Settlement Agents Supervisory Board and Property Settlement Services Pty Ltd
[2008] WASAT 57
•10 MARCH 2008
SETTLEMENT AGENTS SUPERVISORY BOARD and PROPERTY SETTLEMENT SERVICES PTY LTD [2008] WASAT 57
| Link to Appeal : | [2009] WASCA 143 |
| STATE ADMINISTRATIVE TRIBUNAL | Citation No: | [2008] WASAT 57 | |
| SETTLEMENT AGENTS ACT 1981 (WA) | |||
| Case No: | VR:166/2006 | 9 MAY 2007 | |
| Coram: | JUDGE J ECKERT (DEPUTY PRESIDENT) MR J MANSVELD (MEMBER) MS C WINSOR (SESSIONAL MEMBER) | 9/03/08 | |
| 40 | Judgment Part: | 1 of 1 | |
| Result: | Allegations 1 2 3 4 and 6 dismissed Allegation 5 admitted | ||
| B | |||
| PDF Version |
| Parties: | SETTLEMENT AGENTS SUPERVISORY BOARD PROPERTY SETTLEMENT SERVICES PTY LTD |
Catchwords: | Conflict of interest Real and sensible possibility Code of Conduct r 5 and r 9 Confidential information Interests of client Relationship between settlement agent and legal firm Client of legal firm Ceasing to act Dispute |
Legislation: | Settlement Agents Act 1981 (WA), s 3, s 34(1), s 46, s 82, s 83, s 84, s 87, s 88 Settlement Agents Code of Conduct 1982 (WA), r 5, r 6, r 6A, r 7, r 9, r 14 State Administrative Tribunal Act 2004 (WA), s 11(4), s 87, s 88 |
Case References: | Briginshaw v Briginshaw (1938) 60 CLR 336 Legal Practitioners Complaints Committee and Gandini (2006) WASAT 163 Legal Practitioners Complaints Committee and Lacerenza (2006) WASAT 177 Legal Practitioners Complaints Committee and Penkin (2006) WASAT 62 Settlement Agents Supervisory Board and Crozet Pty Ltd (2006) WASAT 65 Settlement Agents Supervisory Board and Paradis (2006) WASAT 292 |
Orders | 1. Allegations 1, 2, 3, 4 and 6 are dismissed;,2. Allegation 5 is admitted and therefore proved;,3. On the basis of a breach of allegation 5 there is cause for disciplinary action; ,4. The Tribunal reprimands the settlement agent; and,5. Order 4 does not take effect until the later of 28 March 2008 or if the Board seeks to make submissions as to penalty and of which intention it advises the Tribunal and settlement agent by 28 March 2008, then a date otherwise ordered by the Tribunal. |
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : VOCATIONAL REGULATION ACT : SETTLEMENT AGENTS ACT 1981 (WA) CITATION : SETTLEMENT AGENTS SUPERVISORY BOARD and PROPERTY SETTLEMENT SERVICES PTY LTD [2008] WASAT 57 MEMBER : JUDGE J ECKERT (DEPUTY PRESIDENT)
- MR J MANSVELD (MEMBER)
MS C WINSOR (SESSIONAL MEMBER)
- Applicant
AND
PROPERTY SETTLEMENT SERVICES PTY LTD
Respondent
Catchwords:
Conflict of interest Real and sensible possibility Code of Conduct r 5 and r 9 Confidential information Interests of client Relationship between settlement agent and legal firm Client of legal firm Ceasing to act Dispute
Legislation:
Settlement Agents Act 1981 (WA), s 3, s 34(1), s 46, s 82, s 83, s 84, s 87, s 88
Settlement Agents Code of Conduct 1982 (WA), r 5, r 6, r 6A, r 7, r 9, r 14
(Page 2)
State Administrative Tribunal Act 2004 (WA), s 11(4), s 87, s 88
Result:
Allegations 1, 2, 3, 4 and 6 dismissed
Allegation 5 admitted
Category: B
Representation:
Counsel:
Applicant : Ms R Lee with Ms J King
Respondent : Mr C Colvin SC with Mr G Pynt
Solicitors:
Applicant : Settlement Agents Supervisory Board
Respondent : Pynt & Partners
Case(s) referred to in decision(s):
Briginshaw v Briginshaw (1938) 60 CLR 336
Legal Practitioners Complaints Committee and Gandini (2006) WASAT 163
Legal Practitioners Complaints Committee and Lacerenza (2006) WASAT 177
Legal Practitioners Complaints Committee and Penkin (2006) WASAT 62
Settlement Agents Supervisory Board and Crozet Pty Ltd (2006) WASAT 65
Settlement Agents Supervisory Board and Paradis (2006) WASAT 292
(Page 3)
Summary of Tribunal's decision
1 The Settlement Agents Supervisory Board sought orders from the Tribunal that there was cause for disciplinary action against Property Settlement Services Pty Ltd, alleging it had breached a range of provisions of the Code of Conduct for settlements agents. In particular, the Board alleged that the settlement agent breached the provisions relating to conflict of interest. The Board said that the conflict of interest arose primarily because Mr McCallum, the licensee and person in bona fide control of the settlement agency, was also a partner of the legal firm McCallum Donovan and Sweeney. The Board alleged that as the legal firm acted for the Fini group of companies, and in particular as Mr McCallum acted for Fini Villages Pty Ltd, the settlement agent had a conflict of interest. That conflict was primarily manifested through the firm wanting to retain Fini Villages as a client, and therefore it put its interests, through the settlement agency, ahead of the interests of its clients. It alleged that the conflict also arose because Fini Villages was expecting payment of rates at settlement of the transaction and that there was a dispute with respect to the payment of the rates and GST which precluded the settlement agent from accepting instructions from the parties to the settlement.
2 The relevant transaction where this matter arose, was the sale of a retirement unit in a village operated by the Fini group of companies. The sellers were in dispute with Fini Villages as to how much they were liable to pay for water and council rates and for GST with respect to their unit in the retirement village.
3 In 2003, the sellers wrote a letter, through their lawyers, to Fini Villages claiming that their purchase of the title had been misrepresented and that they did not have to pay the council rates as specified by Fini Villages. Mr McCallum, on behalf of his legal firm, wrote back to the sellers on instruction from Fini Villages. He therefore acted for Fini Villages in the dispute with the sellers.
4 Subsequently, in 2004 the settlement agency took instructions for the sale and purchase of the retirement unit. A consent was given for the settlement agent to act for both the buyer and the seller. A disclosure was made that the settlement agent had a close relationship with Mirvac, one of the Fini companies, which had been the real estate agent for the transaction. It was not until a telephone conversation on 28 September 2004 that Mr McCallum told the sellers that he acted for
(Page 4)
- Fini Villages in his capacity as a partner of the legal firm. In a subsequent conversation on 30 September 2004, comments made by one of the sellers to Mr McCallummade Mr McCallum recall that he had acted in 2003 for Fini Villages in a dispute against the sellers with respect to rates owing on the property. When the settlement agency took instructions it had no knowledge of the dispute and Mr McCallum did not recall it.
5 The Tribunal accepted that Mr McCallum held the view at the relevant time that the settlement agency ceased to act for the sellers for a period from 29 September until 3 November 2004.
6 The Tribunal held that there was no conflict of interest in the settlement agency acting in that it owed no duty of loyalty to Fini Villages and the Settlement Agents Act 1981 (WA) imposed a fiduciary duty of loyalty to its client. Although the Tribunal acknowledged that in some circumstances that duty might extend to third parties, in this transaction it did not act for Fini Villages. Its contact with Fini Villages was related to matters that would be communicated between parties to a settlement in the normal conduct of a settlement.
7 On that basis, the Tribunal dismissed the allegations against the settlement agent. However, the settlement agent admitted a minor technical breach of the Code in that it did not sign the disclosure form and authority to act after it had received signed copies of each of those forms from the buyer and the sellers.
Application for disciplinary orders
8 By application to the Tribunal lodged on 26 September 2006 the Settlement Agents Supervisory Board (the Board) seeks disciplinary orders against Property Settlement Services Pty Ltd (settlement agent), pursuant to s 84(1) of the Settlement Agents Act 1981 (WA) (the Act).
9 The Board makes six allegations against the settlement agent which are particularised in its application to the Tribunal. The Board also filed the material facts relating to its allegations with the application.
