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[2014] NSWCATOD 133
NCAT Occupational
2014-07-28
Original judgment source is linked above.
reasons for decision 1This matter consists of 2 applications for review arising out of the same set of circumstances. Jenner Ching Mei Chan and her son Kit Man Chan are seeking review of decisions made by the Respondent arising out of their roles with Axiom Property Consulting Pty Limited. The Corporation was involved in strata management. 2On 1st August 2013 the Respondent issued Show Cause Notices to each of the Applicants giving them the opportunity to show cause why disciplinary action should not be taken against them. The Applicants responded through their legal representatives on 22nd August 2013. 3The Respondent issued Determinations to take disciplinary action against each of the Applicants on 25 October 2013. 4The Applicants sought internal review of these determinations by letter from their legal representative on 22nd November 2013. 5On 7th February 2014 the Respondent made a decision on internal review in relation to Ms Jenner Chan, affirming the Determination of 25th October 2013 to reprimand Ms Chan, in accordance with section 192(1) (a) of the Property Stock & Business Agents Act 2002 ("the Act") and to impose a monetary penalty of twenty penalty units (currently equating to $2200) on her. Ms Chan seeks review of this decision. 6On 7th February 2014 the Respondent made a decision on internal review in relation to Kit Man Chan to affirm the determination to reprimand him in accordance with section 192(1)(a) of the Property Stock & Business Agents Act 2002 ("the Act"). Mr Chan seeks review of this decision.
Background 7The parties did not present a statement of agreed facts or chronology. However in reality there appeared to be no dispute between them about the following main events.
Short chronology 8Ms Chan held a licence, number 1009050, under the Act as a real estate agent (from 2 August 1999) and in addition as a strata managing agent (from 17 July 2003). She allowed the licence to expire on 1 August 2011. 9Ms Chan was a director and secretary of Axiom Property Consulting Pty Limited ("the Corporation") from 24 August 1998 until 13 October 2011 and was the licensee in charge of the Corporation during that time. The Corporation held a corporation licence, number 1009046, under the Act from 11 September 1998 until 10 September 2011 when it expired without being renewed. However, according to the internal review submissions the Corporation ceased its strata management business in February 2010, at the time the Supreme Court made an order in relation to some monies held in trust in an account by the Corporation at Macquarie Bank for a strata plan. 10The Corporation had been appointed as compulsory strata manger for a strata plan. This appointment was extended until a new strata manger took over the role in 2009. There was a dispute between the Corporation and the former client, the Owners Corporation of Strata Plan 75633. Supreme Court proceedings were commenced. The Supreme Court made consent orders binding the Corporation on 10th February 2010 that a sum in dispute, $62,645.26, be held by the Corporation in trust pending further Court orders. 11Mr Chan held a certificate, number 1416671, under the Act as a real estate agent from 28 July 2009 which he allowed to expire on 27 July 2011. Mr Chan was a director and secretary of the Corporation from 1 March 2006 until 13 October 2011. 12In September 2011 Ms Chan and Mr Chan resigned their roles with the Corporation and Mr Chan transferred his shares to Mr Ziyi Yuan. The minutes of the Corporation's meeting on 18 September 2011 showed that from 13 October 2011 Mr Ziyi Yuan was the sole director, secretary and shareholder of the Corporation. 13Mr Yuan has never held a licence under the Act. The Applicants provided a copy of a document headed "Acknowledgment of documents received" dated 14 October 2011 signed by Mr Yuan. It includes a note that the monies referred to below were not to be dealt with except in accordance with a future Supreme Court order. 14Between 25 and 27 October 2011 Mr Yuan removed those moneys from the Corporation's account and placed them in his personal bank account. 15This misappropriation of funds by Mr Yuan prompted complaints to the Respondent. The Respondent has taken the disciplinary action subject of these applications against the Applicants Ms and Mr Chan.
Relevant Legislation 16The relevant legislation is the Property, Stock and Business Agents Act 2002 (the Act) and the Property, Stock and Business Agents Regulation 2003. The purpose of the Act is to provide for the good operation of the real estate industry. The Act is protective legislation, having as its core aim the regulation of the real estate industry for the protection of consumers and the general public. The Act also deals with the licensing of strata managers. 17These applications involve the Applicants' licensing and registration as strata managing agents. 18The relevant sections in this matter are sections 8, 9, 37,191 and 192 and the Rules of Conduct referred to in section 37. They are set out below. 19Section 8 Agents required to be licensed (1) A natural person must not act as or carry on the business of (or advertise, notify or state that the person acts as or carries on the business of or is willing to act as or carry on the business of): (a) a real estate agent, unless the person is the holder of a real estate agent's licence, or (b)..... or (c)......, or (d) a strata managing agent or community managing agent, unless the person is the holder of a strata managing agent's licence, or (e......... Maximum penalty: 100 penalty units. Section 9 Corporations require corporation licence (1) A corporation must not act as or carry on the business of (or advertise, notify or state that the corporation acts as or carries on the business of or is willing to act as or carry on the business of) an agent unless the corporation holds a corporation licence. Maximum penalty: 200 penalty units. Section 37 Rules of conduct for licensee's business (1) The regulations may prescribe rules of conduct to be observed in the course of the carrying on of business or the exercise of functions under a licence or certificate of registration. (2) A licensee or registered person who without reasonable excuse contravenes a rule of conduct prescribed for the purposes of this section is guilty of an offence. Maximum penalty: (a) 100 penalty units in the case of a corporation, or (b) 50 penalty units in any other case. Schedule 1 Property, Stock and Business Agents Regulation 2003 General rules of conduct applying to all licensees and registered persons 1 Knowledge of Act and regulations An agent must have a knowledge and understanding of the Act and the regulations under the Act, and such other laws relevant to the category of licence or certificate of registration held (including, laws relating to residential tenancy, fair trading, trade practices, anti-discrimination and privacy) as may be necessary to enable the agent to exercise his or her functions as agent lawfully. 2 Fiduciary obligations An agent must comply with the fiduciary obligations arising as an agent. 3 Honesty, fairness and professionalism (1) An agent must act honestly, fairly and professionally with all parties in a transaction. (2) An agent must not mislead or deceive any parties in negotiations or a transaction. 4 Skill, care and diligence An agent must exercise reasonable skill, care and diligence. 5 High pressure tactics, harassment or unconscionable conduct An agent must not engage in high pressure tactics, harassment or harsh or unconscionable conduct. 6 To act in client's best interests An agent must act in the client's best interest at all times unless it would be contrary to the Act or regulations under the Act or otherwise unlawful to do so. 7 Confidentiality An agent must not, at any time, use or disclose any confidential information obtained while acting on behalf of a client or dealing with a customer, unless: (a) the client or customer authorises disclosure, or (b) the agent is permitted or compelled by law to disclose. 8 To act in accordance with client authority An agent must not act as an agent or represent himself or herself as acting as an agent on behalf of a person without written authority. 9 To act in accordance with client's instructions An agent must act in accordance with a client's instructions unless it would be contrary to the Act or regulations under the Act or otherwise unlawful to do so.
