CITATION: Todd v Commissioner for Fair Trading [2005] NSWADT 273 DIVISION: General Division APPLICANT PARTIES: Roderick John Todd RESPONDENT Commissioner for Fair Trading, NSW Office of Fair Trading FILE NUMBER: 053157 HEARING DATES: 1/08/2005 SUBMISSIONS CLOSED: 08/01/2005 DATE OF DECISION: 11/30/2005 BEFORE: Higgins S - Judicial Member APPLICATION: Property, Stock and Business Agents Act - Real Estate, Business, Stock and Station Agent - cancellation of licence - Property, Stock and Business Agents Act - Real Estate, Business, Stock and Station Agent - disqualification - Real Estate, Business, Stock and Station Agent - cancellation of licence - Real Estate, Business, Stock and Station Agent - disqualification MATTER FOR DECISION: Principal matter Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Bankruptcy Act 1966 (Cth) Property, Stock and Business Agents Act 1941 Property, Stock and Business Agents Act 2002 CASES CITED: Todd v Commissioner for Fair Trading [2004] NSWADT 278 revised Todd v Commissioner for Fair Trading, Office of Fair Trading (GD) [2005] NSWADT 14 APPLICANT REPRESENTATION: In person RESPONDENT J Coss, Legal Officer ORDERS: 1. The Respondent's decision to cancel the Applicant's licences is affirmed; 2. The Respondent's decision to permanently disqualify the Applicant from holding a licence or certificate of registration under the 2002 Act or from being involved in the direction, management or conduct of the business of a licensee is set aside REASONS FOR DECISION Background 1 This is an application by Roderick John Todd ("Mr Todd") seeking review of a decision of a delegate of the Commissioner for Fair Trading of the Office of Fair Trading ("the Respondent") to cancel his real estate and stock and station agents licence ("the licences"). This decision was made pursuant to s.192 of the Property, Stock and Business Agents Act 2002 ("the 2002 Act"). In addition to cancelling his licences, the Respondent determined that Mr Todd be permanently disqualified from holding such a licences. The decision was originally made on 6 May 2004. The decision to take disciplinary action against Mr Todd followed a claim by Melvin Woods ("Mr Woods") on the Property Services Compensation Fund ("the Compensation Fund") in respect of a deposit of $45,000 that he paid to Mr Todd, in August 2001, for the purchase of property for which Mr Todd was acting as agent. 2 Mr Todd lodged an application for review of that decision in 2004. That application was determined on 2 December 2004 (see Todd v Commissioner for Fair Trading [2004] NSWADT 278 revised). In that decision the Tribunal affirmed the decision of the Respondent as Mr Todd had failed to repay the Compensation Fund the entire amount that the Fund had paid Mr Woods. Mr Woods appealed this decision and on 6 April 2005 the Appeal Panel set aside the decision of the Tribunal (see Todd v Commissioner for Fair Trading, Office of Fair Trading (GD) [2005] NSWADT 14). The Appeal Panel set the decision of the Tribunal aside for want of jurisdiction as no internal review had been undertaken as required by s.55(1) of the Administrative Decisions Tribunal Act 1997. The Appeal Panel remitted Mr Todd's application for review on the understanding that the Respondent would undertake an internal review. This internal review was undertaken on 26 April 2005 and in undertaking the review the Respondent became aware that Mr Todd was an undischarged bankrupt. Accordingly, when making the internal review determination, the Respondent had regard to Mr Todd's conduct in respect of the deposit paid by Mr Woods in August 2001 and the circumstances that surrounded him becoming a bankrupt. Relevant legislation 3 At the time Mr Todd received the deposit from Mr Woods the applicable legislation was the Property, Stock and Business Agents Act 1941 ("the 1941 Act"). That Act, like the 2002 Act, contained provisions that regulated the manner in which a licensee was to hold and account for money he/she received as a licensed agent under the Act from third parties. This included a requirement that a licensee was to hold that money exclusively for that person and "to be paid to such person, or to be disbursed as the person directs, and until so paid or disbursed the money shall be paid into a bank, building society or credit union operating in New South Wales to a trust account, whether general or separate, and retained therein." (see s.31(1) of the 1941 Act). 4 The 1941 Act was repealed and replaced by the 2002 Act as from 1 September 2003. The Respondent made his determination pursuant to the disciplinary provisions in the 2002 Act. While the 2002 Act came into operation on 1 September 2003 all acts done pursuant to the 1941 Act were deemed to have occurred for the purposes of the 2002 Act: see transitional provisions in Schedule 1 of the 2002 Act. 5 Section 191 of the 2002 Act sets out the grounds on which disciplinary action can be taken. So far as is relevant to this application, that section provides as follows: "s.191 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, or the regulations under any such Act, whether or not the person has been prosecuted or convicted by an offence in respect of the contravention, … (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. 