10 The Board's allegations are as follows:
(a) the settlement agent breached r 9 of the Settlement Agents Code of Conduct 1982 (WA) (the Code) by continuing to act in the settlement of the sale of Villa 37, Harbourside Village, Honiara Way, Mindarie, Certificate of Title Volume 2218 Folio 986 (the property) from
- Mr and Mrs Mews (sellers) to Mr Watt (buyer), when a conflict of interest arose or could foreseeably could have arisen between any two of:
- (i) the settlement agent's duty of loyalty to the sellers;
(ii) Mr Ross McCallum's duty of loyalty to Fini Villages Pty Ltd (Fini Villages) or alternatively his interest in retaining Fini Villages as a client of his legal firm, McCallum Donovan Sweeney (the firm); and
(iii) the settlement agent's duty of loyalty to the buyer; (allegation 1)
- (b) the settlement agent breached r 5 of the Code in continuing to act in the settlement of the property without the fully informed consent of the sellers or the buyer, when a conflict of interest arose or foreseeably could have arisen as outlined in (a); (allegation 2)
(c) the settlement agent breached r 6 of the Code in failing to give a full and frank disclosure to the sellers and the buyer of its interest in the settlement of the property and further failed to terminate its appointment; (allegation 3)
(d) the settlement agent breached r 7 of the Code in continuing to act on behalf of both the seller and the buyer in the settlement of the property when in the interest of one, the settlement agent withheld information and advice from the other; (allegation 4)
(e) the settlement agent breached r 6A(2) of the Code in failing, as soon as practicable after receipt of the appointment from the sellers, to notify the sellers or the buyer that it was unable to act or alternatively sign the appointment and forward a true copy to the sellers or the buyer; (allegation 5) and
(f) the settlement agent breached r 14 of the Code by disclosing the fact that the sellers objected to paying Fini Villages, at settlement, an amount of GST on the Deferred Facilities fee (DF fee), and at all, an amount for
- council rates, facts which had come to the settlement agent in its capacity as licensee for the sellers and in the legitimate course of its appointment on behalf of the sellers (allegation 6).
11 The Board seeks an order by this Tribunal that there is cause for disciplinary action against the settlement agent under the Act because of breaches of the Code as set out in the allegations and it asks the Tribunal to make orders against the settlement agent under s 84(1) of the Act.
"83. Disciplinary proceedings against settlement agents
The Board may allege to the State Administrative Tribunal that there is proper cause for disciplinary action, as mentioned in section 84(2)."
"84. Powers on inquiry
(1) If, in a proceeding commenced by an allegation under section 83 the State Administrative Tribunal is satisfied that proper cause exists for disciplinary action, the State Administrative Tribunal may do any one or more of the following things -
(a) reprimand or caution the settlement agent;
(b) impose a fine not exceeding $10 000 on him;
(c) suspend or cancel his licence and any triennial certificate in respect thereof and, in addition, disqualify him either temporarily or permanently, or until the fulfilment of any condition which may be imposed by the State Administrative Tribunal or until the further order of the State Administrative Tribunal, from holding a licence or triennial certificate, or both.
(2) There shall be proper cause for disciplinary action if -
…
(c) the settlement agent is acting or has acted in breach of -
…
- (ii) the requirements of this Act; or
(iii) the settlement agents' code of conduct …"
12 If the allegations are found proved, the Board also seeks an order for costs against the settlement agent under s 87 of the State Administrative Tribunal Act 2004 (WA) (SAT Act). The Board also seeks an order for costs of the proceeding under s 88 of the SAT Act; however, we are of the view that this was in error and that the Board does not in fact seek an order under s 88.
13 The settlement agent admits a breach of r 6A(2) (allegation 5) in that it did not sign and return the appointment to act.
Facts
14 The settlement agent holds (and held at the relevant times referred to in the allegations) a settlement agents licence and a triennial certificate under the Act. It carries on business from the same address as the firm. Mr Ross McCallum and Mr Paul Donovan, both partners in the firm, are the directors of the settlement agent. Mr McCallum is also the licensee and the person in bona fidecontrol of the settlement agent under the Act.
15 Mr McCallum has been qualified to conduct settlement work as a settlement agent since 1990. Prior to that, he conducted many settlements as a solicitor. Mr McCallum was admitted to practice as a solicitor in February 1979.
16 The settlement agent conducted approximately 350 settlements in the financial year ending June 2005.
17 Between May 2001 and 5 November 2004, the sellers owned the property. Various companies, including Fini Villages, Village Management Ltd and Fini Retirement Services Pty Ltd were involved in managing Harbourside Village Mindarie (the Village). Each of those companies is part of the Fini group of companies. At the relevant times, Fini Villages managed the Village and Mr David Mack was a director of Fini Villages. The company also employed Mr Chris Harrison.
18 The Fini group of companies has been a client of the firm on commercial and property matters for almost 20 years. Mr McCallum, in his capacity as a partner of the firm, has acted for the group over that time and specifically has acted for Fini Villages for the past 10 years. In 2004, Mr McCallum received most of his instructions from Fini Villages through Mr Harrison.
(Page 8)
19 Ms Geneviene Wise and Mr Terry Van Groningen were settlement clerks employed by the settlement agent. Ms Wise carried out the work on the settlement of the sale and purchase of the property (the transaction) under the supervision of Mr McCallum.
20 The sellers owned the property pursuant to a sale contract dated 29 May 2001. On 11 August 2003, Fini Villages wrote to Mr Mews, one of the sellers, in relation to his statement at a general meeting of residents of the village held on 8 August 2003 that he thought he had purchased into the Village under a "proper title" (meaning strata or separate title) rather than a purple title. Fini Villages also wrote to Mr Mews on 8 September 2003 and issues concerning title to the property were again mentioned. The letter from Fini Villages explained to Mr Mews that purple title is a "proper title". On 21 October 2003, Minter Ellison, on behalf of the sellers, wrote to Fini Villages claiming that Fini Villages had made a misrepresentation concerning the form of title constituting the property and had demanded too much from the sellers by way of contribution to the council rates assessed against the Village for the period 2003/2004. The letter said that the sellers had strong grounds on which to commence legal proceedings to have the residency deed for the Village set aside. However, the sellers advised they would prefer to be issued with a strata title. In the letter, Minter Ellison claimed that the sellers' obligation was to pay a 1/160th share of the rates, not the 1/54th share sought by Fini Villages on the basis that only 54 villas had been constructed at the Village at that time.
21 On 25 November 2003, Mr McCallum wrote to Minter Ellison on behalf of Fini Villages on firm letterhead. The letter rejected the sellers' allegation of misrepresentation and denied that Fini Villages had demanded too much by way of contribution to the council rates. The letter also advised that the firm was instructed to issue proceedings against the sellers if the rates notices issued by Fini Villages were not paid within seven days. The letter also sought a formal withdrawal of the sellers' allegations of misrepresentation.
22 On 8 January 2004, Fini Villages issued a receipt to the sellers for $286.60 for council rates for 2003/2004 and advised that there was a balance outstanding of $294.59.
23 On 3 May 2004, the sellers wrote to the firm stating that it "has been a long seven days", and requested that Fini Villages issue proceedings for what it claims to be the outstanding council rates. Mr Mews advised in that letter that he believed that the sellers had paid their fair and appropriate share of the rates and that they were supported in that belief by the City of Wanneroo and the Minister for Local Government. Mr Mews refers to a letter from the Minister dated 20 April 2004.
(Page 9)
24 On 30 July 2004, Mr McCallum wrote again on firm letterhead and on behalf of Fini Villages to Mr Mews inviting him to pay the amount outstanding to avoid any possible legal action.
25 The sellers did not pay the outstanding council rates as claimed by Fini Villages for 2003/2004. On 13 August 2004, the sellers paid $314.79 to the City of Wanneroo for the 2004/2005 council rates.
26 On 2 September 2004, the sellers agreed to sell the property to the buyer. Mirvac Real Estate (Mirvac), a member of the Fini Group, was the real estate agent. The buyer and the sellers appointed the settlement agent to act on their behalf in settlement which was due on 14 October 2004.
27 On 6 September 2004, Fini Villages issued a rate notice to the sellers for $637.45 for council rates for 2004/2005. On 14 September 2004, Fini Villages faxed a resident outstanding levy form to the settlement agent showing an outstanding levy amount of $103.90. On 15 September 2004, the settlement agent sent a fax to Fini Villages asking for a levy statement for the property and advising that settlement was anticipated for 14 October 2004. On 15 September 2004, Fini Villages faxed a distribution sum schedule to the settlement agent. This is normal settlement agent practice which would occur where the representatives have no involvement with Fini Villages.
28 The settlement agent wrote to the buyer on 15 September 2004 confirming that he had asked the settlement agent to represent him at settlement. That letter enclosed a disclosure of interest form 2 (disclosure form) which disclosed that the settlement agent does many settlements for and has a special relationship with Mirvac as a result of being referred many settlements by Mirvac over a long period of years. The form shows that the settlement agent must not put its duty to the buyer in conflict with the interests of any other person. For example, the settlement agent cannot act for the sellers and the buyer unless the parties acknowledge in writing that the settlement agent proposes to do this, both parties give their prior consent to the settlement agent doing this and the settlement agent can provide all information and advice to both parties. The form also advises that if a conflict arises, each party must become separately represented for settlement.
