Complaints Assessment Committee 20003 v Jhagroo
[2014] NZHC 2077
•29 August 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2014-404-502 [2014] NZHC 2077
IN THE MATTER of an appeal under s 116 of the Real Estate
Agents Act 2008
BETWEEN
COMPLAINTS ASSESSMENT COMMITTEE 20003
Appellant
AND
VIRENDRA JHAGROO Respondent
Hearing: 31 July 2014 Appearances:
M Hodge and N Copeland for the appellant
T Rea for the respondentJudgment:
29 August 2014
JUDGMENT OF THOMAS J
This judgment was delivered by me on 29 August 2014 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Solicitors:
Meredith Connell, Auckland. Glaister Ennor, Auckland.
COMPLAINTS ASSESSMENT COMMITTEE 20003 v JHAGROO [2014] NZHC 2077 [29 August 2014]
Introduction
[1] The Complaints Assessment Committee 20003 (the Committee) appeals findings by the Real Estate Agents Disciplinary Tribunal (the Tribunal):
(a) dismissing one charge of misconduct (charge 1) laid by the
Committee against the respondent, Mr Jhagroo; and
(b)in respect of a second charge of misconduct (charge 2), exercising its discretion pursuant to s 110(4) of the Real Estate Agents Act
2008 (the Act) and finding Mr Jhagroo guilty of unsatisfactory conduct instead.1
Background
[2] At all relevant times, Mr Jhagroo was the director and shareholder of CT Realty Ltd, trading as Re/Max Point East Realty (CT Realty). CT Realty was the licensed trading entity. Under the legislation pertaining at the time, Mr Jhagroo himself was not required to have, and did not have, his own individual licence.
[3] By way of listing agreement dated 7 June 2007, CT Realty was instructed as agent in respect of a property at 9 Janway Avenue, Dannemora (the property) by the vendors, Alice and Vitale Siavalua (the vendors).
[4] On 3 July 2007, Westpac New Zealand Ltd (the bank), the mortgagee of the property, obtained a valuation from registered valuers Seagar & Partners (the Valuation). This appraised the property at the value of $540,000 if sold on the open market and at $486,000 if sold by mortgagee auction.
[5] Under a sale and purchase agreement dated 18 July 2007 (the agreement), the vendors agreed to sell the property to the purchasers for $505,000, with a deposit of
$25,000 to be paid to the CT Realty trust account on the agreement becoming
unconditional.
1 Real Estate Agents Authority (CAC 20003) v Jhagroo [2014] NZREADT 8.
[6] The certificate of title showed that there were three interests registered against the property:
(a) Mortgage to Westpac New Zealand. (b) Caveat by Southland Finance Ltd.
(c) Caveat by No Deposit Home Finance Ltd.
[7] The agreement was conditional on the purchasers obtaining finance and a
satisfactory builder’s report within 10 working days.
[8] Mr Divers, principal of the law firm Churton Hart and Divers, was the solicitor for the vendors. Prior to the agreement being signed, Mr Divers had advised the vendors that they should include a clause in any sale and purchase agreement making any sale conditional on the vendors reaching agreement with their mortgagees as to the sale. This was because there were concerns that the amount owed to the three lenders was likely to exceed the amount that could be expected from a sale. Such a clause was not included in the agreement.
[9] On 27 July 2007, the agreement was declared unconditional by Khan and Associates (solicitors for the purchasers). Mr Jhagroo contacted the purchasers and instructed them to pay the deposit. The purchasers deposited $25,000 into CT Realty’s trust account.
[10] Later that afternoon, Mr Divers called Khan and Associates and advised that the transaction was unlikely to settle given the stance taken by Southland Finance Ltd, which had registered a caveat against the title to the property.
[11] On 1 August 2007, Mr Divers sent a fax to Mr Jhagroo enclosing a copy of a letter he had sent to the solicitors for the bank, advising that the transaction was unlikely to settle.
[12] Khan and Associates faxed a letter to Mr Jhagroo on 2 August 2007 stating that, as settlement may not proceed due to caveats from two finance companies, the deposit should not be released until authority had been given by the purchasers.
[13] On the same day, Khan and Associates wrote to the purchasers advising them that the transaction may not settle. They also wrote to Mr Divers.
[14] On 7 August 2007, the purchasers issued a settlement notice against the vendors. The settlement notice was not complied with and the agreement was cancelled on 2 October 2007.
[15] The purchasers sent a letter to Mr Jhagroo on 2 October 2007 seeking confirmation in writing that he was still holding the $25,000 deposit in his trust account.
[16] On 8 October 2007, Mr Divers sent a letter to the purchasers’ new solicitors, Wood Ruck, stating that the vendors had instructed that the deposit should be returned to the purchasers, minus four weeks’ unpaid rent (the purchasers having occupied the property). A copy of the letter was sent to Mr Jhagroo. The letter stated:
We are sending a copy of this letter to Remax and request it to be treated as
authorisation for the deposit less one month’s rental to be released to you.
