Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Option Realty Pty Ltd v Commissioner for Fair Trading [2022] NSWCATOD 27 Hearing dates: 22 February 2022 Date of orders: 2 March 2022 Decision date: 02 March 2022 Jurisdiction: Occupational Division Before: S Montgomery, Senior Member Decision: The decision under review is affirmed. Catchwords: LICENSING – real estate agent – disciplinary proceedings – failure to provide audit – conduct conceded – penalty only issue Legislation Cited: Administrative Decisions Review Act 1997 (NSW) Civil and Administrative Tribunal Act 2013 (NSW) Property and Stock Agents Act 2002 (NSW) Cases Cited: Amazing T Investment Pty Ltd v Commissioner for Fair Trading [2022] NSWCATOD 6 McDonald v Director General of Social Security (1984) 1FCR 353 Nakad v Commissioner of Police, New South Wales Police Force [2014] NSWCATAP 10 Shi v Migration Agents Registration Authority [2008] HCA 31. Texts Cited: None cited Category: Principal judgment Parties: Option Realty Pty Ltd (Applicant) Commissioner for Fair Trading (Respondent) Representation: Solicitors: Applicant (Self-Represented) Department of Customer Service (Respondent) File Number(s): 2021/00333331 Publication restriction: Nil Reasons for Decision Introduction 1. The Applicant, Option Realty Pty Ltd, holds a real estate licence that was issued in September 2016. The directors of the Applicant are Ms Shengnan Qian and Mr Howard Hao Ting Cao. 2. During the 2019/2020 financial year the Applicant operated a trust account but it failed to lodge an audit of the trust account by 31 December 2020, as required under the Property and Stock Agents Act 2002 (NSW) (the PSA Act). The Respondent issued a notice (the Notice to Show Cause or NTSC) inviting the Applicant to show cause as to why disciplinary action should not be taken against it for that failure. When the Applicant did not respond to the NTSC, a delegate of the Respondent determined to reprimand the Applicant and to require the Applicant to pay, as a monetary penalty, an amount of $8,250. 3. That decision was affirmed on internal review. The Applicant has applied to the Tribunal for external review of the decision. Applicable legislation 1. The PSA Act provides a framework which requires all licence holders to adhere to standards designed to enhance consumer confidence in their dealings with licensed real estate agents. The requirements relating to trust accounts and trust account audits are vital elements that reinforce consumer confidence. 2. In his Second Reading Speech for the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill on 21 November 2017 the then Minister for Innovation and Better Regulation, The Hon Matt Kean, referred to the importance of trust accounts and trust account audits: Agents' failure to account for money held in trust is a major risk area for the industry, and a major source of consumer detriment. During the last financial year, the Property Services Compensation Fund paid out more than $500,000 to consumers. As well, there were other significant consumer repayments from businesses where Fair Trading has appointed a manager ... furthermore, if an audit is not lodged it is not clear whether the audit was unqualified and did not have to be lodged or was in fact qualified but the agent had failed to lodge a copy. To minimise any additional administrative burden, an online audit lodgement portal is being developed. This system will be in operation before this requirement comes into effect. Additional trust account requirements will be introduced by regulation. This will include a requirement to hold separate trust accounts for sales and rental payments, and a requirement to clear rental trust accounts at the end of each month. This will help keep landlords aware if there is any shortfall in their rental income that cannot be accounted for. 1. Section 111 of the PSA Act provides: 111 Requirement for audit (1) A person who is a licensee, a former licensee or the personal representative of a licensee must, within 3 months after the end of the audit period applicable to the person, cause the records and documents relating to any money held during that period in a trust account kept by the person in accordance with this Act to be audited by a person qualified to act as an auditor for the purposes of this Division. (2) The Secretary may in a particular case or class of cases by order in writing extend the period of 3 months under subsection (1). 1. The PSA Act provides for disciplinary action against a licensee. Section 191 of the PSA Act provides: 191 Grounds for disciplinary action Disciplinary action under this Part can be taken against a person who is or was the holder of a licence or certificate of registration on any one or more of the following grounds— (a) the person has contravened a provision of this Act or any other Act administered by the Minister (including any provision of the Australian Consumer Law (NSW)), or the regulations under any such Act, whether or not the person has been prosecuted or convicted of an offence in respect of the contravention, (a1) the person has, in respect of the person's conduct of business or exercise of functions under the licence or certificate of registration, contravened the Competition and Consumer Act 2010 of the Commonwealth, (b) the person has contravened a condition of the licence or certificate of registration, (c) the person has, in the course of carrying on business