Director of Public Prosecutions v Real Estate Property Pty Ltd and David Steel

[2019] VCC 1499

IN THE COUNTY COURT OF VICTORIA Revised
Not Restricted
Suitable for Publication

AT WARRNAMBOOL
CRIMINAL JURISDICTION

CR 19-00885

DIRECTOR OF PUBLIC PROSECUTIONS

v

REAL ESTATE PROPERTY PTY LTD & DAVID STEEL

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JUDGE:	HIS HONOUR JUDGE O'CONNELL
WHERE HELD:	Warrnambool
DATE OF HEARING:	6 September 2019
DATE OF SENTENCE:	13 September 2019
CASE MAY BE CITED AS:	DPP v Real Estate Property Pty Ltd & David Steel
MEDIUM NEUTRAL CITATION:	[2019] VCC 1499

REASONS FOR SENTENCE
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Subject:  CRIMINAL LAW

Catchwords:  Real estate agent; Sole director of real estate agency; 34 charges of knowingly authorising or permitting a deficiency payable into a trust account; 1 charge of knowingly authorising or permitting a deficiency in a trust account; 1 charge of fraudulently omitting to account for, deliver or pay rental payments received on behalf of landlords; 1 charge of wrongful conversion; Partial admissions; Early plea; Remorse; No prior convictions; Full restitution prior to plea hearing; Serious failure of professional duties.

Legislation Cited:                  Estate Agents Act1980; Sentencing Act 1991.

Cases Cited:DPP v Bulfin [1998] 4 VR 114; Dyason v The Queen [2015] VSCA 120; Gianello v The Queen [2015] VSCA 205; Boulton v The Queen; Clements v The Queen; Fitzgerald v The Queen [2014] 46 VR 308; Brancatella v The Queen [2016] VSCA 94.

Sentence:3 month term of imprisonment, 2 year undertaking (David Steel)

Aggregate fine of $10,000 (Real Estate Property Pty Ltd)

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APPEARANCES:	Counsel	Solicitors
For the Director of Public Prosecutions	Mr C. McConaghy	Office of Public Prosecutions
For the Accused	Mr M. Turner	Fogarty Lawyers

HIS HONOUR:

1David Alexander Scott Steel, you and the company of which you were sole director, Real Estate Property Pty Ltd, have pleaded guilty to 34 charges of knowingly authorising or permitting a deficiency payable into a trust account; one charge of knowingly authorising or permitting a deficiency in a trust account; one charge of fraudulently omitting to account for, deliver, or pay rental payments received by you on behalf of landlords; and one charge of wrongful conversion.  You have also pleaded guilty to a related summary offence of failing to lodge rental bonds with the Residential Tenancies Bond Authority. 

Background

2By way of background, the company, Real Estate Property Proprietary Limited, was registered on 15 June 2005, with you as the sole director. 

3On 17 October 2005, you and the company were issued with estate agent licences by the Business Licencing Authority, pursuant to the Estate Agents Act1980.  In order to acquire your licence, it was necessary for you to complete a certificate course in real estate agency practice.  That course included modules with respect to implementing and monitoring financial management systems, maintaining a trust account and legal and ethical requirements associated with property management. 

4By law, estate agents are required to open and maintain a statutory trust account, if the business holds or intends to hold trust money, such as rental payments or sales deposits on behalf of landlords or vendors. 

Overview of offending

5In setting out the history of this matter, Mr McConaghy, on behalf of the prosecution, tendered a summary of prosecution opening, which described a number of irregularities that had occurred with respect to your trust accounting procedures in the years leading up to 2015.  For example, Consumer Affairs Victoria (‘CAV’) identified your statutory trust account as being overdrawn on three particular occasions; on 12 October 2011 in the sum of $25,156, 19 June 2012 in the sum of $88.50, and on 23 April 2013 in the sum of $6,125. 

6The relevant point arising from the background matters described by the prosecutor was that well before this offending, you were reminded of your obligations as to administering trust funds on numerous occasions. Charges 1 to 34 deal with deficiencies payable into a trust account. 

7Despite the history that I have just outlined, between 2 January 2015 and
19 July 2016, you and the company did not operate a statutory trust account, even though you received rental payments in trust for landlords in relation to at least 34 different properties in Victoria.  On no less than 1,024 occasions, you and the company failed to deposit those trust funds into a statutory trust account, thereby creating a deficiency payable into a trust account.  The funds were instead deposited into the company's general trading account, or its cheque account. 