191 Grounds for disciplinary action Disciplinary action under this Part can be taken against a person who is or was the holder of a licence or certificate of registration on any one or more of the following grounds: (a) the person has contravened a provision of this Act or any other Act administered by the Minister, or the regulations under any such Act, whether or not the person has been prosecuted or convicted of an offence in respect of the contravention ...
Section 192 sets out Disciplinary actions that can be taken
Decision in relation to Ms Chan on internal review 20The Delegate found that Ms Chan had breached sections 8(1) (d) and s9 (1) of the Act, in her capacity as a director of the Corporation by allowing herself and the Corporation to become unlicensed. The Respondent affirmed this decision on internal review. 21The internal reviewer also found that Ms Chan had breached Section 37(1) of the Act. Section 37 (1) makes it an offence to contravene, without reasonable excuse, a rule of conduct prescribed by regulations to the Act. Schedule 1 to the Regulations sets out General Rules of Conduct. The Determiner had found that Ms Chan had breached Rules 2,3,4,6 and 9 However the internal reviewer found that Ms Chan had breached Rules 2, 4 and 6 - not 3 & 9. 22As a result the internal reviewer affirmed the Delegate's decision that the grounds for disciplinary action against Ms Chan under section 191(a) and 191(c) had been established. 23The internal reviewer determined that the penalties of a reprimand and a monetary penalty of 20 units were appropriate. The penalty was a mid to low range penalty as Ms Chan had a special role as the licensee for the Corporation. A reprimand was the lowest available penalty. 24The monetary penalty can be up to 100 penalty units for an individual. The penalty of twenty units imposed by the Delegate is thus at the lower end of the available range.
Reasons for decision in relation to Ms Chan on internal review 25The internal reviewer provided the following reasons for decision.
Breach of section 8 & 9 26Ms Chan had breached sections 8 & 9 which required both agents and corporations to be licensed. Ms Chan had allowed her licence to expire on 1 August 2011 and the Corporation's licence to expire on 10 September 2011. Mr Yuan became a director on 13 October 2011. In allowing her licence to lapse on 1 August 2011, and the Corporation's licence to lapse from 10 September 2011, Ms Chan allowed a business requiring the appropriate licence to be carried on, albeit it in a limited fashion, without a licensee in charge. 27Ms Chan advised that the only ongoing aspect of the Corporation's activity was the holding of the trust account, and argued that this was not carrying on a business. The internal reviewer agreed that "there is no evidence before me that the Corporation was carrying on any other activity under the Act." 28However, the internal reviewer considered that the trust account was created as part of court proceedings which were brought further to a dispute between the Corporation and a former client. They were funds in dispute held on trust by the Corporation arising from the conduct of its business with a former client. 29As such they arose from the carrying on of a business under the Act, and the account had to be maintained on the same basis and principles as the business of the Corporation.
Breaches section 37 and Rules 2, 4 and 6 30Ms Chan had breached section 37 and Rules 2, 4 and 6 as follows. 31There was a lack of care and prudence (Rule 4) which was not in accord with the need for diligence and the fiduciary duty (Rule 2), which includes the duty to act in the client's best interests (Rule 6). The internal reviewer said : "there is no evidence before me to indicate Ms Chan took any effective steps to safeguard the trust moneys other than requiring Mr Yuan to sign the acknowledgment referred to above. There is no evidence of Ms Chan enquiring if Mr Yuan held a licence under the Act, or placing the trust funds under some other authority. I consider that the most reasonable course of action would have been for Ms Chan to forward the monies to Fair Trading as unclaimed monies under the Act. She also could have sought to pay the monies into the Court after having advised her intention to the Court or all parties that she was ceasing to conduct business. It hardly seems to me to be an appropriate course of action to transfer the Corporation's trust accounts to a third party. By then the Corporation was effectively a 'sham', it had no business or licences. I have no information as to the purchase price or if the Corporation had other assets. In any event, the Corporation's trust accounts were her responsibility as a licensed person under the Act, and she should not have simply attempted to transfer away responsibility for the trust monies without taking other steps such as the above.......there remained responsibility to a (former) client in relation to the trust moneys." 32The internal reviewer considered that the breaches of the rules of conduct all arose from a lack of the prudence and care the Act requires of a licensee.