[17] On 9 October 2007, Wood Ruck wrote to CT Realty, stipulating that the funds for the rent could be dispersed to the vendors and the remaining balance of the deposit should be paid to the purchasers, namely $23,400.
[18] On 12 October 2007 Wood Ruck wrote to the Real Estate Institute of New Zealand (REINZ) stating that any commission due on the transaction should be paid by the vendors and not the purchasers, noting that the agent appeared unwilling to return the deposit to the purchasers voluntarily, seeking REINZ’s assistance in recovering the deposit.
[19] On 15 October 2007, Wood Ruck sent another letter by fax requesting the return of the deposit.
[20] On 7 December 2007, Mr Jhagroo disbursed the deposit in the following way:
(a) $20,925 taken by Mr Jhagroo in commission;
(b) $3,514.30 taken by Mr Jhagroo for marketing costs; and
(c) $560.70 to vendors’ solicitor.
[21] The vendors were adjudicated bankrupt in 2009.
[22] REINZ sent the Real Estate Agents Authority the complaint it had received about Mr Jhagroo’s conduct. The Committee conducted an inquiry but decided to take no further action. On appeal the Tribunal determined that charges should be laid against Mr Jhagroo. The Committee laid charges and referred the matter to the Tribunal.
Grounds of appeal
[23] The Committee claims that the Tribunal erred in finding that the actions of Mr Jhagroo did not amount to misconduct under the Act but only unsatisfactory conduct under the Act, particularly:
(a) The Tribunal erred, in concluding (if it did so conclude) that Mr
Jhagroo, Virendra Jhagroo, believed he was legally entitled to deduct
$24,439.30 from deposit funds held in the CT Realty Ltd trust, account, when he had been instructed by solicitors for his vendor clients to return the deposit funds to the purchasers (cancellation of the sale and purchase agreement having been accepted); and /or,
(b) On the facts accepted by the Tribunal (as set out in the particulars of charge and the Tribunal’s decision), the Tribunal erred in finding that Mr Jhagroo’s actions did not amount to misconduct under s 73 of the Real Estate Agents Act 2008 (Act) but only unsatisfactory conduct under s 72 of the Act, particularly:
(i) The Tribunal erred in find that, in deducting
$24,439.30 from deposit funds held in the CT Realty Ltd trust account, Mr Jhagroo’s conduct was not such as would reasonably be regarded by agents of good standing or reasonable members of the public as disgraceful (charge 1); and/or,
(ii) Having found, as a matter of fact, that Mr Jhagroo was or should have aware that the purchasers’ offer was too low to allow his vendor clients to discharge debt secured on the property, the Tribunal erred in concluding that Mr Jhagroo’s conduct in respect of the transaction was not seriously negligent or seriously incompetent (charge 2).
[24] Charge 1 focused on Mr Jhagroo's conduct in taking his commission and advertising fees from the deposit paid by the purchasers (which accounted for nearly all of the deposit paid). In respect of charge 1, the Committee says that the Tribunal was wrong to made a factual finding that Mr Jhagroo believed he was legally entitled to deduct commission from deposit monies received on the transaction (although the Committee suggests there may be some ambiguity surrounding whether such a finding was actually made).
[25] The Tribunal exercised its discretion to reduce the charge in respect of charge
2. The Committee does not seek a similar approach in respect of charge 1.
[26] Charge 2 focused on Mr Jhagroo’s conduct before the purchasers signed the agreement. It alleged that Mr Jhagroo was seriously negligent or incompetent either in making a misrepresentation to the purchasers or in failing properly to check the title and to make appropriate enquiries of the vendors to try to ensure that any purchase price agreed for the property would be sufficient to allow clear title to be given.
[27] The Committee asserts that the Tribunal made an error of law concerning its assessment of the seriousness of the relevant conduct which the Committee says should have led to a finding of misconduct.
Law on appeals
[28] On a general appeal, the appellate court has the responsibility of considering the merits of the case afresh.2 In Austin, Nichols & Co Inc v Stichting Lodestar, Elias
CJ stated that the appellate court must reach its own opinion “even where that
2 Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [31].
opinion is an assessment of fact and degree and entails a value judgment”.3 She continued:4
If the appellate Court's opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court's assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.
[29] This does not mean that the appellate Judge should be “uninfluenced” by the lower court. 5 What influence the lower court’s reasoning should have is for the High Court’s assessment. As Elias CJ stated in Austin, Nichols:6
The High Court Judge was obliged to reconsider the issue. He was entitled to use the reasons of the Assistant Commissioner to assist him in reaching his own conclusion, but the weight he placed on them was a matter for him.
