McMurray v Commissioner for Consumer Affairs - [2016] SADC 41

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MCMURRAY v COMMISSIONER FOR CONSUMER AFFAIRS
[2016] SADC 41
Judgment of His Honour Judge Barrett
22 April 2016
ADMINISTRATIVE LAW - JUDICIAL REVIEW - GENERALLY
The appellant sought to recover monies from the Land Agents Indemnity fund when he suffered a fiduciary default by a land agent. The respondent granted the application only in respect of monies received by the agent as a deposit on land. He refused the application in respect of other monies on the ground that those monies were held by the agent other than in its capacity as a land agent.
Held: Appeal allowed. The agent held all the monies acting as a land agent.
District Court Act 1991 s 42E(3); Land Agents Act 1994 s 30(1); Conveyancers Act 1994 s 12(1), referred to.
Thomas and Ors v Commissioner of Consumer Affairs [2003] SADC 147, considered.

MCMURRAY v COMMISSIONER FOR CONSUMER AFFAIRS
[2016] SADC 41

This is an appeal from a decision of the Commissioner of Consumer Affairs who determined that part only of a claim made by the appellant on the land agents indemnity fund should be granted.
The appellant sought to recover $145,000 from the indemnity fund. He says he paid that sum to bodies which were acting as land agents. The payees misappropriated that sum.
By letter dated 6 February 2015 the Commissioner determined that only $38,900 of the $145,000 was paid by the appellant as a deposit on land. The balance of the money was paid separately as an investment. The Commissioner determined that in those circumstances the agent was only acting as a land agent in respect of the deposit, and not so acting in respect of the investment. Accordingly he held that the indemnity fund was only accessible in respect of the deposit. The Commissioner enclosed a cheque for the deposit and an allowance for legal expenses and interest.
The question on appeal is whether the Commissioner was correct in restricting the applicant’s recovery to the deposit.
Applying s 42E(3) of the District Court Act 1991, I must give due weight to the decision being appealed against, and the reasons for it, and not depart from the decision except for cogent reasons.
Background
The appellant fell foul of defalcations made by individuals within the Charterhill Group of companies. The companies have collapsed. Some 110 investors are said to have been defrauded.
For present purposes there are two relevant companies within that group. They are Lending Solutions International (LSI) and Nova Real Estate (Nova). Mr George Nowak was a director of the Charterhill Group. He was also the responsible entity for a real estate licence. The modus operandi of the group of companies was to encourage investors to set up their own Superannuation Schemes, then, use those schemes to invest monies in land and other securities.
The appellant had a meeting in November 2012 with a Mr Greg Anderson, an officer of Charterhill, to discuss a possible investment in a real estate property. In January 2013 the appellant and his wife met with Mr Anderson and Mr Nowak. The meeting took place at their home in Victoria. They discussed the purchase of a property in Griffin, Queensland. They also discussed setting up a Superannuation Scheme as the vehicle for possible investments.
In about May 2013 the Appellant set up a self managed superannuation fund on behalf of him and his wife. The fund was called the McMurray Superannuation Fund. The appellant transferred his existing superannuation of $165,000 to the new fund. His wife did not transfer her existing superannuation.
In about July 2013 the Appellant and his wife decided to purchase the Griffin property. They understood that Nova would be the real estate company effecting the sale and purchase.
The purchase price of the Griffin property was $389,000. The superannuation fund would pay $145,000 cash and borrow the balance from a bank. There would be a deposit of $38,900. That sum was included in the $145,000.
On about 15 July 2013 Mr Nowak went to the appellant’s home and discussed with him and his wife a term deposit product his company was offering. Either on that day or shortly afterwards, Mr Nowak presented the McMurrays with a document headed Expression of Interest (EOI) under the Charterhill logo. The form was signed by the McMurrays on 18 July 2013. The document is Exhibit HS4 annexed to the affidavit of the respondent sworn on 25 September 2013. The form appears to be an expression of interest in the purchase of a property but no details of the property are set out in the papers provided. The section of the form identifying the buyer specifies the Appellant’s superannuation fund. On the front page there is a box in which the appellant was invited to nominate 1 of 2 possible accounts into which their money would be paid.
The authorisation begins thus:-
I/We hereby authorise Nova Real Estate to direct your deposit under your instructions as follows: (please tick).