6 Section 16 of the 2002 Act defines the term "disqualified person" for the purposes of that Act. So far as is relevant, that section provides as follows: "s.16(1) A person is a disqualified person for the purposes of this Act if the person: … (c) is an undischarged bankrupt … 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. 7 Section 16(1)(d) of the 2002 Act also provides that a person remains a disqualified person for three years after he/she has been discharged from bankruptcy unless the Director General certifies that he is satisfied that the person took all reasonable steps to avoid the bankruptcy. 8 Section 192 of the 2002 Act sets out the disciplinary action that the Director General is able to take against a licensee under the Act. This includes, the cancellation of the licensee's licence (see s.192(1)(g)) and to declare the licensee to be a disqualified person for the purposes of the Act either permanently or for a specified period (see s.192(1)(h)). However the 2002 Act also provides that that disciplinary action cannot be taken unless the Respondent issues to the licensee a notice to show cause under s.195 of the 2002 Act. Such a notice was issued to Mr Todd prior to the May 2004 decision to cancel his licences. That notice related to the deposit paid by Mr Woods to Mr Todd in August 2001. Prior to making his internal Review decision, the Respondent also raised, in writing, with Mr Todd the reasons for his bankruptcy. That is, Mr Todd was given an opportunity to respond to the question of whether he had taken reasonable steps to avoid the bankruptcy. Evidence 9 Mr Todd gave oral evidence at the hearing of this matter. Mr Todd also relied on documentary material that he had provided to the Respondent and the Tribunal previously. The Respondent relied on the material it held in its internal files on Mr Todd. As the evidence in relation to the August 2001 deposit by Mr Woods differs to that relating to the circumstances in which Mr Todd became bankrupt, it is convenient to deal with each of these separately. August 2001 deposit by Mr Wood 10 Mr Todd has been a licensed agent for many years. Prior to the cancellation of his licence, on 6 May 2004, Mr Todd was a sole trader and the registered proprietor of the business names CCR Ryans Real Estate Batlow and Batlow Real Estate. On 7 August 2001, Mr Todd entered into a Selling Agency Agreement with LKM Capital Ltd (mortgagee in possession) to act as its agent in the sale of three hotels in the Tumut area. On the same day, Richard Woods, the cousin of Mr Woods, deposited on behalf of Mr Woods an amount of $45,000 directly into the CG Ryans Real Estate Commonwealth Bank trust account. Mr Todd was advised of this deposit under the cover of a letter from Mr Woods, signed by Richard Woods. That letter was sent by facsimile that day and said the following: "Dear Rodney, RE: PROPOSED PURCHASE OF 3 HOTELS As arranged I have today deposited the sum of $45,000.00 into your trust account, copy of the deposit slip is enclosed. As advised the other $5,000.00 is being deposited from another account and you should be in receipt of those funds shortly. I wish to confirm that the funds being deposited into your trust account are merely as an initial holding and good faith deposit to show my bona fide intention to the mortgagee and to undertake the required due diligence once my solicitor is in receipt of the contract for sale. I also confirm that the funds are being deposited on the strict understanding that there are no conditions attached and in the event of me not proceeding for any reason whatsoever, I will immediately be refunded the full $50,000.00. Yours faithfully MELVIN WOODS" 11 Mr Woods in fact did not pay the additional $5,000.00 as he was not successful in purchasing the hotels. 12 In a statement dated August 2003, Mr Woods said that after he was advised of being unsuccessful in the purchase of the hotels he requested Mr Todd to refund him the holding deposit. He does not specify whether he directly made that request or whether he asked his cousin Richard Woods to make the request on his behalf. However, in his statement he goes on to say that in the middle of September 2001 he received a telephone call from Mr Todd who said words to this effect: "Sorry I can't repay you the funds I have used the money elsewhere. … I shouldn't have done it but I will repay the money back." He then goes on to say that on 27 November 2001, Mr Todd submitted to him a written proposal outlining the method and timeframe that he would repay the money back to him. Mr Woods says that he verbally accepted Mr Todd's proposal. A copy of the written proposal is not attached to Mr Wood's statement, however there was no dispute that it is the document Mr Todd had previously provided to the Respondent and which was included in the papers before the Tribunal. That document indicated that an amount of $16,000 had been repaid to Mr Woods by 17 October 2001. The proposal went on to say that Mr Todd would pay $10,000 on 30 November 2001, $10,000 on 10 January 2002 and a further $4,000 on 31 January 2002. The proposal also included a further payment of $10,000 plus $5,000 interest, without the date for payment being specified, from Direct Realty to Mr Woods. 