Commr for Consumer Affairs v Property Management Specialists P/L (In Liq) & Ors
[2006] SADC 15
•22 February 2006
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
COMMR FOR CONSUMER AFFAIRS v PROPERTY MANAGEMENT SPECIALISTS P/L (IN LIQ) & ORS
Judgment of Her Honour Judge Shaw, Assessor Magain and Assessor MacDonald
22 February 2006
ADMINISTRATIVE LAW
Land Agents Act 1994 s10 & s43, referred to.
Commissioner for Consumer Affairs v Sollars (2001) 79 SASR 145; Craig v Medical Board of South Australia [2001] 79 SASR 545, considered.
COMMR FOR CONSUMER AFFAIRS v PROPERTY MANAGEMENT SPECIALISTS P/L (IN LIQ) & ORS
[2006] SADC 15Judge Shaw
Civil
These are disciplinary proceedings instituted by the Commissioner for Consumer Affairs (“the Commissioner”) against a body corporate, Property Management Specialists Pty Ltd (In Liquidation) a registered agent (the first defendant), Matthew James Fuller, a registered agent (the second defendant) and Trevor Alan Elburn, a director of the first defendant (the third defendant), pursuant to sections 10 and 43 of the Land Agents Act, 1994.
The Land Agents Act SA 1994 (“the Act”) regulates land agents.
On the 31st of August 2004 the Commissioner lodged a complaint with this Court against each of the defendants alleging that there was proper cause for disciplinary action upon a number of grounds.
The first defendant did not wish to be heard. The second and third defendants admitted the grounds for disciplinary action as particularised against each of them in the complaint.
The conduct, which is the subject of the complaint, took place between the 8th day of September 2000 and the 8th day of November 2002.
The conduct identified in the complaint represented a course of conduct.
Mr Nicholas, who appeared on behalf of the Commissioner provided the court with a bundle of documents (Exhibit 1).
Grounds one to eleven alleged there were separate grounds for disciplinary action against the first defendant pursuant to sections 10 and 43 of the Act.
Grounds one to eleven of the complaint each alleged that the first defendant failed to ensure that its business was properly managed and supervised by a registered agent who is a natural person contrary to sections 10 and 43 of the Act. The particulars of each ground identified a number of failures and errors in the accounting records.
Mr Nicholas submitted that as a result of the accounting errors particularised in ground one, monies were not received by persons entitled to such monies. One of the persons who did not receive monies as a result of the errors, was the Commissioner, through the Residential Tenancies Tribunal. The particulars of grounds two and three identified errors which included a failure to account and a failure to record correctly monies received by the first defendant. The particulars of ground four included a reference to an overpayment to a landlord. The particulars of ground five referred to a sum of money that appears to have been misappropriated.
The particulars of the grounds also referred to the recording of monies which were paid into an “AA Unclaimed” ledger. The records did not identify the person who was entitled to the benefit of those funds.
The particulars of ground seven referred to monies that ought to have been received as trust monies but were utilised to pay fines due to the Tea Tree Gully Council.
The particulars of ground eight disclosed that there was a payment of trust monies into the general ledger of the first defendant instead of into the ledger of the appropriate landlord.
The particulars of ground nine identified a sum of money in excess of $25,000.00 that has never been accounted for.
The particulars of ground ten showed payments having been made from the trust account for non-trust purposes.
Ground eleven related to monies received by the first defendant that ought to have been transmitted to the Residential Tenancies Tribunal.
Ground twelve alleged there was a ground for disciplinary action against the second defendant pursuant to section 43(1)(d) of the Act. Ground twelve particularised both the particulars in grounds one to eleven and the negligent management by the second defendant of the business of the first defendant.
Ground thirteen alleged that there was proper cause for disciplinary action against the third defendant in respect of the period 8 September 2000 to 30 June 2002 contrary to section 43(3) of the Act.
In deciding upon the penalty to be imposed in respect of each defendant, we bear in mind that the purpose of the Act is to regulate the conduct of persons who are registered under the Act; to protect the public (Commissioner for Consumer Affairs v Sollars (2001) 79 SASR 145) and to maintain proper standards of conduct (Craig v Medical Board of South Australia [2001] 79 SASR 545). The focus is on the protection of the public by requiring applicants to meet criteria directed towards their qualification, experience and fitness for the occupation[1]. Clearly, it is in the public interest and in the interests of maintaining public confidence in the integrity of those persons registered under the Land Agents Act, that the orders that we make reflect the requirements of the Act to protect the public and to maintain the high standard required for those who are responsible for the management of trust account funds and business accounts.
