Catchwords: OCCUPATIONAL DISCIPLINE - real estate agent - audit of trust accounts - failure of agent to provide audit of trust account - financial penalty - public reprimand - public reprimand as deterrent to other agents

Legislation cited: ACT Civil and Administrative Tribunal Act 2008 ss 7, 44, 65, 66

Agents Act 2003 ss 7, 41, 113, 115, 171

Legislation cited: ACT Civil and Administrative Tribunal Regulation 2009 s 4

Agents Regulation 2003 s17

Cases cited: Nursing and Midwifery Board of Australia v Izzard [2016] ACAT 68

**1. Pursuant to section 66(2)(a) of the ACT Civil and Administrative Tribunal Act 2008 the respondent is publically reprimanded in the terms set out at Schedule 1.

2. Pursuant to section 66(2)(h) of the ACT Civil and Administrative Tribunal Act 2008 the respondent is to pay to the Territory the sum of $1000.

3. Pursuant to section 66(2)(c) of the ACT Civil and Administrative Tribunal Act 2008 the respondent must, within six months of the date of this Order, complete to the satisfaction of the Commissioner, the following real estate industry training courses:

These courses should be designed for the Australian Capital Territory and they are not to count toward the respondent's continuing professional development (CPD) requirement.**

1. By this application the Commissioner for Fair Trading (Commissioner) seeks occupational discipline orders against Mr Donald McPherson (respondent) for a contravention of section 115 of the Agents Act 2003 (Agents Act).

**2. The respondent is and was, at all relevant times, an agent licenced under part 3 of the Agents Act.

3. Section 115(1) of the Agents Act provides as follows:**

(1) A licensed agent must ensure that the records relating to any trust money held by the agent during an audit period of the agent are audited by a qualified auditor within 3 months after the end of the audit period or any longer period allowed by the commissioner for fair trading.

**4. Pursuant to section 113 of the Agents Act the 'audit period' for a licenced agent is each financial year or an alternative period as fixed by the Commissioner in writing. No alternative period was fixed for the respondent.

5. The respondent did not file his audit report for the 2014/2015 financial year until December 2016, well after the commencement of these proceedings.

6. Section 41 of the Agents Act sets out the grounds upon which occupational discipline may be taken against a licensed agent. The Commissioner contended that by failing to comply with section 115 of the Agents Act, the respondent was liable for occupational discipline under:**

(a) section 41(1)(a) on the basis that he contravened the fair trading legislation; and

(b) section 41(1)(b) on the basis that he contravened a rule of conduct.

**7. For the purposes of section 41(1)(a) 'fair trading legislation' is defined in section 7 of the Agents Act and the Dictionary to the Fair Trading (Australian Consumer Law) Act 1992 to include the Agents Act.

8. For the purposes of section 41(1)(b), the rules of conduct for agents are established pursuant to section 171(1) of the Agents Act and regulation 17(1) of the Agents Regulation 2003 (the Regulations) and are set out in schedule 8 of those Regulations. Relevantly, clause 8.5 of schedule 8 provides that an agent must "exercise reasonable skill, care and diligence."

9. Section 66 of the ACT Civil and Administrative Tribunal Act 2008 (ACAT Act) sets out the occupational discipline orders that the Tribunal may make if satisfied that there are grounds to do so.**

**10. Having regard to the evidence filed with the Tribunal by the Commissioner and the respondent, I am satisfied of the following facts.

11. On 3 September 2015, Ms Caroline Cogger, an investigator with Access Canberra, sent a letter to all agents, including the respondent, reminding them of their obligations to complete an annual trust account audit (audit report) for the 2014/2015 financial year by 30 September 2015. There is no suggestion that the respondent did not receive this letter.

12. The respondent did not file an audit report by 30 September 2015, and nor did he seek an extension of time in which to file it.

13. On 27 October 2015 Ms Cogger telephoned the respondent to enquire as to why he had not filed his audit report. The respondent did not answer his phone, so she left a voicemail message asking that he call her back. Later that day, the respondent returned her call and advised that the audit report had not been finalised and that he would "chase it up".

14. On 16 November 2015 and 25 November 2016 Ms Cogger again telephoned the respondent. On both occasions he did not answer and she left a message asking that he return the call.