13 In his statement Mr Woods went on to say that Mr Todd failed to honour what he had proposed and as a result Mr Woods commenced legal proceedings to recover the amount that was outstanding. 14 It is not disputed that on 22 February 2002, Mr Woods obtained judgment against Mr Todd for the sum of $36,291.34. Mr Todd did not contest Mr Woods' claim as he acknowledged that he owed this amount of money. However, he once again sought time to pay the judgment amount, which was rejected by Mr Woods. Some time later, Mr Woods made a claim on the Compensation Fund, which is administered by the Respondent. On 20 May 2003, Mr Woods received a payment of $32,679.05 from the Fund. And as mentioned above, it was this claim, which brought the matter to the attention of the Respondent. 15 Having made the payment to Mr Woods, the Respondent, as it was entitled to do, sought to recover the amount that was paid from the Compensation Fund to Mr Woods from Mr Todd. Mr Todd did not dispute that the amount claimed but again requested time to pay. The Respondent agreed to a payment plan, which was not adhered to by Mr Todd, but it was all repaid in November 2004. 16 Although Mr Todd has not disputed that he owed Mr Woods the $45,000.00, he denied that he used this money without the authority of Mr Woods. It was Mr Todd's evidence that when the sale of the hotels fell through Mr Woods agreed to loan him the money as he needed some funds at that time because he was involved in a family law dispute with his wife. He said that on the day he received the deposit from Mr Woods, or some time shortly thereafter, the vendor advised him that the sale of the 3 hotels had been withdrawn. On being advised of this he approached Norm Boyle, who was a broker across the corridor from his real estate business and asked him to speak to Richard Woods and ask Richard Woods to speak to his cousin Mr Woods to see if he would permit Mr Todd to use the $45,000 for his own personal use. In making the request Mr Todd said that he also put forward a payment plan that included the payment of $5,000 interest. It was Mr Todd's evidence that Mr Woods agreed to loan him the money and the payment plan that he had put forward. However, after he had missed the 30 November 2001 payment, Norm Boyle advised him that this missed payment was not good as Mr Woods was having personal relationship problems with his new girlfriend. It was these relationship problems, which Mr Todd contended were Mr Woods' motivation in commencing proceedings against him in the Local Court. 17 Although Mr Woods was not called to give evidence, in my opinion, his account of events as set out in his statement, are more consistent with the documentary material that is before the Tribunal. On the other hand, Mr Todd's account of events are difficult to reconcile with that which is recorded in the documents. Mr Todd did not call Norm Boyle or Richard Woods and as mentioned above, it was Mr Todd's evidence that a loan agreement was entered into some time around 7 August 2001 between himself and Mr Woods and that this loan would be repaid in accordance with Mr Todd's payment plan. There was only one payment plan that Mr Todd could point to and this was the plan of 27 November 2001, which noted payments of $16,000 on 17 October 2001. If this payment plan is a reflection of what was agreed at that time, then it can only be an agreement as to when payments were to be made for what remained outstanding. It was not an agreement to loan Mr Todd the $45,000.00. 18 There is also no document, which supports such a loan agreement having been entered into at about 7 August 2001. Indeed the abovementioned letter from Mr Woods is directly to the contrary to this and if a loan agreement had been entered into one would expect to see this recorded in some form or other, particularly as Mr Todd did not speak to Mr Woods directly. 19 It is also interesting to note the transactions that are recorded in the Commonwealth bank statement of the GC Ryan Real Estate trust account for the month of August. That account recorded a credit balance of $426.00 as at 6 August 2001. It then recorded a deposit of $45,000 (i.e. Mr Woods' deposit) and a withdrawal of $121 on 7 August 2001, leaving a credit balance of $45,305. On the following day, 8 August 2001, there is a further deposit of $245 and several withdrawals that totalled $4,093.64 leaving a credit balance of $41,636.36. There were further deposits during the course of that month but the amount of withdrawals far exceeded that which had been deposited and as at 3 September 2001 the credit balance in the account had been reduced $8,841.75. As the withdrawals were not made to, or on behalf of Mr Woods, there can be only one conclusion; Mr Todd used Mr Woods' money for his own purposes. 