Court of Appeal Supreme Court New South Wales Medium Neutral Citation: State of New South Wales v Loh Min Choo [2012] NSWCA 275 Hearing dates: 23 July 2012 Decision date: 06 September 2012 Before: McColl JA at [1]; Campbell JA at [2]; Macfarlan JA at [3] Decision: (1) Appeal allowed in part. (2) Set aside the orders made at first instance on 1 December 2011. (3) If the parties are able to agree as to the further orders that should be made to give effect to this judgment, direct that they lodge an appropriate form of consent order with the Court within seven days of the date of this judgment. (4) If the parties are unable to so agree, direct that they file and serve submissions (not exceeding three pages in length) concerning the further orders that should be made, with the appellants to lodge their submissions within 14 days of the date of this judgment, the respondents to lodge their submissions within 14 days thereafter and the appellants to lodge any reply within a further seven days. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: AGENCY - real estate agents - failure by real estate agent to account for funds entrusted to it - claims against Property Services Compensation Fund established under Property, Stock and Business Agents Act 2002 - whether claims out of time - whether claims made more than two years after the failures to account or more than 12 months after the claimants became aware of the failures to account - meaning of "failure to account" - whether overcharging for commission constituted a failure to account - whether pecuniary loss suffered as a result of failure to account where prior misappropriation of funds - whether compensation to joint owners of funds limited by s 175 to one shared amount of $500,000 - whether costs of court proceedings included in amount to which claims limited - date from which claimants entitled to interest under s 100 Civil Procedure Act 2005 Legislation Cited: Civil Procedure Act 2005 Commonwealth Electoral Act 1918 (Cth) Property, Stock and Business Agents Act 2002 Law Reform (Miscellaneous Provisions) Act 1946 Cases Cited: Commissioner of Taxation v Reliance Carpet Co Pty Ltd [2008] HCA 22; 236 CLR 342 David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; 184 CLR 265 Deming No 456 Pty Ltd v Brisbane Unit Development Corporation Pty Ltd [1983] HCA 44; 155 CLR 129 Do Carmo v Ford Excavations Pty Ltd [1984] HCA 17; 154 CLR 234 Emanuele v Australian Securities Commission [1997] HCA 20; 188 CLR 114 Financial Industry Complaints Service Ltd v Deakin Financial Services Pty Ltd [2006] FCA 1805; 157 FCR 229 Francis v Law Society of New South Wales (1982) 2 NSWLR 191 Glenorcy Pty Ltd v Law Society of New South Wales [2004] NSWSC 464 Harris v Commercial Minerals Ltd [1996] HCA 49; 186 CLR 1 Hamilton v Merck & Co Inc [2006] NSWCA 55; 66 NSWLR 48 Hungerfords v Walker [1989] HCA 8; 171 CLR 125 In re Hodgson [1885] 31 Ch D 177 King v Hoare (1844) 13 M&W 494 at 505; 153 ER 206 Kinzett v McCourt [1999] NSWCA 7; 46 NSWLR 32 Jol v State of New South Wales (1998) 45 NSWLR 283 Law Society of New South Wales v Glenorcy Pty Ltd [2006] NSWCA 250; 67 NSWLR 169 Minahan v Sahib Dad (1925) 25 SR (NSW) 613 Rudolphy v Lightfoot [1999] HCA 61; 197 CLR 500 Swansea City Council v Glass [1992] QB 844 Travel Compensation Fund v Tambree [2005] HCA 69; 224 CLR 627 Tyler v Krause [2002] QCA 295; (2003) 1 Qd R 453 Category: Principal judgment Parties: State of New South Wales (First Appellant) Commissioner for Fair Trading, Department of Finance and Services (Second Appellant) Loh Min Choo (First Respondent) Lim Teck Beng (Second Respondent) Representation: Counsel: B Zipser (Appellants) A Ogborne (Respondents) Solicitors: Department of Finance and Services (Appellants) CFC Lawyers (Respondents) File Number(s): CA 2010/149235 Decision under appeal Citation: Loh Min Choo v State of New South Wales [2011] NSWSC 1477 Date of Decision: 2011-12-01 00:00:00 Before: Associate Justice Harrison File Number(s): SC 2010/149235 Judgment 1McCOLL JA: I agree with Macfarlan JA. 2CAMPBELL JA: I agree with Macfarlan JA. 3MACFARLAN JA: TABLE OF CONTENTS Summary of case and conclusions [4] The Property Stock and Business Agents Act 2002 [14] The judgment at first instance [18] First issue: whether failures to account within two years prior to claims [32] The meaning of "failure to account" [32] The failures to account in the present case [38] Second issue: did the overcharging give rise to a failure to account [49] Third issue: when did the respondents become aware of the failure to account said to arise from the overcharging? [51] Fourth issue: interest under s 100 of the Civil Procedure Act [54] Whether interest payable "as of right" [54] When the respondents' cause of action arose [56] Alternative interest claim [69] Fifth issue: whether the respondents are entitled to one or two amounts of $500,000 [71] Sixth issue: recoverability of costs of court proceedings [74] Costs of the appeal [80] Orders [81] SUMMARY OF CASE AND CONCLUSIONS 4On 25 August 2006 the respondents (Mrs Loh and her husband Mr Lim) engaged Affluent Properties Pty Ltd, trading as a real estate agent under the name Century 21 Property Group, Double Bay, to sell their property in Rose Bay. The respondents' dealings with Affluent Properties were conducted with Mr Rodney Prestia, a director of the company. Both Mr Prestia and the company held real estate agent's licences under the Property, Stock and Business Agents Act 2002 (the "Act"). 5On 5 September 2006 the respondents entered into a contract to sell their property for $14,200,000. The deposit of $5 million was paid to Affluent Properties, the vendors' agent, in two tranches, to be invested in a Deposit Trust Account with the National Australia Bank pending completion. Prior to settlement on 17 November 2006, Mr Prestia transferred $540,000 out of the account without the knowledge or authority of the respondents or the purchaser. 6On settlement, the purchaser supplied an authority and direction to Affluent Properties to account to the respondents for the deposit. Mr Prestia largely complied with the respondents' instructions concerning application of the deposit and balance of purchase money (as augmented by half of the interest earned pending completion and reduced by commission claimed by Affluent Properties), other than an instruction to transfer $600,000 into each of two new NAB deposit accounts. Mr Prestia so transferred only one amount of $600,000, but provided a reconciliation statement to Mrs Loh falsely stating that $582,973.59 (the amount available after adjustments for interest and commission) had been transferred to a second NAB account. 7Mrs Loh gave evidence that it was not until October 2007 that she became concerned that this latter amount might not in fact have been transferred to the second deposit account and that it was not until August 2008, when the respondents commenced proceedings against Affluent Properties and Mr Prestia to recover it, that she came to know that this was so. Those proceedings did not produce any recovery for the respondents. 