15. On 14 December 2015 Mr John Turnbull, another senior investigator engaged by Access Canberra, telephoned the respondent to discuss the outstanding audit report. The respondent did not answer Mr Turnbull's call, so he left a message explaining who he was and the reason for the call. The respondent did not respond.

16. On 27 January 2016 Ms Cogger sent an email to the respondent requesting an update on his late audit report.

17. Later that day, the respondent sent Ms Cogger an email saying that the audit report was "being finalised" by the auditor and that he would send Ms Cogger an email to keep her updated and advise of the expected completion date. Ms Cogger did not receive any such update.

18. On 3 May 2016 Ms Cogger sent the respondent an email with a letter attached advising that the audit report must be submitted to Access Canberra by 10 May 2016. The letter stated that if the respondent failed to comply, further action may be taken against him.

19. On 10 May 2016, Ms Cogger received a telephone call from the respondent advising that his audit report had still not been completed by the auditor. He advised that he was attending to "personal issues" but was arranging for the report to be completed within four to five weeks. Ms Cogger advised that disciplinary action may be taken if he does not comply with his obligations.

20. On 30 June 2016 the respondent's ACT Real Estate Licence lapsed. As the respondent failed to lodge a renewal application within three months of the expiration of his licence, he was deemed to be unlicensed from 1 July 2016 (Agents Act, sections 36-37).

21. This application for disciplinary action was lodged with the Tribunal on 15 September 2016.

22. On 17 October 2016 the respondent lodged an application for a new licence, and that licence was issued on 2 November 2016.**

**23. This matter was first listed on 10 October 2016 for a directions hearing before Presidential Member Daniel. On that occasion the Commissioner was represented by Mr Mangeruca. The respondent initially failed to appear, but Presidential Member Daniel contacted him by telephone and directions were made to bring the matter on for hearing on 17 November 2016.

24. At the hearing on 17 November 2016 the Commissioner was again represented by Mr Mangeruca. Mr McPherson appeared in person.

25. At that hearing, the respondent gave evidence as to a range of personal circumstances which, he said, contributed to his inability to attend to his business affairs, including the trust account audit, within the required time. His evidence included a serious crisis within his family and two medical conditions, including an accident in which he had injured his knee. Due to the highly personal nature of this evidence, I do not need to describe it in any detail here, although I note that neither medical condition was life threatening nor required an extensive period of hospitalisation. There is little medical evidence before the Tribunal of the extent of these conditions or their consequences for his capacity to run a business. However, the respondent gave evidence that his family difficulties had "consumed" him, that he had been "overwhelmed" by his personal and medical issues and that it had "only been in the last week that everything has come to the forefront."

26. Under questioning from the Tribunal, the respondent gave evidence that his business had sold some 45 properties in the previous 12 months, but said that he had another employee working with him during that period.

27. During this hearing, it became apparent to the Tribunal that the respondent still had not filed his audit report (and indeed had not filed his audit report for 2015/2016 either). I was not comfortable making final orders as to disciplinary action without viewing the outstanding trust account audit. Mr McPherson indicated that the process was underway. Accordingly, the Tribunal adjourned the matter part heard to 23 December 2016 to enable the respondent to obtain further evidence about his assertions, including confirmation that the audit report was being prepared. The matter was adjourned with directions made to progress to a hearing on penalty.

28. Shortly after the hearing, information came to the attention of the Tribunal about just how successful the applicant's business had been over the relevant period. This information was in the form of real estate listings from the Allhomes.com.au profile site that indicated that the respondent had sold "6 properties over the past four (4) weeks." The Tribunal was concerned that this information was not consistent with the evidence the respondent gave to the Tribunal at the first hearing about his capacity over the proceedings weeks. Accordingly, the matter was set down for directions on 25 November 2016 to enable the respondent to address these concerns, and a series of directions were made for the filing of medical evidence and affidavit evidence as to the facts and circumstances that compromised the respondent's ability to file his trust audit.

29. In the meantime, on 24 November 2016 the Commissioner filed an application for interim and other others seeking an interim order suspending the respondent's real estate licence. Directions for dealing with the interim application were made at the first directions hearing on 25 November 2016, and the interim application was heard and determined on 29 November 2016. Interim orders were made suspending the respondent's licence, and placing various conditions on his dealing with monies.

