Cohen & Ors v Real Estate and Business Agents Supervisory Board

[2004] HCATrans 458

[2004] HCATrans 458

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P13 of 2004

B e t w e e n -

HARRY COHEN, BETTY ROSE COHEN AND MARGOT ANNE LEVY

Applicants

and

THE REAL ESTATE AND BUSINESS AGENTS SUPERVISORY BOARD

Respondent

Application for special leave to appeal

McHUGH J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 12 NOVEMBER 2004, AT 2.32 PM

Copyright in the High Court of Australia

MR J.C. GILES:   If it please, your Honours, I appear for the applicant.  (instructed by Solomon Brothers)

MS F. VERNON:   May it please the Court, I appear for the respondent.  (instructed by Tottle Partners)

McHUGH J:   Yes, Mr Giles.

MR GILES:   Your Honours, we raise three special leave points arising out of a set of facts which we say is not uncommon except the uncommon role taken by the respondent in this application of being both the decision maker at first instance and, at an intermediate level, an appellant.  The facts, very briefly your Honour, are now no longer in dispute.  They are that a Ms Paterson, a licensed real estate representative, defrauded my clients of a very substantial sum of money.  One form of fraud perpetrated on my clients was that Ms Paterson stated to the applicants that she was arranging loans secured by mortgage for them.  No loans, no mortgages.  My clients were defrauded over a period of time with that style of loan of about $1.9 million.  During that period from 1991 to 1996 payments were made by Ms Paterson to the applicants of some $840,000 characterised as interest by Ms Paterson, part of the fraudulent scheme, to demonstrate falsely that there were real loans and real mortgages.

The applicants applied to the respondent for compensation out of a statutory fund created by Part VIII of the Real Estate and Business Agents Act.  The application, ultimately, after an excursion to the Full Court, was heard by the Board.  The respondent allowed the claim in part but materially deducted the purported interest payments from the $1.9 million defrauded from the applicants.  The applicants appeal to the District Court pursuant to section 23 of the Real Estate and Business Agents Act and we were there successful. 

The first special leave question which arises is whether the respondent, the Tribunal, could then appeal from the decision of the District Court and we put the point very simply that there is no grant of power in the Real Estate and Business Agents Act which creates the respondent, by section 6 of the Act, to institute and prosecute an appeal nor is the institutional prosecution of an appeal part of the incidental power in section 8A of the Act.  It is neither necessary nor convenient for a decision‑making Tribunal to subsequently become an applicant.

The Full Court found that there was a power in the respondent to appeal by reason of section 79 of the District Court Act and we say, for two reasons, that that is incorrect.  The first is that section 79 of the District Court Act, which is in the form of stating that a party to a proceeding in the District Court may appeal does not create a power or invest in that party, which does not otherwise have a power, a power to appeal.  It merely creates a right, or a conditional right, to appeal to the Full Court, that is, if the party is not otherwise invested with a power, in this case the Board, by the Real Estate and Business Agents Act, it does not have a power to appeal.

The second reason is that, alternatively, if section 79 were to create a power to appeal, the power is not imported to the Real Estate and Business Agents Supervisory Board for the reason that such a power is inconsistent with its function as a first instance tribunal. 

McHUGH J:   But it does have the power to do all things that are necessary or convenient to be done for in connection with the performance of its functions, does it not, and one of its functions is to administer the fund and to do so in accordance with law, and where the Board is a party to an action in the District Court why does not that necessary and convenient power give it the right to bring an appeal against an adverse finding?  Otherwise, it might be paying out money that it regards as not in accordance with law simply because there is a District Court decision.

MR GILES:   We say that the answer to that, your Honour, is twofold.  First of all, that the District Court, being the court to which appeals are taken from the Real Estate and Business Agents Supervisory Board, declares the law.  It makes the finding as to what the law is and that is an election of parliament that that is done by the District Court on appeal as opposed to, for example, a single Supreme Court judge or the Full Court, and that is the statutory scheme that has been created.

Secondly, because under section 23 of the Real Estate and Business Agents Act, the District Court on appeal has the power to remit the - if the District Court finds error by the Board has the power to remit questions of fact or questions of law, indeed, to the Board, to be determined in light of the District Court’s reasons on allowing an appeal, it is inconsistent with the Board’s function as a tribunal to then engage in litigation which, by its nature, becomes adversarial and falls within what we describe as being the Hardiman principle.

McHUGH J:   That is the point, is it not?  The distinguishing factor between the present case and Hardiman is that you are or can be made a defendant in the District Court.  That was not the case in Hardiman, was it?

MR GILES:   No, we accept that with respect to Hardiman.With respect to the District Court ‑ ‑ ‑

McHUGH J:   Is not the case more like Fagan v Crimes Compensation Tribunal 150 CLR where Justice Brennan said that the fact that the Board had a duty to protect the public purse gave it a power to argue against an application distinguishing it from a case like Hardiman?

