Director of Consumer Affairs Victoria v Baycrown Management Pty Ltd (Review and Regulation) [2015] VCAT 380

2. The respondent's licence is cancelled, with effect from 30 April 2015, and it is disqualified from holding a licence for a period of 5 years from 30 April 2015.

3. The respondent is ordered to pay a fine of $5,000.00 to the Victorian Property Fund by 30 April 2015.

1. The Director of Consumer Affairs Victoria, has applied to the Tribunal under section 25(1) of the Estate Agents Act 1980 (the Act) for the holding of an inquiry into the conduct of the respondent, Baycrown Management Pty Ltd (Baycrown).
2. In this case the Director asked the Tribunal, under section 25(1), to hold an inquiry to determine whether Baycrown -
   • (a) has contravened or failed to comply with the Act or the Regulations made under the Act ( section 25(1)(a)); and/or
   • (b) is of good character or is otherwise a fit and proper person to hold a licence (section 25(1)(b)); and/or

(c) has been guilty of conduct as an estate agent which renders the licensee unfit to hold a licence ( section 25(1)(c)).

1. Baycrown is a company, which holds estate agents licence no. 74198 (the licence). Baycrown has held that licence since 31 July 2012. Baycrown carries on business at its registered office, Unit 104, 268 Flinders Street, Melbourne.
2. Since 12 October 2012, Mr Gilbert (Jack) Horton has been a director of Baycrown. From 7 July 2013 until 8 October 2014, Mr Thomas Ward was the officer in effective control (OIEC) of Baycrown. Since 8 October 2014, Mr Nicholas Tate has been the OIEC. The Director's application is made only against Baycrown.
3. This inquiry concerns Baycrown's management of apartments in the Melbourne CBD at 9 Degraves Street, and 268 Flinders St (known as Home@Flinders), including its payment of bond monies paid by tenants at 268 Flinders St into an interest bearing account, rather than into trust and then to the Residential Tenancies Bond Authority (RTBA).
4. Shortly before the hearing, the parties filed an agreed statement of facts, set out in more detail below. Baycrown admitted the substantive allegations, and the hearing largely concerned the orders to be made by the Tribunal under section 28A of the Act.
5. The Director sought orders that Baycrown's licence be cancelled with a disqualification period, and that it be reprimanded and fined. Baycrown submitted that cancellation and disqualification was not warranted in the circumstances and conditions and undertakings would be sufficient.

1. Under section 25(1) of the Act, the Director of Consumer Affairs Victoria or the Chief Commissioner of Police, may apply to the Tribunal for the holding of an inquiry to determine whether there are grounds for taking action against a licensee. The application will set out the alleged grounds for taking action.
2. After conducting an inquiry under section 25, if the Tribunal is satisfied that there are grounds for taking action, the Tribunal may make any one or more of the following orders, set out in section 28A of the Act -
   • (a) reprimand the person
   • (b) require the person to comply within, or for a specified time with a specified requirement
   • (c) cancel any licence held by the person and disqualify the person either permanently or for a specified period from holding a licence
   • (d) suspend any licence held by the person for a specified period not exceeding one year
   • (e) impose any condition or limitation on the licence held by the person
   • (f) declare any person to be ineligible to hold a licence or to be an agent's representative either permanently or temporarily
   • (g) require the person to enter into an undertaking to perform, or not to perform, certain tasks to be specified in the undertaking.
3. If the Tribunal determines that the person has contravened or failed to comply with the Act or the Regulations, it may in addition to the orders above impose a penalty not exceeding $5,000 on the person, and specify when the penalty must be paid (section 28A(2)). Any penalty imposed under section 28A(2) must be paid to the Victorian Property Fund.
4. In determining what orders to make, the paramount consideration for the Tribunal is the protection of the public and the maintenance of public confidence in, and the professional standards of the industry.[1]