(Page 10)
29 It also enclosed a form 1 appointment of settlement agent (authority to act) for the buyer to sign, confirming he had appointed the settlement agent to act for him on settlement. The authority contains information referred to above in relation to a conflict of interest; it also included an option that the settlement agent may not act for any other party to the transaction which had already been struck through. By the authority to act, the buyer authorises the settlement agent to act for the sellers if the settlement agent advises the buyer immediately any conflict of interest arises between the buyer and the sellers.
30 Finally, the letter enclosed a transfer of land document, a settlement statement and a schedule of costs, a stamp duty assessment form, a copy of the property's title and a satisfaction of special conditions form.
31 The letter asked the buyer to read and sign the disclosure form before reading and signing the authority to act and then to return both forms to the settlement agent. The buyer returned the signed disclosure form and authority to act.
32 On 16 September 2004, the settlement agent sent a letter to the sellers confirming that they had asked the settlement agent to represent them at settlement and enclosing:
(i) a disclosure form in identical terms to the disclosure form sent to the buyer;
(ii) an authority to act in identical terms to the authority to act sent to the buyer;
(iii) a disbursement authority for the sellers to complete, showing how they wish the proceeds of settlement to be disbursed; and
(iv) a seller's provisional settlement statement which shows a DF fee of $24 829.11 including GST payable to Fini Villages on sale of the property, a provision to retain an amount pending adjustment of 2004/2005 rates and taxes not confirmed of $300 plus $103.90 for outstanding levies owed to Fini Villages.
33 The GST issue arose because this was the first sale of the property. There is no GST on the second sale of a unit in the Village. Subsequently, the Australian Taxation Office held that the developer rather than the resident was liable for the GST. However, the sellers had a private arrangement with Fini Villages that the sellers would reimburse Fini Villages the GST. This was contained in cl 6 of the residency deed for the Village dated 29 May 2001.
(Page 11)
34 The letter asked the sellers to read and sign the disclosure form before reading and signing the authority to act and to return both forms to the settlement agent.
35 By letter dated 17 September 2004 received by the settlement agent on 28 September 2004, Fini Villages advised that the sellers owe $294.59 for 2003/2004 City of Wanneroo rates and $647.45 for 2004/2005 and advised that these amounts "will need to be taken into consideration at time of settlement".
36 By letter dated 17 September 2004 received by the settlement agent on 28 September 2004, the City of Wanneroo advised that there were no outstanding rates for the sellers. There is a note on the letter written by Ms Wise that says "rates raised * $908.99 Cr from parent property ** $314.79 towards parent property correct. Please note this property is nonrateable. All the rates are on the parent property which is dealt with by Parkside Villas".
37 On 28 September 2004, Mr McCallum told Mr Mews over the telephone that he was the licensee of the settlement agent and had acted and continued to act for Fini Villages as part of his work with the firm (September conversation). Mr McCallum says that he advised Mr Mews that he was the licensee of the settlement agent as an explanation for why he was telephoning Mr Mews. Mr McCallum did not speak with or advise Mrs Mews of this in person. It was from this point that Mr McCallum says the settlement agent ceased to act in the transaction for the sellers, as it had become apparent that there was a current dispute with Fini.
38 On 28 September 2004, Mr McCallum told Mr Harrison of Fini Villages over the telephone that the sellers refused to pay the GST. Mr McCallum says he did not regard himself as acting for Fini Villages in the matter and was simply trying to sort out issues raised on an arm's length basis.
39 Mr McCallum did not at this time advise the buyer that the sellers disputed an amount or amounts on the sellers' provisional settlement statement being paid at settlement or at all. The settlement agent has no written record that Ms Wise or anyone else within the settlement agent's office did so.
(Page 12)
40 In a letter dated 30 September 2004, the settlement agent asked the sellers to sign a transfer of land form and advised that Fini Villages had stated that it would lodge a caveat over the property. The settlement agent also stated in the letter "[I]n the case of a dispute, we would not be able to act on your behalf due to our conflict of interest, of which you are aware. We would suggest that you obtain independent legal advice in relation to this matter". The sellers suggest there was a telephone conversation with Mr McCallum on 30 September 2004 but the settlement agent has no file note of that conversation. However, Mr McCallum gave evidence that Mr Mews rang him on 29 September 2004 and "asked me to put my settlement agent's hat on and asked me to carry on". Mr McCallum gave evidence regarding the details of this conversation and that evidence is corroborated by a contemporaneous handwritten note of the conversation made by Mr McCallum. We accept that evidence. The conversation was as follows:
(a) Mr Mews said he would "meet" the caveat. He asked if Mr McCallum would give him a copy of the caveat if it is lodged. Mr McCallum said he would, (not realising or thinking that the firm would be lodging the caveat). Mr Mews questioned what the caveat was likely to be based on and Mr McCallum indicated that it was likely to be based on the charging clause in the residency deed.
(b) Mr McCallum indicated quite definitely that neither he nor the settlement agent were acting for Mr Mews and that he should get himself a solicitor.
(c) There was a brief discussion about purple title and undivided shares, the cost of lodging a caveat and withdrawing a caveat. There was a disbursement fee totalling $158 which the residency deed required the sellers to pay. Mr Mews indicated that that was a waste of money. Mr Mews then discussed the differences he had with Fini Villages concerning questions based on the whole land or a lot. He said Fini Villages were vindictive. Mr Mews said the sellers could have sued Fini Villages in the past over issues relating to his title to the property. He had put it to his lawyers in the past.
(d) Mr Mews indicated that there was no need to stop settlement. They discussed the difference between levies and the DF fee. Mr Mews believed that it was a deferred
- management fee, not a deferred facilities fee. He said he had a lawyer's opinion. Mr Mews said he would put pressure on Fini Villages and that he would approach the Australian Taxation Office to get a ruling on the GST.
- (e) Mr Mews said something about threats which Mr McCallum could not recall and that some things being said were almost lies. Mr Mews said all bets are off if the settlement does not go ahead.
41 Mr Mews saying that the sellers could have sued Fini Villages in the past caused Mr McCallum to remember that Mr Mews was Minter Ellison's client in relation to an earlier dispute with Fini Villages relating to his residency in the Village. We accept that this is the first time that Mr McCallum recalled that he had acted, as a partner in the firm, for Fini Villages against the sellers.
42 In a letter dated 30 September 2004, Fini Villages advised the settlement agent that the sellers owed $932.04 for council rates, being $294.59 for 2003/2004 and $637.45 for 2004/2005.
43 On 2 October 2004, the sellers sent the settlement agent a letter enclosing a signed disclosure form and authority to act and enclosing the certificate of title for the property, the signed transfer of land and disbursement authority and an amended sellers' provisional settlement statement. Both sellers signed the letter. It would appear that the settlement agent did not sign the authority to act and the settlement agent admits the allegation in that regard.
44 In the letter, the sellers said:
(a) they were "surprised and disappointed to learn of your conflict of interest which may arise in the transaction" as for the past three years they had been under the impression that Mr Van Groningen was the licensee of the agency;
(b) the sellers were not aware of Mr McCallum's involvement in the agency until the September conversation;
(c) if they had known of Mr McCallum's involvement they would not have accepted Mirvac's recommendation to appoint the settlement agent;
(Page 14)
- (d) it was too late now for them to make alternative arrangements and "if a dispute arises we will deal with the matter ourselves";
(e) the settlement agent's failure to advise them was "unethical, in view of the fact that you have been aware for a long time that there are unresolved issues between your client and ourselves";
(f) "[i]f you proceed to settlement you are requested and authorised to hold the amount of GST $2 257.19 in trust pending ATO ruling. If you are not prepared to proceed to settlement, please remit the full amount $325 000 … to us and we will attend to disbursements ourselves and arrange refunds of … [illegible] rates, rubbish charges etc direct from Water Corp, Shire etc".
45 The amended settlement statement dated 16 September 2004 included handwritten notations initialled by the sellers showing the DF fee amount exclusive of GST ($22 591.92) and the GST payable ($2 257.19), and crossing out the sum of $300 by way of provision for council rates and correspondingly increasing the amount payable to them at settlement.
46 On 6 October 2004, Mr Harrison of Fini Villages faxed to: "Ross - McCallum Donovan Sweeney" a copy of a caveat Fini Villages had prepared over the property (caveat) and asked Mr McCallum to call him about it. The caveat describes Village Management Ltd's interest as that of a chargee and claims the interest by virtue of the residency deed "entered into between the registered proprietors as resident and the caveator as manager and in particular clause 19.1 creating a charge in favour of the caveator". The caveat does not mention GST or outstanding rates and taxes. Mr McCallum telephoned Mr Harrison and he says that in the course of that telephone conversation, Mr Harrison said that the sellers must pay the GST on the DF fee and the refurbishment sum. He stated Fini Villages would lodge the caveat to protect their interest in relation to the GST and the DF fee and seek recovery of the caveat disbursement costs of $158.