MR GILES:   We say not, for these reasons, your Honour.  First of all, it is because of the possibility of the matter here going back to the Board and which, indeed, occurred in this occasion.  Second, we say that there is no need for the Board to make itself a party to the appeal in the District Court.  Indeed, it is unusual for it to have done so.  It is quite conceivable, and indeed we submitted, appropriate and there is the interlocutory decision of the District Court, that the Attorney-General should at least have been invited to intervene and, indeed, that is not an unusual occurrence.  It happens with criminal injury compensation matters, for example, that the Attorney appears as amicus in opposition to, or to appear as the contradictor, and that, we say, is the appropriate role to be taken by a tribunal and that, indeed, we say is what the point of special importance is in this case. 

McHUGH J:   Yes.  That is your first point, but you have two other points, have you not, about loss? 

MR GILES:   Yes, your Honour.  The sections of the Act are reproduced in the Full Court’s judgment at page 106 of the appeal book.  The first is section 116(1) of the Real Estate and Business Agents Act which materially provides that:

the Fidelity Fund

being the fund on which we claim -

shall be held and applied for the purpose of reimbursing persons who may suffer pecuniary loss . . . but reimbursing only to the extent of the defalcation of the licensee.

Section 117(2) is the second important section which provides, further down page 106, that:

A person is not entitled to recover from the Fidelity Fund an amount greater than the balance of the loss suffered by him after deducting from the total amount of his loss, the amount or value of all money or other benefits received . . . in reduction of his loss -

We say two things about that.  First, the words in 116(1), “but reimbursing only to the extent of the defalcation of the licensee” are not words of limitation.  They import a requirement of causation and nothing more, and that loss as was initially identified by Justice Murray in the Full Court, is loss which includes the whole of our loss.  These were moneys being invested.  The applicants were out of their money for some time.  Loss does not include just the amount stolen.  It includes the loss of use of that money.

In support of that, your Honours, we rely on what appears at page 107 of the application book and the definition reproduced by Justice Murray in paragraph 10 of what a “defalcation by a licensee” means.  If one reads the critical words:

“defalcation by a licensee” includes criminal or fraudulent conduct -

then, after the various options -

in the course of the business of the licensee and from which arises pecuniary loss or loss of property –

if one reads those words into where “defalcation by a licensee” appears in section 116(1), one merely has a repetition of the concept of loss, that is loss caused by the defalcation, loss within its usual sense and we say that the Full Court erred in construing those words as being words of limitation. 

Alternatively, we say that in section 117(2) where the word “loss” appears there, it is the word “loss” without the limitation of only to the extent of the defalcation by the licensee.  It is the usual meaning of the word “loss”, so before one takes the deduction of any benefits received in reduction of that loss, one looks at the total loss suffered, the money stolen plus the loss by being out of the moneys and one only then deducts what one has received back as against that.

Instead, what the Full Court found at paragraphs 31 through to 32, pages 115 and  116 of the application book, is that one does not start from the idea of total loss before making any deduction, one starts from loss limited by the words “defalcation of the licensee”.  We say that that is an error in principle by first of all importing that limitation, if it be a limitation, in 116(1) into 116(2), and does not give effect to the full force of the word “loss” and the different language used in 116(1) and 117(2), contrary to Project Blue Sky and, secondly, we say that that is an error as well in very narrowly construing, as against the applicant, what is remedial legislation creating a fidelity fund for us.

The third point, your Honours, arises also from section 117(2) and that is whether or not payments of purported interest as part of the fraudulent scheme - there is a fraudulent loan, the principal is taken and then from time to time in accordance with the supposed loan interest payments are made.  Whether the moneys received by us purportedly as interest are received in reduction of our loss, we rely on the judgment of the

Full Court of the Supreme Court of Victoria in Eumeralla Finance v Law Institute of Victoria ‑ ‑ ‑

McHUGH J:   Eumeralla was a different case though, was it not, because the interest payments received in Eumeralla were in discharge of debts owed by third persons to the claimant in that case and they were accepted as such by the claimant.  But in the present case there were no loans, no debts, no security, it was just all fiction.

MR GILES:   We accept that, your Honour.  We do rely on two matters, one which is the second limb of what your Honour has just put to me and that is looking at how the money was accepted by us, how it was received by us and the finding is that we received it as interest, as it fictitiously purported to be, which, of course, has a tax consequence.  We convert a capital sum which is being advanced, we have received money back as taxable income, and then both the respondent at first instance, and the Full Court says, “Well, if one just takes the taxable income away from the stolen principal”.

The second is that we rely on the reasoning in Eumeralla to emphasise that it has to be money received in reduction of the loss and we apply that reasoning, albeit to facts which are concededly distinguishable, to say because the money was received as taxable income it was not received against the loss which was the loss of the stolen principal.  Otherwise, one has the result that the Full Court has left us with and that is that indeed we are out of pocket the amount of tax which has been paid on the income despite Part VIII of the Real Estate and Business Agents Act being a part which sets up a scheme for compensation for persons defrauded by dishonest real estate agents.  If it please, your Honours, unless you have any queries, those are our submissions.

McHUGH J:   No, thank you for your submissions, Mr Giles.  Yes, the Court need not hear you, Ms Vernon. 

Despite the able submissions of Mr Giles, the Court is of the view that the decision of the Full Court is not attended with sufficient doubt to warrant the grant of special leave.  Accordingly, the application must be dismissed with costs. 

AT 2.48 PM THE MATTER WAS CONCLUDED