8On 5 November 2008 the respondents lodged with the New South Wales Office of Fair Trading three claims on the Property Services Compensation Fund established under s 165 of the Act. The purpose of the Fund is to compensate persons who suffer pecuniary loss arising from a failure to account by an agent holding a licence under the Act (s 173(1)). The first claim was for $606,939.80 (representing the amount of $582,973.59 referred to in [6] above together with a balance of $23,967.21 that the respondents claimed had not been paid to them out of the funds received on settlement) plus interest and costs. The second claim was for $47,493.34 (plus interest and costs) representing what the respondents claimed was an excessive deduction that Mr Prestia made from those funds for commission. The third claim was for $40,500 (plus interest and costs) in relation to a property at Maroubra. It is not presently relevant. 9The Director-General of the Department of Fair Trading, who is responsible for administering the Compensation Fund, subsequently advised the respondents that they were not entitled to make the claims as they had not been made within 12 months of the respondents becoming aware of the alleged failure of Affluent Properties and Mr Prestia to account to them (see s 173(2)(a) of the Act). 10With the leave of the Director-General given under s 174(1) of the Act, the respondents commenced the present proceedings claiming payment from the Compensation Fund in respect of the first and second claims described at [8] above. In accordance with s 174(3) of the Act, which requires any proceedings in relation to the Fund to be "as for a debt due by the Crown", the State of New South Wales (the "State") was named as a defendant. It is unclear why the Director-General (now described as the Commissioner for Fair Trading in accordance with the definition of Director-General in s 3(1) of the Act) was also joined as a defendant in light of the directive in s 174(3) that "proceedings do not lie against the Director-General" (compare the s 170 definition (b) of "pecuniary loss" contemplating judgment against the Director-General). In any event the point is of no present significance as the respondents did not seek any relief against the Director-General. 11In her judgment of 1 December 2011 Harrison AsJ found that, as a result of failures by Affluent Properties and Mr Prestia to account, the respondents suffered a pecuniary loss, before consideration of interest and costs, of $670,960.93. After taking into account interest and costs and the caps imposed by s 175 of the Act on recovery from the Compensation Fund, her Honour subsequently entered judgment against the State in favour of the respondents in the amount of $500,000 each. 12The issues on appeal are as follows: (1) Whether the respondents made their claims within two years of the alleged failures to account as required by s 173(2)(b). (2) Whether there was a relevant failure to account in respect of money retained by Affluent Properties for commission to which it was not entitled. The respondents described this issue as one of whether overcharging constituted a failure to account. (3) Whether the respondents made their claims against the Compensation Fund within 12 months of becoming aware of the failure to account said to be constituted by overcharging of commission (see s 173(2)(a)). (4) For what period the respondents could be awarded interest under s 100 of the Civil Procedure Act 2005. (5) Whether s 175 of the Act limits the respondents' recovery to one amount of $500,000, contrary to the primary judge's finding that they were each entitled to an amount of $500,000. (6) Whether costs recoverable by the respondents under any costs orders made in the present proceedings seeking recovery from the Compensation Fund are recoverable in addition to the limits on recovery imposed by s 175. 13For the reasons given below my view is that affirmative answers should be given in relation to issues (1) - (6) except issue (4). As to the latter, I consider that interest under s 100 may only be awarded from the Director-General's grant of leave to commence proceedings until the date of judgment. THE PROPERTY, STOCK AND BUSINESS AGENTS ACT 2002 14The Act is concerned with the regulation of real estate and various other types of agents. Part 10 concerns the Compensation Fund which is "held, and is to be applied, for the purpose of compensating persons who suffer pecuniary loss because of a failure to account" (s 173(1)). A "failure to account" is defined as: "a failure by a licensee to account for money or other valuable property entrusted to the licensee or an associate of the licensee in the course of the carrying on of the licensee's business as a licensee" (s 171(1)). 15"Pecuniary loss from a failure to account" is defined to include: "(a) all costs (including the legal costs and disbursements of making and proving a claim), charges and expenses that a claimant has suffered or incurred as a direct consequence of the failure to account, and (b) all interest on money or other valuable property that a claimant would have received but for the failure to account for the money or other property, with that interest calculated to the date on which the Director-General determines the claimant's claim or a judgment is recovered against the Director-General in relation to the Compensation Fund in respect of that money or other property" (s 170). 16The Compensation Fund comprises, inter alia, amounts paid by licensees by way of levy under the Act (s 166). The purposes for which it may be applied include: "satisfying claims (including costs) established against the Compensation Fund in accordance with this or any other Act" (s 167(2)(a)). 17Relevant parts of ss 173 - 5 of the Act are as follows: "173 Claims against Compensation Fund (1) The Compensation Fund is held, and is to be applied, for the purpose of compensating persons who suffer pecuniary loss because of a failure to account. (2) A person who claims to have suffered a pecuniary loss because of a failure to account may make a claim against the Compensation Fund, but only if the claim is made in writing to the Director-General within: (a) a period of 12 months after the person has become aware of the failure to account, or (b) a period of 2 years after the date of the failure to account, whichever period ends first. ... (5) Subject to this section, the Director-General may receive and allow, in whole or in part, any claim against the Compensation Fund at any time after the relevant failure to account arose. (6) The Director-General may disallow any claim, in whole or in part, in appropriate cases. In particular the Director-General may disallow a claim to the extent that pecuniary loss was suffered as a result of a failure to mitigate loss or was occasioned by unreasonable delay in making a claim. 