Barellan Trading P/L v Commissioner for Consumer Affairs No. Dcaat-02-584

BARELLAN TRADING PTY LTD, ALLAN ANGUS SAMM, MARJORIE PHYLIS SAMM & JEFFREY STEPHEN CLASOHM
V
COMMISSIONER FOR CONSUMER AFFAIRS
[2003] SADC 55
JUDGE DAVID
CIVIL

These are appeals by three separate appellants under Section 37 of the Conveyancers Act 1994 (the Act) against the determinations of the respondent (the Commissioner) relating to their claims for compensation arising out of the fiduciary default of a conveyancer.
BACKGROUND
All three appellants made claims pursuant to Section 32 of the Act on the basis that they had suffered pecuniary losses as a result of the fiduciary default of a conveyancer with whom they invested money. I set out Section 32 of the Act:-
“Claims on indemnity fund
32. (1) Subject to this Division, a person who-
(a) has suffered pecuniary loss as a result of a fiduciary default; and
(b) has no reasonable prospect of recovering the full amount of that loss (except under this Division),
may claim compensation under this Division.
(2) The amount of a claim cannot exceed the actual pecuniary loss suffered by the claimant in consequence of the fiduciary default less any amount that the claimant has received or may reasonably be expected to recover (apart from this Division) in reduction of that loss.
(3) A person is not entitled to make a claim under this Division where-
(a) the conveyancer by whom the fiduciary default was committed, or to whom the fiduciary default relates, was required to be registered or licensed under this Act or a corresponding previous enactment; and
(b) that person knew, or ought to have known, at the time of appointing or instructing the conveyancer, that the conveyancer was not so registered or licensed.”
The claims to the Commissioner related to money invested by each of the appellants with a firm called G C Growden Pty Ltd which company described itself as ‘Mortgage Finance Brokers’, ‘Licensed Land Brokers’, ‘Property Consultant and Valuers’ and ‘Property Conveyancers’. For the purposes of the present argument they are conveyancers within the meaning of the Act. That firm went into liquidation on the 17^th of April 1997 and money that was invested by the three appellants has been lost.
In relation to each appellant money was invested with Growden’s prior to the 1^st of June 1995 which is the date when the Act came into operation. Growden’s invested the money successfully and at some date after the 1^st of June 1995 without being repaid to the appellants that money was then put into another loan recommended by Growden’s. It has been agreed between the parties that this loan was to a person called Ian Adair Black. In all three cases the money was lost. It has also been agreed that Growden’s knew when proposing the investment concerning Black to all appellants that the borrower was not a good credit risk and that they advised all three appellants that ‘Growden’s have completed a current satisfactory credit inquiry’. In fact the borrower had previously been a bankrupt and convicted fraudster.
The application before the Commissioner was that the behaviour of Growden’s amounted to a ‘fiduciary default’ within the meaning of the Act and all appellants had no reasonable prospect of recovering the full amount of that loss.
The Commissioner’s decisions in all three cases to refuse the applications were on the basis that the moneys were not invested prior to the 1^st June 1995 as required by the transitional provisions of the Conveyancers Act 1994. The Commissioner did not address the question whether the appellants had suffered a pecuniary loss as a result of a fiduciary default. In appealing against those decisions counsel for the appellants has asked me to make a decision on the question of ‘fiduciary default’ and ‘whether there is reasonable prospect of recovering the full amount’ even if I agree with the Commissioner that the claim does not come within the transitional provisions of the Act. I indicate at this stage that I agree with the Commissioner that the three claims do not come within the transitional provisions of the Act and therefore they must fail. In the light of that I think it would be inappropriate to answer the hypothetical questions as requested especially as the Commissioner has not addressed those matters.
The Act which came into operation on the 1^st June 1995 defines trust money as:-
““trust money”, in relation to a conveyancer, means money-
(a) that is received by the conveyancer when acting on behalf of another in connection with a dealing with land; and
(b) to which the conveyancer is not wholly entitled in law and in equity,
but does not include money received by a conveyancer in the course of mortgage financing.
(2) A reference in this Part to a fiduciary default extends to a fiduciary default that occurred before the commencement of this Act.”
It is clear that claims under the Act can now not be made in relation to money received by a conveyancer in the course of a mortgage financing. It is argued by the three appellants that they come within the transitional provisions of the Act. I set those provisions out:-
“SCHEDULE 2
Transitional Provisions
General