Under that were 2 boxes. One was directed to a “non-interest bearing deposit” with an account in the name of Nova Real Estate at the Torrensville branch of Bank SA. The other had above it these words,
Nova Real Estate Pty Ltd can deposit the funds on higher level interest bearing deposit terms for the period that they are held by Nova Real Estate Pty Ltd on your behalf with …
The second box referred to a different account at the same bank and branch but the account name was LSI.
In his Affidavit of 12 January 2016 the appellant says he asked Mr Nowak about the difference between the two accounts. I reproduce paragraph 36 of his affidavit in which he sets out Nowak’s explanation:
36. In response, Nowak said to me word (sic) to the effect that:
36.1he instructed everyone to tick to the second, high interest account;
36.2it is merely an auditing procedure to offer both options;
36.3we would receive interest at the rate of 6% on our deposit;
36.4that will lead to a higher deposit towards the purchase and therefore a smaller loan from the bank;
36.5the monies were held by Nova “on trust”; and
36.6the monies would be available as soon as we were ready to settle on the Griffin Property.
The appellant was persuaded by this explanation to pay $145,000 (plus a $30 bank fee) into the LSI account on about 23 July 2015.
LSI sent the appellant two receipts, one for $38,900 for the deposit on the Griffin property (HS6) and the other for $106,100. The latter was headed Certificate of Deposit (HS8). Nowak also sent a letter dated 23 July 2015 to the appellant giving details of the so called Redeemable Term Deposit Certificate for $106,100 (HS 7).
Thereafter Nowak periodically sent to the appellant statements purporting to indicate the interest accruing. The statements were all under the letterhead of Lending Solutions International. There were separate statements for the 2 amounts (HS 10).
In his affidavit the appellant says that he regarded the whole sum of $145,000 as being held on trust by Lending Solutions International for the purpose of paying for the Griffin property. He said he understood that $38,900 would be disbursed as the deposit and the balance would be drawn settlement. At settlement monies borrowed from a bank would complete the purchase price.
In about August 2013 the Appellant travelled to Queensland to inspect the Griffin property which was apparently under construction. He decided that the property was not a suitable investment. He contacted Nowak who sent him a Contract of Sale for another property, this time situated at Mango Hill, Queensland. The McMurrays signed the contract in October 2013. In November 2013 they obtained approval from Westpac to finance the purchase of that property instead of the Griffin property. Settlement was to take place in December. It appears that in November $1,000 was withdrawn from the LSI account and paid to the Mango Hill vendors by way of “holding deposit”.
It is not necessary to traverse the details of what followed. Through no fault of the McMurrays, settlement did not take place. They discovered that Charterhill entities had gone in administration or receivership. Their money was irrecoverable.
In early 2014 Nova entered voluntary administration and LSI into liquidation.
On 9 February 2014 the McMurrays lodged a claim on the Indemnity Fund.
Submissions by the Appellant
The appellant submits that the sole purpose of the transfer of $145,000 to LSI was to purchase a single property, first the Griffin property, but then, in substitution, the Mango Hill property. The appellant paid $145,000 in one lump sum to LSI on the understanding that $38,900 would be used as a deposit and the balance of $106,100 together with borrowed monies, to complete settlement, would be used.
Mr Nowak, the land agent, said that all the monies would be held “on trust” pending settlement on the Griffin property, but $38,900 would be disbursed as a deposit. The only reason why the whole sum was paid to LSI rather than Nova, was that Nowak had explained that the money would earn interest in the LSI account but would not in the Nova account.
Whilst it is true that the proposals by Nowak for the payment by the McMurrays were different, ie, $38,900 by way of deposit and $106,100 by way of investment, the payment was made in one lump sum for the single purpose of purchasing a real estate property. That remains true even though different receipts and statements were rendered by Charterhill in respect of the notional “deposit” and “investment”.
Submissions by Respondent
Section 30 (1) of the Land Agents Act 1994 provides that persons may make a claim for compensation on the indemnity fund where they have suffered a pecuniary loss as a result of “a fiduciary default”.
Section 12 (1) of the Act defines fiduciary default as:
a defalcation, misappropriation or misapplication of trust money occurring whilst the money is in the possession or control of (a) an agent; or (b) a firm of which an agent is a member.
Section 12 (1) also defines trust money –
… in relation to an agent, means money – (a) that is received by the agent when acting as an agent; and (b) to which the agent is not wholly entitled in law and in equity.
Section 4(1) defines agent as follows:-
(1)     A person is an agent for the purposes of this Act if the person carries on a business that consists of or involves—
(a)     selling or purchasing or otherwise dealing with land or businesses on behalf of others, or conducting negotiations for that purpose; or
(b)     selling land or businesses on his or her own behalf, or conducting negotiations for that purpose.
