Commissioner for Consumer Affairs v Daniel Christiaan Overduin T/A Daniel Christiaan Real Estate - [2012] SADC 32

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
COMMISSIONER FOR CONSUMER AFFAIRS v DANIEL CHRISTIAAN OVERDUIN T/A DANIEL CHRISTIAAN REAL ESTATE
[2012] SADC 32
Judgment of His Honour Judge Soulio
21 March 2012
ADMINISTRATIVE LAW
Disciplinary proceedings brought under the Land Agents Act 1994. Land agent said to be liable to disciplinary proceedings by acting improperly in relation to the sale of residential property, in failing to act in the best interests of the vendor.
Held: Proper cause for taking disciplinary action existed.
Land Agents Act 1994 (SA) ss 43, 44, 45, 46, 47; Development Act 1993 (SA) s 69; Real Property Act 1886 (SA) s 69; Guardianship and Administration Act 1993 (SA) ss 29, 35, referred to.
Commissioner for Consumer Affairs v Property Management Specialists P/L (in liq) & Ors [2006] SADC 15; Commissioner for Consumer Affairs v Sollars (2001) 79 SASR 145; Craig v Medical Board of South Australia (2001) 79 SASR 545, considered.

COMMISSIONER FOR CONSUMER AFFAIRS v DANIEL CHRISTIAAN OVERDUIN T/A DANIEL CHRISTIAAN REAL ESTATE
[2012] SADC 32
Summary

The defendant acted as agent for the vendor, an elderly woman who suffered a mental impairment. He sold her residential property to a friend of the defendant’s brother, a developer, for a price significantly below the fair market price. He also failed to incorporate into the contract, a condition recording the vendor’s intention to retain a life interest in the property. The Commissioner for Consumer Affairs (‘the Commissioner’) instituted proceedings alleging that, arising from the defendant’s conduct, there was proper cause for disciplinary action.
The Proceedings
The complaint is brought pursuant to s 44 of the Land Agents Act 1994 (SA) (‘the Act’). The particulars of the complaint upon which the Commissioner relies are as follows:
The defendant:-
1.2.2 failed to achieve a fair market value for the property for the vendor;
1.2.3failed to consider, or adequately consider, whether the vendor was under a legal disability and had the requisite capacity to execute the transfer;
1.2.4failed to ensure that the vendor understood any documents used and the sale transaction;
1.2.5caused or permitted the transfer to be executed in circumstances in which the vendor was under a legal disability and lacked the requisite capacity to execute the transfer;
1.2.6was negligent with respect to the inclusion, drafting and enforceability of the rent free agreement; and
1.2.7 failed to ensure the vendor’s life interest in the property was registered on the title.
Upon the lodging of a complaint this Court may conduct a hearing for the purposes of determining whether the matters alleged in the complaint constitute grounds for disciplinary action.[1] The Court may sit with assessors,[2] although I determined to hear the matter without assessors.
[1] Land Agents Act 1994 s 45(1).
[2] Ibid s 46.
The disciplinary proceedings instituted by the Commissioner were initially set down for a contested hearing. Ultimately the parties resolved to proceed on agreed facts and documents to which I will refer as necessary. The following narrative constitutes my findings unless otherwise stated.
Circumstances
In 2008 the vendor lived with her husband in a property at Bosanquet Avenue, Prospect (‘the property’). She and her husband were aged in their seventies. They had difficulty maintaining the property, and had dealings with the City of Prospect Council (‘the Council’) over some years, as to the condition of the property. Staff from the Eastern Health Authority had visited the property because of complaints about odour emanating from the house, and the poor condition of the house. The vendor was also in some financial difficulty. She had outstanding debts of just over $20,000, and was being pressed for payment.
In early 2008, Jan Overduin, the defendant’s brother, was employed by a labour hire company, and loaned on contract to the Council. He was required to cut the grass at the property following the issuing of a Fire and Emergency Service notice. He learned of the vendor’s financial difficulties. He apparently told the vendor that his brother, the defendant, was a real estate agent who may be able to assist in selling the property.
