Cumberland Real Estate Pty Ltd v Commissioner for Fair Trading

Relevant legislation

1. Under s 86 of the Property and Stock Agents Act money received for or on behalf of any person by a licensee in connection with the licensee's business must be held in a trust account. Under Division 2 of Part 8 of that Act licensees must have trust accounts audited each year. As noted above, s 111 requires a licensee to provide trust account audits to the Commissioner for Fair Trading in normal circumstances by 30 September each year in respect of the previous financial year.
2. Disciplinary action against a licensee may be taken in certain circumstances set out in s 191 of the Property and Stock Agents Act. Relevantly, s 191(a) provides that disciplinary action can be taken where a person has contravened a provision of that Act.
3. Section 192 sets out the type of disciplinary action which may be taken against a licensee. These range from a caution or reprimand to disqualification. Under s 193 the Commissioner for Fair Trading may at any stage of the matter determine to take no further action whether or not the Commissioner has determined that there are grounds for taking disciplinary action in connection with the matter.
4. The Commissioner for Fair Trading is empowered by s 198 of the Property and Stock Agents Act to take disciplinary action against a person on whom a show cause notice has been served, if the Commissioner is satisfied that there are grounds for taking disciplinary action.
5. There is no dispute in this matter that Cumberland Real Estate did not file an audit within time for the 59 account for the 2020 year. There is also no dispute that this was a contravention of the Property and Stock Agents Act and that this failure formed the sole basis for the taking of disciplinary action against the company. Cumberland Real Estate submits that the Commissioner for Fair Trading did not take into account all relevant matters when deciding to impose the penalties outlined above in relation to the contravention.