30. The matter came back before the Tribunal on 16 December 2016. By this occasion, the respondent had filed an audit report prepared by Mr Peter Bauerhuit. The report confirmed that the audit had been completed, but Mr Bauerhuit identified a number of exceptions (or issues) that needed to be addressed. The parties sought consent orders lifting the suspension but retaining the prohibition on the respondent releasing trust monies. The respondent was directed file any further information and documents relating to the exceptions identified in the Bauerhuit Report by 20 December 2016.

31. The matter returned to the Tribunal on 22 December 2016. On that date, the matter was again adjourned at directions were made for the filing of evidence for the final hearing.

32. The final hearing occurred on 18 January 2016. The respondent filed a range of material prior to the hearing, including medical reports and a statement addressing the exceptions in the Baurhuit Report. The Commissioner made brief oral submissions as to penalty. The respondent set out some matters in mitigation, but did not oppose the making of the orders sought by the Commissioner.**

**33. I am satisfied that the respondent contravened section 115 of the Agents Act by failing to provide his 2014/2015 trust account audit report to the Commissioner by the due date. I am therefore satisfied that there is a ground for occupational discipline pursuant to section 41(1)(a) of the Agents Act.

34. The next issue is whether the respondent, by failing to submit his trust account audit report by the due date, failed to exercise "reasonable skill, care and diligence", such that there would be grounds for making an occupational discipline order pursuant to section 41(1)(b) of the Agents Act as well. This requires that I consider whether the respondent has exercised a level of skill, care and diligence of a reasonable real estate agent.

35. I am also satisfied that by failing to ensure that the trust account audit was finalised by 30 September 2016 the respondent failed to exercise the skill and care expected of a reasonable real estate agent. I am also satisfied that the respondent's communications with the Commissioner about the steps he had taken to complete the report and the likely timeframe for completion of the report were, whether intentionally or not, misleading and demonstrative or a lack of care and diligence in complying with this regulatory obligations. I am therefore also satisfied that there are grounds for making an occupational discipline order under section 41(1)(b) of the Agents Act.**

36. The respondent does not oppose the orders sought. The role of the tribunal in disciplinary cases where the parties are in agreement or consent orders are sought was discussed by Presidential Member Daniel in Nursing and Midwifery Board of Australia v Izzard.[1] This process, in essence, requires that the Tribunal be satisfied that the occupational discipline orders sought are appropriate, notwithstanding they are agreed.

37. Section 65(3) of the ACAT Act sets out the matters the Tribunal must take into account when determining what occupational discipline orders to make under section 66 of that Act. Section 65(3) states:

In considering what occupational discipline to use against the subject person, the tribunal must consider the following:

(a) whether the person took reasonable steps to avoid the action (the contravention) that is the ground for occupational discipline;

(b) whether occupational discipline has previously been used against the person for a similar act;

(c) whether the person has taken steps to mitigate the effect of the contravention;

(d) the impact of the contravention on any other person;

(e) the likelihood that the person will act in a way that is a ground for occupational discipline in the future;

(f) whether the entity bringing the application has applied for particular occupational discipline to be used and, if so, the kind of occupational discipline applied for.

38. Taking each of those considerations in turn:

Whether the person took reasonable steps to avoid the action (the contravention) that is the ground for occupational discipline

**39. The respondent offered no evidence of any actions taken to avoid a contravention of section 115 of the Agent Act, but he has submitted that his personal circumstances provide a context and explanation for his breaches.

40. I accept that the respondent experienced a period of personal difficulty in 2015, primarily due to family circumstances, but also due to medical conditions. I accept the respondent's evidence as to these circumstances, as far as it goes. Unfortunately, it does not go very far.

41. The medical evidence supplied by the respondent does not confirm the extent of his oral testimony as to his medical conditions, and nor does it address how those medical conditions impacted on his ability to complete his audit accounts. I would, in the usual course, be prepared to accept that certain medical conditions of the kind raised by the respondent impact on a person's capacity to operate their business. However, the undisputed evidence in this case is that the respondent was running a very successful business during the relevant period - indeed, in his own words, he was a "high achiever". It is difficult to reconcile this thriving business with the respondent's evidence that he was unable to attend to his affairs.

