SETTLEMENT AGENTS SUPERVISORY BOARD and KOLARAN HOLDINGS PTY LTD
[2005] WASAT 109 (S)
•15/08/2005
SETTLEMENT AGENTS SUPERVISORY BOARD and KOLARAN HOLDINGS PTY LTD [2005] WASAT 109 (S)
| STATE ADMINISTRATIVE TRIBUNAL | Citation No: | [2005] WASAT 109 (S) | |
| 15/08/2005 | |||
| SETTLEMENT AGENTS ACT 1981 (WA) | |||
| Case No: | VR:94/2005 | 4 MAY 2005 | |
| Coram: | JUDGE J CHANEY (DEPUTY PRESIDENT) MR R LEDGER (SENIOR SESSIONAL MEMBER) MS C WINSOR (SESSIONAL MEMBER) | 24/05/05 | |
| 16/08/05 | |||
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Respondent reprimanded fined $10 000 and ordered to pay costs fixed at $6000 | ||
| B | |||
| PDF Version |
| Parties: | SETTLEMENT AGENTS SUPERVISORY BOARD KOLARAN HOLDINGS PTY LTD |
Catchwords: | Professional Disciplinary proceedings Penalty Settlement agent Breach of trust account requirements Serious offence |
Legislation: | Settlement Agents Act 1981 (WA), s 84(1)(c), s 103(1) State Administrative Tribunal Rules 2004 (WA), Rule 43 |
Case References: | Medical Board v Roberman [2005] WASAT 81(S) Settlement Agents Supervisory Board v Koloran Holdings Pty Ltd [2005] WASAT 109 Nil |
Orders | 1. the respondent be reprimanded.,2. the respondent be fined the sum of $10 000.00.,3. the respondent pay the applicant's costs of the proceedings fixed at $6000.00. |
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : VOCATIONAL REGULATION ACT : SETTLEMENT AGENTS ACT 1981 (WA) CITATION : SETTLEMENT AGENTS SUPERVISORY BOARD and KOLARAN HOLDINGS PTY LTD [2005] WASAT 109 (S) MEMBER : JUDGE J CHANEY (DEPUTY PRESIDENT)
- MR R LEDGER (SENIOR SESSIONAL MEMBER)
MS C WINSOR (SESSIONAL MEMBER)
DECISION : 16 AUGUST 2005 FILE NO/S : VR 94 of 2005 BETWEEN : SETTLEMENT AGENTS SUPERVISORY BOARD
- Applicant
AND
KOLARAN HOLDINGS PTY LTD
Respondent
Catchwords:
Professional Disciplinary proceedings Penalty Settlement agent Breach of trust account requirements Serious offence
(Page 2)
Legislation:
Settlement Agents Act 1981 (WA), s 84(1)(c), s 103(1)
State Administrative Tribunal Rules 2004 (WA), Rule 43
Result:
Respondent reprimanded, fined $10 000 and ordered to pay costs fixed at $6000
Category: B
Representation:
Counsel:
Applicant : Mr PD Quinlan
Respondent : Mr JG Young
Solicitors:
Applicant : Ms J King
Respondent : Pye & Quartermaine
Case(s) referred to in decision(s):
Medical Board v Roberman [2005] WASAT 81(S)
Settlement Agents Supervisory Board v Koloran Holdings Pty Ltd [2005] WASAT 109
Case(s) also cited:
Nil
(Page 3)
Summary of decision
1 On 24 May 2005, the Tribunal handed down its reasons for the finding that there existed a proper cause for disciplinary action against the respondent (see Settlement Agents Supervisory Board v Koloran Holdings Pty Ltd [2005] WASAT 109). The parties were subsequently directed to, and did, make submissions in writing as to the appropriate penalty.
2 The Board submitted that the present case is a serious one that requires a substantial penalty. It submitted that a period of suspension and disqualification under s 84(1)(c) of the Settlement Agents Act 1981 (WA) was appropriate. Alternatively that there should be a fine at the highest end of the available range.
3 The respondents submitted that a period of suspension or disqualification is not warranted but rather a reprimand or at most a fine at the lower end of the range was appropriate.
4 The Tribunal has concluded that any irregular treatment of trust funds is serious, but in this case did not warrant suspension. Rather the Tribunal considered that there should be a reprimand and a substantial fine imposed, and that the respondent should be ordered to pay the applicant’s costs.
Seriousness of the conduct
5 It is not necessary to set out in detail the facts giving rise to the offence. They are fully set out in our earlier reasons. In summary, the respondent transferred money, which it had collected to pay stamp duty, from its trust account into an interest bearing account for a short period. The monies were transferred at the point at which the relevant documents were stamped, and held in the interest bearing account until they fell due for the monthly remittance of all duty payable on documents stamped in the previous month. The interest earned on those short term deposits was then paid to the respondent or its nominees from time to time.