or exercising functions under the licence or certificate of registration, acted unlawfully, improperly, unfairly or incompetently, (d) the person is a disqualified person or is otherwise not eligible under section 14 to hold a licence or certificate of registration, (e) the person is not a fit and proper person to be involved in the direction, management or conduct of the business of a licensee, (f) the person has failed to pay any part of a contribution or levy that is due and payable under Part 10 (Compensation Fund), (g) the person has breached an undertaking given by the person to the Secretary under this Act or the Fair Trading Act 1987, in respect of the person's conduct of business or exercise of functions under the licence or certificate of registration, (h) the person has failed to comply with a direction given to the person by the Secretary pursuant to the taking of disciplinary action under this Part, (i) the person has failed to pay a monetary penalty imposed on the person by the Secretary pursuant to the taking of disciplinary action under this Part, (j) the issue of the person's licence or certificate of registration was obtained by fraud or mistake, (k) grounds specified in the regulations as grounds for the taking of disciplinary action against a person under this Act. 1. Section 192(1) of the PSA Act outlines the disciplinary action that the Secretary, and the Tribunal standing in the shoes of the Secretary, can take against a person if a ground for disciplinary action is established under section 191 of the PSA Act. That is: 192 Disciplinary action (1) Each of the following actions is disciplinary action that the Secretary can take against a person under this Act— (a) caution or reprimand the person, (b) give a direction to the person requiring the person to give a specified undertaking to the Secretary as to the manner in which the person will conduct business or exercise functions under a licence or certificate of registration held by the person, (c) give a direction to the person requiring the person to take specified action within a specified time in connection with the conduct of business or the exercise of functions under a licence or certificate of registration, (d) impose a monetary penalty on the person of an amount not exceeding 100 penalty units in the case of an individual or 200 penalty units in the case of a corporation, (e) impose a condition on the person's licence or certificate of registration, (f) suspend the person's licence or certificate of registration for a period that does not exceed the unexpired term of the licence or certificate of registration, (g) cancel the person's licence or certificate of registration, (h) declare the person to be a disqualified person for the purposes of this Act, either permanently or for a specified period, (i) disqualify the person from being involved in the direction, management or conduct of the business of a licensee. (2) A power conferred by this Act to take disciplinary action against a person is a power to take any one or more of the actions that constitute disciplinary action. (3) When a licence or certificate of registration is suspended, it is taken not to be in force except for such provisions of this Act or the regulations as the regulations may prescribe as provisions that remain applicable to a suspended licence or certificate of registration. 1. The Secretary may also determine to take no further action in respect of the matter: 193 Decision to take no further action The Secretary may at any stage of a matter that is the subject of consideration by the Secretary under this Part determine to take no further action in respect of the matter, whether or not the matter is the subject of a complaint or a show cause notice and whether or not the Secretary determines that there are grounds for taking disciplinary action in connection with the matter. 1. In this matter, the Respondent determined that the Applicant contravened section 111(1) of the PSA Act by failing to provide a trust account audit within the required time. Tribunal's approach 1. Section 63 of the Administrative Decisions Review Act 1997 (NSW) (the ADR Act) provides that in determining an application for review the Tribunal is to make the correct and preferable decision having regard to the material before it, and any applicable written or unwritten law. It is well established that the Tribunal is not restricted to a consideration of the material that was before the decision-maker, but may have regard to any relevant material before it at the time of the review: Shi v Migration Agents Registration Authority [2008] HCA 31. 2. Under section 28(2) of the Civil and Administrative Tribunal Act 2013 (NSW) (The NCAT Act) the Tribunal is not bound by the rules of evidence and may inquire into and inform itself on any matter in such manner as it thinks fit, subject to the rules of natural justice: section 38(2) of the NCAT Act. 3. The standard of proof that applies in these proceedings is the civil standard, that is, on the balance of probabilities. There is no onus of proof: Nakad v Commissioner of Police, New South Wales Police Force [2014] NSWCATAP 10 at paragraphs [28] - [34]. 4. Section 200 of the PSA Act confers on the Tribunal jurisdiction in respect of disciplinary action. The Tribunal makes its own decision in place of the Commissioner's, and there is no presumption that the decision of the Respondent is correct: McDonald v Director General of Social Security (1984) 1FCR 353 at 357. Evidence 1. The Respondent relies on documents filed under section 58 of the ADR Act and written submissions. Mr Giles, the Respondent's solicitor also made oral submissions. 