42. I do accept that the respondent's personal affairs contributed to his poor record keeping and business practices. I do not, however, accept that they were the only reason for those deficiencies. In additional to failing to file his 2014/205 audit report by the due date, the respondent failed to file his 2015/2016 audit report by its due date (or indeed prior to this proceedings), failed to renew his licence within the required period, committed mistakes in his audit process that may amount to a failure to account for trust monies, and could not readily find necessary documentation for the completion of the audit. It is apparent that the respondent's processes, procedures and records were, prior to the commencement of these proceedings, entirely inadequate. It is particularly concerning that these deficiencies continued even after the breach of section 115 of the Agents Act was brought to his attention by Ms Coggers and Mr Turnbull in 2014.

43. As such, I have little hesitation in finding that the respondent took no steps to avoid the contraventions.

44. For completeness, I note that I am satisfied that the respondent was put on notice by way of Ms Cogger's letter of 2 September that his audit report was due by 30 September 2014. He cannot, and does not, claim ignorance.**

Whether occupational discipline has previously been used against the person for a similar act

45. The respondent has not previously been subject to an occupational discipline order.

Whether the person has taken steps to mitigate the effect of the contravention

**46. There is no evidence before the Tribunal the respondent took any steps to mitigate the effect of the contravention, other than the belated engagement of an auditor after the commencement of these proceedings.

47. Notwithstanding his comments to Ms Cogger in October 2015 and May 2016 about the progress of the audit report, there is no evidence that the respondent engaged an auditor prior to November 2016. The respondent's communication with Access Canberra was misleading when it came to timeframes and the steps that he had taken to complete the audit. If anything, this increased the regulatory burden imposed on the applicant.

48. Additionally, the respondent has only been in business since 2014, but has so far failed to comply with the audit requirements for both the years that he has been in business. Given that he only completed the requisite training for her Certificate IV in Property Services (Real Estate) in June 2014, the requirements should have been fresh in his mind.

49. Fortunately, the audit report, when finalised, confirmed that there were no effects on the broader public that required mitigation.**

The impact of the contravention on any other person

**50. The respondent's failure to submit his audit report on time caused the Commissioner to incur the additional regulatory burden of enforcing this statutory requirement.

51. Additionally, as the trust accounts audits are the only mechanism available to the Commissioner to ensure that agents are handling monies appropriately, the Commissioner's capacity to protect the public was compromised during the period that the report was due and not filed.

52. The respondent's trust accounts showed a number of deficiencies. These are demonstrative of poor record keeping and management practice. Such practices inevitably expose members of the public to an increased risk their conveyance may go awry. Fortunately, there is no evidence of any person was actually adversely affected.**

The likelihood that the person will act in a way that is a ground for occupational discipline in the future

**53. It is not possible to draw any firm conclusions about whether the respondent is likely to act inappropriately in the future.

54. During the course of the final hearing the respondent made a series of submissions about how the seriousness of this matter has "more than dawned" on him, and he stated that he was determined to never risk his business again. While these concessions are noted, it was somewhat concerning to the Tribunal that the seriousness of not complying with accounting and trust reporting requirements did not fully dawn on him prior to these proceedings. The importance of complying with audit requirements should have been apparent from his training and education. Nonetheless, the question is whether the respondent is likely to offend further in the future, and I accept that he is motivated to avoid any further disciplinary action.

55. My concern is whether the motivation has been translated into appropriate action. It is apparent to the Tribunal that the late audit report, and problems identified by the auditor, are a consequence of disorganisation within the respondent's office. The respondent gave evidence as to the steps he has taken to address these deficiencies, including additional training, the employment of an office manager, and the implementation of the property tree software system. These are positive steps, but it remains to be seen whether they will be sufficient to address any underlying issues.

56. Another positive sign was the the respondent's acknowledgement that he should have sought assistance earlier, and his statement that he is willing to do so in the future, if necessary. It appears that he has a good mentoring arrangement in place and there is every reason to believe that this will continue into the future.

57. The employment of a dedicated office manager is another positive step, but the respondent must appreciate that it is ultimately the agent's responsibility to know what his obligations are and to ensure that they are met. His willingness, earlier in this proceeding, to partially blame a previous office manager for the poor state of his records did not inspire confidence that he had fully understood this obligation prior to these proceedings, but having regard to the evidence at the final hearing, I am as reasonably satisfied that he does now.**

**58. The respondent has raised his personal circumstances as matters in mitigation. I am not satisfied that the respondent's personal circumstances are an excuse or an explanation for the deficiencies in his record keeping, or for his failure to submit his audit report on time. While I have no doubt that 2015 was a difficult year for the respondent, his assertion that his personal affairs consumed him to such an extent that he could not complete his audit report appears disingenuous when viewed against the evidence that he successfully run his business, sold in excess of 45 properties and took a skiing holiday during the relevant period.