174 Legal proceedings (1) A person cannot, without the leave of the Director-General, commence any proceedings in relation to the Compensation Fund unless the person has made a claim and the Director-General has disallowed the person's claim. ... (3) Any proceedings in relation to any claim against the Compensation Fund are to be as for a debt due by the Crown and are to be brought in a court of competent jurisdiction. The proceedings do not lie against the Director-General. (4) In those proceedings: (a) all defences that would have been available to the licensee in relation to whom the claim arose are available to the Crown, and (b) all questions of costs are in the discretion of the court or, where the proceedings are tried with a jury, the judge presiding at the trial. ... 175 Limits on amounts recoverable (1) The amount that a person may recover from the Compensation Fund cannot, in any case or in any event, exceed $500,000 or, if another amount is prescribed by the regulations, the prescribed amount. (2) The aggregate sum that may be applied in compensating all persons who suffer or incur pecuniary loss because of a failure to account, or of related failures to account, cannot exceed $2,000,000 or, if another amount is prescribed by the regulations, the prescribed amount. (3) The Director-General may disregard subsection (2) in the case of successive failures to account by a licensee, to the extent that the Director-General is satisfied that the failures are not connected. ..." THE JUDGMENT AT FIRST INSTANCE Did the failures to account occur within two years prior to the respondents' claims? 18The primary judge answered this question in the affirmative, reasoning as follows: "88 The plain meaning of s 173(2) is that [the limitation periods] are to be worked out by reference to the failure to account claimed by the person making the claim. The 'failure to account' referred to in paragraphs (a) and (b) of s 173(2) is clearly the same 'failure to account' identified earlier in the section as forming part of the claim made by the person. Thus, the limitation periods in subsections (a) and (b) of s 173(2) are determined by reference to the failure to account claimed by the person making the claim and not any other failure which may be arbitrarily selected. 89 In addition, a significant factor of difference between cases such as Francis v Law Society of NSW and Law Society of New South Wales v Glenorcy Pty Ltd on the one hand and the present case on the other, is that in the former, the claimant had an immediate claim to the funds deposited with the legal practitioner. In this case, the plaintiffs had no immediate claim on the funds held as a deposit, until settlement of the sale, on 17 November 2006. 90 In my view ... the proper construction of s 173(2) is that the limitation periods in subsections (a) and (b) should be determined by reference to the failure to account claimed by the person making the claim. That failure to account occurred when Mr Prestia failed to account for the deposit when it became due to the plaintiffs, on a date after the completion of the sale of the Rose Bay property on 17 November 2006. Hence, the date of the failure to account is, at the earliest, 17 November 2006 the plaintiffs having made the claim on 5 November 2008 against the Fund under s 173(2(b)." When did the respondents become aware of the failures to account? 19In reliance on Harris v Commercial Minerals Ltd [1996] HCA 49; 186 CLR 1 and Deming No 456 Pty Ltd v Brisbane Unit Development Corporation Pty Ltd [1983] HCA 44; 155 CLR 129, the primary judge held that the reference in s 173(2)(a) to a claimant becoming "aware of the failure to account" referred to actual, rather than constructive, knowledge of the claimant. 20The primary judge accepted Mrs Loh's affidavit evidence that as at 5 November 2007, one year prior to lodgement of the respondents' claims, she was unaware that Mr Prestia had failed to transfer the amount of $582,973.59 into the second NAB account. Her Honour noted that Mrs Loh was not cross-examined on that evidence and that it was supported by a number of circumstances, including Mrs Loh's willingness to entrust Mr Prestia with additional money in early 2007. 21In respect of the alleged failure of Affluent Properties to account for the amount of $47,493.34 by which it overcharged commission, the primary judge held that Mrs Loh's knowledge in late 2006 that Affluent Properties had charged $224,993.34, and her statement to Mr Prestia at the time that that amount did "not seem right" to her, did not indicate that the respondents then had knowledge of the failure to account. Her Honour regarded neither suspicion nor belief that Affluent Properties had overcharged commission as indicating that the respondents knew of the failure to account: they did not acquire that knowledge prior to 5 November 2007. 22The primary judge concluded that the respondents were not entitled to claim the amount of $23,491.35 included in their first claim (see [8] above) because Mrs Loh was aware that Mr Prestia had not accounted for that sum as early as 2006, that is, more than two years before the claim was made (Judgment [120]). This conclusion was not challenged on appeal. Nor was her Honour's conclusion that the respondents were entitled to claim the amount of $40,494 from the Compensation Fund in respect of the third claim to which I have referred above (see [8]). 23The amount of the respondents' relevant pecuniary loss (before consideration of interest or costs) which her Honour found to be established was accordingly as follows: Amount not deposited in second NAB account $582,973.59 Commission overcharged $ 47,493.34 Deposit on Maroubra property $ 40,494.00 Total: $670,960.93 (Judgment [119]). The respondents' costs of making the claim on the Director-General and of bringing proceedings against Affluent Properties and Mr Prestia 24The appellants accepted that the respondents' legal costs of the claims submitted to the Director General were recoverable and the primary judge held that the costs of the proceedings against Affluent Properties and Mr Prestia were recoverable. Neither of these matters are in issue on the appeal. The respondents' entitlement to interest 25The primary judge then dealt with the respondents' claim for an order under s 100 of the Civil Procedure Act 2005 awarding them interest on the amount to which they were entitled from the Compensation Fund. Section 100 relevantly provides as follows: "100 Interest up to judgment (1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. ... (3) This section: (a) ... (b) does not authorise the giving of interest on a debt in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise, and ..." 