Settlement Agents Supervisory Board and LJ Hooker Settlements Pty Ltd
[2008] WASAT 27
•8 FEBRUARY 2008
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
STREAM: VOCATIONAL REGULATION
ACT: SETTLEMENT AGENTS ACT 1981 (WA)
CITATION: SETTLEMENT AGENTS SUPERVISORY BOARD and LJ HOOKER SETTLEMENTS PTY LTD [2008] WASAT 27
MEMBER: JUDGE J CHANEY (ACTING PRESIDENT)
MR M ANDERSON (SENIOR SESSIONAL MEMBER)
MS J TOOMER (SESSIONAL MEMBER)
HEARD: 17 OCTOBER 2007
DELIVERED : 8 FEBRUARY 2008
FILE NO/S: VR 38 of 2007
BETWEEN: SETTLEMENT AGENTS SUPERVISORY BOARD
Applicant
AND
LJ HOOKER SETTLEMENTS PTY LTD
Respondent
Catchwords:
Settlement agents Whether cause for disciplinary action Whether payment of reward for referral of business Unit trust structure Real estate agents issued with units Real estate agents referring business to settlement agency Settlement agency profits distribution in proportion to unit holding Whether issue of units constitutes reward for referring business Whether payments of profits constitutes reward for referring business
Legislation:
Interpretation Act 1984 (WA), s 18, s 19(1)
Real Estate Legislation Amendment Act 1995 (WA)
Settlement Agents Act 1981 (WA), s 3, s 26A, s 44(7), s 44(8)
Result:
Application dismissed
Category: B
Representation:
Counsel:
Applicant: Mr S O'Sullivan
Respondent: Mr M Zilko SC with Mr E Neilsen
Solicitors:
Applicant: Julia King
Respondent: Nielsen and Co
Case(s) referred to in decision(s):
Settlement Agents Supervisory Board and Strand Settlements Pty Ltd [2005] WASAT 350
REASONS FOR DECISION OF THE TRIBUNAL:
Summary of Tribunal's decision
LJ Hooker Settlements operates a business of a settlement agency utilising a unit trust structure. The holders of units in the trust are members of the LJ Hooker group of real estate agents. A proportion of the business of LJ Hooker Settlements is derived from clients who are clients of the unit holders. Each month, unit holders receive a distribution of the profit of the settlement agency in proportion to their unit holdings. The number of units held by each unit holder was allocated on the basis of an assessment made by one of the principals of LJ Hooker Settlements as to the size of the proposed unit holder's real estate business, and as the likely business that might be generated for the settlement agency. That assessment having been made, units were issued, and the unit holder enjoyed the proportionate share of the profits, regardless of the number of settlements actually referred by the unit holder's business.
Section 44(8) of the Settlement Agents Act 1981 (WA) prohibits the payment, directly or indirectly, of a reward to any person referring to a settlement agent any business involving the performance of the functions of a settlement agent. The Settlement Agents Board, who had originally been aware of, and implicitly approved, the business structure of LJ Hooker Settlements, formed the view that the issue of units to unit holders, and the payment of profits to them, constituted a breach of that section of the Act. Accordingly, it bought a number of allegations to the Tribunal that there was cause for disciplinary action against LJ Hooker Settlements by reason of those breaches.
The Tribunal reviewed the evidence as to the circumstances and basis of distribution of units to different unit holders, and the basis of distribution of profits. It analysed the object and purpose of s 44(8) and formed a view as to the proper construction of that section. Having done so, the Tribunal concluded that neither the issue of units, nor the payment of profits in accordance with unit holdings, constituted a breach of s 44(8). Accordingly, the Tribunal determined that the application by the Board should be dismissed.
Introduction
This case concerns questions of considerable significance in relation to the business structures utilised by settlement agents registered under the Settlement Agents Act 1981 (WA) (SA Act). The case concerns a settlement agency business conducted by LJ Hooker Settlements Pty Ltd. The structure under which the business is conducted is a unit trust. The business has operated with that structure with the knowledge and apparent concurrence of the Board since 1999. The units are held by members of the LJ Hooker group of real estate franchisees, or entities associated with them. The income of the settlement agency is derived partly from clients of the unit holders, and partly from other clients. In the last financial year, approximately 40% of the income of LJ Hooker Settlements was derived from settlements not referred by unit holders. The profits of the settlement agency are distributed monthly to the unit holders in proportion to their unit holdings. Receipt of profit is, therefore, not determined by the number of clients referred by the unit holder to the settlement agency. Obviously, however, the greater the number of clients serviced by the settlement agency, the greater the profit available for distribution amongst all unit holders.
Section 44 of the SA Act deals with remuneration of settlement agents. Section 44(8) provides:
"A licensee shall not, whether directly or indirectly, pay or give any reward to any person referring to the licensee any business involving the performance of the functions of a settlement agent."
In these proceedings, the Board asserts that LJ Hooker Settlements Pty Ltd has breached s 44(8) in a number of ways. The Board makes 11 allegations of breaches of the subsection. The 11 allegations relate to four unit holders. Seven of the allegations relate to the issue of units either to those unit holders, or to entities associated with them. The Board contends that, the issue of those units amounts to a reward within the meaning of s 44(8) because it creates an entitlement to share in the profits which will flow whenever a unit holder refers a client to the settlement agency. The remaining four allegations refer to the payments to each of the four unit holders in the period 1 July 2005 to 30 June 2006 being the unit holders' proportionate share of the profits of the business. The Board contends that because at least a portion of those profits is derived from referrals by each unit holder, the unit holder is being paid a direct or indirect reward for that referral, contrary to s 44(8).
The respondent denies that it is in breach of the Act, contending that because each unit holder receives a share of profits regardless of the number of clients referred to the settlement agency, or indeed regardless of whether any clients are referred to the settlement agency, neither the issue of the units, nor the payment of the proportionate share of profits, constitutes a breach of the Act.
The agreed facts
Most of the material facts were helpfully agreed by the parties. The agreed facts are as follows.
"1.The Respondent was from 19th October 1999 a Licensed Settlement Agent and remained so licensed at all material times.
2.Each L.J. Hooker Real Estate office operates as a franchise under the L.J. Hooker Group and they pay franchise fees to L.J. Hooker Ltd. Each real estate office lists and sells real estate.
3.The Respondent carried on its business under licence as part of the L.J. Hooker Group.
4.The Respondent operated at all material times as a Settlement Agent servicing some of the real estate clients of real estate agents within the L.J. Hooker Group and other clients from outside the group.
5.On 16th September 1999 the Respondent, pursuant to a Trust Deed bearing that date, became the Trustee of the L.J. Hooker Settlements Unit Trust (“the trust”).
6.The business of the trust was specified to be the business of managing and operating a settlement agency in Western Australia under the business name L.J. Hooker Settlements.
7.The beneficial interest in the trust fund of the trust as existing from time to time was vested in the unit holders for the time being.
8.Pursuant to the trust deed a fee described as a royalty was payable from the income of the trust to LJ Hooker Ltd.
9.The net income of the unit trust is paid applied or set aside to or for the benefit of the unit holders in proportion to the number of units held.
10.Monthly payments are made by the Respondent to the unit holders in proportion to their unit holding as “drawings” and at the end of the financial year the net profit is calculated and the balance after deducting drawings is paid.
11.Hulen Pty Ltd trading as L.J. Hooker Mt Lawley (“Hulen”), as a licensed real estate agent and sub-licensee of the L.J. Hooker Group was, on 11th October 1999, granted 50 units in the trust.
12.Hulen at all material times serviced real estate clients, some settlements for whom were carried out by the Respondent which involved the performance by the Respondent of the functions of a settlement agent.
13.Hulen, as a unit holder in the trust became entitled to the benefit of the distributable income of the trust generated through the performance by the Respondent of the functions of a settlement agent in respect of the settlement of the transactions of clients of Hulen and others, and accordingly received income from the Respondent.
