Piantadosi v Commissioner for Consumer Affairs
[2018] SADC 9
•15 February 2018
DISTRICT COURT OF SOUTH AUSTRALIA
(District Court Administrative and Disciplinary Division: Application for Review)
PIANTADOSI v COMMISSIONER FOR CONSUMER AFFAIRS
[2018] SADC 9
Judgment of His Honour Judge Tilmouth
15 February 2018
ADMINISTRATIVE LAW - ADMINISTRATIVE TRIBUNALS - STATUTORY APPEALS FROM ADMINISTRATIVE AUTHORITIES TO COURTS
The appellants sought compensation from the Land Agents Indemnity fund as a result of a fiduciary default by a land agent. The respondent granted the application in respect of monies received by the agent as a holding deposit, but refused the application in respect of other monies advanced and to be applied to the purchase price, on the ground that those monies were held by the agent other than in its capacity as a land agent.
Held: Appeal allowed, the decision of the Full Court in Commissioner for Consumer Affairs v McMurray [2016] SASCFC 70 distinguished.
Land Agents Act 1994 (SA) s 3, s 4(1) & (2), s 5, s 12(1), s 29(1), s 30, s 32, s 35(1) & (2); Land Agents Regulations 2010 (SA) reg 27, reg 28; District Court Act 1991 (SA) ss 42C, 42F & 42G(2) ; Registrar of Motor Vehicles v Thiele (2012) 280 LSJS 288; Registrar of Firearms v Marksman Tranining Systems Pty Ltd (No 2) [2016] SASCFC 72; Dal Pont 'Equity and Trusts in Australia' (16th Ed) Lawbook Co 2015 [11.50]-[11.60] , referred to.
Commissioner for Consumer Affairs v McMurray (2017) 128 SASR 1, distinguished.
PIANTADOSI v COMMISSIONER FOR CONSUMER AFFAIRS
[2018] SADC 9Overview
Acting on financial advice, Franca and Nicola Piantadosi contracted to purchase an apartment in Travancore, an inner Western Melbourne suburb, as the principal component of their self-managed superannuation fund. As these funds were misappropriated, they applied for compensation under a Statutory Indemnity Fund. They now appeal against the decision to award them a limited amount of compensation.
They in fact advanced the initial sum of $1,000.00 by way of a ‘holding deposit’ and then the balance of the deposit of $54,500. Just over a week later they deposited into the same account a further $200,000, on the understanding that it was ‘to be applied for the purpose of settlement on the property’.[1] The Vendor’s Land Agent and associated entities later went into voluntary Administration and Liquidation, with the result that settlement could not proceed. The funds so advanced were misappropriated, with the result that the plaintiff’s lost both sums.
[1] Piantadosi affidavit, para 44.
They applied for compensation for the full extent of those losses, pursuant to the Statutory Indemnity Fund established under the Land Agents Act 1994 (SA) (‘The Land Agents Act’). They were however ultimately offered just $54,500. They appeal to the District Court against the decision of the statutory authority administering the fund, on the ground that the measure of compensation was inadequate.
Underlying facts
A colleague of Franca Piantadosi introduced her to the Charterhill group of Companies. They advised setting up a self-managed superannuation fund for the purpose of investing in real property, as they were both nearing retirement age.[2] For this purpose the Piantadosis were handed a ‘Cash Flow Model’ which envisaged the purchase of an investment property for $540,000, with a ‘cash deposit’ of $200,000.[3] This document was however aspirational and did not amount to a binding contract. And as will appear, it was superseded in any event by a binding contract for the sale of real estate. At this time the Piantadosis held just under $200,000 in a joint superannuation fund account.[4]
[2] Piantadosi affidavit, paras 14 & 15.
[3] Exhibit FNP-1.
[4] Exhibit FNP-2.
