Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Lisimcol Pty Ltd v Commissioner for Fair Trading [2023] NSWCATOD 2 Hearing dates: 28 April 2022 and 1 June 2022 Date of orders: 9 January 2023 Decision date: 09 January 2023 Jurisdiction: Occupational Division Before: C Mulvey, Senior Member Decision: The decision under review is affirmed. Catchwords: LICENSING – real estate agent – failure to lodge trust account – breach of s 111 Property and Stock Agents Act 2002 – ss 191 and 192 Property and Stock Agents Act 2002 – reprimand – adequacy of penalty Legislation Cited: Administrative Decisions Review Act 1997 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: Lisimcol Pty Ltd (Applicant) Commissioner for Fair Trading (Respondent) Representation: Mr C Bice (Director) (Applicant) Legal, Corporate Services, Department of Customer Service (Respondent) File Number(s): 2022/00033024 Publication restriction: None REASONS FOR DECISION Introduction 1. The Applicant, Lisimcol Pty Ltd, holds a real estate licence that was issued on 1 December 2018. The directors of the Applicant are Mr Colin Bice and Ms Lisa Borstel. Ms Borstel is the licensee in charge. 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'). A notice (the Notice to Show Cause or NTSC) was issued by the Respondent inviting the Applicant to show cause as to why disciplinary action should not be taken against it for that failure. Submissions were required to the NTSC by 26 July 2021. That same day, a notice to suspend was simultaneously issued on the Applicant stating that Property Licence Number 10080410 was suspended from 9 August 2021 ('Notice to Suspend'). 3. A number of submissions were made by Mr Bice on behalf of the Applicant in response to the NTSC. The auditor provided the completed 2020 auditor's report on behalf of the Applicant and in it declared that he had not been provided with the records and documents for the trust account until 12 July 2021. 4. On 1 December 2021, the Delegate of the Secretary established the ground on which disciplinary action could be taken against the Applicant under s 191(a) of the PSA Act, where the licensee holder contravened a provision of the Act, namely, s 111(1) of the PSA Act. The Delegate on that date determined to take disciplinary action against the Applicant under s 192 of the PSA Act in the form of a reprimand and a $5,500 fine. 5. On 29 December 2021, the Applicant sought internal review under s 53 of the Administrative Decisions Review Act 1997 ('ADR Act'). 6. On 21 January 2022, the decision was affirmed on internal review. The Applicant has applied to the Tribunal for external review of the decision. 7. The Applicant contends that the reasons why the trust account ending in number xx191 was not audited, was because of a 'computer glitch' in the respondent's system and the auditor, Mr Watson, overlooked a late notice request for the account to be audited. 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 role 1. Section 63 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 s 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: s 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 is to make 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. The s 58 material consisted of three bundles which were marked R1, R2 and R3 respectively. Mr Morrisey, the Respondent's solicitor also made oral submissions. 2. The Applicant filed three bundles which were each marked A1, A2 and A3 respectively. Written and oral submissions were relied upon by the Applicant. 3. The Respondent called Mr Neil Watson, auditor. Mr Colin Bice and Ms Lisa Borstel gave oral evidence. Each witness was cross-examined. Evidence of Mr Neil Watson 1. Mr Neil Watson, is a Chartered Accountant and Auditor. He has been doing work for the Applicant and associated companies, which include Hunter Real Estate Pty Limited ("Hunter R/E") and Mr Bice for a number of years. He said he had completed the 2019/2020 audits for Hunter R/E and submitted those on time. In total he undertook four audits. Mr Watson agreed that in February 2021 he was only aware of four audits to be completed for Hunter R/E. He denied that he was engaged to prepare any audit for the Applicant on or before July 2021. Mr Watson said that he undertook an audit for the year ending June 2020 for the Applicant in about 15 or 16 July 2021. Mr Watson completed one audit for the Applicant which he believed was about 18 pages in length. Mr Watson said the date he believed he received instructions to undertake the Applicant's audit was 12 July 2021. 2. In cross-examination Mr Watson agreed that he had received numerous emails from the Applicant concerning a request for audits of four accounts associated with Hunter R/E. He agreed that he was not sent email correspondence, in all circumstances directly from Mr Bice, and at some point in time he was just copied into emails between the Applicant and the Respondent. Mr Watson was asked by Mr Bice: "If after reading all of the emails to sent you, would you have been aware that the Applicant existed." Mr Watson answered: "The email referred to Raine & Horne Belmont not Lisimcol". I infer from this that his attention would not have been drawn to issues concerning the Applicant where he said he was not aware of any trust account existing in the name of the Applicant, and that he had not been instructed by the Applicant to audit it's