Potentially significant consequences of withholding information from your client

The licensees were acting for the owner of an industrial property who was looking to sell, as the tenant was considering not renewing the lease. A conditional offer was accepted, and as far as the vendor knew there was no other interest in the property. Before the offer went unconditional, the purchaser asked the vendor for extra time to complete their due diligence. At the same time, the licensees became aware that another party (NZ Post) was interested in leasing the property, but they did not tell the vendor, and instead, they told the purchaser. The vendor agreed to extend the timeframe (not knowing there was another interested party), and the sale was subsequently completed. The purchaser later leased the property to NZ Post.

When the vendor became aware of what had happened, a complaint was made, and the Complaints Assessment Committee (CAC) found the licensees guilty of unsatisfactory conduct, and they were censured and fined $8,000.

The vendor took civil proceedings against the licensees seeking compensation for loss of profits they would have received if they had leased the property to NZ Post, refund of commission and compensation in respect of costs incurred in pursuing the complaint before the CAC.

The licensees accepted that they had breached their fiduciary duty to the vendor by not disclosing NZ Post’s interest before the contract became unconditional. The High Court found that, by telling the purchaser, rather than the vendor, about NZ Post’s interest in the property, they obtained additional commissions, and they also breached their fiduciary duty by entering into an agency agreement with the neighbour, which gave rise to a conflict of interest. While the High Court did not award the full amount of compensation sought by the vendor, the amount awarded was significant.

Licensees need to constantly ensure that other parties’ interests are not put before their client's interests, and they need to be mindful about potential conflicts of interest and address them immediately if they arise. In this case the licensees received four commissions totalling over $330,000 from the various transactions they were involved in, but as a result of the High Court’s decision, they have to pay over $800,000 to the vendor – $63,150 for repayment of commission, $650,000 compensation for the vendor’s loss of profits, and $100,000 compensation in relation to the costs the client had incurred by investigating and pursuing their CAC proceedings.

Pangani Properties Limited v Lloyd(external link)