26The primary judge dealt with an argument of the appellants as follows: "143 The defendant's argument that s 100(3)(b) prevents an award of interest is misguided as interest is not 'payable as of right' under the Property, Stock and Business Agents Act. Successful plaintiffs who obtain a money judgment will generally be entitled to an award of interest. However, there is no relevant agreement in this case, under which the plaintiffs are entitled as of right to interest. Rather, s 170 of the Property, Stock and Business Agents Act entitles them to recoup interest that would have been earned had the failure to account not occurred. This entitles the plaintiffs only to interest awarded by the court or by the Director-General, in their discretion. Sections 173(5) and s 173(6) make plain that the claim (and therefore the interest) is not payable as of right." 27Her Honour then concluded that the respondents were entitled to an award of interest under s 100 from the date of the failures to account (1 December 2006 for the first two claims) at the rates stated in Supreme Court Practice Note SC Gen 16. Limits on amount recoverable: s 175 28The primary judge stated that the respondents' rights to the deposit paid under the contract for the sale of the Rose Bay property were joint and several (Judgment [148]). In response to the appellants' application to adduce evidence on the appeal indicating that those rights were merely joint, the respondents admitted that that was the case. 29On the assumption that the respondents' rights were joint and several, the primary judge reasoned as follows: "150 By s 173 of the Property, Stock and Business Agents Act, the Fund is to be applied for the purpose of compensating persons who suffer pecuniary loss because of a failure to account. In this respect, the Property, Stock and Business Agents Act is clearly beneficial legislation and in the case of any ambiguity it [is] to be construed in a manner which advances the objects of the Act. Section 175(1) of the Property, Stock and Business Agents Act should be read so as to permit the plaintiffs to bring their claims severally and recover compensation to the individual limit permitted by the section. This approach will not involve any double compensation." 30The primary judge also held that the respondents' costs of the proceedings before her were not included in the limit on the amount recoverable as they did not form part of the respondents' pecuniary loss as defined by s 170. Her Honour said that the provision in s 174(4) that "all questions of costs are in the discretion of the Court" suggested that this was so. 31I turn now to resolve the issues on the appeal. FIRST ISSUE: WHETHER FAILURES TO ACCOUNT WITHIN TWO YEARS PRIOR TO CLAIMS The meaning of "failure to account" 32The Act does not define a failure to account beyond the limited definition provided in s 171(1) (see [14] above). There has however been relevant judicial consideration of the expression in other statutes, as follows. 33In Francis v Law Society of New South Wales (1982) 2 NSWLR 191 at 204, Yeldham J referred to such a failure as "a failure to pay or deliver moneys or other valuable property to or on behalf of a person entitled thereto at the time when such payment or delivery should reasonably have been made". 34In Law Society of New South Wales v Glenorcy Pty Ltd [2006] NSWCA 250; 67 NSWLR 169 a question arose as to whether unauthorised transfers out of trust accounts by a solicitor, for his own benefit, constituted "failures to account", or simply misappropriations. Mason P (with whom McColl and Basten JJA agreed) said on that topic: "[26] The Society submits that Smith failed to account in relation to the subject transactions when, contrary to the mandate on which he had received the moneys, he deposited them in bank accounts under his control, thereby misappropriating them. There may have been subsequent failures to account in each transaction, but the Society is correct in this submission as to the nature, timing and (Queensland) location of the initial failures to account in each transaction (see Francis v Law Society of New South Wales [1982] 2 NSWLR 191 at 204-5; Travel Compensation Fund v Tambree (2006) 224 CLR 627 at 632 [6])." 35The decision of Greg James J at first instance in that case (Glenorcy Pty Ltd v Law Society of New South Wales [2004] NSWSC 464) indicates that the misappropriated monies had been paid by the clients to the solicitor "for the purposes of being lent out on mortgage on land particularly in New South Wales in a scheme administered by him" (at [5]). In these circumstances it appears to me that what Mason P said on appeal was consistent with what Yeldham J said in Francis v Law Society of New South Wales in that there was a failure in Glenorcy to pay monies "to or on behalf of" clients in accordance with their directions. It was not simply a misappropriation of monies held in trust accounts on behalf of clients. Indeed this consistency is hardly surprising given that Mason P cited Francis v Law Society of New South Wales as authority for his observations. 36Mason P also cited as authority the following observations of Gleeson CJ in Travel Compensation Fund v Tambree [2005] HCA 69; 224 CLR 627 at [6]: "The word 'beneficiary' is defined to include a person who entrusts money to a travel agent. The trustees hold the fund on trust for the Crown in right of the states and for every person who entrusts money to a travel agent in connection with travel arrangements if the travel agent fails to account for the money. In such a context, failure to account includes, and typically involves, failure to apply money for the purpose for which it was entrusted to the agent" (citation omitted). 37I do not see these remarks as inconsistent with the approach taken in Francis and Glenorcy, nor apparently did Mason P who also cited Tambree as support for his approach. Gleeson CJ's remarks were made in a case concerned with travel agents who, as is common knowledge, regularly receive funds from their clients to be paid to travel or tourist operators. A typical failure to account in that context is a failure to pay such money for the benefit of the client, as directed by the client. This appears to be what Gleeson CJ had in mind. The failures to account in the present case 38A failure to account entitles a claimant to payment from the Compensation Fund only if it causes the claimant pecuniary loss (see s 173(1)). Accordingly if a claimant has already suffered that loss by reason of an earlier failure to account, a later failure to account will not give rise to a right to payment from the Fund. 39In the present case, the money for which the respondents claimed that Affluent Properties and Mr Prestia failed to account formed part of the deposit paid by the purchaser of the Rose Bay property pursuant to the contract for sale dated 5 September 2006. That contract provided for the deposit to be held by Affluent Properties as stakeholder. In addition, verbal instructions were given by the parties to Affluent Properties, at the time of exchange of contracts, for the deposit to be invested (Affidavit of Jonathan Caplan sworn 4 May 2011, [4]). Affluent Properties complied with those instructions by paying the deposit into an investment account with the National Australia Bank. The account was in Affluent Properties' business name as trustee for the respondents and the purchaser. This action appears to have conformed with the obligations imposed on licensees by s 86 of the Act in relation to "trust money", which is defined as "money received for or on behalf of any person by a licensee in connection with the licensee's business as a licensee" (see s 85(1)). Section 86 requires such money to be paid into a trust account (whether general or separate) to be held and applied exclusively as directed: s 86(1). 