Harvey v Real Estate Agents Disciplinary Tribunal
[2017] NZHC 1311
•14 June 2017
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV 2016-442-66 [2017] NZHC 1311
BETWEEN MICHAEL HENRY HARVEY
Appellant
AND
REAL ESTATE AGENTS DISCIPLINARY TRIBUNAL First Respondent
AND
EWAN JOHNSON ALLEN JOHNSON Second Respondents
Hearing: 12 June 2017 Counsel:
P McMenamin for Appellant
M Hodge for First Respondent
No appearance for Second RespondentsJudgment:
14 June 2017
JUDGMENT OF SIMON FRANCE J
Introduction
[1] This is an appeal pursuant to s 116 of the Real Estate Agents Act 2008. The Real Estate Agents Disciplinary Tribunal (the Tribunal) upheld a finding of unsatisfactory conduct against the appellant, Mr Harvey.1 The original complainants, Messrs Johnson, have not taken part in the appeal. The burden of proffering a contrary view on the appeal has fallen on the Real Estate Agents
Authority.
1 Johnson v Real Estate Agents Authority and Harvey [2016] NZREADT 68.
HARVEY v REAL ESTATE AGENTS DISCIPLINARY TRIBUNAL [2017] NZHC 1311 [14 June 2017]
[2] The appeal is a general appeal. The process to date has included first a decision on the papers by a Complaints Assessment Committee. A first appeal was then taken to the Tribunal. In this case, because there were natural justice complaints about the initial process, the Tribunal treated the appeal as a de novo hearing, and heard oral evidence.
Facts
[3] Mr Harvey through a company was developing a subdivision. Marketing of the sections was also undertaken by Mr Harvey in his capacity as agent for a local real estate agency. There were 12 sections.
[4] Mr Johnson ran a coffee cart business. Sometime in late August 2011, Mr Harvey attended the cart. A conversation about the subdivision occurred. At that time seven sections had been sold. As a result of this discussion, Mr Johnson agreed to purchase two of the remaining sections. Following the coffee cart discussion, on this same day Mr Johnson visited Mr Harvey’s office and then visited the site. A draft agreement was sent to Mr Johnson’s lawyer, and eventually an agreement to purchase the two sections was signed.
[5] There were numerous disputes about the events occurring between the two men in relation to the sections including who initiated the conversation at the cart. What can be said though is that:
(a) the purchase price for each section was $150,000;
(b) a 10 per cent deposit was required meaning Mr Johnson paid $30,000
into a solicitor’s trust account;
(c) the deposits were held on trust until the agreement became unconditional;
(d) the agreement was conditional, initially for two days on solicitor’s
approval, and then until titles were issued;
(e) settlement was required five days after titles were issued; and
(f) if titles were not issued within six months of entering the agreement, Mr Johnson could cancel the contract.
[6] Six months came and went without titles being available. Mr Johnson did not cancel. He said he did not know he could. Eventually when titles were issued Mr Johnson could not settle. There were negotiations around him settling only one section, and cancelling the other agreement. The negotiations failed, and eventually it was agreed Mr Johnson would forfeit the $30,000 but no other recompense would be sought by the vendor. One to two weeks after the forfeiture, Mr Harvey resold the sections for $165,000 each.
Complaints
[7] Mr Johnson complained to the Real Estate Agents Authority. He alleged:
(a) the proposal had been Mr Harvey’s idea. Mr Harvey had required the sale of two more sections to trigger bank funding, so asked Mr Johnson to buy them;
(b) the purchase price of $150,000 was a discount price;
(c) Mr Harvey assured Mr Johnson he would on-sell the sections for
$165,000 before Mr Johnson was required to settle. This meant
Mr Harvey was going to market the sections for Mr Johnson; (d) Mr Harvey waived any commission on any such on-sale;
(e) Mr Harvey never tried to sell the properties. Mr Johnson believed Mr Harvey’s plan was to force Mr Johnson to forfeit the deposit and then to sell the sections again at the higher price, thereby getting the benefit of the sales and the forfeited deposit. To achieve this Mr Harvey had marketed the sections poorly and at a grossly inflated price that meant they would never sell.
Further facts – marketing
[8] The evidence about the marketing Mr Harvey undertook was rather unsatisfactory but at best can be gleaned there was no marketing until February 2012. Accordingly, this was a nearly six month marketing hiatus from the signing of the agreement.
