Carr v Director-General, Department of Finance and Services (formerly Department of Services, Technology and Administration)
[2011] NSWADT 157
•29 June 2011
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Carr v Director-General, Department of Finance and Services (formerly Department of Services, Technology and Administration) [2011] NSWADT 157 Hearing dates: 25 November 2010 Decision date: 29 June 2011 Jurisdiction: General Division Before: S Higgins, Deputy President Decision: The decision of the respondent is varied as follows:
(a)to declare the applicant a disqualified person for the purposes of the Act until 30 April 2015; and
(b)to disqualify the applicant from being involved in the direction, or management (including the operation of a trust account) in the business of a licensee under the Act until 30 April 2015.
Catchwords: Real Estate Agent Licence - disciplinary action - contravention of the Act and Regulation - acted unlawfully, improperly, unfairly, or incompetently - disqualified person - not fit and proper to be involved in the direction, management or conduct of the business of a licensee Legislation Cited: Administrative Decisions Tribunal Act 1997
Auctioneers and Agents Act 1941 (repealed)
Crimes Act 1900
Property Stock and Business Agent Act 2002
Property Stock and Business Agent 2002Cases Cited: Australian Broadcasting Commission v Bond (1990) 170 CLR 321
Hughes & Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127
Hunt v Director General, Department of Services, Technology and Administration (2010) NSWADT 186
Masic v Commissioner for Fair Trading, NSW Office of Fair Trading [2009] NSWADT 38
McBride v Walton (NSW Court of Appeal, unreported, 15 July 1994Category: Principal judgment Parties: Rory Carr (Applicant)
Director-General, Department of Services, Technology and Administration, NSW Fair Trading (Respondent)Representation: B Compton of Leverage Australia (Applicant)
B Bourke of Department of Finance and Services (formerly Department of Services, Technology and Administration) (Respondent)
File Number(s): 103161
REasons for decision
GENERAL DIVISION (S Higgins, Deputy President):
The applicant, Rory Carr, a licensee under of the Property, Stock and Business Agents Act 2002 (the Act), seeks review of a decision of the respondent, the Director-General of the Department of Finance and Services (formerly the Department of Services, Technology and Administration), to take disciplinary action against him under s198 of the Act. The disciplinary action taken by the respondent was to:
(a) declare the applicant to be a disqualified for the purpose of the Act for a period of 10 years (see s192(1)(h) of the Act (i)); and
(b) to disqualify the applicant for a period of 10 years from being involved in the direction, management or conduct of the business of a licensee (see s192(1)(i) of the Act).
The applicant has worked in the real estate industry since 1979. In December 1998, the applicant was issued with a licence to act as a real estate agent. He has continued to be the holder of such a licence. During that time he operated through a number of different real estate businesses. In March 2005, the applicant became a co-director, with his wife, of Misdan Pty Ltd (the company). The company was issued with a corporation licence under the Act and the applicant was the nominated licensee for the company. The applicant's wife ceased being a director of the company in August 2005 and the applicant continued to operate his real estate business through the company until June 2008. A few weeks later, with the appointment of a liquidator, the company was placed into a creditors' voluntary winding up. On 30 April 2009, the applicant entered into voluntary bankruptcy.
The respondent commenced disciplinary proceedings against the applicant, in December 2009, with the issue of a Show Cause Notice under s195 of the Act. On 22 June 2010, the respondent determined to take disciplinary action against the applicant on the following grounds:
(a) it was found that the applicant had contravened of the Act and the Regulations on a number of occasions(see s 191(a)). The alleged contravening conduct relied on by the respondent included the withdrawal (i.e. pre-drawing) of commissions and goods and services tax payments from several deposits, received and banked into the company's trust account, prior to the settlement of the sale of the property and an alleged fraudulent withdrawal of $475,000 from the company trust account on 31 May 2007;
(b) the applicant, in the course of carrying on the business or exercising the functions under his licence, was found to have acted unlawfully, improperly, unfairly, or incompetently (see s 191(c)). The respondent relied on the same allegations to that referred to above for the purpose of this ground;
(c) by reason of his bankruptcy the applicant was a 'disqualified person' and not eligible to hold a licence (see ss 14 and 191(d)); and
(d) the applicant was found to be not fit and proper to be involved in the direction, management or conduct of the business of a licensee (see s 191(e)). Again, the respondent relied on the same allegations to that referred to above for the purpose of this ground.
On 1 July 2010, the applicant lodged an application for review with the Tribunal and also made an application for a stay of the respondent's decision to take disciplinary action. By consent, on 6 July 2010, the Tribunal granted a stay of the respondent's decision pending the determination of the applicant's application. The stay was granted subject to conditions, including that he not be appointed as licensee in charge of any office of any licensee under the Act, or as signatory of a trust account conducted by any licensee under the Act and that he not be appointed as a director or manager of any agency business conducted by any licensee under the Act.
At the same time as making a stay order, the Tribunal made an order under s55(3) of the Administrative Decisions Tribunal Act 1997 (the ADT Act) to deal with the applicant's application even though an application for internal review had not been applied for as the Tribunal was satisfied as to the matters prescribed in paragraph (b) of that subsection.
The applicant's application was heard on 25 November 2010. At the commencement of the hearing the applicant tendered a copy of a letter from the Official Trustee in Bankruptcy. In that letter the Official Trustee in Bankruptcy advised that he neither, objected to, or consented to the applicant pursuing these proceedings and 'as such the bankrupt is free to pursue these proceedings.'