Acting on the strength of this model, they engaged Charterhill to ‘set up our self-managed superannuation fund’ and to ‘assist us through the Rollover and sale process.’[5] They were subsequently advised that a suitable investment property was available ‘within the Alexander Lombard Tower complex in Travancore Melbourne’.[6] On 2 October 2013 they executed an ‘Expression of Interest’ presented to them by Charterhill for the purchase of Apartment 2104 in the Complex for $545,000, with a specified ‘holding deposit’ of $54,500.[7] On Charterhill letterhead, this document noted that the Real Estate Agent for the vendor, Nova Real Estate Pty Ltd (‘Nova Real Estate’):[8]
… can deposit the funds on higher level Interest Bearing Deposit terms for the period that they are held by Nova Real Estate Pty Ltd (‘Nova Real Estate’) on your behalf … with an associated entity Lending Solutions International Pty Ltd.
[5] Piantadosi affidavit, para 23.
[6] Piantadosi affidavit, paras 20-25.
[7] Exhibit FMP-3.
[8] Exhibit FNP-3.
Soon after, a contract of sale was executed for the purchase of the Unit for $545,000, with a holding deposit of $54,500.[9] The initial $1,000 payment was made on 4 October 2013 into an account with Lending Solutions International Pty Ltd (‘Lending Solutions’) for the purposes of ‘holding’ the Travancore property. The balance of the deposit of $54,500 was paid directly into the same account on the 16th of October 2013. It appears these deposits into Lending Solutions were at the direction of the Piantadosis to hold them in the interest bearing deposit account with Lending Solutions, as provided for in the Expression of Interest. Like Nova Real Estate, Lending Solutions was a member of the Charterhill Group.
[9] Exhibit FNP-7.
Acting on further financial advice from Charterhill, the Piantadosi’s caused a further $200,000 to be transferred into the same account on 25 October 2013.[10] This was understood by them to be applied (together with interest of 5.5%), to the purchase price in settlement on the Travencore property.[11] It was subsequently on 28 October 2013, that they executed the aforementioned contract for the purchase of the property.[12]
[10] Piantadosi affidavit, para 43.
[11] Exhibit FNP-5; Piantadosi affidavit, para 44.
[12] Exhibit FNP-7.
By January 2014 it became clear that settlement could not proceed. The funds transferred to Lending Solutions International were dissipated by the time Nova Real Estate went into administration and Lending Solutions was liquidated.[13]
[13] Exhibit HS 30, p 3.
The statutory framework
The Statutory Indemnity Fund is established by s 29 the Land Agents Act and Regulation 27 of the Land Agents Regulations 2010 (SA). This fund is administered by the Commissioner for Consumer Affairs (‘the Commissioner’), the respondent to these proceedings. The Commissioner is required to maintain and administer the indemnity fund by ss 5 and 29(1) of the Land Agents Act. Section 30 thereof provides that those who suffer pecuniary loss as a result of ‘fiduciary default’ of a registered land agent, may make a claim for compensation in these terms:
30—Claims on indemnity fund
(1)A person who has suffered a pecuniary loss as a result of a fiduciary default may make a claim for compensation to the Commissioner.
(2) The amount of the claim cannot exceed the sum of—
(a) the actual pecuniary loss suffered by the claimant in consequence of the fiduciary default; and
(b) any reasonable legal expenses incurred in taking action to recover the loss or in making the claim to the Commissioner,
less any amount that the claimant has received or may reasonably be expected to recover (apart from this Division) in reduction of the loss.
Section 12(1) thereof defines a ‘fiduciary default’ to mean:
… a defalcation, misappropriation or misapplication of trust money while the money is in the possession or control of … an agent
and it defines ‘trust money’ as:
… money … that is received by an agent when acting as an agent.
The Commissioner is required to consider claims in accordance with s 32 of the Land Agents Act and Regulation 28 of the Land Agents Regulations. The former provides so far as presently relevant:
32—Establishment and determination of claims
(1)A claim for compensation must be made to the Commissioner in a manner and form determined by the Commissioner.
…
(3)The Commissioner may do any 1 or more of the following in response to the claim:
(a) require the claimant to take specified action to recover the loss (and postpone determination of the claim);
(b) determine the claim and, if appropriate, make a payment to the claimant from the indemnity fund;
(c) require the claimant to make contractual undertakings as to the assistance that the claimant must give the Commissioner in any action taken by the Commissioner to recover the loss.