40It has been held that "[i]n the absence of an arrangement or legislation to the contrary, neither vendor nor purchaser has a proprietary interest in a deposit held by a stakeholder" (Commissioner of Taxation v Reliance Carpet Co Pty Limited [2008] HCA 22; 236 CLR 342 at [19], footnote 10). However, there are factors in the present case that indicate that Affluent Properties held the deposit on trust, even prior to settlement. First, that conclusion follows from the Act's provisions referred to in [39] above, the Act being the statute governing the agent's conduct. Secondly, the Sales Agency Agreement as between Affluent Properties and the respondents indicated that the deposit was to be held (as stakeholder) on trust. Thirdly, Affluent Properties placed the deposit in a separate account which acknowledged the existence of a trust in its title. 41Even if Affluent Properties did not hold the deposit monies on trust, those monies had nevertheless been "entrusted" to the company within the meaning of that word as used in the definition of "failure to account" in s 171(1). As demonstrated by Yeldham J's discussion in Francis v Law Society of New South Wales at 199 and following, and the authorities to which his Honour referred, the concept of entrustment is not confined to the transfer of property to be held on trust. It embraces a transfer of property for the purpose of the recipient assuming responsibility for it in a more general sense. 42Prior to settlement, Mr Prestia (acting on behalf of Affluent Properties) withdrew $540,000 from the Affluent Properties NAB Investment Account, without the knowledge or authority of the respondents or the purchaser. This withdrawal constituted a misappropriation of the money, as it was made not for the purpose of complying with their investment instructions given on exchange, or with any other instructions, but for Mr Prestia's own benefit. However, the act was not in my opinion a "failure to account" to the respondents because there was, at that time, no failure to pay the money to or for the benefit of the respondents in accordance with an instruction given by them, this being the essence of the failure to account as indicated by the authorities to which I have referred. In any event, prior to settlement the respondents were not, without the concurrence of the purchaser, entitled to instruct Affluent Properties as to the disposition of the deposit. 43The position was otherwise on settlement, when Affluent Properties failed to comply with the respondents' instructions to pay $600,000 (in fact only $582,973.59 was available) into a second NAB Deposit Account. Although this was not a failure to pay the money to the respondents as such, it was a failure to pay it as they had directed. It was thus a "failure to account" within the meaning of the Act. As it occurred soon after the date of settlement, 17 November 2006, it took place within the two year period prior to the lodgement of the respondents' claims with the Director-General on 5 November 2008 referred to in s 173(2)(b). 44Subsequent failures to account, for example, in response to an express request made by the respondents in December 2007, did not cause the respondents' pecuniary loss as that had resulted from the failure to account immediately following settlement. Those later failures to account did not therefore entitle the respondents to payment from the Fund under s 173 of the Act. 45It cannot in my view be said that because the relevant part of the deposit had already been misappropriated by Affluent Properties, the respondents did not suffer pecuniary loss as a result of the failure to account following settlement. Even if the respondents had had a trust, and therefore proprietary, interest in the deposit monies prior to settlement, their unauthorised use by Affluent Properties in that period did not relieve Affluent Properties of its obligation to account to the respondents for the monies when directed. The respondents suffered loss when Affluent Properties (and Mr Prestia) failed to comply with that obligation. 46The same conclusion follows if the respondents did not have a proprietary interest in that period, but only contractual rights to have the deposit paid as they directed on settlement (see generally Minahan v Sahib Dad (1925) 25 SR (NSW) 613). The respondents did not suffer loss until the company failed to comply with that direction, that is, failed to account. 47The parties were in dispute as to whether a claimant can select, from a number of failures to account, one that enables the claimant to satisfy the time constraints specified in s 173(2). In my view a claimant may so elect, but to entitle it to payment from the Fund, it will have to choose a failure to account which has caused it pecuniary loss. For the reasons given in [43] - [44] above, a failure to account may not satisfy this requirement if there has been an earlier failure to account. 48To identify the failure to account upon which a claimant relies, it is necessary to have recourse to the claim it submits to the Director-General. The claim form should not be construed in a rigid manner: it may, and often will, be prepared by a person without legal training. In the present case the claim form contained a description of the sequence of events as referred to in this judgment. As the respondents' complaints included the failure to follow their instructions given at the time of settlement, their claim of a failure to account at that time was in my view sufficiently made, notwithstanding that other alleged failures to account were also relied upon. It is sufficient to refer in this respect to the opening paragraph of the claim form in which the respondents claimed that they had suffered loss on 17 November 2006, the date of settlement, by reason of a failure of "Rodney Prestia of Affluent Properties Pty Ltd" to account for their money. SECOND ISSUE: DID THE OVERCHARGING GIVE RISE TO A FAILURE TO ACCOUNT 49In [111] of her judgment, the primary judge treated an overcharging by Affluent Properties for commission of $47,493.34 as a failure to account. However she did not give reasons for doing so as she mistakenly believed that she had done that earlier in her judgment. 