1. In the amended application for inquiry, the Director set out six grounds for taking action. These are in the nature of allegations and relate to -
   • Baycrown's alleged failure to notify the Director of the opening of its ANZ trust account within 14 days of it being opened in October 2012 [Ground 1];
   • Baycrown's alleged failure to record the date on which trust money was received into trust on a trust receipt [Ground 2];
   • Allegedly depositing approximately $243,000 of trust money into an interest-bearing account rather than into Baycrown's trust account, thereby contravening the Act and causing a deficiency in the trust account [Ground 3];
   • Baycrown's alleged failure to hold bonds on trust for tenants of 268 Flinders St when the bonds had been received, and alleged failure to give the bonds received to the Residential Tenancies Bond Authority as required under the Residential Tenancies Act 1997: the Director alleges that Baycrown had deposited bonds totalling approximately $243,000 into its ANZ interest-bearing account rather than first into its trust account and then to the Residential Tenancies Bond Authority [Ground 4];
   • Alleged breach of the Residential Tenancies Act, by requesting that tenants of 9 Degraves St (in two cases) sign blank bond claim applications [Ground 5];
   • [Ground 6 was withdrawn]
   • Allegation that since October 2012, Baycrown has failed to comply with the Estate Agents (Professional Conduct) Regulations 2008 ("the Regulations") by:
     • failing to have a working knowledge of the Act ;
     • failing to act fairly and honestly and to the best of the agent's knowledge and ability in the performance of the agent's functions as an estate agent;
     • failing to exercise all due skill, care and diligence in performing the agent's functions as an estate agent; and
     • engaging in conduct that was unprofessional or detrimental to the reputation or interests of the estate agency industry [Ground 7].
2. The detailed grounds for taking action are set out in the Appendix to these reasons.
3. The Director relied upon the evidence of -
   • (a) Inspector Stephen Giles Baker - affidavits dated 2 July 2014 and 17 October 2014;
   • (b) Inspector Brett Watson - affidavit dated 11 August 2014;
   • (c) Ms Rebecca Johnston-Ryan, compliance and Enforcement Officer - affidavit dated 6 August 2014;
   • (d) Affidavit of Inspector Naomi Lay - affidavit made 15 August 2014; and

correspondence between Consumer Affairs Victoria and Baycrown.

1. In the application for inquiry, the Director advised that if the Tribunal is satisfied that there are any grounds for taking action against the Licensee, the Director will seek orders under:
   • 28A(1)(a) - reprimand;
   • 28A(1)(c) - cancel any licence and disqualify the person either permanently or for a specified period of time from holding a licence;
   • 28A(1)(g) - require the person to enter into an undertaking to perform, or not perform, certain tasks to be specified in the undertaking; and
   • 28A(2) - a fine not exceeding $5,000.

1. Shortly before the hearing, the parties provided a statement of agreed facts. Relevant background included in the statement of agreed facts included:
   • Mr Thomas Ward was the Officer in Effective Control of Baycrown from 7 July 2013 until 8 October 2014, when Mr Nicolas Tate became the Officer in Effective Control;
   • Baycrown has operated the ANZ trust account no. 380229471 since 17 October 2012 (the trust account);
   • The interest-bearing account held by Baycrown at ANZ no. 380218916 was operated from 17 October 2012 until 29 August 2014, when the balance of the account had been reduced to nil and the account was closed.
2. The following agreed facts relate to the substance of the grounds for taking action and they are set out as provided by the parties.

Failure to notify the Director of CAV of the opening of a trust account

(1) On or about 17 October 2012, the respondent opened the following trust account with ANZ:

• BSB 013128
• Account Number: 380229471
• Account Name: Baycrown Management Pty Ltd

(2) The respondent failed to notify the Director of CAV within 14 days of the opening of the above trust account.

(3) The Director was not notified of the opening of the trust account until about 26 August 2013.

Failure to record on a trust receipt the date on which money was received into trust

(4) In or about December 2012, the respondent issued a trust receipt which did not record the date on which trust money was received into trust (that date being different to the date on which the receipt was made out).

(5) For the period between 17 October 2012 until about January 2014, the respondent engaged in a practice whereby it routinely collected two months of rent in advance from the tenants of 268 Flinders Street, Melbourne, Victoria, which was and is a property managed by the respondent.

(6) The respondent generally held the first month of rent in advance in trust until such time as the first monthly rental payment fell due, while the second month of rent in advance was paid into a separate interest-bearing account held at ANZ. The interest-bearing account was not a trust account.

(7) The respondent held the second month of rent in advance money in the interest-bearing account with the intention of, and for the purposes of, repaying the money to the tenant(s) from whom it was received at the end of the lease if there was no damage to the property and the tenant(s) did not breach their rental agreement. In circumstances where there had been damage to the property and/or any breach of the rental agreement, the respondent's intention was to retain the money, either in full or in part, for the purposes of remedying the damage and/or the breach.