20 The Respondent recovered some of the cheques that were drawn, by Mr Todd, in August 2001, on the trust account. These included 8 cheques totalling $4,464.00 to his former wife. Mr Todd explained that these cheques were for cleaning services that his wife had provided at rented premises. Mr Todd went on to explain that rent was received from these premises but he was unable to show where that rent was deposited into the trust account and from which these payments could be made. There were also several payments made to the TAB, which Mr Todd explained were made on behalf of his former wife. 21 Accordingly, from the material before the Tribunal, I find that there was no agreement by Mr Woods to loan Mr Todd the money he had deposited with him. I find that at all times Mr Todd held the money deposited by Mr Woods on trust and that he used that money for his own purposes in breach of that trust. And I also find that on or about 27 November 2001 Mr Woods and Mr Todd agreed as to how Mr Todd was to repay the deposit to Mr Woods. 22 In making these findings I do not find that Mr Todd has deliberately given false evidence. In my opinion, Mr Todd finds it difficult to take full responsibility for his own actions, instead he interprets events in such a way to justify the actions he had taken. This is no excuse for the serious breaches of the trust account provisions of the 1941 Act (see s.36(1)) which continue to apply to licensed agents under the 2002 Act (see Part 7). Furthermore, Mr Todd appears to have no understanding about the proper use of a trust account, which he used as if it were his own. Had he used that account in accordance with the requirements of the 1941 Act it would have been obvious to him that, without the written authority of Mr Woods, he could not use that money even if he was in financial difficulty at that time. Bankruptcy 23 Mr Woods, having been unsuccessful in having his judgment debt satisfied, had issued Bankruptcy Notices on Mr Todd in 2002. However, these were not proceeded with after Mr Woods was successful in being compensated from the Compensation Fund. However, on 16 December 2003, Mr Todd was served with another Bankruptcy Notice. That Notice was issued by D.M.G. Regional Radio South, and the debt on which it was issued was a default judgment debt that the radio station had obtained against Mr Todd on 7 August 2003 in the Local Court. The debt related to radio advertising for Mr Todd's business D.C. Ryans Real Estate. It was also a debt that had arisen in 1999. Mr Todd was unsuccessful in having the judgment set aside and then sought to enter into a payment arrangement with the radio station. A creditor's petition was filed on 4 June 2004 and it would appear that he was made bankrupt shortly thereafter. 24 Mr Todd explained that he disputed the amounts owed. The radio station had two types of advertising services and he had authorised only one of these. When asked what steps he took to avoid the bankruptcy he explained that he sought to negotiate with the creditor but the creditor refused to enter into such negotiations. These negotiations primarily having taken place after judgment had been obtained against him. Mr Todd also expressed the view that his bankruptcy was "forced" on him as the radio station refused to negotiate. Consideration 25 The fact that Mr Todd is an undischarged bankrupt, prima facie makes him a "disqualified person" for the purposes of the 2002 Act: see s.16(c) of the 2002 Act. This on its own is sufficient grounds on which to invoke disciplinary action under s.191(1)(d) of the 2002 Act. However, if the Respondent is able to certify that he is satisfied that the undischarged bankrupt took all reasonable steps to avoid his bankruptcy that person is no longer a "disqualified person": see s.16(c) of the 2002 Act. It is well established that the onus is on the undisclosed bankrupt (i.e. Mr Todd) to put before the Respondent (in this case the Tribunal) sufficient material on which the subject certification can be made. 26 In my opinion, the material before the Tribunal does not indicate that Mr Todd took all reasonable steps to avoid his bankruptcy. As with his earlier debt to Mr Woods, Mr Todd did no more than seek to delay the inevitable. He failed to take the appropriate action to bring to the attention of the radio station the fact that he disputed their accounts and then failed to initiate a payment plan at the earliest opportunity. Instead he allowed the debt to increase and did not do anything until it was far too late. In the circumstances it is perfectly understandable why the radio station would not negotiate with him any further. 27 Having failed to come within the exception as contained in s.16(1)(c) of 2002 Act, the next question is what disciplinary action is appropriate having regard to Mr Todd's bankruptcy. 28 As set out above, the disciplinary action that can be taken by the Respondent is set out in s.192 of the 2002 Act, which includes cancelling a licence (see. s.192(1)(g) of the 2002 Act) and declaring a licence holder "to be a disqualified person for the purposes of this Act, either permanently or for a specified period" (see s.192(1)(h) of the 2002 Act). S.192(2) of the 2002 Act provides that one or more of the disciplinary actions in s.192(1) can be taken by the Respondent against a licensee. 