6 The Tribunal agrees with the Board that the misuse of trust funds in any way is a serious matter. It is true that, in this case, the funds were never intermingled with the respondent's own funds, and the interest bearing accounts were never in debit. The respondent apparently maintained accurate financial records so that the funds were always
(Page 4)
- readily traceable and identifiable. The manner in which the scheme was administered reduced the likelihood of any loss being incurred by either the party who had paid the stamp duty or the Commissioner for State Revenue. This makes this case less serious than a case where a misuse of trust funds occurs in circumstances involving significant risk of loss to the person beneficially entitled to the funds.
7 That said, any failure on the part of a settlement agent to strictly observe the statutory requirements in relation to trust accounts is a serious matter. There can be little doubt that the funds were transferred with the object of obtaining a personal benefit for the respondent. In the period to which the allegations in these proceedings relate, $31962.23 in interest was transferred to the benefit of either the respondent, its directors or their wives. The scheme had the effect of depriving the Board Interest Account established under s 103(1) of the Act, of the interest it would have received if the funds were held in the statutory trust account. As we observed in the principal decision, the funds, once transferred, were no longer subject to the audit requirements of the Act nor to the other regulatory and supervisory powers relating to trust accounts under the Act.
8 In our view, the penalty should recognise the seriousness with which breaches of the statutory requirements related to trust accounts are treated. It should also provide a deterrent, not only to the respondent, but also to settlement agents generally, from any departure from the regulatory requirements relating to trust accounts.
The respondent's explanation
9 In relation to penalty, Mr Gibson, a principal of the respondent, provided an affidavit setting out, amongst other things, the circumstances by which the holding account was established. He said that, in 1997, when approval was given to the respondent to remit stamp duty by return, he was told by an officer of the Office of State Revenue (OSR) that, upon stamping the instruments, the stamp duty monies belonged to the OSR and should be paid into a trust account for it. He said that he took that advice as requiring a separate trust account to be established as an OSR trust account. He considered it was reasonable for the OSR to so direct him because the money belonged to it. He added that the OSR did not at anytime make any claim for payment of the interest accruing on the funds held prior to remittance.
10 Accepting Mr Gibson's evidence as to the advice given to him by the OSR, there is no explanation as to how Mr Gibson, or anyone else
(Page 5)
- associated with the respondent, considered that anyone other than the "owner" of the funds was entitled to the interest earned by those funds. Implicit in Mr Gibson's affidavit is the proposition that, because the OSR made no claim for payment of the interest, the respondent was entitled simply to take the interest. That proposition seriously misconceives the obligations and entitlements of a trustee.
11 Nor is there any apparent basis for construing the "direction" of the officer of OSR as a direction to pay the money into a trust account other than a statutory trust account maintained under the Act. All that was required to comply with the direction was the transfer from the client's ledger in the trust account to an OSR ledger in that account. The fact that no claim for the interest was ever made by the OSR is understandable because, properly held in the statutory trust account, no interest would be payable to the OSR. It is reasonable to assume that the OSR believed that to be the situation.
12 Mr Gibson has held a settlement agents licence from 1984, and the respondent has had its licence since April 1988. The respondent apparently employees seven people fulltime and completes approximately 150 settlements per month. The respondent, and its principal Mr Gibson, are experienced settlement agents. It is reasonable to infer that the arrangements for dealing with stamp duty funds pending remission to the OSR were put in place for the specific purpose of enabling the respondent to receive the interest earned on those funds.
13 It is of concern that, as the respondent points out in its submissions, the trust account was audited annually throughout the period that stamp duty monies were dealt with in the way we have found to be irregular. Apparently the matter was brought to the Board's attention when, in the 2003 financial year, the auditor sought the opinion of the Board as to whether the practice was a breach of the Act. The fact that earlier auditors failed to detect the irregularity does not alter the conclusion that the arrangement was one that an experienced settlement agent should have recognised as a breach of the Act.
14 When the respondent received a letter from the applicant on 4 March 2004 stating that there may be a breach of the Act, Mr Gibson immediately ceased withdrawing interest from the interest bearing account. The interest accrued since 1 January 2004 remains in the account. Mr Gibson deposed, and we accept, that upon the Tribunal's decision being handed down he immediately ceased the practice of paying stamp duty monies to the credit of the interest bearing account and has
(Page 6)
- held stamp duty monies in the statutory trust account until remitted to OSR.
15 In his affidavit, Mr Gibson has undertaken to the Tribunal to pay the Board or to OSR, as the Board directs, the whole of the interest accrued and accruing on the interest bearing accounts after the deduction of fees, FID and BAD incurred in respect of those accounts. His undertaking is to pay the interest accrued since 1 January 2004 immediately, and as to the balance within 30 days after receipt of the Board's direction. That is an important undertaking in the context of the determination of the appropriate penalty in this case. Given the amount of the interest, in the absence of a requirement for the repayment of the interest, the imposition of a fine, even of the maximum amount, would have seen the respondent or its associates profit from the arrangements.