trust account before July 2021. I accept Mr Watson had not been instructed to audit a trust account for the applicant until July 2021. I reject the Applicant's argument that if Mr Watson had been copied into a reminder notice from the Respondent about the need to lodge a trust account audit for account xx191, that that could be construed as the Applicant instructing Mr Watson to complete the audit. Evidence of Mr Colin Bice 1. Mr Bice was cross-examined about an email he sent to Ms Borstel on 13 July 2021. A particular part of that reads as follows: 'I will contact them today, however it appears for whatever reason he only audited the rental trust account. I think this is because that is what he usually did as this was the first year Belmont operated a separate sales trust to the New Lambton, Mayfield and Wallsend offices. I do not know why he overlooked the sales trust, however I believe he was aware of the same and overlooked it for whatever reason, we will never know.' 1. Mr Bice accepted he wrote this email. He agreed where the email refers to Mr Watson lodging the audit for the trust account, that statement is inconsistent with it not being lodged. He said that Mr Watson had the information in February 2021 about the Applicant's trust account and did not know why he overlooked that account ending in number xx191. Mr Bice said that there is no written instruction to Mr Watson to complete the audits as he had always given verbal instructions and the usual practice of Mr Watson would be to attend the office to complete the collection of information for the audit process. However, due to Covid-19, a questionnaire was sent for information to be collected. As set out above, I do not accept that even if Mr Watson was copied into a reminder notice from the respondent, this is not in my view an instruction to complete the audit. Mr Bice's evidence is consistent with Mr Watson's evidence that he was not formally instructed to complete the Applicant's trust account audit ending in xx191, until 12 July 2021. 2. Mr Bice, in reply to a request for further information from the respondent on 22 August 2022, stated as follows: 1. Was KLM instructed by Lisimcol Pty Limited (Lisimcol) to complete an audit of the trust account (account number) for FY 18/19? KLM was not instructed by Lisimcol to complete an audit for trust account (xx191) for FY 18/19. Attached is an email from the client advising of the trust account UIN numbers on 9 October 2019 (refer attached). This email did not include any details of Lisimcol Pty Limited. UINs were only provided for the Hunter Real Estate Pty Limited trust accounts. 1. In cross-examination Mr Bice did not accept that he did not include the Unique Identifier Number (UIN) to Mr Watson for the Applicant's trust account ending xx191. He said that Mr Watson "would come to the office and Neil has the UIN number". This is despite a person known as Ms Lisa Brzozowski, the Trust Account Manager for Raine & Horne Wallsend, sending to Mr Watson the UIN numbers for trust accounts ending 479, 364, 212 for the Wallsend, Mayfield and Belmont offices on 9 October 2019. Mr Bice did not accept in the cross-examination that it was his practise for his various real estate companies he is involved in to send the UIN numbers to Mr Watson. Rather, he said that Mr Watson was aware of the numbers and would collect them when required. 2. Further, Mr Bice said in answer to a question whether he recalled sending the UIN number to Mr Watson for the Applicant's trust account he said "no". Mr Bice said he was not aware of any delegate sending that number to Mr Watson and believed Mr Watson "would have" known about that number "from Service NSW email in 2021." 3. I do not accept Mr Bice's evidence that Mr Watson was not given a UIN number for any account. This is inconsistent with the email sent by the Trust Account Manager, Ms Brzozowski, on 9 October 2019. The inference that can be drawn is that for all of his associated real estate companies, Mr Bice's accounts team most probably undertook a similar process in providing the UIN to Mr Watson for the audit process. There is no evidence that that UIN for the Applicant's trust account was disclosed to Mr Watson. This finding is consistent with Mr Watson's evidence that he was not aware of the Applicant's trust account until 12 July 2021. 4. It is also of relevance that Mr Bice was under the misapprehension on 29 December 2021 that he had commissioned the audit for the account xx191 and had paid for the audit. As confirmed by Mr Bice in evidence, this statement he made to the respondent in his email on that date was incorrect. 5. In answer to a question in cross-examination: "Where you say you had accounts audited on time" referring to Mr Watson's evidence that he did not do the audit for Applicant until July 2021, Mr Bice answered: "Neil was unaware that a new account had to be done." This answer corroborates Mr Watson's evidence. Mr Bice agreed that there was no instruction given in writing to Mr Watson that he had requested the audit of the Applicant's trust account. I accept his evidence on this point. 