50In my view, Affluent Properties did fail to account in respect of that sum. It represented part of the deposit on the sale that was entrusted to it. From the date of settlement, the respondents were entitled to direct Affluent Properties to pay the deposit to them, or other parties, and Affluent Properties did not pay it as directed. Unless Affluent Properties was entitled to the whole or part of that sum as commission (or for any other reason) that failure constituted a failure to account. A subsequent unjustified attempt by Affluent Properties to claim entitlement to the sum as commission could not in my view affect the position. If, as the parties accepted, Affluent Properties' invoice was, to the extent of $47,493.34, an overcharge, it failed to account for the sum that it withheld to cover that part of the invoice. THIRD ISSUE: WHEN DID THE RESPONDENTS BECOME AWARE OF THE FAILURE TO ACCOUNT ARISING FROM THE OVERCHARGING? 51The appellants did not in my view demonstrate any error in the primary judge's factual finding as to when Mrs Loh (and therefore the respondents) became aware that Affluent Properties had overcharged commission, resulting in the unjustified retention of $47,493.34 (see [21] above). Her Honour rightly drew a distinction between suspicion and belief on the one hand and knowledge on the other. It is knowledge with which s 173(2)(a) is concerned when it refers to awareness. 52The appellants emphasised Mrs Loh's acceptance in cross-examination that at a meeting in late 2006 (more than 12 months before the claim was lodged on the Fund) she had told Mr Prestia that "the invoice still doesn't seem right to me" (Transcript p 40) and that the amount charged was "wrong" (Transcript p 41). However, as the respondents pointed out, Mrs Loh said that when she made these statements to Mr Prestia in 2006 she "could not remember" the terms of the Agency Agreement and therefore "did not know whether Affluent Properties had charged [her and her husband] in accordance with that agreement" (Affidavit of Mrs Loh 13 December 2010, [15]). In these circumstances, her state of mind cannot be regarded as having risen to the level of knowledge of the incorrectness of the invoice. 53As the only issue in this context concerned the date upon which the respondents became aware of the failures to account concerning commission, and the primary judge correctly held that that did not occur more than one year prior to lodgement of the claim with the Fund, the pre-condition to the respondents' claim stated in s 173(2)(b) was satisfied. FOURTH ISSUE: INTEREST UNDER S 100 OF THE CIVIL PROCEDURE ACT Whether interest payable "as of right" 54The primary judge awarded interest under s 100 of the Civil Procedure Act 2005 from the date of the failures to account (shortly after the settlement in November 2006 in respect of the respondents' first two claims on the Fund), holding that s 100(3)(b) (see [25] above) did not disentitle the respondents to that award (see [26] above). In my view, her Honour was correct to conclude that interest was not payable "as of right", within the meaning of s 100(3)(b) under the Civil Procedure Act (or otherwise). 55The definition of "pecuniary loss" in s 170 of the Act includes the interest that the claimant would have received but for the failure to account. Hence, the Director-General may, under s 173(5), allow a claim that includes that loss. However the Director-General's power under that subsection is discretionary (see the word "may"). Furthermore whilst that, and other parts, of the claimant's loss constitutes "a debt due by the Crown" (s 174(3)), the loss in respect of interest is not aptly described as "interest ... payable as of right" within the meaning of s 100(3)(d). It is a loss of the type discussed in Hungerfords v Walker [1989] HCA 8; 171 CLR 125, rather than interest, and is not "payable" by the Crown on the claimant's capital loss. Rather, the claimant's pecuniary loss includes a loss of interest. When the respondents' cause of action arose 56The other issue concerning s 100 that was debated on the appeal was when the respondents' "cause of action arose", as s 100(1) only permits an award of interest from that time. The appellants contended that a claimant's cause of action only arose once the Director-General disallowed a claim under s 173(6) or granted leave under s 174(1) to the claimant to bring court proceedings: until one of these events occurs, a claimant cannot bring proceedings, its cause of action being incomplete until that time. On the other hand, the respondents argued that the primary judge was correct in holding that the cause of action arose upon the failures to account. 57A "cause of action" is "the fact or combination of facts which gives rise to a right to sue" (Do Carmo v Ford Excavations Pty Ltd [1984] HCA 17; 154 CLR 234 at 245). As noted by Taylor LJ in Swansea City Council v Glass [1992] QB 844 at 852, "[w]here the cause of action arises from statute, the question as to what is merely procedural and what is an inherent element in the cause of action is one of construction". Some of the principal cases in which such a question of construction has been considered are as follows. 58In David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; 184 CLR 265, the statute under consideration provided that an application to the Court concerning a statutory demand served by a creditor "may only be made within 21 days" after the service of the demand. The Court held that the time limitation was an essential condition of the right to apply to set aside a demand, Gummow J (with whom the other members of the Court agreed) saying at 277: "The force of the term 'may only' is to define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by s 459G. An integer or element of the right created by s 459G is its exercise by application made within the time specified. To adapt what was said by Isaacs J in The Crown v McNeil, it is a condition of the gift in sub-s (1) of s 459G that sub-s (2) be observed and, unless this is so, the gift can never take effect" (citations omitted). 59In Rudolphy v Lightfoot [1999] HCA 61; 197 CLR 500, the High Court considered a requirement of the Commonwealth Electoral Act 1918 (Cth) that petitions disputing an election or return be filed in the High Court Registry within a limited period of time. The Court held that the time restriction was an essential condition or jurisdictional requirement for the Court of Disputed Returns, saying: "[11] The present is an example of legislation of the kind identified by Isaacs J in R v McNeil and by Windeyer J in Australian Iron & Steel Ltd v Hoogland. The 40 day requirement does not, to adapt the terms used by Windeyer J, 'bar an existing cause of action'; rather '[i]t imposes a condition which is of the essence of a new right'" (Citations omitted). 