Complaint No C39269 [2021] NZREAA 65 (16 July 2021)

Last Updated: 18 November 2022

Before the Complaints Assessment Committee
In the matter of	Complaint No: C39269 Part 4 of the Real Estate Agents Act 2008
And
The Agency:	The Agency (XXXXXXXX)

Decision to take no further action

16 June 2021

Members of Complaints Assessment Committee: CAC2103 Chairperson: Paul Biddington

Deputy Chairperson: Bill Acton

Panel Member: Belinda Moss

V20201203

Complaints Assessment Committee

Decision to take no further action

1. The Allegation

1.1. On 25 August 2020 the Real Estate Agents Authority (the Authority) received an email from the Licensee, who is the Eligible Officer, and Business Owner, of the Agency. Attached to the email was a “Notification of auditor” form. That email advised, among other matters, the

Authority that:

(a) The Agency had been incorporated on 14 June 2018.

(b) The Licensee had started two bank accounts, one being a trading account and one being a Trust account.

(c) The first transaction in the Trust account was in September 2018, and since then there had been approximately 10 transactions in the Agency’s first year of trading, the 2018- 19 year, and 20 transactions in the 2019-20, second year of trading.

(d) The Agency had just found out about its legal trust account audit obligations a few weeks earlier.

1.2. As the Authority was concerned that the Agency had not complied with a number of

Regulations under the Real Estate Agents (audit) Regulations 2009 (the Regulations), the Authority referred the allegations to this Complaints Assessment Committee (“the Committee”) 13 January 2021.

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

1.4. The allegation is that s 125 of the Act has not been complied with.

1.5. In particular, the Authority said:

1. In August 2020 the Licensee brought to its attention that it was not complying with its legal obligations under the Regulations in respect of its Trust account.
   
2. On 9 September 2020 the Authority emailed the Licensee advising them that its 2019- 2020 audit report was overdue.
   

100. In October 2020 two audit reports for the years 2018–2019 and 2019-2020 were received by the Authority, both dated 12 October 2020. Both of those audit reports identified the same non-compliance with the Regulations.
     

4. On 2 November 2020 the Authority wrote to the Licensee with reference to the two audit reports, asking for an explanation as to how the various breaches occurred.
   
5. The issues raised by the Authority in the 2 November 2020 letter, which the Committee later confirmed should be inquired into, with some relatively minor wording changes were:
   
   1. Issue 1 – That the Agency had been operating from 2018 but did not nominate or appoint an Auditor before receiving trust account money. (Regulations 9 and 12)

2. Issue 2 – That the Agency did not complete audit obligations in a timely manner. (s 125)
   3. That the Agency did not perform or provide monthly reconciliations at the end of each month and no reconciliations were provided to the Agency’s Auditor.
   
   

(Regulation 15)

4. That the Agency’s trust account was not examined by the Auditor at least 3 times a year and no report or statutory declaration was made or provided to the

Auditor for each period as required. (Regulations 16)

1.6. The Licensee responded to an email from the Authority dated 10 February 2021, in writing dated 26 February 2021, to the allegations against them.

1.7. In particular, the Licensee said:

1. That on 14 June 2018 the Agency was incorporated and was a franchisee of the Franchisor.
   
2. That as part of the system used at the Franchisor every month the Licensee submitted its monthly trust reconciliation reports to the Franchisor Head Office, and its in-house accountant also checked the accounts before they were submitted to the Franchisor Head Office.
   

100. The Licensee’s understanding had been that the Franchisor Head Office was auditing the Licensee’s Trust account.
     

4. That until August 2020, the Licensee thought that the process that the Licensee had been following was the usual process for getting the Trust account audited, as it was a franchisee.
   
5. In August 2020 after talking to another business owner the Licensee found out that the Licensee also needed to appoint an independent auditor to audit the Licensee’s trust account.
   
6. As soon as the Licensee found out about this, he appointed auditors to undertake the relevant audit requirements and also contacted the Authority to inform it of the

situation.

7. The relevant outstanding audit information was sent to the independent auditor with the relevant audit reports now having been provided to the Authority.
   

