that the other party has a strong incentive to conclude the deal. Mr. X’s family connection with the next door property is a highly relevant piece of information about which the Complainant should have been told.

3.4. The Committee finds that the licensee has breached s72(a) of the Act because the Complainant, a reasonable member of the public, would expect a reasonably competent licensee to disclose to them that the interested buyer was of considerable means. The Committee also considers rules 6.1 and 6.4 relevant to its finding on unsatisfactory conduct.

3.5. Rule 6.1 requires licensees to comply with fiduciary obligations to their clients. Rule 6.4 requires licensees not to withhold information that should in fairness be provided to their clients.

3.6. These two Rules in combination oblige licensees to be entirely open and forthcoming with their clients about all matters concerning their work for those clients. The obligation is a strong one. The Rules impose not just reactive obligations, but proactive ones as well. Information might need to be provided, even if not asked for.

3.7. The Licensee was not up front with the Complainant. He held back important information which his client would have been most interested in knowing. If he withheld the information because Mr. X did not want the information to be passed on, then the Licensee would have been in a conflicted situation. His primary duty was to his client, the Complainant, not to Mr. X, his customer. If Mr. X had not wanted the information passed on, then the Licensee and the Agency should have withdrawn from the transaction, or at least told the Complainant that they had been asked to withhold information. It is not known whether Mr. X asked the Licensee to be coy about his identity. If he did, then that is an aggravating factor. The fact that the Complainant did not ask the Licensee for further information about the buyer, or seek it out by other means, does not negate the obligation to provide the information. The information should have been volunteered to the Complainant. There was nothing to alert the Complainant that he should be asking about or inquiring into the identity of the buyer. He no doubt made the reasonable assumption that there was nothing out of the ordinary about the buyer. In fact there was, as the Licensee was fully aware. The Licensee would have been aware that the Complainant had no particular reason to question the identity of the buyer. Yet he allowed his client to remain under that misapprehension. It is difficult to avoid the conclusion that this advantaged Mr. X at the expense of the Complainant.

3.8. The fact that the name of the Trust was at all times known to the Complainant does not exonerate the Licensee, because as mentioned above, there was nothing in that name to cause the Complainant to make inquiries about it. The Complainant was entitled to expect that if some special significance attached to the buyer, the Licensee would tell him. Regrettably, the Licensee did not. The Licensee has not been able to provide an adequate

explanation as to why he did not think it was necessary to disclose who the ultimate purchaser was.

3.9. The Committee is by no means saying that every licensee, in every transaction, is required to know the financial means of every buyer, or required to seek out who is behind every purchasing trust. It is simply saying that, where a licensee has knowledge that a buyer is in a significantly strong purchasing position, then that is material information that should be passed to the client in their best interests.

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 the Appendix of this decision.

4.2. The Complainant is to file submissions (if any) on what orders should be made 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 Licensee 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 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

Nigel Dunlop

Chairperson

For Complaints Assessment Committee 401

Real Estate Agents Authority

Date: 14 July 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

2009 are:

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

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