The evidence

1. Mr Hurley, as a director and licensee in charge, provided evidence on behalf of Cumberland Real Estate. He said that Cumberland Real Estate was registered as a company in 2001 and he has been a director since 2002 and has operated real estate businesses through that company since then. He said that the company had previously traded as Starr Partners (a franchise business). Mr Hurley said that Stone Real Estate Parramatta was registered as a trading name in November 2019 and the company traded under than name from early 2020. He said that the transition from Starr Partners to Stone Real Estate involved a change of branding, email addresses and the like.
2. Mr Hurley states that the 2020 audits were lodged on 31 December 2020 but the 59 account was missed by all involved. He states that the email of 9 February 2021 advising of the missing audit and the steps which needed to be taken was sent to an email address which was no longer operative. That address was from the time when the company ran a Starr Partners franchise. As the email was not received, Mr Hurley did not take any steps to file the missing audit.
3. Mr Hurley provided a copy of an email sent to his current email address at Stone Real Estate from a Customer Service officer at NSW Fair Trading on 23 April 2020 concerning correspondence it had received from a landlord for a property managed by Mr Hurley's agency. In the email the officer states that he or she had previously sent correspondence to Mr Hurley at the Starr Partners email address but was now aware that Mr Hurley no longer had access to that email address. Mr Hurley states that this email demonstrates that NSW Fair Trading had his correct email and should have communicated with him through that email address.
4. The Commissioner for Fair Trading states that the fact an individual officer in the Customer Service area sent an email to Mr Hurley on 23 April 2020 to his current address is not evidence that the formal address on file for him was that address. The Commissioner states that, unless formal notification of a change is received, NSW Fair Trading records are not updated. The Commissioner points to records which show that the email address was formally updated in the Government Licensing System on 19 February 2021.
5. When questioned at the hearing about when NSW Fair Trading had been notified about the change in email address, Mr Hurley said he had no personal knowledge of when that was done. He said he assumed the company's bookkeeper or General Manager would have done it either on his instruction or that of his business partner, Mr Denina. Mr Hurley said, however, that he accepted that, as licensee, it was ultimately his responsibility to ensure proper notification was provided to NSW Fair Trading.
6. In relation to the Notice to Show Cause and Notice of Suspension issued by the Disciplinary Action Unit (DAU) of NSW Fair Trading on 21 June 2021, Mr Hurley states that these notices were sent to the Starr Partners email address which was no longer in use and copied to his current email address at Stone Real Estate. He states that the email was received at 5:04 pm on 21 June 2021 and he telephoned NSW Fair Trading at 8:54 am the next morning when the office opened. Mr Hurley states that, at this stage, he believed the email to be a scam and did not open the attachments. He said that the reason he believed the email to be a scam was that another Starr Partners franchisee had had email intercepted and had lost a lot of money.
7. The telephone call to NSW Fair Trading on 22 June 2021 lasted for around 19 minutes. The email attaching the notices had been sent from "Disciplinary Action Unit" at address "dau@customerservice.nsw.gov.au". The officer with whom Mr Hurley spoke advised him that there was a Disciplinary Action Unit at NSW Fair Trading but he was not familiar with the email address used. The officer checked the licence records and advised Mr Hurley that there were no alerts in the records and there were no disciplinary issues that required action on his part regarding either the corporation licence or his personal license. The officer advised Mr Hurley to forward the email to "Property Licensing" and to report the scam to "Scamwatch" if he so wished. A recording of that conversation has been provided and its contents are not in dispute. Mr Hurley states that he accepted the advice given to him by the NSW Fair Trading officer and believed the matter to be closed. He said he believes he forwarded the email to Property Licensing as advised.
8. On 19 July 2021 Mr Hurley received a telephone call from a representative of the DAU advising that the corporate licence of Cumberland Real Estate was to be suspended immediately. The officer explained the reasons for the suspension. Mr Hurley states that the company's auditor was contacted immediately and an audit for the 59 account was completed and filed the next day. The suspension was then lifted.
9. Mr Hurley states that he has never previously failed to comply with the audit requirements. He states that the fact the account that was missed was simply and clearly an oversight and there was no deliberate attempt to engage in corrupt or fraudulent behaviour. He states that he had no reason to disbelieve the advice that he was given by NSW Fair Trading in the phone call on 22 June 2021. He also notes that, when he became aware on 19 July 2021 that further action indeed was to be taken, he took immediate steps to remedy the situation and the audit was submitted the next day.
10. Mr Hurley states that no loss or damage to any person has resulted from the delay in filing the audit. He also states that this is the first instance of any breach in his 40-year history in the real estate industry. He queries why he did not receive a telephone call from NSW Fair Trading when there had been no response to the emails of 9 February and 21 June 2021. In this context, the Commissioner notes that on 21 June 2021 an officer made three phone calls to Mr Hurley's mobile phone about the issuing of the notices. Each call was unanswered and it does not appear that any messages were left.
11. In relation to the 59 account, Mr Hurley gave evidence that the agency manages 1,800 rental properties. He said, however, that the 59 trust account was not used for regular rental payments and there was another trust account for that purpose. He denied at the hearing that, if there had been a problem with the account, it would have affected many landlords, let alone 1,800.
12. Mr Hurley states that he understands the importance of the audit function and that it is his responsibility as licensee in charge (under s 100 of the PSA) to furnish audits of all trust accounts. He said that, while the responsibility is his, in the normal course of business Massimo Tomasetti, the external auditor, would have instructed by his business partner, Mr Denina, to conduct the relevant audits.
13. Mr Tomasetti gave evidence at the hearing. He said that the 59 account was not the main rental trust account for the agency. He said that individuals who pay rent at the counter would use that trust account but volumes were very low because of COVID-19. He said that when money was paid into that account it was then moved to the other main rental account. He said that these transactions were occurring in the context of the transition from Starr Partners to Stone Real Estate. Mr Tomasetti said that he liaised with Mr Denina about the audit and that the 59 account was not part of the documents that were delivered to him. He said he had spoken to Mr Denina whose recollection was that the account was not being used at the time. Mr Tomasetti said that the low volume of transactions in the account meant that it was missed. He said there was nothing deliberate in the fact that the audit for that account was not undertaken.
14. Mr Hurley stated that, while systems were in place to ensure that audits were undertaken, the company has since revised its systems, including diary entries for relevant staff, to ensure full compliance in the future.