2. The Applicant did not file any material prior to the hearing. A limited amount of material was provided to the Respondent prior to the hearing but it was not filed with the Tribunal. 3. During the hearing Mr Cao emailed some documents to the Tribunal and to the Respondent and gave brief evidence to explain why the Applicant had failed to provide the trust account audit as required by the PSA Act. Chronology of event leading to the disciplinary action against the Applicant 1. The Applicant was due to lodge its audit for the 2019/20 year on or before 30 September 2020. However, due to the impact of COVID-19, the Respondent determined to extend the trust account audit period for 2020 to 31 December. Notice of the extension of time was posted on the Respondent's website and the Applicant was also notified of the extension of time by email sent on 27 November 2020. The Respondent also advised the Applicant that penalties may be given for audits which are lodged late. 2. The Applicant did not lodge its trust account audit by 31 December 2020. 3. By email sent to the Applicant on 9 February 2021, the Respondent informing the Applicant that the 2020 trust account audit was outstanding and requested that an auditor be engaged immediately to undertake the audit. The Respondent further informed the Applicant that the online portal would reopen, for lodging late submission of trust account audits, from 15 February 2021 to 31 March 2021. The Respondent also warned the Applicant that failure to lodge the 2020 audit for the trust account by 31 March 2021 may result in the suspension of the Applicant's licence. 4. The Applicant did not lodge its trust account audit by 31 March 2021. 5. On 7 July 2021, the Respondent issued a Notice to Suspend the Applicant's licence to the Applicant. The Respondent also advised the Applicant that the proposed suspension would take effect on 4 August 2021 but would not proceed if the audit for the trust account was returned no later than 21 July 2021. 6. On 7 July 2021, the Respondent also issued the NTSC inviting the Applicant to show cause as to why disciplinary action should not be taken against it. The NTSC required a response by 21 July 2021. 7. By email dated 8 July 2021, the Applicant's director Ms Qian acknowledged receipt of the Notice to Suspend and the Notice to Show Cause. 8. On 16 July 2021 the Applicant lodged the audit for the trust account by way of an email its the auditor, James Saab of Rothsay Audit & Assurance Pty Ltd. 9. The Applicant did not respond to the issues raised in the Notice to Show Cause. 10. On 12 October 2021, the Respondent issued a Notice of Decision (the original decision) in which it determined to: 1. reprimand the Applicant; and 2. require the Applicant to pay, as a penalty, an amount of $8,250. 1. On 19 October the Applicant sought an internal review of the original decision. 2. The Applicant did not provide any reason for the lateness of lodging the 2020 audit for the trust account. 3. The Respondent affirmed the original decision on the internal review. The Application 1. The Applicant has applied to the Tribunal for external review of the Respondent's decision. The Application indicated that the review was sought on the following grounds: We submitted the sales trust account audit report after the deadline due to the covid-19 impact. Our auditor had followed all procedures which were prescribed to us in regards to the late submission of the 2020 Auditor's Report for Option Realty. We also note that we did not receive any acknowledgment of receipt of this submission or follow-up email from NSW Fair Trading or the Disciplinary Action Unit, apart from their automated email response. We are seeking a review on the final decision that impose a monetary penalty on Option Realty Pty Ltd for the amount of $8,250.00 which is unacceptable. 1. The matter came before the Tribunal on 14 December 2021. At that time a timetable was set for the filing of material by both parties and the matter was listed for hearing. 2. The Applicant was directed to file and serve its evidence and submissions by 31 January 2022 however no material was filed in compliance with that direction. 3. Mr Andy Wong attended the hearing and sought to appear as an agent on behalf of the Applicant. The Respondent objected to Mr Wong's appearance as no explanation had been given for the non-appearance of either of the directors. Mr Wong indicated that Mr Cao was not available as he had to attend an important meeting. He did not provide any explanation for why Ms Qian could not attend. 4. After a short adjournment, Mr Cao briefly attended the hearing. He provided some documents to the Tribunal and to the Respondent. He also gave some brief evidence in regard to how the Applicant had been affected by COVID-19. Mr Cao's evidence was that the Applicant is part of the Option Group and stated that the Option Group was severely affected by COVID-19. As a result, the Applicant lost staff and did not have the resources to apply towards responding to the NTSC. Mr Cao's evidence was that the NTSC was given low priority as the Option Group was dealing with significant issues that arose because of the COVID-19 impact. Mr Cao stated that the documents that he provided are evidence of the COVID-19 impact. Other than Mr Cao's oral evidence, there was no evidence as to the Applicant's financial position. 