REASONS FOR DECISION
1 The applicant was first issued a Real Estate Agent's licence in New South Wales in 1983. He held the licence for a year. Then there was a break, and he took out a licence again in 1986. He has held it continuously since that time (apart from the period 1999-2002). He also held continuously since 1986 a Stock and Station Agent's licence and a Business Agent's licence. The legislation now governing these licences is the Property, Stock and Business Agents Act 2002 (the Act) (commenced 1 September 2003).
2 In 1999 the applicant was declared bankrupt. The debt that led to the applicant being declared bankrupt arose from his failure to meet a personal guarantee that he had given in 1989 to the State Bank of NSW in connection with a commercial loan to a company of which he was then a director.
3 He surrendered his licences to the Commissioner for Fair Trading (as the relevant office is now known). The Tribunal did not receive evidence on why that was done. It is assumed that this occurred as an alternative to Local Court proceedings being taken to have the licence surrendered, a power available under the Act (at that time and now).
4 The applicant was discharged by law from bankruptcy on 13 April 2002. His licences were restored. His most recent application for a Real Estate Agent's licence was granted in September 2003 for one year expiring 23 September 2004.
5 Under Part 12 of the Act the Commissioner may form the view that there are grounds for disciplinary action to be taken against a licensee. By letter dated 19 March 2004 a delegate of the Commissioner invited the applicant to show cause why he should not be disciplined on the basis that he was a 'disqualified person' within the meaning of the Act. The relevant provision is s 16(1)(d) which provides:
' 16 Disqualified persons
(1) A person is a disqualified person for the purposes of this Act if the person:
…
(d) at any time in the 3 years preceding the application for the licence or certificate of registration, was an undischarged bankrupt … unless the Director General [now the Commissioner] has certified that he or she is satisfied that the person took all reasonable steps to avoid the bankruptcy'.
6 The delegate expressed the preliminary view that the applicant had not taken 'all reasonable steps to avoid the bankruptcy'.
7 After considering the applicant's written and oral submissions the delegate confirmed his provisional view that the applicant had not taken all reasonable steps to avoid bankruptcy and disqualified him for holding a licence until 13 April 2005, with the decision to take effect on 24 May 2004.
8 Section 200 of the Act provides that:
' 200 Review of disciplinary action by ADT
A person against whom disciplinary action is taken by the Director-General may apply to the Administrative Decisions Tribunal under the Administrative Decisions Tribunal Act 1997 for a review of the Director-General's decision on the disciplinary action or on a review of the disciplinary action.'
9 The applicant lodged an application for review with the Tribunal on 20 May 2004, accompanied by an application for urgent stay of the decision made pursuant to s 60 of the Administrative Decisions Tribunal Act 1997 (Tribunal Act).
10 The stay application was dealt with on 25 May 2004. A stay was granted subject to the condition that any trust funds received by the applicant from any person whatsoever be paid into a trust account not operated by him, with details to be forwarded to the Commissioner. The application for review, and consequently, the stay application were premature in that no internal review of the delegate's determination had been undertaken as required by the Tribunal Act, s 55(1)(b).
11 At hearing on 23 August 2004 this omission was addressed, and the Tribunal exercised its powers under s 55(2)(c) of the Tribunal Act. The Tribunal decided that the applicant ought not be precluded from making an application because of the absence of an internal review. The Tribunal was satisfied that the criteria specified in s 55(2)(c) were met, i.e. this was a case where it was necessary for the Tribunal to deal with the application in order to protect the person's interests and the application had been made within a reasonable time following the decision of the administrator concerned.
12 The delegate's reasons for decision have two components - one relates to concerns held over the circumstances that led to the applicant giving the personal guarantee, the second relates to the steps he took once the debt was called in several years later.
13 Mr Stone appeared for the applicant at hearing. Mr Coss, legal officer, Office of Fair Trading, appeared for the Commissioner.
14 Mr Stone submitted that, in having regard to the first of the two components mentioned - the circumstances that had led to the applicant giving the personal guarantee, the delegate's exercise of discretion had exceeded the bounds set by s 16(1)(d). Mr Stone submitted that the expression 'all reasonable steps to avoid the bankruptcy' referred to the licensee's conduct once the debt was called in. It did not permit inquiry into the conduct that had led to the debt being incurred in the first place.
15 Mr Stone submitted that the inquiry that was permitted by s 16(1)(d) was one confined to whether the licensee had acted reasonably (or, to use the term he felt best captured the idea of the provision, 'honourably') in seeking to meet the debt as best he or she could even though he or she might not ultimately have avoided bankruptcy. These were the 'steps' which the Parliament had in mind.