[30] The extent to which an appellate court should defer to findings of fact on credibility made at first instance was discussed by the Court of Appeal in R v Munro.7 The Court concluded that assessing credibility from a written transcript will not achieve better outcomes and, although credibility assessments are not sacrosanct, there are recognisable advantages in seeing and hearing witnesses in the context of the entire trial. The Supreme Court affirmed this approach in Owen v R where it
recognised the advantages that juries (as opposed to appellate courts) have in assessing the honesty and reliability of witnesses.8 Although these were criminal cases, the Courts’ comments are equally relevant to the civil context.9
The Real Estate Agents Act 2008
[31] The purpose of the Act as set out in s 3 is as follows:
3 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
4 At [16].
5 Kacem v Bashir, above n 2, at [31].
6 Austin, Nichols & Co Inc v Stichting Lodestar, above n 3, at [17].
7 R v Munro [2007] NZCA 510, [2008] 2 NZLR 87.
8 Owen v R [2007] NZSC 102, [102, [2008] 2 NZLR 37.
9 K v V [2012] NZHC 1129.
3 Purpose of Act
(1) The purpose of this Act is to promote and protect the interests of consumers in respect of transactions that relate to real estate and to promote public confidence in the performance of real estate agency work.
(2) The Act achieves its purpose by—
(a) regulating agents, branch managers, and salespersons: (b) raising industry standards:
(c) providing accountability through a disciplinary process that is independent, transparent, and effective.
[32] Section 72 of the Act provides:
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.
[33] Section 73 of the Act provides:
73 Misconduct
For the purposes of this Act, a licensee is guilty of misconduct if the
licensee’s conduct—
(a) would reasonably be regarded by agents of good standing, or reasonable members of the public, as disgraceful; or
(b) constitutes seriously incompetent or seriously negligent real estate agency work; or
(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; or
(d) constitutes an offence for which the licensee has been convicted, being an offence that reflects adversely on the licensee’s fitness to be a licensee.
[34] Charges 1 and 2 were laid under s 73(a) and (b) respectively.
[35] The Tribunal dismissed charge 1 and exercised its discretion to find Mr Jhagroo guilty of unsatisfactory conduct (as defined in s 72) at a high level in respect of charge 2.
Application of 2008 Act to pre-Act conduct
[36] There is no dispute that the three stage approach under s 172 of the Act to determining whether pre-2008 Act conduct is to be dealt with under the Act applies. The Tribunal may determine whether Mr Jhagroo’s Act conduct constituted misconduct/unsatisfactory conduct under the Act even though the conduct occurred before 2008.
[37] Mr Rea noted that a finding of serious negligence or serious incompetence under s 73 of the Act would not meet the threshold that applied under s 99(1)(b) of the 1976 Act and the maximum penalty that could be imposed upon Mr Jhagroo would be $740. This issue goes to the penalty which can be imposed on any finding and is not the concern of this appeal.10
Charge 2
[38] Charge 2 relates to conduct prior to the agreement being entered into and is relevant to the circumstances pertaining to charge 1. I will follow the approach of counsel and consider charge 2 first.
[39] The Committee laid two alternative charges with respect to this conduct resulting in the Tribunal considering the following questions:
10 The appellant has requested that the case be remitted to the Tribunal for a decision on what orders should be made.
(a) Did incorrectly advising the purchasers that $505,000 would be sufficient to allow the vendors to repay their debts amount to “seriously incompetent or seriously negligent” real estate agent work?
(b)Alternatively, was failing to properly check the certificate of title and failing to make appropriate enquiries of the vendors to ascertain the purchase price necessary to repay their debts “seriously incompetent or seriously negligent?”
[40] The Tribunal held that:
[88] With regard to charge 2, we find that the defendant must have known or should have known, on the evidence available to him, that a sale of the property at $505,000 could not take place because mortgagees would not permit that to happen. Accordingly, he has steered Mr and Mrs Kamhara into an unrealistic situation which has cost them significant money. We think that the advice and conduct of the defendant in those respects is incompetent and negligent but we have doubts as to whether it can be termed "seriously incompetent or seriously negligent real estate agency work in terms” of s
73(b) of the Act. Accordingly, with regard to the basic charge 2, we find the defendant guilty of unsatisfactory conduct (as defined in s 72 of the Act) at a
high level.
[89] With regard to the alternative charge for charge 2, which we find fairly closely linked to the basic particulars of charge 2, we consider that it should have been obvious to the defendant from reading the title to the property, which he did or certainly should have done in the circumstances of having it and passing it on to the prospective purchasers, that it was obvious that further inquiries needed to be made of the vendors, his principals, to ascertain the price needed to achieve a sale transaction. His failure to do that is also incompetence and negligence but we hesitate about branding it as "seriously" so. Accordingly, in respect of the alternative particulars for charge 2 we find the defendant guilty of unsatisfactory conduct at a high level.
