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Real Estate Council of Ontario

DISCIPLINE DECISION

IN THE MATTER OF A DISCIPLINE HEARING HELD PURSUANT TO BY-LAW NO. 10 OF THE REAL ESTATE COUNCIL OF ONTARIO

BETWEEN:

MANAGER OF COMPLAINTS, COMPLIANCE AND DISCIPLINE

REAL ESTATE COUNCIL OF ONTARIO

- AND-

CINDY MILLS and HAL REID DATE OF DECISION: June 1, 2007 FINDINGS: Cindy Mills

In violation of Rules 1(1), 1(2), 2, 21, 42 and 46 of the RECO Code of Ethics

FINDINGS: Hal Reid

In violation of Rules 1(1), 1(2), 2, 42 and 46 of the RECO Code of Ethics

PENALTY: RECO to deliver written submissions to the Panel and to the

Respondents on the issue of penalty and costs within 15 days of the date on which the Panel’s decision and reasons are delivered. The Respondents shall deliver to the Panel and to RECO its written submissions on penalty and costs in response to RECO’s submissions within 15 days of the date on which RECO’s submissions on penalty and costs are delivered to the Respondents. Any inquiries relating to the delivery of the above-mentioned documents should be directed to the Hearings Coordinator. The panel shall deliver its decision on penalty and costs after considering the written submissions of the parties.

COSTS AND EXPENSES: If appropriate, submissions to be made on costs and expenses

with submissions on penalty. WRITTEN REASONS:

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REASONS FOR DECISION INTRODUCTION This hearing was held on November 23, 2006, May 16 and 17 and June 1, 2007 in the presence

of the Respondents Cindy Mills and Hal Reid (collectively, the “respondents”), Lawyer A

(counsel for the respondents), counsel for the Real Estate Counsel of Ontario (“RECO”) and

legal counsel for the Discipline Panel.

ALLEGATIONS BY RECO In its allegation statement RECO alleged the following:

Mr. Hal Reid (“Mr. Reid”) is a member of RECO and a salesperson registered under the Real

Estate and Business Brokers Act (“REBBA”). At all material times, Mr. Reid was an employee

registered with Brokerage A.

Ms. Cindy Mills (“Ms. Mills”) is also a member of RECO and a broker registered under the

REBBA. At all material times, Ms. Mills was an employee registered with Brokerage A.

Buyer A and Buyer B (the “complainants”) were buyers of a property located at 1-AB Street, City

A (the “property”).

The property was listed by Brokerage A with Ms. Mills as the listing salesperson pursuant to a

listing agreement dated March 31, 2004. The property was listed at $164,900.00.

The information that appears on the MLS printout indicated that the water source for the

property was a drilled well.

On or about March 31, 2004, the sellers of the property filled out a Seller Property Information

Sheet (“SPIS”). Under the water supply and the waste disposal sections of the SPIS, the sellers

answered the questions as follows:

(a) What is your water source?

They ticked ‘well’ and ‘other’ and they inserted the word ‘cistern’.

(b) Are you aware of any problems re: quality of water?

There is handwritten information indicating that there is a ‘cistern’ as backup.

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(c) Are you aware of any problems regarding the quality of water?

They answered ‘no’.

(d) Do you have any water treatment devices?

It was left blank

(e) Is your water system operable year round?

It was left blank

On or about May 28, 2004 the complainants made an offer to purchase the property (the

“offer”). The complainants offered to purchase the property at $155,500.00. This offer was

signed back at $165,000.00 and was accepted at 11:45 a.m. on May 28, 2004. The

complainants were represented by Mr. Reid in this transaction.

The offer was conditional, among other things, on:

(a) Financing;

(b) Inspection;

(c) Suitable insurance; and

(d) Certificate of potability for water.

Before the complainants made the offer, they made inquiries about the water systems reflected

on the SPIS and Mr. Reid advised them that the well was okay and there had not been any

problems with the well at all and that the cistern tank was used as a backup. The cistern was

soft rain water which was used for the bathroom and laundry, while the rest of the house was

fed by the well.

Despite the clear indication on the SPIS that a cistern was used as a backup, and despite that

no answer was provided on the SPIS for the year round availability of water, Mr. Reid did not

insert a clause in the offer to make the offer conditional on the water quantity or water flow test.

Neither did he advise his clients to satisfy themselves of the availability of the water year round.

When the transaction concluded, on or about July 16, 2004, the complainants had the hot water

heater changed to oil. When the hot water tank filled, the well ran out of water and the water

pump lost its prime.

On or about July 17, 2004, the complainants called a plumber from Company AB who pumped

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out the water to determine the recovery rate of the well. The plumber waited for 10 minutes and

the recovery was only one quart. He did a second test and the result was the same. Plumber

AB, the plumber provided a report that stated as follows:

“I did a flow rate test on the drilled well at the above address. The well is 50 feet

deep, the water level was at 44 feet. Put test pump in and pumped well dry,

waited 10 minutes, water recovery only one quart. Second test result the same.

In my opinion this would constitute a dry well.”

The complainants called the plumber back for the purpose of drilling a new well. At the time of

filing the complaint with RECO, the complainants had drilled up to 124 feet at a cost of about

$10,000.00 but there was no sign of water on the property.

The complainants also obtained a copy of the well record of the old well which also shows that

there was no water. Incidentally, despite the questions raised by the answers in the SPIS, Mr.

Reid did not at any time, advise his clients to obtain the well report or have the well report filed

as a condition to the offer.

The complainants found themselves in a situation where they had to buy bottled water for

cooking and drinking, and filling up the cistern tank every two weeks at a price of about $65.00

each time. This was a cost which they did not build into the purchase of the property.

In the course of the research into the complaint, it was disclosed that while water from the

property was indeed taken for analysis on May 29, 2004 by Mr. Reid, and that the test disclosed

no significant evidence of bacterial contamination, no test of water recovery was either

recommended or carried out before completion of the transaction. It was also not certain where

the actual source of the water taken for the testing was.

In a letter to Registrant A, the principal broker at Brokerage A, dated December 6, 2004, Mr.

Reid stated:

“In addition to the letter addressed to Registrant B dated September 8, 2004, I

would once again express that the complainants knew what they were buying.

They were made aware of the water cistern and its function in supplying water to

the household. They were also aware that water had been purchased in the

past, as the well was not capable of supplying enough water for normal

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household use. With this information, they decided to move forward with the

purchase. After the transaction had closed, while having a new water heater

installed, they chose to alter the water cistern and stop using the water cistern as

a backup water supply and have the well supply water for the entire household.”

Mr. Reid, however, stated on August 23, 2005 to a researcher:

“The cistern is a holding tank that stores rain water and water that may be

trucked in depending on that year we have [sic]. They were made aware that the

well serviced the kitchen and the cistern served the rest of the home. They had a

contractor install a new water heater and hook everything up to the well. That is

when they stated to have problems. They were told that the sellers purchased

water from time to time.”

Ms. Mills indicated that she provided all information relating to the water system to Mr. Reid as

follows:

(1) “On or about May 28, 2004, Hal Reid showed the property and phoned me on his cell

during the showing to ask where the cistern was located. At that time, I advised him of

the location of the cistern and that the well was hooked up to the kitchen and the

balance of the house was hooked up to the cistern, and that there was a valve to switch

the home to the well, but, that the sellers had never used the well for the entire house

and, therefore, they would not provide any warranties with respect to the well supply.”

(2) “On Hal’s return to the office, he phoned me on the intercom at which time the cistern

was discussed again and it was again indicated that the kitchen was hooked up to the

well, and the cistern was hooked up to the balance of the home and was filled as

required, and that because when the sellers purchased the home and it was hooked up

this way, they never changed it and therefore could not make any warranties or

presentations regarding the well.”

(3) “Subsequent to the offer being prepared, I had advised Hal that the vendors would not

be able to warrant the well with respect to water supply and to ensure that the offer

indicated the use of the cistern.”

There was never any indication on the MLS information, nor in the Agreement of Purchase and

Sale, that the house actually depended on the cistern which was filled every two weeks or so.