The parties' positions

1. The Commissioner acknowledges that, other than the failure to lodge the audit, there were no irregularities with the 59 account. The account also had a small amount of money it, namely $1,480. There is also no question that audits for the other three trust accounts operated by Cumberland Real Estate were filed within time and no irregularities with those accounts were identified. The Commissioner states that the sole issue warranting disciplinary action is the failure to lodge the audit for the 59 account. The Commissioner also acknowledges that the omission was not deliberate.
2. The Commissioner states that, although she acknowledges that Mr Hurley understands his obligations, the failure to lodge an audit of the 59 account was not deliberate, that restrictions around COVID-19 may have affected operations and that the account was not a main transactional account, Cumberland Real Estate had no systems in place to remind those responsible that an audit of the account needed to be completed. The Commissioner states that the systems now in place should have been in place previously to avoid the failure to lodge the audit.
3. The Commissioner states that it is the responsibility of a licence holder to ensure their contact details held by NSW Fair Trading are up to date. If those details had been kept up to date, Cumberland Real Estate would have received the email of 9 February 2021. She submits that, at a minimum, there is an element of carelessness or recklessness in not filing the audit for the 59 account.
4. The Commissioner submits that the Tribunal should take into account the potential harm that could be caused by the conduct of Cumberland Real Estate in not filing the audit. While that trust account held a small number of payments, it was in fact an account into which substantial payments could have been paid. There was therefore the potential for 1,800 landlords to be affected by the non-compliance.
5. The Commissioner submits that Cumberland Real Estate was well aware of the need to submit an audit for all accounts as the requirement to do so was an annual one. The Commissioner states that the integrity of trust accounts and audits is vital to trust in the industry. It is further submitted that audits of trust accounts play a critical public interest role in enhancing consumer confidence in real estate agents. The Commissioner submits that, even though in this case there were no discrepancies with the account, that does not displace the public interest in audits being provided and the protective purpose of such audits.
6. The Commissioner argues that the decision under review should be affirmed as an appropriate penalty has been set for the contravention by Cumberland Real Estate. She submits that the penalty serves as an educative function for agents with regard to their responsibilities.
7. Both parties referred to the "Guidelines to determine a disciplinary action outcome" issued by NSW Fair Trading. The Guidelines are taken into account by NSW Fair Trading decision makers in determining appropriate disciplinary action to be taken against a licence holder.
8. Mr Hurley submits that the Commissioner has ignored many factors in coming to a view to issue a reprimand and impose a $5,500 penalty. Mr Hurley is not so much concerned by the monetary penalty but is of the view that a reprimand is too harsh a penalty in the circumstances, particularly as it reflects very badly on the agency. Mr Hurley submits that more emphasis should have been placed on matters including the company's compliance history, that no damage or loss was caused, that the omission was not deliberate, that the omission did not involve any fraud or dishonesty and that neither he nor the company gained from the omission. He submits that the company did have systems in place to ensure audits were completed and those systems worked for many years. He argues that no system can overcome human error.
9. Mr Hurley submits that the full circumstances surrounding the non-compliance should be taken into account, including that he was given advice by NSW Fair Trading that there were no issues of concern.