2. What we decided

2.1. On 26 January 2021 the Committee considered the information provided by the Authority and decided to inquire into the allegation under section 78(b) of the Act.

2.2. On 30 April 2021 the Committee held a hearing on the papers and considered all the information gathered during the inquiry.

2.3. The Committee has decided to take no further action on the allegations.

2.4. This decision was made under section 89(2)(c) of the Act. The decision was also made with reference to section 125 of the Act, the Real Estate Agents Act (Professional Conduct and

Client Care) Rules 2012, and regs 9, 12, 15, 16, of the Regulations.

3. Our reasons for the decision

Real Estate Agency Work

3.1. That the relevant allegations, are not real estate agency work.

3.2. “Real estate agency work” is defined in the Act as work done or services provided, in trade, on behalf of another person for the purpose of bringing about a transaction. “Transaction” is defined in the Act and includes the sale, purchase, grant or other disposal or acquisition of an interest in land, a business, an occupation right or a licence registerable under the Land Transfer Act 1952.

3.3. Unsatisfactory conduct under section 72 of the Act can only be considered in relation to real estate agency work.

3.4. As the Committee considers the Licensee’s conduct which are the subject of the allegations fall outside the definition of real estate agency work a finding of unsatisfactory conduct cannot be made.

3.5. The Committee must therefore determine if the conduct should be the subject of a charge of misconduct before the Tribunal.

Misconduct

3.6. Misconduct is defined under section 73 of the Act. A licensee can be guilty of misconduct for conduct that falls outside the scope of real estate agency work. This was affirmed by the High Court in House v Real Estate Agents Authority which stated: “Section 73 can relate both to real estate agency work and other conduct, with only paragraph (b) confined to real estate agency work”.1
3.7. The Committee considers that, a cumulative charge under both, s73(a) (disgraceful conduct) and (c) (wilful or reckless contravention) is available. However, the threshold for disgraceful conduct is high and in the view of the Committee the relevant conduct could not reasonably be considered at that level of seriousness, in respect of all of the allegations.

3.8. As a charge under s73(c) only requires a breach, with the requisite mental element, this decision assesses whether a charge should be referred to the Tribunal, in respect of some or all of the allegations, against the criteria for s73(c) of the Act.

3.9. Section 73(c) of the Act provides that a licensee is guilty of misconduct if the licensee’s conduct:

• (c) consists of a wilful or reckless contravention of—
  • (i) this Act; or
  • (ii) other Acts that apply to the conduct of licensees; or
  • (iii) regulations or rules made under this Act;
    

1 House v Real Estate Agents Authority [2013] NZHC 1619 at [38].

Did not nominate or appoint an auditor/did not complete audit obligations in a timely manner/did not perform monthly reconciliations or provide them to the auditor/trust account was not examined by the auditor 3 times a year

3.10. The Committee has decided to consider all of the issues as set out in paragraph 1.5(e) as one overall, combined and related issue. The reason for this is that the Licensee’s response for all issues is the same, that it was of the view that as it was a franchisee, providing monthly

reports to its Head Office and the franchisor, was sufficient to meet its various trust account reporting obligations.

3.11. The Licensee has confirmed that it received on 24 July 2018 an email from the Authority which had attached a “guide for newly licensed agents”. That guide had a section named,

“Trust accounts and your auditor”. That section stated, “The regulations provide that before you receive any money in respect of your first transaction under a new agent’s license you must notify us of the auditor who is appointed to audit the agency’s trust accounts”.

3.12. That notification was never provided, and no auditor was appointed until August 2020, although the Licensee accepts that it has received money into its trust account in the region of 30 times before an auditor was appointed.

3.13. The Committee had no knowledge of what guidance the franchisor had provided the

franchisee in respect of the franchisee meeting its legal trust account reporting obligations.

The Committee would expect that a franchisor would provide some guidance and help to

ensure that its various franchisees are aware of their legal obligations, particularly in respect of client and/or customer money.

