Real estate firm ordered to pay $1m for misleading conduct

The Beach Rd house at the centre of the Premium Real Estate case. Photo/TV3

The Supreme Court has ordered Premium Real Estate to pay an Auckland couple almost $1 million after their Castor Bay home was sold to a property developer for $2.5 million who then resold shortly afterwards for $3.5 million.

The court ordered Premium to pay $659,813 in damages, repay the $67,050 commission for the sale, awarded the couple Supreme Court costs of $21,000 and Court of Appeal costs of $6000 and pay 7 per cent interest over some years.

The case is one of the most significant in real estate, having wound its way through the courts for three years.

Pam Riley, the agent at the centre of the bitter litigation, still works at Premium's Takapuna office and her boss was yesterday standing firmly behind her.

Brian Guy, Premium Real Estate Group's managing director, said Riley was good at her job and he was "gutted" at the latest decision.

He vowed to take the case back to the Court of Appeal, saying he would mount a new challenge this time against the original decision of the High Court at Auckland and the conclusions it reached over valuations of the house.

In 2004, the couple Mark Moncrieff Stevens and Deborah Ruth Stevens sold their North Shore clifftop house at 23D Beach Rd via Ms Riley who the courts have found was not acting in the interests of the Stevenses.

Premium had not disclosed Ms Riley's relationship with the buyer, a move previous courts have found to be misleading and deceptive.

The buyer was a property developer, Mahoenui Valley Trust, for which Riley was acting on other property deals and her daughter had worked for the trust. Ms Riley had acted for the trust's Mr Larsen on eight property transactions and could reasonably hope for further work from him, the Supreme Court found. That had set up a conflict of interest whenever she introduced the trust to a vendor.

The Supreme Court's decision noted that the couple thought the trust wanted their house so Mr Larsen could live there and although he appeared scruffy, Riley reassured them he had money.

Riley acknowledged that she knew giving certain impressions was a tactic the trust had used when buying other properties for resale at a profit.

Two appeals went to the Supreme Court: Premium challenged earlier findings of the breach of fiduciary duty and a breach of the Fair Trading Act and the Stevenses appealed against the amount of compensation awarded.

The Stevenses expected to get about $3 million for their house, the Supreme Court said, although Premium had told them to advertise it on the basis of offers over $2.7 million.

Mahoenui paid $2.575 million and sold it just six months later in a rising property market and after some changes and an aggressive international sales campaign which brought in an overseas buyer. A Bayleys agent sold it for $3,555,000.

Riley had also acted for the trust on the resale, netting the $1 million quick-fire profit.

"Mr and Mrs Stevens lost the opportunity to sell their property for a higher price," the Supreme Court concluded.

Previous court cases noted Riley told the Stevenses she had previously dealt with Larsen of the trust but she did not tell them his modus operandi was that he might resell the property within a short space of time.

The first round of litigation was in 2006 when Stevenses and fellow trustee Melva Beatrice Walker went to the High Court at Auckland, claiming against Premium for breach of contract, negligence, misleading and deceptive conduct in breach of the Fair Trading Act and breach of fiduciary duty.

Premium had led them to believe the property was worth less than its fair market value, failed to disclose it had acted for Larsen before, failed to say the trust was buying the house for resale and failed to advise them of Larsen's background, they claimed.

Although Justice Patricia Courtney of the High Court rejected the main thrust of the Stevenses' case, she found Premium guilty of misleading and deceptive conduct and breach of fiduciary duty.

Last April, her decision went to Court of Appeal where Justice Terence Arnold upheld her ruling that Premium's actions had breached its legal obligations to the Stevenses. But he dismissed the Stevenses' cross-appeal and cut the huge damages award against Premium to just $225,000. He ordered the Stevenses to pay $3000 to Premium.