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RECO alleged that as a result of the foregoing Ms. Mills acted unprofessionally and in

particular:

(a) failed to disclose a pertinent fact in the MLS, Agreement of Purchase and Sale, or other

documentation that the water source for the property was mainly a cistern;

(b) failed to disclose that the cistern required filling up fortnightly in order to provide

information for potential buyers to make an informed decision.

(c) failed to ensure that the Agreement of Purchase and Sale was completed with the water

situation documented in order to protect the buyer and seller clients.

RECO alleged that Ms. Mills breached the following Rules of the RECO’s Code of Ethics:

Rule 1 - Ethical Behaviour – A Member shall:

(1) endeavour to protect and promote the best interests of the Member’s clients

(2) endeavour to protect the public from fraud, misrepresentation or unethical practice in

connection with real estate Transactions

(5) deal fairly, honestly and with integrity with the public, their Members and third parties.

Rule 2 – Primary Duty to Client – A Member shall endeavour to protect and promote the best

interests of the Member’s Client. This primary obligation does not relieve the Member of the

responsibility of dealing fairly, honestly and with integrity with others involved in each

transaction.

Rule 6 – Written Transaction Agreements – A Member shall ensure that Agreements

regarding Transactions are in writing, expressing the specific terms, conditions, obligations and

commitments of the Parties to the Agreement. A copy of each accepted Agreement shall be

furnished to each Party upon its final Acceptance.

Rule 11 – Discovery of Facts – A Member shall discover and verify the pertinent facts relating

to the Property and the Transaction relevant to the Member’s Client that a reasonably prudent

Member would discover in order to fulfill the obligation to avoid error, misrepresentation or

concealment of pertinent facts.

Rule 21 – Advertising – A Member shall ensure that all advertising and promotion by or on

behalf of the Member, including for Properties and services, is not false, misleading or

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deceptive.

Rule 42 – Competence – A Member shall render conscientious service with the knowledge,

skill, judgment and competence, in conformity with this Code of Ethics and the standards which

are reasonably expected of Members. When the Member is unable to render such a service,

either alone or with the aid of another Member, the Member shall decline to act.

Rule 46 - Unprofessional Conduct - A Member shall not engage in an act or omission relevant

to the practice of the profession that, having regard to all the circumstances, would reasonably

be regarded by Members or the public as disgraceful, dishonourable or unprofessional.

RECO alleged that as a result of the foregoing Mr. Reid acted unprofessionally and in

particular:

(a) failed to adequately inform the buyers of the potential water problems to enable them to

make an informed decision;

(b) failed to advise them to have a water flow recovery test as a condition to the offer;

(c) failed to complete the Agreement of Purchase and Sale with the water situation

documented in order to protect the buyers and sellers.

RECO alleged that Mr. Reid breached the following Rules of the RECO’s Code of Ethics:

Rule 1 - Ethical Behaviour – A Member shall:

(1) endeavour to protect and promote the best interests of the Member’s clients

(2) endeavour to protect the public from fraud, misrepresentation or unethical practice in

connection with real estate Transactions

(5) deal fairly, honestly and with integrity with the public, their Members and third parties.

Rule 2 – Primary Duty to Client – A Member shall endeavour to protect and promote the best

interests of the Member’s Client. This primary obligation does not relieve the Member of the

responsibility of dealing fairly, honestly and with integrity with others involved in each

transaction.

Rule 3 – Disclosure of Role – At the earliest practical opportunity, but no later than when the

Member Accepts an Agency, a Member shall fully disclose in writing the role and nature of the

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service that the Member shall be providing to the Person. The Member shall also disclose the

Member’s role to others involved in the Transaction when appropriate.

Rule 6 – Written Transaction Agreements – A Member shall ensure that Agreements

regarding Transactions are in writing, expressing the specific terms, conditions, obligations and

commitments of the Parties to the Agreement. A copy of each accepted Agreement shall be

furnished to each Party upon its final Acceptance.

Rule 7 – Outside Professional Advice – a Member shall not discourage the Parties to a

Transaction from seeking outside professional advice.

Rule 11 – Discovery of Facts – A Member shall discover and verify the pertinent facts relating

to the Property and the Transaction relevant to the Member’s Client that a reasonably prudent

Member would discover in order to fulfill the obligation to avoid error, misrepresentation or

concealment of pertinent facts.

Rule 42 – Competence – A Member shall render conscientious service with the knowledge,

skill, judgment and competence, in conformity with this Code of Ethics and the standards which

are reasonably expected of Members. When the Member is unable to render such a service,

either alone or with the aid of another Member, the Member shall decline to act.

Rule 46 - Unprofessional Conduct - A Member shall not engage in an act or omission relevant

to the practice of the profession that, having regard to all the circumstances, would reasonably

be regarded by Members or the public as disgraceful, dishonourable or unprofessional.

EVIDENCE OF THE PARTIES The Notice of Hearing was filed by the prosecutor and identified as Exhibit 1. The RECO Book

of Documents was identified as Exhibit 2. Counsel for the respondents introduced Exhibit 3,

which was a Book of Documents which he had produced prior to obtaining the RECO Book of

Documents.

RECO’s prosecutor advised that the hearing would only be proceeding against Ms. Mills and Mr.

Reid.

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Opening remarks by RECO In his opening statements, the prosecutor for RECO stated that the respondents were both dual

agents in the transaction relating to the purchase and sale of the property. The complainants

were a couple who were selling their existing home and purchasing the property to

accommodate the requirements of a special-needs child. Their agent on the listing end of their

home had advised them to get a local agent since he was not familiar with the area to which

they wished to relocate. Having met Mr. Reid during the selling of their home, the complainants

contacted him and were advised that he had 20 years experience in the area. RECO also

stated the evidence at the hearing would show that Ms. Mills had posted misleading information

on the MLS listing, and that Mr. Reid did not protect the interests of his clients.

Opening remarks for the Respondents Counsel for the respondents stated that the Panel's job would be very difficult, but that the case

would hinge on the credibility of the witnesses. He also stated that the evidence would show

that the purchasers knew exactly what they were buying and what they were getting into as far

as the water supply system at the property was concerned.

WITNESSES FOR RECO Buyer B The first witness for RECO was the complainant Buyer B. Buyer B testified that she worked for

the Company C in City B, and that she had four children of varying ages, one of whom had

special-needs. Buyer B advised that she had filed a complaint with RECO because she had

sold her home in City C mainly to shorten the bus ride for a special-needs child and that she

was upset about the water problems that were experienced at the property. She testified that

she had met Mr. Reid when he showed her house in City C. She called him to show her houses

in different areas because her agent in City C, Registrant C, was not familiar with the area to

which she wished to relocate. Registrant C advised her to get a local expert.

She testified that Mr. Reid showed them listings for houses in three different areas; City D, City

E, and the subject property. He informed them that the City E property had water problems. As

a result, the complainants told Reid they did not want to see it.

She further testified that when they arrived at the property with her husband and a daughter that

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Ms. Mills was present and she was showing the property to one of her clients. Ms. Mills and Mr.

Reid talked and then she (Buyer B), her family and Mr. Reid, entered the house. She stated

during examination in chief that when they arrived at the property they immediately liked it, and

that her husband loved the double garage on the flat property. Her husband asked about the

water situation and was told that it was a drilled well; shortly thereafter, they went back to the

Brokerage A office where Mr. Reid worked and they drafted an offer.

She was asked to go to Tab 2, page 3 of exhibit 2 which she identified as a copy of the MLS

listing, which had been in Mr. Reid's hand when they went to see the property. She said she

saw the listing and it said drilled well on the listing. She further testified that she had never seen

the Seller Property Information Statement prior to making an offer on the property.

Buyer B was asked about the home inspection and she testified that during the home

inspection, they asked about the cistern. They were told that the cistern supplied the toilets and

laundry as backup, and that she saw the property three times before closing, as well as during

the home inspection. Buyer B stated that neither the home inspector nor Mr. Reid knew where

the cistern was. She advised that Mr. Reid told them that he had lived in the area for 25 years

and did not know of any water problems. She identified the written offer that they submitted for

the property. She stated that they signed the offer and those paragraphs in the offer which had

been included by Ms. Mills on behalf of the sellers. When asked about an acknowledgement in

the schedule to the offer, which stated “The Buyer acknowledges the presence and use of the

water cistern”, Buyer B stated that they understood that the cistern was at the property as a

backup system. She also confirmed that certain conditions were put into the offer, including a

condition providing for a home inspection satisfactory to the buyers.