14.RA & LM Investments Pty Ltd as trustee for the R&L Unit Trust was, in April 2004 a vehicle controlled by the beneficial owners of Hulen and, as such, on 1st April 2004 was granted by the Respondent 50 units in the trust, thus entitling it to such distributions of net profit in proportion to units held as have been described above.
15.RA & LM Investments Pty Ltd as trustee for the R&L Unit Trust thereafter received income from time to time in accordance with its entitlement.
16.In respect of the period 1st July 2005 to 30th June 2006 Hulen by virtue of its unit holding received income of $9,546.06 from which offset debits (for the costs of title searches) were deducted .
17.In respect of the period 1st July 2005 to 30th June 2006 RA & LM Investments Pty Ltd as trustee for the R&L Unit Trust similarly received income of $9,546.06.
18.Kingpark Pty Ltd (“Kingpark”) trading as L.J. Hooker Busselton as a real estate agent and sub-licensee of the L.J. Hooker Group, on or about 11th October 1999 was granted 150 units in the trust.
19.Kingpark at all material times serviced real estate clients, some settlements for whom were carried out by the Respondent which involved the performance by the Respondent of the functions of a settlement agent.
20.Kingpark as a unit holder in the trust became entitled to the benefit of the distributable income of the trust generated through the performance by the Respondent of the functions of a settlement agent in respect of the settlement of the transactions of clients of Kingpark and others, and accordingly received income from the Respondent.
21.Kevandi Holdings Pty Ltd (“Kevandi”) was granted 50 units in the trust by the Respondent on 1st June 2003, thus entitling it to such distributions of net profit in proportion to units held as have been described above.
22.Kevandi thereafter received income from time to time in accordance with its entitlement.
23.In respect of the period 1st July 2005 to 30th June 2006, Kingpark by virtue of its unitholding received income of $28,638.18 from which offset debits (for the costs of title searches) were deducted.
24.In respect of the period 1st July 2005 to 30th June 2006, Kevandi by virtue of its unitholding received income of $9,546.06.
25.Two hundred units were issued to L.J. Hooker Armadale on 1st July 2002 in two tranches of 100 units each to Clayton Foster Pty Ltd ATF the CSLF Trading Trust (CSLF) and Guelph Pty Ltd to recognise that those two franchisees were separate legal entities operating the one business in partnership.
26.On 1st July 2005, because of a partnership change, the 100 Guelph Pty Ltd units were redeemed and 100 units were issued to Lesterford Pty Ltd trading as L.J. Hooker Armadale (Lesterford) (a completely separate entity to CSLF) to replace the 100 Guelph units. Accordingly, the franchise known as L.J. Hooker Armadale has had an allotment of 200 units, made up of two separate entities, at all material times since 1st July 2002.
27.Lesterford and CSLF at all material times serviced real estate clients, some settlements for whom were carried out by the Respondent which involved the performance by the Respondent of the functions of a settlement agent.
28.Lesterford and CSLF as Unit Holders in the trust became entitled to the benefit of the distributable income of the trust generated through the performance by the respondent of the functions of a settlement agent in respect of transactions of Lesterford, CSLF and others, and accordingly received income from the Respondent.
29.In respect of the period 1st July 2005 to 30th June 2006 Lesterford by virtue of its unit holding received income of $19,092.12 from which offset debits (for the costs of title searches) were deducted.
30.In respect of the period 1st July 2005 to 30th June 2006 CSLF by virtue of its unit holding received $19,092.12 from which offset debits (for the costs of title searches) were deducted.
31.On or about 1 September 2002 KG & KJ Gorham Pty Ltd (“Gorham”) trading as L.J. Hooker Kwinana as a licensed Real Estate Agent and sub-licensee of the L.J. Hooker Group, was granted 100 units in the trust
32.Gorham at all material times serviced real estate clients, some settlements for whom were carried out by the Respondent which involved the performance by the Respondent of the functions of a settlement agent.
33.Gorham as a unit holder in the trust became entitled to the benefit of the distributable income of the trust generated through the performance by the Respondent of the functions of a settlement agent in respect of transactions of clients of Gorham and others, and accordingly received income from the Respondent.
34.On 1st April 2003 Elaine Forth was granted 50 units in the trust by the Respondent, thus entitling her to such distributions as have been described above.
35.In respect of the period 1st July 2005 to 30th June 2006 Gorham by virtue of its unit holding received $19,092.12 from which offset debits (for the costs of title searches) were deducted.
36.In respect of the period 1st July 2005 to 30th June 2006 Elaine Forth by virtue of her unit holding received $9,546.06 from the Respondent."
Establishment of trust and allocation of units
Mr Barry Pound is the managing director of LJ Hooker Settlements Pty Ltd and, with Mr Andrew Johns, established LJ Hooker Settlements in 1999. Mr Johns and Mr Pound had previously operated a real estate franchise known as LJ Hooker Kardinya. Mr Pound had previously been a unit holder in another settlement agency and was familiar with the operation of unit trusts. He took advice from his solicitor and accountants, and after obtaining approval from LJ Hooker Corporation for use of the name, he made an application to the Board for LJ Hooker Settlements Pty Ltd to operate as a licensed settlement agency under the unit trust arrangement. The Board required the applicant for approval to provide a copy of the unit trust deed with the application for the settlement agent's licence. The unit trust deed provides that the trustee may, in its absolute discretion, issue any unit to any person or entity who becomes a sub‑licencee of LJ Hooker Group. It also provides that the trustee is obliged to redeem the units of a unit holder who ceases to be a LJ Hooker Group sub‑licencee. Having received those documents, the Board granted the licence. Business commenced on 1 November 1999. The SA Act required that the company employ a licence holder as a person in bona fide control of the business, and Ms Janet Hryb was appointed to that position.
Invitations were extended to members of the LJ Hooker Group, being real estate agents, to participate in the business by becoming unit holders. Mr Pound said that when the business was being developed, and participants invited, he was always aware of the rules regarding reward for referral. He said, and we accept, he did not have, nor did he ask for, any sales information from any real estate companies regarding their past performance of sales. Rather, he made his own assessment, based on his past experience in the industry, as to the amount of business likely to be generated by a particular LJ Hooker franchisee. He said that he had regard to the size of the office, the number of sales people, the size of the designated demographic area, the number of homes in the catchment area and the known experience of the franchise owners. Based upon that assessment, units were issued in lots of 50, 100, 150 or 200.
Allegations 1 and 2 – LJ Hooker Mount Lawley
After LJ Hooker Settlements commenced business, Mr Pound, Mr Johns and Ms Hryb formed what was known as the Franchise Owners Advisory Committee which consisted of a number of unit holders. The object of the committee was to participate in sharing ideas to expand the business. Two of the original members of the committee were Mr Ross Humphreys and Mr Lou Boylen, principals of a company known as Hulen Holdings Pty Ltd which operated the business trading as LJ Hooker Mount Lawley. Entities associated with that franchise were granted units in October 1999, and later in April 2004. The issue of 50 units to Hulen Holdings Pty Ltd as trustee for the Hulen Unit Trust, said to have occurred on 19 October 1999, constitutes the first allegation of a breach of s 44(8) of the Act.
The second allegation concerns the issue of a further 50 units in April 2004 to RA and LM Investments Pty Ltd as trustee for the R and L Unit Trust. The statement of agreed facts refers to the grant of 50 units to a company referred to as "Hulen Pty Ltd trading as LJ Hooker Mount Lawley" on 11 October 1999. According to Mr Pound's witness statement, 50 units were issued on that day to Hulen Holdings Pty Ltd and that is reflected in Unit Certificate No 5. It can be assumed that the reference to "Hulen Pty Ltd" in the statement of agreed facts is a typographical error. The position is somewhat confused, however, because, in the agreed bundle of documents, exhibit 1, at documents 11, 13, 15, 17, 19 and 21 there appear lists of unit holders for the years 2000 through to 2005. Those lists suggest that the original 50 units were issued to RA and LM Investments Pty Ltd with 50 units being issued to Hulen Holdings Pty Ltd as trustee for the Hulen Unit Trust in 2004. The applicant's Statement of Issues, Facts and Contentions asserts that "Hulen, as a real estate agent and sub‑licensee of LJ Hooker Group" was granted 50 units on 11 October 1999. The respondent's response to that alleged fact is to accept it and note that "Hulen is Hulen Pty Ltd trading as LJ Hooker Mount Lawley."