Reasons for decision in relation to Mr Chan on internal review 33The internal reviewer affirmed the Determination to reprimand Mr Chan, in accordance with section 192(1) (a) of the Act. The internal reviewer found that Mr Chan was in breach of sections 8, 9 and 37 - having breached Rules of Conduct 2, 4 and 6. Mr Chan was in contravention of section 191. 34The internal reviewer considered that Mr Chan as a joint director with Ms Chan allowed the corporation to continue to trade without a licence from 10 September 2011 in contravention of 9(1) (d) of the Act which requires a corporation to hold a licence when carrying on business. As in the case of Ms Chan, the internal reviewer considered that the holding of trust monies constituted carrying on business. 35The internal reviewer considered that the transferring of sole ownership and directorship of the corporation to Mr Yuan (an unlicensed person) by Ms Chan and Mr Chan facilitated the breaches of section 8(1) (d) and 9 of the Act. Ms Chan and Mr Chan had also facilitated Mr Yuan's misappropriation of the trust account funds by transferring control of the funds to him without obtaining the authority of the owners of the funds the proprietors of the strata plan. 36As a result, the internal reviewer considered that Mr Chan (and Ms Chan) had acted unlawfully, improperly, unfairly or incompetently as holder of his certificate. As Mr Chan was not the licensee in charge, the internal reviewer considered that a reprimand - not a disqualification- was appropriate for Mr Chan. 37The internal reviewer commented in the same terms used in relation to Ms Chan: "There is no evidence before me that Mr Chan sought any advice on his responsibilities as a director of the Corporation and holder of a certificate under the Act, in this situation, or that he took adequate steps to ensure the funds held in trust were properly safeguarded. Instead, Mr Chan left the trust monies in the hands of a person who was not bound by fiduciary obligations, as he was not a licensee under the Act. There has been no details provided of the sale of the Corporation and what Mr Yuan paid for a company which does not appear to have had assets or been operating. This does not show reasonable care at the required level of a fiduciary duty to funds which were in dispute but were possibly funds of a former client. The trust account was created as part of court proceedings which were brought further to a dispute between the Corporation and a former client. As such they arose from the carrying on of a business under the Act, and the account had to be maintained on the same basis and principles as the business of the Corporation."
Role of the tribunal 38Under s 63 of the Administrative Decisions Tribunal Act the tribunal's role is to determine whether, having regard to the underlying facts in the matter and the applicable law, the decision is the correct and preferable one. 39The tribunal is to review the merits of the original decision and is required to consider the evidence available at that time, together with any other or later material so as to affirm the original decision, vary it or set it aside ; see: Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60. The tribunal is to make its own decision and there is no presumption that the decision is correct; see; McDonald v Director-General of Social Security [1984] FCA 57; (1984) 1 FCR 354, 357.
The Hearing 40The Applicants filed Applications for Review and urgent stays at the Tribunal. The stay hearings were heard before Senior Member Montgomery on 26 March 2014. Senior Member Montgomery declined to make Stay Orders however he extended the time for Ms Chan to pay the fine of $2,200.00 until the determination of the hearing of these matters. 41The documents before the tribunal were:
Evidence of Ms Chan 42Ms Chan had provided an affidavit filed in the tribunal on 7th July 2014. She was also cross-examined at hearing. 43Ms Chan's affidavit set out the following. 44Ms Chan obtained a licence under the Act on 2nd of August 1999 in the category of real estate agent had the category of strata managing agent added to her licence on or about 17 July 2003. The licence expired on first of August 2011 and Ms Chan did not renew it. Axiom Property Consulting Pty Limited (the Corporation) was registered as a company on 22 July 1998. Ms Chan was registered as the sole director, secretary and shareholder. Its corporation licence granted on 11 September 1998, expired on 10 September 2011 and was not renewed. The Corporation carried on business under the trading name of the Axiom Group which was involved in the sale of residential and investment properties. From about 17 July 2003 it was involved in strata management. In March 2006 Ms Chan sold her shares to her son Kit Man Chan. Around this time Kit Man Chan also became a director and secretary of the Corporation. From March 2006 Kit Man and Jenner conducted the business of the Corporation which at that stage was predominantly strata management. Kit Man became the holder of a certificate of registration on 28th of July 2009. This certificate of registration expired on 27 July 2011 without being renewed. 45On 23rd of May 2007 the Corporation was appointed as the compulsory strata managing agent of Owners Corporation strata plan 75633 (the strata plan). The Corporation continued to manage the strata plan after the expiration of its initial term in 24th of May 2009 until another strata manager was appointed on 9 September 2009. In November 2009 the Corporation became involved in proceedings in the Supreme Court of New South Wales with the CTTT, the owners of the strata plan and the developer. The Corporation held a sum of $62,612.66 in its trust account at Macquarie Bank pursuant to the strata management agreement. The Corporation claimed a lien over this sum in relation to its costs incurred in the Supreme Court proceedings. 46In February 2010 the strata plan commenced Supreme Court proceedings seeking return of the monies held in the trust account by the Corporation. On 16th of February 2010 the Corporation consented to orders restraining it from dealing with the monies held by the Corporation on trust for the strata plan comprising the balance of the administrative and sinking funds - an amount of $62,645.26. The orders were expressed to be until further order of the Supreme Court and they restrained the Corporation by itself, its officers, servants, agents or otherwise from dealing with the monies. The Supreme Court made final orders in the matter on 14 December 2011. By this time neither Ms nor Mr Chan were involved in the corporation. Ms Chan said that in the interim from February 2010 the Corporation no longer continued to trade as a business and did not have any strata managements under its control or management. Ms Chan said that its only business as such were the monies held in the trust account at Macquarie Bank pursuant to the Court's orders. From about February 2010 the Corporation ceased all business activities as a strata manager. The Company did not oppose strike out action by ASIC pending the filing of its annual report. 47In mid - September 2011 Ms Chan had a conversation with Mr Yuan who worked in an accountant's office in the same building as that occupied by the Corporation. Mr Yuan asked to purchase the company as he wanted a company which was already established. Ms Chan says that she advised Mr Yuan that the company was still there but it had stopped trading and was involved in a Supreme Court case that they could not afford to fight. She advised Mr Yuan to speak to her son Kit Man as it was his company. Kit Man Chan later told Ms Chan that he had had a discussion with Mr Yuan about selling the company to Mr Yuan. He said he had told Mr Yuan about the money in trust that could not be touched without a court order. He said that Mr Yuan had indicated he understood this. 48Subsequently Ms Chan and Mr Chan met with Mr Yuan. She again said to Mr Yuan that there was a court case and there was money in trust but it could not be touched because of the court order. She said that she would not stay on as licensee and that he would need to find someone else were he to buy the company. Ms Chan said that Mr Yuan said that this was okay and that he would find someone to be a licensee within four weeks. Ms Chan then agreed and said she would prepare company minutes that would appoint Mr Yuan as director and secretary now and that she and Kit Man would resign. These resignations and appointment would not be effective until 13 October 2011 to allow him to find another licensee. 