When asked about the results of the home inspection the complainants had conducted, Buyer B

stated that the home inspector had identified the oil tank as being a problem. When the seller

refused to pay for the oil tank, Mr. Reid agreed to pay for half and that he also agreed to pay to

have the septic system pumped. She stated that the water tap was operated during the home

inspection for a few minutes. The home inspector found two pumps and it was later ascertained

that one was for well water and one was for the cistern. Buyer B testified that the home

inspector had said that the "gray water" system was turned off. She stated that after they

moved into the property, the lady across the street told them where the cistern was located.

When Buyer B was asked "what if Hal Reid were to say that he showed you the cistern", she

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replied that he would, in her view, be a “bald-faced liar”. She went on to state that she would

never have moved from her house in City C, where she had an artesian well, to a house with no

water, where her kids got sick and they had bugs on their skin from the water. Buyer B claimed

that had they been told that only the cistern ran the whole house, they would not have moved

from their previous home. She stated that she was told by the lady across the street from the

property that the sellers had filled up the cistern two days before they moved out. When she

was asked if she was told about having to fill the cistern, Buyer B replied in the negative. She

also confirmed that she considered the water supply system for the property to be very

important.

After they had moved into the property, Buyer B stated that her husband called her at work one

day to tell her that there was no water. Her husband subsequently called Company AB who

proceeded to do a water flow test. The results of the flow test essentially confirmed that the well

was a dry well. As a result, the complainants phoned the lawyer. They also phoned their bank

and were told to speak to a lawyer. They phoned Mr. Reid and Mr. Reid said there was nothing

he could do. They called the lawyer back and the lawyer said "call a well driller". They

subsequently had a well driller attend at the property and he drilled 255 feet but found no

significant water supply. After the drilling work had been completed, they called Registrant B,

the broker at Brokerage A, and he also said there was nothing he could do. They also call

Brokerage A in City I but no assistance was forthcoming. When Buyer B was asked if anybody

connected with the transaction for the property had told her that there was no water on the

property, she confirmed that no one had done so.

It should be noted at this point that Registrant B was the broker/owner of the Brokerage A office

where the respondents worked and Registrant D was the broker manager and partner of

Registrant B.

Buyer B was then asked about the effects of her purchase of the property and the water

problems which had been experienced. She replied that her husband had a nervous

breakdown, she lost her marriage, and she had gone bankrupt. She also stated that she

believed that Mr. Reid had misled them. She stated that she thought that she and her husband

would retire at the property and now they have no credit. She stated that they had no

Christmas, and her special-needs son has gone from two to a 200 reading with his disorder.

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Cross-Examination

On cross-examination Buyer B was asked if the laundry and bathrooms were serviced by the

cistern. She confirmed that she knew the cistern serviced those facilities and that only the

kitchen sink was connected to the drilled well, although she continued to maintain that she

considered the cistern to be a “back-up” system.

With respect to agency issues, Buyer B confirmed that Mr. Reid had explained agency issues

and that she had signed agency-related documentation. When Buyer B was asked if Mr. Reid

had explained dual agency, she replied yes, but she claimed that the initials on the written

acknowledgement were not her initials. However, when Buyer B had been asked similar

questions by RECO Staff, a RECO researcher, she had replied that dual agency had not been

explained to her. When asked again about the meaning of agency relationships, Buyer B stated

that she did not understand what she had signed.

With respect to her home inspection for the property, Buyer B was asked about the notations in

the home inspection report recommending that she and her husband seek further clarification

concerning “gray water drainage from laundry room” and where that water drained. Buyer B

acknowledged that she had made no further inquiries about those issues. She was also

referred to the Schedule in the Agreement of Purchase and Sale in which she had confirmed

“The buyer acknowledges the presence and the use of the water cistern”. When asked about

that acknowledgment, Buyer B stated that she and her husband were told that the sellers used

a split water system and she stated, once again, that she thought the cistern was a backup

system. When asked whether she and her family had any problems with the water system

before they altered the system and hooked the hot water tank (which had previously been

serviced by the cistern) to the drilled well, she confirmed that they had not experienced any

water supply problems.

Buyer B confirmed that she had seen the two pumps at the property -- one for the cistern and

the other pump for the drilled well. During cross-examination, she was also asked whether, at

her meeting with Mr. Reid at Brokerage A’s office where the offer had been drafted, she had

been told that the sellers had purchased water occasionally and used chlorine tablets. Buyer B

replied that Mr. Reid had simply said that the well was fine. Buyer B was told that the former

manager of Brokerage A, Registrant D, would be advising that Buyer B had acknowledged to

her that Mr. Reid had told her about limitations with the water system at the property and that

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she (Buyer B) had told Registrant D that she did not believe the limitations were as bad as Mr.

Reid had advised her. Buyer B claimed that she had not made such remarks to Registrant D.

After experiencing problems with the water supply at the property after the complainants

connected the hot water tank to the drilled well, Buyer B said that she and her husband simply

walked away from the property on the advice of their lawyer. Buyer B claimed that they did not

lose the property because they had defaulted on their mortgage.

Finally, when Buyer B was asked whether she thought that an adverse finding against Mr. Reid

in this proceeding would assist her in her civil litigation against the respondents, she stated that

she did not know.

Re-Examination

On re-examination, Buyer B was asked about the Seller Property Information Statement which

she stated she had not seen prior to the offer. She was asked why she did not take steps to

follow up on the home inspector's comments about the gray water system at the property.

Buyer B replied that she and her husband did not make any further inquiries because they had

been told that the cistern was a backup system. Finally, Buyer B confirmed that up to the

closing date she had experienced no problems with Mr. Reid.

Buyer A Buyer A testified that he has been employed by Company D for 27 years and is currently

separated from his family. He testified that they went to see the subject property and fell in love

with the property -- the two-car garage and level lot were major factors for him. Of the three

properties that Mr. Reid was going to show them, he explained to them that there were water

problems on one side of the lake (in City E) and, as a result, they had rejected that property. On

further questioning, Buyer A stated that he asked Mr. Reid numerous times about the water at

the subject property and Mr. Reid assured him that the cistern was a backup system, and that

Mr. Reid did not know the location of the cistern. Buyer A also stated a neighbour near the

property had to tell him the location of the cistern and the same neighbour stated that the

previous owners had always had water problems. In fact, the previous owners had water

trucked into the property. Buyer A testified the offer was put together in Brokerage A’s office and

that, during that meeting, he asked about water issues again and that Mr. Reid confirmed there

were no water problems. Buyer A also confirmed that Mr. Reid subsequently agreed to share

the cost of a new oil tank for the property.

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After the complainants moved into the property they had a new hot water tank installed. The

new tank, however, was disconnected from the cistern and hooked up to the drilled well. After

doing so, however, the pump soon lost its prime. The home inspector was called but he could

not get the pump to work properly.

Company AB subsequently attended at the property, they emptied the well, and in 10 minutes

only 1 quart of water had re-entered the well. Buyer A pointed to the listing for the property

which only identified the property as being serviced by a drilled well He also identified the Seller

Property Information Statement, which showed the water source as a drilled well with the cistern

as backup. He testified, under questioning that Company E in City F knew where the cistern

was located and that the company had delivered two loads of water to the property every month

while the sellers had lived there. Each load was 2000 gallons and the total monthly cost was

approximately $100. Buyer A testified also that when they called Company E to fill a small pool

that they had bought for his children, the water contained bugs and bloodsuckers. On further

questioning, Buyer A also testified that nothing was mentioned about the need to fill the cistern.

Buyer A then testified that he had called Company F, well drillers, who went down to 155 feet

and found no water. After that, he called a company from City G, which tried to pressure-blow

the well. However, after pressure-blowing the well, it only worked for approximately 30 minutes.

The Prosecutor then asked Buyer A to look at a document from Company F, well drillers, which

purported to show that the well is technically classified a dry well. Buyer A stated that Company

F said they could try drilling deeper but it was very unlikely that they would find water.