(8) The second month of rent in advance collected by the respondent was in fact a bond. The respondent was accordingly required, pursuant to sections 407 and 408 of the Residential Tenancies Act 1997, to have initially held the money in trust upon its receipt before providing it to the Residential Tenancies Bond Authority ("RTBA") within 10 days. On all but three occasions during the period in question, the respondent did not at any time hold the money in trust or provide it to the RTBA.

(9) At no time whatsoever did the respondent withdraw or use the money held in the interest-bearing account for any purpose other than to refund the money to the tenant(s) to which it was owed at the end of the lease, or to remedy any damage to a rental property and/or any breach of a rental agreement.

(10) Since about January 2014, the respondent has ceased the practice of collecting two months of rent in advance. The respondent's current practice is to collect from tenants the first month of rent in advance, and the bond (which is generally an amount equivalent to one month's rent) which is in turn provided to the RTBA.

(11) As at 3 September 2013, the balance of the respondent's interest-bearing account held at ANZ was $243,164.76.

(12) On or about 29 August 2014, the balance of the respondent's interest-bearing account was reduced to nil and the account was closed by the respondent.

Procuring tenant's signatures on incomplete bond claim applications

(13) In or about March 2012, the respondent procured the signature of Mr Guilio Minute, who was at the time the tenant of 510/9 Degraves Street, Melbourne, Victoria, which was and is a property managed by the respondent, on a RTBA bond claim form which did not specify the amount of bond to be refunded to Mr Minute.

(14) In or about June 2013, the respondent procured the signature of Mr Mark Joel Velasquez, who was at the time the tenant of 406/9 Degraves Street, Melbourne, Victoria, which was and is a property managed by the respondent, on a RTBA bond claim form which did not specify the amount of bond to be refunded to Mr Velasquez.

1. At the hearing Baycrown filed two affidavits. The deponent of one of those affidavits gave evidence.

1. Mr Minute stated he was a tenant of 510/9 Degraves St Melbourne, and signed an RTBA bond claim form in which did not specify the amount of bond to be refunded.
2. Mr Minute stated he asked Baycrown's employee to allow him to sign the form because he had to vacate the premises to return urgently to Italy for personal reasons; he shared the flat with a flatmate who was intending to stay on for a short time; he was the only person to whom the bond would be refunded; but the amount to be returned could not then be ascertained. He stated he trusted that Baycrown would repay the proper amount in due course and that is what happened. He stated he has no complaint, reflected in the fact that when he returned to Melbourne he again rented premises from Baycrown and does so up to the present time.