Consideration

1. The task of the Tribunal on administrative review under s 63 of the Administrative Decisions Review Act 1997 is to determine what is the correct and preferable decision, having regard to the material then before it including any relevant factual material and any applicable written or unwritten law. The Tribunal may exercise all of the functions that are conferred or imposed by any relevant legislation on the administrator who made the decision. In this case, that is the relevant provisions of the Property and Stock Agents Act.
2. As noted above, there was no disagreement between the parties that the failure to lodge the audit of the 59 account was a contravention of the Act. I am satisfied that there were grounds for taking disciplinary action against Cumberland Real Estate under section 191(1) of the Property and Stock Agents Act.
3. In general, the facts in this matter are not in dispute. The Commissioner did not make any particular challenge to the evidence of Mr Hurley or Mr Tomasetti. I accept the evidence, particularly of Mr Tomasetti, that failure to undertake and lodge an audit for the 59 account was an oversight in the context of the transition from Starr Partners to Stone Real Estate. It is also accepted that the failure to submit the audit did not result in any loss or damage, that no fraud or dishonesty was involved and that there were no irregularities with the account which held a small amount of money. That being said, there is no doubt that there was a failure in the company's systems which meant the audit was not undertaken and lodged with NSW Fair Trading.
4. As to the events which occurred in February 2021, it is apparent, and Mr Hurley admits as much, that the company's email address was not updated promptly. Even though an email was sent to the Stone Real Estate email address in April 2020, formal notification of the change was not received by NSW Fair Trading until 19 February 2021. In those circumstances, there was no error or lack of attention by NSW Fair Trading in sending the 9 February 2021 letter to the Starr Partners email address.
5. It is truly unfortunate that Mr Hurley was given incorrect advice when he telephoned NSW Fair Trading on 22 June 2021 after receiving the email from the "dau@customerservice.nsw.gov.au" email address. The advice received confirmed for Mr Hurley that the email was a scam and that no action was required. There is no doubt that he acted promptly on becoming aware of the true state of play and the audit was undertaken and lodged within 24 hours.
6. The Tribunal has accepted that the failure to account for money held in trust is a major risk area for the real estate industry, and a major source of consumer detriment. In addition, the integrity of trust accounts and trust account audits are vital elements that reinforce consumer confidence in real estate agents in NSW: Option Realty Pty Ltd v Commissioner for Fair Trading [2022] NSWCATOD 27; Amazing T Investment Pty Ltd v Commissioner for Fair Trading [2022] NSWCATOD 6.
7. I agree with the statements made in those cases that real estate agents can handle very large sums of money on behalf of their clients and must be accountable and open to scrutiny in the conduct of their affairs as licensees. The requirements of the Property and Stock Agents Act relating to trust accounts and trust account audits are therefore important elements that reinforce consumer confidence in real estate agents. I also agree that the imposition of an appropriate sanction for breach of statutory obligations has an educative function in that it is concerned with the protection of the public, rather than being purely punitive in nature and aims to act as a deterrent with a view to maintaining proper standards of conduct within the industry.
8. At issue in this matter is what, if any, disciplinary action should be taken against Cumberland Real Estate for failure to have the 59 account audited and the audit lodged with NSW Fair Trading within time. In considering this issue, the Guidelines referred to above, while useful, are not binding on either the Commissioner or the Tribunal.
9. There are some similarities between this matter and the facts in Option Realty and Amazing T. There are also, however, important differences.
10. There is no suggestion in this matter that Cumberland Real Estate (or Mr Hurley) acted deliberately in any way in not undertaking and filing the audit or in not responding to correspondence from NSW Fair Trading, including the Notice to Show Cause. It is accepted that the 9 February 2021 email was not received. Mr Hurley accepts responsibility for not advising of the change in email address promptly and for the failure to provide the audit for the 59 account. Indeed, audits of the other three trust accounts operated by the business were provided for the 2020 year and Mr Hurley has a lengthy unblemished record in the industry. His failure to respond to the Notice to Show Cause is entirely explicable in light of his discussion with an officer at NSW Fair Trading on 22 June 2021.
11. There is no doubt that compliance with trust accounting obligations is very important and a licensee should be held to account for any failure. In this case, the Commissioner emphasises the potential of harm which could have resulted from the contravention. Given the purpose of the account and its size, that potential for harm was in fact small. Any risk to the integrity of the industry or the licensing system through the failure to provide the audit, while not negligible, was also small.
12. The powers conferred on the Commissioner (and thus the Tribunal) to either take disciplinary action against a person or to determine to take no further action are discretionary. Any discretion must, of course, be exercised carefully after taking all relevant matters into account. Any disciplinary action must, of course, be proportionate and is not, as noted by the Commissioner, a penalty.
13. In this matter, after taking into account the purpose of audits and the seriousness of the issue of the failure to provide an audit of a trust account, the fact that the omission by Cumberland Real Estate of the audit for the 59 account was not deliberate, that no misfeasance or irregularity was involved, that action was taken swiftly when Mr Hurley became aware of the situation and that there was no pattern of any such failures on the part of Cumberland Real Estate, I am satisfied that, even though the grounds exist to take disciplinary action exist, the correct and preferable decision is in accordance with s 193 of the Property and Stock Agents Act to take no further action.

Orders 1. The name of the applicant is amended to Cumberland Real Estate Pty Ltd. 2. The decision under review is set aside. 3. The decision is made to take no further action.

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: 06 September 2022