(4)In deciding whether to require the claimant to take action to recover the loss, and in deciding what action the claimant should be required to take to recover the loss, the Commissioner is to consider the size of the claim, the complexity of the case, the claimant's financial circumstances, the claimant's mental or physical health or capacity and any other factors that the Commissioner considers relevant.
The compensation claims
Franca and Nicola Piantadosi initially made an application for compensation from the Indemnity Fund on 28 February 2014. This was duly considered by the Commissioner and determined on 10 July 2015. He resolved the claim in this way:[14]
I have reviewed the details of your claim and have determined that you, as trustees for your self-managed superannuation fund, have suffered a pecuniary loss to the value of $53,500 as a result of a fiduciary default of an agent, Nova Real Estate Pty Ltd (Nova).
In respect to the remaining amount of $200,000, there is insufficient evidence before me to show that Nova or Lending Solutions International Pty Ltd (LSI) received this payment in the course of acting as a land agent. Therefore, there is not enough evidence to show that the $200,000 payment was trust money as defined by the Land Agents Act 1994 (SA) (the Act); thus, that money was not defalcated, misappropriated or misapplied by Nova/LSI.
[14] Exhibit HS 29 to the affidavit of Hayredin Soulio.
The Piantadosis filed a Notice of Appeal against the decision with the court on 9 November 2015. The sole ground of appeal was that the Commissioner erred in disallowing the claimed balance of $200,000 on the basis of the supposed insufficiency of evidence. The right of appeal to the District Court in its Administrative and Disciplinary Division is conferred by ss 3 and 35(1) of the Land Agents Act.
The appeal did not proceed in the normal course following lodgement, because the parties mutually awaited the anticipated decision of the Full Court in Commissioner for Consumer Affairs v McMurray,[15] argued in early October 2016, with judgment delivered in early March 2017. It was the decision in McMurray which led to the Commissioner’s fair and proper invitation to reconsider the first application. The implications of this judgment are considered below.
[15] (2017) 128 SASR 1, hereafter ‘McMurray’.
Soon after on 27 April 2017, the Commissioner indicated a willingness to reconsider the first determination, which he completed on 4 September 2017.[16] This was supported by the material available to him at the time of the first determination, together with additional material supplied by the applicants by way of the affidavit of Franca Piantadosi dated 5 November 2015. Once again the bulk of their application for compensation was rejected, although the Commissioner allowed an additional $1,000 to reflect the initial holding payment in that sum.
[16] Statement of Agreed Facts No.6 and Exhibit HS 30 to the affidavit of Hayredin Soulio.
Other material supplied to the Commission by the Australian Securities and Investments Commissioner was considered but rejected:[17]
I am unable to rely or place any weight on the receipts provided by ASIC because they suggest $454,500 was paid to LSI, which is contrary to the other evidence you provided that states you paid a total of $254,500 to LSI. You have never claimed $454,500 from the Fund. Further, the description of the purpose of the payments in your affidavit contradicts the descriptions on the receipts and the Daily Summary email. I have not relied upon them in making my decision; however, I note these documents are not adverse to your claim.
No complaint is made about this aspect of the Commissioner’s second determination.[18]
[17] Exhibit HS 30, p 3 to the affidavit of Hayredin Soulio, comprising Exhibits HS23-28 inclusive.
[18] T40.1-13, T48.14-49.36.
The Commissioner’s reconsideration of the application for compensation was determined in this way:[19]
[19] Exhibit HS 30, pp 3-4.
As a result, on or about 25 October 2013, you deposited $200,000 with Nova. You understood that “Nova held the total sum of $254,500 in the LSI Account, and that sum, together with interest earned, would be applied for the purpose of settlement on the Travancore Property”.
On or about 28 October 2013, you received and executed a contract to purchase the property. The contract stated the purchase price of the property was $545,000 with a deposit of $54,500.
In January 2014, Nova went into voluntary administration and LSI went into liquidation.
Decision
Based on the above, I have determined Nova or LSI received the $54,500 as a deposit on the property and therefore received that money in its capacity as an agent. I note you have previously been compensated from the Fund for this portion of your loss.