At the conclusion of the hearing I made directions for the filing and serving of written submissions, which were provided as directed.
Relevant legislation
The Property, Stock and Business Agents Act 2002 (the Act) regulates a number of industries. These include the real estate industry, the stock and station industry, the business broker industry, the strata management industry and the community management industry. Under the Act, a person cannot carry on a business in any one of these regulated industries unless they are the holder of a licence (see sections 8 and 9 of the Act). The Act also prohibits a person acting as, or being in the employ of a person licensed (or required to be licensed under the Act) as a sales agent, unless the person is the holder of a certificate of registration (see section 11). The Act also provides that sales agents are to be supervised by a licence holder (see sections 11 and 32).
Accordingly, for the purpose of this application, the Act requires a person carrying on the business of a real estate agent to be licensed. The Act also requires a real estate salesperson to be the holder of a certificate of registration and be employed by a person who is the holder of a real estate licence.
Section 3 of the Act defines the terms 'real estate agent' and 'real estate sales person' as follows:
'real estate agent' means a person (whether or not the person carries on any other business) who, for reward (whether monetary or otherwise), carries on business as an auctioneer of land or as an agent:
(a) for a real estate transaction, or
(b) for inducing or attempting to induce or negotiating with a view to inducing any person to enter into, or to make or accept an offer to enter into, a real estate transaction or a contract for a real estate transaction, or
(c) for the introduction, or arranging for the introduction, of a prospective purchaser, lessee or licensee of land to another licensed agent or to the owner, or the agent of the owner, of land, or
(d) collecting rents payable in respect of any lease of land and otherwise providing property management services in respect of the leasing of any land, or
(e) for any other activity in connection with land that is prescribed by the regulations for the purposes of this definition.
but does not include a person who carries on business as an auctioneer or agent in respect of any parcel of rural land unless the regulations otherwise provide.
Note: This definition is not limited to the selling of land and extends to an agent acting on behalf of the buyer of land (a buyer's agent).
As noted in section 168 of the Retirement Villages Act 1999, a selling agent acting on the sale of residential premises in a retirement village must be licensed as a real estate agent under this Act.
'real estate salesperson' means a person (other than the holder of a real estate agent's licence) who, as an employee of a real estate agent or a corporation that carries on the business of a real estate agent:
(a) exercises any of the functions of a real estate agent, or
(b) engages in any other activity that is prescribed by the regulations for the purposes of this definition.
The term 'employee' is widely defined in section 3 of the Act as follows:
employee includes any person employed whether on salary, wages, bonus, commission, fees, allowance or other remuneration and includes a director or member of the governing body of a corporation.
Sections 31and 32 of the Act prescribe specified business practices and duties of supervision on holders of a licence under the Act. These requirements apply to all licence holders, regardless of which industry they operate in. As mentioned above, section 32 of the Act provides that a licensee must properly supervise the business carried on by the licensee. The section also sets out what is required to properly supervise the business that is being carried on. Subsection 32(4) provides that the respondent may from time to time issue and notify licensees of guidelines as to what constitutes the proper supervision of their real estate licensed business. This subsection goes on to say that a failure to comply with the requirements of any such guidelines constitutes a failure to properly supervise the business. Pursuant to this subsection, on 1 March 2005, the respondent published supervisory guidelines. These guidelines included a requirement to supervise the employees of the business, establish procedures to ensure compliance with the Act and also a requirement to monitor the conduct of the business in a manner that ensures that as far as practicable the procedures are complied with.
Part 12 of the Act deals with complaints and disciplinary action against licence holder and holders of a certificate of registration. Again the provisions in this Part (i.e. sections 191to 203) are of general application to all licence holders and holders of a certificate of registration.
Subsection 191(1) of the Act sets out the grounds on which the respondent can take disciplinary action against a person who is the holder of a licence or a certificate of registration under the Act. For the purpose of this application the relevant grounds are:
- a contravention of a provision of the Act (see paragraph 191(1)(a)
- the person is a disqualified person (paragraph 191(1)(d)
- the licensee is not a fit and proper person to be involved in the direction, management or conduct of the business (paragraph 191(1)(e).
Section 16 of the Act defines the term 'disqualified persons' for the purposes of the Act. That section relevantly provides as follows:
16. Disqualified persons
(1)...
(1A)A person is a disqualified person for the purposes of this Act (except for the purposes of eligibility to hold a certificate of registration) if the person:
(a)is an undischarged bankrupt, or
...
(2B)The Director-General may exempt a person from the operation of subsection (1A)(a), (b) or (c) by:
(a)certifying, in the case of exemption from subsection (1A)(a), that the Director-General is satisfied that the person took all reasonable steps to avoid the bankruptcy concerned, or
...
(2D)In determining for the purposes of subsection (2B) or (2C) what reasonable steps could have been taken by a person to avoid a particular outcome, the Director-General is to have regard to the steps that could have been taken by the person from the time that the financial difficulties that gave rise to the outcome first arose.
Part 7 of the Act makes provision for trust money received for or on behalf of any person by a licensee in connection with the licensee's business as a licensee. Again the provisions in this Part apply to all licence holders under the Act. Section 86 makes provision for trust money to be paid into a trust account and section 88 expressly provides that a licensee is not to use trust money to pay his/her debts. These sections relevantly provide as follows:
86 Trust money to be paid into trust account
(1) Money received for or on behalf of any person by a licensee in connection with the licensee's business as a licensee:
(a) is to be held by the licensee or (if the licensee is employed by a corporation) by the corporation, exclusively for that person, and
(b) is to be paid to the person or disbursed as the person directs, and
(c) until so paid or disbursed is to be paid into and retained in a trust account (...