The Prosecutor asked Buyer A what affect the purchase of the property had on his life. He

stated that he had a nervous breakdown, he lost his family, and at the time of the purchase of

the property he was going to be able to retire in five years but he must now work until he is 65

years old. When Buyer A was asked if he would have bought the property if he had known

about the water problems, he stated he would not have done so. Buyer A said that he was

prepared to walk away from the property over the issue of the oil tank until Mr. Reid offered to

pay for it.

Cross-Examination

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On cross-examination, Buyer A was asked if he liked the property and he answered yes. He

also confirmed that he had only put 5% down on the property, or approximately $8,200. When

he was asked whether he and his family abandoned the property after they began experiencing

problems with the well, he replied that they had not abandoned the property. Buyer A stated

that he was advised by their lawyer to walk away from the property. He added that he had also

put new windows and doors and done landscaping and work on a pond on the property.

Buyer A had to be instructed several times by the Chair of the Panel to answer the questions

which had been posed to him on cross-examination.

When he was asked about the most recent listing on the property, Buyer A stated that it said it

needed TLC (“tender loving care”). Counsel for the respondents suggested the property was

sold for $132,000 after the complainants abandoned it, but Buyer A insisted that it had been

sold for $129,000. He was asked if the water problems were disclosed on the new listing, and

he said possibly.

Counsel for the respondents showed Buyer A a letter from Lawyer B, the complainants’ lawyer,

which stated that the complainants knew about the cistern being hooked up to the bathroom and

hot water. However, Buyer A insisted that his own lawyer was wrong.

Counsel for the respondents produced a letter from Individual of Company E which stated that

he had attended at the property to do water fill-ups when he was called by the previous owners

and that the fill-ups were done approximately once a month. Water was provided for the cistern

and on occasion for a pool. When asked to comment on the written information from Company

E, Buyer A essentially replied that the document said what it said. A letter from a tenant of a

neighbouring property stated that water had been delivered to the property purchased by the

complainants approximately once a month (when the sellers lived at the property). The tenant

also stated that the sellers had indicated to him that there was sufficient water (from the well) for

the kitchen. When asked to comment on the information in the letter, Buyer A replied that the

author of the letter was a tenant of another property owned by the sellers.

Buyer A was then asked if he was a plaintiff against Ms. Mills and Mr. Reid in a civil suit, and he

replied that he was.

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Counsel for the respondents indicated that Mr. Reid would be testifying that he was not going to

show the complainants the subject property the day that it was actually shown to them. Buyer A

claimed that such a version of events was not true because Mr. Reid had papers in his hand

relating to the property. When Buyer A was asked why, in response to his home inspection

report, he did not make any further inquiries relating to the cistern, he advised that neither Mr.

Reid nor the home inspector knew where the cistern was located. When asked about the

acknowledgment in the Agreement of Purchase and Sale that “The buyer acknowledges the

presence and use of the water cistern”, Buyer A stated he and his wife understood that the

cistern was a backup.

On the issue of agency relationships, Buyer A stated that he did not recall having a discussion

with Mr. Reid concerning same.

When asked if he recalled the speaker phone conference between Ms. Mills and Mr. Reid at

Brokerage A’s office (when the offer was being drafted), he denied that such a discussion took

place.

Re-Examination

On re-examination, the prosecutor asked the witness why he did not make further inquiries

relating to the water system. Buyer A replied that he trusted Mr. Reid.

The witness was then asked about the letter from his own lawyer which described the water

supply system at the property and Buyer A stated it must have been a mistake because they

never provided the information contained in the letter. Contrary to the letter, Buyer A stated that

he and his wife had never spoken to the seller and that all information on the water system

came from Mr. Reid. Buyer A was then asked how long it was after closing that they found out

about the water problems, and he replied five days.

Expert A – Expert Witness Expert A was the next witness. Expert A explained that he has been registered as a realtor

since 1978 and a broker since 1984. From 1983 to the present time, his practice has been

primarily in rural properties. Expert A stated he has managed many offices and given many

seminars on wells, including one at the Real Estate Council of Ontario. He was asked by the

Prosecutor what he was given to form his expert opinion. Expert A identified the documents he

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had reviewed to prepare his opinion letter and stated that he had also “Googled” area well

drillers. He also stated that he contacted the executive officer of the local real estate board and

that she had informed him that Web Forms was commonly in use in the area.

Expert A suggested that that the clauses in the offer should be either or both of the clauses

identified in his opinion letter to properly protect the buyer. The prosecutor asked what the

difference was between the two clauses and the answer was one is a warranty and one is a

condition. Expert A stated that, in his opinion, there was no diligence on the part of the agent to

protect the buyer in the absence of at least one of the clauses outlined in his opinion letter.

Expert A also opined that there was information missing from the listing, the Seller Property

Information Statement and the Agreement of Purchase and Sale. There was no answer on

sections E or F on the Seller Property Information Statement. Further, Expert A stated, in his

opinion, certain clauses should have been used in the transaction because they would have

solved any problems relating to the water supply by raising red flags in the buyer's mind.

Cross-Examination

Counsel for the respondents asked if Expert A had 30 years experience in real estate and

whether he had managed a few companies. His answer was yes. Expert A was also asked

how many agents would have his level of experience; he answered that very few would have his

level of experience. He was then asked if his opinion of the transaction was based only on

information which the prosecutor had provided to him and he replied yes. When he was asked

to assume that the buyers knew about the water problems, and to advise whether his opinion

would be different, he answered that one of the two paragraphs for the Agreement of Purchase

and Sale, as outlined in his opinion letter, should have been included in the Agreement.

After Expert A testified, the prosecution rested its case.

WITNESSES FOR THE RESPONDENTS Cindy Mills Cindy Mills was the first witness called for the respondents. She explained that she has been a

sales representative since January of 2002 and a broker since 2004 and that she sells mostly in

the City H area and mostly residential. She stated that the listing appointment was a referral,

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and she did a comparative market analysis on the property, walked the property with the sellers,

went back to the house and filled out the listing. She stated she was told by the sellers that

there was a drilled well, that there were two systems, and they treated the cistern with chlorine.

When asked to identify the handwritten listing, Ms. Mills explained it was taken to her office and

distributed to the other agents through broker load, which becomes the MLS printed listing. On

questioning from her counsel, Ms. Mills admitted that reference to the cistern was missing from

the MLS listing and that she did not notice it. She also acknowledged that the SPIS identified

the well, but listed the cistern as backup. She advised that all sections on the SPIS relating to

the water supply system at the property had not been completed because she did not believe

the sellers had the expertise to include such information.

She explained that Mr. Reid had called her on May 28. He was with clients and he wanted to

know if there was any activity on the subject property and when it was available for a viewing.

One hour later, Mr. Reid called her at the office, got the lockbox combination from her, and he

called back to get the location of the cistern. She testified that the next time she spoke to Mr.

Reid was on the speaker phone at the office at which time he informed her that he was with the

complainants and they were listening to the call. She advised everyone that the kitchen was

connected to the well and the rest of the house was on the cistern, that the cistern was

periodically treated with chlorine, that the sellers bought water from time to time, and that the

sellers would not given any warranties relating to the well. Ms. Mills stated that she later spoke

with Registrant D (spouse of the broker/owner of Brokerage A) to advise her that she was

expecting to get an offer for the property. She further testified that Mr. Reid provided the offer

for her to present to the sellers, who signed it back. The buyers accepted the signed back offer.

Ms. Mills was asked to put certain clauses relating to the water supply system in the offer and

she testified that Mr. Reid, after discussion with Registrant D, put the clauses in the offer.

Counsel then directed Ms. Mills to look at the complaint letter to RECO from the complainants.

Ms. Mills testified that she was asked about the sale months later, and that no interview of her

by RECO ever took place. Ms. Mills also stated that the sellers had told her from the beginning

that only the kitchen was hooked up to the well.

Ms. Mills testified that after the complainants abandoned the property, it sold for $132,000, but

the basement had extensive water damage.