60A similar conclusion was reached by the Queensland Court of Appeal in Tyler v Krause [2002] QCA 295; (2003) 1 Qd R 453 in relation to a statute which stated in s 95(b) that: "... a prisoner shall be incapable, except with the consent in writing of the public trustee ... of bringing or defending any action of a property nature or for the recovery of any ... damage". McPherson JA (with whom White and Wilson JJ agreed), after considering aspects of the statute, observed as follows: "[11] To my mind, those considerations show that the provisions of s. 95(b) are directed not to imposing a condition that was contravened or breached by the plaintiff here when, without obtaining the written consent of the Public Trustee, he filed his claim in the District Court on 10 May 2001, but to imposing a disability upon his bringing or instituting those proceedings that is removed only by obtaining the written consent of the Public Trustee". 61Some of the decisions in which an opposite result has been reached are as follows. 62In Emanuele v Australian Securities Commission [1997] HCA 20; 188 CLR 114 the High Court found that a failure to obtain the leave of the Court, as required by s 459P(2) of the Corporations Law, before applying for an order that a company be wound up in insolvency was a defect or irregularity in the exercise of the court's jurisdiction which did not affect the validity of the order made. The decision turned upon the proper construction of the statute, taking into account the policies that lay behind its provisions. 63In Jol v State of New South Wales (1998) 45 NSWLR 283 at 290, this Court found that the institution of civil proceedings by a convicted felon in custody should be treated as an irregularity, rather than a nullity. As observed by Sheller JA (with whom Beazley JA and Sheppard AJA agreed): "The purpose of the Act, as appears from s 5, is to enable the court to supervise such proceedings by ensuring that they do not go forward to trial if they amount to an abuse of process or there is no prima facie ground for them. That purpose is equally well served if leave must be obtained but may be obtained after the proceedings have been instituted." 64A similar outcome was reached in Kinzett v McCourt [1999] NSWCA 7; 46 NSWLR 32 in which this Court held that the grant of leave under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 to bring proceedings against an insurer was a procedural requirement, rather than an essential element of the cause of action against the insurer (see [102]). 65Finally, in Hamilton v Merck & Co Inc [2006] NSWCA 55; 66 NSWLR 48 this Court held that Queensland provisions requiring a notice of claim and a compulsory party conference prior to the commencement of action were procedural and did not prevent a cause of action from arising. Again, the decision turned upon the proper construction of the particular statute. 66My view in relation to the present Act is that the requirement in s 174(1) for the Director-General to disallow a claim or grant leave prior to the commencement of proceedings is an essential condition of the cause of action created by s 174. The prominence of the requirement is apparent from its position in the first subsection of the section creating the cause of action, and from the language in which it is expressed. Section 174(1) says that "[a] person cannot ... commence any proceedings" in contrast to wording such as "[a] person may not" or "[a] person shall not". The language used in my view suggests the imposition of a disability in relation to the cause of action, rather than a merely procedural requirement. 67This approach conforms with the evident purpose of the Act to allocate the handling and resolution of claims to the Director-General, with legal proceedings representing the last resort. It is also consistent with the Act's inclusion of the interest that a claimant would have received, but for the failure to account, in the definition of "pecuniary loss". This inclusion means that a claimant who can adduce evidence of its loss will be compensated, by payment from the Fund, for its loss of use of money that is the subject of a failure to account, without the need for recourse to s 100 of the Civil Procedure Act in respect of the period up until the disposition of the claim by the Director-General. Recovery will however be subject to the limits imposed by s 175. 68The respondents contended that, in the event that the Court reached this conclusion, interest should nevertheless be awarded under s 100 from the date upon which the Director-General declined to receive the claim, as distinct from the later date upon which he granted leave to commence proceedings. I do not accept this submission as it is dependent upon the proposition that when the Director-General declined to receive the claim he "disallowed" it in accordance with s 173(6) (see [17] above). However, he did not do this. Rather, he refused to receive the claim under s 173(5) because, in his view, it had not been made within the time allowed by s 173(2). As the appellants submitted, this is a distinctly different step from the disallowance of a claim under s 173(6). The two alternative pre-conditions specified in s 174(1) for the commencement of legal proceedings do not include the Director-General declining to receive a claim under s 173(5). Hence the alternative upon which the respondents have to rely is the Director-General's grant of leave. It is that act which completed the respondents' cause of action and fixed the date from which the respondents might obtain interest under s 100 of the Civil Procedure Act. Alternative interest claim 69In the alternative to their claim for interest under s 100 of the Civil Procedure Act from the dates of the failures to account, the respondents submitted that they were entitled to include in their claims on the Fund, recoverable from the Crown in the present proceedings, interest that they would have received but for the failure to account. The primary judge did not deal with this submission as she found in the respondents' favour in relation to s 100 of the Civil Procedure Act. 70In response, the appellants submitted that the respondents had not adduced evidence from which the interest that the respondents would have earned, but for the failures to account, could be calculated. There is force in this submission as the only potentially relevant evidence before the primary judge appears to have been that of the interest charged on Affluent Properties' NAB account, and that only for the limited period of 1 December 2006 to 13 March 2007. Moreover, the respondents did not raise the issue, as they should have, by a Notice of Contention, leaving the Court without adequate submissions on the issue. In these circumstances I would reject the respondents' alternative basis for claiming interest as not being open to them on the appeal. I note that my view concerning the cap on the respondents' recovery (see immediately below) renders this conclusion not of financial significance to the respondents because the cap is reached without the inclusion of interest. FIFTH ISSUE: WHETHER THE RESPONDENTS ARE ENTITLED TO ONE OR TWO AMOUNTS OF $500,000 71As noted earlier (see [28] - [30]) the primary judge, assuming that the respondents' rights were joint and several, held that s 175 of the Act (see [17] above) did not restrict their entitlement to only one amount of $500,000. It is now accepted however (see [28] above) that the respondents' rights were merely joint, not joint and several. 