47 On 7 October 2004, Mr Mack faxed to Mr McCallum a copy of Fini Villages' letter to the sellers dated 7 October 2004. The letter notes that the Village residents' committee has requested Fini Villages' assistance in challenging the application of GST to the DF fee. The letter mentions that Fini Villages has prepared an application for a private ruling
(Page 15)
- in relation to the applicability of GST to both the DF fee and the contribution to the refurbishment and improvements fund. The letter encloses a copy of the proposed ruling request. The letter concludes with Fini Villages confirming that if the ATO rules against GST, Fini Villages would refund GST "inappropriately collected".
48 On 7 October 2004, Mr McCallum telephoned Mr Mews and made a contemporaneous file note of that discussion. We accept that the following was discussed in that telephone call:
(a) Mr Mews indicated that he had spoken with Mr Mack and with Mr Watson (from the residents' group) and that they had agreed with each other about the GST ruling. Mr Mews had discussed holding the money in trust with Mr Watson.
(b) Mr Mews said he had agreed to pay the GST to Fini Villages on the basis that a Fini Villages director would guarantee it would be repaid to him if the ATO ruled the GST was not payable. Mr Mews said he had initiated an ATO private ruling and that Mr Mack had drafted a letter to the ATO that he agreed with. He said Mr Mack would get the ATO ruling.
(c) Mr Mews said he is happy for the settlement agent to act. Mr McCallum indicated the settlement agent would act for the sellers as there was no longer a dispute between Fini Villages and the sellers.
(d) Mr McCallum queried the $300 rates and taxes provision Mr Mews had shown on the disbursement statement as not applicable. Mr Mews said he had paid it.
(e) Mr McCallum informed Mr Mews of Fini Villages' letter now claiming $932 for council rates. They discussed the break up of that amount. As it was September, most of the current year rates would be paid by the buyer. The caveat was also discussed.
49 By letter to the sellers dated 7 October 2004 written by Mr McCallum on the settlement agent's letterhead and following the conversation described in the previous paragraph, the settlement agent:
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- (a) disputes that it is too late for the sellers to now appoint an alternative settlement agent if they "wish to do so";
(b) notes that it is "happy to act for" the sellers;
(c) disputes it had been unethical, saying that it only recently became aware of the GST dispute;
(d) states that its "potential conflict lies in that we act for the Buyer and also have in the past and do act for Fini Villages";
(e) notes that the dispute the sellers have with Fini Villages may have been resolved;
(f) strongly suggests the sellers seek independent legal advice or alternatively appoint another settlement agent to act if there is any dispute with Fini Villages;
(g) notes that Fini Villages had advised the settlement agent that it will not agree to the GST being held in trust and requires full payment of the DF fee including GST and the sellers were now agreeable to that;
(h) notes that Fini Villages had informed the settlement agent that it would repay the GST to the sellers if their application to the ATO is successful; and
(i) concludes by asking the sellers to sign the letter to record their agreement with the above.
50 The sellers did not sign the letter.
51 On 8 October 2004, the settlement agent sent a revised sellers' settlement statement to the sellers including a levy of $103.90 and outstanding council rates of $932.04.
52 On about 8 October 2004, Mr Harrison personally delivered to the firm an executed caveat and the applicable registration fee of $79, requesting that it be lodged at the Department of Land Information (DLI). Neither Ms Wise nor Mr McCallum saw Mr Harrison or the caveat or Fini Villages' cheque for the registration fee.
(Page 17)
53 Mr Harrison apparently asked the firm's receptionist whether the firm could lodge the caveat for him to save him the trouble of doing it. There is no instruction sheet for the lodgement of the caveat.
54 The firm lodged the caveat at the DLI the same day. It seems that the firm's outside clerk changed by hand the details of the party lodging from Fini Villages to the firm.
55 On Fini Village's file for the sellers are two emails passing between Mr Harrison and Mr McCallum dated 11 October 2004 headed "Ownership Transfer Two Rocks". Mr Harrison's email is a response to Mr McCallum's email to him to the effect that on that file the settlement agent is waiting for Suncity to consent to the withdrawal of their absolute caveat. Mr Harrison asks two questions:
(a) Are we going to follow up Suncity?
(b) Has the Mews' caveat been lodged?
56 Mr McCallum responded with an email answering "Yes". Mr McCallum gave evidence that he believes his answer is to the first question not the second, meaning that he would follow up Suncity on a matter unrelated to these proceedings.
57 On 13 October 2004, the settlement agent (through Ms Wise) sent a letter to the sellers advising that Fini Villages had lodged a caveat over the property and that settlement was not able to occur until the caveat was removed. The settlement agent said the sellers had three working days in which to settle or the buyer might charge penalty interest at $106.52 per day. The letter concludes by strongly suggesting that the sellers obtain independent advice in relation to their position. Mr McCallum gave evidence that he added that paragraph to the letter before it was sent.
58 Settlement did not occur on 14 October 2004.
59 On 14 October 2004, Mr McCallum had various conversations with Mr Matthew Meyers of DOCEP regarding the sellers' complaint to the Board. Mr McCallum gave evidence regarding that conversation.
60 On 21 October 2004, the settlement agent wrote to the buyer setting out the following. In his evidence, Mr McCallum advised that he had tried to ring the buyer on 20 October 2004 and had intended discussing all of these issues with him and had made a contemporaneous file note setting out that intention and those issues. The letter:
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- (a) confirmed that settlement had not occurred on 14 October 2004 because of the caveat;
(b) notes that Mr McCallum had had difficulty contacting the buyer and acknowledging receiving payment of the purchase price from the buyer;
(c) says notice had been given to the sellers that the buyer is ready, willing and able to settle;
(d) asked if the buyer wished to claim penalty interest for late settlement;
(e) notes that the settlement agent was aware that the buyer had taken possession of the property prior to settlement;
(f) notes that the buyer had taken possession of the property without prior consultation with the settlement agent.
(g) says that as the settlement agent acts for both parties and there is the potential for a conflict of interest, the settlement agent suggests that the buyer obtain independent legal advice regarding his position; and
61 Mr McCallum's file note of his intended telephone conversation also included a reference to the sellers disputing what was said to be owed by them as per the sellers' provisional settlement statement.
62 In a letter from the settlement agent to the sellers on 21 October 2004, the settlement agent advised the sellers that the buyer is ready, willing and able to settle and noted that the sellers had granted possession to the buyer prior to settlement without consultation with the settlement agent. The letter again strongly suggests that the sellers obtain independent legal advice "on an urgent basis". The letter advised: "As previously outlined we cannot act on your behalf in relation to a dispute with Fini Villages Pty Ltd or a dispute with the buyer over penalty interest."
63 Mr McCallum gave evidence which was corroborated by a contemporaneous file note that he spoke to Mrs Watt, the buyer's wife, on 25 October 2004 advising that settlement was overdue and that he was having difficulty telephoning Mr Watt. Mrs Watt acknowledged that the buyer was not earning any interest on the purchase price and that the contract could not be settled because of the caveat. She said they were not concerned about the delayed settlement because they had moved into the property.
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64 In a telephone conversation between Mr McCallum and Mr Mews on 25 October 2004, Mr Mews indicated that he had been in touch with everyone relevant and he raised the issue of the caveat with Mr McCallum. Mr Mews indicated that GST was the only sticking point and that he would not be appointing an independent solicitor to act for him. Mr Mews went through the proposed GST ruling and advised that he would have it within 28 days. He also commented that he had not received a director's guarantee from Fini Villages. Mr Mews advised Mr McCallum that he would pay the GST into trust to be held for 90 days and that if the GST ruling had not been made by then, the GST would be paid to Fini Villages. However, if the GST ruling had been made by then, then payment should be in accordance with the outcome of the ruling. Mr Mews advised Mr McCallum that both the buyer and the sellers were happy. Mr Mews also mentioned that he was getting advice from the Board.
65 On 25 October 2004, Mr McCallum rang Mr Harrison of Fini Villages who confirmed that they were happy with the sellers' suggestion concerning GST but that the rates issue still needed to be resolved. On 26 October 2004, Mr McCallum conveyed that to Mr Mews. Mr Mews advised him that the water rates were correct but not the shire rates and that he would pay the GST to Fini Villages if Fini Villages repay it to the sellers if they were successful in their ATO ruling. Mr McCallum viewed this as a significant comment. Mr Mews also said that they would not pay more for rates and taxes and that Fini Villages could have sued them 12 months ago. Mr Mews advised that he did not want to involve the buyer in the rates issue.
66 On 26 October 2004 in a telephone conversation with Mr McCallum, the buyer confirmed that he did not want to claim penalty interest. Mr McCallum advised him about the caveat and the issues regarding GST and rates.
67 Also on 26 October 2004, Mr Harrison telephoned Mr McCallum to advise him that the sellers had agreed to pay the GST but that Fini Villages required the sellers to pay all rates and taxes as they were the only residents that had not done so. It was Mr McCallum's understanding and the evidence indicates that the sellers and Fini Villages were dealing direct with each other, without reference to the settlement agent or the firm.