1. (1) A person who held a licence as a land broker under the Land Agents, Brokers and Valuers Act 1973 immediately before the commencement of this Act will be taken to have been registered as a conveyancer under this Act.
(2) An approval, appointment or order in force under the Land Agents, Brokers and Valuers Act 1973 immediately before the commencement of this Act in relation to a land broker or former land broker will be taken to be an approval, appointment or order in force under the corresponding provision of this Act.
(3) A notice given or served under the Land Agents, Brokers and Valuers Act 1973 in relation to a land broker or former land broker has effect as a notice given or served under the corresponding provision of this Act.
(4) A reference in an Act or other instrument to a licensed land broker will be taken to be a reference to a conveyancer registered under this Act.
Mortgage financiers
2. (1) In this clause-
“mortgage financier” means a person who-
(a)     is-
(i)a conveyancer; or
(ii)an associate of a conveyancer; and
(b) engages in mortgage financing;
“spouse” includes a person who is a putative spouse (whether or not a declaration has been made under the Family Relationships Act 1975 in relation to that person);
“trust money”, in relation to a mortgage financier, means money received by a mortgage financier in the mortgage financier’s capacity as such to which the mortgage financier is not wholly entitled at law and in equity.
(2) For the purposes of this clause, a person is an associate of another if-
(a)   they are partners; or
(b) one is a spouse, parent or child of the other; or
(c) they are both trustees or beneficiaries of the same trust, or one is a trustee and the other is a beneficiary of the same trust; or
(d) one is a body corporate and the other is a director of the body corporate; or
(e) one is body corporate and the other is a person who has a legal or equitable interest in five per cent or more of the share capital of the body corporate; or
(f)   a chain of relationships can be traced between them under any one or more of the above paragraphs.
(3) This clause applies-
(a)   to trust money received by a mortgage financier before the commencement of this Act; and
(b) where trust money received by a mortgage financier was lent to another on the security of a mortgage before the commencement of this Act – to trust money received by the mortgage financier (whether before or after that commencement) by way of payment of principal or interest, or both, under that loan.
(4) Part 4 applies to a mortgage financier as if-
(a)   a reference in that Part to a conveyancer were a reference to a mortgage financier; and
(b) a reference in that Part to trust money were a reference to trust money to which this clause applies.
(5) The power of the Governor to make regulations under this Act includes power to make regulations requiring mortgage financiers to provide specified information to prospective investors or regulating or making provision with respect to any other matter relating to mortgage financiers.”
Counsel for the appellants in his earnest and thorough argument has submitted that subsection (3) should be interpreted as meaning that as long as trust money is received by the mortgage financier before the commencement of the Act then the transitional provisions apply. He argued that subsection (3)(a) cannot be limited by subsection (3)(b). Counsel for the respondent submitted that you can only come within the transitional provisions of the Act if money is received by the mortgage financier before the commencement of the Act and also it was lent to another before the commencement of the Act. It was argued that it was only if these two preconditions exist that the transitional provisions can apply. It was also argued that then those transitional provisions only apply to defalcations in relation to that money that has come back to the mortgage financier (in this case Growden’s) from the person with whom he invested the money. It was argued that it was not meant to apply to that money which was lost by the person when he invested it (in this case Ian Adair Black).
In my view the interpretation urged upon me by counsel for the respondent is clearly the correct one. On a clear reading of Sections (3)(a) and (b) of the Act the clear intention is to protect money which has been invested with mortgage financiers before the commencement of the Act which has also been loaned to another on the security of a mortgage before the commencement of the Act. When those two preconditions exist the investor is protected when the money comes back to the mortgage financier after the loan has matured. If, when it is returned to the mortgage financier, there is a defalcation within the meaning of the Act at that stage then that is protected by the transitional provisions.
In my view it does not apply to the situation where, as in the present case, the money was received by the mortgage financier before the commencement of the Act but was invested after the commencement of the Act and has never been returned. Therefore I regretfully find that all three appeals must be dismissed. As I have indicated it is unnecessary and indeed inappropriate for me to answer the other questions.

[2003] SADC 55

1 May 2003