8To use some examples, charge 1 related to a property at 12 Adams Street, Cobden.  Between 2 January 2015 and 13 May 2016, 41 rental payments were received into the company's cheque account in relation to that property, totalling $13,490.  None of those rental payments were deposited into an appropriate trust account.  The date and amount of each of those 41 payments, which was payable into a trust account, is set out in Schedule A of the Indictment. 

9The second charge relates to a property at 55 Barrett Street, Timboon.  Between 1 May 2015 and 14 July 2016, 53 rental payments were made to the company in relation to that property, totalling $13,230.  None of those 53 payments were deposited into an appropriate trust account.  The date and amount of each payment payable into a trust account is set out in Schedule B of the Indictment.

10The third charge relates to a property at 370 Batemans Road, Boorcan.  Between 8 January 2015 and 13 May 2016, 34 rental payments were paid into the company's account, totalling $20,000.  None of those rental payments were deposited into an appropriate trust account.  The date and amount of each payment payable into a trust account is set out in Schedule C of the Indictment.

11The next 31 charges and accompanying schedules on the Indictment comprise similar conduct involving a further 31 rental properties, and the failure to deposit rental payments into an appropriate trust account on a further 896 occasions.  The total value of these deficiencies was $303,893.67.  The maximum penalty for each of those 34 offences is two years' imprisonment or 100 penalty units in the case of a person and 200 penalty units in the case of a corporation. 

12With respect to charge 35, relating to deficiencies in a trust account, on 20 July 2016, the cheque account operated by your business was converted into a statutory trust account and entitled to receive and hold trust funds.  On nine occasions between 22 July 2016 and 24 February 2017, you and the company caused the company's statutory trust account to incur a negative balance, causing a deficiency of trust funds.  Those deficiencies included $441.75 from 22 July to 24 July 2016; $496.56 on 28 July; $687.96 on 1 August 2016; $6762.34 on 25 August 2016; $379.52 on 10 October 2016; $80.92 on
9 January 2017; $682.26 from 13 January to 15 January 2017; $15.26 on
16 January 2017; and $960.32 from 24 February to 26 February 2017. 

13As to the first three of those deficiencies, CAV wrote to you in early August 2016 and identified the deficiencies and the associated risks.  You replied on 8 August 2016, indicating that you had reviewed the reports of the trust account deficiency and agreed the account was in debit.  You stated that you had discussed the deficiency with staff and had provided more training with the relevant software.  You also provided a copy of your trust account statement, showing that the account was then in credit.  The account was again deficient 17 days later on 25 August 2016, and on a further five occasions until 26 February 2017.  The total value of those deficiencies was $4,406.89.  The maximum penalty for this offence is two years' imprisonment or 100 penalty units in the case of a person and 200 penalty units in the case of a corporation.

14Charge 36 related to fraudulently omitting to account for, deliver, or pay trust funds.  Even though the cheque account had been converted into a statutory trust account, you continued to deposit personal funds into that account and use it to pay for personal expenses.  On three occasions between 19 February 2015 and 15 June 2016, you and the company fraudulently failed to account for rental payments to landlords, totalling $10,713.20 in relation to three properties. 

15Charge 36 comprises those three instances of fraudulently omitting to account for the trust funds: $1,353.98 to David Foley in respect of 619 Princetown Road, Simpson; $2,256.80 to Margaret and Louis Matthews in respect of 74 Walker Street, Cobden; and $7,102.50 to the Uniting Church in Australia Property Trust in respect of 28 Peter Street, Cobden.  In 2017, two of those complainants lodged claims against the Victorian Property Fund (‘VPF’) in relation to your failure to remit those rental amounts.  I was told that all three complainants have now received full payment for the outstanding rent moneys and no loss was therefore incurred by the VPF.  The maximum penalty for this offence is 1,000 penalty units for a corporation, and 500 penalty units or 10 years' imprisonment for any other person.

16Charge 37 related to fraudulently converting a rental bond for your own use.  That was done in the sum of $760 in respect of the property at 6 Kardella Street, Simpson.  You and the company received the $760 bond on 30 November 2016.  It was required to be lodged with the Residential Tenancies Bond Authority (‘RTBA’) within 10 days of receipt.  Instead, you fraudulently converted that money to your own use and only submitted an equivalent amount to the RTBA on 31 January 2017.  The maximum penalty for this offence is also 1,000 penalty units for a corporation and 500 penalty units or 10 years' imprisonment for any other person.

17As to the related summary offence of failing to lodge bonds within 10 days of receipts, on four occasions between 24 August 2015 and 15 December 2016, you and the company failed to deposit bonds with the RTBA within 10 days of receipt.  The quantum involved in that offending totalled $3,150.  The maximum penalty for that offence is 60 penalty units.