However, I have determined you made the separate payment of $200,000 to Nova or LSI so you could earn interest on that amount.
It appears you may have intended to use this payment towards the balance of the purchase price of the property. Nonetheless, according to Blue J in Commissioner for Consumer Affairs v McMurray [2017] SASCFC 16 (‘McMurray’) at paragraph 70, the mere fact that the payment was contemplated or intended to ultimately be used towards payment of the balance of the purchase price does not render it money received by an agent when acting as an agent.
While the payment of $54,500 was mandatory under the terms of the contract and the EOI, the investment of the $200,000 was voluntary. As is apparent from the affidavit of Mrs Piantadosi, you chose to invest this amount because you were to receive a favourable interest rate. In McMurray, these facts were relevant to Blue J in determining that the relevant payment was not received by Nova or LSI while acting as an agent.
I have therefore determined you have suffered a pecuniary loss of $200,000 because of the conduct of Nova, LSI and Mr Nowak. Nevertheless, I have determined this loss was not caused by a fiduciary default as the $200,000 was not received by Nova or LSI while acting as an agent, and was therefore not ‘trust money’ as defined by the Act.
As such I have determined you are not entitled to compensation from the Fund.
The appeal process
There was no appeal as such with respect to this second determination. In a Statement of Agreed Facts produced to the court, it was said that the Piantadosi’s appeal was from the ‘reasons set out in the Amended Determination’ of 4 September 2017.[20] In their written outline of submissions they state that ‘the parties agree that this is the decision that is subject of the within appeal’.[21]
[20] Agreed fact No. 8, 22 January 2018.
[21] Para 1.7.
It was quite evident that both sides proceeded and conducted the appeal on the basis that the second determination was properly the subject of appeal. Both correctly took the view that the court was also entitled to consider the first determination in the course of reviewing the second: see Registrar of Motor Vehicles v Thiele,[22] Registrar of Firearms v Marksman Training Systems Pty Ltd (No 2).[23]Since this course was supported by the respondent and it was manifestly in the interests of justice to do so, the court made consent orders at the outset of the appeal, allowing the Piantadosis to amend their Notice of Appeal so as to challenge the determination of 4 September 2017 on the grounds specified in their written outline, namely:
3.2The Respondent erred by finding that the sum of $200,000 was not received by an agent when acting as an agent and was therefore not
(a) trust money within the meaning of section 12 of the Land Agents Act 1994 (SA);
3.4The Respondent erred by treating the sum of $54,500 received from the Appellants by Nova Real Estate Pty Ltd (In Liquidation) differently to the balance of sum received by Nova Real Estate Pty Ltd (In Liquidation) from the Appellants, being the sum of $200,000;
3.5The Respondent erred by failing to find that the sum of $200,000 was provided for the same purpose as the sum of $54,500; namely, to be used as a deposit on a property to be purchased by the Appellants.
[22] (2012) 280 LSJS 288, [2012] SASCFC 5, [33]-[36].
[23] [2016] SASCFC 72, [315]-[316].
An order made at the same time pursuant to s 42C of the District Court Act 1991 (SA) extending the time in which to appeal was later rescinded by consent,[24] because it was unnecessary and because it avoided the potential implications of s 35(2) of the Land Agents Act, which provides:
35—Appeal against Commissioner's determination
(2)Where an appeal is not instituted within the time allowed, the claimant's entitlement to compensation is finally determined for the purposes of this Division.
[24] Conveyed by e-mail to the court on 30 January 2018.
The Commissioner’s Second Determination
It can be seen that in the first determination, the Commissioner considered there was insufficient evidence then at hand to permit a determination that the amount of $200,000 was ‘trust money’. Mr Ryder for the Piantadosis did not contend this conclusion was incorrect.