[1] Commissioner of Consumer Affairs v Sollars (2001) 79 SASR 145 at 147 (14) per Doyle CJ
The first defendant is in liquidation. Mr Nicholas asked the court to make a finding that there was proper cause for disciplinary action against the first defendant in accordance with the grounds particularised in the complaint.
Mr Nicholas informed the Court that he did not seek any relief against the first defendant, the company.
Having heard Mr Nicholas and having received confirmation in writing from the liquidator of the first defendant that the first defendant did not wish to be heard, the court decided to proceed ex-parte against the first defendant.
In accordance with the submission of Mr Nicholas, we find that there is proper cause for disciplinary action against the first defendant. Further, in accordance with the position taken by the Commissioner in relation to this defendant, we refrain from imposing any sanction against the first defendant.
The first defendant company was formed as a result of an amalgamation of a number of other companies.
In relation to the second defendant, Mr Nicholas submitted that there had been ongoing discussions between the Office of the Commissioner for Consumer Affairs, and the second defendant prior to the commencement of the operation of the first defendant company. Those discussions related to the trust account which did not balance at that time
Mr Nicholas informed the Court that at the time that Mr Freer was appointed to take over the administration of the trust account on the 8th of July 2002, there was a deficit of $400,000.00. Mr Nicholas told the Court that the second defendant had injected from his private funds, the sum of $225,000.00 in relation to the deficit. The second and third defendants were aware of the ongoing involvement of the Office of the Commissioner, which was primarily related to irregularities with the trust account. There was no allegation of misappropriation against the second defendant.
Mr Nicholas submitted that in relation to the second defendant, the court could impose a fine up to $20,000.00 pursuant to section 47(1)(b) of the Act.
Mr Nicholas agreed that the act of restitution made by the second defendant, namely the payment of the sum of $225,000.00 was a factor that the court could take into account in mitigation.
Mr Nicholas invited the court to order that any fine imposed be paid into the Indemnity Fund pursuant to section 47(1)(e) of the Act.
Mr Nicholas sought an order for disqualification against Mr Fuller pursuant to section 47(1)(e) of the Act. He sought an order that Mr Fuller be prohibited from being a director of a body corporate that is an agent pursuant to section 47(1)(g) of the Act. Mr Nicholas sought an order that the disqualification and prohibition be ordered to apply permanently pursuant to section 47(2)(a)(i).
The second defendant has surrendered his registration.
Mr O’Loughlin who appeared for the second defendant Mr Fuller, admitted on behalf of his client that there was proper cause for disciplinary action against his client upon the grounds set out in the complaint as amended.
It is agreed that Mr Fuller had paid the sum of $225,000.00 by way of restitution. In addition, it is agreed that Mr Fuller indicated to the Crown Solicitor’s Office at the first reasonable opportunity, his intention to admit the disciplinary breaches.
We also received references from Mr Marchant and Ms Davis who spoke highly of the second defendant’s extensive experience and prior good reputation.
Mr O’Loughlin submitted that this was the first time that the second defendant had had a complaint lodged against him. He is aged 45 years. He is married with a five year old daughter.
Following his secondary schooling, the second defendant commenced working for Elders Real Estate. In 1985, he began employment with Weeks and Macklin and became property management overseer.
In 1997, he purchased the property management division of Weeks and Macklin for $600,000.00. He also became a director of that company. His responsibilities included the management of the trust accounts. Over a period of time, he developed a list of about 1000 properties for which he was responsible.
The second defendant met Mr Elburn, the third defendant, whilst he was lecturing Mr Elburn who became an equal partner. In 1998, the second defendant purchased Theodore Bruce. This company had a rent roll business of about 300 properties. An employee, Alison Jackson was responsible for the day to day management of the trust accounts at both Weeks and Macklin and Theodore Bruce.
In 1999 the second defendant further expanded his business, by purchasing (for $1.2 million) another business, namely Century 21. This business had a rent roll of 1,000 properties. This expansion led to the company commencing to trade as the first defendant. It appears that there were problems in the accounts, at that time, which the first defendant inherited on takeover.
There was an $8,900.00 deficiency at the time of takeover which was never investigated or explained. An injection of funds was made from the general trading account to balance the account.
The first accountant employed by the first defendant was unsatisfactory. Therefore, the second defendant engaged another firm of accountants, namely Vlassis and Co.
In February 2000, two trust accounts, namely that of Weeks and Macklin and Century 21 were merged and the problems could only have been compounded.
