Settlement Agents Supervisory Board v L J Hooker Settlements Pty Ltd
[2009] WASCA 89
•19 MAY 2009
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: SETTLEMENT AGENTS SUPERVISORY BOARD -v- L J HOOKER SETTLEMENTS PTY LTD [2009] WASCA 89
CORAM: MARTIN CJ
PULLIN JA
NEWNES AJA
HEARD: 10 FEBRUARY 2009
DELIVERED : 19 MAY 2009
FILE NO/S: CACV 22 of 2008
BETWEEN: SETTLEMENT AGENTS SUPERVISORY BOARD
Applicant
AND
L J HOOKER SETTLEMENTS PTY LTD
Respondent
ON APPEAL FROM:
For File No : CACV 22 of 2008
Jurisdiction : STATE ADMINISTRATIVE TRIBUNAL OF WESTERN AUSTRALIA
Coram :JUDGE J CHANEY (ACTING PRESIDENT)
MR M ANDERSON (SENIOR SESSIONAL MEMBER)
MS J TOOMER (SESSIONAL MEMBER)
Citation :SETTLEMENT AGENTS SUPERVISORY BOARD and L J HOOKER SETTLEMENTS PTY LTD [2008] WASAT 27
File No :VR 38 of 2007
Catchwords:
Settlement agents - Whether cause for disciplinary action - 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 payment of profits constitutes reward for referring business
Leave to appeal - Criteria
Legislation:
Settlement Agents Act 1981 (WA), s 3, s 44(7), s 44(8), s 83
Result:
Leave to appeal granted
Appeal dismissed
Category: B
Representation:
Counsel:
Applicant: Mr S W O'Sullivan
Respondent: Mr M H Zilko SC & Mr E W Nielsen
Solicitors:
Applicant: Settlement Agents Supervisory Board
Respondent: Nielsen & Co
Case(s) referred to in judgment(s):
Chalmers v The Commonwealth of Australia [1946] HCA 37; (1946) 73 CLR 19
Paridis v Settlements Agents Supervisory Board [2007] WASCA 97; (2007) 33 WAR 361
Precup v Inco Ships Pty Ltd [2007] AATA 1991
R v Post Master General (1876) 1 QBD 658
Rahhal v Minister for Immigration & Citizenship (No 2) [2008] FMCA 935
Secretary to the Department of Premier & Cabinet v Hulls [1999] VSCA 117; [1999] 3 VR 331
Settlement Agents Supervisory Board and Strand Settlements Pty Ltd [2005] WASAT 350
Thompson v Primary Producers Improvers Pty Ltd [2004] NTCA 12
MARTIN CJ:
Summary
The applicant, the Settlement Agents Supervisory Board (the Board) commenced proceedings in the State Administrative Tribunal (the Tribunal) against the respondent, L J Hooker Settlements Pty Ltd (L J Hooker Settlements), pursuant to s 83 of the Settlement Agents Act 1981 (WA) (the Act). L J Hooker Settlements is a settlement agent licensed by the Board to carry on business as such pursuant to the provisions of the Act. It carries on business as the trustee of a unit trust known as the L J Hooker Settlements Unit Trust (the Trust). All the holders of units in the Trust are, or are associated with, L J Hooker real estate offices. Each L J Hooker real estate office operates as a franchise under the L J Hooker group and pays franchise fees to L J Hooker Ltd. Each real estate office lists and sells real estate. The profits derived by L J Hooker Settlements as a result of carrying on business as a settlement agent are distributed between the unit holders in the Trust in proportion to their unit holding.
The Board alleged before the Tribunal that there was cause for disciplinary action against L J Hooker Settlements because the issue of units to unit holders in the Trust, and the distribution of profits to those unit holders, each constituted the giving of a reward for the referral of business to L J Hooker Settlements, in contravention of s 44(8) of the Act. The Tribunal rejected that contention, and dismissed the Board's application, on the ground that there was insufficient connection between the referral of business to L J Hooker Settlements and either the issue of units in the Trust or the distribution of profits, to give rise to a contravention of s 44(8). The Board applies for leave to appeal from that decision. For the reasons given below, I would grant the Board leave to appeal, but would dismiss the appeal.