[9] When marketing did start in mid-February, the advertising was generic. The text of the advertisement read:
Circumstantial change for developer has resulted in the few sections that were earmarked to keep now being offered for sale. Situated in the heart of Mapua these unique sites enjoy full services including phone, power & water to the boundaries & boast contours that will keep the cost of getting your home out of the ground to a reasonable minimum. Homes in Mapua are in demand & there has been very few sections released over the past few years which is why the first release in this subdivision sold so quickly. Sizes range from 650–1016m2 & numbers are very limited, history tells us that sections in this development are considered a premium opportunity so be quick before history repeats itself.
Sections from $195,000
[10] The two sections Mr Johnson had bought were 620m2 and 655m2 respectively. This advertisement, with minor variations, was repeated for about three months. There was no targeted advertisement directed at Mr Johnson’s sections until after the deposit forfeiture.
[11] It also seems that from the time of agreement until mid-February there was real estate signage on the sections. Each sign had an “under contract” banner on it. Mr Harvey says in mid-February Mr Johnson asked him to take them down from which point there were no signs.
Key issue
[12] It is obvious that if Mr Harvey had agreed to market the sections for Mr Johnson, he was neglectful in his obligations. It would have been a poor job to say the least.
[13] The Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009 governed the carrying out of real estate work at the relevant time. If Mr Harvey had agreed to market the properties for Mr Johnson, he would have been in breach of several of the rules:
(a) failing to provide a market appraisal;2
(b) failing to ensure there was a proper agency agreement;3 and
(c) failing in his fiduciary obligations (by not marketing them or marketing them so poorly).4
[14] Further, if Mr Harvey had manipulated the situation for his own benefit as Mr Johnson alleged, then this would have amounted to serious misconduct. There was no finding to that effect and nor could there be on the evidence. The objective evidence was completely inconsistent with this finding, in particular Mr Harvey’s offers of alternative ways by which Mr Johnson might settle just the one section and be relieved of his obligations in relation to the other. I do not address this further and focus instead on the other alleged Rule breaches.
[15] In relation to this key issue of an agreement to market, Mr Harvey gave inconsistent evidence. He first participated in an interview with an investigator from the Real Estate Agents Authority. In that interview Mr Harvey accepted he had been marketing the sections for Mr Johnson. He said the marketing price of $195,000 (the figure mentioned in the advert) was included at Mr Johnson’s insistence. Mr Harvey considered it unrealistic but it was what Mr Johnson wanted. Mr Johnson’s evidence was exactly to the contrary. He said he was always content with $165,000, and wanted them marketed at that price but that Mr Harvey insisted on controlling marketing. He alleged the $195,000 price was Mr Harvey’s idea.
[16] Before the Authority Mr Harvey gave a different version of events. He denied ever agreeing to market the sections for Mr Johnson. Rather, he said there
2 Rule 9.5.
3 Rule 9.8.
4 Rule 9.1 [or do you just mean his fiduciary duties in general?].
was an arrangement whereby he knew that Mr Johnson might want to resell the sections and if a buyer came along who expressed an interest in Mr Johnson’s sections, he would contact Mr Johnson.
[17] Mr Harvey said the marketing that was done was generic marketing for the subdivision. Any benefits to Mr Johnson were incidental. The subdivision project had been a joint project with his wife. They had agreed to hold some sections back for themselves. Over Christmas the couple had separated. This was the change in circumstances referred to in the advertisement and explained why the marketing started in February.
[18] Mr Harvey maintained that Mr Johnson had said from the outset that he was thinking of building a spec home on one section, and on-selling the other at a profit. Mr Johnson vehemently denied this. He said he never intended to build.
[19] Mr Harvey said that a few months after signing the sale and purchase agreement, Mr Johnson had contacted him to say he was going to engage an agent to market the sections. Mr Harvey had confirmed Mr Johnson was entitled to do that, but sought the agency for himself which Mr Johnson refused.
[20] In relation to the change in evidence, Mr Harvey said the version given to the interviewer was incorrect. At the time of the interview he was suffering from a major depressive illness brought on by the separation, and he made mistakes. Mr Harvey called his treating physician, a neuropsychologist, to confirm this. That witness confirmed Mr Harvey at the time was suffering a severe depressive episode with anxiety features. It would have been at its peak at the time of the interview. It would affect his decision-making, and manifest itself with difficulties in concentration, and a tendency to forget or confuse details.