6. Overall, I prefer, and accept the evidence of Mr Watson that he was not aware of the Applicant's trust account existing to undertake the audit until 12 July 2021. Evidence of Lisa Borstel 1. Ms Borstel said that despite her being the licensee in charge of the Applicant she delegated the auditing responsibility to Mr Bice. It was her understanding that the relevant audit for the Applicant had been ordered and had been completed. Ms Borstel said she did not provide the UIN number to Mr Watson. She is unaware of whether Mr Bice did so. I accept her evidence. Chronology of events leading to the disciplinary action against the Applicant 1. It is not in dispute that the audit for the trust account was not lodged within the requisite time. The applicant disputes that the "actions taking [sic] in attending to the lodgement of the audit were fair and reasonable and that a fine of any sort is disproportionate given the circumstances." 2. It is also not in dispute that the Applicant operated the subject trust account during the financial years 2019/2020. 3. On 1 July 2020, a public notice was published on an NSW Fair Trading website advising that the deadline for the submission of trust account audits for the period ending 30 June 2020 was extended to 31 December 2020 in consideration of the Covid-19 lockdown arrangements. 4. On 27 November 2020, NSW Fair Trading wrote to all licence holders who were required to submit a trust account audit for the period 30 June 2020 confirming the revised deadline of 31 December 2020. That email was sent to the Applicant's email address which was listed in the NSW Fair Trading Government licensing system. 5. On 9 February 2021, the Respondent sent to the same email address of the Applicant that the 2020 audit for the trust account was outstanding and requested it be lodged. A notice sent by the Respondent informed the Applicant that the online portal for lodging trust account audits would be temporarily reopened between 15 February 2021 to 31 March 2021. This was to receive late audits. The notice warned that failure to submit the audit by 31 March 2021 may result in the suspension of the Applicant's licence. 6. On 18 February 2021, the Applicant's auditor accessed the audit portal. The Applicant received several emails from the portal requesting permission for the auditor to lodge the audit accounts for a number of trust accounts within the group of companies in which Mr Bice is involved. Those trust accounts related to accounts held by a different entity, Hunter R/E. It is not in dispute that these emails did not relate to the trust account operated by the Applicant. 7. On 19 February 2021, further automated emails were sent to the Applicant from the audit portal attaching a summary of the audit report for trust accounts. The particular emails related to the different entity, Hunter R/E. No summary was provided in respect of the trust account operated by the Applicant. 8. From 1 April 2021 to 20 July 2021 the Applicant's 2020 audit remained outstanding. 9. On 12 July 2021, the NTSC was sent to the Applicant inviting it to explain why disciplinary action should not be taken for failure to lodge the 2020 audit for the trust account. 10. On 12 July 2021, a Notice to Suspend the Property Licence Number 10080410 was served on the Applicant from 9 August 2021. 11. Between 13 July 2021 and 14 July 2021, Mr Bice sent to the Respondent a number of emails. The email dated 13 July 2021 from Mr Bice to Ms Borstel, the licensee in charge of the Applicant stated: It appears for whatever reason [the auditor] only audited the rental trust account. I think this is because that is what he usually did as this was the first year Belmont operated a separate sales trust to the New Lambton, Mayfield and Wallsend offices. I don't know why he overlooked the sales trust account, however I believe he was aware of the same and overlooked it for whatever reason, we will never know. … Of course we will have KLM complete in the first instance on Neil's return from annual leave. 1. On 14 July 2021, the Respondent sought clarification from Mr Bice as to whether his emails were copied to Fair Trading intentionally or in error. On 14 July 2021, Mr Bice replied to Fair Trading and advised: It was done intentionally to show you the history of and the confusion and oversight on my part with the five audits that were required. 1. On 20 July 2021, the Applicant's auditor lodged the 2020 audit for the trust account to the Respondent. The auditor sent the concluded 2020 auditor's report to the Applicant. Within that report the auditor declared that he had not been provided with the records and documents for the account until 12 July 2021. 2. On 1 December 2021, the Delegate of the Secretary decided to take disciplinary action against the Applicant pursuant to s 111(1) of the PSA Act. The disciplinary action against the Applicant under s 192 of the PSA Act was a reprimand and fine in the amount of $5,500. The Application 1. The Applicant has applied to the Tribunal for external review of the decision. The application indicated that the review was sought on the following grounds: The accountant lodged on time, that being 27th November, so it was not neglected. Page 5 Service NSW advised in February that they were not lodged and then advised they were and the letter was a glitch in the system but to relodge, accountant did and otified [sic] us of the same, so that was also was not neglected. Page 5 We did comply with both the legislation and the orders. We have been let down by both Services NSW and the accountant engaged to do the work, both of whom at varying times advised the audits were