Relevant law
[41] Counsel were in agreement that the guidance in the decision of the Court of Appeal of New South Wales in what is regarded as the seminal judgment on the issue of misconduct, Pillai v Messiter (No 2), is appropriate in considering a charge under s 73(a).11 In that case Kirby P said this of professional misconduct in the
medical context:
11 Pillai v Messiter (No 2) (1989) 16 NSWLR 197 (CA).
“Misconduct” means more than mere negligence:
The words used in statutory test (“misconduct in a professional respect”) plainly go beyond that negligence which would found a claim against a medical practitioner for damages: Re Anderson, (at 757). On the other hand gross negligence might amount to relevant misconduct, particularly if accompanied by indifference to, or lack of concern for, the welfare of the patient… But the statutory test is not met by mere professional incompetence or by deficiencies in the practice of the profession. Something more is required. It includes a deliberate departure from accepted standards or such serious negligence as, although not deliberate, to portray indifference and an abuse of the privileges which accompany registration as a medical practitioner.
[42] Where counsel disagree is whether reliance on Pillai v Messiter is correct in considering a charge under s 73(b) of the Act. The Committee’s submission is that by relying on Pillai v Messiter in dealing with the charge under s 73(b) the Tribunal fell into error.
[43] Mr Hodge for the Committee noted that the Court in Pillai made reference to “such serious negligence as…to portray indifference and an abuse of privilege”. Those words themselves, in his submission, make it clear that the Court was considering serious negligence at the highest level whereas the plain words of s
73(b) simply require an agent to have been “seriously negligent”.
[44] He pointed out that the fact the Pillai decision was interpreting “misconduct in a professional respect” meant it was hardly surprising that the Court was required to drill down in an analysis as to what those words meant. He contrasted that with the clear words of s 73(b) of the Act and said it is not necessary to over refine the plain statutory language.
[45] Mr Hodge suggested that some assistance might be obtained from the discussion in the recent Supreme Court decision in Graham v R.12 That case dealt with different levels of culpability of company directors for offending against the Securities Act 1978. The sentencing Judge drew a distinction between an error of judgement or carelessness and gross negligence amounting to a major departure from
the standard of care to be expected when a director performs a statutory duty. This
12 Graham v R [2014] NZSC 55.
approach was upheld by the Supreme Court.13 In Mr Hodge’s submission, requiring serious negligence to amount to an abuse of the privileges of membership of the profession in terms of the Pillai test, unnecessarily complicates the assessment required under s 73(b), sets the threshold too high and conflates s 73(b) with s 73(a).
[46] Mr Rea for Mr Jhagroo took a contrary position, submitting that Pillai can apply to s 73(b). He noted that the Court’s comments in Pillai were in the context of providing guidance on the words used in the statutory test, “misconduct in a professional respect”. In his submission, the Pillai guidance was directed to analysing professional misconduct and must apply to both s 73(a) and (b) and therefore the Tribunal made no error of law in applying Pillai.
[47] I agree with the approach of Woodhouse J in Wyatt v Real Estate Agents
Authority where he said in a consideration of the correct interpretation of s 72:14
…the words in s 72 should not, in my judgment, be overrefined by treating the words in s 72 on the basis that they have some technical meaning or by seeking synonyms for words which have natural meanings.
[48] In Brown v Real Estate Agent Authority the High Court observed:15
[21] … It is also pertinent to observe that the types of misconduct specified in s 73 are qualitatively different. One would not expect an identical legal threshold to apply to all. Conduct which a reasonable member of the public would regard as disgraceful would obviously be qualitatively different from serious incompetence or wilful contravention of the Act.
…
What is serious negligence?
[58] It is very difficult, if not impossible, to consider relevant thresholds for such standards as “incompetent”, “negligent”, “unacceptable”, “disgraceful”, “seriously incompetent”, and “seriously negligent” in a vacuum. All relate to occupational standards and practice. Care must be exercised before applying the disciplinary standards of one professional occupation to another. Such tests as departure from accepted standards, indifference, and abuse of privileges as they had relevance to New South Wales medical practitioners in Pillai might not illuminate the varying standards and contents to which ss 72 and 73 of the Act apply.
13 At [21].
14 Wyatt v Real Estate Agents Authority [2012] NZHC 2550 at [49]; upheld by the Court of Appeal in Wyatt v Real Estate Agents Authority [2013] NZHC 389.