Although there is considerable confusion about the identity of the corporate entities to whom units were issued, it is not in dispute that two packages of 50 units were issued to entities associated with LJ Hooker Mount Lawley on 11 October 1999 and 1 April 2004. According to Mr Pound, the initial units were issued on the basis of the assessment described above but the second tranche of units were granted in recognition of the contributions made by Mr Humphreys and Mr Boylen, to the business of LJ Hooker Settlements by their involvement on the Franchise Owners Advisory Committee. Mr Pound asserted that neither the first 50 units nor the second 50 units were allocated on the basis of the number or value of settlements referred to LJ Hooker Settlements.
The preponderance of the evidence is that the initial 50 units were issued to the company, known either as Hulen Pty Ltd or Hulen Holdings Pty Ltd, which traded as LJ Hooker Mount Lawley. The second tranche appears to have been issued to RA and LM Investments Pty Ltd, a trustee company associated with the principals of LJ Hooker Mount Lawley.
We note that cl 3.7 of the LJ Hooker Settlement Unit Trust Deed empowers the trustee to issue units to "any person or entity who becomes a sub‑licensee of LJ Hooker Group" in the sole discretion of the trustee. The power to issue units appears, therefore, to be confined only to issuing to persons who are sub‑licensees of LJ Hooker Group. Although the evidence is unclear, it would appear that RA and LM Investments Pty Ltd is not a sub‑licensee of the LJ Hooker Group. The same observation can be made in respect to the issue of other units to parties related to but not sub‑licensees of the LJ Hooker Group. That is not, however, a matter material to the issues presently before the Tribunal.
Allegations 4 and 5 – LJ Hooker Busselton
The issue to Kingpark Pty Ltd (Kingpark) of 150 units on 11 October 1999 forms the subject matter of allegation 4. Kingpark traded as LJ Hooker Busselton. Allegation 5 concerns an issue of a further 50 units to Kevandi Holdings Pty Ltd (Kevandi) on 1 June 2003. According to Mr Pound, the original 150 units were issued after consideration of the factors earlier referred to. On 1 January 2002, Kingpark opened a branch office in Dunsborough. Mr Pound said that, at the time, he believed that units held by particular entities could not be increased or decreased, and so to recognise the expansion of the business to LJ Hooker Dunsborough, the 50 units issued on 1 June 2003 were issued to a related company, Kevandi.
In fact, the trust deed gave the trustee power to issue additional units in its absolute discretion, subject to cl 3.10 which provided that the power to issue additional units should be exercised by the trustee only at the end of each three year period from the date of commencement of the deed. It would appear that the additional 50 units to Kevandi could have been issued to Kingpark on 16 September 2002, but that point appears not to have been appreciated by Mr Pound.
Allegation 7 – LJ Hooker Armadale
Allegation 7 concerns the business trading as LJ Hooker Armadale. It alleges that Lesterford Pty Ltd (Lesterford) trading as LJ Hooker Armadale received a reward from the respondent contrary to s 44(8) of the Act when, on or about 15 July 2002, it was granted 100 units in the trust, and on the same date Clayton Foster as trustee for the CSLF Trading Trust was also granted 100 units. The specific allegation is not made out on the agreed facts. What was agreed, between the parties, and is consistent with information provided to the Board by Mr Clayton Foster in an interview on 17 August 2006, is that on 1 July 2002, two tranches of 100 units each in Clayton Foster Pty Ltd as trustee for CSLF Trading Trust and Guelph Pty Ltd (Guelph) were issued. Those two entities were, respectively, the entities through which Mr Clayton Foster, and his father, jointly conducted the business LJ Hooker Armadale, presumably as shareholders or otherwise as beneficial owners of Lesterford.
On 1 July 2005, because Mr Foster's father retired from the partnership, the 100 units previously held by Guelph were redeemed and 100 units were issued to Lesterford Pty Ltd, the company which held the franchise for LJ Hooker Armadale and which was under the control of Mr Clayton Foster. Mr Pound explained that he was advised of the partnership change on 1 July 2005. Given his belief that units could only be redeemed or issued, Mr Pound advised Mr Foster that Clayton Foster Pty Ltd could not have Guelph's units transferred to it.
Accordingly a decision was made to issue the units to Lesterford and redeem Guelph's units. He said that those transactions were unrelated to the number of settlements referred by LJ Hooker Armadale to LJ Hooker Settlements.
Allegations 9 and 10 – LJ Hooker Kwinana
Allegations 9 and 10 relate to the issue of units to entities associated with LJ Hooker Kwinana. That business opened in March 2002. According to Mr Pound, he approached the franchise owner, Ms Elaine Forth, to introduce her to the services of LJ Hooker Settlements. He said that he assessed the business in the way previously described and subsequently allocated 100 units in the trust to KG and KJ Gorham Pty Ltd, the sub‑licensee of the LJ Hooker Group, trading as LJ Hooker Kwinana.
Mr Pound said that Elaine Forth "shared her marketing ideas with the rest of the LJ Hooker Group and was very successful in growing her business." He said that although she was not a member of the Franchise Owners Advisory Committee she contributed significantly to the rest of the group, and on that basis it was decided to issue a further 50 units to her in her own name. Those units were issued on 1 April 2003.
The substance of the allegations concerning issue of units
In respect of each of the particularised issues of units, the applicant contends that, upon the issue, the "unit holder in the trust became entitled to the benefit of the distributable income of the trust generated through the performance of the functions of a settlement agent in respect of business referred to the respondent by [the unit holder] and others, and was accordingly paid money."
In relation to those unit holders who were not sub‑licensees of the LJ Hooker Group, and thus not the entities carrying on the business as real estate agents, the applicant notes that the proscription in s 44(8) is against "directly or indirectly" paying or giving any reward. Thus it contends that a benefit to an entity associated with the entity referring the business amounts to an indirect reward. The applicant also relies upon s 3(2) and s 3(4) of the SA Act which provide that:
"(2)where a reward is paid or received by a person by reason of, or in contemplation of, some other person arranging or effecting settlement, that reward shall, for the purposes of this Act, be deemed to be paid to or received by the person arranging or effecting the settlement.
…
(4)The fact that a payment, or a component of a price or fee, was not expressed, or was not acknowledged, to have been paid or received as commission or remuneration for any particular service, or was neither so expressed nor so acknowledged, shall not prevent that payment, or component of a price or fee, from being construed for the purposes of this Act as having been paid or received in respect of that service."
Allegations 3, 6, 8 and 11 – payments to unit holders
Allegations 3, 6, 8 and 11 assert a breach of s 44(8) by the receipt of specified sums for the period 1 July 2005 to 30 June 2006 by the entities associated with LJ Hooker Mount Lawley, LJ Hooker Busselton and Dunsborough, LJ Hooker Armadale and LJ Hooker Kwinana. The payment of the amounts are said to be a reward to a person referring to the licensee business involving the functions of a real estate agent.
The operation of the Trust
It is clear from the documents produced at the hearing that, in accordance with the trust deed, the profit of the business of LJ Hooker Settlements has been distributed proportionately to the unit holdings of the individual unit holders. The amount paid is unrelated to the number of settlements actually referred by any particular unit holder during the relevant period. By way of example, the income distribution statement for August 2002 shows one unit holder receiving its proportionate entitlement for 50 units (2.66%) notwithstanding having referred 14 matters, whereas other unit holders with the same number of units received the same profit share (less disbursements in each case) having referred two settlements in the relevant period. One unit holder holding 150 units at that period received three times as much profit share as the 50 unit holders notwithstanding having referred only 12 settlements in the period.