16 He submitted that it would be an oppressive and unfair interpretation to construe 'steps' as permitting an inquiry in how the debt that gave rise to the act of bankruptcy arose in the first place. Here the Commissioner had moved against the applicant in respect of business decisions made almost 15 years ago. The applicant had, along with other directors, given a director's personal guarantee in connection with a substantial commercial loan. The Commissioner's reasons criticised the applicant for his lack of prudence in giving a personal guarantee especially in light of his subsequent statements that he did not understand that a personal guarantee exposed him to personal liability if there was a default on the loan.
17 Mr Stone submitted that even if the applicant had not been as well informed as he should have been at that time about the implications of personal guarantees, and had acted imprudently, these were not issues that were open to be canvassed now in addressing the discretion given by s 16(1)(d). If the Commissioner wished to look at the circumstances that had led to the personal guarantee being given, he would need to rely on some other relevant head of discretion.
18 The Tribunal agrees with Mr Stone's submissions. Section 16(1)(d) is one of three provisions ((c), (d) and (e)) that deal with disqualification involving either personal bankruptcy or the insolvency of companies with whom licensees have a relevant connection. Para (c) deals with licensees currently undischarged from bankruptcy or involved in the management of a company subject to winding up; paras (d) (presently relevant) and (e) deal with licensees who within the preceding three years were in such situations. As noted above, licensees so affected are declared to be disqualified unless the Commissioner certifies that he is satisfied that they have taken 'all reasonable steps to avoid bankruptcy'.
19 Bankruptcy is, for most people, an unintended outcome of financial dealings. Deals that seem viable and realistic at the time may ultimately give rise to bankruptcy or insolvency for a wide variety of reasons. Catastrophes that could not have been predicted in any way may intervene - health breakdowns, family crises and the like. Financial settings may change significantly (as they did in the early 1990s when interest rates became very high).
20 Mr Stone is, the Tribunal considers, correct in submitting that the Parliament did not intend by using the words 'reasonable steps' to permit regulatory inquiries into the complexities that may ultimately give rise to an act of bankruptcy. The question is rather - did the licensee once faced with the possibility of bankruptcy seek to deal in a positive way with the difficulties that he or she now faced. In the Tribunal's opinion, the Parliament in these provisions sought to focus on the immediate context of the bankruptcy.
21 The above views were reached without the benefit of any authority on the matter. Neither counsel drew the Tribunal's attention to any decided cases going to this issue.
22 After the close of argument the Tribunal learnt that the issue of what is contemplated by the 'reasonable steps' requirement had in fact been addressed, authoritatively, in an earlier case reviewing action taken by the Commissioner for Fair Trading against a person licensed under the Act. That decision was delivered on 22 June 2004: McDonald v Commissioner for Fair Trading [2004] NSWADT 124 (Hennessy DP), in that instance dealing with an order made by the Commissioner under s 16(1)(c) rather than s 16(1)(d).
23 Mr Coss has since expressed regret to the Tribunal for not drawing that case to its attention and to the attention of Mr Stone (Mr Coss said a different legal officer had handled that case).
24 It will be evident from the foregoing reasons that the Tribunal agrees with the following observations of Hennessy DP where the question is examined in greater detail, and reference is made to relevant Queensland authority:
' Meaning of "took all reasonable steps to avoid the bankruptcy"
16 Issues. This is the first time these words in the Act have been interpreted by any New South Wales court or tribunal. Two questions which arise are the extent to which the circumstances giving rise to the bankruptcy are relevant as distinct from the steps taken to avoid the bankruptcy and whether the test is subjective, objective or a combination of the two.
17 Circumstances vs steps taken. The Queensland Building Tribunal (the Queensland Tribunal) has developed some jurisprudence on the meaning of "reasonable steps" in the context of a person becoming bankrupt. Section 56AC of the Queensland Building Services Authority Act 1991 (the Queensland Act) provides, in part, that an individual is excluded from being granted certain categories of licence if he or she has become bankrupt within 5 years before applying for the licence. The exception in s 56AD(8) states that:
The authority may categorise the individual as a 'permitted individual' for the relevant event only if the authority is satisfied, on the basis of the application, that the individual took all reasonable steps to avoid the coming into existence of circumstances that resulted in… (becoming bankrupt). (Emphasis added)
18 One important difference between the provisions in the Queensland Act and those in the NSW Act is that the reasonable steps in the Queensland Act relate to the coming into existence of the circumstances that resulted in the bankruptcy whereas the reasonable steps in the NSW Act relate to the avoidance of the bankruptcy itself. Mr McDonald's legal representative submitted that this distinction means that the Queensland Tribunal is justified in examining all the circumstances that resulted in the bankruptcy whereas the NSW Tribunal can only look at the steps taken, or not taken, by an applicant in order to avoid bankruptcy. The Commissioner's legal representative took a broader view.