16 The period with which the allegations dealt in these proceedings extends from 3 October 1997 to 31 July 2003. As earlier indicated, interest totalling $31962.23 was transferred to the respondent and its associates within that period. Mr Gibson has indicated that the interest accrued since 1 January 2004 remains in an account. It is not clear what has happened in relation to the interest earned between 31 July 2003 and 31 December 2003. The Tribunal construes Mr Gibson's reference to "the balance" as a reference to all interest earned prior to 31 December 2004, and not merely the $31962.23 identified in the course of these proceedings. It is upon that basis that the undertaking is accepted. The interest should be paid to the Board and, in our view, should then be placed in the Board Interest Account which would have received the interest if the funds were properly dealt with at the relevant time.
17 It is a mitigating factor that, as soon as the Board raised with the respondent the issue as to the treatment of stamp duty funds, the respondent ceased to withdraw interest until the issue was resolved. It is clear that the respondent cooperated with the Board, and a hearing of the matter was greatly facilitated by the respondent's cooperation in agreeing facts and disclosing documents.
The penalty
18 As earlier indicated, the Tribunal views this matter as serious. The misapplication of trust funds calls for a significant penalty. In the absence of the undertaking to repay all of the interest, the Tribunal would have had no hesitation in imposing a significant period of suspension on the respondent's licence. In determining the appropriate penalty, we take into account the fact that the undertaking has been given and accepted, the fact
(Page 7)
- that the funds were not intermingled with the respondent's funds, the fact that there was little if any practical risk of loss of the funds, the significant impact of suspension on the livelihoods of employees of the business innocent of any wrongdoing, and the respondent's cooperative approach to these proceedings. We have determined that the necessary deterrent objective, the protection of the public and the demonstration of the seriousness with which transgression of trust account rules are viewed, can be satisfied by the imposition of a fine of the maximum amount, namely $10000.00, coupled with a reprimand to the respondent.
Costs
19 In the decision Medical Board v Roberman [2005] WASAT 81(S) at [30] the Tribunal said:
"S87(2) gives the Tribunal the discretion to order the payment by a party of all or any of the costs of another party. Where a regulatory authority successfully brings a complaint of conduct which, if proved, justifies disciplinary action by the Tribunal, there will usually be a strong case for the exercise of that discretion in favour of the regulatory body. That is because such bodies perform a function which promotes the public interest, and usually with limited resources. The financial burden of bringing disciplinary action if the body had no capacity to recover some or all of its costs may be such as to provide a disincentive to bring disciplinary action, or when brought, to ensure that the allegations against the practitioner concerned are properly and thoroughly presented. It is in the public interest that such bodies have an expectation that, if the allegations are made out, the offending professional will meet or at least contribute to the costs incurred in bringing the application. The question of an award of costs is, or course, a matter of discretion to be exercised in the circumstances of each case."
20 The respondent resists the making of an award of costs against it on the basis that weight should be given to the extent to which the respondent cooperated to enable the matter to be dealt with expeditiously. In the Tribunal's view, however, the reasoning referred to in the Roberman decision applies in this case. The cooperation extended by the respondent had the result of reducing the costs to both parties that might otherwise have been incurred. The respondent benefits from that cooperation in that
(Page 8)
- its own costs, and the Board's costs potentially recoverable against it, are reduced.
21 The applicant submitted that "in the circumstances a reasonable award of costs is $10000.00". Absolutely no detail was provided as to how that sum was arrived at. The respondent observed that the submission as to quantum was unsubstantiated and submitted that the amount is "at odds with the time required for the hearing, the fact that no oral evidence was required and that the issue was solely determined on the interpretation of one section of the relevant Act".
22 Rule 43 of the State Administrative Tribunal Rules 2004 (WA) provides that if the Tribunal does not fix the amount of costs, the amount is to be assessed or settled by the executive officer or a member of the Tribunal nominated by the president. It is highly desirable that the Tribunal fix costs where reasonably possible so as to avoid the incurring of additional costs on both sides in relation to a process of assessment. Neither party has suggested that costs should be assessed by the executive officer or a nominee of the president. In the circumstances, we consider it appropriate to fix an amount of costs notwithstanding the lack of information as to the precise work undertaken by the respondent. We have, however, had regard to the nature of the issues in dispute, the likely work associated with settling and compiling the substantial book of documents, the necessity to brief counsel, the preparation of the matter for hearing and the length of hearing, and have assessed an appropriate amount of costs to be payable by the respondent to the applicant as $6000.00.
Orders
23 For the foregoing reasons, the Tribunal orders:
1. the respondent be reprimanded.
2. the respondent be fined the sum of $10000.00.
3. the respondent pay the applicant's costs of the proceedings fixed at $6000.00.
(Page 9)
I certify that this and the preceding [23] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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JUDGE J CHANEY, DEPUTY PRESIDENT
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