Allocation of units – findings
As already observed, Mr Pound's evidence was that units were issued either on the basis of a generalised estimate of the likely business that might be generated by the unit holders' real estate business or, in the case of subsequent issues, on the basis of contributions made either to the Franchise Owners Advisory Committee, or otherwise to the business of LJ Hooker Settlements.
Much attention was devoted during the hearing to certain documents which had been anonymously sent to the Board, and which appear to have precipitated the Board's enquiries into LJ Hooker Settlements that led to these proceedings. Those documents (pages 3B, 5, 6, 7, 9 and 10) of the bundle of documents, Exhibit 1) are in the nature of information sheets and an application form for an allocation of units. They expressly tie the number of units to be issued to the number of settlements referred. One of the documents (Exhibit 1, page 3B) makes reference to the business of LJ Hooker Settlements having been launched "just over two years ago". That suggests that the document was generated sometime in late 2001 or early 2002. It is apparent that the documents came into the possession of the Board sometime around December 2005 or early January 2006. Mr Pound said that the documents were prepared by him as an internal document, but were never used.
We accept Mr Pound's evidence in relation to those documents. There does not appear to be any correlation between the basis for issue of units referred to in the documents, and any actual issue of units. There is no evidence of the documents ever being used by any applicant for units. Mr Foster recalled having seen the documents, but his evidence as to when he saw them, and whether it was in the context of his membership of the franchisee's advisory committee, was vague. There is no evidence that the documents played any part in the issue of units to the entities associated with Mr Foster, nor the redemption of Guelph's units and the subsequent issue of units to Lesterford.
Mr Brian Moulton, a principal of the business of LJ Hooker Busselton, was questioned by investigators on behalf of the Board on 19 September 2006. He was questioned about the documents, but was unable to recall having seen them previously. Mr Boylen of LJ Hooker Mount Lawley was interviewed on 16 August 2006, and said that he had not seen the documents before. Ms Elaine Forth, who was interviewed on 23 August 2005, also said she had not seen the documents before they were shown to her that day. It can be noted that Gorham, which operated LJ Hooker Kwinana, was issued its units in September 2002, not long after the documents appear to have been created. The fact that Ms Forth was not shown the documents reinforces Mr Pound's evidence that the documents were never used in relation to recruitment of unit holders.
We accept Mr Pound's evidence as to the creation and use, or absence of use, of the documents.
Some reliance was also placed by the Board on the monthly statements provided to unit holders, a number of which were included in the bundle of documents received in evidence. Those statements comprised a summary of profit distributions to the unit holder concerned for each month of the particular financial year in which the statement was issued. As we have already observed, the amount of the distribution each month was based purely on the proportionate unit holding without regard to the number of settlements referred by that unit holder either for that particular month or for any other period. The statements contained, however, a bar chart showing the number of settlements referred by the unit holder for each month of the financial year. The bar chart in each case showed a horizontal line which was identified as a target number. Thus, on the face of the bar chart, it illustrated whether or not the number of settlements for each month exceeded or fell below the "target" line. Below the bar chart were the words "If every unit holder reaches their target, your monthly return could be:" and a figure was shown.
The Board relied on the monthly statements as illustrating that the true nature of the arrangements was that unit holders had a monthly target to which they were expected to strive in order to generate a better return.
Mr Pound said that the targets shown on the monthly settlement statements did not indicate that any unit holder had been given a target on the basis that they were expected to reach it each month. Rather, he said that that was a target figure which LJ Hooker Settlements itself used for its internal purposes. It is obvious that the bar chart was used, in effect as a marketing exercise by LJ Hooker Settlements, to remind licensees that the more settlements that were referred, the greater would be the return to unit holders. No doubt, it was designed to encourage unit holders to refer more settlements. We accept, however, that the actual return for each individual unit holder was not dependent upon that unit holder sending any particular number of settlements to LJ Hooker Settlements in any given period. The income derived by the unit holder was not affected by the unit holder reaching or failing to reach its target.
We also accept that members of the LJ Hooker group who are unit holders in LJ Hooker Settlements allow their clients to make a choice of settlement agent. That was the general thrust of the responses by unit holders to questions in interview by the Board's inspectors, and there is no basis in the evidence to reject those assertions. It is clear that the availability of LJ Hooker Settlements' services is drawn to the attention of unit holders' clients. We accept, however, that the choice of settlement agent is a matter left ultimately to the client.
During the course of cross‑examination of Mr Pound, a passage from an interview between the Board's inspectors and Ms Hryb was read to him. In that interview, Ms Hryb was asked whether a unit holding was ever cancelled because the unit holder wasn't generating enough work for LJ Hooker Settlement. She responded in the affirmative, and said that the office of LJ Hooker Bentley had its units cancelled because, although it was referring business, "the value of the business wasn't helping our profits". In response to that passage of the interview, the following exchange took place between Mr Pound and Mr O'Sullivan.
"---If that's the case, yes. I would back that as an economical decision. If I had a unit holder with 200 units earning a $2000 cheque for ever, it's an economical decision to remove them as a unit holder and it's my right as the trustee, as approved by the board.
Yes. I'm not arguing with you about that. So if they're not contributing, you get rid of them?---Yes.
Why? It shouldn't matter, should it?---It's the same as an employee. If an employee is not contributing and I'm paying them every week, it's a commercial decision not to keep them.
All unit holders have an entitlement to a share of the pie, do they not, in accordance with their number of units?---In accordance with the trust deed, of which I'm the trustee of the unit trust and have the right to redeem or add units.
The trust deed doesn't talk about redeeming them in the circumstances where people are not sending you enough work? ---I don't have to have an excuse to remove them.
But you do remove them and you did on that occasion?---If that's the case, yes."
It is the obvious intent of the business structure adopted for LJ Hooker Settlements that franchisees of the LJ Hooker Group would be the source of a substantial portion of the settlement agency's business. It is clear that the assessment made by Mr Pound as to the size of the prospective unit holders business prior to the issue of units was directed at attempting to achieve some correlation between the amount of business generated by a unit holder and the profit share that would be engaged by that unit holder. That broad objective is consistent with cl 3.9 of the unit trust deed which requires redemption of units where the unit holder ceases to be a sub‑licencee of the LJ Hooker Group. The exercise of the power to redeem units that apparently occurred in the case of LJ Hooker Bentley is also consistent with that objective.
The question for the Tribunal is whether the issue of units in those circumstances constitutes a breach of s 44(8) of the SA Act.
Construction of s 44(8) of the SA Act
The Board's allegations are based on the proposition that the words of s 44(8), particularly when considered with s 3(2) and s 3(4), proscribe any benefit that flows or accrues, either directly or indirectly from a settlement agent to a person who refers business to that settlement agent. That contention is based upon, what the Board's counsel argued was, the plain meaning of the words used. Senior counsel for the respondent argued that s 44(8) was directed to proscribing payments or rewards directly connected to particular referrals. He submitted that a construction of the section which, in effect, precludes real estate agents having any interest which entitled them to share in the profits of a settlement agency would run counter to the object and purpose of the legislation. He relies upon s 18 of the Interpretation Act 1984 (WA) which requires an interpretation of legislation which promotes the purpose or object underlying the law in preference to a construction which would not promote that purpose or object.
The long title to the SA Act describes it as an Act to "make provision with respect to the licensing, regulation and supervision of settlement agents, and for related purposes." That general description of the object of the Act provides little guidance to the construction of the particular words of s 44(8). Rather, counsel relied upon a passage in the second reading speech for the Settlement Agents Bill on 7 May 1981. During the course of debate, in the course of which the Bill received bipartisan support, the Member for Mount Marshall said:
"One point made to me by a real estate agent was that settlement agents should form their own organisation or incorporated body – this is his firm view – and be a separate identity from any estate agency. He believes settlement agents should be licensed and not connected with any licensed person under the Real Estate and Business Agents Act. Any agent employed by a real estate agent firm does not receive his commission or remuneration until such time as settlement on the property sold has been effected. It could be that a settlement agent will use fairly rough or undesirable tactics to pressure a vendor or purchaser in the sale of a property to conclude the sale as quickly as possible because of his desire to have the commission paid to him promptly.