The defendant, who traded as Daniel Christiaan Real Estate, met with the vendor and suggested that arrangements be made to clean up the property for the purpose of enabling open inspections to be conducted. The vendor apparently did not wish to do so, and did not wish to pay advertising costs. The defendant advised the vendor that because of the very poor condition of the property she was unlikely to realise more than the capital value of the property, that being the assessed land value of $295,000. The vendor decided against selling the property on the basis that a sale for $295,000 would not provide her with sufficient funds to purchase another house in the same area.
Jan Overduin then suggested to the vendor that she consider selling the house at a reduced price, on the basis that she retain the right to live rent free in the house. He introduced her to a developer known to him, a Mr Bergamaschi. On 19 February 2008 Jan Overduin sent a letter of offer (‘the letter’) to Mr Bergamaschi, setting out the terms of a proposed sale, as follows:
·The occupiers may stay in the house until they pass away or move out on their own volition.
·The occupiers are responsible for payment of council rates and water rates, including all other utilities.
·The buyer, may, subject to approval of the occupier, engage in work on the house.
·The book sale price of the property is $130,000.
·Finders fee of $22k made payable at time of approval of sale or otherwise.
·All related fees associated with purchasing a property be payable by the purchaser.
·Other fees associated with the sale of the property be payable by the seller.
The Commissioner was prepared to accept that the defendant was not aware of the fact that a finders fee of $22,000 was to be paid, by the developer, to Jan Overduin. Whilst I have some difficulty with that, there is no evidence to the contrary and I will proceed on that basis.
On 21 February 2008, the vendor signed a Sales Agency Agreement which purported to authorise the agent to sell the property by private treaty “at the price of … low one hundred thousand dollars” (sic). That is despite the statement in the letter stating that “the book sale price of the property is $130,000”.
It was a further condition of the Sales Agency Agreement that the sale was to be made on the basis that “vendors to live in property for the term of their natural lives. Rates etc to be paid by occupant”.
On the same day a contract for the sale of the land, in terms of the standard Real Estate Institute contract, was signed by the vendor. It contained the following special conditions:
1The vendors reside in the property until the term of their natural lives. (my emphasis)
2 The occupants pay all rates and taxes.
3 The purchaser may improve the property.
The developer, however, countersigned special conditions in a different form, ultimately accepted by the vendor, as follows:
Special Conditions
1)The vendor shall have the right to continue to reside in the property rent free following settlement for so long as she may choose to occupy the property as her principal place of residence. She shall advise the purchaser of her intention to vacate the property and provide vacant possession to the purchaser on the nominated date. (my emphasis)
2)The vendor hereby agrees to pay all expenses relating to the property for the period detailed in 1) above. This shall include but not be limited to council rates, water rates and use and emergency services levy.
3)The vendor will continue to maintain the property for the period detailed in 1) above and shall attend to all maintenance at her cost in all things. No cost for maintenance shall be passed on to the purchaser in any respects.
4)The purchaser and vendor agree that the purchaser agrees to purchase the property sight unseen.
As can be seen from the amended special conditions, the right of the vendor had been altered from that which she presumably intended to be a life interest, to a right to continue to reside “for so long as she may choose to occupy the property as her principal place of residence”. Further, the instructions provided by the vendor, such as they were, as to the right to continue to live in the property, included a reference to “the vendors”. I take that to mean that she intended that both she and her husband would have a life interest in the property.[3] The special amended conditions referred only to “the vendor” and in addition required her to maintain the property, and attend to all maintenance, at her cost, while she resided in the property.
[3] A life estate may be granted for the life of the grantee or may be granted for the life of another. In the latter case, such an estate may arise by way of direct grant, or by the holder of the life estate conveying his interest to another.
The commission to be paid to the defendant upon sale of the property was initially recorded as $5,000. That was scored out and re-entered as $4,800, and then, apparently due to some remorse on the part of the developer, and at his request, was reduced to $2,000.
Settlement took place on 19 March 2008 and Jan Overduin received a cheque for $22,000 from the developer shortly after settlement.
As it transpired, the amended special conditions soon became significant. In August 2008 the house was structurally assessed at the request of the Eastern Health Authority. In October 2008 an emergency order was made pursuant to s 69 of the Development Act 1993 (SA) requiring that a substantial amount of structural work be performed, and requiring that the property not be used for habitation until the remedial structural work had been completed.