15 Brown v Real Estate Agent Authority [2013] NZHC 3309.
[59] The context of the alleged misconduct, and in particular the context of the professional or occupational standards and norms, are critical. The Tribunal has the responsibility of determining negligence or serious negligence but it cannot do so in a vacuum. Elias J (as she then was) put it particularly well in B v Medical Council:
“The structure of the disciplinary processes set up by the Act, which rely in large part upon judgment by a practitioner's peers, emphasises that the best guide to what is acceptable professional conduct is the standards applied by competent, ethical and responsible practitioners. But the inclusion of lay representatives in the disciplinary process and the right of appeal to this Court indicates that usual professional practice, whilst significant, may not always be determinative: the reasonableness of the standards applied must ultimately be for the Court to determine, taking into account all the circumstances including not only usual practice but also patient interests and community expectations, including the expectation that professional standards are not to be permitted to lag. The disciplinary process in part is one of setting standards. ”
(footnotes omitted)
[49] The words of s 73(b) must be given their plain meaning. Whether serious negligence or serious incompetence has occurred is a question to be assessed in the circumstances of each case. I agree with Mr Rea, however, that the Tribunal is well placed to draw a line between what constitutes serious negligence or incompetence, or mere negligence or incompetence, the Tribunal having considerable expertise and being able to draw on significant experience in dealing with complaints under the Act.
Submissions
[50] Mr Hodge accepted that the issue of whether Mr Jhagroo had been guilty of misconduct had to be considered in light of the standards applying at the time of the behaviour complained of, 2007. In his submission, however, there was no evidence that there has been a considerable shift in attitudes since 2007 in relation to what was in this case, he said, a requirement to adhere to the basic standard of ensuring that a purchaser does not waste time on a transaction.
[51] In Mr Rea’s submission the bar had been lifted on the enactment of the Act, imposing high expectations on licensees to carry our pre-contract enquiries. He pointed out however, that there was no evidence before the Tribunal as to what
constituted serious negligence in the 2007 environment in the context of any obligation to make enquiries as to the financial position of vendors.
[52] Although Mr Jhagroo denied having made the representation, the Tribunal found the representation to have been made. It was common ground that licensees should know and should have known in 2007 that, except in a mortgagee sale situation, it is not sufficient that the purchase price satisfies the first mortgage holder only in order for a transaction to settle. In Mr Rea’s submission, it was understandable how the confusion could arise given the position with a mortgagee sale in contrast to the circumstances of this case where the vendors were under pressure from the mortgagee to sell but matters had not yet reached the stage where the mortgagee was exercising its power of sale.
[53] Mr Rea submitted that the decision on whether the negligence had been sufficiently serious as to constitute misconduct under s 73(b) was one the Tribunal was well placed to make. The decision is a subjective one and in his submission would have been arbitrary unless made with reference to other decisions. In this case the Tribunal did consider the matter in light of prior decisions and decided where the conduct in this case fell. In Mr Rea’s submission the Tribunal made an appropriate assessment based on the particular circumstances of the case and its own experience from other cases.
[54] Mr Rea referred to the case of CAC v Wallace where the agent was found guilty of misconduct by being seriously negligent.16 He had made a positive representation to a purchaser that the property was “not a leaky home” when he knew, or should have known, that it was at risk of weathertightness issues due to its age and construction materials. This case has parallels with the Wallace decision as the licensee knew or should have known of an issue and then made a positive statement that the issue did not apply, which proved to be wrong. Mr Rea distinguished Wallace however, by noting the high level of publicity surrounding leaky buildings and the significance of any misrepresentation on the issue. In his
submission, the same situation does not apply in this case, particularly given the
16 CAC v Wallace [2013] NZREADT 46.
implied representation by the vendors in signing the agreement that they would be in a position to settle.
[55] Mr Hodge began by pointing out Mr Jhagroo was in possession of the Valuation which had been provided for the bank and outlined an open market appraisal of $540,000 and a mortgagee sale appraisal of $486,000. He noted that on the first page of the Valuation the outstanding interest of the mortgage to the bank and the fact of the two caveats were highlighted.
[56] In Mr Hodge’s submission, although Mr Jhagroo had been instructed by the vendors, it was obvious from the Valuation that there was a prospect of a mortgagee sale. Although Mr Jhagroo told the Tribunal that he received the Valuation some thirty minutes only before the meeting the purchasers and did not have a chance to consider it, the Tribunal preferred the evidence of the purchasers.
[57] Mr Jhagroo told the Tribunal that he did not know what was outstanding to the bank. One of the purchasers gave evidence that Mr Jhagroo told her and her husband that the vendors owed around $579,000 on the property and that was why they were desperate to sell whereas her husband’s brief of evidence said that Mr Jhagroo told them that approximately $495,000 was owed to the bank.
[58] The purchasers made an offer of $500,000 on 13 July 2007. Mr Hodge accepted that the vendors obviously wanted more and the purchasers offered
$505,000 on the 18 July. This offer was made following the representation made by Mr Jhagroo before the vendors accepted the offer and signed the agreement. That is important, in Mr Hodge’s submission, when considering the allegation.
Analysis
First formulation of charge 2
[59] The Tribunal did not decide whether Mr Jhagroo did in fact know that
$505,000 would not be sufficient to permit the sale to take place. However, as the charge on this matter is for “seriously incompetent or seriously negligent” conduct, the focus is on whether he should have known.