Investigation

18Turning to the investigation with respect to these offences. CAV undertook some inspections of the company's premises in October 2016 and identified issues with maintenance of trust account records.  In December 2016, CAV began receiving complaints about you and your company.  In January 2017, they tried to contact you unsuccessfully and ultimately on 20 January 2017, CAV inspectors attended at your principal trading office at 45 Curdie Street in Cobden. 

19In your discussions with inspectors at that time, you admitted that some landlords had not been paid rent because there had been insufficient funds in the trust account, and that was so because you had used trust moneys to pay business expenses.  You explained that you did not use trust funds for any purpose other than business expenses and you did so because forecasted sales had fallen through and rental commission was insufficient.  At that time, there was a deficiency in your trust account of $6,600. 

20A bank reconciliation summary of 1 January 2017 showed a deficiency of $55,219.60.  You said with respect to that deficiency, that you did not know what caused it, however you had been using new software and you had experienced difficulty in understanding it.  You were only recording trust money movements when you could, not contemporaneously as you should.  You were expecting a sales commission to cover deficiencies.  You said you owed three landlords outstanding rent and you estimated that you had misused about $20,000 of trust money overall and you had access to personal funds if your expected commission fell through. 

21You said you had not completed trust account audits between 2010 and 2015, because the bank opened the wrong type of account and you did not think it needed to be done.  You said you did not keep trust account records in relation to the account.  You had not taken any steps since the previous CAV inspections in October 2016.  You said that after paying off the money you owed, you intended to wind up the company, close the trust account and possibly work for another agent. 

22On 8 February 2017, you again spoke to CAV investigators. At that time you explained:

(a) when tenants paid cash bonds over the counter, they would not be deposited into the trust account, but would be used to pay for business expenses. The tenant's bond would be paid from other client's money that was already in the trust account;

(b) the trust money from rent and sales deposits was treated correctly, it being deposited into the trust account. Landlords and vendors were paid;

(c) the deficiency was caused because the sales income dried up and you had insufficient personal funds because of your divorce; and

(d) you were not completing monthly reconciliation statements. 

23On 23 June 2017, the Director of CAV suspended your licence to practice and that of the company.  On that same day, you participated in a lengthy record of interview with the investigators, in which you made what was described by the prosecution as 'partial admissions'.  The substance of your answers in that interview were set out at paragraph 69 of the summary of prosecution opening (Exhibit A).  Briefly put, you admitted that you knew trust money had to be held in a trust account, you did not keep ledgers in relation to trust money movements and you said you were unaware of the requirement to do so.  You said you were aware of the requirement to complete monthly reconciliations but did not do so adequately. 

24Two or three years before the interview, CAV had made it clear to you that you were to audit the accounts every year, but you had failed to do so.  You told investigators that you were not aware that you could not make personal payments out of the trust account.  You told investigators, ‘I was treating it as my own.' 

25In relation to your business account, you confirmed that it was used for business expenses and that some rental moneys, which should have been paid into trust, went into that account.  You agreed bonds had been paid to the RTBA from the business account, but you claim that you did not know why.  You told investigators that you had received a $20,000 loan from your sister because there were a couple of properties which were 'short', so you used that money to 'pay them out and settle everyone.' 

26No victim impact statements were made in respect of this matter.  It is, I think, important to point out at this stage, that in spite of the numerous irregularities reflected in this offending, no one is now out of pocket. 

Personal history

27As to your personal history, you were born on 28 May 1962 and are now 57 years of age. At the time of the offending, you were between the ages of 52 and 54.  Your parents were dairy farmers in the Nirranda area.  You were the oldest of four children and when your father suffered a stroke when you were 17, your education was cut short because you had to take on the management of the farm.  Ultimately, your father was able to return to work, but only in a limited capacity.  Later, you were able to commence further study and obtained a Diploma of Agriculture and indeed you went on to lecture at the Glenormiston Agricultural College between 2001 and 2003. 

28In 1989 you married, and in that year, signed an agreement to purchase the Nirranda property from your parents. From that time on, you took over all of the operations on the farm.  In 1991, you sold that farm in order to purchase a larger farm in Cobden.  In 2001, a larger portion of that farm was sold and you and your wife retained 150 acres and built the matrimonial home on 18 acres of that land. 

29There were four children of the marriage, all daughters, ranging in age from 29 to 17.  All appear to be doing well, however you are estranged from them in the wake of a protracted and acrimonious divorce from your wife.  You believe that your former wife alienated your daughters from you. 