The chief executive of the Eastern Health Authority became aware of the circumstances of the sale of the property, and of the price that had been paid for the property. He referred the matter to the Commissioner, and initiated an application for orders pursuant to the Guardianship and Administration Act 1993 (SA).
On 8 April 2009 the Guardianship Board found that the vendor had a mental incapacity within the meaning of that Act. Pursuant to s 29 of the Guardianship and Administration Act the Guardianship Board ordered that the Public Advocate be appointed as full guardian of the vendor, and pursuant to s 35 of that Act ordered that the Public Trustee be appointed as full administrator of her estate.
In 2010 the Public Trustee commenced action to set aside the sale of the property pursuant to s 69(b) of the Real Property Act 1886 (SA) on the basis that the vendor was under a legal disability, and did not have the requisite ability to execute the transfer. The application was not contested by the purchaser and on 29 July 2010 a new certificate of title was issued, showing the vendor as registered proprietor. The reversal of the sale was effected on the basis that Mr Bergamaschi was refunded the sale price, outgoings, and interest, all totalling $165,060, and on the face of it, constituting a cost to the vendor in excess of $30,000. The Public Trustee successfully requested the defendant repay the amount of commission he had received.
The property is not repairable. At the instigation of the vendor’s administrator, the vendor and her husband were moved out of the house, and did not return.
The extent to which the defendant’s conduct fell short of the standard of conduct to be expected from a member of the real estate industry is perhaps demonstrated by the fact that the property was subsequently sold, with the net proceeds of sale amounting to $491,047.53, albeit that that sale was some three years after the original transaction.
Regulation of Conduct
Section 43 of the Land Agents Act (‘the Act’) relevantly provides:
(1)There is proper cause for disciplinary action against an agent or sales representative if—
…
(c)the person has acted contrary to this Act or the Land and Business (Sale and Conveyancing) Act 1994 or otherwise unlawfully, improperly, negligently or unfairly;
Land agents are subject to a voluntary code of conduct, established by the Real Estate Institute of South Australia, entitled The Real Estate Code (‘the Code’). The Code purports to regulate conduct, ethics and behaviour in the real estate industry. It was submitted by the Commissioner that although the Code did not have legal force it could be used as some guide to the standard of behaviour required of a real estate agent. I accept that submission.
Pursuant to the Code, a land agent is required to afford a client a genuine opportunity to obtain independent advice before entering an agency agreement.[4] The particulars of the complaint allege that the defendant failed to ensure that the vendor understood the terms of the sales transaction and the documents used. Although the defendant asserts that he explained the documents and the transaction to the vendor, and advised her to consult a lawyer, or obtain assistance from friends, it is apparent that none of those things could have happened, nor was the vendor given time to reflect upon that suggestion, given the contract for sale was signed by her on the same day, and countersigned by the purchaser the following day.
[4] Clause 4.3 of the Code.
The Code requires that a land agent should at all times exercise loyalty to the interests of the client, and should not act in any way which could be construed as being contrary to the best interests of the client.[5] A land agent is required to avoid any conflict of interest, including between clients, or between a client and the practitioner’s business.[6] A land agent should not acquire an interest in or buy a property, or present offers for or on behalf of, inter alia, any member of their immediate families, without making the true position known to the vendor in writing prior to the acquisition.[7] Where there is a potential for, or actual, conflict of interest, the practitioner should advise the client and provide an opportunity to terminate their instructions with the practitioner.
[5]    Clause 2.1 of the Code.
[6]    Clause 6.1 of the Code.
[7]    Clause 6.3 of the Code.
Given the relationship between Jan Overduin and the purchaser, the defendant should have made inquiries as to the circumstances in which Jan Overduin was involved, and as to whether he was to benefit in any way from the sale; accepting for the purposes of my consideration, that the defendant was not aware of the “finders fee” to be paid.