Alternative formulation of charge 2
[60] The question here is whether the facts, as found by the Tribunal, constitute seriously negligent or incompetent real estate agency work, thereby reaching the threshold of “misconduct” under s 73.
[61] By accepting the offer the vendors implied that they would be able to settle the transaction. There are three possible inferences from their behaviour. Either the sale proceeds would be sufficient to discharge their liabilities; or the vendors believed they could reach an accommodation with the various lenders to enable them to settle; or the vendors might have been able to discharge their liabilities by using finance obtained from elsewhere.
[62] However, Mr Jhagroo made the representation before the offer was made without making enquiries as to whether any of those situations might have pertained. It is not suggested that, as a matter of course, an agent needs to satisfy him or herself that a vendor can settle a sale. However, in this situation Mr Jhagroo was on notice of the financial difficulties of the vendors.
[63] Mr Jhagroo had seen the Valuation with two caveats registered against the property and the hint of a mortgagee sale. Being on notice of the problem, he made no enquiries and did not insert any conditions to protect the parties. He made a positive representation which was wrong at the time it was made and proved in the circumstances to be wrong and it was made without any attempt to carry out any checks to ascertain the correct position. There was no evidence that Mr Jhagroo had been led to believe that $505,000 would have been enough to discharge the vendors’ financial liabilities.
[64] Mr Jhagroo represented himself at the Tribunal and the challenges associated with that are referred to in the Tribunal decision. Mr Jhagroo said that he saw the Valuation some half an hour only before meeting the purchasers. It may have been that, having seen the mortgagee sale valuation of $486,000, he assumed that an offer of $505,000 would have been sufficient to have satisfied the various lenders on the property no matter how much the vendors’ liabilities in fact were. There was, however, no evidence about that. Mr Rea advanced another possibility as to why Mr
Jhagroo might have said what he did, being confused with the mortgagee sale situation. Both of those possibilities are matters of conjecture however.
[65] The fact remains that Mr Jhagroo made the representation, as has been found by the Tribunal, and I see no basis to interfere with that decision. Ironically, the purchasers would have been left in exactly the same position had Mr Jhagroo not made any representation because the vendors accepted the offer of $505,000.
[66] In CAC v Miller the Tribunal found the licensee guilty of misconduct by disgraceful conduct and being seriously negligent.17 The agent failed to disclose a development plan relating to land neighbouring the property which would impact the view from the property. There was a further allegation that he had positively advised the purchasers that nothing would be built on the neighbouring land. The Tribunal commented that the agent had placed himself in a delicate position of trust by being
both vendor and listing agent. The Tribunal was not sure whether defendant had any dishonest intentions but failure to disclose was such a bad error of judgment as to be very negligent and a disturbing breach of trust.
[67] In CAC v Wallace the Tribunal found that the licensee had not necessarily intended to mislead the purchaser but in terms of his knowledge, experience, and duty, he was not justified in assuring the purchaser that the property had no potential weathertightness issues. In the circumstances of that case, the licensee’s conduct was both seriously negligent and seriously incompetent real estate agency work and, at least, was a reckless contravention of the Act.
[68] The cases of Miller and Wallace both involve serious negligence by an agent. The representations made by the agents had significant long term consequences for the purchasers. That is not to minimise the consequences on the purchasers in this case. In the case of Miller the agent failed to disclose something he knew was a fact. In the case of Wallace the agent made a positive representation on an issue in respect of which he had a well known duty and where, given his knowledge and experience, he was not justified in making the representation. In my assessment this case falls
into a different category. As acknowledged by Mr Hodge, there is no suggestion that
17 CAC v Miller [2013] NZREADT 31.
in every transaction an agent has a duty to be satisfied that a vendor can discharge the financial liabilities secured by the property. This was a relatively unusual situation. Furthermore, Mr Jhargroo was entitled to place some reliance on the fact that the vendors should not have accepted the offer if they would not be able to settle the transaction. The situation is more analogous to a case where an agent has encouraged the making of an offer even though he is aware that the vendor will not
accept an offer at that level.18 In both situations the foreseeable loss to a purchaser is
wasted time and money associated with making the offer. Mr Jhagroo’s behaviour
was of a qualitatively different nature from that in the cases of Miller and Wallace.
[69] I agree with the Tribunal’s assessment of Mr Jhagroo’s behaviour in respect of charge 2. In respect of both alternative formulations of charge 2 Mr Jhagroo’s behaviour was unsatisfactory. He should have known the offer would not have been sufficient in the circumstances and, being on notice of the vendors’ financial difficulties, should have made enquiries of the vendors. I am not satisfied however that those failures, unsatisfactory as they were, are sufficient to meet the test of serious incompetence or serious negligence.
Charge 1
[70] Although the notice of appeal appears to raise a question as to whether the Tribunal concluded that Mr Jhagroo believed he was legally entitled to deduct his commission from the deposit, no submissions on this point were made on behalf of the Committee.