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68 On 29 October 2004, Mr Mews informed Mr McCallum that there was a stalemate and that he had spoken to the Board. In that telephone conversation Mr McCallum again raised the conflict of interest issue.
69 On 1 November 2004, the settlement agent sent a letter to the sellers enclosing a copy of the caveat.
70 We accept that on 1 November 2004 Mr Hulme of DOCEP spoke with Mr McCallum advising him he was investigating a complaint received from the sellers. Mr McCallum understood the result of that conversation to be that Mr Hulme asked him to show some compassion to the sellers "being elderly and refusing to seek independent legal advice". Mr McCallum says Mr Hulme asked him to do what he could to help resolve the sellers' issues and it was on that basis and at Mr Hulme's request that Mr McCallum says he continued to deal with the sellers after 1 November 2004. Mr McCallum says that Mr Hulme encouraged him to continue to work towards settlement.
71 Mr Hulme says he did not ask Mr McCallum to assist the sellers in this way and that Mr McCallum advised him in that conversation that he had been "instructed" by Fini Villages to lodge the caveat.
72 In a telephone conversation on 1 November 2004 between Mr Mews and Mr McCallum, they discussed the issue of the rates and taxes, cl 19.1 of the residency deed, the caveat and a 21day notice to remove the caveat. Mr Mews indicated that it was the principle of the matter and they discussed the meaning of paying the rates and taxes under protest without prejudice to the sellers' rights.
73 Also on 1 November 2004, Mr McCallum spoke with Mr Harrison and set out the proposition regarding the 21day notice received from Mr Mews. Mr Harrison advised Mr McCallum that they had agreed to settle under protest and without prejudice to Fini Villages' rights. This was confirmed on 3 November 2004 when Mr McCallum spoke with Mr Mack, who said that Fini Villages would agree without prejudice and under protest that it would sue for the rates and taxes after settlement. They discussed that the GST issue had been resolved and would be paid by the sellers and repaid by Fini Villages if the ATO ruling was successful.
74 Mr McCallum also spoke with Mr Hulme on 3 November 2004 and Mr Hulme stated that the sellers would be putting in writing their position that they would be withdrawing their 21day notice application on a without prejudice basis and would take the matter to the Small Civil Disputes Court, that the sellers agreed to release the GST, the sellers
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- had spoken to the buyer who said he would not be charging penalty interest and that withdrawing the 21day notice application would save the $158 filing fee. Mr McCallum drew from this that Mr Hulme was satisfied that settlement could proceed and that the settlement agent could and should complete the settlement. Mr McCallum subsequently spoke to Mr Mews who confirmed the outline of action he intended to take as set out by Mr Hulme. He also requested that the settlement agent write on his behalf to withdraw the 21day notice application and request a refund of the fees and that the settlement agent complete settlement for the sellers. Mr McCallum took this to mean that the settlement agent resumed acting for the sellers at this time.
75 In a letter to the settlement agent dated 3 November 2004, Fini Villages said that it would withdraw the caveat and allow settlement to take place on a without prejudice under protest basis reserving its right to take action against the sellers for outstanding rates and taxes and confirming the arrangements with respect to GST. Mr McCallum says this was confirmed in several telephone conversations on 4 November 2004 with Mr Mews and that Mr Mews agreed that settlement would be based on the figures relevant to a 14 October 2004 settlement date. On 3 November 2004, the settlement agent wrote to the sellers enclosing a copy of the settlement statement and noting that the sellers were required to write to DLI requesting the withdrawal of their 21day notice.
76 On 4 November 2004, Mr Mews and Mr McCallum had further telephone conversations confirming settlement and the arrangements regarding the outstanding disputes. Mr McCallum then rang both Mr Harrison and Mr Mack of Fini Villages advising that the sellers wished to settle on the 14 October settlement figure particularly for the DF fee. Mr Mack advised that Fini Villages would settle on this basis with each party reserving its rights. Mr McCallum then informed the sellers of this and Mr Mews agreed to it.
77 On 4 November 2004, and after the telephone conversations, the sellers faxed to the settlement agent a copy of the sellers' settlement statement dated 3 November 2004 with handwritten notations reducing the amount of the DF fee and the refurbishment fee and a signed statement saying the sellers agreed to settle and acknowledged that Fini Villages had the right to sue for what it claims is the additional amount regarding the DF fee, refurbishment fee and council rates.
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78 The sellers also sent the settlement agent a disbursement authority advising of the split of funds at settlement.
79 In a letter dated 5 November 2004, Fini Villages confirmed to the settlement agent that it agreed, whilst reserving its rights, to settlement proceeding without the sellers paying the DF fee or the refurbishment fee between 14 October 2004 and 5 November 2004. Settlement was then completed on 5 November 2004 and on the same day the settlement agent sent a letter to the sellers confirming settlement had occurred and that the proceeds had been paid according to the final sellers' settlement statement. The letter also noted that Fini Villages had allowed the settlement to proceed by withdrawing its caveat and reserving its right to take action in relation to the DF fee, the refurbishment fee and the rates and taxes. The arrangements regarding the GST were also confirmed. The final sellers' settlement statement did not show an amount for council and water rates payable by the sellers.
The witnesses
Mr Hulme
80 Mr Hulme is an inspector with DOCEP and gave oral evidence and was cross-examined at the hearing. Mr Hulme's witness statement was made after the Board had received Mr McCallum's witness statement, however, Mr Hulme had read only a discrete part of Mr McCallum's statement. In particular, the paragraphs regarding a sequence of telephone calls between 1 November and 5 November 2004.
81 The supplementary bundle of documents filed by the Board on 8 May 2007 contained Mr Hulme's file notes regarding conversations he had between 29 October 2004 and 12 November 2004. Two file notes were almost identical, however one is dated 1 December 2004 and the other 1 November 2004. There was no indication on the December file note that Mr Hulme had written it later. It was Mr Hulme's normal practice to indicate on a file note if he had typed or written up a conversation later. Mr Hulme gave evidence that there is an autodate on the DOCEP computer system but that he was confident he would have made the file notes on 1 November. The two file notes relate to one telephone conversation between Mr Hulme and Mr Mews. In the file note dated 1 November 2004, there is an additional paragraph where Mr Hulme says to Mr Mews "I tried to explain to Mr Mews that there was nothing wrong that I could see at this stage with the solicitors having two separate roles and on the assumption he was not aware that a dispute may arise to being appointed as his settlement agent nor having to disclose any solicitor business
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- relationship he has with the manager." That paragraph does not appear in the other copy of the file note. Document 4 in the additional bundle is another file note by Mr Hulme dated 1 November 2004 of a conversation between him and Mr McCallum. In it he said that "Fini had instructed him [Mr McCallum] to lodge a caveat over Mr Mews' property for outstanding rates". Mr Hulme gave evidence that this conversation occurred before the 1 November 2004 conversation between Mr Hulme and Mr Mews.
82 Mr McCallum's file note of his discussion with Mr Hulme says that it went from 11.20 to 11.42 am. There was agreement between both Mr Hulme and Mr McCallum that it was Mr McCallum who had raised the issue of the caveat in the phone conversation. Mr McCallum denies that he said that Fini Villages had instructed him to lodge it. The evidence given by Mr Hulme differs markedly from the evidence given by Mr McCallum regarding the 1 November 2004 telephone conversation. Mr Hulme indicates in his file note that due to Mr Mews' age and his stance in refusing to pay the amount, Mr McCallum had tried to suggest to Fini Villages to allow the settlement to proceed. However, Mr McCallum says that he tried to help the sellers at the request of Mr Hulme. Mr Hulme gave evidence that it is not his job to undertake the role of helping complainants settle properties.
83 Mr Hulme gave oral evidence as to how he maintained his files and his file notes. He acknowledged that he carries a large workload with numerous phone calls and that it is not always possible to record those conversations contemporaneously or immediately after they occur.
84 We were led to the conclusion from Mr Hulme's oral evidence that he had no independent recollection of his discussion with Mr McCallum and that he relied on his file note to refresh his memory and to prepare his witness statement. Mr Hulme also had to concede that it was possible that not every aspect of what had occurred had been recorded in his file notes and at times that was clearly apparent. The explanation Mr Hulme gave about two different file notes dated different dates relating to the one telephone conversation casts some doubt on the version of the conversation on which the Board seeks to rely. This is particularly so as Mr Hulme had no independent recollection of that call or the other calls he records in file notes. It was left open that other things could have been discussed which were not recorded. The sequence of the phone calls is unclear.
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85 We are not in any way suggesting that Mr Hulme fabricated or created file notes or that he in any way sought to mislead. However, in giving his evidence Mr Hulme was evasive initially about what he could remember about his notes. It became clear that the file notes and his memory did not include everything that was said and that they were not as extensive as those done by Mr McCallum. Mr Hulme's witness statement merely records his file notes and on that basis it is clear he had no independent recollection as he admits. In response to some matters Mr Hulme said that there was no file note so that he had no recollection of what had occurred.
