Complaint No C25590 [2018] NZREAA 177 (19 November 2018)

Last Updated: 2 December 2019

Before the Complaints Assessment Committee

Complaint No: C25590

In the matter of

Part 4 of the Real Estate Agents Act 2008

Agency: XXXXXXXX (xxxxxxxx)

Decision to take no further action

19 November 2018

Members of Complaints Assessment Committee: CAC521

Chairperson: Garry Chapman

Deputy Chairperson: David Bennett

Panel Member: Josephine O’Donnell

Complaints Assessment Committee

Decision to take no further action

1. The Complaint

1.1. On 2 May 2018 the Real Estate Agents Authority (the Authority) received a complaint against

Real Estate Company Ltd (the Agency) from the Complainants.

1.2. The Agency is a licensed Company Agent under the Real Estate Agents Act 2008 (the Act).

1.3. The complaint relates to the sale of a residential property (the Property). The Complainants were the vendors and the Agency the listing and selling agency.

1.4. The Complainants advised that:

1. In December 2017 the Complainants listed the Property with the Agency under an agency agreement.
   
2. In February 2018 the Agency facilitated the conditional sale of the Property to the purchaser (the Purchaser).
   

100. In early March 2018 a salesperson licensee engaged by the Agency informed the Complainants that she had received information that a neighbour of the Property was a convicted paedophile (the Information) and that she would need to disclose the Information to the Purchaser. The Complainants instructed the salesperson licensee not to disclose the Information as it was hearsay.
     

d) On 12 March 2018 the Agency’s solicitor wrote to the Complainants’ solicitor attaching two newspaper articles in which the neighbour’s offence and conviction were reported. A photo of the neighbour was also attached to the email.

5. On 13 March 2018 the Agency’s solicitor emailed the Complainants’ solicitor to advise that the agency agreement had been cancelled. Two hours later the Complainants’ solicitor emailed the Agency’s solicitor instructing that the Information was not to be released.
   
6. The following day the Agency’s solicitor emailed the Complainants’ solicitor saying that the Purchaser had been advised of the cancellation of the agency agreement and the reasons why. The Complainants understood this to mean that the Agency had communicated the Information to the Purchaser.
   
7. Because of the release of the Information the Purchaser did not proceed with the purchase.
   
8. By disclosing the Information contrary to instructions, the Agency breached its fiduciary duty to the Complainants and breached the Complainants’ confidentiality under the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 (the Rules).
   

1.5. The Complainants requested a remedy, being, that the Agency be held accountable.

1.6. The Agency responded to the complaint against it.

1.7. The Agency commented that:

1. Upon receipt of the Information the Agency considered it was necessary to investigate the matter further. The investigation included social and historical print media searches and a title search of the neighbouring property. The investigation confirmed the Information. The information was obtained from publicly available sources.
   

b) The Agency sought legal advice from its solicitor and guidance from the Authority. The

Authority provided the Agency with a case for guidance.1

100. On 8 March 2018 the Agency phoned one Complainant and relayed the Information. The Complainant replied that the Information was not held by the New Zealand Police and was unable to be confirmed. The Complainant did not deny the Information.
     

4. On 12 March 2018 the Agency’s solicitor emailed the Complainants’ solicitor to inform them of the Information. The Agency’s solicitor sought the consent of the Complainants to disclose the Information in compliance with Rule 6.4. The Agency’s solicitor stated that if the Complainants did not consent the agency agreement would be cancelled.
   

e) The Complainant’s solicitor responded:

If your client has an obligation to convey this information to potential purchasers

under their professional Rules that is a matter for your client to decide without seeking or

requiring agreement from our clients. Our clients are not directing them to withhold the information but are not able to confirm the information.

The Complainant did not alter the above position until after the agency agreement was cancelled.

6. On 13 March 2018 the agency agreement was cancelled. The same day the Agency’s solicitor informed the Purchaser’s solicitor that the agency agreement had been cancelled. The Purchaser’s solicitor inquired why, and the Agency’s solicitor informed the Purchaser’s solicitor of concerns relating to the Information.
   

g) Later the same day the Complainant’s solicitor responded:

We note your purported cancellation of the (agency) agreement. In the event that cancellation is effective (which at this time we do not accept) any information held by your client will not be released to any person.

8. The discovery of the Information caused the advertising material for the Property to be misleading and in fairness ought to have been disclosed to the Purchaser.
   

i) The Property has since apparently sold.