It is evident from the terms of the second determination that the Commissioner accepted ‘fiduciary default’ as well as ‘pecuniary loss as a consequence’, were established within the meaning of ss 12(1), 30(1) and 30(2)(a) of the Land Agents Act. It is equally evident that he treated both Nova Real Estate and Lending Solutions as entities potentially carrying on business ‘that consists of or involves … selling or purchasing or otherwise dealing with land … on behalf of others’, within the meaning of s 4(1)(a) of the Land Agents Act. It follows that the adverse determination turned on the characterisation that the specific payment of $200,000 was not one made ‘by an agent when acting as an agent’ and hence was not therefore ‘trust money’, as defined in s 12(1) of the Act.[25]
[25] Exhibit HS 30, p 4.
The Commissioner evidently considered the definition of ‘trust money’ provided for in s 12(1) of the Land Agents Act, namely ‘money … that is received by the agent when acting as an agent’, controlled the situation. Expressed in another way, the gist of the Commissioner’s decision was that the $200,000 was received in a capacity other than as an ‘agent’ then carrying on the business of selling, purchasing or dealing with land on behalf of others, as required by s 4(2)(a) in conjunction with s 12(1) of the Land Agents Act.
The attributes of the $200,000 advance
The Commissioner correctly accepted that this payment was understood by the Piantadosis to ‘be applied for the purpose of settlement on the Travancore Property’, and that they ‘intended to use this payment towards the balance of the purchase price of the property’.[26] The documentary trail clearly supports that conclusion. The Commissioner nevertheless characterised this advance as a ‘voluntary’ investment in order to ‘receive a favourable interest rate’ offered by Lending Solutions.[27] It might be observed that the same rate of interest applied to the deposit of $54,500, as both sums were deposited into the same interest bearing account rather than with Nova Real Estate.
[26] Exhibit HS 30, p.3.
[27] Exhibit HS 30.
The fact that interest was earned on the advance of $200,000 is a neutral consideration, because the same rate of interest applied to the deposits of both sums. That situation also pertained in McMurray.[28]In all respects the Commissioner found the decision in McMurray was decisive.
[28] Commissioner for Consumer Affairs v McMurrray (2017) 128 SASR 1, [62]-[63].
The McMurray case likewise involved the Charterhill Group of Companies, Nova Real Estate and Lending Solutions. Charterhill also advised the McMurrays as to their own self-managed superannuation fund and eventually recommended the purchase of a property in Griffin Queensland at a purchase price of $389,000 with a deposit of $38,900. An identical pro forma Expression of Interest was given to them as was given to the Piantadosis, except that in McMurray the amount of the deposit was unspecified.[29]
[29] Ibid [53] & [57].
Unlike the present case, the McMurrays were provided with a Deposit Investment letter offering a ‘deposit investment’ of $106,100 for a term of 90 days at a fixed interest rate. [30] They subsequently transferred the sum of $145,000 to Lending Solutions in one transaction, which combined the two sums allocated to the deposit and the investment respectively.[31] The McMurrays were issued with a ‘Certificate of Deposit’ for the $106,100 acknowledging this was ‘deposited … for security purposes’.[32] All this money was lost to them on account of Charterhill’s insolvency. No such certificate was supplied to the Piantadosi’s.
[30] Ibid [16].
[31] Ibid [17].
[32] Ibid [18].
The McMurray’s claim to compensation was allowed by the Commissioner for the pecuniary loss of $38,850. The claim for $106,100 was disallowed for the reason that this was ‘paid as a separate investment and was not received by Nova as part of its business of dealing with land.[33] This process of reasoning was upheld by the Full Court. Mr Golding for the Commissioner submits that the McMurray judgment is indistinguishable from the present case and binding authority adverse to the Piantadosis.
[33] Ibid [28].
Analysis
As Blue J explains, whether an agent is ‘dealing with land on behalf of others’ turns ‘on the construction of the contracts between the parties’.[34] The relevant contracts in McMurray were comprised or evidenced by the Expression of Interest, the Deposit Instrument letter, a Certificate of Deposit and a Receipt for the deposit of $38,900.[35] The Expression of Interest was characterised in McMurray as ‘exclusively a land transaction’, limited to a ‘holding deposit of $38,900.[36]
[34] Ibid [48].
[35] Ibid [53].
[36] Ibid [56].