86 We do not accept that Mr McCallum said to Mr Hulme that Fini Villages had instructed him to lodge the caveat. We are of the view that that could have been a misconception by Mr Hulme when he wrote up the file note of the conversation. Mr Hulme does not really deal with the conflict issue in the early stages of his file notes and he said (at T: 49) that "to be honest, I skipped over the fact of the conflict etc". Mr Hulme also admitted that "the issue of conflict never weighed heavily". Mr Hulme was happy for Mr McCallum to ring Fini Villages and sort the matter out. He gave evidence to that effect. Mr Hulme told the Tribunal in his evidence that the issue of conflict was brought to his attention by the Registrar at the Board after he had made his report about the complaint to the Registrar.
87 Mr Hulme could not be clear about his file notes. His evidence added nothing to his witness statement, which in turn repeated the file notes. In cross-examination, Mr Hulme became uncertain and conceded that he had no independent recollection of events and that the issue of conflict was not paramount. It appears to us that Mr Hulme was doing what he could to assist the complainant to reach a satisfactory resolution of his difficulties; that is, to settle the sale of the property. Rather, we accept Mr McCallum's evidence about what he said in the September conversation and the conversation on 28 September with Mr Harrison which is consistent with the telephone conversations between Mr Hulme and Mr McCallum.
88 On that basis we do not rely on Mr Hulme's evidence as reflecting the totality of the November telephone conversations.
Mr McCallum
89 Mr McCallum is a senior lawyer and the principal of the settlement agent. Mr McCallum gave evidence that as part of his everyday practice he records contemporaneous file notes as he is speaking on the phone.
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- We accept that his file notes tendered in evidence were made by him contemporaneously with the telephone conversations. We also accept that Mr McCallum had an independent recollection of this transaction, as it was a difficult and timeconsuming "problem" transaction. It was not an everyday matter for Mr McCallum, as it would have been for Mr Hulme.
90 Where there is a conflict between Mr Hulme's evidence and the evidence of Mr McCallum we prefer Mr McCallum's evidence.
91 We accept Mr McCallum's evidence that he was unaware of the role he had played in the sellers' dispute with Fini Villages in 2003, until the September conversation. He was not aware of any dispute, and therefore neither was the settlement agent, when he accepted instructions to act on the transaction. We accept that he told Mr Mews repeatedly that he should get independent advice but that he agreed to assist to take the matter to settlement.
92 Counsel for the Board argued that Mr McCallum's approach was coloured by the ramifications and consequences of these proceedings to him personally and to his firm. We accept that Mr McCallum was concerned both as a solicitor and as a settlement agent, and in particular as a solicitor, his duty to the court requires him to give his evidence in a complete, consistent and honest manner.
93 As a witness, we found Mr McCallum to be honest and straightforward; he was not evasive and he tried to give as full an account as possible. His evidence did not bear the hallmarks of being selfserving. His evidence was not seriously challenged.
94 Mr McCallum is adamant that he had tried to help the sellers. He gave evidence that he was of the view that he had stopped acting for the sellers from 28 September until 3 November 2004. He gave evidence as to why he was of that view but it is best summarised in his letter to Mr Hulme at DOCEP on 3 May 2005. The reasons Mr McCallum said he was of the view that the settlement agent ceased to act for a period were that the sellers:
(a) liaised directly with the buyer and granted him possession prior to settlement;
(b) agreed with the buyer that penalty interest would not apply;
(c) liaised direct with Fini Villages about the GST issue;
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- (d) contacted DLI;
(e) lodged an application for a 21-day notice to issue to remove the Fini Villages caveat; and
(f) lodged a complaint and liaised with the Board and sought advice from the Board.
95 Mr McCallum maintains that during the period 28 September to 3 November 2004 he merely forwarded letters and the transfer of land and provided factual information to the sellers so that their position was not prejudiced by any lack of information. It appears he felt he had a duty to do that for them even though he was of the view he was not acting. Mr McCallum says he then began acting again on 3 November 2004 when it was clear that the disputes had been independently resolved and that settlement could proceed.
96 It seems clear that Mr McCallum was of the view that he had ceased to act during that period and his conduct at the time seems to be consistent with having taken that view.
97 On the whole, we accept Mr McCallum's evidence.
The sellers
98 Unfortunately, Mr Mews died before the hearing and Mrs Mews was not well enough to give oral evidence. Therefore, with respect to the evidence of the sellers, it is untested and appears to be selective. We give it little weight.
What must the Board prove?
99 The Board must prove on the balance of probabilities that the settlement agent breached r 5, r 6, r 7, r 9 and r 14 of the Code as alleged by it in its application to the Tribunal and in its Statement of Issues, Facts and Contentions.
100 The settlement agent admits the breach of r 6A(2).
101 With respect to the issue of whether there was a potential conflict, the Board must prove, on the balance of probabilities, that there was a "real sensible possibility of a conflict" – Settlement Agents Supervisory Board and Crozet Pty Ltd (2006) WASAT 65 [79] – [80]
102 The standard to be applied by the Tribunal in testing the evidence is as set out in Briginshaw v Briginshaw (1938) 60 CLR 336. In a case where serious accusations have been made against the settlement agent, which if proved
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- may have a grave impact on or cause permanent damage to the settlement agent, we are required to look closely at the evidence before an adverse decision is made. In these proceedings, the allegations are serious and could have a profound effect not only on the settlement agent but on Mr McCallum and the firm. The Tribunal must feel an "actual persuasion" of the occurrence or existence of the relevant facts before making any findings against the person whom serious allegations of professional misconduct have been made, and which question the suitability of that person to continue to be able to engage in their professional discipline. See the Settlement Agents Supervisory Board and Paradis (2006) WASAT 292, Legal Practitioners Complaints Committee and Gandini (2006) WASAT 163 at [61] – [65] and Legal Practitioners Complaints Committee and Lacerenza (2006) WASAT 177 at [12] and Legal Practitioners Complaints Committee and Penkin (2006) WASAT 62 at [44]. Therefore, the seriousness of the allegations, the inherent likelihood of an occurrence of a given description or the gravity of the consequences flowing from our findings are considerations which must affect the answer to the question of whether the issue has been proved to the required standard. If we are not satisfied to that standard that the alleged unlawful conduct occurred, then we should dismiss the allegation.
Findings
103 These proceedings turn on the particular facts as outlined.
Allegation 1 - Rule 9
"9. Conflict of interest
No licensee may act or continue to act in the settlement of a transaction if any conflict of interest arises or foreseeably could arise between the licensee and his client."
104 This rule gives rise to the following issues:
(a) Did the settlement agent owe a duty to Fini Villages?
105 The settlement agent contends that r 9 applies only to a conflict between a personal interest of the settlement agent and the interest of a client and not to cases where the conflict is between interests of parties to the settlement and other clients of the settlement agent. However, although r 9 refers to a conflict "between the licensee and his client", a
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- conflict may exist or potentially exist, "because of a conflict between the licensee's own interest and that of the client, but also because the licensee has an obligation to another person which may cause conflict with the duty of loyalty owed to the client" Crozet [38].
106 The Board contends that there is a conflict because Mr McCallum has a strong relationship with Fini Villages, having acted for Fini Villages for ten years and with Fini Group for 20. He concedes they are a valuable client to him. Mr McCallum acted for Fini Villages in 2003 and early 2004 regarding a dispute with the sellers about rates on the property. The Board says that the settlement agent had a conflict because Fini Villages expected to receive money at settlement. Further, as Mr McCallum controlled the settlement agent, being the fiduciary with a duty of loyalty to the sellers and the buyer, effecting the settlement of the sale of the property from the buyer to the sellers gave rise to a conflict. The Board argues that this is sufficient to establish a breach of the positive obligation in r 9 in the Code.
107 The Board also submits that Fini Villages acted as if Mr McCallum, the firm and the settlement agent were acting on its behalf throughout the settlement process. It says various parts of the evidence point to this and support this view. We do not agree.
108 In this matter, Fini Villages was not a client of the settlement agent, so the issue of whether r 9 is as defined in Crozet falls away. There is a real and sensible basis for a conflict only if at the time of receiving settlement instructions there is some basis for believing there was a dispute. On the facts here, there was no such basis.
109 We find that the settlement agent owed no duty to Fini Villages. It had no instructions to act for Fini Villages and the fact that the firm had a history of acting for Fini Villages did not create a fiduciary duty in the settlement agent to Fini Villages.
(b) Did a conflict of interest arise or could it foreseeably arise between the duty owed by the settlement agent to the sellers and the settlement agent's duty to:
(i) the buyer?
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- (ii) Fini Villages?
111 The settlement agent owed no duty to Fini Villages in this transaction. There was no evidence that the settlement agent owed a fiduciary duty to Fini Villages in any event.
(c) Did a conflict of interest arise or could it foreseeably have arisen between Mr McCallum's duty of loyalty to Fini Villages or alternatively his interest in retaining Fini Villages as a client of the firm and the settlement agent's duty of loyalty to the sellers or to the buyer?