88 Trust money not available to pay licensee's debts
(1) Trust money is not available for the payment of the debts of the licensee to any other creditor of the licensee, or liable to be attached or taken in execution under the order or process of any court at the instance of any other creditor of the licensee.
(2) ...
Part 4 of the Property, Stock and Business Agent Regulation 2002 (the Regulation) prescribes what is required of licensees who receive trust money from their clients. These requirements include the following:
(a) when money is to be banked (see clause 21);
(b)when receipts are to be issued in respect of money received and what information is contained on those receipts (see clause 25);
(c)how money is to be withdrawn from a trust account and what details are to be recorded in regard thereto (see clause 26);
(d) what information is to be recorded in the licensee's journal and ledger of its trust account (see clauses 29 and 30); and
(e) what information is to be contained on a trial balance (see clause 31).
Issues
The applicant does not dispute that his conduct in drawing the cheque for $475,000.00 was wrong and he should not have done this. However, he denies that he had a fraudulent intent. He pointed to the fact that he immediately acknowledged that what he had done was wrong and also immediately sourced other funds so as to replenish any deficiencies in the trust account of the company. Nor did he accept that the pre-drawing of commissions as identified by the respondent was fraudulent.
In regard to his bankruptcy, he does not dispute that his bankruptcy meant that, prima facie, he was a disqualified person for the purpose of the Act. It is his contention that in all the circumstances the respondent should have exercised his discretion under s 16(2B)(a) of the Act by certifying that he took all reasonable steps to avoid his bankruptcy.
The applicant also contends that the respondent had erred in his decision to take disciplinary action in that he took into account irrelevant matters and failed to take into account all relevant matters, including his very lengthy involvement in the industry without any complaint having been made against him.
Finally, in the event each of the grounds relied on by the respondent are satisfied, the applicant contends that his period of disqualification is too long and that he is otherwise a fit and proper person to be the holder of a certificate of registration under the Act. In my view the latter issue is not one over which the Tribunal has jurisdiction as the applicant's entitlement to a certificate of registration does not arise from the decision the subject of review. Accordingly, I have not considered this issue any further. However, in the event the applicant makes an application for such a certificate, the respondent will be required to consider that application on the information that is available at the time the application is made. However, I note that since the stay application was granted (with the consent of the respondent) the applicant has, in effect, continued to operate in the industry as if he had been issued with a certificate of registration, subject to conditions.
The evidence
In its chronology of the applicant's involvement in the industry, the respondent noted that in December 1992, the applicant pleaded guilty to an offence, under the then Auctioneers and Agents Act 1941, of operating without a licence or a certificate of registration for a period of 3 months. At the time, the applicant was the licensee of W J Austin Realty Pty Ltd, which was also convicted of operating without a licence under that Act. It was the applicant's evidence that his failure to renew his licence and that of the company was an oversight.
The respondent also noted in its chronology that in 1993, 1994 and 1995, the applicant in his application for a certificate of registration answered 'no' to the question about having been previously convicted of any offence under the then Auctioneers and Agents Act 1941. It would appear that during this time the applicant was an undeclared bankrupt and he was not discharged from this bankruptcy until 8 January 1997. In May 1998, the applicant again applied for a licence and in his application he acknowledged that he had been declared bankrupt. As mentioned above, in December 1998, the applicant was granted a licence and he became the licensee of Century 21 Beachside Realty.
There is no dispute that on 6 December 2001, the applicant together with Mr Gregory Sharp conducted a real estate business through a company called House Numbers No. 2 Pty Ltd and that in 2004, Mr Sharp left that business. It would appear that the applicant continued to act as a licensee under a different company entity. However, in June 2005 a new entity was used. That entity was Misdan Pty Ltd (the company), which, as I have already mentioned, was issued with a corporation licence under the Act. The applicant was a director of that company and also the nominated licensee of the company for the purpose of the Act. The alleged offending conduct of the applicant, on which the respondent relies, occurred during the time the applicant was the licensee in charge of the licensed real estate business of the company.
In 2007, the company became the subject of investigation by two officers of the respondent. An audit of the company's trust account was conducted in September 2007. That audit identified that the licensee (i.e. the company) had withdrawn $475,000 from its sales trust account on 1 June 2007. It was noted that the licensee had made arrangements for a deposit of the same amount to be transferred into the sales trust account on the same day. The audit went on to note that the mortgagor did not complete the transaction until 5 July 2007. It was also noted that once the licensee realised the mortgagor had not deposited the monies as arranged, the licensee made arrangements to deposit $70, 000 into the sales trust account of the company on 26 June 2007. It was also noted that the matter was under investigation. However, that investigation did not proceed when the company was placed into a creditors' voluntarily winding up on 20 June 2008.
As I have mentioned, on 30 April 2009, the applicant entered into bankruptcy and that he continues to be an undischarged bankrupt as of today.
