Decision by Mallon J in

HOME BUYERS LIMITED & FORSTER v REAL ESTATE AGENTS AUTHORITY

High Court, Wellington (CRI-2011-485-82 and CRI-2011-485-83); to be reported in Volume 25 Criminal Reports of New Zealand

Dates: 18 October 2011 (supplementary submissions filed on 25 October 2011, 3 and 5 November 2011); 22 December 2011

Appellants in person, and M Hodge for Respondent

Key Areas

Criminal justice: — Sentencing — Carrying out unlicensed real estate agency work — Penalties — Conviction and sentence of company appropriate — Conviction of director out of all proportion to gravity of offending — Discharge without conviction.

Criminal procedure:— Appeals — Determination — Carrying out unlicensed real estate agency work — Conviction and sentence of company appropriate — Conviction of director out of all proportion to gravity of offending — Discharge without conviction

Offences: — Public regulatory offences — Carrying out unlicensed real estate agency work — Strict liability — Mens rea — First convictions under Real Estate Agents Act 2008 — First appeal under Act to High Court.  

Professions and trades: — Agency — Real estate agents — Regulation — Licensing — Unlicensed real estate agency work.

The Appeal

Appeal by Home Buyers Ltd (“HBL”) and Forster (“F”) against conviction of carrying out real estate agency work without a licence, and sentence of $25,000 fine, apportioned by imposing a fine of $13,000 on HBL, a forfeiture order against HBL of $5000, and a fine of $7000 on F.

The convictions were the first of their kind under the Real Estate Agents Act 2008 (“REAA”), and the appeal was the first time such a charge had been considered by the High Court.

Background:

Property Traders

HBL was a family business which had been operating for 12 years.  Its directors were F and her daughter, who viewed the company as being in the property-trading business, did not regard it or themselves as real estate agents, and did not advertise themselves as such. They had therefore not applied for and did not hold a real estate agent's licence.

Mode of trading 

HBL traded property in different ways, but usually purchased property in its name and on-sold it for profit, often after renovating it; sometimes it bought property and on-sold it through a "rent-to-buy" arrangement.

Nature of transaction leading to charges

In the transaction which led to the charges it was intended that HBL would locate a purchaser for vendors, and that HBL's purchase of the property from the vendor would be effected at the same time as the sale from it to the purchaser, but the transaction did not proceed in that way. 

As a result of discussions between F and the intended purchasers, in order to give the purchasers the benefit of vendor warranties a draft agreement with HBL was amended so that the vendors were named as the existing owners rather than HBL, the purchase price was reduced by $6000, and the purchasers agreed they would pay a fee of $6000 to HBL for finding them a property.

Charged under s 141 REAA

HBL and F were charged with an offence under s 141 REAA in relation to the sale, and were convicted after a defended hearing. The District Court trial Judge decided that the offence was one of strict liability because it was of a public regulatory nature, and the definition of real estate agency work in s 4 REAA was clear; that issue was raised again on the appeal.

Held:

(1) the REAA’s cornerstone is the definition of "real estate agency work" in s 4 REAA , because it determines whether the consumer protection provisions of that Act apply, and whether an offence has been committed. (para 19)

(2) The issue of whether the offence is a strict liability one that did not assist the appellants; the combination of ss 4 and 141 REAA mean that an offence is committed if

    (a) any work or services provided are carried out by a person,

    (b) in trade,

    (c) on behalf of another person,

    (d) for the purpose of bringing about the sale or purchase of land,

    (e) without a licence under REAA or an exemption. The mens rea requirement was satisfied if F knowingly took the actions which constituted the offence, and it did not matter that she did not know those actions constituted an offence. (paras 23 to 26)

(3) The transaction as it proceeded was an offence under s 141 REAA because (in the words of s 4 REAA) it was work done or services provided, in trade, on behalf of the vendors, to bring about a sale of their land. The work went beyond "the provision of general advice or materials to assist owners to locate and negotiate with potential buyers" as referred to in s 4(1)(c)(i) REAA, which is concerned with assistance provided to owners who will be locating and negotiating with potential buyers. Here it was HBL that located the potential buyers and negotiated with them. (paras 30, 31)

(4) The appellants seem to have thought they were not caught by the REAA providing they made it clear (as they did in this case) that they were not real estate agents, but the offence in s 141 REAA is dependent on the nature of the work or services carried out, not on how the person carrying out the work or services represents themselves to be.

The appellants also thought that it was only the way in which the transaction proceeded that caused difficulty for them under the Act. But the lead-up to the contract was relevant to whether the work and services provided were on behalf of another person for the purpose of bringing about a sale and purchase of the property. Though the case related only to the appellants' work or services as the transaction actually proceeded, the Court did not want them to assume that the way they originally envisaged the transaction proceeding would not have been caught by the REAA. (paras 33, 34)

(5) The maximum fine under the REAA for unlicensed trading is $100,000 for a company and $40,000 for an individual, these being significantly greater than under the predecessor legislation. The conviction and sentence imposed on HBL was appropriate, and it had not been shown that any error was made about this. F would effectively bear the consequences as director and shareholder of the company. (paras 36, 47, 48)

(6) But the personal consequences of F’s conviction would be out of all proportion to the gravity of her offending (particularly as this was the first successful prosecution of its kind, and no harm was suffered by either the vendor or the purchaser), and she was discharged without conviction.

This outcome would not necessarily be appropriate in future cases. In view of the lack of intent to breach the law, the relative newness of the legislation, and the absence of harm, the overall financial penalty of $18,000 on the company was adequate to meet the principles and purposes of the Sentencing Act 2002.

There was no basis to increase the sentence against HBL in light of F’s discharge without conviction. (paras 47, 49, 50)

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