This matter was explained to me by a very prominent real estate agent operating in the city. He believes settlement agents should not be part of any real estate agent's office.
I raised the matter and brought it to the attention of the Minister so that he could comment on it in his reply. The matter may be one of those as mentioned by the Member for Welshpool, that is considered after the legislation has been in operation for some time. It could then be examined in more detail to determine just how the Act should apply in that situation."
Later in the debate, Mr Hassell who moved the second reading of the Bill, responded to the Member for Mount Marshall. He said:
"The other point he made was that real estate agents who are involved in settlements should have completely separate organisations. I believe that is a point of considerable importance because, of course, a real estate agent is employed by the vendor of a property. He has all his obligations to the vendor and he is paid by the vendor, but he is paid only when the settlement goes through. So when he acts for a purchaser in a settlement, he can be said to be acting in his own interests, and his own interests of having the settlement go through are paramount. I think this point must be watched most carefully, and we have insisted that the Bill provides that the agent has the most specific authority from the other party acknowledging that that party is aware of the situation. If that is not sufficient in practice, we will have to move further.
Many estate agents are involved as settlement agents at the present time and we do not feel initially that we could put them out of the industry. This system, with all its dangers, is accepted by the public. We have to move cautiously on this matter. I am aware of the danger, and I assure the House that we will not hesitate to bring back further amendments if this provision does not work."
Section 44 was amended by the Real Estate Legislation Amendment Act 1995 (WA), but the amendments are not relevant for present purposes, and s 44(8) has remained unchanged since the commencement of the SA Act.
In 1982, s 26A was introduced into the SA Act. It provides that the Board may, on satisfaction of various matters exempt licensed real estate agents from the requirement to be registered under the SA Act. The exemption applies in relation to settlements of real estate transactions in respect of which the real estate agent acted in the course of its business provided the settlement is arranged or effected without reward and a prescribed notice is given to the client prior to settlement. Nothing in s 26A prevents a real estate agent from being registered as a settlement agent. Section 26A provides that a person shall not be both registered as a settlement agent and the subject of an exemption. It is inherent in that provision that the SA Act contemplates that a person may be both a licensed real estate agent and a licensed settlement agent at the same time.
The concern about connections between real estate agents and settlement agents referred to during the course of the second reading speech was a concern as to a danger of conflict of interest. The potential conflict identified was the real estate agent's interest in having the settlement completed so as to become entitled to his commission, as against a purchaser's or vendor's possible interest in the settlement being delayed or even cancelled in circumstances where completion of the settlement may put that party at some kind of risk, which interest a settlement agent is obliged to protect.
Conflict of that nature could most obviously arise where the real estate agent is in a position of control over the day-to-day operations of the settlement agency, or where the real estate agent is in some position of power over the settlement agency or its employees. An example would be where a real estate agent is also a licensed settlement agent or is the owner, or has effective control over, the majority of shares in a corporate license of a settlement agency. In those circumstances, there may be a danger that the real estate agent may cause the settlement agency to prefer the real estate agent's interest above that of the client, or that the employee of the settlement agency would do so to serve the interests of its shareholder and effective controller.
That concern could have been easily dealt with in the legislation had the parliament wished to do so. It would have been relatively simple for the SA Act to have forbidden holders of real estate licences, or entities associated with them, from holding any interest in a settlement agency. That the parliament chose not to is evidenced by the lack of any such provision in the SA Act, the express statement by the Minister that the Bill did not have that effect, and the clear implication in s 26A.
The proposition by the Board in this case would, if correct, have the effect of preventing a real estate agent whose clients utilise a particular settlement agency from owning shares in that settlement agency. That is because any distribution of income to shareholders would, to some degree, be affected by the number of settlements undertaken. Thus, as in the unit trust arrangement in this case, the more referrals there are from the real estate agent, the greater the periodic dividend.
The question is therefore, does s 44 indirectly achieve a proscription of real estate agents having any financial interest in a settlement agency to which its clients are referred.
The comments in the debate to which our attention was drawn were not specifically directed to debate on s 44. Section 44(8) would not appear, except perhaps in a most indirect way, to be directed at the mischief of conflict of interest. Section 44 deals with "remuneration of settlement agents". It provides for the fixing of maximum rates of remuneration of settlement agents by the Board. Section 44(5) provides a mechanism for resolution of disputes as to remuneration of settlement agents by the Board. Section 44(7) provides:
"A person shall not, whether directly or indirectly, demand, receive or hold any reward for referring to a licensee any business involving the performance of the functions of a settlement agent."
Section 44(8) is clearly related to s 44(7). The first is directed at a person demanding or receiving a reward and the second at the licensee paying or giving a reward. Mr O'Sullivan, counsel for the Board, suggested that the object of the section is to ensure an open market and provide for open competition. We agree that the likely purpose and object of s 44(7) and s 44(8) is to foster freedom of a client's choice of settlement agent, and to prevent what the Tribunal described, in Settlement Agents Supervisory Board and Strand Settlements Pty Ltd [2005] WASAT 350, as "kickbacks". The comments by Mr Hassell during the second reading speech suggest that the Parliament enacted the legislation on the basis that it did not preclude real estate agents from having interests in a settlement agency. Extrinsic materials can only be used to interpret provisions of the SA Act either to confirm the ordinary meaning of the words used (in the context in which they are used) or to determine the meaning of ambiguous or obscure provisions – Interpretation Act 1984 (WA) s 19. The starting point is the words of the Act.
The word "reward" is defined in s 3 of the SA Act. That section provides:
"'reward' means any valuable consideration in money or moneys worth paid or received as commission or remuneration –
(a)whether payable in cash or kind;
(b)whether paid or received directly or indirectly; and
(c)whether paid or received separately or as a component of a composite price or fee paid or received in respect of any transaction or service;"
The proscription in s 44(7) is therefore against demanding or receiving any consideration in moneys worth as commission or remuneration "for referring to a licensee any business involving the performance of the functions of a settlement agent." By virtue of paragraph (c) of the definition of "reward", the payment must be "in respect of a transaction or service". The transaction or service in question in this case is the referral of work. In our view, s 44(7) properly construed requires that the reward be, in effect, in consideration for referring the business.
Section 44(8) is directed at the other party to a transaction proscribed by s 44(7). It follows that s 44(8) prohibits licensees paying any reward, directly or indirectly, in consideration for the referral to that licensee of business.
The exchange in the second reading speech can, in our view, be used to confirm that conclusion – Interpretation Act 1984 (WA) s 19(1). While the debate made no specific mention to s 44, it is clear that the Parliament did not consider that it was prohibiting real estate agents from having an interest in settlement agencies. The contrary was specifically stated. If the construction of s 44(8) contended for the Board were to be applied, real estate agents could not have an interest in a settlement agency, unless it was one to which they did not refer any settlements, an arrangement which could not have been in the contemplation of the Parliament, and which could easily have been provided for if the Parliament had intended that consequence.
It would appear that, until this case, the Board itself has construed the legislation in the way urged upon us by the respondents. The fact that it received, and presumably examined, the trust deed before granting the licence to the respondent, and the fact that it was regularly updated with lists of unit holders in the trust, demonstrates that it previously held the view that, so long as there was not a direct connection between the referrals by a particular real estate agent, and the income received by that agent, so that the income fluctuated dependant upon the referrals, the arrangement did not offend the Act.