2. What we decided

2.1. On 11 July 2018, Complaints Assessment Committee 413 considered the complaint and decided to inquire into it under section 79(2)(e) of the Act.

2.2. On 18 September 2018, Complaints Assessment Committee 413 was disestablished.

1 Pink (Annie) Yong-Mewburn v REAA [2016] NZREADT 62.

2.3. The complaint was referred to Complaints Assessment Committee 521 (the Committee). The Committee has considered the original complaint afresh and decided to inquire into the complaint.

2.4. On 7 November 2018 the Committee held a hearing on the papers and considered all the information gathered during the inquiry.

2.5. The Committee has decided to take no further action on the complaint.

2.6. This decision was made under section 89(2)(c) of the Act. The decision was also made with reference to the Rules.

3. Our reasons for the decision

3.1. The Committee concluded:

a) The Agency did not breach its fiduciary obligations to the Complainants in disclosing the

Information to the Purchaser.

b) The Agency did not disclose confidential personal information relating to the

Complainants.

The Agency was required to disclose the Information

3.1. There is no material dispute of fact. The central question is whether or not the Agency should have disclosed the Information to the Purchaser. In Barfoot and Thompson v REAA & Campbell2 the High Court stated that whether something needs to be disclosed is something that will very much depend on the circumstance of each individual case. The Court stated

that there is no presumption either in favour of disclosure or non-disclosure, although erring on the side of disclosure may well be an appropriate rule of thumb.

3.2. The Property had been marketed as a family home. The Committee considered that the Purchaser, as a purchaser of a family home with a young daughter, would very much want to know the Information especially as the two properties shared the same cross-lease. In our view, the general house buying public would undoubtedly consider it unfair for such information to be deliberately withheld. We are assisted by Rule 6.4 which holds that 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.

3.3. The decision provided to the Agency by the Authority addressed the circumstances in which a licensee is obliged to disclose information to a purchaser. In that case the Tribunal held that Rule 6.4 obliges an agent not to mislead or withhold information to a purchaser or vendor that in fairness ought to be given to them.3

3.4. In Wright v CAC 10056 & Woods the Tribunal stated that the Rules provide that a licensee must ensure that they are open and honest with a purchaser so that they are not misled in their decision to make an offer to purchase a property. There does not need to be any reliance by the purchaser on the statements (or lack of statements) by the agent and it is clear that a duty of utmost good faith is required from the agent.4

2 Barfoot and Thompson v Real Estate Agents Authority & Campbell [2014] NZHC 2817 at [48].

3 Pink (Annie) Yong-Mewburn v REAA [2016] NZREADT 62 at 6.

4 Wright v CAC 10056 & Woods [2011] NZREADT 21 at 41.

3.5. There is a fine line between over-disclosure of facts that may harm a vendor’s right to sell their property at a fair market price and under-disclosure which is unfair to a purchaser. In this case we consider that the Agency acted appropriately and achieved the right balance. The Agency took the Information seriously, conducted further research, sought Authority guidance and took legal advice.

3.6. In the circumstances for the aforementioned reasons had the Agency not disclosed the Information to the Purchasers, the Agency would not have discharged its obligations under Rule 6.4 nor Rule 5.1 (to exercise skill, care, competence, and diligence), Rule 6.2 (to act in good faith and deal fairly with all parties engaged in a transaction) and Rule 6.3 not to engage in any conduct likely to bring the industry into disrepute. To have met its obligations under those rules the Agency was required to disclose the Information to the Purchaser in a manner that was clear and specific to the Purchaser. The Agency did so, and in any event, at the time of the disclosure the Complainants had not instructed the Agency to withhold the Information.

3.7. Our reasoning would have been equally applicable had the Complainants instructed the Agency not to disclose the Information before it was disclosed. Rule 9.1 holds that a licensee must act in the best interests of a client and act in accordance with the client’s instructions unless to do so would be contrary to law. A client instructing a licensee to withhold information that should by law or in fairness be provided to a customer as in this matter would be contrary to law.

3.8. The Tribunal in Pink (Annie) Yong-Mewburn v REAA also addressed disclosure of a rumour which could potentially breach a licensee’s fiduciary duty to the vendor.5 For completeness we record that in the present matter, on the balance of probabilities, the Information was

appreciably more than rumour and therefore the Agency obliged to fulfil its obligations under

Rule 6.4.

