CITATION: Saglimbeni v Commissioner for Fair Trading, NSW Office of Fair Trading [2008] NSWADT 1 DIVISION: General Division APPLICANT Annamaria Saglimbeni PARTIES: RESPONDENT Commissioner for Fair Trading, NSW Office of Fair Trading FILE NUMBER: 073046 HEARING DATES: 18 June 2007, 9 August 2007 SUBMISSIONS CLOSED: 3 September 2007 DATE OF DECISION: 7 January 2008 BEFORE: Montgomery S - Judicial Member CATCHWORDS: Property, Stock and Business Agents Act - Real Estate agent - licence or certificate of registration - grant MATTER FOR DECISION: Principal matter Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Licensing and Registration (Uniform Procedures) Act 2002 Property, Stock and Business Agents Act 2002 Clarke v Commissioner for Fair Trading [2004] NSWADT 273 Cross v Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69 CASES CITED: Davidson v Commissioner for Fair Trading [2004] NSWADT 200 McDonald v Commissioner for Fair Trading [2004] NSWADT 124 McDonald v Director General of Social Security (1984) 1 FCR 354 Smith v Commissioner for Fair Trading [2004] NSWADT 182 APPLICANT In person REPRESENTATION: RESPONDENT B Lu, solicitor ORDERS: 1. The decision of the Commissioner for Fair Trading to refuse to renew Ms Saglimbeni's licence is set aside 2. The matter is remitted for reconsideration by the Commissioner with the recommendation that the licence be granted if Ms Saglimbeni satisfies all the other requirements for the grant of the licence. REASONS FOR DECISION 1 Ms Saglimbeni applied for the renewal of the Real Estate Agent's licence she held under the Property, Stock and Business Agents Act 2002 ("the Act") which was due to expire in July 2006. A delegate of the Commissioner for Fair Trading determined to refuse to grant Ms Saglimbeni's application. The Commissioner's delegate was not satisfied that Ms Saglimbeni took all reasonable steps to avoid the administration of Station 1 Pty Limited, ACN 109 146018 ("the Company"). 2 An internal review affirmed that Ms Saglimbeni's application should be refused. Ms Saglimbeni has applied to this Tribunal for an external review of the determination. Relevant legislation 3 Section 3(1) of the Act defines a real estate agent as follows: "real estate agent" means a person (whether or not the person carries on any other business) who, for reward (whether monetary or otherwise), carries on business as an auctioneer of land or as an agent: (a) for a real estate transaction, or (b) for inducing or attempting to induce or negotiating with a view to inducing any person to enter into, or to make or accept an offer to enter into, a real estate transaction or a contract for a real estate transaction, or (c) for the introduction, or arranging for the introduction, of a prospective purchaser, lessee or licensee of land to another licensed agent or to the owner, or the agent of the owner, of land, or (d) collecting rents payable in respect of any lease of land and otherwise providing property management services in respect of the leasing of any land, or (e) for any other activity in connection with land that is prescribed by the regulations for the purposes of this definition. but does not include a person who carries on business as an auctioneer or agent in respect of any parcel of rural land unless the regulations otherwise provide. 4 Section 8(1)(a) of the Act provides that a person can not act or carry on the business of a real estate agent, unless the person is the holder of a real estate agent's licence. 5 Section 14(1) of the Act provides: 14 Eligibility for licence or certificate of registration (1) A natural person is eligible to hold a licence only if the Director-General is satisfied that the person: (a) is at least 18 years of age, and (b) is a fit and proper person to hold a licence and each person with whom the person is in partnership in connection with the business concerned is a fit and proper person to hold a licence, and (c) has the qualifications required for the issue of the licence, and (d) is not a disqualified person, and (e) has paid such part of any contribution or levy payable under Part 10 (Compensation Fund) as is due and payable on the granting of the licence. 6 Section 19 of the Act states that an application must not be granted if the applicant is ineligible to be granted a licence. 