That was apparently the position adopted by the Board when an earlier matter concerning s 44(8) of the SA Act came before this Tribunal in the Strand Settlements case. That case involved a settlement agency carried on under a unit trust structure, with the unit holders being real estate agents in the Roy Weston group. When the trust was initially established, units were issued equally to all unit holders. Income was distributed on the basis of unit holdings. That arrangement continued without objection by the Board for over 10 years. However, in order to increase the level of referral by unit holders to the settlement agency, a restructure of the trust was undertaken in 1999. The restructure involved an adjustment to unit holdings to reflect the historical and projected referrals by individual unit holders. Units were allocated based upon those performance criteria and it was contemplated that unit holdings would be adjusted based on performance from time to time. The actual method of calculation of payments could not be determined by the Tribunal, but it was clear that payments were directly affected by the number of referrals, from time to time, by the recipient of the payment.
In the course of its reasons, the Tribunal said, at [52]:
"It is clear that the trust in its original form, as established by the trust deed on 6 July 1988 does not give rise to a breach of the Act. Under the original trust structure, distributions to unit holders were shared equally amongst unit holders, regardless of their size or the efforts they made to refer work to Strand. This kind of structure is permissible under the Act."
Although it is not expressly stated in the reasons, we surmise that the Tribunal's observation reflected the Board's position and was thus not debated at that hearing. It did, however, form the basis, accepted by the Tribunal, against which the restructured arrangements had to be viewed.
Unlike the original structure of the trust in Strand Settlements, the units in the LJ Hooker Settlements Trust have not been distributed equally to all unit holders. Whether a unit holder received 50, or 100, or 150 units in the LJ Hooker Settlement Agents Unit Trust was, we have found, based upon a broad estimate by Mr Pound of the business likely to be generated by a particular real estate franchisee. However, having made that assessment, the actual profit share enjoyed by a particular unit holder was unrelated to the number of referrals actually made.
It is true that one unit holder, LJ Hooker Bentley (or some entity associated with it) had its units redeemed after having not generated sufficient work for the respondent. The name of the entity concerned, and the date upon which the redemption occurred, is not apparent from the evidence before the Tribunal. The power to redeem units at its absolute discretion under cl 3.9 of the Trust deed is exercisable by the trustee only at the end of each three years from the commencement of the deed (cl 3.10). The lists of unit holders from the year 2000 onwards show no redemptions until 2003 when four unit holders had units redeemed. Whether an entity associated with LJ Hooker Bentley was one of those four is not clear. The redemptions appear to have been made at the time contemplated by cl 3.10.
We have earlier observed that the underlying intent of the business structure is that entities likely to generate work for the settlement agency should share in the profits. The redemption of units of unit holders who have not generated work, after three years when unit holdings effectively fell for review, is consistent with that underlying intent. What is important, so far as s 44(8) is concerned, is that, during the period that the units were held, the share of profits enjoyed to that point was unaffected by whether or not any business was generated. The redemption of units would have the effect of increasing the proportionate share of profits of the remaining unit holders. The sessional members of the Tribunal consider that that proportionate increase may amount to a reward to the other unit holders for having referred business in the past, but that proposition forms no part of the allegations against the respondent in these proceedings, and thus cannot fall for consideration in these proceedings.
The broad construction of s 44(8) for which the Board contended could lead to absurd results. It would prevent a person with an interest in the profits of a settlement agency, as a unit holder or shareholder, from referring any business to that settlement agency, regardless of whether that person was a real estate agent or not. That is because each referral would serve to increase the eventual profit made by the settlement agency in which the referrer might share. There is no basis to read the reference to the referral of business in s 44(7) and s 44(8) only to referrals by real estate agencies.
For those reasons, we are of the view that there must be a direct relationship between the referring of the business and the receipt of the reward, such that the payment of a reward, or the quantum of a reward, is dependent, or at least influenced by the existence of the referrals.
Did allocation of the units breach s 44(8)?
Given what we have determined as the proper construction of s 44(8), and given our finding that units were issued on the basis of Mr Pound's generalised estimate of the size of the business concerned, we do not consider that the issue of units on that basis constitutes a breach of s 44(8).
In relation to the allegations concerning the issue of additional units to entities associated with existing unit holders, the evidence does not support a conclusion that those issues were related to the number of referrals made, or expected to be made, by the entities concerned. There was no reason to reject Mr Pound's evidence that the issue of units in 2004 to RA and LM Investments Pty Ltd (allegation 2) was related to the contribution to the business of LJ Hooker Settlements by Mr Humphreys and Mr Boylen. The issue of 50 units to Kevandi (allegation 5) appears to have been based on the generalised assessment by Mr Pound of the potential of the new branch office of LJ Hooker Dunsborough, and thus is on the same footing as the original issue of units to other unit holders. There is no basis to reject Mr Pound's evidence that the issue of additional units to Ms Forth was a recognition of her contribution to the business of the LJ Hooker group, and LJ Hooker Settlements. None of the subsequent issues of units breached s 44(8).
Did monthly payments of profit breach s 44(8)?
The payments which form the subject of allegations 3, 6, 8 and 11 were payments of profit share from the business based upon proportionate unit holdings. They were not payments referrable to, or in consideration for, the referral of business. The necessary relationship between the payment and the referral is not established. The payments do not breach s 44(8).
Comment
The apparent concern underlying these proceedings arises from the potential for real estate agents to derive income from a settlement agent dealing with settlements referred by the real estate agent. Given that the SA Act contemplates that a real estate agency may also be a licensed settlement agent, that potential is clearly contemplated by the SA Act. If that situation is to be changed, it is a matter for the legislature.
Conclusion
For the forgoing reasons, the application should be dismissed.
I certify that this and the preceding [68] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
___________________________________
JUDGE J CHANEY, ACTING PRESIDENT
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
STREAM: VOCATIONAL REGULATION
ACT: SETTLEMENT AGENTS ACT 1981 (WA)
CITATION: SETTLEMENT AGENTS SUPERVISORY BOARD and LJ HOOKER SETTLEMENTS PTY LTD [2008] WASAT 27 (S)
MEMBER: JUDGE J CHANEY (DEPUTY PRESIDENT)
MR M ANDERSON (SENIOR SESSIONAL MEMBER)
MS J TOOMER (SESSIONAL MEMBER)
HEARD: 17 OCTOBER 2007
DELIVERED : 8 FEBRUARY 2008
SUPPLEMENTARY
DECISION :24 APRIL 2008
FILE NO/S: VR 38 of 2007
BETWEEN: SETTLEMENT AGENTS SUPERVISORY BOARD
Applicant
AND
LJ HOOKER SETTLEMENTS PTY LTD
Respondent
Catchwords:
Costs Professional disciplinary proceedings Settlement agents Whether Tribunal's jurisdiction exhausted by making of substantive orders Principles to be applied Whether reasonable basis for proceedings Whether proceedings brought in good faith
Legislation:
Rules of the Supreme Court 1971 (WA), O 59 r 9
Settlement Agents Act 1981 (WA), s 44
State Administrative Tribunal Act 2004 (WA), s 87(2)
Result:
The respondent's claim for costs is dismissed
Category: B
Representation:
Counsel:
Applicant: Mr S O'Sullivan
Respondent: Mr E Nielsen
Solicitors:
Applicant: Julia King
Respondent: Nielsen and Co
Case(s) referred to in decision(s):
Lakes Action Group Association (Incorporated) and Shire of Northam & Anor [2005] WASAT 185 (S)
Lewandowski & Ors v Lovell, unreported, FCt SCt of WA, Library No 960310; 14 June 1996
Motor Vehicle Industry Board and Dawson [2006] WASAT 8
Re Sanchez and Comcare (1997) 48 ALD 785
Settlement Agents Supervisory Board and LJ Hooker Settlements Pty Ltd [2008] WASAT 27
Settlement Agents Supervisory Board and Strand Settlements Pty Ltd [2005] WASAT 350
Telescourt v Commonwealth (1991) 29 FCR 227
Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd & Ors (2006) 33 WAR 1
REASONS FOR DECISION OF THE TRIBUNAL:
Summary of Tribunal's decision
In February 2008, the Tribunal dismissed a number of complaints against LJ Hooker Settlements in relation to alleged breaches of s 44 of the Settlement Agents Act 1981 (WA). Following delivery of the Tribunal's reasons for decision, LJ Hooker Settlements applied for an order that the Board pay its costs of the proceedings. LJ Hooker Settlements contended that the complaints lacked any reasonable basis, and were not brought in good faith so that circumstances existed which justified an unusual order that the regulatory body pay the costs of the unsuccessful proceedings.