Steps taken to avoid bankruptcy In his affidavit and also in his oral evidence at the hearing, the applicant gave a lengthy explanation as to the circumstances that led to the winding-up of the company and his own bankruptcy. He explained that the company traded from rented premises in Cronulla. He said the company had about 25 employees and had managed about 1400 properties. The applicant said that while the business had been a successful one, it started to experience some financial problems in 2004 which worsened considerably towards 2007 and 2008. He said that the problems were so bad, time consuming and stressful that his marriage fell apart and he ended up having to go into bankruptcy. He asserted that he tried everything in his power to avoid this, however on receiving professional advice, there appeared no other alternative so he followed the advice he had been given.
The applicant set out numerous examples of incidents which he asserted caused him and his company financial hardship. It is unnecessary to repeat all of these. In summary they included the following:
(a)in 2004, when Mr Sharp left the business, the applicant and his wife renovated the rented premises from which the business was operating. The cost of this was about $675,000 of which $350,000 was loaned, to the business, by the applicant's then wife;
(b)in 2005 the Cronulla riots resulted in fewer people wishing to lease or purchase property in Cronulla. As a consequence the applicant's business suffered financially. In response to this, the applicant and his wife sold their investment properties and the proceeds from the sales were put into the business. It was the applicant's evidence that they did this in preference to retrenching staff, a policy they adopted for as long as they could;
(c)in April 2007, the applicant entered into an agreement with MCG Realty Pty Limited (MCG) for the purchase of the company's rent roll. While the agreement was to remain confidential, it became public knowledge and the applicant asserts that, as a consequence, he lost many landlords. In addition to this, the National Australia Bank, the company's bank, immediately cancelled its overdraft facility. This, the applicant explained caused a significant strain on business. However, this was not the first time that the company had difficulties with its bank in regard to outstanding loans and its overdraft amount At the same time in early 2007, the company encountered a major problem with the Australian Taxation Office. The applicant explained that due to a 'clerical oversight' the company had been two day's late in making the staff superannuation payment of $62,000. He said that the tax office demanded that the company immediately pay 100% penalty on this amount. While the penalty was eventually cancelled later in the year the company had incurred considerable legal fees. The applicant explained that in mid-2007, the company's bank also demanded repayment of monies owed. The applicant also explained that his rent roll agreement did not proceed as well as expected. He said he was required to sign a restraint of trade agreement, which meant that he was prohibited from working as a real estate agent, in the postcode areas 2229 and 2230, for two years (i.e. until 30 October 2009). He also explained that the sale price received from the sale of the rent roll was not as high as he had anticipated;
(d)in early 2007, the applicant and his wife decided that the applicant's wife should sign an option to purchase the building from which the company traded (the Cronulla property). The purchase price was $4,800,000 which the applicant asserts an independent valuer had valued at $6,900,000. At the same time the applicant sought to negotiate new, cheaper rental, premises from which the company could operate its business;
(e)the applicant asserted that on 31 May 2007, he had secured a loan for the deposit that was due and payable on that day for the purchase of the Cronulla property. He said he obtained a cheque for $475,000 from a developer acquaintance. He said it was a temporary loan and he recollected placing the cheque into his shirt pocket. The applicant acknowledged the cheque was however never banked or presented for payment. He said he believed that he had arranged, shortly after he had received the cheque, for one of his office staff to deposit the cheque into the sales trust account of the company. Nevertheless, he acknowledged that he made a foolish mistake, on that day, when he drew a cheque on the company's sales trust account for the sum of $475,000 and payable to the purchaser of the Cronulla property. He said he urgently tried to readdress the deficiency when he became aware of the deficiency in the company's sales trust account. He said he was unable to obtain a replacement cheque from his acquaintance who had advised him that his 'life partner' had changed their mind about assisting him and his wife. As a consequence the applicant deposited $78,000 of his own funds into the company's sales trust account. The applicant then obtained a loan from his lawyers for the amount that had been inappropriately withdrawn;
(f)in 2008, the applicant and his wife finally paid the amounts owed to the company's bank. However, there was an ongoing dispute between the company and MCG in regard to commissions that were due and payable to the company for properties that were sold by the applicant. This, the applicant asserts caused even further losses to the company and it was not until January 2009 that the applicant was able to disassociate himself from MCG;
(g)The applicant explained that in July 2008, his marriage broke up and he moved out of the matrimonial home. He said that his wife and children remained in the matrimonial home. This home, the Cronulla property and two remaining investment properties were all in his wife's name. However, he was the guarantor in regard to the money loaned to purchase these properties and also the money loaned to the company. The applicant explained that the Cronulla property was sold at the end of 2008. It was sold for $5,055,000. He said the matrimonial home was sold in March 2009, followed by the sale of one of the investment properties in July 2010. The investment property the applicant explained had been vacant for a long period of time and the mortgagee had assumed possession of the property. The applicant said at no stage did he receive any money from the sale of the properties.
It was the applicant's evidence that at all times he was consulting an insolvency advisor as well as his accountants and his solicitor. He said he continually sought professional advice about his deteriorating financial position. He said he was not successful in his attempts to negotiate with his creditors and as a consequence a number of court judgment debts were entered against him. He said he was advised to file a debtor's petition for voluntary bankruptcy in light of his circumstances.
In its submissions filed after the hearing, the respondent stated that at the time the applicant became bankrupt the total debt owed by him was $3,079,549.88.
The applicant is currently employed as a sales person with a licensed real estate agency and he believes he is doing a good job and that there were a number of developers who were counting on him to assist them with the sale of their property.