49On or about 12 October 2011 Ms Chan lodged the notice of cessation of Kit Man Chan as a director and secretary of the Corporation from 12 October 2011 and the appointment of Yuan as a director and secretary on 19 September 2011. 50On or about 13 October 2011, Ms Chan met with Yuan at the Corporation's consulting offices. 51She asked Yuan "You know Kit Man and my resignation takes effect today. Did you find a licensee?" 52Yuan said "Yes it is all fixed up." 53Ms Chan obtained the registration address of the company from Mr Yuan and had Mr Yuan sign a minute of order to register with ASIC advising of the new company office. Ms Chan then undertook to lodge the form advising of the change of registered office and her resignation effective on that day. 54On 14th of October 2011 Ms Chan gave Mr Yuan the remaining Company documents with an acknowledgement for him to sign. That acknowledgement included the statement that Mr Yuan understood that the money that is still in the trust account with the Macquarie Bank was held pursuant to orders made by the Supreme Court and that he was not to deal with the monies except in accordance with future orders by the Supreme Court. Mr Yuan said "That's no problem. I can fix that up straight away." Mr Yuan signed the acknowledgement form. 55On 17th of October 2011 Ms Chan wrote to the solicitors acting for the owners' corporation of the strata plan in the Supreme Court proceedings to advise that she and her son were no longer directors and directed all further correspondence about Axiom Property Consulting to the current director. Ms Chan also sent a copy of the letter to the Registrar of the Common Law Division of the Supreme Court. 56On 19th of October 2011 Ms Chan had a telephone conversation with Lauren Coombes of the Macquarie Bank in which she advised Ms Coombes that she was no longer the licensee or a director of the Corporation. She provided Mr Yuan's name. She said that she had told Mr Yuan that there was an order from the Supreme Court that the money in the trust account could not be touched and that she had obtained his signed acknowledgement to that effect. At Ms Coombes' request Ms Chan then emailed a copy of Mr Yuan's acknowledgement. 57On 20th of October 2011 Ms Chan received a phone call from Mr Yuan saying that he was at the bank and they would not allow him to withdraw the money from the bank account. Ms Chan says that she told Mr Yuan that he could not withdraw the money as it was trust money and that it would have to stay there until further Court order. She then spoke to Ms Coombes who was with Mr Yuan at the bank and said that she had told Mr Yuan that he could not touch the money because it was subject to the order of the Supreme Court. Ms Coombes confirmed that she had also said the same to Mr Yuan. 58Under cross examination Ms Chan agreed that as licensee in charge she had obligations under the Act and that the monies held in the trust account were the strata plan's monies. The Corporation had claimed a lien over these monies. Ms Chan also agreed that the monies were subject of interim Supreme Court orders. Ms Chan agreed that between 11th September 2011 and13th October 2011 when Ms Chan's and Mr Chan's resignations from the Corporation became effective, she was looking after the trust fund. 59The Respondent put to Ms Chan that she had known that Mr Yuan was not licensed under the act to be a strata manager. Further she was asked whether she thought Mr Yuan understood his fiduciary obligations. Ms Chan thought he did as he had previously been dealing in property. It was put to Ms Chan that just five days after her resignation from the Corporation became effective, the matter was in the Supreme Court for final hearing and that she should have paid the money into Court to safeguard it. Ms Chan responded that she understood that the Supreme Court orders meant that she was not allowed to touch or deal with the trust account in any way.
Evidence of Kit Man Chan 60Mr Chan had provided an affidavit which was filed in the tribunal on 7 July 2014. 61Mr Chan gave evidence of having purchased his mother's shares in the Corporation in March 2006 when he became director and secretary of the Corporation. From March 2006 he and his mother conducted the business of the Corporation which at that point was predominantly strata management. He became the holder of a certificate of registration on 8 July 2009. His certificate of registration expired on 27 July 2011 without being renewed. At the same time the Corporation was under a strike off action by ASIC and he did not intend to remedy it. 62He gave evidence of the Supreme Court proceedings involving the Corporation. He had given instructions to consent to orders in the Supreme Court on the 16th of February 2010 to restrain the Corporation from dealing with the monies held by the Corporation on trust for the strata plan. By this time the Corporation had handed over the remaining documents relating to the management of the strata plan to another company, Sydney Strata. 63He confirmed that from February 2010 the Corporation no longer continued to trade as a business and that it did not have any strata management under its control. The sole item was the trust account in the Macquarie Bank with the monies subject to the order of the Supreme Court. 64Mr Chan referred to his discussions with Mr Yuan concerning the Axiom Corporation. He said that he had told Mr Yuan that there was an amount of $60,000 in trust which could not be touched because of the Court order. He could have the company but it came with some "warts". Mr Yuan paid him the $383 that had been paid for the original purchase of the company. A short time later he had a conversation with his mother and told her about his discussion with Mr Yuan about selling the company and with the court case and the strike off action but that Mr Yuan still wanted to buy Axiom because it had been around for a long time. 65On or around the next day he and his mother met with Mr Yuan concerning buying the company. Again Mr Chan advised that there is a court case going on, the company is about to be struck off by ASIC and there is a Court order that the money in trust can't be touched. Mr Yuan had indicated to him that he understood this but he wanted to buy a company which had been around for a long time as his potential clients in mainland China didn't like dealing with new companies and that they would have heard of Axiom. At that time Jenner Chan had said she would not be the licensee as she wanted to be out of it and that Mr Yuan needed to find a licensee. "as you know you have to get a licensee because you can't trade without one in selling property." Mr Yuan had said "No problems I understand I need to find someone - but can you give me some time?" Mr Chan says he did not see Mr Yuan again. 66Mr Chan said that Ms Chan prepared the appointment and resignation documents. Kit Man Chan signed a document dated 19th of September 2011 resigning as a director of Axiom as at 13th of October 2011 and as secretary effective 19th of September 2011. 67Under cross-examination he stated that he considered that their obligations ceased once they ceased being strata managers.