3.14. There is no doubt that the various regulations have been breached. The Licensee’s

explanation as to why the breaches occurred is in effect that as the Licensee was a franchisee it had assumed that the franchisor would be responsible for all its various legal audit

reporting obligations under the Regulations.

3.15. The Committee is somewhat concerned that the Licensee could embark on a new business venture with so little understanding of what are very important obligations, as they concern

the care of client and/or customer money held by a Licensee. As the conduct is not real estate agency work the Committee must determine if there is evidence as to whether the various breaches are a “wilful or reckless contravention” of the relevant Regulations.

3.16. The Committee accepts that the breaches have occurred due to a genuine albeit poor mistake by the Licensee. There was the potential for consumer harm if the trust account had not been appropriately managed with no independent auditor reviewing the trust account, however

the Committee has not been made aware of any specific consumer harm that has

eventuated. The Committee has been provided with evidence that the relevant monthly trust account reconciliations were completed, however they were sent to the Franchisor Head Office and not an independent auditor. The Committee also recognises that after becoming aware that the various audit obligations were not being complied with the Licensee

contacted the Authority promptly to make it aware of the situation.

3.17. Taking the various factors in to account the Committee is of the view that there is no

evidence before the committee that the breaches that occurred were committed willfully or recklessly. The Agency was unaware of their obligations so were not able to turn their mind to whether their conduct may breach the Regulations. It is therefore the Committee’s

decision that this matter should not be referred to the Tribunal and there will be no further

action taken in respect of all of the allegations.

4. Publication

4.1. The Committee directs publication of its decision. This decision will be published without the names or identifying details of the Complainant (including the address of the Property), the Licensee and any third parties.

4.2. 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.

4.3. 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.

5. Your right to appeal

5.1. If you are affected by this decision of the Committee, the right to appeal is set out in section 111 of the Act. You may appeal in writing to the Real Estate Agents Disciplinary Tribunal (the Tribunal) within 20 working days after the date notice is given of this decision. Your appeal must include a copy of this decision and any other information you wish the Tribunal to consider in relation to the appeal. The Tribunal has the discretion to accept a late appeal filed within 60 working days after the date notice is given of this decision, but only if it is

satisfied that exceptional circumstances prevented the appeal from being made in time.

5.2. The Notice of Appeal form, which includes information on filing an appeal, can be located on the Ministry of Justice’s website: https://www.justice.govt.nz/tribunals/real-estate-

agents/apply/.

6. Provisions of the Act and Rules referred to

6.1. The provisions of the Act and the Rules referred to in this decision are set out in the Appendix.

Signed

Paul Biddington Chairperson

Bill Acton

Deputy Chairperson

Belinda Moss Member

Date: 4 June 2021

Appendix: Provisions of the Act and Rules referred to

The Real Estate Agents Act 2008 provides:

78 Functions of Committees

The functions of each Committee are—

(a) to inquire into and investigate complaints made under section 74:
(b) on its own initiative, to inquire into and investigate allegations about any licensee:
(c) to promote, in appropriate cases, the resolution of complaints by negotiation, conciliation, or mediation:
(d) to make final determinations in relation to complaints, inquiries, or investigations:
(e) to lay, and prosecute, charges before the Disciplinary Tribunal:
(f) in appropriate cases, to refer the complaint to another agency:
(g) to inform the complainant and the person complained about of its decision, reasons for the decision, and appeal rights:
(h) to publish its decisions.

79 Procedure on receipt of complaint

(1) As soon as practicable after receiving a complaint concerning a licensee, a Committee must consider the complaint and determine whether to inquire into it.
(2) The Committee may—

• (a) determine that the complaint alleges neither unsatisfactory conduct nor misconduct and dismiss it accordingly:
• (b) determine that the complaint discloses only an inconsequential matter, and for this reason need not be pursued:
• (c) determine that the complaint is frivolous or vexatious or not made in good faith, and for this reason need not be pursued:
• (d) determine that the complaint should be referred to another agency, and refer it accordingly:
• (e) determine to inquire into the complaint.

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 Disciplinary Tribunal against the determination within 20 working days after the day on which

notice of the relevant decision was given under section 81 or 94, except that no appeal may be made against a determination under section 89(2)(a) that a complaint or an allegation be considered by the Disciplinary Tribunal.