Misappropriation of $475,000 from trust account Included in the documents tendered into evidence by the respondent, are copies of the documents concerning the option to purchase and those relating to the purchase of the Cronulla property. It is noted that the correspondence in regard to the purchase of this property refers to it being purchased by applicant and his wife, even though the applicant was not included as a purchaser on the contract for sale. His wife was named as purchaser. As mentioned above, the applicant has not suggested in his evidence that he was not intimately involved in the decision to purchase the property and in securing the finance to achieve this.
At page 290 of exhibit R2 is a copy of the cheque, signed by the applicant, for the deposit for the purchase of the Cronulla property. As I have already mentioned, the cheque is drawn on the company's sales trust account. At page 297 of exhibit R2, is a copy of a receipt of monies paid into the sales trust account. The receipt is dated 1 June 2007 and it is signed by the applicant's then wife. The receipt is for an amount of $475,000 and is stated to have been received from 'DIB Home' for the purchase of the Cronulla property.
Pre-drawing commissions The respondent relied on 6 specific incidents, occurring between 13 October 2006 and 9 February 2007, where commissions and goods and services tax were withdrawn, from the company's sales trust account, prior to obtaining an authority to make such a withdrawal. The withdrawals were made against deposits paid by purchasers of properties, sold by the company on behalf of its clients, and banked into the company's sales trust account. These incidents were identified from the accounts maintained by the company. The essence of the respondent's concern was the withdrawal of commissions prior to being authorised by the person(s) on behalf the company held the money paid. The total amount of pre-drawn commissions was $66,586.60.
In addition to this, the respondent found that of the 6 specific sales which gave rise to the incidents in question, there were 2 incidents where there was no evidence of an agency sales agreement having been signed. One such incident related to the sale of a property owned by the applicant. In his affidavit, the applicant attached a copy of the agency sales agreements for both properties.
In his affidavit, the applicant also acknowledged the pre-drawing of the commissions and the goods and services tax. He also acknowledged that the timing of the withdrawals was incorrect.
Consideration
The role of the Tribunal is to determine whether the decision of the respondent is the correct and preferred decision having regard to all the available material and the relevant law: see section 63 of the ADT. Furthermore, the Tribunal is to make its determination as at the date of the hearing.
The first issue for determination is whether, on the evidence, have any of the section 191 grounds for taking disciplinary action been established. For the reasons set out below, I am satisfied that the grounds relied on by the respondent have been established. Accordingly, the next issue for determination is whether disciplinary action should be taken and if so what that action should be.
Have any of the grounds for taking disciplinary action been established?
Did the applicant take all reasonable steps to avoid his bankruptcy? There is no dispute that the applicant's 2009 bankruptcy makes him, by reason of paragraph 16(1A)(a) of the Act, a 'disqualified person' and this is a ground on which disciplinary action can be taken (see paragraph 191(1)(d) of the Act). What is in issue is whether the discretion in subsection 16(2B) of the Act should be exercised so as to exempt the applicant from the operation of paragraph 16(1A)(a). As explained above, that discretion can only be exercised by the Tribunal (and the respondent before it) certifying that it is satisfied that the applicant took all reasonable steps to avoid his 2009 bankruptcy.
There is no dispute that the applicant and the company incurred significant financial difficulties since about 2005. However, as pointed out by the respondent, in exempting the applicant from the operation of paragraph 16(1A)(a) of the Act, the issue is not merely what caused the applicant to have financial difficulties. What must be considered is what the applicant did to address these when he first became aware of them and if these were such that they were steps that could be considered as reasonable steps to avoid his bankruptcy. It is the applicant's contention that he did take all reasonable steps in that he obtained cheaper premises to rent for the business, sold a number of investment properties to repay debt, sold the company's rent roll and took opportunities to increase his financial position. The applicant's evidence suggests that it was not through any fault of his own that some of these steps did not turn to be as financially profitable as he had expected.
I accept that the applicant's evidence that his advisors advised him in 2009 that he had no alternative to declare himself bankrupt. However, in my view, this is not a matter relevant to the question as to whether he took all reasonable steps to avoid bankruptcy. While the applicant has not provided the Tribunal any evidence of a financial nature as to his affairs since 2005, on the information that has been provided, by 2009, the applicant's bankruptcy appears to have been inevitable, regardless of the advice he may have received. Attached to the applicant's affidavit is a letter addressed to the Tribunal from the applicant's accountant, in my view, it is of no assistance. The accountant states that the 'banks were relentless in charging fees and default interest rates'. However, he does not say that the banks were not entitled to do so under agreements to which the applicant was a party.
The respondent contended that there were a number of actions the applicant could have done, but did not do, to avoid his bankruptcy. It is unnecessary to repeat all of these.
It is apparent from the material provided that, notwithstanding his financial difficulties, the applicant is an astute businessman in many respects. However, I am not satisfied that from the beginning of 2007, he took all reasonable steps to avoid his bankruptcy. The purchase of the Cronulla property at a time that he or his wife had insufficient funds to even pay the deposit for this property is of greatest concern. The applicant appears to have been enticed into buying the property by a very favourable valuation, a copy of which was not provided to the Tribunal. However, on the material provided, the inference is that the purchase of this property significantly contributed to the financial difficulties of the applicant and the company, which had existed since 2005 and were ongoing. Because of his poor financial circumstances he was required to finance the purchase of the Cronulla property from sources other than the usual financial institutions. I can only assume that this also meant higher interest payments.