The facts found by the Tribunal
The Board does not challenge any of the findings of fact made by the Tribunal. Its contention is that the Tribunal erred in law by misconstruing the relevant provisions of the Act, with the result that it erroneously failed to conclude that the facts which it had found established contraventions of the Act.
The Tribunal made detailed findings of fact in relation to each of the 11 separate allegations of contravention of the Act asserted by the Board. However, for the purposes of resolving the question of law raised by the Board's appeal, it is sufficient to set out the facts found by the Tribunal at a level of abstraction. Those facts follow.
The Trust was created by a deed dated 16 September 1999. L J Hooker Settlements has been the trustee of the Trust at all times since its creation. Pursuant to the provisions of the trust deed, L J Hooker Settlements has power to issue and redeem units in the Trust at its absolute discretion, save that in the event that a unit holder ceases to be a franchisee of the L J Hooker group, the trustee is obliged to redeem the units issued to that unit holder. Accordingly, the unit holders in the Trust have all times been, or been associated with, real estate agents operating as franchisees of the L J Hooker group.
At or about the time the Trust was created, invitations to become unit holders in the Trust were extended to real estate agents carrying on business as franchisees within the L J Hooker group. The managing director of L J Hooker Settlements, Mr Barry Pound, determined the number of units that would be issued to each initial unit holder. At the time he made those determinations, he did not have, nor did he ask for any sales information from the relevant real estate agencies regarding their past performance or sales. Rather, he made his own assessment, based on his past experience in the real estate industry, of the amount of business likely to be generated by each particular franchisee. He took account of the size of the office, the number of sales people, the size of the designated demographic area, the number of homes within that area, and the experience of the principals of the real estate franchise. Based on that assessment, he determined to issue units in lots of 50, 100, 150 or 200. Units were then issued to real estate agent franchisees, or their corporate associates, in accordance with the determinations made by Mr Pound.
L J Hooker Settlements became licensed as a settlement agent on 19 October 1999, and commenced business in that capacity in November 1999. From time to time thereafter, further units have been issued in the Trust, and some of the issued units have been redeemed. In some instances units were redeemed and reissued following a change in the ownership of a real estate agency which was, or was associated with, a unit holder. In other instances units were issued in recognition of contributions made by people associated with a unit holder to the work of the Franchise Owners Advisory Committee (a group which consisted of a number of unit holders), or in recognition of a particular contribution to the development of the L J Hooker group or generally in recognition of a contribution to the business of L J Hooker Settlements. In one instance, units issued to a unit holder were redeemed because although the unit holder was still referring business, 'the value of the business wasn't helping our [the] profits'. [36]
The Tribunal therefore found that there was a general relationship between the issue to and redemption of units held by unit holders and the amount of business referred by those unit holders to L J Hooker Settlements. However, the Tribunal also found that the relationship was very general, and was not affected by a referral of particular business, or the failure to refer any particular business.
In relation to the referral of business, the Tribunal found that the members of the L J Hooker group who were unit holders in the Trust left it to their clients to determine which settlement agent they would use. While the availability of L J Hooker Settlements services was drawn to the attention of real estate clients, the choice of settlement agent was ultimately left to the client. About 60% of the business of L J Hooker Settlements came about as a result of referrals from members of the L J Hooker group.
Profits generated as a result of the business carried on by L J Hooker Settlements are distributed to unit holders strictly in accordance with their proportionate unit holding. Advances against anticipated profit are made to unit holders monthly, in accordance with their proportionate unit holding. The amounts advanced are adjusted annually, so as to accord with the unit holders proportionate interest in the annual profit of L J Hooker Settlements, as shown by its annual accounts.
Because the amount of profit distributed to each unit holder depends entirely upon the number of units held, it is unrelated to the volume of business referred by that unit holder during any relevant period (either monthly or annually). To take an example given by the Tribunal, the income distribution statement for the month of August 2002 shows one unit holder receiving a distribution proportionate to its unit holding of 50 units, having referred 14 matters to L J Hooker Settlements during that month, whereas other unit holders with precisely the same number of units received the same distribution having referred only two settlements to L J Hooker Settlements during the same period. Another unit holder holding 150 units received a distribution three times that received by the holders of 50 units, even though only 12 settlements had been referred from that unit holder to L J Hooker Settlements during the relevant period.
The Act
Section 44(7) and s 44(8) of the Act provide:
(7)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.
(8)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.