[71] In any event, the Tribunal’s findings were clear saying:
[Mr Jhagroo] felt he had achieved an unconditional contract for sale was entitled to have the vendor pay him $24,439.30 commission in the usual way and he had a listing agreement entitling him to take that from the deposit paid by the purchasers. Also, we accept that the defendant honestly understood Mr Twigley’s advice to be that he was on sound legal ground to do that. In fact, the point seems arguable at law, but that legal point has
18 See for example Franklin v Real Estate Agents Authority (CAC 20005) [2013] NZREADT 77, where the complainant alleged that the licensee had misled him into thinking that the property would sell at auction for substantially less than it did, with the result that the complainant incurred losses preparing for the auction where he was unable to match the opening bid. The Tribunal found that there was not sufficient evidence to make a finding of unsatisfactory conduct against the licensee.
not been put to us with appropriate submissions. On the other hand, the defendant has made a shrewd business decision, perhaps in some ways a little callous towards Mr and Mrs Kamhara, to take ownership of available funds and let people sue him for recovery if they think they can succeed on an economic basis through the civil courts.
(emphasis added)
[72] Conventionally there are two circumstances in which an appellate court may differ from a first instance finding of fact. They are (a) if the conclusion reached was not open on the evidence, that is, there was no evidence to support it and (b) if the appellate court is satisfied the first instance decision was plainly wrong.19
[73] The Supreme Court in Austin, Nichols observed:20
The appeal court must be persuaded that the decision is wrong, but in reaching that view no “deference” is required beyond the “customary” caution appropriate when seeing the witnesses provides an advantage because credibility is import. Such caution when facts found by the trial judge turn on issues of credibility is illustrated by Rae v International Insurance Brokers (Nelson Malborough) Ltd…
(footnotes omitted)
[74] In this case there clearly was evidence to support the Tribunal’s finding of
fact and it cannot be said that the Tribunal was plainly wrong.
[75] The Tribunal held that:
He felt he had achieved an unconditional contract for sale and was entitled to have the vendor pay him $24,439.30 commission in the usual way and he had a listing agreement entitling him to take that from the deposit paid by the purchasers. Also, we accept that the defendant honestly understood Mr Twigley's advice to be that he was on sound legal ground to do that. In fact, the point seems arguable at law, but that legal point has not been put to us with appropriate submissions. On the other hand, the defendant has made a shrewd business decision, perhaps in some ways a little callous towards Mr and Mrs Kamhara, to take ownership of available funds and let people sue him for recovery if they think they can succeed on an economic basis through the civil courts. Although that conduct of the defendant is concerning to us, in all the particular circumstances we cannot be satisfied that it meets the level of disgraceful conduct so as to be misconduct under s 73 of the Act.
19 Rae v International Insurance Brokers (Nelson Malborough) Limited [1998] 3 NZLR 190 (CA)
at 197.
20 Austin, Nichols & Co Inc v Stichting Lodestar, above n 3, at [13].
(emphasis added)
Submissions
[76] Mr Rea emphasised that the Act applies standards to conduct carried out when the 1976 Act was in force although practices then were not necessarily the same as they are today. In his submission, the behaviour complained of would not meet the threshold for misconduct under s 73(a) in today’s circumstances but it certainly did not meet the threshold when that behaviour took place in 2007.
[77] Whilst agreeing that the correctness or otherwise of the legal advice received by Mr Jhagroo in 2007 is not the issue, the submission on behalf of Mr Jhagroo is that the legal advice was indeed correct. On that basis, the submission is put that Mr Jhagroo received advice he believed was correct and which in fact was correct. He was entitled, in Mr Rea’s submission, to deduct his commission from the deposit despite the lawyers for both the vendors and purchasers directing him to return the deposit to the purchasers. The stakeholder relationship had ceased to exist at the conclusion of the 10 day period and no effective requisition had been raised.
[78] In any event Mr Jhagroo’s case is that, given the Tribunal’s finding as to Mr
Jhagroo’s honest belief based on the legal advice he received:
… it is very much of secondary importance whether or not Mr Twigley’s advice was actually correct. Even if Mr Twigley’s advice were incorrect, it could not be “disgraceful” conduct for Mr Jhagroo to have acted in reliance on it.
[79] Mr Hodge submitted that Mr Jhagroo was not legally entitled to deduct his commission and advertising costs from the deposit and the purchasers were entitled to have the deposit returned to them.
[80] He acknowledged that Mr Jhagroo’s defence was not focussed on his legal entitlement to the funds but rather the advice he received. The crux of the Committee’s submission is that the legal advice Mr Jhagroo received “provided no reasonable basis for Mr Jhagroo to conclude that he was lawfully entitled to the money”. He made a “calculated decision” to take the funds, not on the basis that he
was legally entitled to them but on the basis that it would be difficult for the purchasers to take action against him for doing so.