1. Mr Gilbert Horton, also known as Jack Horton, made an affidavit, filed at the hearing, gave additional evidence in chief and was cross-examined. Mr Horton has been a director of Baycrown since 12 October 2012.
2. Mr Horton's evidence in his affidavit, additional to the agreed facts, was in summary as follows:
   • The ANZ trust account was opened after he became a director. Previously the trust account had been with the Commonwealth Bank. Due to an oversight as to the necessity to do so, the new account was not reported to CAV;
   • In about December 2012, Baycrown issued a trust receipt which did not record the date the money was received into trust and banked but rather the later date on which the receipt was made out, being the date the moneys showed up in the account - the next business day. Because the Christmas period intervened there was several days' difference between the date of payment in and the date recorded on the receipt. The issue having been brought to Baycrown's attention he ensured that the office from then on employed a rigorous practice of recording such deposits as taking place on the day of banking rather than the following business day. There was never any intentional misrecording of deposit dates or any other detail of deposits;
   • The practice of collecting two months' rent in advance from tenants at 268 Flinders St, and holding the second months' rent in advance in an interest bearing account, was followed between 17 October 2012 and January 2014.
   • This course was adopted on professional advice that by collecting the monies as rent rather than as bond it was not necessary to treat those monies as bond monies. However, the intention was to hold those monies until the end of the lease and then pay them back to the tenant less any costs for rectifying damage to the premises. Baycrown's current legal advice is that because of that purpose, the monies fall within the definition of bond and so have to be treated as bond money. That was not the advice Baycrown had at the time and Baycrown acted honestly relying on that advice;
   • He concedes that Baycrown (inadvertently) breached the requirements of the legislation, however, respectfully points out that while the moneys were not paid to the RTBA, they were always used to meet damage to the relevant property and/or repaid to the tenant when moving out, just as they would have been had the monies been paid to the RTBA. Baycrown did not and is not accused of misappropriating those monies wrongly on any occasion;
   • Two audits prior to August 2013 by the Business Licensing Authority resulted in no communication regarding the above practice. When, in August 2013, Baycrown became aware that there was an issue in the practice, Baycrown sought legal advice. Despite that advice being initially ambivalent, Baycrown changed its practice to collecting one month's rent in advance and a clearly designated bond which was then treated in accordance with the statutory requirements;
   • He has been made aware of two instances where [the tenant] had signed RTBA bond claim forms that did not have the amount of bond to be refunded set out;
   • The first instance took place when he was a director. The staff member is no longer with Baycrown but he is informed by the tenant Guilio Minute that the blank form was taken at his request as he had to return to Italy urgently and as his flatmate was staying on in it could not, at the time he parted for Italy, be ascertained what if any amount might be held back when his flatmate moved out. Mr Minute has informed him that he was repaid his entire bond once the flatmate moved out;
   • He is unable to say what occurred in relation to the second bond claim form. Neither the tenant Mark Joel Velsquez nor the staff member are contactable. He is unable to say whether it was an oversight, a similar situation to Mr Minute or intentional on the part of the staff member. For so long as he has been a director, and as far as he has been able to ascertain, the administrative procedures of Baycrown were to complete the amount of bond to be repaid before the form was signed.
3. In his additional evidence in chief, Mr Horton said:
   • The interest bearing account was opened as a vehicle to receive rent in advance; the purpose was not to make money;
   • He believes that the interest was probably paid to Baycrown's trading account. He has been informed by the ANZ bank that the interest paid on the interest-bearing account during the period October 2012 to its closure in August 2014 was $574.00. He is happy to give the full amount to the Property Fund;
   • At the end of a tenancy, the procedure was that if the tenants left the property in good order and paid any costs, the rent in advance was paid in full into their account;
   • About '99%' got a full refund;
   • Baycrown never had a claim by a tenant;
   • If the tenant broke the lease they would sign a form acknowledging that;
   • Baycrown always tried to keep it simple;
   • Thee were occasions when the landlord was paid, and there would have been times when repairers would have been paid;
   • No monies were ever distributed anywhere else;
   • It was made clear in the lease that the additional month's rent was held on behalf of the landlord and would be held until the end of the lease;
   • He was not aware of any reply [by CAV] to his solicitors' proposal [in January 2014 that no new bond monies be paid into the interest bearing account and that the monies held be retained there rather than paid into trust, gradually being paid down as tenants departed]. Nevertheless he immediately took steps to change the practice, from February they took bonds and paid them to the RTBA;
   • He was not aware of any indication from CAV that they disagreed with the proposal;
4. Under cross-examination Mr Horton said, or agreed that:
   • The interest bearing account was merely a vehicle to hold rent in advance. When he bought the business he told the bank what accounts he needed;
   • The use of the money was essentially as a bond. It wasn't as if he wasn't aware of the bond requirements. He was aware of what a bond was but when the business started, the company had leased back every apartment from the owners and was running a serviced apartment business;
   • They had advice that it was fine not to take a bond and take rent in advance;
   • There had been an original audit from the Business Licensing Authority, and they had advice that the monies should be held in trust. They were audited another time and no-one thought it was a problem;
   • It wasn't that he intentionally tried to break the law;
   • The initial advice was well over 7 years ago;
   • He knew what a bond was;
   • [When asked if he knew what a bond was and was treating the monies as a bond, why not follow the bond requirements] Initially the developer gave rental guarantees to owners. Baycrown was set up to run the estate agency, and received money from the development company under the rental guarantees and paid it to landlords. It was convenient and easy;
   • They were not trying to get around the legislation;
   • [When referred to the affidavit of Inspector Brett Watson[2] referring to concerns expressed in 2010 about a similar account and practice] He did not recall any of that. If there had been any concerns, why were they not put in writing?
   • He doesn't know if he was warned. He was present at some point. He wasn't the OIEC. He can't say that it is not true that Inspector Watson did give a warning in 2010;
   • The legal advice was not about how they held the money, it was about whether they had to hold bonds;
   • [Agreed that] Baycrown held the money for all intents and purposes as a bond, and that it came down to convenience;
   • The safeguards were that tenants had to sign a form same as the RTBA;
   • If there was a dispute, he got called in to settle it. There was never a dispute that went to VCAT. His job was not to spend all his time at VCAT;
   • He was aware of the correspondence from CAV [after the August 2013 inspection] stating that there was a contravention. [Agreed that] Baycrown didn't transfer the monies into trust and then lodge them with the RTBA- he thought it was most convenient to leave them in the account, it would have involved quite a lot of work, and the bonds would have been due soon. He never saw any objection from CAV. His lawyers wrote to CAV. He though CAV was happy with what he was doing;
   • He knows that trust money is money held on trust on behalf of another person, and agrees that the rent in advance was trust money, but what he was doing was innocent;
5. On re-examination, Mr Horton:
   • Confirmed the interest paid on the interest-bearing account was $547.10 (reading from an email on his phone from the bank);
   • In relation to the process by which disputes were resolved, said that he would always request a meeting and would resolve it amicably;
   • Putting aside that there was no bond claim form and no payment to the RTBA said that it was basically exactly the same - there would be a discussion, they would talk about the condition of the premises and whether any rent was owing and would try to get the tenant to settle;
   • In relation to the evidence about a warning from CAV in 2010 about a Suncorp account, said that he didn't believe he sat in on all discussions, he had some discussions but left it to the auditor. He is not saying he wasn't warned but doesn't recall it.