Those provisions fall to be construed in the context of s 3 of the Act, which defines the word 'reward' to mean:
[A]ny 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.
Further, s 3(2) and s 3(4) relevantly provide:
(2)Where a reward is paid or received by a person by reason of, or in contemplation of, some other person arranging or effecting a 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.
The reasoning of the Tribunal
The Tribunal construed the relevant provisions of s 44 of the Act, in the context of the interpretation provisions of s 3, as being limited in their application to circumstances in which the reward paid or given was in consideration of the referral of particular business to the settlement agent. It based that conclusion on the natural and ordinary meaning of the legislative provisions. It rejected the Board's contention that the effect of s 44(8) of the Act was to prevent any person with an interest in the profits of a settlement agency from referring any business to that settlement agency. It noted that on the Board's construction of the Act, that prohibition would apply quite irrespective of whether or not the person referring business to the settlement agent was a real estate agent. In support of its conclusions, the Tribunal also referred to an earlier decision of the Tribunal in Settlement Agents Supervisory Board and Strand Settlements Pty Ltd [2005] WASAT 350, and to the Parliamentary Debates at the time of the Act's passage through the Parliament in 1981. For reasons which I will give, it is unnecessary to go to those lengths, as the construction given to the Act by the Tribunal is compelled by the language used.
The construction of the Act
Section 44(7) and s 44(8) of the Act are each directed at prohibiting the giving or receipt of a reward for the referral of business to a licensed settlement agent. Section 44(7) prohibits a person from demanding or receiving any reward for the referral of business, and s 44(8) prohibits a licensee from paying or giving a reward for the referral of business.
In s 44(7) the prohibition is upon demanding or receiving any reward 'for referring to a licensee any business'. The use of the word 'for' reinforces the requisite causal connection between the demand or receipt of the reward, and the referral of business.
Section 44(8) does not use the word 'for'. However, its omission is more likely the consequence of the grammatical structure of the subsection than any legislative intention to discriminate between the nature of the causal connection required between the payment or receipt of the reward, and the referral of business, as between the two subsections. It is impossible to see any rational or logical basis for a construction of the Act which would result in a different causal connection being required for the purposes of the prohibition on demanding or receiving a reward, from that required for the purposes of the prohibition upon paying or giving a reward. Accordingly, s 44(8) should be construed, consistently with s 44(7) as extending only to rewards paid or given 'for' or, in the words of the Tribunal, 'in consideration for' the referral of business to the licensee.
This conclusion is strongly reinforced by the terms of s 3 of the Act. Because of the definition of 'reward' in that section, s 44(7) and s 44(8) only apply if the reward demanded, received, paid or given (as the case may be) is paid or received as 'commission or remuneration'. Although the Board places no reliance upon the word 'commission' for the purposes of this case, each of the words 'commission' and 'remuneration' carry a connotation of connection between a particular transaction or service and the payment or receipt of the reward. That connection is reinforced by the portion of the definition of reward relating to payments made or received as a component of 'a composite price or fee paid or received in respect of any transaction or service'.
The required connection between the 'commission or remuneration' paid or received, and a particular transaction or service is further reinforced by the terms of s 3(4). That subsection provides that the lack of an expression or acknowledgement of the payment or receipt as commission or remuneration for any particular service does not prevent the payment or receipt being construed as having been paid or received in respect of that service. That subsection obviously presumes that there is a connection required between the payment or receipt of the relevant commission or remuneration, and a particular service. It would be entirely otiose and redundant if no such connection was required by s 44(7) and s 44(8).
The use of the words 'directly or indirectly' in each of s 44(7) and s 44(8), and in the definition of 'reward' in s 3, does not detract from these conclusions. The effect of that terminology is to extend the prohibition to payments made or received by or through intermediaries, consistently with the approach evident in s 3(2), which extends the effect of the prohibitions contained in s 44(7) and s 44(8) to payments made or received by third parties (such as associates of the settlement agents, or persons referring, as the case may be).