Subsequently, it was discovered that one land agent had been falsifying records and not depositing funds. Thirty six thousand dollars has now been repaid by that person.
The second defendant believes at times there were others who were misusing trust monies. Indeed the beneficiary of certain cheques appears to have been a staff member. The second defendant never signed trust cheques.
Mr O’Loughlin submitted that the cause of the problems underlying the grounds set out in the complaint, was a combination of circumstances. He pointed to the number of different employees, and the business growing too quickly without the necessary appropriate computer support systems in place. In relation to the accounting records, errors occurred. For example, some landlords were shown to have been paid three times in respect of the same amount.
The second defendant took positive steps to address the problems. For example, in October 2000, a firm of accountants were engaged. In November 2000, an employee with an accountancy degree, was taken on at a salary of $60,000.00 to oversee the management of the business.
The second defendant has since sold his house and disposed of other assets. He has borrowed from his family. All of this was done in order to provide restitution.
It is not suggested that the second defendant received a personal benefit from any of the conduct which is the subject of the complaint. He lost his home and his livelihood. In addition, his wife was required to return to work, whilst he has remained at home to care for their child.
Not only did the second defendant acknowledge his responsibility at an early stage but he also made extensive restitution and co-operated with the Office of the Commissioner for Consumer Affairs and others as requested to the best of his ability.
Indeed he surrendered his licence when the Office of the Commissioner for Consumer Affairs discussed with him the appointment of Mr Freer as manager of the business.
It is accepted by the second defendant through his counsel, that a substantial penalty ought to be imposed, bearing in mind that the allegations relate to trust monies.
Taking into account all relevant matters, and accepting the description by Mr Nicholas of the nature of the second defendant’s breaches in accordance with ground twelve and the particulars in the complaint, in our opinion the public can be properly protected by the imposition upon the second defendant, of a disqualification from holding or obtaining a licence pursuant to section 47(1)(e) of the Act, for a period of five years. We order that the said disqualification commence seven days after the delivery of these reasons.
We also order that the second defendant be prohibited from being a director of a body corporate that is an agent, pursuant to section 47(1)(g) of the Act, for a period of five years. We order that the said prohibition commence seven days after the delivery of these reasons.
In addition, we order that the second defendant be fined the sum of $5,000.00. We order that the fine be paid into the Indemnity Fund pursuant to section 47(1)(e) of the Act.
We order that the second defendant pay costs to the Commissioner in the sum of $15,500.00 payable to the Crown Solicitor’s office.
We now turn to the third defendant.
In September 2001 the third defendant signed an annual report ending 31 March 2001, which included a report by the accountants, Vlassis and Co. Mr Nicholas submitted that the third defendant must have been alerted at that time to problems with the trust account. However, in relation to the third defendant, the Commissioner did not allege that he was either negligent in a direct sense nor engaged in any other type of misfeasance.
Mr Nicholas accepted that the third defendant was interstate at least during part of the relevant period. The third defendant resigned as a director in July 2002.
Mr Riggall, who appeared on behalf of the third defendant, informed the Court that his client accepted that there was proper cause for disciplinary action against the first defendant pursuant to section 43(3) of the Land Agents Act and accordingly, action could be taken against his client, the third defendant as a director of the first defendant.
The third defendant through his counsel admitted the allegations against him in the complaint and admitted there were proper grounds for disciplinary action against him.
Mr Riggall informed the Court that it was common ground that there was no actual negligence or misfeasance by the third defendant. The third defendant was physically located in Brisbane at the relevant time. However he took positive steps, at times at his own expense, to engage external accountants to address the first defendant’s accounts. The third defendant was confident that the Office of the Commissioner for Consumer Affairs had received the same reports that he had received because he was aware that representatives of that office, had attended at the first defendant’s offices. Mr Riggall described the subject of the grounds for complaint as more in the nature of “data entry” questions, than structural matters.
The basis for the admissions of the third defendant, was that although the third defendant, took a number of positive steps to address the failures of the first defendant, he did not do enough in relation to the first defendant’s trust account.
Mr Nicholas, on behalf of the Commissioner, did not disagree with Mr Riggall’s submission that the appropriate order to be made against the third defendant was that the third defendant be reprimanded. Upon the basis of the third defendant’s admissions in relation to ground thirteen, we find that there are proper grounds as particularised, for disciplinary action against the third defendant, and we order that the third defendant be reprimanded.