A land agent is also required to provide a realistic appraisal of the market value of a property, substantiated by comparative sales data.[8] The defendant made no attempt to assess the value of the property, other than, apparently, to make reference to the capital value, presumably that set by the Valuer General. The sale at a price of $130,000 was a fait accompli, and the defendant, on his own case, took no part in establishing that price. Whilst the sale was subject to the retention of some right by the vendor to occupy the property, as I have said, that right was not ultimately expressed in the terms sought by the vendor, and no proper attempt was made by the defendant to assess the value of that right in determining a fair price for the property.
[8] Clause 9 of the Code.
Indeed, the sale on the terms ultimately agreed could not have been based on any proper calculation of the value of the vendor’s right to live in the house. It certainly did not take into account the fact that the house was not habitable, and that accordingly, the value of the rent component was illusory.
As is apparent from the findings of the Guardianship Board, the vendor suffered a mental impairment. While the Commissioner did not assert that the defendant was aware of that, in my view the defendant should, at least have been alerted to the need to inquire as to her capacity to provide instructions for the sale, given that the vendor and her husband were in their seventies, were in financial difficulties, and were obviously living in squalor.
The defendant did not consider, or at least adequately consider, whether the vendor had the legal capacity to instruct, and in turn to execute the transfer. Suspicion is aroused as to Jan Overduin’s knowledge of the vendor’s lack of capacity, given what would otherwise seem to be a superfluous statement in the letter, namely “the owner is of average intelligence and understands the condition of the sale”.
It appears that no arrangement was made by the defendant to request that the vendor’s residual interest be registered on the title. Indeed, it was the vendor’s conveyancer, Mr Bosco, who, to his credit, lodged a caveat over the title specifying that there was an agreement in place entitling the vendor to continue to live in the property.
The defendant asserted that he did not appreciate the difference between the original conditions in the contract, and the condition which ultimately became part of the contract. That highlights the necessity for him to have taken advice, given the unusual nature of this transaction, in order to enable him to properly advise the vendor.
In summary, the defendant failed to consider whether the vendor had the capacity to execute the transfer, failed to provide the vendor with advice in relation to the protection of her residual interest in the property, failed to provide her with advice as to the value of the property, and failed to act in her best interests. I am satisfied, on the balance of probabilities, that there is proper cause for taking disciplinary action.
Disciplinary Action
There are a number of courses open to the Court, if so satisfied.
Section 47 of the Act provides:
(1)On the hearing of a complaint, the Court may, if it is satisfied on the balance of probabilities that there is proper cause for taking disciplinary action against the person
to whom the complaint relates, by an order or orders do one or more of the following:
(a)     reprimand the person;
(b)     impose a fine not exceeding $20 000 on the person;
(c)     either—
(i)suspend any registration of the person for a specified period or until the fulfilment of stipulated conditions or until further order; or
(ii)     cancel any registration of the person;
(d)     in the case of a person whose registration is suspended—impose conditions as to the conduct of the person or the person's business as an agent after the end of the period of suspension;
(e)     disqualify the person from being registered under this Act;
(f)     prohibit the person from being employed or otherwise engaged in the business of an agent;
(g)     prohibit the person from being a director of a body corporate that is an agent.
(2)     The Court may—
(a)     stipulate that a disqualification or prohibition is to apply—
(i)    permanently; or
(ii)     for a specified period; or
(iii)    until the fulfilment of stipulated conditions; or
(iv)    until further order;
(b)     stipulate that an order relating to a person is to have effect at a specified future time and impose conditions as to the conduct of the person or the person's business until that time.
(3)A fine imposed under subsection (1) is payable to the Commissioner for the credit of the indemnity fund.
(4)     If—
(a)     a person has been found guilty of an offence; and
(b)     the circumstances of the offence form, in whole or in part, the subject matter of the complaint, the person is not liable to a fine under this section in respect of conduct giving rise to the offence.

The purpose of the Act is to regulate the conduct of persons registered under the Act, to protect the public,[9] and to maintain proper standards of conduct,[10] rather than to punish the party whose conduct is the subject of criticism.
[9] Commissioner for Consumer Affairs v Sollars (2001) 79 SASR 145.
[10] Craig v Medical Board of South Australia (2001) 79 SASR 545.
The protection of the public requires applicants for registration to meet criteria directed towards their qualification, experience and fitness for the occupation.[11]
[11] Commissioner for Consumer Affairs v Sollars (2001) 79 SASR 145 at 147, per Doyle CJ.