The Board submits that the term 'remuneration' incorporated into the definition of 'reward' in s 3 of the Act is broad enough to encompass each of the issue of units to unit holders and the distribution of profits to unit holders, notwithstanding that neither is directly referrable to, or 'in consideration for', the referral of any particular business, transaction or any particular service. This submission must be rejected. In its natural and ordinary meaning, the word 'remuneration' connotes a connection between the payment or benefit received, and the provision of work or services: see each of the Macquarie and Oxford English dictionaries. There is High Court authority in support of that proposition. In Chalmers v The Commonwealth of Australia [1946] HCA 37; (1946) 73 CLR 19, Williams J observed, 'The ordinary meaning of remuneration is pay for services rendered' (37).
More recent Australian authority is to the same effect. In Thompson v Primary Producers Improvers Pty Ltd [2004] NTCA 12, Martin (BR) CJ observed that, ''remuneration' is the reward for work done and services rendered' [36]. In Rahhal v Minister for Immigration & Citizenship (No 2) [2008] FMCA 935, Federal Magistrate Scarlett referred to Chalmers and observed that, ''remuneration' means 'pay for services rendered'' [61]. In Precup v Inco Ships Pty Ltd [2007] AATA 1991, Senior Member Hunt observed that, 'Remuneration has a similar meaning to salary and includes a reward for work' [27].
There is also English authority, venerated by time, for the same proposition. In R v Post Master General (1876) 1 QBD 658, Blackburn J observed:
But I think the word 'remuneration' is a wider term and means a quid pro quo. If a man gives his services, whatever consideration he gets for giving his services seems to me a remuneration for them. (663)
It is therefore clear from these authorities, and from the natural and ordinary meaning of the word 'remuneration', that the use of that word reinforces the need for a connection between the referral of a particular item of business or transaction to the relevant settlement agent and the payment or receipt of the reward, if either s 44(7) or s 44(8) are to be infringed.
The application of the Act to the facts found by the Tribunal
The Board alleged that L J Hooker Settlements contravened s 44(8) of the Act by issuing units in the Trust to unit holders. However, the Tribunal found that units were issued to unit holders in expectation of the general level of business that might be expected to be referred by a unit holder and not 'in consideration for' the referral of any particular business in either the past or the future. It follows that the issue of units to unit holders did not constitute the giving of a reward to a unit holder referring business to the licensee within the meaning of s 44(8) of the Act.
The Board also alleged that the payment of profits to unit holders amounted to a contravention of s 44(8) of the Act. However, the Tribunal found that profits were distributed to unit holders in accordance with, and because of, their unit holding and not 'in consideration for' the referral of any business to L J Hooker Settlements. Again, it therefore follows that the distribution of profits was not a reward to the unit holder referring business to the licensee within the meaning of s 44(8) of the Act.
In neither the case of the allotment of units, nor the payment of profits, did the benefit received by the unit holder depend upon, or constitute the provision of a benefit in consideration for the referral of any particular business to L J Hooker Settlements. Section 44(8) of the Act was not infringed. The Tribunal was therefore correct to dismiss the Board's application.
The application for leave to appeal
The criteria ordinarily applied to the question of the grant of leave to appeal from a decision of the Tribunal has been enunciated by Buss JA in Paridis v Settlements Agents Supervisory Board [2007] WASCA 97; (2007) 33 WAR 361, by reference to observations made by Phillips JA in Secretary to the Department of Premier & Cabinet v Hulls [1999] VSCA 117; [1999] 3 VR 331. Relevant considerations include the need for the applicant to identify a question of law. The Board has identified such a question in this case. Another relevant consideration concerns the importance of the question, either generally or to the parties to the particular case. Counsel for the Board, and the Tribunal itself, have suggested that the question of law presented by this case is of importance to the general regulation of the business of settlement agents, and there is no reason to doubt those assertions.
The applicant for leave must also show that there is a real or significant argument on the question of law, and that to allow the error to go uncorrected would impose substantial injustice. While the latter requirement would be readily satisfied if the court had concluded that the Tribunal erroneously dismissed the Board's application, in this case I entertain some doubt as to whether the Board ever established sufficient doubt with respect to the decision of the Tribunal on the question of law to justify the grant of leave. The decision of the Tribunal has always appeared to me to be obviously correct. However, because the other considerations to which I have referred point in favour of the grant of leave, notwithstanding those misgivings I would in this case grant the Board leave to appeal from the decision of the Tribunal, but, for the reasons given, I would dismiss the appeal.
PULLIN JA: I agree with the Chief Justice.
NEWNES AJA: I agree with the Chief Justice.
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