On the material before the Tribunal, and without having the benefit of financial accounts of the applicant or the company for the relevant years (2005 to 2009), the inference is that the purchase of the Cronulla property made his already difficult financial position, and that of the company, an untenable one. In this regard, I note that at the time he filed for bankruptcy he owed $1 million amounts to the company (in liquidation) and also House Numbers No 2 (also in liquidation). It is stated that these amounts were incurred between 2006 and 2008 and I assume that these debts, were incurred in the applicant's capacity as guarantor of money loaned to the company, his wife and other entities in which he had an interest. In addition to this the applicant owed about $1.73 million, in his capacity as a mortgage guarantor, and also on a lease. With one exception, it is stated that these debts were incurred in 2007. The exception was an amount of $146,435 that was incurred in 2003.
For the reasons I have stated, I agree with the contentions of the respondent that there is no basis on which to exercise the discretion in subsection 16(2B) of the Act and exempt the applicant from the operation of paragraph 16(1A)(a). As a consequence, the applicant is a 'disqualified person' and the ground for taking disciplinary action under paragraph 191(1)(d) applies.
The $475,000 cheque drawn by the applicant on the company sales trust account and the pre-drawing of commissions As I have mentioned, it is the respondent's contention that the applicant's conduct in regard to the $475,000 cheque and the pre-drawing of the commissions are unlawful and/or contraventions of the Act or Regulation.
In my view, on the basis of the applicant's admissions, his conduct in drawing the cheque for $475,000 was a fundamental breach of section 86 and 88 of the Act. Accordingly, the grounds in paragraph 191(a) and (c) of the Act are established.
In its reasons for decision, the respondent formed the opinion that the receipt, signed by the applicant's former wife was contrived so as to avoid the detection of the fraudulent activity of the applicant in drawing a cheque for the same amount the previous day. That is, the respondent formed the opinion that the receipt was a false instrument under section 300 of the Crimes Act 1900 NSW. In my view on the material before the respondent and the Tribunal there is insufficient evidence to make such a finding of fact.
The respondent contended that the pre-withdrawing of the commissions and the goods and service tax amounted to a contravention of subsection 86(1) and subsection 221(2) of the Act.
On the basis of the applicant's admissions as contained in his affidavit, I find that there was a breach of subsection 86(1). However, the evidence is not that he personally affected the withdrawals. As I understand the evidence he has accepted that he, as the licensee, was ultimately responsible for what had occurred.
Subsection 221(2) creates an offence of fraudulent conversion by a licensee or a registered certificate holder. For the reasons I have stated, there is insufficient evidence to prove that the applicant personally fraudulently converted the money for his own purposes or that of another.
The applicant's fitness and propriety It is the applicant's fitness and propriety to be 'involved in the direction, management or conduct of the business of a licensee', which is at issue. The respondent contended that this ground for taking disciplinary action was not limited to holders of a licence under the Act and that it included holders of a certificate of registration. Having regard to the ordinary meaning of the words in this paragraph, I agree with this contention. In this regard I note a requirement for the issue of a licence and a certificate of registration is that the applicant is 'fit and proper' to be issued with the authority applied for (see paragraphs 14(1)(b), 14(2)(b) and 14(3)(b) of the Act.
In Masic v Commissioner for Fair Trading, NSW Office of Fair Trading [2009] NSWADT 38, at [63] and [64], Deputy President Handley referred to possible alternative constructions of paragraphs 192(1)(h) and (i) of the Act. He said the following:
63 The disciplinary action in s 192(1)(h) of the Act of declaring a person "to be a disqualified person for the purposes of the Act, either permanently or for a specified period", does not specifically draw a distinction between disqualification from holding a licence as a real estate agent and from holding a certificate of registration as a real estate salesperson. In my view, the inclusion of the words "for the purposes of the Act" could, at first glance, be read as enabling such a distinction to be drawn.
64 However, when subparagraph (h) is read in conjunction with subparagraph (i), pursuant to which a person can be disqualified "from being involved in the direction, management or conduct of the business of a licensee", it seems probable that this latter form of disciplinary action is more specifically directed to real estate agent's licenses rather than certificates of registration of real estate salespersons. Alternatively, it could be argued that subparagraph (i) is also directed at real estate salespersons who might be involved in such activities notwithstanding that they are employees and should be acting under the supervision and direction of a licensee.
I am not persuaded by the approach taken by Deputy President Handley in reading paragraphs 192(h) and (i) in conjunction with each other. In my view, the paragraphs set out distinct forms of disciplinary action which arise from the distinct grounds for disciplinary action set out in paragraphs 191(1)(d) and (e) respectively. The grounds for disciplinary action in paragraph 191(1)(d) are dependent on a person being found to be a 'disqualified person'. This term is defined in section 16 of the Act and refers to specific disqualifying circumstances such as bankruptcy and convictions for dishonesty. The grounds for disciplinary action in paragraph 191(1)(e) are, in my view, a catchall in that it examines the extent of a person's fitness and propriety to be involved in any aspect of the business of one or more of the regulated industries under the Act. Support for this wide construction can be found in the definition of 'employee' under the Act, which includes persons who are involved in the direction and management of the business of a licensee. While the circumstances of a particular matter may satisfy both grounds for disciplinary action, this does not mean that one is more directed towards licences. Accordingly, in my view Deputy President Handley's alternate construction of paragraph 192(1)(i) is to be preferred and given the similarity of the wording, the same construction should be given to paragraph 191(1)(e) .