5. Mr Cao was unavailable for cross-examination and the relevance of the documents that he provided is unclear as they either post-date the time at which the trust account audit report was due or do not appear to support Mr Cao's evidence that the Applicant lost staff. The Respondent's submissions 1. As noted, Mr Giles provided written and oral submissions on behalf of the Respondent. 2. The Respondent acknowledges that the Applicant's 2020 trust account audit was ultimately lodged and that there is no evidence of any misappropriation or other misconduct in relation to the trust account. 3. Nevertheless, the Respondent submits that the exercise of discretion by the Respondent to impose a reprimand and a monetary penalty of $8,250.00, was warranted in circumstances where: 1. failure to lodge the trust account audit had the potential to cause harm to the integrity of the real estate industry as failure to account for money held in trust is a major risk area for the industry, and a major source of consumer detriment. The integrity of trust accounts and trust account audits are vital elements that reinforce consumer confidence in property agents in NSW; 2. real estate agents can handle very large sums of money on behalf of their clients and must be accountable and open to scrutiny in the conduct of their affairs as licensees. Requirements of the PSA Act relating to trust accounts and trust account audits are therefore important elements that reinforce consumer confidence in real estate agents; 3. failure to lodge the trust account audit had the potential to undermine public confidence in the trust account system under the PSA Act, and moreover confidence on the part of the persons whose money is being held in trust, as a delay in providing trust account audits could give the impression misappropriation or malfeasance may be occurring; 4. the failure to lodge the trust account audit report was a clear and ongoing failure on the part of the Applicant over the course of many months. Indeed, the audit remained outstanding up until 16 July 2021, which was essentially the last opportunity for the Applicant to provide it, otherwise the proposed suspension of the Applicant's licence would have been triggered; and 5. in the Grounds for Application the Applicant's claimed "We submitted the sales trust account audit report after the deadline due to the COVID-19 impact", and "Our Auditor had followed all procedures which were prescribed to us in regards to the late submission of the 2020 auditor's Report. The Respondent submits that this completely ignores the fact that: 1. the Respondent gave all those who were required to register an audit report an extension from 30 September 2020 until 31 December 2020; 2. the Applicant failed to provide the audit report by 31 December 2021 and the Respondent temporarily re opened the portal between 15 February 2021 and 31 March 2021 to receive late 2020 audits and advised that a failure to submit the audit report by 31 March 221 may result in a suspension of the Applicant's licence; 3. on 7 July 2021 a Notice to Suspend was issued on the Applicant which would result in the suspension of the Applicant's licence from the 4 August 2021. Only at this point did the Applicant, with the knowledge that their licence would be suspended, lodge the 2020 audit for the trust account on the 16 July 2021; and 4. at no point in time did the Applicant raise that they could not meet the deadline due to COVID-19 impact nor did they provide any other reason for the lateness. 1. The Respondent relies on views expressed by Senior Member Isenberg in Amazing T Investment Pty Ltd v Commissioner for Fair Trading [2022] NSWCATOD 6 (Amazing T Investment) in support of these submissions. 2. Mr Giles submitted that the Respondent has only imposed a reprimand and a penalty of $8,250.00 which is much lower than the maximum $22,000.00 penalty that could have been imposed. This reduced penalty was levied in recognition of the action taken by the Applicant in submitting the 2020 audit for the trust account by the date specified in the Notice to Suspend. 3. The Respondent submits that the imposition of a reprimand and a monetary penalty is appropriate in this matter and therefore the Tribunal should affirm the Respondent's decision. Consideration Were there grounds for taking disciplinary action against the Applicant? 1. Section 191 of the PSA Act states the grounds on which disciplinary action can be taken include if the Secretary, and hence the Tribunal on review, is satisfied the licensee has contravened a provision of the PSA Act, whether or not the licensee has been prosecuted or convicted of an offence in respect of the contravention. In this matter, the Respondent determined that the Applicant had contravened section 111(1) of the PSA Act. 2. The Respondent submits that the Applicant contravened section 111(1) of the PSA Act by failing to submit its 2020 audit for the trust account either by the original deadline of 30 September 2020 or by the extended deadlines of 31 December 2020 and 31 March 2021. In those circumstances, the Respondent submits it is clear that a ground on which to take disciplinary action exists under section 191(a) of the PSA Act. 3. There is no dispute that the