[81] The submissions on behalf of the Committee contained a relatively comprehensive analysis of the correctness or otherwise of Mr Jhagroo’s legal advice. Despite that however, Mr Hodge accepted that the issue is whether, in light of the advice received, Mr Jhagroo, in deducting his commission from the deposit, engaged in disgraceful conduct.
[82] The Committee criticised Mr Jhagroo for relying on the advice given what it submits are the qualifications and assumptions in that advice. For example, the legal advice of 4 September 2007 was on the basis that cancellation of the agreement had not been accepted by the vendors. Further, the lawyer wrote to REINZ on the 16
November 2007 and assumed that the commission had already been paid whereas it was in fact still held in the trust account and subject to an instruction from the vendors’ lawyer to repay the money to the purchasers.
[83] In Mr Hodge’s submission, Mr Jhagroo would know of all the relevant circumstances, that is, that Mr Jhagroo had already misrepresented the financial situation to the purchasers, that the funds had not already been disbursed and that he had been specifically instructed by both sets of solicitors to return the deposit to the purchasers. In Mr Hodge’s submission, those are key factual matters known to Mr Jhagroo but not known to his lawyer at the time the lawyer gave the advice. Furthermore, the lawyer’s letter of 4 September 2007 outlined that, in the circumstances, there was some legal uncertainty as to the correct position. The legal advice discussed the risk of whether, in the circumstances, Mr Jhagroo would be sued for the return of the deposit. The flavour of the correspondence was that the cost of litigation would likely be prohibitive in the circumstances. Mr Hodge pointed out that his lawyer suggested that Mr Jhagroo should consider negotiating his commission with the vendors’ bank.
[84] Mr Hodge accepted that much of the Committee’s criticism of Mr Jhagroo’s legal advice was based on a legal analysis of that advice rather than how a licensee might interpret it.
[85] Mr Hodge also referred to the evidence given by Mr Jhagroo before the Tribunal to the effect that he was unaware that the vendors were experiencing financial difficulties. In Mr Hodge’s submission, that contention is extraordinary when Mr Jhagroo knew that the sale could not proceed because the vendors could not discharge their outstanding financial liabilities.
[86] In those circumstances, Mr Hodge submitted, Mr Jhagroo was at best wilfully blind, but more, he knew that the vendors were never going to be able to repay the deposit to the purchasers. That being the case, in Mr Hodge’s submission, the decision to deduct his commission from the deposit was disgraceful.
Analysis
[87] While the Committee submitted that Mr Jhagroo’s behaviour in respect of charge 1 should be considered in light of the representation the subject of charge 2, there is no suggestion that Mr Jhagroo had somehow manipulated events so as to engineer a situation where he was in possession of the deposit but the vendors were unable to settle the transaction. Nevertheless, that was the result.
[88] The Tribunal’s description of Mr Jhagroo’s conduct being a “little callous” is, in my assessment, a generous one as I agree with Mr Hodge that, in the circumstances, Mr Jhagroo would have known that the purchasers had little, if any, prospect of recovering their deposit from the vendors. Mr Jhagroo’s conduct was, on a moral basis, of quite some concern. It is arguable that it may have constituted unsatisfactory conduct, in the sense that it “would reasonably be regarded by agents
of good standing as being unacceptable.”21 However, the Committee did not seek a
finding of unsatisfactory conduct in the alternative to misconduct and consequently Mr Jhagroo has not been given an opportunity to be heard on the matter. In those circumstances, it would be contrary to natural justice for this Court to make a finding of unsatisfactory conduct.
[89] I accept that the reasonableness of Mr Jhagroo’s belief should be taken into
account. For example, if Mr Jhagroo actually believed that the legal advice was
21 Real Estate Agents Act 2008, s 72(d).
correct but such a belief was not reasonable, he may be guilty of unsatisfactory conduct but not misconduct. As it is, I do not consider it was unreasonable for Mr Jhagroo to believe that the legal advice he was given was correct. Despite the criticisms levelled by Mr Hodge, which do have some substance, the legal advice received by Mr Jhagroo would have given a lay person the assurance that he was legally entitled to deduct his commission from the deposit. His lawyer had told him that his “right to be paid is clear” and he “could see no basis for [Mr Jhagroo] to be sued”. That being the case, I agree with the Tribunal’s assessment that Mr Jhagroo’s conduct does not meet the level of disgraceful conduct so as to be misconduct under s 73 of the Act.
Decision
[90] For the reasons given, I am not satisfied that the Tribunal erred in finding that the actions of Mr Jhagroo did not amount to misconduct under s 73 of the Act. The appeal is dismissed.
Costs
[91] If the parties are unable to agree on the question of costs, the Respondent is
to file a memorandum within 21 days of this decision with the Appellant’s response
within 10 days thereafter.
Thomas J
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