7 Section 16(1) of the Act provides in part: 16 Disqualified persons (1) A person is a disqualified person for the purposes of this Act if the person: … (c) is an undischarged bankrupt or is a director or person concerned in the management of a corporation that is the subject of a winding up order or for which a controller or administrator has been appointed, unless (in the case of an undischarged bankrupt) the Director-General has certified that he or she is satisfied that the person took all reasonable steps to avoid the bankruptcy, or … (e) at any time in the 3 years preceding the application for the licence or certificate of registration, was concerned in the management of a corporation when the corporation was the subject of a winding up order or when a controller or administrator was appointed, unless the Director-General is satisfied that the person took all reasonable steps to avoid the liquidation or administration, or 8 Section 17(2) of the Act states that Part 2 of the Licensing and Registration (Uniform Procedures) Act 2002 ("the Uniform Act") applies to and in respect of a licence. Section 12(4) of the Uniform Act provides that an application for a licence must contain such information as is required by the relevant application form or as is otherwise required by or under the relevant licensing legislation. Section 18 of the Uniform Act states that a licensing authority may grant the application, either unconditionally or subject to such conditions as are authorised or required by the relevant licensing legislation, or refuse the application. 9 Section 26 of the Act provides: 26 Effect of applying for restoration of expired licence (1)-(5) (Repealed) (6) If an application for the restoration of an expired licence or certificate of registration is duly made: (a) anything done by the holder of the expired licence or certificate of registration between its expiry and the determination of the application for restoration (whether the application is granted or refused) is taken to have been done as the holder of a licence or certificate of registration, except for the purposes of sections 8 (1), 9 (1) and 10, and (b) if the application is granted, the restored licence or certificate of registration is taken to have had effect from the expiry of the expired licence or certificate of registration (and is to be expressed to take effect accordingly). Background 10 It is common ground that Ms Saglimbeni had been a real estate agent for approximately 61/2 years. She held a certificate of registration from December 1999 to December 2003 and a real estate agent licence from July 2003 to July 2006. Ms Saglimbeni is a director of the Company and that the Company had a receiver/manager appointed on 13 February 2006 and an administrator was appointed on 6 September 2006. 11 The Company was first registered in May 2004 and was specifically set up to purchase the property at 102-120 Railway Street, Rockdale" ("the property"). The contract for the purchase of the property was exchanged on 31 May 2004. The purchase price was $3 Million. A preliminary deposit of $17,000 was paid prior to the exchange of the contract. A further sum of $73,000.00 was paid on exchange. An additional sum of $60,000 was paid 42 days after the exchange. 12 The contract was subject to the purchaser providing to the vendor written confirmation of a loan approval to complete the purchase of the property. If the written confirmation was not provided within the 42 days (i.e. by 12 July 2004) then either party was entitled to rescind the contract and the purchaser shall be entitled to a refund of all monies paid except the preliminary deposit of $17,000. 13 On 25 June 2004, the Company received conditional approval from LKM Capital Limited ("LKM") to borrow the sum of $2,611,000. The loan period was 12 months. The approval was subject to the lender reserving its right to withdraw the conditional approval at all times prior to settlement before actual advancement of funds without penalty. 14 The settlement date was scheduled for 17 August 2004. LKM withdrew its conditional approval prior to 17 August 2004. On 26 August 2004, the Company obtained approval to borrow the sum of $2,320,500 from Permanent Trustee Australia Ltd ("PTA"). This amount was secured by a first mortgage on the property but it did not cover the full costs of the purchase of the property. On 27 August 2004 the Company obtained approval to borrow a further sum of $145,000 from Gap Mortgage Facilitators Pty Ltd ("Gap"). That loan was for a period of 90 days and was secured by a second mortgage. Settlement of the property took place on 6 September 2004. 15 Discharge of the Gap loan was required by 5 December 2004. The company obtained a further loan from Galadriel Lothlorien Pty Ltd ("GL") to discharge the Gap loan. The GL loan was for the sum of $240,000 for a period of two months from 4 March 2005 and was at a rate of 14.5% per month. 16 In April 2005 the Company lodged a development application with Rockdale City Council for the strata subdivision of the property. The purpose of the application was to increase the value of the property due to the downfall in the market and refinance the existing loans. That development application was subsequently replaced with further development applications that were approved in October 2005. In November 2005 a valuation report was obtained for submission to St George Bank estimated valuation of the property at $4.2 million. 