The term fit and proper was considered by the High Court in Hughes & Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127, at [9], where Dixon CJ, McTiernan and Webb JJ said:
The expression 'fit and proper person' is of course familiar enough as traditional words when used with reference to offices and perhaps vocations. But their very purpose is to give the widest scope for judgment and indeed for rejection. 'Fit' (or 'idoneus') with respect to an office is said to involve three things, honesty knowledge and ability: 'honesty to execute it truly, without malice affection or partiality; knowledge to know what he ought duly to do; and ability as well in estate as in body, that he may intend and execute his office, when need is, diligently, and not for impotency or poverty neglect it.
It is well accepted that the expression 'fit and proper' involves a value judgement having regard to the activity for which the person seeks a licence or other authority and ' depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur' : see Australian Broadcasting Commission v Bond (1990) 170 CLR 321.
W here there is evidence of misconduct, it has been held that relevant factors in determining a person's fitness and propriety are (a) the person's explanation for the misconduct, (b) its seriousness to the particular activity, (c) the motivation of the person, (d) whether the misconduct is an isolated incident, (e) the person's underlying qualities of character, and (f) the person's conduct since the incident and whether this demonstrates recognition of the misconduct and subsequent reform: see McBride v Walton (NSW Court of Appeal, unreported, 15 July 1994: see, in particular, the judgments of Kirby P, at [21] to [26], and Powell JA, at [59] to [73]).
In Masic, at [56], Deputy President Handley accepted as relevant the factors raised by the respondent. These were '(a) the passage of time since the offending conduct occurred, (b) demonstration of insight into the offending conduct, (c) remorse, and (d) the impact on consumers.'
In this application the respondent contended that 'there are serious concerns about the applicant's honesty, financial integrity and financial ability especially his honesty.' The respondent noted that in his written submissions of November 2010, the applicant himself had said that he only sought a licence, which was subject to a condition which, in effect, prohibited him from managing a trust account.
In regard to his lack of honesty, the respondent relied on the applicant's failure to disclose his 1992 convictions in his 1993, 1994 and 1995 applications for a licence. These failures occurred more than 11 years ago and there is no evidence of the applicant having failed to make the required disclosures in his applications for a licence or certificate of registration since that date. Accordingly, in my view, little weight can be placed on these in determining his fitness and propriety as at the time of hearing.
The other matters relied on by the respondent were the $475,000 cheque drawn by the applicant and the pre-drawings from the trust account of commissions and goods and service tax. I agree with the respondent that these matters are of greatest concern, particularly as they occurred in the course of the applicant's licensed activity as a licensee under the Act. Both are serious, with the withdrawal of the $475.000, being extremely serious.
As I have mentioned, the applicant has acknowledged that the pre-drawing of commissions and goods and service tax were wrong. In his written submissions, the applicant's solicitor sought to argue that the applicant's conduct was not unlawful. I am not at all persuaded by this argument. However, as I have noted the evidence is not that the applicant personally made the withdrawals or directed his staff to do so. Nevertheless, as the licensee he failed to properly supervise his employees.
The applicant's drawing of the $475,000 cheque on the company sales trust account was perpetrated by the applicant. The fact that, shortly after the cheque was drawn on the company sales trust account, the applicant was able to secure a loan so as to replenish the deficit in the company's sales trust account, is not an excuse. This the applicant readily acknowledges. On the basis of the applicant's evidence I am inclined to accept, in part, his evidence that he had an arrangement with a developer friend for a loan. What I find difficult to accept is that on the day in question he was given a cheque by the developer.
I accept the applicant deeply regrets he drew this cheque. Yet I do not accept his evidence that he acknowledged his error at the earliest opportunity. I note that on 10 April 2008, when the respondent was investigating the company, in an interview with the applicant, he declined to answer on legal advice, whose handwriting was on the cheque and other documents relevant to the purchase of the Cronulla property. I am not critical of the applicant in giving the response he did. However, I cannot accept his evidence that he acknowledged his wrong doing at this early stage.
The respondent contended that the conduct of the applicant was akin to that in Hunt v Director General, Department of Services, Technology and Administration (2010) NSWADT 186 in which I found the applicant not fit and proper to be issued with a certificate of registration on the basis of 8 dishonesty charges involving a total amount of $6,957.08. In my view, when examined as a whole, the circumstances of this application differ significantly to those in Hunt. While the amounts were small in Hunt the conduct occurred shortly after he had been issued with a certificate of registration and commenced working in the industry. Furthermore, his unlawful was perpetrated by forcing others to act on his behalf.
I agree with the respondent that the operation of a sales trust account is a core activity of any licensed real estate business. The community has a high expectation of those who are given the privilege of being licensed in the industry, including the utmost honesty and integrity. Ultimately, it is a question of fact, to be determined on a case by case basis, as at the date the decision is to be made, whether in all the circumstances the person is fit and proper in the relevant sense as prescribed in paragraph 191(e) of the Act.
In this application the applicant's conduct in drawing and presenting the cheque for $475,000 was a serious breach of this core activity of a licensed real estate business. It is now 4 years since the conduct occurred and the applicant continued to operate as a licensee for 2 of those years without complaint. There is also no evidence that the persons on whose behalf he held money on trust suffered loss as a result of his conduct. The applicant has also had a long history of operating in the real estate industry (i.e. more than 30 years) and there is no evidence of incidents of a similar nature having occurred previously, or subsequent to June 2007. As I have already mentioned, from June 2007 to June 2010, the applicant continued to work as a licensee under the Act and he has remained a licensee, subject to conditions, with the consent of the respondent. His licence is currently conditional on him having no involvement in the direction or management of a licensee, including not being a signatory to the trust account of a licensee. I have also had regard to the references provided by the applicant. One reference is written by his brother for whom the applicant now works and the other referees do not work in the industry but all consider the applicant to be an honest person.