19 Meaning of "reasonable steps to avoid the bankruptcy". Section 33 of the Interpretation Act 1987 provides that:
In the interpretation of a provision of an Act or statutory rule, a construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object.
20 This provision requires a court or tribunal to take into account the purpose of the legislation even if the meaning of the provision is clear. ( Mills v Meeking (1990) 91 ALR 16 at 30-31.) One purpose of the Act is to protect sellers and buyers of homes from dishonest or disreputable real estate agents. If a person became bankrupt as a result of some wrongful or improper conduct or because of financial irresponsibility, it may be necessary to protect the public by excluding such a person from being a real estate sales person. Taking all reasonable steps to avoid bankruptcy is consistent with being financially responsible. Consequently, the purpose of the Act is consistent with interpreting the phrase taking "all reasonable steps to avoid the bankruptcy" according to its ordinary meaning.
21 A person cannot be expected to take steps to avoid bankruptcy unless he or she is aware, or should be aware, that bankruptcy is a possibility.
[The Tribunal then examined the evidence before it and concluded that the applicant in that case 'should have known' that he faced the possibility of bankruptcy in January 1999.]
25 Subjective or objective test? In assessing reasonableness the Tribunal must examine all the relevant facts and circumstances. (Coles Myer New South Wales Ltd v Dymocks Book Arcade Ltd (1996) ACL 355.) In relation to the objectivity or subjectivity of the test, the Queensland Tribunal has consistently applied a decision in O'Connell v Queensland Building Services Authority Q099-01 (20 December 2001) where the Member said:
… in approaching the question of whether all reasonable steps have been taken to avoid the relevant event, one puts oneself in the shoes of, in this case, the Applicant, his experiences, his education and his knowledge of the world. In my view the test is not an objective one, the test is not what an insolvency practitioner would have done, nor is the test as to what a professional company director would have done, it is, is what this man … did reasonable for him to have done.
26 While the Member states that the test is not an objective one, it has an element of objectivity in the sense that the steps taken by the applicant must be objectively reasonable even though they are to be assessed in the light of the applicant's knowledge and experience. The Queensland Court of Appeal captured the essence of the test in the following passage from Pizer v Ansett Australia Ltd [1998] QCA 298 at [15]:
It makes little practical difference whether one approaches "the reasonable steps" issue from the viewpoint of the plaintiff endowed with the qualities of a reasonable person or of a reasonable person endowed with the knowledge and experience of the plaintiff. Some of the cases. deal with the issue in the first mentioned way, although strictly speaking the second mentioned way would seem to accord more literally with the statute.
27 The Queensland Tribunal has approached the test from the viewpoint of the applicant endowed with the qualities of a reasonable person. While there may be no substantive difference between the two approaches, I prefer to apply the test from the point of view of a reasonable person endowed with the knowledge and experience of the plaintiff. That approach accords with another Queensland Court of Appeal decision, Muir v Franklins Ltd [2001] QCA 173 (11 May 2001) which involved a different statutory context. In that case, the Court was asked to determine an appeal relating to an application to extend the limitation period so that a plaintiff could bring a claim for damages. One question to be determined was whether the plaintiff had taken all reasonable steps to ascertain the material facts. Thomas JA concluded at [15] that:
Whether the claimant has taken all reasonable steps is to be determined from the viewpoint of a reasonable person endowed with the knowledge and experience of the plaintiff.'
25 See now also Smith v Commissioner for Fair Trading [2004] NSWADT 182 (24 August 2004) (another decision going to this issue delivered soon after the hearing in the present case) to similar effect.
26 The Tribunal will now deal in more detail with the circumstances of the present case.
27 The personal guarantee was given in June 1989. In December 1989 the applicant ceased being a director of the company that received the commercial loan.