59. Indeed, I still have little in the way of a satisfactory explanation as to why the respondent's audit report was so late. As noted above, I have some am view that the delay was contributed to by poor record keeping and business management.

60. Nonetheless, I am satisfied that the respondent's actions, in failing to submit his report on time, were a consequence of negligent record keeping, rather than anything more deliberate or sinister. It appears that the respondent's business expanded very quickly, and that he did not have the systems in place to deal with the increased book keeping that expansion created. He is taking steps to rectify those deficiencies. It is fortunate that these matters came to light before any member of the public suffered any loss.**

**61. Having regard to the nature of the contravention, I am satisfied that a penalty of $1000 is appropriate. This is the maximum fine prescribed by legislation for an individual.[2]

62. I am also satisfied that it is appropriate to order that the respondent undertake the suggested training courses and that he be publically reprimanded.

64. First, the magnitude of the penalty reflects that the Commissioner has had to expend resources in enforcing compliance with what should be a routine annual obligation. It is appropriate that the Commissioner recover some of these unnecessary costs from the respondent. The maximum fine of $1000 represents only a small portion of those costs.

65. Second, it is apparent that the respondent's approach to bookkeeping has been entirely deficient, very probably since the commencement of his practice. This suggests that there is some deficiency in his training, or his understanding of that training. The interests of public protection require that he undergo appropriate additional training, in addition to his usual continuing professional development obligations.

66. Thirdly, the breach is a significant one. It is a breach of an obligation that goes to the protection of the public. The risk that other agents may neglect or overlook their trust accounting obligations is a real one, and it is appropriate and necessary that steps be taken to prevent it. One such step is a public record of the Commissioner taking steps to address non-compliance. A public reprimand and a not insignificant fine are appropriate means of ensuring that all agents are aware of their obligations, and of the consequences of not meeting them.**

1. Pursuant to section 66(2)(a) of the ACT Civil and Administrative Tribunal Act 2008 the respondent is publically reprimanded in the terms set out at Schedule 1.

2. Pursuant to section 66(2)(h) the respondent is to pay to the Territory the sum of $1000.

3. Pursuant to section 66(2)(c) of the ACT Civil and Administrative Tribunal Act 2008 the respondent must, within six months of the date of this Order complete to the satisfaction of the Commissioner the following real estate industry training courses:

4. These courses should be designed for the Australian Capital Territory's legislative environment and they are not to count towards the respondent's continuing professional development (CPD) requirement.**

Mr Donald McPherson, the Tribunal has found that you have breached section 115 of the Agents Act 2003 (ACT) by failing to file a trust account audit for the 2014/2015 financial year within the required time. The report was finally filed in December 2016, over a year late, and only after the commencement of these disciplinary proceedings.

As well as being a breach of your obligations under the Agents Act, your conduct amounts to failure to exercise reasonable skill, care and diligence.

The trust report, when finally completed, revealed several exceptions that are indicative of poor management and record keeping generally.

I accept that you had a range of personal and family difficulties during the 2014 to 2015 financial year and that these difficulties contributed to your contraventions. However, while they offer some explanation, they do not provide an excuse. In any case, it was apparent that you were capable of successfully managing most other aspects of your business during this time. I am satisfied that your breach of the Agents Act was mainly due to inadequate processes and procedures and record keeping.

Real estate agents hold significant sums of money on trust for other people. Agents have an obligation to exercise a high degree of responsibility and diligence in the management of their trust accounts, and a crucial part of this is the yearly audit. In the absence of an audit, neither the Commissioner nor the public can have confidence in the integrity of an agent's accounts. Your breach of this obligation must be treated seriously so as to ensure the protection of the public by deterring others from making a similar mistake.

Accordingly, the Tribunal has made orders that you be publically reprimanded, that you pay $1000 to the Australian Capital Territory and that you complete training courses in maintaining business records and managing consumer risk.

[1] [2016] ACAT 68

[2] ACT Civil and Administrative Tribunal Regulation 2009 reg 4