17 In December 2005, the Company applied to St George Bank to discharge its loans. St George Bank rejected the application. The company could not maintain repayments of the loans and a receiver was appointed on 13 February 2006. 18 The property was sold on 22 May 2006 for $3 million. An administrator was appointed to the Company on 6 September 2006. The Commissioner's case 19 The Commissioner relies on the material filed in these proceedings pursuant to section 58 of the Administrative Decisions Tribunal Act 1997 ("the ADT Act"). In particular the Commissioner relies on the history of events that lead to the appointment of the administrator in support of her assertion that the Tribunal could not be satisfied that Ms Saglimbeni took all reasonable steps to avoid the administration. Ms Lu provided written submissions on behalf of the Commissioner in which she set out the steps that Ms Saglimbeni could have taken to avoid the administration. She made the following submissions: "The purchase was for a significant amount of money and the applicant was a real estate agent. Given these factors, it was reasonably expected that the applicant would exercise greater care in the purchase of the property. This included conduct before the exchange of the contract and conduct after the exchange of the contract. The applicant should have obtained pre-approval from a lender prior to the purchase of the property. Had the applicant obtained pre-approval the Company would not have been caught short on 26 August 2004 when Permanent Trustee Australia Ltd approved a sum of money that was less than the required amount to settle the property. The applicant should never have accepted the conditional approval from LKM Capital Limited. The approval was subject to the lender reserving its right to withdraw the conditional approval at all times prior to settlement. This placed the Company in a dire situation from the outset. Having been put on notice of the lender's right to withdraw the conditional offer, the applicant should have sought to obtain another loan from a more reliable lender. The applicant did not do so and this placed the Company at the mercy of other lenders. The applicant could have elected to rescind the contract given that the conditional approval was highly unsatisfactory to the Company. The election would have occurred within the 42 days of exchange and the Company would have suffered a loss of $17,000.00 only. The applicant elected not to rescind the contract and this caused creditors to sustain losses of more than $2M in total. The Act seeks to exclude persons who have demonstrated an inability to adequately manage their business and who may put their financial needs above those around them. This is a case where the purpose of the Act should be given effect. Having regard to all of the above, it is submitted that the applicant failed to take all reasonable steps to avoid the body corporate becoming an externally administered body corporate. 20 Ms Lu submitted that in these circumstances Ms Saglimbeni should not be granted the licence that she is seeking and accordingly the decision to refuse to renew the licence should be affirmed. Ms Saglimbeni's case 21 Ms Saglimbeni relies on her own evidence. She provided an affidavit in which she sets out the history of the events leading to the refusal of her application and asserts that she took all reasonable steps to avoid the appointment of the administrator. 22 She disputes the Commissioner's assertion that the Company could have could have rescind the contract of sale and only lose the deposit of $17,000. She says that once finance had been approved the Company losses would have been $150,000 plus the expenses leading up to settlement. She further states that she was only one of the directors of the Company and that all the directors agreed that the Company should accept the offer of finance from LKM. 23 She further states that it is the nature of commercial loans that the lender reserves its right to withdraw the approval at all times prior to settlement. The terms of the LKM were not unusual and therefore she did not act unreasonably in agreeing to accept the offer. She says that she was not advised that LKM had withdrawn its conditional approval until just prior to the scheduled settlement date. She relies on several volumes of documents that evidence the process that was undertaken to support her assertion that she then did everything that she could reasonably have done to obtain finance for the purchase of the property. Reasons and Decision 24 The issue for this Tribunal is: what is the correct and preferable decision? The Tribunal makes its own decision in place of the Commissioner's, and there is no presumption that the decision of the Commissioner is correct: (McDonald v Director General of Social Security (1984) 1 FCR 354 at 357). 