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Cross-Examination

On cross-examination, Ms. Mills was asked if people still buy properties with water supply

problems, and she said yes, people still make offers. When Ms. Mills was asked why there was

a valve to separate the two water supply systems (i.e. the drilled well and the cistern) she

advised that she did not know. However, she stated that the sellers had never used just the

well to supply the property with water. She testified that she met the sellers, took notes

regarding the cistern and well and she did not notice the valve. She testified that the sellers

would not provide any warranties concerning the water supply system. Ms. Mills was also

asked why the well was listed as the primary source of water with the cistern as backup,

especially if the sellers had told her that everything except the kitchen sink was hooked up to

the cistern. RECO’s prosecutor suggested the listing should have said the cistern was the

primary source since it fed most of the house, but Ms. Mills disagreed. She also testified that

Mr. Reid called her from the house and she told him where the cistern was. The prosecutor

suggested that she heard testimony the previous day at least three times that the buyers did not

know where the cistern was, but Ms. Mills contended that this was not true. She emphasized

the speaker phone conversation during which she had informed Mr. Reid, with the complainants

listening, that the kitchen was on the well and the remainder of the house was on the cistern.

The prosecutor suggested this conversation never took place, and Ms. Mills insisted that it did.

The prosecutor also asked if Ms. Mills would agree that the MLS listing was misleading. She

said it was in that it does not mention the cistern. Ms. Mills was asked if she took steps to check

the accuracy of her listing and she replied that she did. She testified that due to a changeover

in computer systems at Brokerage A’s office, there were approximately 4 weeks when the

system was not working properly. The prosecutor pointed out that there was still another four

weeks prior to the offer being made after the computer problems would have been solved, and

the listing was still not corrected. Ms. Mills admitted that the listing had not been corrected and

that she simply missed the error.

Ms. Mills was then directed to the printout of a client view (of the listing), which still showed the

drilled well. Once again, Ms. Mills admitted that she had missed the fact that the cistern was

not mentioned on the listing.

The prosecutor directed Ms. Mills to the acknowledgement in the Agreement of Purchase and

Sale where the buyers acknowledged the use and presence of the cistern. RECO’s prosecutor

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suggested that the clause was not very descriptive and that, in fact, the cistern could have been

used for watering plants and suggested that the clause should have identified what the cistern

was specifically used for and that it was the primary source for the water supply system at the

property. He asked Ms. Mills if it could be interpreted as per the Seller Property Information

Statement that the cistern was a backup system, and she stated yes.

The prosecutor asked if she knew whether the well at the property had been a dry well since

1973, and she answered no.

Hal Reid The respondent, Mr. Reid, was the next witness. He testified that he is currently working with

the Brokerage B office in City F, that he was a sales representative with two years experience

and he was a 25 year resident of City H. He testified that when he initially met the complainants

he explained agency to them and informed them that he owed them a duty of total disclosure.

He testified that they did not like the City D house which he initially showed to them, and that he

explained to them that the City E house had water problems and, as a result, he advised them

against seeing that property. With respect to the subject property, Mr. Reid testified that the

complainants had seen that property on the Internet and they already had information about the

property. Mr. Reid knew it was Ms. Mill's listing, and, accordingly, he telephoned her about the

property.

He testified Ms. Mills told him about the cistern and other features relating to the Property. He

stated that the complainants loved the property when they saw it and they were very excited

since it was listed at $169,000. Reid stated that, in his view property would have likely been

listed in excess of $200,000 if it had not had a cistern.

Mr. Reid stated that, contrary to the testimony of the complainants, Ms. Mills was not on the

property when they first visited it. According to Mr. Reid, Ms. Mills gave them a lockbox code

and they toured the property. He phoned Ms. Mills and she told them about the cistern and a

valve on the water supply system to switch it from the cistern to the well.

Mr. Reid stated that he had to telephone Ms. Mills again because he could not find the cistern

and she told him it could easily be located. Mr. Reid and the complainants discussed chattels at

the property and he stated that he did not have the SPIS with him at the time. Since the

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complainants were excited about the property and wanted to make an offer, they returned to

Brokerage A’s office to draft one. Mr. Reid also went to see the manager, Registrant D, to

discuss the offer and she instructed him simply to “disclose, disclose, disclose” everything

relating to water issues.

Mr. Reid then met with the complainants when he had a copy of the Seller Property Information

Statement and he discussed what would be put into an offer. He testified that he got Ms. Mills

on the speaker phone in the office and they again went over the cistern issues. According to

Mr. Reid, Ms. Mills confirmed that the cistern was treated with chlorine tablets, the complainants

asked about the Hydro costs and if the wood stove was included. After Ms. Mills hung up they

discussed the issue of the price of the property.

After an offer was drafted, Mr. Reid provided it to Ms. Mills. With respect to the Agreement of

Purchase and Sale, Mr. Reid explained the clauses therein to the complainants, as well as the

clause acknowledging the presence and use of the cistern, which Mr. Reid advised the

complainants were willing to live with. Mr. Reid also confirmed that he had obtained a water

sample for the potability test which was subsequently performed.

Mr. Reid stated that he knew where the cistern was located (after he was advised of same by

Ms. Mills) and that he actually showed where it was located to the home inspector. Mr. Reid

stated that he believed the complainants were willing to accept the results of the home

inspection and proceed with the transaction.

Mr. Reid confirmed that he offered to pay for the oil tank up to a maximum of $400 and he also

paid to pump the septic system after closing because the complainants did not seem to have a

lot of money and it seemed like the right thing to do in the circumstances.

Finally, Mr. Reid advised that at no time did the complainants tell him that they intended to

change the nature of the water system at the property.

Cross-Examination

On cross-examination, RECO’s prosecutor confirmed that Buyer B liked the house. Mr. Reid

confirmed that he believed the Buyer B had limited funds because they did not want to pay the

entire cost of a new oil tank. Mr. Reid also stated that the home inspector saw where the cistern

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was located but that he did not remove the plywood cover on the wall (behind which the cistern

was located) because home inspections do not ordinarily involve destruction to conduct

investigations. Mr. Reid advised that he showed Buyer A where the cistern was located.

Mr. Reid testified that it was not unusual that the home inspector did not do a flow rate test on

the well because such tests are not ordinarily part of such an inspection.

Mr. Reid confirmed that he had seen the SPIS for the property and that the document confirmed

that the buyers were responsible for making their own inquiries about the issues covered by the

SPIS. He stated that he explained to the complainants several times that the well at the

property was weak. Mr. Reid also confirmed that he considered the cistern to be a “backup”

system at the property and that he had been told that the sellers had only used the water supply

system in the way it had been set up at the property (i.e. with the well servicing the kitchen sink

and the cistern servicing everything else at the property). After confirming that he knew that

water had to be trucked into the property from time to time, Mr. Reid advised that he himself did

not investigate the costs of doing so. He also stated that he did not advise the complainants to

have a flow rate test done on the well as part of their purchase of the property.

Mr. Reid stated that he understood that the cistern was also fed with rainwater. As far as the

cistern being a “backup”, he did not describe it as such to the complainants. With respect to

the acknowledgment in the Agreement of Purchase and Sale which stated "The buyer

acknowledges the presence and use of the water cistern“, Mr. Reid agreed that it provided no

information on how well the cistern worked. When asked whether the acknowledgement could

have been more specific, Mr. Reid advised that the “next one” would be more specific.

Mr. Reid stated that Buyer B was excited about the property and, in his view, she would have

signed anything.

After suggesting that the term “use” in the acknowledgment concerning the cistern was

ambiguous, Mr. Reid advised that he disagreed.

RECO’s prosecutor also suggested that if the limited warranty from the sellers concerning the

pump at the property being in good working order had included a clause relating to the flow rate

from the well, the buyers would have been better protected. Mr. Reid agreed with that

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proposition but he stated that, in this case, the sellers were simply not willing to warrant the well.

Mr. Reid agreed that the MLS listing for the property (which makes no reference to the cistern)

was potentially misleading, although Ms. Mills had explained to him the nature of the water

system at the property.

Finally, Mr. Reid agreed that if a well flow rate test had been conducted before the complainants

purchased the property, it would have likely classified the well as a “dry well”.

Registrant D The next witness was Registrant D who testified that at the time the property was purchased

she was the manager of Ms. Mills and Mr. Reid. She also confirmed that she spoke with Ms.

Mills, Mr. Reid and Buyer B either prior to and after the property was purchased.