Issue one – the Tribunal decision concerning whether there was an agreement for Mr Harvey to market the sections for Mr Johnson
[21] It is to be recalled Mr Johnson made two allegations – that Mr Harvey was to market the sections for him, and that Mr Harvey committed to selling them prior to the titles being ready. On this issue the Tribunal concluded:5
There is a conflict in the evidence of Mr Johnson and Mr Harvey. We do not accept that in the course of the discussions Mr Harvey promised, in so many words, to on-sell the sections before Mr Johnson was required to settle. What is clear, however, is that Mr Johnson believed that to be the case, as did Mr Allen Johnson, and as Mr Johnson reported to his solicitor. There was, at least, confusion between Mr Johnson and Mr Harvey as to what was being agreed. Mr Harvey must bear some responsibility for this confusion, as an experienced agent and in the light of his assessment of Mr Johnson (in his interview with the investigator) as “not the sharpest”, and as “an idealist who hears what he wants to hear”.
[22] It is convenient to also cite a later conclusion:6
We find that Mr Harvey carried on real estate agency work on behalf of Mr Johnson, albeit pursuant to an informal and undocumented arrangement. Mr Johnson was Mr Harvey’s client, as the sections advertised included his.
[23] The conclusions in the first passage are not, with respect, easy to unpack, especially when it is remembered the versions provided by the two witnesses were completely opposite in most respects. They could not really be reconciled by way of honest but differing recollections, yet no general credibility finding was made. In this passage it was said Mr Harvey did not make the promise but Mr Johnson thought he had. What remains unclear is the basis on which Mr Johnson would think that if Mr Harvey did not do so. And a related issue, given Mr Harvey did not make such a promise, what was it that should have alerted Mr Harvey to this false understanding on Mr Johnson’s part so that Mr Harvey might disabuse him of it?
[24] It is important to review the circumstances attaching to the signing of the agreement. Several clauses were added at the request of Mr Johnson’s legal representative. None of these were consistent with what Mr Johnson alleged Mr Harvey had promised. Mr Johnson testified he had no input into these clauses,
but that would be inconsistent with standard conveyancing practice and proper
5 At [53].
6 At [76].
lawyering, and is inconsistent with his lawyer’s contemporaneous file note that said the extra clauses had been discussed with Mr Johnson.
[25] Of the extra clauses, one allowed cancellation of the contract if the titles did not issue within six months, and another clause allowed cancellation if easements were required by the Council that might restrict on-sale or building. And a third preserved access to the property for the purchaser and his agent to enable marketing and any work needed for resale. The latter seems particularly inconsistent with the idea that there was already an agreement in place for Mr Harvey to market the sections, and that he would do so successfully prior to titles being ready. Mr Harvey was also required by separate letter to confirm that if he effected a sale within two years from the agreement becoming unconditional he would not charge a commission. The fact that this commitment, given at Mr Johnson’s request, relates to a time period in the future (after titles issue) and is for two years from then is more consistent with the possibility of a future marketing arrangement than the existence of a present one.
[26] It is difficult to see any support for Mr Johnson’s allegation, or a source of his apparent confusion. In the absence of the Tribunal identifying the evidence on which its conclusion as to confusion is based, it is not one which I accept. In my view it is contrary to the objective evidence.
Issue two – Mr Harvey’s change of evidence
[27] I acknowledge here the Tribunal’s advantage in hearing the evidence.
[28] The Tribunal did not accept that the psychologist’s evidence undermined Mr Harvey’s answers to the investigator. The Tribunal could itself detect no confusion or difficulty in Mr Harvey’s answers to the interview questions. I accept that conclusion is a reasonable one, but it still does not resolve the conflict between the two versions. It is inherent in the Tribunal’s general conclusions that it preferred the answers Mr Harvey gave in the interview and rejected the testimony before the Tribunal, but the reasons for that choice are not given.
[29] I consider the objective evidence is more consistent with Mr Harvey’s evidence before the Tribunal than his answers to the interviewer. It seems common ground that no marketing was undertaken at all between the date of the agreement on
7 September 2011 and February 2012. This is consistent with there being no agreement. It is not clear why, if there were an agreement, Mr Harvey would not be selling them. It is also very surprising that if there were such an agreement, six months would go by without Mr Johnson chasing it up with Mr Harvey, or getting his lawyer to chase it up, when it appeared no advertising was happening.
[30] Next, the timing and form of the advertising when it did happen is also consistent with Mr Harvey’s later version. The advertising is plainly a generic advertisement not at all focused on Mr Johnson’s properties. Only one of Mr Johnson’s sections potentially comes within the advertisement description of
650–1016 m2. The fact that the other section would not be covered is consistent with
the proposition they were not included. Finally, Mr Harvey’s reason for commencing advertising, the same reason that is proffered in the advertisement, is true. There had been a change in personal circumstances, which explained the need to release the withheld sections.
[31] The objective evidence in relation to the marketing points to the same conclusion as the objective evidence about the agreement. The reality is that there are only two sources, independent of Mr Johnson, that support the idea that there was a marketing arrangement between him and Mr Harvey – Mr Harvey’s answers to the investigator, and a letter written by Mr Harvey’s solicitor at the time settlement issues arose.