(1A) The Disciplinary Tribunal may accept a late appeal no later than 60 working days after the day on which notice was given to the appellant if it is satisfied that exceptional

circumstances prevented the appeal from being made in time.

(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 (ab) the prescribed fee, if any; 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.

125 Agents’ trust accounts to be audited

(1) Every general or separate trust account of an agent must be audited at the times and in the manner prescribed by regulations made under this Act.
(2) All information obtained by an auditor in the course of the audit of any trust account under this Act must be treated as confidential.
(3) Subsection (2) is subject to any rights of disclosure that may be prescribed for the purposes of the audit.

The Regulations from the Real Estate Agents (Regulations) 2009 referred to in this decision are:

9 Agencies must appoint auditor

(1) Every agency must appoint an auditor to audit the agency's trust accounts.

(2) Every agency must, without delay, appoint another auditor if the auditor engaged under subclause (1)—

• (a) is or becomes disqualified from being an auditor under these regulations:
• (b) does not, for any reason, commence his or her role as auditor:
• (c) dies, retires, or otherwise ceases to be engaged as an auditor for the agency.

12 New agency must notify appointment of auditor before receiving money

(1) Every agency that is an individual who, or a company that, is granted a new licence under section 43 of the Act must notify the Authority of the auditor who is appointed to audit the agency's trust accounts, before that agency receives any money in respect of their first transaction pursuant to that licence.
(2) Every agency that is a partnership formed on or after 17 November 2009, must notify the Authority of the auditor who is appointed to audit that agency's trust accounts, before any agent who is a member of that partnership receives any money in respect of a transaction undertaken as a member of that partnership.
(3) Every notice given under this regulation must—

• (a) specify the name and address of the auditor; and
• (b) specify the name and identifying bank account number of each trust account that the auditor will audit; and
• (c) be accompanied by written confirmation from the auditor that he or she—
  • (i) is a qualified auditor:
  • (ii) [Revoked]
  • (iii) agrees to audit the trust accounts mentioned in paragraph (b):
  • (iv) is not disqualified under these regulations from acting as an auditor.

(4) Every notice given under this regulation must be in writing and signed,—

• (a) if the agency is an individual, by that individual; or
• (b) if the agency is a partnership, by a member of that partnership; or
• (c) if the agency is a company, by an officer of the company.

15 Duty to provide monthly list of balances and reconciliation statement

(1) Every agency must, at the end of each month, reconcile the balance of the agency's trust accounts to—

• (a) the balance of the agency's cash book; and
• (b) the total of the balances in the list required under subclause (3)(a).

(2) Every agency must keep the reconciliation statements prepared in accordance with subclause (1) in the agency's cash book, or in any other appropriate manner.
(3) Unless subclause (4) applies, every agency must, by 27 January and the 20th day of every other month, give to the agency's auditor—

• (a) a list of the balances in each client ledger account, and of the amount of money (if any) in each trust account, as at the end of the last preceding month or balance period; and
• (b) the reconciliation statement referred to in subclause (1) for that month.

(4) If there is no money in any of the agency's trust accounts at the end of any month, the agency must give to the auditor a “nil” return.

16 Duty to report in respect of each audit period

(1) Every agency must, on notification by the auditor of the last day of any audit period to which an examination relates, prepare a statement that includes the following information:

• (a) all money held on the last day of the audit period by the agency, in that agency's capacity as an agent, for or in trust for any other person:
• (b) the names of the bank accounts where the money has been deposited:
• (c) the balances of those accounts on the last day of the audit period and, if the bank balances differ from the cashbook balances, a statement reconciling those balances.

(2) Every statement given under subclause (1) must be accompanied by a statutory declaration that the information contained in the statement is true and correct and that the auditor has been provided with all information necessary to undertake the examination.
(3) The statutory declaration referred to in subclause (2) must be made by—

• (a) the agency; or
• (b) a person authorised to act on behalf of the agency who has knowledge of the matters in subclause (1).