Registrant D said that she told Ms. Mills that, in the area where the property was located,

cisterns are very common. She advised that she was concerned about protecting the sellers

and buyers, and she knew that Mr. Reid was preparing an offer. She confirmed with Ms. Mills

that she had explained the system to Mr. Reid and that he had gone over the system with the

buyers. Registrant D also advised Ms. Mills to have the buyers confirm the existence of the

cistern in the Agreement of Purchase and Sale.

Registrant D testified that Buyer B had called her after the property had been purchased and

that she was upset because the well was dry. Registrant D stated that Buyer B confirmed that

the water supply system had been explained to her but Buyer B simply stated "yes it was but I

never thought it would be as bad as they said".

Cross-Examination

On cross-examination, RECO’s prosecutor asked Registrant D if she had looked at the MLS

listing or the SPIS and she stated that she looked all of Brokerage A’s listings when she was a

manager there. She confirmed that individual agents are supposed to check their listings to see

if they are accurate. When asked whether errors on listing should have been corrected within 2

months of their posting, Registrant D stated yes. Registrant D confirmed that the listing for the

property did not mention the cistern and that it had not been corrected prior to the property

being sold.

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Registrant D confirmed that the SPIS indicated that the property was supplied by a drilled well

with the cistern listed as a “backup”. She indicated that, given that description, she would have

assumed that the well was the primary water source at the property. She also indicated that

she would want to know about those issues for which no information had been offered on the

SPIS. Registrant D also confirmed that she had not reviewed the offer for the property before it

was submitted and accepted.

With respect to the acknowledgment in the Agreement of Purchase and Sale about the

presence and use of the cistern, Registrant D stated that "in hindsight it could have been better

written".

Registrant D also stated that Buyer B knew about the shortcomings relating to the water supply

system at the property given her own telephone conversation with Buyer B after the property

was purchased.

Registrant D stated that Buyer B called her and made threats to her relating to the sale of the

property; as a result of Buyer B’s phone call, Registrant D subsequently reported the matter to

Brokerage A’s head office.

Re-Examination

Counsel for the respondents asked Registrant D if she was there when Mr. Reid showed the

property and she replied no.

Expert B – Expert Witness for the Respondents The next witness was Expert B, who was called by the respondents as an expert witness.

Expert B stated that he has been licensed since 1974 and he is active in rural properties in the

City H Area. Counsel for the respondents asked Expert B whether it was standard practice to

have a well flow rate test performed as part of a residential real estate purchase and he advised

that it was not standard practice. Expert B also advised that well drillers are often too busy to

do tests immediately and it can often take more than a week to arrange for such a test to be

conducted. Expert B indicated that well drillers are often too busy doing bigger contracts

involving the drilling of wells to stop work to perform a well flow rate test at another property.

Expert B indicated that other information might be available on a property, such as a ministry

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well report. Expert B stated that an SPIS is often a good source of information on wells at a

property. Expert B stated that when he sees a cistern listed on an SPIS, he often assumes that

it is the main source of water.

Cross-Examination

RECO’s prosecutor asked Expert B whether his opinion would be different if he were to assume

that Mr. Reid did not tell the complainants about the importance of the cistern for the water

supply system at the Property. Expert B advised that his opinion would be different in such

circumstances.

SUBMISSIONS OF RECO ON FINDINGS

In his submissions, RECO’s prosecutor claimed that the evidence of the complainants on their

understanding of the water supply system at the property was clear and unchallenged. The

complainants had testified that at no time were they told that water had to be trucked into the

property from time to time. They also claimed that no speaker phone conference with Mr. Reid

and Ms. Mills ever took place. The prosecutor submitted that the respondents were evasive on

cross-examination and that Ms. Mills had refused to answer what she considered to be the

primary source of water at the property. With respect to the SPIS, RECO argued that it should

have raised red flags for Mr. Reid, but despite that reality, Mr. Reid had assured the

complainants on several occasions that the water supply system for the property was fine.

The prosecutor also emphasized that the MLS listing was inaccurate because it did not mention

the cistern and that that oversight should have been quickly corrected.

The prosecutor noted that Ms. Mills had advised that the water supply questions on the SPIS

had not all been answered because she did not believe that sellers were “experts” on the issues

raised by the questions. RECO also submitted that the offer was drafted in a manner which

protected the sellers more than the buyers. The prosecutor once again noted the dispute

between the complainants and respondents whether the location of the cistern had been

ascertained before the property was sold.

RECO claimed that the conditions put in the offer were vague and that Expert A had provided

useful evidence on the kinds of terms that should have been included in the offer as they related

to the water supply system.

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The prosecutor pointed out that if the complainants were going to walk away from the

transaction because of the $1000 bill for a new oil tank, it should be obvious that they would not

have purchased the property if they had been advised that water had to be trucked into the

property from time to time. It was submitted that Mr. Reid testified that he did not want to get

involved in a property which had water problems; nevertheless, he continued with the

transaction after learning of the deficiencies with the well at the property. The prosecutor

suggested that, given those circumstances, Mr. Reid had an obligation to protect the buyers by

including appropriate clauses in their offer.

RECO also claimed that Registrant D, the former broker manager of Brokerage A, was a self-

serving witness who had testified that Buyer B had acknowledged she had been advised of

water supply problems at the property but who had simply refused to believe that the

information she had received could actually be true.

RECO also asserted that the expert testimony from the respondents’ expert was worthless

because he had been told to assume certain facts. The expert had agreed that his opinion

would be different if his assumed facts did not turn out to be true. The prosecutor stated that

the evidence from RECO’s expert that clauses relating to the water flow from the well should

have been included in the offer should be accepted. If the sellers had not agreed to such

clauses, they could have easily been struck out. RECO also pointed out that the respondents’

expert had previously been employed by Brokerage A at the time that Mr. Reid was hired.

The prosecutor noted that, even though the pump was in good working order at the property,

there was simply no water in the well.

RECO submitted that the allegations in its Allegation Statement had been borne out and that the

respondents had breached the Rules cited in that Statement.

SUBMISSIONS OF RESPONDENTS ON FINDINGS

The respondents’ counsel stated that the Panel had heard conflicting evidence during the

hearing and it needed to determine whose evidence should be preferred. He further advised

that if the evidence of the respondents were accepted, there could be no breach of RECO’s

Rules under the Code of Ethics.

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The respondents’ counsel acknowledged that Buyer B appeared extremely upset during her

testimony and that she blamed the water situation at the property for all of her current

difficulties. However, while Buyer B’s current difficulties may deserve sympathy, her

assessment as to how they arose was questionable. It was submitted that Buyer B was not a

credible witness for a number of reasons:

(1) Buyer B was evasive on cross-examination. She refused to answer many questions and she

was argumentative such that she had to be reminded a number of times by the panel to answer

questions which were put to her.

(2) Buyer B stated that she and her husband had put their life savings into the property and that

they were financially ruined by the water situation. In fact, Buyer A admitted on cross-

examination that the complainants had only paid 5% ($8,150) down for the property when it was

purchased.

(3) Buyer B testified that the property was worthless because of the water supply problems.

However, the respondents’ counsel submitted that the complainants actually abandoned the

property and that Buyer A and Ms. Mills had testified that the property was sold for

approximately $132,000. Moreover, the property sold for that price after it had been sitting

unoccupied for many months. Further, Buyer A acknowledged that the basement of the

property may have been in a significantly deteriorated condition at the time of sale. The

reduced sale price for the property may therefore have been caused by factors other than the

water supply issue. A new buyer had obviously believed the property had value and utility

because good money had been paid for it after the property was abandoned by the

complainants.

(4) The respondents’ counsel noted that Buyer B had actually accused Mr. Reid of taking the

water sample for the potability test from a source other than at the property— even though she

had no evidence to support the allegation and she had never raised this issue previously.

(5) In Buyer B’s interview by a RECO researcher, she stated that she had never acknowledged

the agency relationship between her and Brokerage A in writing. She also said that the home

inspector did not make any reference to the use of the cistern. Both of these statements,

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presumably designed to put Mr. Reid in the worst possible light, were contradicted by the signed

documents. In fact, Buyer B actually signed an acknowledgement of the agency relationship

and the home inspection report stated in its overview section that more information was required

about the cistern. Her contention that she did not understand how the water system at the

property functioned was also contradicted by the letter from her lawyer, written in July, 2004.