29 In this application Mr Todd, being an undischarged bankrupt, is a disqualified person for the purposes of the 2002 Act. Furthermore, Mr Todd's bankruptcy is sufficient grounds to cancel his licence pursuant to s.192(1)(g) of the 2002 Act. His means that he is prevented from being the holder of a licence while he remains an undischarged bankruptcy: see s.14(1)(d) of the 2002 Act (i.e. three years from the date he filed his statement of affairs: see s.149(4) Bankruptcy Act 1966) and for a further three years after he has been discharged from his bankruptcy (see 16(1)(d) of the 2002 Act). Consequently, as a result of his bankruptcy, Mr Todd can not be considered as being eligible to hold a licence under the 2002 Act before 18 March 2011, being 6 years after the date on which he filed his statement of affairs (i.e. 17 March 2005). 30 Mr Todd's conduct in respect to the manner in which he accounted for and dealt with Mr Woods' deposit also provided a basis for taking disciplinary action, in particular the fact that he contravened the requirements of the 1941 Act (see s.191(a) of the 2002 Act) and the fact that in the course of carrying on his business under his licence he acted "unlawfully" and "improperly" (see s.191(c) of the 2002 Act). 31 The question is whether his conduct in respect of Mr Woods' deposit was sufficient to declare him a disqualified person under s.192(1)(h) of the 2002 Act. In my opinion it was. Not only was the conduct in breach of one of the fundamental requirements of running a real estate and stock and station agent business it also contravened the 1941 Act. Mr Todd, despite his many years in the industry appeared to be oblivious to the importance of strict compliance to these requirements. However, the evidence suggests that Mr Todd contravened these requirements without any deliberate dishonest intent. This, as explained above, does not excuse his conduct as the community expects a person who is licensed to engage in the business of a real estate and stock and station agent will at all times act in the interest of his or her client and comply with the requirements of the relevant legislative provisions and the law generally. 32 The real question is whether the Respondent's decision to disqualify Mr Todd permanently from holding a real estate licence is the correct and preferred decision. In my opinion it is not. While his conduct in respect of the deposit from Mr Woods was serious, it was an isolated incident and this must be examined in the context of him having worked in the industry for many years without a complaint being made against him. Nor is his bankruptcy such to warrant permanent disqualification when considered in isolation or when considered together with his other contravening conduct. The Respondent also sought to rely on the fact that Mr Todd had failed to advise the Respondent or the Tribunal of his bankruptcy when his initial application was heard. Although Mr Todd had been required to disclose this fact, in my opinion this was not a deliberate act of deception by Mr Todd. I accept that he did not understand that this was a requirement and had he done so he would have advised accordingly. However, it would appear to be another example of Mr Todd's inability to understand what is required of him if he is licensed under the 2002 Act and if he were to apply for a licence after his period of disqualification he would need to satisfy the Respondent that he had taken all the necessary steps to understand what was required of him if licensed. 33 Having regard to all the material before the Tribunal, Mr Todd's conduct in respect of Mr Wood's deposit would warrant a disqualification for one to two years. That period should not be added to the period for which he is disqualified on the basis of his bankruptcy by reason of s.16(1)(d) of the 2002 Act (i.e. 6 years from the date of filing a statement of affairs). 34 It is also noted that the Respondent having been advised of Mr Todd's conduct in August 2002, took more than 16 months to investigate the conduct, although serious was relatively straight forward, and to issue Mr Todd with a show cause notice. During this time Mr Todd continued to trade, which suggests that the Respondent did not regard this as the most serious of breaches. 35 For the reasons set out above, in my opinion the Respondents decision to cancel Mr Todd's licences was the correct and preferred decision. However, the Respondent's decision that Mr Todd be permanently disqualified from (a) holding a licence or certificate of registration under the 2002 Act; and (b) being involved in the direction, management or conduct of the business of a licensee is not the correct and preferred decisions and should be set aside. 36 As mentioned above, once Mr Todd ceases to be a disqualified person, the Respondent will need to consider a fresh any application that may be made by Mr Todd having regard to the applicable law at that time. If the same or similar provisions apply it will be incumbent on Mr Todd to demonstrate to the satisfaction of the Respondent that he has the necessary understanding and knowledge of what is required of a person licensed to engage in the business of a real estate agent and a stock and station agent. 37 The Tribunal orders: (a) the Respondent's decision to cancel the Applicant's licences is affirmed; (b) the Respondent's decision to permanently disqualify the Applicant from holding a licence or certificate of registration under the 2002 Act or from being involved in the direction, management or conduct of the business of a licensee is set aside. 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.