112 Whilst Mr McCallum had a duty of loyalty to Fini Villages as a partner of the firm, there is no duty that is relevant to this transaction as alleged in these proceedings. There is no evidence before us to show that Mr McCallum wished to retain Fini Villages as a client of the firm; nor is there evidence that his actions were at all motivated by that notion. In our view, whether or not the firm retained Fini Villages as a client has not been established as a relevant issue in these proceedings.
113 We have difficulty in understanding what the relevance of Mr McCallum's duties as a partner of the firm are to these proceedings and to the transaction. Although he is the director and person in bona fide control of the settlement agent he owed a duty to Fini Villages as a partner of the firm. If the settlement agent did not owe a duty to Fini Villages as we have concluded, then for the purposes of these proceedings we cannot see how Mr McCallum or the firm owed a relevant duty whether as director or as the person in bona fide control of the settlement agent. Mr McCallum acknowledged he owed a duty to Fini Villages as a partner of the firm but it is not relevant in these proceedings. In any event, if it were relevant it was not a foreseeable conflict as there was no dispute at the time that the settlement agent took instructions from the sellers and there was no real and sensible possibility of a dispute.
(d) Did a conflict of interest arise or could it foreseeably arise between the duty owed by the settlement agent to the buyer and the settlement agent's duty to:
(i) the sellers?
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- knew there was an issue about outstanding rates as at 22 September 2004. The Board says that Mr McCallum should have made himself familiar with the earlier dispute and in particular he should have done so when he received the 2 October 2004 letter from the sellers. Further, it says he did not make himself conversant with the dispute over rates and taxes when talking to Mr Mews on 7 October 2004. The Board also says that the settlement agent did not seek or attain the buyer's or the sellers' written consent regarding the settlement agent's association with Mirvac, however, this was not put earlier or in the evidence and arose only in closing submissions.
115 The Board says that it is apparent from the evidence that the settlement agent was acting as the settlement agent on behalf of the sellers, giving them the option of appointing an alternative settlement agent if a dispute arose. The Board says that an option to be exercised by the clients does not satisfy or discharge the rules. The Board submits that the giving of the option to appoint an alternative settlement agent was at a time when Mr McCallum had written that the GST dispute "may have been resolved". The dispute with respect to whether the sellers should pay an amount for rates and taxes still existed at that time. Mr McCallum was aware of the potential conflict which existed in that the settlement agent acted for the buyer as well as due to his relationship with Fini Villages.
116 There is a potential conflict under this rule which was set out in the disclosure notice. However, we find that the settlement agent had ceased to act at the time of any potential conflict between the buyer and the sellers.
(ii) Fini Villages there was no duty to Fini Villages.
(e) If the answer to any of the questions above is yes, then:
(i) what was the conflict?
(ii) Did the settlement agent act or continue to act in the settlement of the transaction in the face of the conflict?
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118 The settlement agent submits that Mr McCallum did not recognise the sellers' name as the party with whom he had earlier correspondence in 2003 when Minter Ellison was acting on behalf of the sellers. It was only later that he made the connection. The settlement agent says the conduct of Mr McCallum is consistent with this position and that when he was made aware of there being a potential dispute between Fini Villages and the sellers, he rang and told Mr Mews of the fact of a conflict and that the settlement agent would not be able to act.
119 The settlement agent submits that there can be no obligation on it to cease acting until the facts giving rise to that real and sensible possibility of conflict are consciously known to the party involved. It said that in this case there was no conscious knowledge until Mr McCallum was made aware of the earlier dispute. At the time that the settlement agent first received instructions to act in the settlement there was no current instructions to the firm by Fini Villages concerning the recovery of rates and taxes or GST. On this basis, the settlement agent said there was no conflict in the settlement agent initially accepting instructions to act for the sellers. We accept that submission, based on the facts.
120 The settlement agent informed the buyer of the situation and recommended that the buyer seek alternate independent advice. The buyer did not. The settlement agent ceased to act for the sellers at the relevant time.
121 We therefore dismiss the allegation of a breach of r 9 of the Code.
Allegation 2 - Rule 5
"5. Knowledge of legal and equitable duties
A licensee shall have a knowledge of his duties both at law and in equity to the party to the transaction by whom the licensee was appointed (the "client") and in particular a licensee shall be aware that his obligation to his client is one of the utmost good faith which requires him not to put his duty to his client in conflict or in likelihood of conflict with his own interests or that of any other person."
122 The first issue for us to decide is whether r 5 casts a positive no-conflict obligation on the settlement agent or whether r 5 constitutes an awareness obligation.
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123 The Board argues that r 5 imposes a no profit duty owed by the fiduciary. But we have concluded that there is no evidence that established that the settlement agent had a conflict here because it did not owe a duty to Fini Villages or the firm. Rule 5 does not, in any event, create an obligation greater than r 9, as it states the general law and is qualified to the extent that it allows for a conflict where there is informed consent: Crozet [39].
124 In our view, r 5 would seem to state the law. It is not entirely clear whether Crozet does more than stating what the general law is, however, a finding was made in that decision pursuant to r 5.
125 Ultimately, we do not need to conclude whether r 5 creates a separate positive obligation, as we have concluded that there is no conflict under r 9. In our view, relying on how Crozet defines conflict, there cannot be a conflict under r 5 if there is no conflict under r 9.
126 If r 5 creates an awareness obligation so that a breach of it would be where a settlement agent does not have the requisite knowledge, we find there is no breach of r 5 on these facts. Mr McCallum clearly displayed a proper knowledge and understanding, both in his evidence and in the documentary evidence, that the settlement agent understood clearly what its fiduciary obligations entailed and on that basis there is no breach of r 5.
127 Our finding therefore is that there has been no breach of r 5 and allegation 2 is dismissed.
Allegation 3 - Rule 6
"6. Disclosure of interests
A licensee shall at all times make a full and frank disclosure to his client of any interest he may have in any transaction in which he is concerned and if such interest is adverse to that of his client he shall terminate his appointment."
128 With respect to allegation 3, the Tribunal must consider first whether the settlement agent had an interest in the transaction and if the settlement agent had an interest:
(a) what was that interest;
(b) was that interest adverse to the interests of either the buyer or the sellers;
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- (c) did the settlement agent give a full and frank disclosure of the interest to the buyer and the sellers; and
(d) did the settlement agent fail to terminate its appointment with either the buyer or the sellers?
129 The Board says that as the settlement agent accepts that by reason of the association between the settlement agent and the firm, any interest of the firm is an interest of the settlement agent (citing [10] of the respondent's closing submissions and [5] of the applicant's closing submissions) there is a breach of r 6.
130 The Board submits that as Crozet recognises real estate and settlement agents may be closely associated, as long as the settlement agent does not act on settlements of transactions in which the real estate agent was involved, solicitors and settlement agents can also be closely associated, as long as the settlement agent does not act on settlements or transactions in which clients of the solicitors are involved. The Board does not agree with the settlement agent's submission that Fini Villages was in reality a "mortgagee" in this transaction merely collecting its entitlements at settlement. The Board maintains that r 6 creates an unqualified obligation that cannot be overcome by informed consent. Therefore, the Board says the settlement agent breached r 6 as Mr McCallum had a duty to his client and an interest in maintaining Fini Villages as a client of the firm.
131 The Board argues that there is a breach of r 6 because the firm's loyalty to Fini Village is an adverse interest in the transaction. We do not accept that. We do not accept what would be the consequence of the Board's argument, being that the settlement agent could not accept instructions for a person where the firm had, in the past, acted for a client against that person. That would negate any sensible operation of the scheme envisaged by the Act and Crozet that allows for there to be a relationship between a settlement agent and a legal firm. That proposition cannot give rise to a real and sensible possibility of conflict.
132 The settlement agent submits that it did not have any interest in the settlement of the property and that therefore there was no breach of r 6 of the Code. The settlement agent said that in any event the fact that the firm had acted for Fini Villages was disclosed to the sellers and acknowledged by them.
(Page 34)
133 The Act sets out a "scheme of conflict", embodied in s 46(3) of the Act and r 5, r 6, r 6a, r 7, r 8, r 9 and r 14 of the Code. It allows a settlement agent to act for buyer and seller if there is informed consent and subject to the provisions of the Code. The form 1 contained that consent. It was signed by the buyer and the sellers. The fact that the settlement agent did not sign it and return a signed copy does not negate the informed the consent; it merely gives rise to a breach of r 6A. Mr McCallum was aware of the fiduciary obligations of the settlement agent and when he realised a dispute might arise he ceased to act.
134 The settlement agent's interest in a transaction is that it will be paid a fee once settlement is finalised in accordance with s 46 of the Act. That "interest" is one which the buyer and sellers agreed to and it is one which is authorised by the Act. In this transaction, the settlement agent had no other interest and as that interest was, on the facts, fully disclosed, we find there has been no breach of r 6 of the Code.