No breach of fiduciary obligations

3.9. Alongside their contractual duties according to the terms of the agency agreement real estate agents are also fiduciaries. Rule 6.1 contains a simple regulatory statement prescribing that a licensee must comply with fiduciary obligations to the licensee’s client. Having listed the Property, the Agency therefore owed the Complainants a fiduciary duty to act towards them with the utmost good faith and loyalty.

3.10. In this case for the reasons already given, disclosure of the Information was unavoidable and therefore did not constitute a breach of the Agency’s fiduciary duty. In a similar vein there is no evidence that the Agency’s cancellation of the agency agreement was a breach of Rule

6.1. In any case within hours of the Agency cancelling the agency agreement, the Complainants instructed the Agency not to disclose the Information which in turn likely triggered the requirement under Rule 10.8 that the Agency not continue to act for a client who directs that information of the type referred to in rule 10.7 be withheld.

No confidential personal information was disclosed

3.11. The Complainants said that the Agency breached the Complainants’ confidentiality. The Information disclosed to the Purchaser was not the Complainants’ confidential personal information and therefore there was no breach of Rule 9.16 or of Rule 9.17. Nor was there unauthorised use of the Information because as recorded earlier the Agency was obliged to

5 Pink (Annie) Yong-Mewburn v REAA at 7.

disclose the Information.

3.12. The Agency set out in considerable detail the steps it took once the Information was known to the Agency. While understandably frustrating for the Complainants we can find no evidence of anything other than a properly executed response by the Agency to a sensitive matter that would be regarded by licensees of good standing and by reasonable members of the public as acceptable and appropriate. Accordingly, we find there was no unsatisfactory conduct in respect of any part of the complaint.

4. What happens next

Your right to appeal

4.1. If you are affected by this decision of the Committee, you may appeal in writing to the Real Estate Agents Disciplinary Tribunal (the Tribunal) within 20 working days after the date of notice of this decision.

4.2. Your appeal must include a copy of this decision and any other information you wish the

Tribunal to consider in relation to the appeal (section 111).

4.3. For further information on filing an appeal, read Guide to Filing an Appeal at Mi ni stry of

J usti ce -Tri bunal s ( ww w. justi ce. g ov t. nz/ tri bunal s ).

Publication

4.4. At the Committee’s discretion, the decision will be issued and published without the names or identifying details of the Complainant (including the address of the Property), the Agency and any third parties.

4.5. The Authority will publish the Committee’s decision after the period for filing an appeal has ended, unless the Tribunal receives an application for an order preventing publication. The Authority will not publish the Committee’s decision until the Tribunal has made a decision on the application.

4.6. Publishing the Committee’s decision supports the purpose of the Act by ensuring that the disciplinary process remains transparent, independent and effective. The Committee also considers that publishing this decision helps to set industry standards and that is in the public interest.

Signed

Garry Chapman

Date: 19 November 2018

Appendix 1: Relevant provisions

The Real Estate Agents Act 2008 provides:

89 Power of Committee to determine complaint or allegation

(1) A Committee may make 1 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.

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 Standards of professional competence

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

Rule 6 Standards of professional conduct

6.1 A licensee must comply with fiduciary obligations to the licensee's client.

6.2 A licensee must act in good faith and deal fairly with all parties engaged in a transaction.

6.3 A licensee must not engage in any conduct likely to bring the industry into disrepute.

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.

Rule 9 Client and customer care

General

9.1 A licensee must act in the best interests of a client and act in accordance with the client’s instructions unless to do so would be contrary to law.

Confidentiality

9.16 A licensee must not use information that is confidential to a client for the benefit of any other person or of the licensee.

9.17 A licensee must not disclose confidential personal information relating to a client unless— (a) the client consents in writing; or

(b) disclosure is necessary to answer or defend any complaint, claim, allegation, or

proceedings against the licensee by the client; or

(c) the licensee is required by law to disclose the information; or

(d) the disclosure is consistent with the information privacy principles in secti on 6 of the

Privacy Act 1993.

Rule 10 Client and customer care for sellers' agents

Disclosure of defects

10.7 A licensee is not required to discover hidden or underlying defects in land but must disclose known defects to a customer. Where it would appear likely to a reasonably competent

licensee that land may be subject to hidden or underlying defects 1

a licensee must either—

(a) obtain confirmation from the client, supported by evidence or expert advice, that the land in question is not subject to defect; or

(b) ensure that a customer is informed of any significant potential risk so that the customer can seek expert advice if the customer so chooses.

10.8 A licensee must not continue to act for a client who directs that information of the type referred to in rule 10.7 be withheld.