Applicants' Submissions 68The Applicants filed written submissions which were supplemented orally at hearing. 69In affirming the delegate's finding that Ms Chan breached s8(l)(d) and s9(l) of the Act, the decision-maker relevantly found: "In allowing her licence to lapse on 1 August 2011 and the corporation's licence to lapse from 10 September 2011 Ms Chan allowed a business requiring the appropriate licence to be carried on, albeit in a limited fashion, without a licensee in charge," 70The reference to "limited fashion" is a reference to the holding of the trust account that the decision-maker was satisfied constituted the carrying on of business. The decision-maker made a clearly incorrect finding of fact (see paragraph 3 on page 3) that: "The trust account was created as part of court proceedings which referred to a dispute between the corporation and a former client. As such they arose from the carrying on of a business under the Act and the account had to be maintained on the same basis and principles as the business of the corporation." The Applicant submitted that the trust account was the trust account formerly operated by Axiom when it was operating as a strata management business prior to February 2010 - it was not created as part of court proceedings. 71The Applicants set out 4 reasons why Ms Chan was not in breach of s8 (l) (d) of the Act. 72i) Section 8 is concerned with natural persons not being permitted to carry on business without the appropriate licences. At no time did Jenner ever conduct business in her own personal capacity. The relevant business this matter concerns is the business of Axiom operating as a strata managing agent. 73Accordingly, since Jenner never operated in her own personal capacity, but it was the Corporation who conducted the business of a strata managing agent, Jenner cannot be found liable or found to have contravened s8. 74ii) A question arose before the decision-maker as to whether or not the mere holding of a trust account constituted the carrying on of business. It is noted Axiom retained the amount of $62,645.26 in its trust account pursuant to a claim of a lien in respect of as yet underdetermined legal costs payable by Axiom to its legal representatives in relation to Supreme Court proceedings initiated by Buzrio Pty Limited. 75Axiom claimed it was entitled to indemnification of such expenses by the strata plan under the Agency Agreement between Axiom and the Consumer Trade & Tenancy Tribunal in March 2007. Section 21 of the Corporations Act 2001 provides in what circumstances a corporation does not carry on business in Australia or in a State or Territory (see sub-section 21(3) of the Corporations Act 2001 (Cth). Sub-section 21(3) (c) provides a corporation does not carry on business merely because it maintains a bank account. 76Sub-section 21 (3) (g) provides a corporation does not carry on business merely because it secures or collects any of its debts or enforces its rights in regard to any securities relating to such debts. 77The term "carrying on a business" generally means to conduct some form of commercial enterprise, systemically and readily with a view to profit: Hyde v Sullivan (1956) 56 CR (NSW) 113 and 119. 78The Applicants submitted that at the relevant time, Axiom, Jenner and Kit Man were not conducting some form of commercial enterprise, systemically and/or readily with a view to profit. 79In all the circumstances, the mere holding of the monies in trust account over which Axiom claimed a lien for monies owing to it incurred on behalf of the strata plan, falls within sub-sections 21 3(c) and (g) of the Corporations Act 2001. 80Accordingly, in all the circumstances there can be no finding Axiom and/or Jenner and/or Kit Man carried on business without the appropriate licences for there to be a contravention of ss8 and/or 9 of the Act. 81In addition, the section applies only to the carrying on business as an agent. Even if business was being conducted at the relevant time, which the Applicants denied, it was not the business of a strata managing agent. 82A strata managing agent is defined in the Act as: "strata managing agent" means a person (whether or not such person carries on any other business) who, for reward (whether monetary or otherwise), exercises any function of an owners corporation within the meaning of the Strata Schemes Management Act 1996 or any other function that is prescribed by the regulations for the purposes of this definition, not being: (a) a person who: is the owner of a lot to which the strata scheme for which the owners corporation is constituted relates, or is the lessee of a lot to which the leasehold strata scheme for which the owners corporation is constituted relates, or (iii) is the secretary or treasurer of the executive committee of the owners' corporation, and who exercises or performs only functions of the owners corporation required, by the by-laws in force in respect of the strata scheme or leasehold strata scheme for which the owners corporation is constituted, to be exercised or performed by the secretary or treasurer of that executive committee or of the owners corporation, or (b) a person who maintains or repairs any property for the maintenance or repair of which the owners' corporation is responsible. 83Neither, Axiom, Jenner or Kit Man were exercising any of the functions of an owners' corporation at the relevant time for it to be found they carried on business without a licence. The mere holding of a bank account does not fall within the definition. 84iv) Finally, the decision maker in making the relevant findings has ignored the terms of the Show Cause notice which only made allegations concerning a breach of sections 8 and 9 during the period 21 October and 23 December 2011. 85By doing so, the decision maker failed to consider that neither Jenner nor Kit Man were officeholders at the relevant time and as such had no control over the company which in turn means the accessorial liability tests pursuant to sections 213 and 218 could never be satisfied / proven. Accordingly, section 8 was never breached in that the relevant business was not being carried on by Jenner personally and/or the carrying on of business was not being conducted at the relevant time and/or the business of a strata managing agent was not being conducted and/or the elements in sections 213 and 218 were not satisfied.
Breach of s9 (1) 86The submissions made above in respect to section 8 apply equally to section 9. The Applicants reiterated that at the relevant time, particularized in the Show Cause Notice as being the period 21 October to 23 December 2011 neither Jenner nor Kit Man were officeholders of Axiom and as such neither could exercise control over the corporation. They could not restrain the corporation from carrying on business or cause the corporation to carry on business. 87As such the accessorial liability provisions to make them liable [sections 213 and 218 of the Act] could never apply as they did not and could never cause the corporation to carry on business without a licence. 88There is no provision restricting them for resigning from the corporation.