Applicant failed to lodge the audit when it was due, even when the time for doing so was extended. This failure is contrary to the obligation imposed by section 111(1) of the PSA Act. I am satisfied that there were grounds for taking disciplinary action against the Applicant under section 191(1) of the PSA Act. The Notice to Show Cause 1. The Show Cause Notice invited the Applicant to show cause as to why disciplinary action should not be taken against it. 2. The NTSC stated at paragraphs [19] – [21] 17. Section 191 (a) of the Act provides: "Disciplinary action under this Part can be taken against a person who is or was the holder of a licence or certificate of registration on any one or more of the following grounds - (a) the person has contravened a provision of this Act or any other Act administered by the Minister (including any provision of the Australian Consumer Law (NSW)), or the regulations under any such Act, whether or not the person has been prosecuted or convicted of an offence in respect of the contravention,..." 18. Section 111(1) of the Act provides: "A person who is a licensee, a former licensee or the personal representative of a licensee must, within 3 months after the end of the audit period applicable to the person, cause the records and documents relating to any money held during that period in a trust account kept by the person in accordance with this Act to be audited by a person qualified to act as an auditor for the purposes of this Division." 19. … the Licence Holder has failed to submit the 2020 trust account Audit for the trust account within the period prescribed by section 111(1) of the Act, that is by 30 September 2020. In addition to this, the Licence Holder has failed to submit the 2020 trust account Audit by the extension date of 31 December 2020. The Licence Holder has also failed to submit the 2020 trust account Audit during the Portal Reopen Period which ended on 31 March 2021. 20. The Licence Holder has therefore breached section 111(1) of the Act. In breaching section 111(1) the Licence Holder has contravened a provision of the Act. In contravening a provision of the Act there is, in my opinion, reasonable cause to believe that there is a ground for taking disciplinary action against the Licence Holder under section 191 (a) of the Act. NEXT STEPS 21. The Licence Holder is invited to show cause, by 5:00pm on 21 July 2021, as to why disciplinary action should not be taken against the Licence Holder. The Licence Holder may make submissions in writing or verbally and provide evidence about the matters outlined above. If the Licence Holder does not respond by the specified time, a decision may be made about disciplinary action, based on the material referred to in this Notice. 1. As noted, the Applicant acknowledged receipt of the NTSC but did not present any material in response to show why disciplinary action should not be taken against it as the licence holder. 2. It appears that the Applicant was well aware of the requirement to lodge an audit of the trust account each year by 30 September (or such other date as may be specified). The Applicant conceded that the trust account audit was late. It did not engage with the Respondent in regard to the NTSC. Mr Cao gave oral evidence of the impact of COVID-19 on the Applicant and its ability to meet its obligations. However, he was unavailable for cross-examination and the relevance of the documents that he provided is unclear. In the circumstances little weight can be given to his evidence. I am not satisfied that there is sufficient evidence before me on which I could conclude that disciplinary action should not be taken against the Applicant. 3. The circumstances of this matter are similar to those considered by the Tribunal in Amazing T Investment. I agree with the view expressed by the Tribunal in that matter that the failure to account for money held in trust is a major risk area for the real estate industry, and a major source of consumer detriment. The integrity of trust accounts and trust account audits are vital elements that reinforce consumer confidence in real estate agents in NSW. 4. I agree that real estate agents can handle very large sums of money on behalf of their clients and must be accountable and open to scrutiny in the conduct of their affairs as licensees. The requirements of the PSA Act relating to trust accounts and trust account audits are therefore important elements that reinforce consumer confidence in real estate agents. 5. As Senior Member Isenberg noted at paragraph [26] of Amazing T Investment the imposition of an appropriate sanction for breach of statutory obligations has an educative function. It is concerned with the protection of the public, rather than being purely punitive in nature and aims to act as a deterrent with a view to maintaining proper standards of conduct within the industry. 6. In this matter, I agree that the imposition of a monetary penalty is warranted. I consider that the penalty of $8,250 is appropriate. This takes into account the gravity of the contravention and the educative role that imposing such a penalty plays in maintaining proper standards of conduct within the industry. 7. In the circumstances, I am satisfied that the Respondent has made the correct and preferable decision and therefore it should be affirmed. Order 1. The decision under review is affirmed. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 March 2022