Section 13 (1) requires an agent to deposit trust moneys into an account in the name of the agent approved by the Commissioner. It is an offence against the Act to fail to do so.
The Commissioner appears to have found that Nowak was a registered Land Agent and that Nova was a firm of which Nowak was a member. There is no finding or evidence to suggest that LSI was a real estate firm. There is no evidence to suggest that LSI transferred any of the appellant’s money to Nova.
The Commissioner allowed the claim in respect of $38,850 on the basis that that sum “was received by Nova or LSI as part of their business of dealing with land”.
He disallowed the claim in respect of $106,100 because that money “was not received by Nova or LSI as part of their business dealing with land. Rather, it was paid as a “separate investment” in a term deposit product”.
Ms Stanley for the Commissioner submitted first that the question of whether monies are to be regarded as trust monies within the meaning of s 12(1) is to be answered by reference to the agent’s relationship to the money not by reference to the appellant’s relationship to the money.
In support of that submission Ms Stanley referred to the observations to that effect by White J in Auzora Pty Ltd v Commissioner of the Officer of Business and Consumer Affairs.[1] His Honour was there interpreting the definition of “trust money” in schedule 2, clause 2 of the Conveyancers Act 1994 but Ms Stanley submitted that that observation is applicable to the present case. I accept that submission. White J was there saying that the words of the legislative provision tend to that conclusion. They do here as well. Section 12(1) includes the passage, “Money … that is received by the agent when acting as an agent.” (Ms Stanley noted correctly that while White J was in dissent in the outcome, his observations were consistent with the majority judges).
[1] [2009] SASC 344 at [40].
Applying that observation to the facts of this case Ms Stanley highlighted facts which suggest that the $106,100 was treated differently from the $38,900. Those facts are as follows:
(a)While there had been earlier discussions between Nowak and the McMurrays about a payment of $145,000 to Charterhill for the Griffin property, comprising a deposit and part-principal components, Nowak specifically suggested on 15 July a “term deposit project” his company was offering.
(b)The EOI which the McMurrays signed on 18 July purported to be a document relating to the “term deposit project” which had been discussed three days earlier.
(c)The business of LSI would appear to be the provision of investment and financial services not the sale and purchase or real estate.
(d)The two sums were receipted separately (HS6 & HS8).
(e)Nowak’s letter of 23 July 2015 (HS7) referred to the larger sum as “super fund deposit investment” and enclosed the so called Certificate of Deposit (HS8).
(f)Periodic statements for each amount were sent separately (HS10).
(g)$1000 purported to be drawn on the “deposit” account and paid to the vendors of the Mango Hill property (HS10).
It is submitted that each of those facts demonstrates that Nowak was not acting in his capacity as a land agent in his dealings with the larger sum although he was so acting with the smaller sum.
The difficulty with that submission is that there is, about most of those facts, an ambiguity. I revisit them shortly but before doing so I note that the Commissioner expresses no reason to doubt the veracity or reliability of the matters set out in Mr McMurray’s affidavit. I see no reason why he should have done so. I proceed on the same basis.
I revisit facts (a) and (b) above. Nowak visited the McMurrays on 15 July and proposed the “term deposit project”. While that proposal would appear to have nothing to do with the sale and purchase of real estate, the document he produced, and which the McMurrays signed three days later, is ambiguous. It does appear to relate to the sale and purchase of real estate.
The so called EOI (HS4) has a sub-heading “property”. It nominates the appellant’s super fund as the buyer. While the document provides for the entry of details of the property being purchased, no details are filled in.
The box nominating where the McMurrays direct their funds is confusing. It is a direction to Nova to deposit the monies. It uses the word “deposit” in respect of the non-interest bearing Nova account and also the interest bearing LSI account.
As confusing as the document is, it has about it the distinct appearance of a document dealing with the sale and purchase of property. The words “buyer”, “seller”, “property”, “contract”, “deposit” and “subject to finance” appear throughout. The McMurrays placed their signatures alongside “buyer’s signature”. Nowak said the monies were held by Nova on trust (paragraph 36.5 of McMurray’s affidavit). He said the monies would be available on settlement of the Griffin property (paragraph 36.6). Nowak’s words suggested Nova would be holding the monies on trust pending settlement of the Griffin property notwithstanding that the McMurrays had opted for the monies to be paid into the interest bearing LSI account. I accept that LSI appears to have nothing to do with the buying and selling of real estate (paragraph (c) previously).