30In 2002, you obtained your real estate agent's licence and worked as an employee for two or so years for a local real estate firm.

31In 2005, you sold a portion of your farm and its cattle and started your own real estate firm, concentrating on the sale of farm and rural properties.  You completed the necessary study to obtain your full licence to practice on your own account as a real estate agent on 25 August 2005.  Thereafter, you appear to have run your business successfully for a number of years. 

32Mr Turner, who appeared as counsel on your behalf, sought to contextualise your offending by charting your financial and personal deterioration from about the year 2013, 2014 onwards.  He first described the extensive contribution you had made to the local community when you had been functioning well.  You had been a member of organisations, such as Young Farmers, President of the local Rotary Club, you were active in fundraising for many local organisations, President of the Holstein Friesian Club, you had worked in the Meals on Wheels program, you had been on the local school committee and Director of the DemoDAIRY Research Farm in Terang, among other things. 

33A reference from a retired colleague, David Johnstone, confirmed your community mindedness.  You were, it was submitted, in the period before 2014 or so, an exemplary and hardworking citizen. 

34Mr Turner next described how a number of circumstances conspired to damage your business and financial security.  As I indicated initially, you had done well as a real estate agent.  With your background in farming, you were able to relate to farmers and their needs and could therefore manage the buying and selling of farms adeptly.  Moreover, you were not required to manage money to any great degree, because that would generally be dealt with by solicitors for the large purchases and sales in which you dealt. 

35In 2013/2014, the market changed and farms became more difficult to sell.  Vendors who could not sell their properties opted to rent them instead, and your sources of income evolved to encompass the management of rental properties.  This required reasonably rigorous accounting procedures, which you were either incapable or unmotivated to implement. 

36In tandem with these developments, it seems you made some bad business decisions, such as opening an office in Warrnambool, which involved locking yourself into a four-year lease with expensive overheads.  In consequence, your previously successful business struggled to make ends meet. 

37You separated from your wife in 2014 in very unhappy circumstances.  At around that time, your wife had contracted cancer and was undergoing chemotherapy.  The mortgagee of your remaining 132 acre farm foreclosed and the property was sold in 2015 at a loss to you. 

38Federal Circuit Court orders were made in May 2016 to sell the matrimonial home and other property in which you and your wife had an interest.  Unfortunately, in the context of the bitter divorce proceeding, the sale of the property was delayed and the funds could not be used to satisfy your debts or operating costs.  A further more specific order was required to be made in September 2017 before the sale could be realised.  Ultimately, however, as
I indicated, you were able to make full restitution, with the final assistance from your sister.

39Mr Tuner put that in consequence of the events I have described, you had lost your business, your farm, your home and all your financial assets, your marriage, your relationship with your children and indeed your standing in the community. 

40Fortunately, you have the support of your sister, Ms Howden, who provided a comprehensive reference and gave impressive evidence on your plea.  She has seen some improvement in your position since the family law matters were resolved and she is happy to have you reside with her whilst you are in Australia.  In my view, her support very much enhances your prospects for rehabilitation. 

41I am told that you have, more recently, established something of a new life for yourself in Vietnam, where you have been working teaching English for a modest wage. 

Defence submissions

42In light of that history, Mr Turner relies on a number of matters in mitigation, including your early plea, the fact that your plea and the restitution you have made is demonstrative of remorse, your lack of prior convictions, your positive contribution to the community and otherwise good character, and the sad deterioration in your personal circumstances that he said contributed to the circumstances of your offending.  He argued that the Court should be confident that you would not re-offend again.

43He further submitted that your offending is better characterised as arising out of incompetence and carelessness, rather than calculated dishonesty.  That submission was supported by the fact that in the end, no one actually incurred a loss.  It was not a situation, he argued, where you had spent client's money on drugs or gambling or an extravagant lifestyle.  He submitted that you committed these offences when you were overwhelmed by the deterioration in your financial circumstances and personal life, and in desperation, used the trust moneys to try and hold your family and business together.

44Mr Turner submitted that the imposition of a Community Correction Order (‘CCO’) would satisfy the competing sentencing purposes, but acknowledged that there would likely be some practical problems associated with a lengthy CCO because of the new life you have sought to establish for yourself in Vietnam.  Alternatively, he submitted, that a shorter straight sentence of imprisonment would be appropriate.

Prosecution submissions

45Turning to the submissions made by the prosecutor, Mr McConaghy submitted that your offending ought be seen in the overall context of a fairly long history of non-compliance, pre-dating the timeframe of the indictment.  That history, although not the subject of charges, demonstrated that you had been told many times to get your house in order, and your failure to do so speaks to a greater level of moral culpability for this offending.  He argued you were in a quintessential position of trust which you abused for your own purposes, and that was particularly so with respect to the more serious charges: charges 36 and 37. 