28 In his affidavit he outlines business decisions that were taken subsequently by the company to refinance loans. He also gave oral evidence and was cross-examined. He said he did not appreciate that, even though he had resigned as a director, the personal guarantee remained in place. A fire destroyed the company's timber mill. These events gave rise to the State Bank taking steps to liquidate the company. He said that he assisted in convening a meeting on 28 October 1994 to try to resolve these issues. He states that at this point a plan was put in place which it was thought would result in proceeds from the company sufficient to meet the amount owed to the Bank. It was assumed that the company had current cover under its insurance policies for property and income losses. He states that due to an oversight by its broker no insurance cover had been in place. The company was unable to meet its debts, and the various directors' personal guarantees were called in.
29 The Tribunal has concluded from the filed material that the applicant first became aware around 26 August 1994 that the State Bank was moving against his personal guarantee in respect of the whole amount owed under the loan (approximately $1.1m). In line with the views expressed by me and Hennessy DP this becomes the date that sets the starting point for the 'reasonable steps' inquiry.
30 In or around December 1994 he gave instructions to his solicitor to defend the bank's Supreme Court action on various grounds, most importantly, unconscionability. The Bank obtained an order. It is not clear whether there was a contested hearing. A bankruptcy notice was issued by the Bank's solicitors on 24 July 1998. In response the applicant produced a statement of assets and liabilities as at 11 June 1997. It showed that he had an excess of liabilities over assets. His parlous position is also reflected in his notice of assessment from the Australian Taxation Office for the year ending 30 June 1998.
31 It is unclear from the material what happened between 1995 and 1997. This may be explained by the applicant's illness. He had major treatment for cancer (in the area of the neck) (a medical report was filed). As to trying to meet the debt, the applicant had no significant personal means. He said that he was reluctant to borrow from other sources since real estate sales in the Old Bar/Taree area where he operated were tight and he had little capacity to repay.
32 The applicant engaged Peter Rouch, solicitor, to assist him in finding a resolution to the State Bank claim short of bankruptcy. He states that ultimately the Bank was prepared to settle with him for $20,000 but he was unable to raise those funds.
33 Mr Rouch said in his affidavit:
'During the late 1990s I was involved in a number of matters concerning personal guarantees which I had been able to settle on terms which were either set aside, or which were settled on what appeared to be very generous [sic, terms?], but were in fact all that the guarantors could raise.
Mr Davidson was at all times absolutely co-operative in the endeavours to reach settlement with the State Bank. As I recall there was a problem with the bank documents and the bank would not, or could not produce its files voluntarily - it would have been necessary to commence expensive proceedings and use subpoenae to obtain them, with no guarantee of success.'
34 Mr Rouch then refers to a $5,000 offer from the State Bank, and the applicant making an arrangement with his father to borrow that amount. His recollection is that the Bank then shifted position and sought $20,000 which was beyond the applicant's resources. His recollection is that the Bank refused to accept time payment. He recalled the Bank as uncooperative in relation to the production of documents.
35 Mr Rouch referred to the applicant having been diagnosed as having a cancer. Mr Rouch concluded: 'In all of this I was impressed by Mr Davidson's attitude, there were issues which could only be addressed by litigation which was beyond his physical and financial capacity.' The Commissioner did not require Mr Rouch for cross-examination.
36 The material shows that the applicant was aware that he faced a potential one-million-dollar plus liability by late 1994. He resisted the claim, contending by way of the filed defence that the guarantee was unenforceable. As noted above, the material does not disclose whether he went as far as a contested hearing of the Bank's claim. By the time he received the notice of bankruptcy, if not before, the material indicates that the applicant was penniless and facing serious surgery.
37 He sought to avoid bankruptcy by opening discussions with the State Bank over what amount they would take in settlement. As previously noted, the final amount they were prepared to accept was $20,000. Though not a great sum, especially compared to the amount due under the guarantee, the material clearly supports the applicant's evidence that he did not have the means to pay that amount.
38 The applicant pursued the one course open to him, negotiation with the creditor. The creditor made a generous offer. But the applicant was not in a financial position to meet it.
39 While there is a gap in the history in respect of the 1995-97 period, in the circumstances the Tribunal is satisfied that the applicant took all reasonable steps to avoid bankruptcy. There was no significant cross-examination as to the period, the Commissioner concentrating on the 1989 events.
40 Because of the view taken in relation to the nature of the inquiry to be undertaken pursuant to s 16(1)(d), the Tribunal has not examined in detail the material placed before it relating to the circumstances that gave rise to the 1989 transaction. Nor has the Tribunal examined in detail the many testimonials in support of the applicant, many from distinguished members of the Taree region, including the Mayor, attesting to the applicant's good standing. The Commissioner does not challenge the applicant's general fitness and character.
Order
Decision under review set aside.