The Board accepted that it had used the proceedings to test an uncertain area of the law, but contended that it brought the proceedings in good faith and on the basis that it believed that the factual circumstances did give rise to a breach of the Act. It therefore contended that there was no basis to depart from the usual costs position in the Tribunal, namely that each party bears its own costs. The Tribunal expressed a degree of concern at the way in which the Board had instituted and maintained the proceedings, but did not consider that there was an absence of good faith in the Board's conduct, or that the proceedings had no reasonable prospect of success. Having reached that conclusion, the Tribunal determined that there should be no order for costs in favour of the respondent.
Introduction
By reasons delivered and orders made on 8 February 2008, the Tribunal dismissed 11 allegations of breaches by LJ Hooker Settlements of s 44(8) of the Settlement Agents Act 1981 (WA) (SA Act) – see Settlement Agents Supervisory Board and LJ Hooker Settlements Pty Ltd [2008] WASAT 27 (the Tribunal's substantive reasons). In accordance with its common practice, the Tribunal posted the reasons for decision, together with an order dismissing the application, to the parties, and did not require the parties to attend for delivery of the decision.
Not long after delivery of the reasons, the respondent advised the Tribunal that it wished to apply for an order that the Board pay its costs of the proceedings, and the matter was set down for an appointment for the Tribunal to hear submissions on the question of costs.
The respondent based its application upon the proposition that the application lacked any reasonable basis, or was not made in good faith. The Board denied both of those assertions, and in addition submitted that, having delivered its reasons for decision and its order disposing of the application, the Tribunal's jurisdiction was exhausted so that it was no longer open for it to consider the respondent's application for costs.
Is the Tribunal's jurisdiction exhausted?
The question as to whether or not it is open to the Tribunal to entertain an application for costs where it has made substantive orders disposing of the proceedings has been previously dealt with by the Tribunal in Lakes Action Group Association (Incorporated) and Shire of Northam & Anor [2005] WASAT 185 (S) at [11] - [19]. The Tribunal there made reference to the decision in Re Sanchez and Comcare (1997) 48 ALD 785 where circumstances similar to the present arose in the Administrative Appeals Tribunal. In that decision, the Senior Member referred to an earlier unreported decision of the AAT where it was said:
"We also consider that in any matters arising under this Act [being the Safety, Rehabilitation and Compensation Act 1988 (Cth)] it should be assumed that the question of costs is reserved. In order to save costs of the Tribunal and the parties, the Tribunal adopts the practice of adopting its written decisions in the absence of the parties. Thus, the parties have no opportunity at the point of delivery to make submissions as to costs. Unless the Tribunal deals with the costs question in its reasons, it should be assumed that the issue is reserved and may be raised by either party."
The Tribunal also concluded that the power to award costs under s 87(2) of the State Administrative Tribunal Act 2004 (WA) is a discrete head of power which remained open to be exercised notwithstanding that a decision on the substantial merits of the case had been delivered – see Telescourt v Commonwealth (1991) 29 FCR 227 at 237; Lewandowski & Ors v Lovell, unreported, FCt SCt of WA, Library No 960310; 14 June 1996 per Murray J.
On the basis explained in the Lakes Action Group decision, we are of the view that it remains open for a party to seek an order for the payment of its costs, notwithstanding that substantive orders have been made in the proceedings, where the question of costs of the proceedings has not already been dealt with.
Applicable principles
The parties agreed that the approach to be taken on the question of costs was that explained by the President of the Tribunal in Motor Vehicle Industry Board and Dawson [2006] WASAT 8 at [44] – [48] where he said:
"Where proceedings are commenced by a vocational regulatory body (such as the Board) against a person affected by a vocational Act (such as Mr Dawson), the Tribunal will usually make an order for costs in favour of the vocational regulatory body where it is successful in obtaining an order in the proceedings. In Medical Board of Western Australia and Roberman [2005] WASAT 81 (S) at [30] the Tribunal (Judge John A Chaney SC, Deputy President, presiding member) observed in relation to s 87(2) that:
'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, of course, a matter of discretion to be exercised in the circumstances of each case.'
The Tribunal concurs with those observations.
In the Roberman case, however, the Medical Board of Western Australia was unsuccessful in relation to some of the allegations made against the medical practitioner. For that reason the Tribunal in its discretion considered it was appropriate that the practitioner only pay one-third of the costs of the Medical Board. In so doing the Tribunal implicitly recognised that a person affected by proceedings instituted by a vocational regulatory body should not have to bear the costs of the proceedings or contribute to the costs of those part of the proceedings which were not successfully maintained.
The decision in the Roberman case does not support the view, however, that an affected person in such proceedings is entitled to an award of costs for the portion of the proceedings in which they were successful. If this approach were to be adopted, vocational regulatory bodies may well feel inhibited in commencing proceedings that should be commenced and maintained in the public interest even though "success" cannot be guaranteed. Consequently, the Tribunal considers that, ordinarily, unless it can be demonstrated that an application made by a vocational regulatory body lacked any reasonable basis or was not made in good faith, costs should not be awarded against a vocational regulatory body simply because the application was not successful.
Of course, in every case the Tribunal retains the discretion under s 87(2) of the SAT Act to order costs in the circumstances of the case."
The respondent submits that either or both of the factors which may lead to a costs order against a vocational regulatory body are present in this case.
The background to the proceedings
The respondent contends that a number of factors demonstrate a lack of reasonable prospects of success or a lack of good faith. They are that:
•The Board's position at the hearing was contrary to the advice of its own senior counsel obtained some years ago;
•It did not engage in a proper process of conferral prior to commencing proceedings;
•It changed its own position on the proper construction of s 44 from that taken in earlier proceedings before the Tribunal in Settlement Agents Supervisory Board and Strand Settlements Pty Ltd [2005] WASAT 350;
•It was never in the public interest to bring the proceedings.
An affidavit was filed in support of the application for costs. It annexed various documents. One of those was an extract from a publication by the Board entitled Settlement Agents News dated 1 March 1995. An article in that document deals with reward for referrals. It asserts that "if a licensee distributes profits according to the proportions or ratios in which unit holders or shareholders referred business … such payment would clearly be in breach of s 44(8) of the Act." It contains a "Board direction" which reads:
"Those licensees who use business structures such as unit trusts, whereby the benefit or reward payable to a person is determined according to the proportional ratio of business referred by that person will be acting in contravention of s 44(8) of the Settlement Agents Act 1981 (WA) and will therefore be liable to prosecution."
The institution of these proceedings was preceded by correspondence between the Board and LJ Hooker Settlements or its solicitors. As we observed at [28] of our substantive reasons for decision, it appears that the Board's initial enquiries were sparked by its receipt of certain documents from an anonymous source. By letter dated 27 February 2006, the Board sought LJ Hooker Settlements' comments in relation to those documents. The arrangements outlined in those documents, if acted upon, would suggest a breach of s 44(8).
By letter dated 9 March 2006, LJ Hooker Settlements responded explaining that the documents were "internal" and "for our budgeting purposes only" and did not relate to the actual allocation of units. The letter explained the arrangements in relation to the allotment of units broadly in accordance with what the Tribunal ultimately accepted as the arrangement.