done. 1. The Applicant in written submissions concedes that the audit was not lodged on time and that that issue is not in dispute. But rather, the severity of the disciplinary action is the matter which the Applicant seeks the Tribunal to review and reconsider. Hearing 1. The matter was first listed for hearing on 28 April 2022. The proceedings were adjourned part-heard and completed on 1 June 2022. The Applicant's submissions 1. The Applicant submits that it ordered the audit from Mr Watson at the appropriate time in or around 22 or 27 November 2020. Despite this, the Applicant concedes that the audit was not lodged on time and that this is not in dispute. The Applicant submits that the surrounding circumstances should be taken into consideration when the Tribunal considers whether a monetary fine is the appropriate disciplinary action in response to its failure to lodge the audit. 2. The Applicant submits that during the Covid-19 period the usual auditing process did not take place. As Mr Bice set out in his evidence, that usual process would involve Mr Watson attending the offices of the Applicant and obtaining information to complete the audit. Due to Covid-19 restrictions that audit process did not take place. The new process involved Mr Watson having a questionnaire completed by the Applicant and completing the audit in his offices without attending the Applicant's premises. 3. Trust accounting staff of the Applicant completed the request for information and sent it to Mr Watson. The Applicant contends that neither the auditor, Mr Watson, nor the trust staff had been diligent and through in any way and failed to include the relevant information to each other so that the audit could be completed. The Applicant's main contention is that the records were sent and caused to be audited but the auditor failed to undertake his duties within the required time period fixed by the Respondent. The Applicant submits that due to a 'glitch' in the Service NSW system, the Applicant was told via the auditor that the audits had to be submitted on time and resubmitted. It is alleged that due to an oversight of Service NSW and there being a glitch in their system, the later February correspondence would have been for only one trust account rather than five trust accounts and easily discovered and remedied. 4. The Applicant submits that it has submitted more than 80 previous audits over a number of years, both manually and through the auditor, without any failure to do so. 5. In relation to the severity of the penalty and disciplinary action, the Applicant submits the following: 6. there is no breach or suggestion of misuse of trust monies, which diminishes public confidence in an unwarranted action against an agent on the back of a Services NSW computer glitch resulting in a Services NSW accusation that four trust audits were not submitted when four of the five were submitted on time and the subsequent confusion it created. Had the computer glitch been corrected there would have been no confusion about the outstanding audit by the Applicant; 7. the Applicant did not fail to cause the audit to be audited, it contends it submitted the audit to the auditor and it was the auditor who failed to lodge the audit on time; 8. there is no evidence that the failure caused the trust accounts not to be audited by a qualified auditor particularly given the Covid-19 requirements that the auditor was to work outside of attending the Applicant's office; 9. the audit did not reveal any inconsistencies with the requirements under the law. The Respondent's submissions 1. 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. 2. Nevertheless, the Respondent submits that the exercise of discretion by the Respondent to impose a reprimand and a monetary penalty of $5,500, was warranted in circumstances where: * 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; * 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; * 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; * 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 12 July 2021; * the Applicant received at least three reminders to complete its audit on 1 July 2020, 27 November 2020 and 9 February 2021; * the objective evidence establishes that the licensee did not provide the records and documents for the trust account to the auditor until 12 July 2021, more than six months after the 31 December 2020 deadline; * there is evidence of admissions on behalf of the Applicant to corroborate the fact that the licensee did not provide the records and documents to the auditor until 12 July 2021 including, on 14 July 2021, when Mr Bice sent an email to the licensee in charge Ms Borstel copying in the Disciplinary Action Unit of the Respondent which stated: It was done intentionally to show you the history of the confusion and oversight on my part with the five audits that were required. * the auditor declared that he did not receive the records and documents from the Applicant until 12 July 2021; * there is no evidence to substantiate the Applicant's initial submissions that it paid for the audit for the trust account before 12 July 2021; * in the Grounds for Application and in evidence the Applicant claimed that by sending a notice about the trust account number, together with other notices for unrelated entities to Mr Watson, he had been properly instructed to carry out the audit for the Applicant, this is not evidence of instructing Mr Watson to complete the audit; * the objective evidence proves the Applicant did not instruct the auditor in respect of its trust audits at the time of the purported 'glitch'; * the submission that the Applicant has prepared and lodged 80 audits over 20 years should be rejected. The Applicant is an entity and that Mr Bice is not the licensee in charge of the Applicant, who, is the individual responsible for the breach of s 111(1) of the PSA Act; and * the purported computer 'glitch' did not relate to the Applicant, if anyone, it may have related to and affected Hunter R/E only. 