72In my view this change results in the respondents being restricted to only one amount of $500,000. As their rights are joint, they are in law, for this purpose, one person only. As pointed out in King v Hoare (1844) 13 M&W 494 at 505; 153 ER 206 at 210, in the case of both joint torts and joint contracts there is only one cause of action and whether an action is brought against one or two persons jointly liable, it is in either case for the same cause of action (see also In re Hodgson [1885] 31 Ch D 177 at 188; Financial Industry Complaints Service Ltd v Deakin Financial Services Pty Ltd [2006] FCA 1805; 157 FCR 229 at [67]). 73In these circumstances, the limitation in s 175(1) on "a person" recovering more than $500,00 precludes the respondents, as persons jointly entitled to the money the subject of the failures to account, from receiving more than $500,000. SIXTH ISSUE: RECOVERABILITY OF COSTS OF COURT PROCEEDINGS 74The issue between the parties on this topic was whether the costs of the proceedings at first instance (which the Director-General was ordered to pay to the respondents) form part of the amount which is the subject of the cap of $500,000 on recovery imposed by s 175(1). The primary judge held that they do not (see [30] above). 75The limit on recovery imposed by s 175(1) is on recovery from the Fund. Pursuant to s 173(1), the Fund is to be applied for the purpose of compensating persons who suffer pecuniary loss arising from a failure to account. The definition of "pecuniary loss" in s 170 includes "the legal costs and disbursements of making and proving a claim" (see [15] above). In my view, those words are not wide enough to encompass the costs of court proceedings against the Crown, taken in accordance with s 174 after the Director-General has disposed of a claim, because the claim process is then complete. In any event the cost of such court proceedings would not have been incurred at the time that the Director-General dealt with the claim and nothing in the Act suggests that, in allowing a claim, he should allow for estimated future court costs. 76Section 174(4)(b) provides that "all questions of costs are in the discretion of the court". This provision contemplates that the court may, in proceedings, exercise its general powers to award costs which are usually exercised by ordering the unsuccessful party to pay the costs of the successful party. As the debt upon which the claimant sues in court proceedings is, as s 174(3) specifies, "due by the Crown", any order for costs in favour of the claimant would ordinarily be made against the Crown (that is, the State of New South Wales). The costs so ordered to be paid could not be regarded, to use the language of s 175(1), as recoverable from the Fund. Rather, they would be payable by the Crown. 77The view that the limit on recovery imposed by s 175(1) relates only to the amount of the claimant's pecuniary loss is supported by the terms of s 175(2) which impose a limit on "[t]he aggregate sum that may be applied in compensating all persons who suffer or incur pecuniary loss because of a failure to account". This confirms what is in my view implicit in s 175(1). The natural reading of the two subsections is that they refer to the same subject matter, albeit that one subsection refers to a claim by a single person and the other to claims by a number of persons in respect of the same failure to account, or related failures. 78I do not consider, as submitted by the appellants, that the authority granted by s 167(2) to the Director-General to apply money held in the Fund to satisfy "claims (including costs)" is inconsistent with the primary judge's conclusion. The express inclusion of "costs" in that provision is unnecessary in light of the definition in s 170 of "pecuniary loss" as including "all costs". Whilst courts are reluctant to find that statutory words have no independent work to do, that seems to me to be the result here as the language is not apt to capture amounts payable under orders for costs made against the Crown. Amounts payable under such orders would not be the subject of "claims ... established against the Compensation Fund": they would be payable by reason of a court order made upon the court's exercise of a discretion which took into account the conduct and outcome of the court proceedings. 79For these reasons the amount payable to the respondents under the order for costs made in their favour at first instance does not form part of the limited amount of $500,000 to which they are entitled from the Fund. COSTS OF THE APPEAL 80On my views, each side has had a degree of success on the appeal. The appellants were successful in their arguments concerning the respondents' entitlement to only one amount of $500,000 and concerning s 100 of the Civil Procedure Act but lost on the issues concerning the pre-conditions to the respondents' claims and the inclusion of the costs of the proceedings at first instance in the amount capped by s 175. In these circumstances, I would make no order as to the costs of the appeal. ORDERS 81On the views I have taken, the respondents are entitled to recover only one amount of $500,000 from the Fund and are entitled to an award of interest under s 100 of the Civil Procedure Act only from the date that the Director-General granted them leave to commence proceedings. It is common ground that in these circumstances the appellants are entitled to restitution, with interest at the court judgment rates, of part of the amount that they paid in satisfaction of the judgment at first instance. 82As it is necessary for the parties to perform interest calculations, I propose that at this stage only the following orders be made: (1) Appeal allowed in part. (2) Set aside the orders made at first instance on 1 December 2011. (3) If the parties are able to agree as to the further orders that should be made to give effect to this judgment, direct that they lodge an appropriate form of consent order with the Court within seven days of the date of this judgment. (4) If the parties are unable to so agree, direct that they file and serve submissions (not exceeding three pages in length) concerning the further orders that should be made, with the appellants to lodge their submissions within 14 days of the date of this judgment, the respondents to lodge their submissions within 14 days thereafter and the appellants to lodge any reply within a further seven days. ********** 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: 06 September 2012