In September 2006, LJ Hooker Settlements' solicitor wrote to the Board. He advised that an opinion had been obtained from senior counsel and advised that senior counsel's view, in light of the decision of Strand Settlements, was that no breach of the Act was occurring. The letter reiterated that the documents obtained by the Board had not been acted upon and were "simply an internal document for discussion". The letter expressed the hope that the advice of senior counsel would clarify the matter sufficiently to resolve the Board's concern.
It is apparent that the Board did not respond, and on 9 February 2007, the solicitor again wrote to the Board. It is also apparent that the Board had continued investigation of the matter and apparently had made suggestions to Ms Hryb, the manager of LJ Hooker Settlements, to the effect that it intended to commence proceedings. The solicitor complained that the Board had not sought any clarification of the matters dealt with in his earlier letter of 12 September 2006. In the course of investigations, the Board also obtained copies of monthly statements to unit holders containing references to monthly referral targets - see [32] - [34] of our substantive reasons.
On 15 February 2007, the Board responded to the solicitor but did no more than acknowledge receipt of the correspondence. In March 2007, these proceedings were commenced. Between March and October 2007, when the matter was heard, various procedural steps were taken by the parties to prepare the matter for hearing. Further investigations were also carried out, including an interview with Ms Hryb which revealed information about cancellation of LJ Hooker Bentley's unit holding – see [36] of our substantive reasons.
On 7 August 2007, LJ Hooker Settlements' solicitor wrote to the Board seeking copies of the opinions referred to in the Settlement Agents News of 1 March 1995, and of an opinion referred to in a direction of the Board made in July 2001. On 30 August 2007, the Board's solicitor replied, and declined to provide the opinions requested on the basis that legal professional privilege had not been waived and also claiming public interest immunity from disclosure, although the basis of that claim was not explained. Some further correspondence was exchanged between the parties in which they maintained their respective positions as to whether or not the opinions should be disclosed, but the respondent did not seek an order for their disclosure from the Tribunal.
Advice of senior counsel
It would appear from the terms of the Settlement Agents News of March 1995 that the advice obtained by the Board at that time was consistent with the position which it adopted in the Strand Settlements case, and with the construction of s 44 of the SA Act which we have adopted in our substantive reasons. We are not, however, aware of the detail of the particular advice provided. In the context of the present proceedings, we have not been called upon to determine whether or not the claim for legal professional privilege or public interest immunity was properly maintained. We proceed, therefore, on the assumption that it was.
Whatever may have been the content of the advice to the Board in 1995, there is nothing to suggest that the Board did not genuinely consider that the view which it urged upon the Tribunal as to the proper construction of s 44(8) was correct, nor is there anything to suggest that the approach to the proper construction of the section was not in accordance with its current legal advice. The fact that the Board has instituted an appeal against the Tribunal's decision suggests the contrary.
In the circumstances, we do not draw the conclusion that the Board's position in these proceedings was contrary to advice upon which it was acting.
Conferral
The respondent contends that the Board has demonstrated an absence of good faith by its failure to respond to correspondence regarding the advice obtained from LJ Hooker Settlements' senior counsel, and by its refusal to disclose its own legal advice. By way of analogy, the respondent refers to the comments of Martin CJ in Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd & Ors (2006) 33 WAR 1. The comments in the Youlden Enterprises decision, because they concerned the obligations of practitioners under O 59 r 9 of the Rules of the Supreme Court 1971 (WA) and relate to interlocutory proceedings in that Court, are of marginal relevance to the present proceedings. Having said that, however, we do consider that the approach by the Board to these proceedings has been less than ideal. It is desirable that, where appropriate, regulatory authorities engage in an open exchange of information and views before embarking on proceedings in the Tribunal.
It is apparent that the respondent has, from the time it initially learnt of the Board's enquiry, provided timely and frank responses to the Board's correspondence. It has sought to pursue dialogue with the Board with a view to avoiding these proceedings. The Board, on the other hand, appears to have taken a somewhat adversarial approach in a context where the Board appears to be changing its previously published approach to the application of s 44 of the SA Act, and where it is dealing with a licensee whose business structure has been fully disclosed to the Board since it first obtained its licence. We consider that approach unfortunate, particularly where, as its counsel acknowledged, the Board used the proceedings to test an uncertain area of the law. It is reasonable to expect that a Board representing the interests of its members would adopt an open and transparent approach with those members against which it proposes to conduct a "test case".
While we consider that the Board can be fairly criticised for its approach, we do not consider that the Board's conduct demonstrates an absence of good faith. It cannot be said that the Board was not entitled to conduct itself in the way that it did, and the Tribunal is not privy to advice it may have received, or reasons for decisions it may have made as to the appropriate manner of conducting its investigation. It may be that there is a reasonable justification for the more adversarial approach apparently taken by the Board.
Change of position
In our substantive reasons, we made the observation that the position adopted by the Board as to the proper interpretation of s 44(8) of the SA Act in these proceedings appeared different from the position which it adopted in Strand Settlements. Strand Settlements concerned a situation where the return to a unit holder was variable and depended upon the number of referrals by that unit holder from time to time. It was thus not strictly necessary to consider, in that case, whether a return based only upon the number of units held and unaffected by the number of referrals made would breach s 44(8). It is apparent that the case proceeded on the assumption that it would not, and the Tribunal made observations to that effect. It was not, however, necessary for the Board, in that case, to specifically address the question which ultimately arose in these proceedings.
It is apparent that the Board's position in relation to the proper construction of s 44(8) has changed over time. That is apparent from the terms of the Settlement Agents News published in 1995, the approval of the business structure, including knowledge of the identity of unit holders, by the Board in relation to LJ Hooker Settlements, and the position apparently assumed by the Board in Strand Settlements. The Board's initial investigation in this case was prompted by the anonymous documents which suggested a return to unit holders that would change on the basis on the number of referrals by that unit holder. The "monthly targets", and the situation with LJ Hooker Bentley, which came to light during the course of the investigation, were similarly suggestive of a breach similar to that in Strand Settlements. By the time the matter came to hearing, however, the allegations were broadened to the proposition that the original issue of units, and the return based purely on the number of units held, constituted a breach of s 44(8).
When precisely that change in approach manifested itself is not clear. From the Tribunal's perspective it was not until the hearing commenced that we appreciated that the Board's approach to the interpretation of s 44(8) was different from the position assumed in Strand Settlements. Given the lack of open communication by the Board with the respondent, the respondent's submission that the Board has not shown good faith in its conduct of the proceedings can be understood. As we have indicated, however, we accept that the contentions advanced by the Board at the hearing represented its genuine view as to the construction of the relevant section. Having formed a view as to that matter, we do not consider that the Board acted with an absence of good faith in pursuing that view in these proceedings. It is the proper function of the Board to pursue what it considers to be breaches of the SA Act by settlement agents. Notwithstanding that conclusion we are of the view that, where a vocational regulatory body subjects a member of the vocation concerned to the expense of an involvement in a "test case", the regulator should more openly communicate its intentions to the member and be more receptive to dialogue with the member than occurred in this case.
Public interest
We do not accept that it can be said that the Board's application had no prospect of success or that there was no reasonable basis for bringing the proceedings. There is a clear tension between the object and purpose of s 44(8) as we have identified it (see [50] in our substantive reasons) and the implicit acceptance in the SA Act of real estate agents having interests in settlement agencies (see [46] - [47] of our substantive reasons). While we have rejected the arguments of the Board in relation to the proper construction of s 44(8), we did so only after careful consideration. We do not consider that the Board's arguments were without merit.
While we have been critical of the manner in which the Board dealt with the respondent, we accept that the Board had proper regard to the public interest in seeking to clarify the question as to the proper construction of s 44(8) of the SA Act.
Conclusion
It follows that, in our view, the proceedings were not brought with a lack of good faith, and were not without reasonable prospects of success. For the reasons explained in Motor Vehicle Industry Board and Dawson, we dismiss the application for costs.
Order
The respondent's claim for costs is dismissed.
I certify that this and the preceding [30] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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JUDGE J CHANEY, DEPUTY PRESIDENT
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