46He submitted that it is fundamental that the community trust that professional estate agents will deal with funds managed by them diligently, competently and with integrity.  In those circumstances, general deterrence played a primary role in the sentencing calculus.  The prosecutor submitted that, having regard to the scope and duration of the offending, that an immediate term of imprisonment must be imposed. 

Consideration

47In weighing these submissions, I have come to the view that I should accept your counsel's submission, to the effect that you failed your professional duties more so than betrayed them.  Your approach was inept and cavalier, but it did occur in the setting of the breakdown of your marriage and in circumstances where you simply lacked the capacity to cope with the increasingly difficult business environment confronting you.  Whilst those matters help explain your offending, you should understand that they do not justify it. 

48I accept, in light of your early plea and the restitution you had made, that you are remorseful for what you have done and that with the support of your sister, you are well placed to put this matter behind you and rebuild your life.  Your plea also has substantial utilitarian value.  It has saved what would have been a lengthy trial and has facilitated the course of justice significantly.  I will impose a substantially reduced sentence because of that plea. 

49In considering these submissions, I have also had regard to what was said by Charles J in DPP v Bulfin[1], as to the strong emphasis on general deterrence required in white-collar offending such as this. 

[1] [1998] 4 VR 114, (‘Bulfin’).

50I have also had regard to the decisions of the Court of Appeal in Dyason v The Queen[2] and Gianello v The Queen[3], on the question of the appropriateness of CCO’s for white-collar offenders.  The applicable principle being that nothing in Boulton v The Queen[4] affects the cogency of what Charles J said in Bulfin as to the primacy of general deterrence. 

[2] [2015] VSCA 120.

[3] [2015] VSCA 205.

[4]Boulton v The Queen; Clements v The Queen; Fitzgerald v The Queen [2014] 46 VR 308.

51Counsel also referred me to the decision of Brancatella v The Queen[5], which

[5] [2016] VSCA 94.

I take to be, in effect, a more relevant example of the application of the principle in Bulfin.

52I would make the observation, however, that all of those cases dealt with much greater amounts of money, involving what should be regarded as much more palpable acts of dishonestly.  That is not to undervalue your breach of trust to your clients, and to your profession, but it follows that whilst the principle of general deterrence must be a primary sentencing purpose to be emphasised in your case, I do not think it needs to be reflected to the same extent as it was in those other cases. 

53Balancing the competing sentencing purposes as best I can, I have concluded that the company should be penalised through the imposition of a reasonably substantial fine.  I have taken into account that the company may have limited capacity to pay, nonetheless, the fine must bear some relation to the scope and duration of the offending. 

54With respect to the penalty to be imposed on you personally, I have concluded that no other penalty other than a term of imprisonment must be imposed.  However, having regard to the matters in mitigation and the sentencing principles to which I have referred, that term of imprisonment need only be relatively short, and combined with a conviction undertaking that binds you to be of good behaviour for a period of time. 

55I should indicate that I have attempted to structure the sentence to be imposed to give overall effect to the principle of totality. 

Sentence

56Accordingly, would you please stand, Mr Steel.

57Dealing first of all with the penalty to be imposed on you personally, in respect of charges 36 and 37, being false accounting and wrongful conversion, you will be convicted and sentenced to an aggregate term of imprisonment of three months.

58In respect of charges 1 to 34, being deficiencies payable into a trust account; charge 35, being deficiencies in a trust account; and the related summary offence of failing to lodge bonds with the RTBA, you will, pursuant to s 72 of the Sentencing Act 1991, be convicted and placed on an undertaking for a period of two years, conditional upon you attending before the court if called upon to do so during the period of the undertaking and that you be of good behaviour during that period. 

59Dealing now with the company, Real Estate Property Pty Ltd, on all charges, the company will be convicted and sentenced to pay an aggregate fine of $10,000.

60Pursuant to s 6AAA of the Sentencing Act 1991, I will declare that, but for your plea of guilty, I would have imposed an aggregate sentence of 12 months' imprisonment on you to serve, and I would have imposed an aggregate fine of $15,000 on the company.

61Mr Steel, I should make it clear to you that if you breach the conditions of this undertaking, then you may be punished for any offence that has been committed during time of the undertaking.  You may also, in addition to that, be punished for failing to be of good behaviour.  You have signed the document, indicating that you understand the conditions of the order and consent to it being made.  Accordingly, I will sign those orders. 

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