In the result the court concluded:[37]
[69] The Judge erred in holding that there was a single transaction involving a single sum of $145,000 received by Nova in its capacity as a land agent as a deposit on a contract for the purchase of land. On the true construction of the contracts between the parties, there were two separate transactions: $38,900 was received by Nova in the capacity as a land agent as a deposit on a contract for the purchase of land and $106,100 was received by LSI as a loan by way of term deposit by the Superannuation Fund.
The Court in McMurray further held the ‘that balance of the purchase price at settlement’ was not ‘money received by an agent when acting as an agent i.e. dealing with the land on behalf of others.’[38]
[37] Ibid [69] per Blue J, Parker and Hinton JJ agreeing.
[38] Ibid [70].
The situation here is not on all fours with McMurray. Most importantly, there was no ‘Deposit Investment letter’ unequivocally assigning the $200,000 advance as a loan for a fixed term, and there was no ‘Certificate of Deposit’ designating it was for ‘security purposes’.[39] Although this deposit attracted a favourable interest rate, the same rate applied equally to the deposit of $54,500, which as observed earlier was the situation in McMurray.[40]
[39] The receipt Exhibit HS 24, an ASIC document is not relied on by the appellants. The same observation applies to the document HS 28.
[40] Ibid [66].
Unlike McMurray there was no fixed term for the advance and no option for renewal.[41] It is not established that the Piantadosis could have requested the return of the $200,000 for ‘an alternative investment with a financial institution of their choosing …’ as it was in McMurray.[42] On the other hand it appears clear enough that this sum would become refundable to them on the contingency that the contract did not proceed.[43]
[41] Ibid [63].
[42] Ibid [62].
[43] Dal Pont ‘Equity and Trusts in Australia’ (6th Ed) Lawbook Co 2015, [11.50]-[11.60].
Otherwise the circumstances coincide: ‘the two components … were payable at two different times’;[44] ‘the initial deposit was “mandatory” whereas the “deposit” of $200,000 was “voluntary” under the contracts of sale, and the Piantadosis understood the $200,000 would be applied to the “Travancore Property”’,[45] a consideration of itself ‘incapable of leading to a different construction of the contract(s)’.[46]
[44] Ibid [61].
[45] Piantadosi affidavit, para 42.
[46] Ibid [67].
Conclusion and orders
The position here is that the $200,000 deposit was impressed with a trust earmarking it as money to be applied solely to the purchase of the subject property for so long as it remained deposited into the agent’s account. It was not designated as a loan either for a fixed period or for security purposes. On that view of matters the circumstances amount to ‘fiduciary default’ by an agent carrying on business dealing with land, because the $200,000 was applied in part performance of the covenant to purchase and settle contained in the agreement of sale and because that payment is only referable to the contract of sale itself.[47] In McMurray the advance was referable to a separate loan agreement.
[47] Exhibit FNP 7, p 26.
Nevertheless McMurray remains binding authority for the proposition that when the contractual arrangements between the parties for the payment of monies are properly understood as amounting to loans or investments, that situation does not amount to dealing with land on behalf of others by an agent when acting as an agent. That was not the situation here for the reasons articulated above.
The appeal must therefore be allowed, there being an error by the Commissioner as to the ultimate legal issue, by applying the McMurray construction principles to materially different and distinguishable circumstances.[48] That is to say ‘cogent reasons’ exist to depart from the decision of the Commissioner within the meaning of s 42E(3) of the District Court Act 1991 (SA).
[48] Ibid [47], [73], [84].
Since the Commissioner did not consider the matters required by ss 30(2) and 32(3) and (4) of the Land Agents Act, the orders proposed pursuant to s 42F of the District Court Act are as follows:
1. rescinding the decision of the Commissioner dated 4 September 2017;
2. by substituting in its place a decision that the sum of $200,000 was received in trust by Lending Services while acting as an agent;
3. remitting the matter to the Commissioner for further consideration in accordance with these reasons.
The parties should first be heard on the precise orders to be entered and on the question of costs, bearing in mind the limitation contained in s 42G(2) of the District Court Act.
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