[32] Concerning the answers to the interviewer, I agree they appear coherent. But they are inconsistent with his later evidence which itself is consistent with the facts shown by objective evidence. There is expert evidence suggesting an explanation for why the earlier answers were incorrect. It cannot be doubted that at the time of the interview Mr Harvey was suffering from a significant mental illness.
[33] The other evidence supporting the answers Mr Harvey gave in the interview is a letter written by Mr Harvey’s lawyer. The letter has not previously been the focus of attention. It is, however, in my view the best evidence supporting the Tribunal’s conclusion. Mr Johnson’s legal representative had written a letter explaining there may be issues with settlement. The letter expressed disappointment at Mr Harvey’s marketing efforts and sought more time to settle.
[34] One might have expected a reply from Mr Harvey which said what marketing? However as part of the reply Mr Harvey’s lawyer said:
Mike Harvey has further indicated that the properties have been advertised for sale and the prices agreed with your client and your client has not been charged with this advertising cost.
[35] On its face that would seem to be an admission that marketing was taking place. With a bit of generosity it is not wholly irreconcilable with Mr Harvey’s later evidence, but it is much more consistent with the answers given to the investigator. Unfortunately the letter was not raised in evidence, nor put to Mr Harvey for his comment. Ironically, perhaps, if weight were accorded it as an accurate record, it would be another matter contrary to Mr Johnson’s evidence, namely the reason why the sections were marketed at $195,000.
[36] In the second passage cited earlier from the Tribunal’s decision, there is reference by the Tribunal to an “informal and undocumented” arrangement.7
However, what that arrangement was is not articulated. Mr Hodge submits it must be the arrangement revealed by Mr Harvey’s answers to the investigator, but if that were so, it would mean Mr Harvey’s evidence before the Tribunal was being rejected without any reasons being given. As noted, in my view the objective evidence points the other way.
[37] This being a general appeal, and recognising the Tribunal’s advantages, I nevertheless take the view that the evidence did not provide a sufficient basis for the conclusion that there was a marketing agreement, which was the basis for the finding
of unsatisfactory conduct. The Tribunal has not made any general credibility
7 Refer [22] above.
findings about Mr Johnson or Mr Harvey even though their evidence was diametrically the opposite on many issues. However, its initial conclusion about what Mr Harvey promised (or did not promise) involves rejecting of some of Mr Johnson’s evidence. In my view, there are other portions of that evidence that also cannot be correct.8
[38] There are no reasons given as to why Mr Harvey’s earlier version of his evidence given to the interviewer is preferred. In such circumstances I consider the Court is has more freedom on appeal than normal to substitute its own view. Given that, and perhaps understandably since I have not had the advantage of seeing the witnesses, I prefer to place weight on the objective evidence. For the reasons given I consider that objective evidence points against the existence of any marketing agreement.
Issue three – an alternative route?
[39] Mr Hodge submitted a finding of unsatisfactory conduct is supportable solely on the basis of Mr Harvey’s Tribunal evidence. He submits the loose arrangement described by Mr Harvey of referring potential buyers to Mr Johnson was sufficient to come within the definition of “real estate work” and to thereby trigger the obligations under the Rules.
[40] For two reasons I cannot accede to this. First, I consider it too far removed from the central allegations faced by Mr Harvey to make it fair to do that on a third hearing of the matter. It was not a proposition advanced in the original complaint, nor analysed by the Tribunal. I consider it would be preferable to have the Tribunal’s view on it.
[41] The second related reason is that I do not regard the proposition as self-evident. It may be correct but it requires clear articulation of what Mr Harvey
undertook to do, and then why it is within the definition. It may be a matter, and I
8 There was some support for Mr Johnson from answers his legal representative gave to questions from the investigator. However, when Mr McMenamin summonsed the legal representative (a legal executive), Mr Johnson refused to waive privilege. In these circumstances I consider the Tribunal erred in placing any weight on the legal representative’s answers to the investigator. Presuming those answers were given with Mr Johnson’s consent, he cannot call on them in aid whilst at the same time reasserting privilege to prevent any challenge to those answers.
put it no higher than that, on which the Tribunal would be assisted by expert evidence on the usual practice in regards to such arrangements.
Conclusion
[42] The appeal is allowed and the finding of unsatisfactory conduct quashed.
[43] Costs memoranda may be filed if agreement cannot be reached. However, it appears a standard appeal in which costs would follow the event. For the avoidance
of doubt no costs liability attaches to the second respondents.
Simon France J
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