We order that the third defendant pay costs to the Crown Solicitor’s Office in the sum of $500.00.
In relation to the circumstances which are the subject of this complaint, we make a number of additional observations.
We note that during the period in which the conduct which is the subject of this complaint occurred, the manner of operation of the first defendant’s trust account was the subject of consideration by a representative of the Office of the Commissioner for Consumer Affairs.[2]
[2] Transcript pp49-50
From the information before us, it appeared that the trust account, to the knowledge of the Office of the Commissioner for Consumer Affairs, did not balance from the time that the first defendant began to conduct its business and a representative of the Office of the Commissioner first became involved.
It is common ground that there were errors in the accounts relating to the vendor’s rent roll at the time that the first defendant paid for and received the said rent roll.
It is surprising that there was not a more detailed investigation by the Office of the Commissioner for Consumer Affairs as to the explanation for the irregularities at that time.
It appears that the Office of the Commissioner for Consumer Affairs took no direct issue with a lump sum payment of about $8,000.00 into the accounts of the first defendant, in about September 2000 as a way to resolve what was to remain an unsatisfactory situation in relation to the accounts. Although the accounts may then have balanced, there was no investigation of whether a particular previous transaction was irregular and in particular, whether someone else may not have received monies which were due to be paid to him or her. By the time Mr Freer was appointed on the 8th of July 2002 pursuant to section 16, of the Act, in excess of $400,000.00 was unaccounted for.
We note that the Land Agents Act provides that the Commissioner may direct compulsory audits in appropriate circumstances. We note that section 23 of the Land Agents Act, gives the Commissioner the power to appoint a person to examine the accounts and records kept by an agent pursuant to Division 2 of the Act.
We were informed that Mr Wall, a representative of the Office of the Commissioner for Consumer Affairs, was engaged in discussions with Mr Fuller, the second defendant about issues relating to the accounts of the first defendant. We were informed that general notations such as “At these meetings the following matters were discussed” evidenced the nature of the involvement of the Commissioner’s representatives. It appears that a compliance officer was involved with the first defendant’s business, and withdrew at a time when there must have been irregularities in the accounting records. Mr Nicholas informed us that for a period of twelve or fifteen months after the compliance officer effectively withdrew, there was ongoing non-compliance with the Act and Regulations[3]. However, it appears that the Office of the Commissioner for Consumer Affairs did not provide clear guidance, directions or deadlines to the first defendant or its officers or personnel to assist in overcoming the ongoing unsatisfactory state of the accounts of the first defendant.
[3] Transcript p67
Mr Nicholas, on behalf of the Commissioner said that Mr Elburn, the third defendant, as a director of the company, was in a better position than a compliance officer of the office of the Commissioner for Consumer Affairs to ensure that the accounting errors and procedural errors of the first defendant were identified and rectified.
We understood from the submissions of Mr Nicholas, that part of the explanation for the lack of specific action by the Office of the Commissioner for Consumer Affairs, who were liaising with persons on behalf of the first defendant, was that representatives of the Office of the Commissioner for Consumer Affairs are not experts in this area. It was submitted that these officers have to deal with a range of issues relating for example, to electricians, plumbers and the like. It was also submitted that the Office of the Commissioner for Consumer Affairs had a dual role both as an educational body and as a regulatory body and that this dual role provided some explanation for the apparent limited expertise of officers in relation to addressing the irregularities in the accounting records.[4]
[4] Transcript page 59
We make the observation that if the representatives of the Office of the Commissioner for Consumer Affairs were not experts in the field in which they became involved with the first defendant’s affairs, as we understood the submission of Mr Nicholas, it is surprising that these persons were placed in a position of decision making that could affect such a large property management company. It appears that for an extended period of time[5], the representatives of the Office of the Commissioner for Consumer Affairs seemed not to have been alive to the potential problems and long term ramifications of their failure to act expeditiously.
[5] Transcript page 92
Mr Nicholas submitted that, in hindsight, if the Commissioner had erred, it was because of his failure “to torpedo the company before it was launched rather than work with it”[6].
[6] Transcript page 118
We wondered how this submission is necessarily consistent with what we understood to be at least part of the role of the Office of the Commissioner for Consumer Affairs, as a consumer and industry watchdog.
We are surprised that the Office of the Commissioner for Consumer Affairs in the circumstances of this case, did not utilise the provisions of the Land Agents Act in order to conduct an independent audit at an earlier point in time. If the Office had intervened promptly and decisively in this way, the interests of the first defendant and of relevant consumers might have been better addressed.
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