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 Morrisey submitted that the Respondent has only imposed a reprimand and a penalty of $5,500 which is much lower than the maximum $22,000.00 penalty that could have been imposed. 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 or by the extended deadline of 31 December 2020. 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. It is conceded by the Applicant that it 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 [17] – [20] 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. I refer to paragraphs [6] to [13] above which set out the evidence that 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 extended on 31 May 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 26 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. In an email dated 13 July 2021 Mr Bice's reply included: … As you are all aware the auditor attended our office last year for the purpose of auditing the trust account. I will contact them today, however it appears for whatever reason he only audited the rental trust account. I think this is because this is what he usually did as this was the first year Belmont operated a separate sales trust to the New Lambton, Mayfield and Wallsend offices. I do not know why he overlooked the sales trust, however I believe he was aware of the same and overlooked it for whatever reason, we will never know. … 1. The Applicant was 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. The primary explanation by the Applicant is that it caused the trust account to be audited by Mr Watson and, therefore, it was in compliance with the PSA Act. The Applicant explains that due to a 'glitch' in Service NSW's system it was sent a requirement to resubmit a number of audits, most of those relating to Hunter R/E which were forwarded to Mr Watson. Due to this glitch it was confusing as to what audits had been submitted and completed. Mr Watson was copied into this material to essentially work it out. 2. The Applicant contends that it instructed Mr Watson to complete the audit by sending the notifications from Service NSW to him. I reject this contention. The objective evidence reveals that Mr Watson was not made aware of the Applicant's trust account until 12 July 2021. I am not satisfied that, if a notice for account ending xxx191 was simply sent to the office of Mr Watson from correspondence received by the Applicant from Service NSW, this constitutes instructing him to undertake an audit. I have placed significant weight on the evidence of Mr Watson that he was not aware that there was a separate trust account to be audited for the Applicant by him. I accept his evidence that he only became aware of this on 12 July 2021. 3. I am of the view that the failure of the Applicant to have the trust account audited was of its own making. While I can appreciate the process in which auditing was to be undertaken in the 2020/2021 year was different to previous years because of Covid-19 arrangements, that in itself does not derogate the responsibility of the Applicant to properly instruct its auditor to complete an audit of trust accounts. Regardless of Mr Bice, Ms Borstel and/or Mr Watson's prior arrangements for auditing trust accounts, the objective evidence is that the Applicant failed to appropriately, or at all, notify Mr Watson that the trust account existed and was required to be audited. This was not by any fault of the apparent 'glitch' in the Service NSW system. Either Ms Borstel or Mr Bice failed to specifically instruct Mr Watson about the existence of the Applicant's new trust account and that it was to be audited. This failure has no connection with the 'glitch' in the Service NSW system. 4. In the circumstances little weight can be given to Mr Bice's evidence in this regard. 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. 5. 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. 6. 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. 7. 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. 8. In this matter, I agree that the imposition of a monetary penalty is warranted. I consider that the penalty of $5,500 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. It also serves as a reminder that clear instructions should be given to any advisor such as an auditor, or an accountant, about the particular request that is made of them. Managing other peoples money comes with it great responsibility. Real Estate Agents must ensure they meticulously adhere to the PSA and auditing requirements. In the circumstances of this matter, the Applicant has inadvertently failed to do so, most likely as a result of poor administrative systems and protocols. 9. 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: 09 January 2023