KEY POINTS:
The Real Estate Institute has warned the country's estate agents after a High Court settlement that cost an Auckland firm nearly $1 million for failing to declare a conflict of interest.
Institute president Murray Cleland said he was disappointed that the agent involved had let the industry down.
"This sends a clear signal to any agent who gets into a situation of conflict. They had better beware of the way the court has ruled."
In her court judgment, Justice Patricia Courtney ruled that Takapuna company Premium Real Estate breached its fiduciary duty to Mark and Deborah Stevens in the April 2004 sale of their multimillion-dollar Milford cliff-top home.
The court said the property was worth $3.2 million at the time of sale, not the $2.5 million paid for it.
Premium had not disclosed an agent's relationship with the buyer, which the court said was misleading and deceptive.
The buyer was a property developer, Mahoenui Valley Trust, for which Premium agent Pam Riley was acting on other property deals, the court found.
Justice Courtney's ruling said Ms Riley had a close relationship with the Mahoenui trustee in the period "up to and including" the April sale date.
"Ms Riley either had acted or was currently acting as agent for [the trustee] or his associated entities in respect of eight properties ...
"An analysis of the transactions on which Ms Riley had acted generally showed a significant increase from [the trustee's] purchase to the on-sale of the property, sometimes within just a few months," Justice Courtney said.
One of Ms Riley's daughters worked as a personal assistant to a Mahoenui trustee and another daughter - an architect - did design work for the trustee on his beach house.
When Mahoenui resold the Milford property only five months later for $3.55 million, the Stevens were very upset and believed that they had sold their house for less than it was worth.
The Herald spoke to Pam Riley last night. She said she had "no reaction or comment to make whatsoever".
The court decision said Premium was the couple's agent on the sale and Mahoenui's agent on the re-sale.
Justice Courtney ordered Premium to pay the Stevens $675,000 compensation for the loss suffered and to refund the $67,000 commission they paid. Interest and costs were also awarded and the law firm representing the couple, Simpson Grierson, said the total amount due from Premium would be around $900,000.
Mark and Deborah Stevens said: "We felt we had been wronged, but following this decision of the High Court we feel justice has now been served."
Premium head Brian Guy said he was floored by the decision.
"We believe we sold the property at the prevailing market price and do not believe we can be held responsible for what someone subsequently was prepared to pay for it."
He expected an appeal would be made because of the ramifications for the real estate industry.
If his firm had to pay, it would claim the money on its professional indemnity insurance policy.
"What we did is done every day throughout New Zealand. We didn't under-sell the property; another agent over-sold it."
Mr Cleland said the penalty was the largest he had seen imposed against any agency in 22 years in the industry.
Though it was severe, he did not take issue with the ruling.
The court had not ruled against the agency for selling at a higher price, but had found that Premium had acted wrongly in how it handled the deal.
The Stevens' lawyer, William Akel, said the case showed agents had to make full disclosure of any potential conflicts of interest.
"Failure to do so will be very costly."
The Government and the institute will meet next week to discuss plans to appoint an independent consumer watchdog to hear complaints about agents from house buyers and sellers.
BAD DEAL
APRIL 2004
* Mark and Deborah Stevens sell their property at 23D Beach Rd, Milford, to the Mahoenui Valley Trust for $2.57 million.
* Mahoenui resells the property five months later for $3.55 million.
* The Stevens go to court claiming breaches of the Fair Trading Act, breach of fiduciary duty, breach of contract and negligence against Premium Real Estate.
DECEMBER 2006
* The High Court at Auckland finds in favour of the Stevens for commission refunds and payment of losses and penalties of more than $900,000.