Having regard to all the material before the Tribunal, I remain concerned that while the applicant acknowledges that his conduct was wrong he does not fully understand the consequences of his conduct. He gave no evidence as to what steps he had taken to ensure that this would not re-occur if he were to continue to be involved in the direction and management of the business of a licensee. Yet there was no complaint about the applicant's conduct in respect of his other functions as a licensee or his ability to act as a sales person employed by a licensee. The only concern arises from the applicant's access to and operation of a trust account or any other account holding money received for or on behalf of any person by a licensee in connection with the licensee's business as a licensee.
Accordingly, in my view, the appropriate finding is that, at the time of hearing, the remains not fit and proper to be the holder of a licence under that Act. That is, I agree with the finding of the respondent to the extent that the applicant is not fit and proper to be a licensee or to direct, or manage the business of a licensee. However, given his long history in the industry and his continued involvement in the industry, I am unable to find that he is not fit and proper to have no involvement whatsoever in the conduct of the business of a licensee. For example, the applicant's involvement as a sales person, without any signatory rights to a licensee's trust account does not appear to be objected to by the respondent.
As I have pointed out, a person's fitness and propriety is to be determined as at the time in question. This includes the time a person makes an application for a licence or certificate of registration under the Act, or at the time the respondent takes disciplinary action against a person. Over time circumstances may change, which may also reflect on the person's fitness and propriety at that time.
Nevertheless, on the basis of my findings in regard to the applicant's fitness and propriety to be involved in the direction, or management (including the operation a trust account or money held on trust) of the business of a licensee, I find that the ground under paragraph 191(e) has been established.
Should disciplinary action be taken against the applicant?
As a result of my findings, it is appropriate to declare the applicant a 'disqualified person' for the period he remains an undischarged bankrupt (i.e. April 2012) and for the additional period for which he is disqualified (i.e. until April 2015) (see paragraphs 14(1)(d) and 16(1A)(a) and (b) of the Act). This does not mean that after this period he will automatically be eligible for a licence again. This will be dependent on him making an application and the respondent consider that application in light of all the material that is before it at that time.
The question is whether he should be a disqualified person for a longer period as determined by the respondent. In my view, having regard to all the circumstances, the period of disqualification determined by the respondent is excessive in so far as it relates to the status of the applicant being a disqualified person under the Act. There is no evidence of any impropriety of the applicant arising from his bankruptcy. For example, it was not contended that his bankruptcy was attributable to his contravening conduct as a licensee. Accordingly, I find that the decision of the respondent to make a declaration under paragraph 192(1)(h) of the Act is correct, however the period for which that declaration is to have effect should be varied from 10 years to April 2015.
The next issue is whether, the applicant's contravening conduct and/or my finding that he is not fit and proper to be a licensee or to be involved in the direction, or management of the business of a licensee warrants taking disciplinary action. As I have pointed out above, the applicant, as a disqualified person, cannot, in any event, hold a licence or be a director or officer of a corporation that holds a licence (see paragraph 14(2)(c)) until April 2015.
This does not mean that a finding under paragraph 191(1)(i) of the Act cannot, or should not be made.
In my view where there is a finding that a person is not fit and proper to be involved in the direction, management or conduct of the business of a licensee, it would be exceptional circumstances not to also take disciplinary action, under paragraph 191(1)(i) of the Act. In my view, there are no such exceptional circumstances in this application.
Accordingly, I agree with the respondent's decision that the applicant should be disqualified from being involved in the direction, or management (including operation of a trust account) of the business of a licensee. In Masic, at [65], the Tribunal said that 'the power to order a subparagraph (i) disqualification for a specific period is arguably implicit in the wording of the subparagraph in order to give effect to the disqualification power.'
Neither party in these proceedings argued that a different construction should be placed on this paragraph and on this basis I have accepted the construction given by Deputy President Handley. My only observation is that, this disciplinary action appears to arise from a finding that the ground in paragraph 191(1)(e) has been established and as a general rule, a person's fitness and propriety is considered at a particular point in time and not at some time in the future.
On the basis of my findings, as a disqualified person the applicant cannot make an application for a licence until sometime after April 2015. Whether he should be able to continue to work in the industry as a real estate sales person is, as I have indicated above, a matter for determination by the respondent in the event the applicant makes an application for a certificate of registration. However, given my findings that the applicant is not fit and proper to be involved in the direction or management (including the operation of a trust account or money held on trust) it is appropriate to take disciplinary action under paragraph 192(1)(i) of the Act. However, in my view this disqualification should only apply until 30 April 2015, which is the date on which he ceases being a disqualified person. As I have already said, if the applicant wishes to make an application for a licence after this date the respondent will be required to consider the information that is provided with that application.
Conclusion
For the reasons set out above, I find that the decision of the respondent is not the correct and preferred decision and should be varied as follows:
a)to declare the applicant a disqualified person for the purposes of the Act until 30 April 2015; and
b)to disqualify the applicant from being involved in the direction, or management (including the operation of a trust account) in the business of a licensee under the Act until 30 April 2015.
Decision last updated: 29 June 2011
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