135 We cannot see a conflict in this factual scenario.
Allegation 4 - Rule 7
"7. When licensee may act for both parties
Subject to section 46 of the Act and to rule 5 a licensee may sometimes act for both parties. The test to apply is to consider whether in the interest of one he should withhold some information or advice from the other. If he should, then he should inform both clients that he is embarrassed and, subject to the following, should cease to act for both. He may continue to act for one of them in the same matter, however, unless he has received some confidential information from the other which it would be improper to use against him yet which should be used in the interest of the selected client."
136 Section 46 of the Act sets out the functions of a settlement agent. Generally those functions are to arrange or effect the settlement of any real estate transaction in respect of land but s 46(3) contains a particular provision allowing a settlement agent to act in certain circumstances for more than one of the vendor, the purchaser or the mortgagee subject to some conditions. Rule 7 of the Code is specifically subject to s 46 and r 5. Section 46(3) provides:
(Page 35)
- "A licensee who holds a current triennial certificate may act for either the vendor, the purchaser, or the mortgagee, in a settlement referred to in subsection (1) but may not act for more than one party to the real estate transaction in that settlement unless each of the parties for whom he is to act, in writing -
(a) acknowledges that he is aware that the licensee proposes to so act;and
(b) gives his prior consent to the licensee so acting."
137 The first issue that r 7 raises is:
(a) Was it in the interests of the sellers that the settlement agent withhold some information or advice from the buyer; or
(b) Was it in the interests of the buyer that the settlement agent withhold some information or advice from the sellers?
138 The Board maintains that the information was the sellers' decision not to pay the GST and DF fee at settlement. But this is information that must be communicated between the parties to the transaction, and would be communicated in a factual situation where a settlement agent acts for only one party to the transaction and other represent the balance of parties involved including a mortgagee and a person owed money as Fini Villages is in this matter.
139 The Board submits that the buyer was not informed of the status of the matter prior to 20 October 2004, at the earliest, as to do so was not in the interest of the sellers and that this was in breach of r 7.
140 The Board submits that the parties to the transaction did not have informed consent, as it says that informed consent must be consent to the specific conduct that constitutes a conflict of interest, with a consumer interest at risk demanding no less ([39] and [99] of Crozet). The Board says the full position was not put to the buyer and he had not provided any authority for his wife to act on his behalf. On this basis, the buyer could not have provided his fully informed consent.
141 Mr McCallum did not ask Mrs Mews if Mr Mews had an authority to act on her behalf and there was no written document to that effect, however, the Board accepts that Mr Mews had in fact authority to act on behalf of Mrs Mews
(Page 36)
- and that any consent given by Mr Mews was in reality given on behalf on both. However, the Board says the obligation lies on the settlement agent to ensure it obtains that consent from all parties to the transaction and the suggestion there was a dispute by the sellers did not cause Mr McCallum any concern. Mr McCallum did not disclose all details to Mrs Mews and although he orally disclosed his relationship with Fini Villages as early as 28 September he should have obtained consent in writing which would have been appropriate in these circumstances. On this basis, the sellers did not provide their fully informed consent.
142 The settlement agent says that there was no conflict and that if there was a conflict, the settlement agent ceased to act between 28 September 2004 and 3 November 2004. The settlement agent says the possible conflict was a breach of the firm's duty of loyalty to Fini Villages if it acted for the seller in a dispute against Fini Villages and that Mr McCallum made it clear to all relevant parties that the settlement agent and the firm could not act for any of them in those circumstances. In any event, that possible conflict was irrelevant to the transaction as alleged in these proceedings. Mr McCallum acted cautiously and prudently by ceasing to act as soon as he became aware of the conflict or the possible conflict.
143 The settlement agent submits that r 7 deals with a settlement agent acting for more than one party and that the rule requires the settlement agent to apply the knowledge applied by r 5 in deciding whether to act for both parties to a settlement. On this basis it says there is no breach of r 7.
144 There was no clear evidence before us as to what the information or advice could have been that the settlement agent withheld. We cannot see that there would have been any relevant information which was confidential that should have been withheld in the interests of one party or another. The information was appropriately communicated to all relevant parties.
145 The answer to (a) and (b) above is no. We find therefore that there has been no breach of r 7 and allegation 4 is dismissed.
Allegation 5 - Rule 6A
"6A. Appointment to act
(1) An appointment to act as a settlement agent required under section 43 of the Act (whether
- contained in a separate appointment document or in an offer to purchase or a contract for sale) is to be in the form of, or contain the information set forth in, Form 1 in the Schedule.
- (2) As soon as practicable after receipt of the appointment referred to in subrule (1) the appointed settlement agent shall either -
(a) if he or she is unable to accept the appointment, notify the vendor or purchaser, as the case requires, of that inability to act; or
(b) if he or she is able to act, sign the appointment and forward a true copy of the appointment document to his or her client."
Allegation 6 - Rule 14
"14. Confidentiality
Subject to any statutory provisions to the contrary and save as he may be otherwise instructed by his client a licensee shall not disclose any information which has come to him in his capacity as licensee for the client and in the legitimate course of his appointment as a settlement agent by such client."
147 With respect to r 14, we must ask:
(a) whether the settlement agent disclosed any information which came to it in its capacity as licensee for either the buyer or the sellers and in the legitimate course of its appointment as a settlement agent by that client;
(b) if so, what was the information;
(c) if the settlement agent disclosed information, was it information that had come to the settlement agent in its capacity as a settlement agent acting for the client who gave the information and was it obtained in the legitimate
- course of the settlement agent's appointment by the relevant client;
- (d) if the settlement agent disclosed information, was it instructed to do so by either the buyer or the sellers being the party that gave the information to the settlement agent; and
(e) is there any statutory provision in the Act or the Code that otherwise limits or affects r 14?
148 The Board in its Statement of Issues, Facts and Contentions refers to the information as being the settlement agent disclosing that the sellers object to paying Fini Villages, at settlement, an amount for GST on the DF fee and an amount for council rates, facts which had come to the settlement agent in its capacity as licensee acting for the sellers and in the legitimate course of its appointment on behalf of the sellers. We accept that.
149 The Board says that on 28 September 2004, Mr McCallum said that he would check with Fini Villages about its attitude to the sellers refusing to pay the GST. Mr Mews did not recollect that conversation. It was because Mr McCallum told Fini Villages that the sellers would not pay the GST at settlement that Fini Villages lodged the caveat, which was not in the interest of the buyer or the sellers. The Board says this is a breach by the settlement agent of r 14, being an act done without fully informed instructions of the sellers.
150 The settlement agent argues that there is no confidential information and therefore no breach of r 14. Fini Villages, as effectively a party to settlement that was entitled to receive funds, was entitled to receive this information from the settlement agent.
151 The evidence clearly shows that the settlement agent was instructed by the sellers to speak to Fini Villages about the dispute concerning the GST amount. Rule 14 relates to confidential information. There was no confidential information. The sellers instructed the settlement agent to divulge the information and there was no information held by the settlement agent on behalf of a party to the transaction that cannot be disclosed or provided to the other party. It was not the actions of Mr McCallum, the settlement agent or the firm that led to Fini Villages lodging the caveat. It was the fact that the sellers disputed their liability to pay the amount and were refusing to pay it that led to Fini Villages
(Page 39)
- lodging the caveat. There is no evidence to support the Board's contention.
152 The evidence establishes that the caveat was not lodged as a result of the firm accepting instructions to act or acting for Fini Villages in respect of its claim against the sellers. The evidence supports Mr McCallum's evidence that he declined to act for Fini Villages in respect of those claims and that the caveat was lodged by the outside clerk of the firm due to a clerical error. We accept that it is likely that if Ms Wise, Mr Van Groningen or Mr McCallum had seen the caveat they would have noticed the problem with it.
153 Therefore there is no breach of r 14. Allegation 6 is dismissed.
Orders
154 We therefore find that there has been a breach of r 6A of the Code and that on that basis there is cause for disciplinary action against the settlement agent pursuant to s 83 of the Act. We received a submission regarding penalty from the settlement agent, but not a submission from the Board. As the Board has not made submissions with respect to penalty, Order 4 will become effective on 28 March 2008, unless the Board advises the Tribunal and the settlement agent that it wishes to make submissions regarding penalty. In that case, orders will be made for submissions as to penalty. We therefore make the following orders:
1. Allegations 1, 2, 3, 4 and 6 are dismissed;
2. Allegation 5 is admitted and therefore proved;
3. On the basis of a breach of allegation 5 there is cause for disciplinary action;
4. The Tribunal reprimands the settlement agent; and
5. Order 4 does not take effect until the later of 28 March 2008 or if the Board seeks to make submissions as to penalty and of which intention it advises the Tribunal and settlement agent by 28 March 2008, then a date otherwise ordered by the Tribunal.
(Page 40)
- I certify that this and the preceding [154] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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JUDGE J ECKERT, DEPUTY PRESIDENT
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