Breach of s37 (l) of the Act (Rules 2. 3. 4. 6 and 9 (General Rules of Conduct)) 89The delegate found both Jenner and Kit Man breached Rules 2, 3, 4, 6 and 9 of the General Rules of Conduct in the notice of determination. 90The reasons provided by the decision-maker in affirming the delegate's decision that Jenner and Kit Man breached s37 of the Act as a consequence of breaches of the Rules, are identical. 91The decision-maker made positive findings that Jenner and Kit Man breached Rules 2, 4 and 6. The decision-maker did not find or expressly state Rules 6 and 9 were breached. 92The Applicants submitted that the decision-maker's reasons in support of the findings that Jenner and Kit Man breached Rules 2, 4 and 6 was: (i)There is no evidence before me to indicate that Ms Chan took any effective steps to safeguard the trust monies, other than requiring Mr Yuan to sign the acknowledgment referred to above. (ii)There is no evidence of Ms Chan enquiring of Mr Yuan who held a licence under the Act, or placed the trust account funds under some other authority. (iii) The most reasonable course of action would be for Ms Chan to forward the monies to Fair Trading as unclaimed monies under the Act, after having advised her resignation to the court or all parties that she was ceasing to conduct business. Ms Chan submits she took a number of effective steps to safeguard the trust monies, along with making enquiries of whether Mr Yuan held a licence under the Act. 93The evidence of Jenner and Kit Man is clear that they both placed Mr Yuan on notice that he would require a licensee and he informed them both that he would be appointing a licensee. 94Further, both Jenner and Kit Man warned Mr Yuan he was not permitted to deal with the trust monies and ensured that Mr Yuan signed an acknowledgment that the monies in the Axiom trust account with the Macquarie Bank cannot be dealt with until further orders are made by the Supreme Court. 95Moreover, Jenner made it clear to the relevant bank officers of the Macquarie Bank on a number of occasions, both verbally and in writing, that the monies could not be withdrawn and they should not permit Mr Yuan to withdraw the monies until there were further orders by the Supreme Court, etc. 96Contemporaneous email records between Jenner and Lauren Coombes, of the Macquarie Bank corroborate the above. 97In all the circumstances, the evidence relating to the safeguarding of the monies by Jenner and Kit Man is completely inconsistent with a finding that Jenner and/or Kit Man failed to take any steps to safeguard the money. 98Any suggestion Jenner and/or Kit Man and/or Axiom breached the duties they owed to a client are without basis considering the relevant client, the strata plan was not at the relevant time a client of Jenner, Kit Man and/or Axiom and had not been for some time. Axiom and the alleged relevant client (the strata plan) were in dispute as to whether or not the monies restrained pursuant to orders of the Supreme Court were monies which belonged to Axiom, pursuant to the lien claim as described earlier herein.
General submissions from Applicants (a)Neither Jenner and/or Kit Man had any interest, authority or control of the corporation at the relevant time. (b)The funds were not withdrawn at the request of Jenner and/or Kit Man. (c)The funds were withdrawn by Mr Yuan without the knowledge and/or approval of Jenner and/or Kit Man. (d)There is no obligation and/or requirement of a licensee under the legislation to notify Fair Trading when they cease to be a licensee of the corporation. (e)At the relevant time, Axiom was not carrying on the business of a strata manager. (f)Neither Jenner and/or Kit Man were able to exercise any authority or control over the trust monies, considering they were no longer office holders of Axiom. (g)Jenner informed both the Supreme Court and the lawyers for the strata plan that she was no longer involved with Axiom some time before the monies were withdrawn by Mr Yuan. (h)Neither Jenner nor Kit Man can be held liable for the actions of Mr Yuan in circumstances where they have no control or authority over Axiom and/or the relevant monies and/or Yuan. (i)There is no requirement for a licensee to forever remain as an office holder of a corporation. (j)There is no prohibition on a licensee resigning; (k)There is no prohibition resigning as a director of a corporation despite the corporation holding any interest subject to a restraint particular considering the new director(s) will owe the same obligations and directors' duties under the Corporations Law, etc. 99In all the circumstances, Jenner and Kit Man can only be liable for any alleged breaches whilst they were the relevant licensees and/or office holders of the company. 100In all the circumstances, it is submitted both Jenner and Kit Man acted honestly, fairly and with professionalism, along with proper levels of skill, care and diligence required. 101Additionally, for the Tribunal and/or the decision-maker to have been satisfied contraventions of the relevant rules occurred, the level of satisfaction required is the standard imposed commonly referred to as the Briginshaw standard- Briginshaw v Briginshaw (1938) 60 CLR 336 at 362. 102The level of satisfaction required pursuant to the Briginshaw standards cannot be attained when one considers all of the evidence, surrounding circumstances and legislation.
General Errors 103The Applicants submitted that there are a number of factual errors in the internal review decision. 104"Between 25 and 27 October 2011, Mr Yuan removed those monies and placed them in his private bank account". In fact, the bank records show Mr Yuan removed the money from the Macquarie Bank trust account by bank cheque and placed the monies in a Westpac statutory trust account in the name of Axiom Property Consulting Pty Limited. 105"Mr Yuan only became a director on 13 October 2011". It is clear based on the evidence of Jenner and Kit Man and the annexures that Mr Yuan became a director on 18 September 2011. 106"The trust account was created as part of court proceedings." The account had been created as part of the Corporation's strata management of the strata plan. 107"It hardly seems to me to be an appropriate course of action to transfer the corporation's trust account to a third party." This was an incorrect factual finding. The trust account at all times stayed with the corporation as ordered by the court. There was never a Supreme Court order that prevented the change in officers of the corporation. 108"The corporation was effectively a sham." There was never any basis for such a finding.