It is in the public interest, and in the interests of maintaining public confidence in the integrity of those registered under the Act, that the disciplinary action reflects the requirements of the Act to protect the public, and maintain the high standard required of those who are responsible for the management of trust account funds and business accounts.[12]
Submissions as to Disciplinary Action
[12] Commissioner for Consumer Affairs v Property Management Specialists P/L (in liq) & Ors [2006] SADC 15.
The Commissioner initially made the submission that the defendant’s conduct demonstrated impropriety, negligence and unfairness. The defendant was described as having facilitated a sale with conditions that led to a particular disadvantage for the vendor in circumstances where the rent free agreement component of the sale was not only worthless but led to the potential for substantial costs to be incurred by the vendor.
The Commissioner conceded that there were mitigating factors in that the defendant did not propose the sale price, was not aware of the finders fee that his brother obtained, and willingly disgorged the commission he had obtained. Contrary to the initial submission asserting impropriety on the part of the defendant, the Commissioner accepted that there was no malice, fraud or deception on the part of the defendant in facilitating the bargain, which was not done for his personal gain, apart from the commission he derived.
The Commissioner submitted that an appropriate disciplinary action would be a reprimand and pecuniary penalty. The defendant’s counsel submitted that, as the Commissioner has the task of administering the Act, and of protecting the public in this area, regard should be had to such a submission. I accept that to be so, but observe that the recommendations of the Commissioner cannot supplant the view of the Court as to the appropriate disciplinary action.
It was further submitted on behalf of the defendant that his involvement in the transaction was a limited one. He was not a party to the preparation of the letter to the developer and did not see the letter prior to it being sent. Counsel for the defendant submitted that the defendant had endeavoured to calculate the value of the rent free clause, and arrived at a figure based on rent, at $200 per week, for a period of 15 years. Given that on the defendant’s own case he did not advise as to the sale price, or set that price, it seems more likely that that was a retrospective calculation on his part.
Counsel for the defendant submitted that the defendant was not aware of the vendor’s lack of capacity, and did not assess that lack of capacity even having regard to the vendor’s age, living conditions and financial circumstances.
One of the principal failures by the defendant lay in permitting the vendor to execute the countersigned contract containing a clause which significantly reduced her ability to remain in the house despite that being the main incentive for the sale at such a low price. The defendant asserted that he did not notice or appreciate the difference between the hand written conditions originally proposed, and the special conditions proposed by Mr Bergamaschi or his conveyancer. He failed to advise the vendor at all as to the effect of that change in the terms of the contract.
The defendant acknowledged that he did not suggest that the vendor’s interest be protected. He acknowledged that he should not have facilitated the transaction, and should not have succumbed to pressure from his brother to facilitate or be involved with the transaction. He acknowledged he did not discharge his duty to the vendor.
It is a requirement of the entitlement to practise as a real estate agent that a land agent will act with integrity, and will act in the interests of the person by whom they have been retained. The defendant has failed to do so, and that has the potential to affect public confidence in the real estate sales industry.
In considering the appropriate disciplinary action, I have taken into account a reference from a Mr Bashara describing the defendant as honest and reliable. I take into account the defendant’s eventual acceptance of responsibility. I take into account that the defendant has practised as a real estate agent for 20 years, apparently without blemish, and is the proprietor and sole operator of his real estate agency. If he is unable to practise as a real estate agent his business would, of necessity, cease. I also take into account the fact that the defendant has provided an undertaking to take training courses in relation to Settlement Contracts, Form 1 (Training), Sales Agency Agreements and Contracts, Salesperson Risk Management, and Pricing Residential Property.
Conduct
The conduct of the defendant involved a failure to act in the interests of the vendor, a potential conflict of interest given the involvement of a family member, and, at the very least, a serious neglect of his duty. While the seriousness of the defendant’s departure from the standard required is such as to potentially require the suspension or even disqualification of his registration, I have been persuaded that the protection of the public, will, in the circumstances of this matter, be achieved by proceeding by way of reprimand and a significant fine. Accordingly there will be a formal reprimand and a fine of $14,000.