25 The evidence in this matter is not generally in dispute. The issue is whether Ms Saglimbeni took all reasonable steps to avoid the administration. The tests for establishing whether a person took all reasonable steps to avoid bankruptcy or insolvency have been the subject of several decisions of this Tribunal. In Clarke v Commissioner for Fair Trading [2004] 273 the Tribunal's President O'Connor DCJ reviewed some of those decisions and stated at paragraphs 10 and 11: 10 It has expressed the following views as to the approach to be taken in examining the question of whether the licence holder took 'reasonable steps' to avoid the bankruptcy or insolvency: (i) A general inquiry into the wisdom or otherwise of the original financial dealings that ultimately ended in bankruptcy or insolvency is not contemplated by the Act. The point at which the inquiry commences is when the applicant was 'faced with the possibility' of bankruptcy or insolvency ( Davidson at [20]) or was 'aware' or 'should have been aware' ( McDonald at [21]) of that possibility. The focus is the steps taken to avoid the relevant event (see Smith at [17]) – in cases of the present kind, administration, and later liquidation. (ii) Subject to (i), in assessing reasonableness the Tribunal must examine all the relevant facts and circumstances. (McDonald at [25]), (iii) The steps taken by the applicant must be objectively reasonable in the sense that they would be those taken by a 'reasonable person endowed with the knowledge and experience of the [applicant]'. (McDonald at [26-27]) 11 To these should probably be added a fourth, though it is obvious enough from the provision: (iv) The person under notice has the task of satisfying the Commissioner that he or she took all reasonable steps to avoid the insolvency. 26 The authorities to which the President referred are Davidson v Commissioner for Fair Trading [2004] NSW ADT 200; McDonald v Commissioner for Fair Trading [2004] NSW ADT 124; and Smith v Commissioner for Fair Trading [2004] NSW ADT 182. I also considered the issue in Cross v Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69. While these matters dealt with bankruptcy rather than liquidation or administration, I agree with the President's application of a similar approach in liquidation or administration matters. 27 The test of "reasonable steps" is that of what a reasonable person endowed with Ms Saglimbeni's the knowledge and experience would do. In applying this test I must consider two issues - (i) when did Ms Saglimbeni know, or ought she to have known, that the administration in question was a possibility? and (ii) what steps did she take to avoid that liquidation or administration? 28 I accept Ms Saglimbeni's evidence that she was not aware that LKM had withdrawn its conditional approval until just prior to the scheduled settlement date. I have examined evidence provided under summons and I am satisfied that there is no basis on which it can be asserted that she could have suspected that the withdrawn of the approval was a real possibility prior to that time. In my view, it was reasonable for the Company to have proceeded in the expectation that funds would have been way available from LKM and that the sale of the property would have proceeded on or about 17 August 2004. It was only when LKM withdrew its conditional approval that she could have known that the administration was a possibility. 29 Having formed that view, I must then consider whether the steps that Ms Saglimbeni took after the LKM conditional approval was withdrawn were reasonable. It is clear from the evidence that Ms Saglimbeni immediately sought to obtain other funding. I am satisfied that this was a difficult process because of the urgency of the matter and that this resulted in the Company obtaining short-term funding and an extremely high interest rate. In order to increase the value of the property Ms Saglimbeni sought strata subdivision of the property. In my view this demonstrates that she was at all times attempting to avoid the consequences that ultimately came about i.e. the administration and creditors' losses of more than $2 million. 30 I do not agree with the Commissioner's view that Ms Saglimbeni failed to take all reasonable steps to avoid the externally administration of the Company. It follows, in my view that Ms Saglimbeni is not a disqualified person for the purposes of the Act. Accordingly, the decision to refuse to renew her licence should be set aside. The appropriate order is to remit the matter for reconsideration by the Commissioner, with the recommendation that Ms Saglimbeni's licence be granted if she satisfies all the other requirements for the grant of the licence. Orders 1. The decision of the Commissioner for Fair Trading to refuse to renew Ms Saglimbeni's licence is set aside. 2. The matter is remitted for reconsideration by the Commissioner with the recommendation that the licence be granted if Ms Saglimbeni satisfies all the other requirements for the grant of the licence. 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.