Respondent's Submissions 109The Respondent referred to a similar chronology to that relied on by the Applicants. The Respondent noted that Mr Yuan was appointed as sole Director and Secretary of the Corporation on 19 September 2011. Mr Ziyi Yuan misappropriated $62,602.66 in trust funds belonging to Strata Plan 75633. Mr Yuan has been charged by the NSW Police concerning several serious criminal offences. 110In about February 2010, the Owners Corporation of Strata Plan 75633 had commenced proceedings in the Supreme Court of New South Wales against the Corporation seeking orders for the return of $62,645.26 being the balance of the administrative and sinking funds. 111 In the second Supreme Court hearing, the Corporation entered Consent orders on 12 February 2010. Of critical importance to these proceedings is Order 5 c which reads as follows: "Upon the usual undertaking as to damages, an Order pending further Order, that the Defendant be restrained by itself, its officers, servants, agents or otherwise: c. dealing with (including transferring to another person or entity or disposing of) the sum of $62,645.26, being monies held for and on behalf of the Plaintiff by the Defendant, comprising both the balance of the Administrative and Sinking Funds of the Plaintiff (emphasis added)." 112The critical issues were that this Order was an Interim Order pending Final Order and that the $62,645.26 was not to be dealt with until Final Order. 113At the time this Interim Order was consented to, both Jenner and Kit Man Chan were both Directors and Secretaries of the Corporation and Jenner was the Licensee-in Charge of the Corporation. 114They both bound the Corporation to this continuing Order until Final Order and were both on notice that the Corporation could not deal with this trust money until Final Order. 115As a former client, clear obligations were created under the Act in respect to this trust money. The Corporation was also prohibited from dealing with this money until Final Orders and both Jenner and Kit Man Chan as Directors and Secretaries were prohibited from dealing with it until Final Order as it represented part of the business. 116It is significant that as of the 18 September 2011 Jenner was no longer licensed under the Act, her license having expired on 1 August 2011 and Kit Man Chan's certificate of registration had expired on 27 July 2011 but both were Directors and Secretaries of the Corporation. 117The Respondent considered that the resignation date was "interesting" as both Jenner and Kit Man Chan were aware that a further hearing was to take place in the Supreme Court of New South on the 18 October 2011 in particular in respect to the monies that the corporation held in trust. 118Although the resignations were conditional they did not specify that they would only become effective on evidence that a licensed person had been appointed to the Corporation. 119Mr. Yuan became the Director and Secretary of the Corporation on 19 October 2011. 120Mr. Yuan promptly, over the course of three days, from the 25 October 2011 to 27 October 2011 misappropriated $62,602.66 in trust funds belonging to Strata Plan 75633. 121On 14 December 2011 Final Orders were made in respect to the money held by the Corporation being: an Order that the Corporation pay to the owner's corporation the amount $62645.2 plus interest from 24 May 2009. This Order could not be complied with as Mr Yuan had misappropriated the trust funds.
The Applicants' position 122The Applicants allege that as they were both unlicensed under the Act and no longer Directors and Secretaries of the Corporation, there cannot be any duties imposed upon them and that the fine and reprimands are not appropriate. They both say that their acts or omissions did not result in the trust funds being misappropriated. 123Order 5c consented to on 12 February 2010 by the Directors of the Corporation created an ongoing obligation for the Corporation in respect to the trust funds of $62,645.26 124As this trust money was in relation to a former client, obligations were created under the Act. As such, the business could only be sold when Final Orders were made in respect to this trust money. 125There has been no evidence to date that the Applicants sought any advice on their responsibilities. 126There has been no evidence that Ms. Chan took any adequate steps to ensure the funds held in trust were properly safeguarded. 127Ms Chan left the trust funds in the hands of a person who was not bound by fiduciary obligations, as Mr Yuan was not a licensee under the Act. 128The trust account was created as part of court proceedings which were brought further to a dispute between the Corporation and a former client. As such they arose from the carrying on of a business under the Act.
Breach of sections 8 and 9 129In allowing her license to lapse on 1 August 2011, and the Corporation's licence to lapse from 10 September 2011, Ms. Chan allowed a business requiring the appropriate licence to be carried on, albeit in a limited fashion, without a Licensee-in-Charge. As such, Ms. Chan has breached ss8 (1) (d) and s9 (1) of the Act, in her capacity as a Director of the Corporation. 130Similarly, in allowing the Corporation's licence to lapse from 10 September 2011, Mr. Chan allowed a business, of which he was a director, requiring the appropriate licence to be carried on, albeit it in a limited fashion, without a Licensee-in-Charge he has breached s9(1) of the Act; in his capacity as a Director of the Corporation. 131As Mr. Chan was the owner of the shares in the Corporation he was aware that by transferring them to an unlicensed person under the Act that they were not bound by fiduciary obligations. 132There is no evidence that Mr. Chan took any effective steps to safeguard the trust moneys other than requiring Mr. Yuan to sign an acknowledgement. 133Section 37(1) of the Act makes it an offence to contravene without reasonable excuse a rule of conduct prescribed by regulations to the Act. As a result Mr. Chan has breached Rules 2, 4 and 6. There was a lack of care and prudence (Rule 4) which was not in accord with the need for diligence and fiduciary duty (Rule 2), which includes the duty to act in the client's best interests (Rule 6). 134Similarly, Ms. Chan has breached Rules 2, 4 and 6. It hardly seems an appropriate course of action to transfer the Corporation's trust account to an unlicensed third party. 135As such, the grounds have been established under s191 (a) and 191(c) of the Act for both Ms. Chan and Mr Chan. 136As such, the correct and preferable decision has been made for both Applicants and the delegate's decisions should be affirmed.
Tribunal's Findings of Fact 137The tribunal adopts the chronology of significant events set out above. 138The tribunal was presented with affidavits from both Applicants providing accounts of their dealings with the purchaser of the Axiom Corporation's shares and with bank officials. Some of this information was not previously before the Respondent decision maker. Neither Applicant's account of these dealings was contradicted at hearing. 139In the circumstances the Tribunal accepts the accounts given by Ms Chan and Mr Chan of their dealings with Mr Yuan and of interactions with bank officials subsequent to their transfer of shares and resignations from the Corporation. 140Of significance in these accounts is both Applicants' advice to Mr Yuan of the need for a licence were the Corporation to trade; the status of the monies in trust under order of the Supreme Court; and the discussions with Ms Coombes advising that the monies were subject to orders of the Court and should not be withdrawn by Mr Yuan.