(6) The respondents’ counsel also stated that the complainants have commenced a civil case

against Mr. Reid and Ms. Mills for $250,000, a factor which should be considered in assessing

the testimony of the complainants.

With respect to Buyer A, the respondents’ counsel submitted that he too is a plaintiff in a civil

suit against Mr. Reid and Ms. Mills and that it is possible that his memory of past events is

similarly affected by the lawsuit or by the numerous discussions he has had with Buyer B during

the past three years.

Buyer A had the same understanding about the water supply system at the property that Buyer

B had. He had also claimed that his own lawyer had not accurately described the water supply

system in his letter, even though the letter was written shortly after the events of this case when

people’s memories would have been more reliable.

It was also noted that Buyer A’s evidence of a conversation he had with Individual, the owner of

Company E, was contradicted by a signed statement from Individual himself. It had been Buyer

A’s testimony that Individual had told him that the water was being delivered to the subject

property in the same amount and with the same frequency as it was delivered to the sellers of

the property. Buyer A said that Individual told him that water was delivered to the sellers every

2 weeks. The written statement from Individual, however, says that he provided water to the

sellers approximately once a month and that water was provided for the cistern and,

occasionally, for the pool at the property.

Counsel for the respondents stated that these inconsistencies raised questions about the

reliability of Buyer A’s memory.

The respondents’ counsel submitted that Ms. Mills had provided direct and straightforward

answers to questions at the hearing, and that she obviously had a good memory of events.

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Similarly, Mr. Reid was described as having provided straightforward answers to questions both

in examination in chief and on his cross-examination by RECO.

The respondents also submitted that Registrant D was the most neutral of all the witnesses and

that she had no axe to grind with anyone, especially since she was not a respondent in the

proceeding. As such, Registrant D had nothing to gain from telling the Panel anything other

than the truth. Counsel for the respondents stated that Registrant D’s testimony was consistent

with that presented by Mr. Reid and Ms. Mills.

Counsel for the respondents acknowledged that the MLS listing for the property was not

accurate in that it did not refer to the cistern and that the listing was never corrected. However,

he argued that there was no suggestion in this case that the existence of the cistern was not

divulged to the complainants. The Agreement of Purchase and Sale made specific reference to

the presence and use of the cistern. The SPIS also referred to the cistern, although the

respondents’ counsel acknowledged that the information on that Statement could have been

clearer.

Nevertheless, it was pointed out that the SPIS itself clearly states that the buyers must still

make their own inquiries. It states:

Buyers must still make their own enquiries notwithstanding the information contained on this statement. Each question and answer must be considered and where necessary, keeping in mind that the Sellers’ knowledge of the property may be incomplete, additional information can be requested from the Sellers or from an independent source such as the municipality. Buyers can hire an independent inspector to inspect the property to determine whether defects exist and to provide an estimate of the cost of repairing problems that have been identified.

With respect to the issue of water problems at the property, the respondents counsel stated that

one of the troubling features of RECO’s allegations is that the Panel was being asked to believe

that Mr. Reid was forthright about water problems at another property (i.e. the City E property)

but on the very same day Mr. Reid was apparently silent about water issues at a second

property. Counsel for the respondents submitted that such a situation would be inconsistent

with common sense.

Both Mr. Reid and Ms. Mills testified that information on the workings of the water supply system

at the property was provided to the complainants and that the location of the cistern was

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disclosed to them. Mr. Reid testified that Buyer B was enthusiastic about the property and she

was less interested in the water supply system than in certain chattels at the property which she

wanted included in any transaction.

Both Mr. Reid and Registrant D confirmed that Registrant D had advised Mr. Reid to include an

acknowledgment in the offer about the presence and use of the cistern. According to Mr. Reid,

and Ms. Mills, the advice which each of them received from Registrant D concerning the water

supply system and water-related issues was to “disclose, disclose, disclose.”

The respondents’ counsel stated that the evidence of Ms. Mills and Mr. Reid on the information

concerning the water supply system at the property was consistent:

(a) That the drilled well supplied the kitchen only;

(b) The cistern supplied the balance of the property;

(c) The sellers purchased water to replenish the cistern's water supply from time to time as

required;

(d) The sellers had always used the property in this fashion;

(e) The sellers had added chlorine tablets to the cistern approximately twice a year for the

purpose of keeping the cistern clean and to purify the water; and

(f) The sellers had not had any difficulties using the property in this fashion but they were

not willing to provide a warranty for the well because they knew that it was a weak well

and, accordingly, they did not want to warrant it.

Insofar as the SPIS was concerned, it could not have had any impact on the complainants

because they only received it subsequent to viewing the property and at the time the offer was

drafted.

The Agreement of Purchase and Sale also confirmed that a number of conditions were included

in the Agreement to protect the complainants, including the following:

(a) A financing condition;

(b) A home inspection condition;

(c) A condition that the property be insurable; and

(d) A condition that a Certificate of Potability be obtained.

The Agreement also contained the following terms:

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The seller represents and warrants that to the best of the seller’s knowledge and belief, that, during the seller’s occupancy of the property, the pump and all related equipment, as well as the septic system, serving the said property have performed adequately and will be in good working order on closing. The parties agree that this representation and warranty shall survive and not merge on completion of this transaction but apply only to the state of the property at completion of this transaction. The seller agrees to remove all debris from between the garage and the fence line. The buyer acknowledges the presence and use of the water cistern.

Mr. Reid testified that he went through the offer with the complainants, including the provisions

outlined above. Mr. Reid also explained dual agency with the complainants and had them sign

a written acknowledgment to that effect.

Financing and insurance was arranged for the Property after the offer was accepted. A water

potability test was also obtained and it showed no significant evidence of bacterial

contamination.

Counsel for the respondents stated that the available copy of the well report, dated September

10, 1973, was difficult to read but that even that report referred to the ”final status of well”, as

“water supply”. Also, the options of a “dry” or “poor well” on the report were not selected. As

such, including the poor legibility of the document itself, it was submitted that the document

could hardly be of assistance to the prosecution.

The respondents also noted that a home inspection report was obtained by the complainants

and that, contrary to the information given by Buyer A to RECO’s researcher, the water system

at the property is mentioned a number of times in the report. Overall, the home inspection

report stated that the property is well built and in very good condition. The report also

recommended further clarification be obtained regarding the cistern. Under the category of the

interior plumbing system, it also notes there is a two pump system in place.

It was pointed out that the complainants were happy with the home inspection report and they

waived the condition relating to it.

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After the closing date, the complainants changed the water system at the property. Instead of

using a combination of water supply devices, such as the well and the cistern, the complainants

tried to supply the entire property from the well alone. After they changed the nature of the

water supply system, they began experiencing problems with water supply.

The respondents’ counsel emphasized that the complainants never told anybody, including Mr.

Reid and Ms. Mills, that they intended to use the water system in a manner different from the

sellers.

In July 2004, the complainants’ lawyer wrote to the sellers’ lawyer that the complainants were

told by the sellers prior to closing that the toilet and hot water were connected to the cistern and

that the cold water taps were connected to the well. This is different than what Buyer A and

Buyer B told the Panel was their understanding of the water system at the property.

The respondents’ counsel noted that the Panel had heard from two expert witnesses. He

submitted, however, that the report from Expert A was not actually an expert report because

Expert A believed part of this role was to prove certain facts for the Panel. Further, Expert A’s

report contained information from a phone call he had with a well driller. Counsel for the

respondents’ stated that if wells and cisterns were so well known within the real estate industry,

an expert on the subject would be able to provide a report without recourse to someone

involved in the well-drilling business.

