Auckland’s biggest real estate firm has been found guilty of unsatisfactory conduct, relating to potential conflicts of interest involving its agents.

It follows a protracted court process that has seen the company mount repeated legal challenges to an adverse ruling made against it by the industry watchdog.

The case involves an internal Barfoot and Thompson policy which allows agents who are buying property listed with the company to deal directly with sellers.

Barfoot director Peter Thompson said the company is reviewing the decision and will make changes where necessary to ensure the best interests of clients are being met.

A just-released Court of Appeal decision said Barfoot’s policy amounted to an abdication of its primary responsibility to its clients, and unsatisfactory conduct.

It said the policy leaves the client in the hands of a licensee, whose objective as a would-be purchaser conflicts with the best interests of the client as vendor.

The court raised the possibility of Barfoot licensees using confidential information to their advantage when trying to purchase property or failing to disclose other offers “which may be material to the price the client would accept.

It cited a 2012 transaction in Te Atatu when two Barfoot agents looking for an investment property purchased a property listed by two of their colleagues after a “team viewing”.

The purchasers negotiated directly with the vendors, who revealed the level of previous interest in the property and the fact they were keen to sell before the current tenant left. The agents eventually bought the property for $360,000 and received more than $5700 in commission.

Another case related to a Stanmore Bay property deal in which an agent who had just listed the property offered to buy it the next day.

During negotiations, the vendor revealed to the agent she was under pressure to sell as the property she wanted to buy was subject to an escape clause that had been activated. The property eventually sold for $376,000 and the agent who purchased the property received more than $5000 in commission.

Real Estate Agents Authority chief Kevin Lampen-Smith said the Court of Appeal decision found that Barfoot failed to act in the best interests of vendors when its agents, or a related person, wanted to buy a vendor’s property.

“As the agency’s policy on commission was linked to involvement in sale negotiations, this meant the purchasing agent was getting an unearned discount on the price.”

The unsatisfactory conduct ruling was initially made by the authority’s complaints assessment committee following two complaints in 2013. The committee censured Barfoot, ordered a refund of fees of $5000 to two complainants and fined the company $2500.

Barfoot unsuccessfully appealed the decision to the Real Estate Agents Disciplinary Tribunal and then the High Court in 2014.

Mr Lampen-Smith said the committee’s original decision had endured “rigorous scrutiny” through the protracted appeal process.

“This is an excellent decision that reinforces how critical it is for an agent to meet their obligations under the Real Estate Agents Act 2008 and protect the vendor’s best interests when there is a conflict of interest.

He said the Real Estate Agents Act offered consumer protection which prevented agents, or people related to them, from buying a vendor’s property unless certain requirements had been met, including obtaining the vendor’s written consent and providing an independent valuation of the property to the vendor.

“These procedural protections supplement the fundamental fiduciary duty on agents to act in the best interests of their vendor.”

Mr Thompson said the company was still going through the decision and seeking advice.

“We want to understand the ramification of the appeal before any decision is made.

“There may be areas where we need to change our policy and if so we will.”

He was confident the company was fulfilling its conflict of interest obligations to clients and acting in the best interests of vendors.

The court decision orders Barfoot to pay costs to the REAA but says it is up to the company to determine “in light of this judgment how best to meet its responsibilities to the vendor” in similar cases.

Barfoot compliance manager Max House said Barfoot had used a vendor consent form prescribed under the act for the past 40 years in cases where licensees acquired property.

“Until this case, there had been no prior warning that the form was not sufficient to achieve the purpose for which it was intended. That, together with the provision of a valuation by a registered valuer, at the expense of the licensee acquiring the land, was thought to give sufficient protection to vendors, who had a right to avoid the contract if the price was less than the valuation.”

The court’s decision provided clarity for the industry and Barfoot & Thompson would ensure it reviewed its practices accordingly, Mr House said.