Alleged breaches of section 8 and 9 of the Act 141What constitutes acting as or carrying on business? The provisions of section 8 of the Act are (1) A natural person must not act as or carry on the business of (or advertise, notify or state that the person acts as or carries on the business of or is willing to act as or carry on the business of): (a) a real estate agent, unless the person is the holder of a real estate agent's licence, or (b) .......or (c) ........ or (d) a strata managing agent or community managing agent, unless the person is the holder of a strata managing agent's licence, or...... (tribunal's bolding) 142The Applicants have submitted that the Show Cause notice specifies the relevant period during which they are alleged to have allowed the Corporation and themselves to carry on business unlicensed as being 21st October to 23rd December 2011. 143Again the Notice of Determination of 25th October 2013 at page 92 of the section 58 documents refers to the section 8 (1) and 9(1) breaches as the strata management business of the Corporation having been operated from 21st October 2011 to 23rd December 2011 without Mr Yuan or the Corporation holding a licence under the Act. Further paragraph 7 of the Notice of Determination at page 92 of the section 58 documents, states that Ms Chan "as a director and the licensee in charge of the Corporation 'at the relevant times' can be held accountable for the breaches." Similarly at paragraph 8, the Notice of Determination says that Mr Chan "as a director of the Corporation 'at the relevant times' can be held accountable for the breaches." The Internal Review decision affirms the decision of 25th October 2013 set out in the Notice of Determination. 144By 12th October 2011 neither Ms nor Mr Chan were involved with the Corporation. 145The tribunal finds in this respect that neither Ms nor Mr Chan were in breach of sections 8 or 9 at the relevant time specified in the Notice to Show Cause and in the Notice of Determination as neither was involved in the Corporation at that time and could not have influenced the Corporation's actions at that time. 146At hearing the tribunal understood the Respondent's submission on this issue to be that the "relevant time" in relation to this matter should be assumed to be the period commencing when Ms and Mr Chan allowed their own licence and certificate to lapse and the Corporation's licence to lapse - despite what was set out in the Notice of Determination. 147That is, the relevant dates in relation to breach of sections 8 and 9 were from the expiration of Ms Chan's licence on 1st August 2011, and the Corporation's licence from 10th September 2011 in relation to Ms and Mr Chan. Although Mr Chan's certificate expired on 27th July 2011 the Respondent did not appear to press this as a matter of concern in respect of Mr Chan as Ms Chan was the licensee in charge and therefore responsible.
Acting as or carrying on business as 148The Respondent relied on the Applicants and the Corporation as having carried on business in alleging breaches of section 8 and 9. 149This leads the tribunal to question whether Ms Chan or the Corporation were carrying on business after Ms Chan's licence expired on 1st August 2011 or the Corporation's licence expired on 10th September 2011. 150There is no definition of "carrying on business as" in the Act. 151The tribunal has weighed up a number of factors to determine whether or not the Corporation or Ms Chan was carrying on business. 152In this respect, the internal reviewer considered that the trust account was created as part of court proceedings which were brought further to a dispute between the Corporation and a former client. They were funds in dispute held on trust by the Corporation arising from the conduct of its business with a former client. As such they arose from the carrying on of a business under the Act, and the account had to be maintained on the same basis and principles as the business of the Corporation. 153The Applicants, on the other hand, submitted that the trust account was not created as part of court proceedings but was the trust account operated by the corporation when it was operating as a strata management business "prior to February 2010". 154The tribunal finds that the contested trust account was created as part of the business of strata management. However, the disputed trust account became subject to the orders of the Supreme Court from February 2010. It could not have been used to carry on business after the orders of February 2010 as they specifically prohibited any dealings with the account. 155The dispute in which the Corporation was involved was an aspect, albeit unwelcome, of the business. 156The tribunal accepts that from 9th September 2009 the strata plan was no longer a client of the Corporation. The tribunal also accepts that from February 2010 the Corporation and Ms Chan ceased all strata management work. 157The Applicants referred the tribunal to and relied upon section 21 (3) (c) of the Corporations Act 2001 (Cth) which sets out that a corporation does not carry on business merely because it maintains a bank account. In these circumstances the Corporation was holding a bank account the funds of which were held in trust for a former client and which were subject to a dispute. The Corporation was involved in Supreme Court proceedings which arose from the carrying on of business. The tribunal considers that these circumstance were more than" the mere holding of a bank account". 158In interpreting the meaning of "carrying on business" under the Act, the tribunal looks to the purpose of the Act. Essentially the Act's purpose is to protect consumers in their dealings with amongst other agents, strata managing agents. 159The tribunal accepts the Applicants' submission that the term "carrying on a business" generally means to conduct some form of commercial enterprise, systemically and readily with a view to profit: Hyde v Sullivan (1956) 56 CR (NSW) 113 and 119. 160In the circumstances the tribunal is satisfied, on balance, of the factors cited that by the time the licences had expired, the Corporation and Ms Chan were no longer systemically and readily conducting some form of commercial enterprise through the Corporation. There were no clients dealing with them as strata managers. The relationship with the former client strata plan, was regulated Supreme Court orders and Corporations law. 161Accordingly the tribunal finds that neither Ms Chan nor the Corporation were carrying on business after the expiration of their respective licences. The tribunal finds that neither Ms Chan nor Mr Chan can be found to have been in breach of sections 8 and 9.
Breaches of section 37 and Rules of Conduct 162The Respondent did not make specific submissions on the content of the obligations on a licensee or certificate holder under the Rules of Conduct 2, 4 and 6. These require that an agent:
Decision 173The Respondent's determination that the Applicants were in breach of sections 8 and 9 in the case of Ms Chan and section 9 in the case of Mr Chan in the period from 21st October to 23rd December 2011 was set out in the Notice of Determination and affirmed under internal review on 7th February 2014. The tribunal finds that during this timeframe neither of the Applicants was in breach of section 8 and 9. 174The tribunal has found that neither Ms Chan nor the Corporation were carrying on business after the expiration of their licences. Neither Ms Chan nor Mr Chan were in breach of sections 8 and 9. 175The tribunal is not satisfied that the Applicants were in breach of any specific obligation under section 37 and the Rules of Conduct under the Act. 176Accordingly the Respondent's decision to take disciplinary action against each of the Applicants is set aside.
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 November 2014
Chan
Commissioner of Fair Trading