It was further submitted that Expert B, the expert for the respondents, provided a narrow opinion

on the standard of practice in the area of City H. It was Expert B’s evidence that water flow

recovery testing is infrequently recommended and that, instead, the experience of the sellers in

operating a water supply system is more often relied upon. In his report, Expert B stated:

"There are numerous circumstances across the province of Ontario where a well is not capable of providing sufficient water to a property. Real estate agents come across these circumstances frequently. In those circumstances, real estate agents typically obtain information from the vendors about how they obtain water for the property. Where possible, purchaser’s agents will try to obtain representations and warranties pertaining to the well. In this case, Reid adopted the usual approach taken by real estate agents who confront the issue of a deficient well. He explained the deficiency to the purchasers as well as the manner in which the vendors use the well. He included a representation and warranty in the agreement that pump and all related equipment was functioning well. There was no representation and

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warranty about the well itself because the vendors could not provide such a warranty. They knew that the well was weak. The purchasers were told that this was the reason why no representation and warranty pertaining to the well was provided. The purchasers acknowledged the presence and use of the cistern in the agreement. In this case, the weakness of the well was disclosed to the purchasers. In circumstances where a purchaser is aware that a well is weak and that a vendor has been obtaining water from two sources, a drilled well and the cistern, a water flow test would only confirm what was already known: the well was weak and incapable of providing water to the entire property. It is my view that the real estate agent would not ordinarily recommend a water flow test in circumstances of this case..."

Counsel for the respondents went through each of the Rules cited by RECO in its Allegation

Statement and advised that they either had no application or RECO had failed to prove facts

indicating the Rule had been breached. With respect to Rule 6 in RECO’s Code of Ethics, it

was submitted that if RECO’s allegation was that this Rule was breached because the

acknowledgment in the Agreement of Purchase and Sale about the presence and use of the

cistern was insufficient, it could likely be argued that one could look at most Agreements in the

province and conclude that their language could be improved. It was further submitted,

however, that the Code of Ethics is not about perfection; rather, it is concerned with minimum

standards of conduct which must be met.

The evidence had established that Mr. Reid recommended a home inspection and, in fact, the

purchasers obtained one. Mr. Reid, however, is accused of failing to have a water flow recovery

test conducted at the property, but the evidence of the respondents’ expert, Expert B, is that it

would have been extremely unusual if Mr. Reid had done so.

Counsel for the respondents also emphasized that it was known that the well was weak and that

it supplied the kitchen only. He also stated the buyers were told that the sellers would not

warrant the well. Further, the water supply system at the property only stopped functioning

adequately when the buyers changed the existing set up by hooking the hot water tank up to the

well. It is quite probable that had they not done so, the system could have been used in the

same manner as it had been by the previous owners.

It was also submitted that it would be improper to sanction the respondents for misleading or

false advertising in respect of the information in the SPIS. It was pointed out that the SPIS

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itself was for information purposes only and, on the basis of the language in the SPIS, the

buyers were advised to conduct their own inquiries.

In conclusion, the respondents submitted that, although the services provided by Mr. Reid and

Ms. Mills to their clients could have been better, there was no credible evidence that these

agents did not act with integrity or in the best interests of their clients.

REPLY TO THE RESPONDENTS’ SUBMISSIONS ON FINDINGS

In reply to the respondents’ submissions, RECO’s prosecutor stated that the SPIS was vague

and ambiguous and deliberately so. Further, Mr. Reid had failed to raise questions about the

information in the SPIS on behalf of the buyers. The prosecutor also stated that RECO had

proven the allegations in its Allegation Statement.

FINDINGS BY THE PANEL

Based on the evidence presented to the Panel and the submissions of counsel, the Panel finds

as follows:

Cindy Mills

The Panel finds that Ms. Mills violated Rules 1(1), 1(2), 2, 21, 42 and 46 of the RECO Code of

Ethics. Ms. Mills failed in her duty to the sellers by failing to ascertain the frequency during

which the cistern needed to be filled up with water trucked into the property, the cost of said

water, and the cost of the chlorine to treat the water. Ms. Mills also failed to review and correct

the MLS listing on the property and she did not have the SPIS completed and initialed. If, as

Ms. Mills testified, she knew about water being trucked in, and about the need for chlorine

tablets, she failed to investigate the costs of these things. In her duty as listing agent, Ms. Mills

should have included a reference to the cost of water and the chlorine tablets in the signed back

offer from the sellers. Failing to do that exposed the client sellers to a potential lawsuit.

Hal Reid

The Panel finds that Mr. Reid violated Rules 1(1), 1(2), 2, 42 and 46 of the RECO Code of

Ethics. The Panel finds Mr. Reid should have inserted a clause in the acknowledgment

concerning the presence and use of the cistern to make it clear that the buyers acknowledged

that the cistern was not self-sufficient and that it required to be filled periodically with water

brought onto the property. Such a clause would have prevented any confusion about the

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limitations relating to the cistern and the water supply system at the property. The panel also

finds that Mr. Reid had a duty to ascertain the cost of providing water to the house on an

ongoing basis. Mr. Reid also stated in his evidence that he disclosed his role to the buyers

”orally” in the car on the way to property showings. The Panel finds that such disclosure was

not the prescribed form of disclosure required by RECO’s Rules.

With regard to the experts called by both parties, the Panel felt that the testimony of these

witnesses was essentially irrelevant, given that the Panel was composed of senior realtors

whose function is to apply the same knowledge and experience to the facts of each case.

Therefore the Panel, being comprised of experienced realtors, is in as good a position as any

expert to make determinations on the accepted practices and standard of care to be exercised

by realtors.

While the Panel did not necessarily feel that the buyers were misled by the SPIS or the

uncorrected MLS listing on the property, both were factors in determining that the respondents

breached their duty of care and accepted practices of the industry. The Panel found that the

inadequacy of the clause relating to the well and cistern in the Agreement of Purchase and

Sale, was the main problem in this case, and had that clause been written to include the fact

that water must be purchased to fill the cistern and supplement the well then the complainants

would have had no basis for complaint.

PROCEDURES WITH RESPECT TO SUBMISSIONS ON PENALTY AND COSTS

RECO is to deliver written submissions to the Panel and to the Respondents on the issue of

penalty and costs within 15 days of the date on which the Panel’s decision and reasons are

delivered to RECO.

The Respondents shall deliver to the Panel and to RECO its written submissions on penalty and

costs in response to RECO’s submissions within 15 days of the date on which RECO’s

submissions on penalty and costs are delivered to the Respondents.

Any inquiries relating to the delivery of the above-mentioned documents should be directed to

the Hearings Coordinator.

The panel shall deliver its decision on penalty and costs after considering the written

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submissions of the parties.

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Real Estate Council of Ontario

DISCIPLINE DECISION

IN THE MATTER OF A DISCIPLINE HEARING HELD PURSUANT TO BY-LAW NO. 10 OF THE REAL ESTATE COUNCIL OF ONTARIO

BETWEEN:

MANAGER OF COMPLAINTS, COMPLIANCE AND DISCIPLINE

REAL ESTATE COUNCIL OF ONTARIO

- AND-

CINDY MILLS and HAL REID The Panel held a teleconference on November 2, 2007 to discuss the written submissions by all Parties with respect to penalty and costs. The Panel decided as follows: PENALTY: Cindy Mills

Administrative Penalty of $10,000.00 payable to RECO within 90 days of sending this decision. Successful completion of the “Real Property Law” Articling classroom course and provide RECO with proof of successful completion within 180 days of sending this decision.

PENALTY: Hal Reid

Administrative Penalty of $10,000.00 payable to RECO within 90 days of sending this decision. Successful completion of the “Real Property Law” Articling classroom course and provide RECO with proof of successful completion within 180 days of sending this decision.

COSTS AND EXPENSES: N/A WRITTEN REASONS:

REASONS FOR DECISION

The panel appreciates the effort both parties made in their submissions.

The panel felt it was very important to send a strong message that Registrants exercise care

and caution with regard to the accuracy of the information presented to the public and other

members, and that Registrants ultimately accept responsibility for such information. Therefore

we find that the above-mentioned penalties reflect the seriousness of the situation and will serve

as a deterrent to all Registrants.

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PENALTY Cindy Mills

Administrative Penalty of $10,000.00 payable to RECO within 90 days of sending this decision. Successful completion of the “Real Property Law” Articling classroom course and provide RECO

with proof of successful completion within 180 days of sending this decision.

Hal Reid

Administrative Penalty of $10,000.00 payable to RECO within 90 days of sending this decision. Successful completion of the “Real Property Law” Articling classroom course and provide RECO

with proof of successful completion within 180 days of sending this decision.