It is true that the two sums were receipted differently. The smaller sum was expressly described in the receipt (HS6) as the deposit on the Griffin property. The receipt was under the LSI letterhead (paragraph (d) above).
The larger sum was the subject of the Certificate of Deposit signed by Nowak (HS8) which was attached to his letter of 27 July (HS7). Neither the letter nor the certificate refers to the purchase of a property, although the preamble to the letter thanks the McMurrays for having proceeded with the request for “deposit investment”.
Despite the separate receipts there is no evidence suggesting that the whole $145,000 was not held in the LSI account. The periodic interest statements are all under the LSI letterhead and signed by Nowak as a director of LSI. No account number appears on any of the statements. If the whole amount remained in the same account earning the same interest it is hard to see the true significance of two separate statements. It is also hard to see how the $1,000 deposit, which was actually paid to the vendors of the Mango Hill property, could be said to have come from the “deposit” account.
It is hard to see any real difference in Nowak’s relationship to the two sums. Despite the different receipts and the different interest statements his own words to the McMurrays seem to suggest his relationship was not materially different as between the two. He, or Nova, was to hold the money deposited on trust pending the settlement of the Griffin property. Nothing materially changed when the proposed purchase changed to the Mango Hill property.
Discussion
The critical question is whether Nowak was acting as a land agent in respect of the larger sum. I accept the respondent’s submission that the answer to that question turns on the relationship, or apparent relationship, between Nowak and the money. It does not turn on the relationship between the appellant and the money. Insofar as the appellant’s case depends on that contention, I reject it. In support of that submission the appellant cited the remarks of Trenorden DCJ in Thomas and Ors v Commission of Consumer Affairs.[2] That case concerned the misapplication of monies paid to mortgage managers or finance brokers called Growdens. The appellants sought to recover their monies from an indemnity fund set up pursuant to the Conveyancers Act 1994. That case really turned on what amounted to a fiduciary default. Mr Ryder for the appellant in this case referred to paragraph 22 of her Honour’s judgment in which her Honour said:
... The appellants wanted to invest money, but with security for their investments. Growdens held itself out as facilitating the lending and a borrowing of money, upon mortgages. It must be the case that applying money other than in accordance with the instructions upon which it was entrusted to be applied, amounts to an application of money for a purpose other than that for which it was entrusted.
[2] [2003] SADC 147.
I find no assistance in that passage, or elsewhere in the judgment, in determining the role of Nowak in this case. In Thomas and Ors v The Commissioner of Consumer Affairs the court was dealing with a different question, namely, what amounted to a fiduciary default. This case is not concerned with whether or not there was a fiduciary default. It is concerned with the role of the party alleged to have made the fiduciary default.
Returning to that question, I acknowledge the factors identified by Ms Stanley which tend to suggest that Nowak was not acting as a land agent in respect of the larger sum, but was instead acting as a financier or investment adviser. I have set out those facts at [38] above. Those facts are a combination of utterances by Nowak and documents produced by him.

But there are other facts which tend to suggest that Nowak was acting as a land agent.
They too are a combination of utterances by Nowak and documents produced by him, in particular the EOI signed by the McMurrays. Nowak assured the McMurrays Nova would hold the money on trust pending settlement. The EOI has about it the appearance of a document dealing with the sale and purchase of land.
Nowak received the whole sum in the LSI account. None of it went into the Nova account. It all purported to earn the same interest. Only $1,000 was ever paid to the vendor towards the deposit on the Mango Hill property. There is nothing to indicate that Nowak dealt with the rest of the McMurrays’ money differently, notwithstanding the separate receipts and statements. That representation by Nowak that Nova would hold the money in trust was made in the context of the McMurrays telling him that the whole sum was to be applied to the purchase of the Mango Hill property.
Thus, while acknowledging the indicia of a purpose other than that as a land agent, there are indicia which suggest that the larger sum was being treated by Nowak in the same way as the smaller sum and that he was dealing with both in his capacity as a land agent.
It is of course necessary that at first instance the appellant bears the onus of proving his case. On appeal the appellant must demonstrate that there are cogent reasons to depart from the Commissioner’s decision.
I am satisfied that, on balance, Nowak was acting as a land agent when the fiduciary default occurred in relation to all of the monies. Accordingly the appellant was entitled to be compensated from the Indemnity Fund.
I allow the appeal.