Findings in relation to the grounds for taking action

1. On the basis of the agreed facts, and the additional evidence given as above, it is clear that grounds 1, 2, 3, 4, and 5 are proven, in particular I find that:
   • Baycrown has contravened section 59(7)(a) of the Act by failing to notify the Director of the opening of the ANZ trust account within 14 days of it being opened (ground 1);
   • Baycrown has failed to comply with the Estate Agents (General, Accounts and Audit) Regulations 2008 by failing to record the date on which trust money was received into trust, in relation to one trust payment, in contravention of Regulation 13(2)(c) of the Estate Agents (General, Accounts and Audit) Regulations 2008 (ground 2);
   • Baycrown has failed to pay money received in trust (the rent in advance monies) into a trust account in the name of Baycrown in contravention of section 59(1)(a) of the Act; and caused a deficiency of money payable into Baycrown's trust account, without having a sufficient and satisfactory explanation for so causing the deficiency, in contravention of section 90(1) of the Act (ground 3);
   • Baycrown has failed to comply with the Residential Tenancies Act 1997 by failing to hold bonds on trust for the tenants from which the bond were received, in contravention of section 408 of the Residential Tenancies Act 1997; and has failed to give bonds received to the RTBA within 10 days after the bonds were received, in contravention of section 407 of the Residential Tenancies Act 1997 (ground 4);
   • Baycrown has failed to comply with the Residential Tenancies Act 1997 by requesting that tenants sign bond claim applications which did not specify the amount of bond to be refunded, in contravention of section 412(5A) of the Residential Tenancies Act 1997 (ground 5);
2. Ground 7 alleges as follows:
   • Since 12 October 2012, the licensee has failed to comply with the Estate Agents (Professional Conduct) Regulations 2008 during the period 12 October 2012 until August 2014 by:
     • failing to have a working knowledge of the Act, in contravention of regulation 6;
     • failing to act fairly and honestly and to the best of the agent's knowledge and ability in the performance of the agent's functions as an estate agent, in contravention of regulation 11;
     • failing to exercise all due skill, care and diligence in performing the agent's functions as an estate agent, in contravention of regulation 13(1);
     • engaging in conduct that was unprofessional or detrimental to the reputation or interests of the estate agency industry in contravention of regulation 13(2).
3. On the agreed facts, and the additional evidence of Mr Horton, I am satisfied that Baycrown failed to comply with the Estate Agents (Professional Conduct) Regulations 2008 during the relevant period in the following respects.
4. Baycrown did not have a working knowledge of the Act.
5. By collecting bond monies as rent in advance, not designating and treating them as bond monies, and effectively denying tenants the protection of the RTBA system, Baycrown failed to act fairly in the performance of its functions as an estate agent. It is not alleged that Baycrown acted dishonestly.
6. Baycrown clearly failed to exercise all due skill, care and diligence in performing its functions as an estate agent.
7. Baycrown's conduct was clearly unprofessional and is detrimental to the reputation of the estate agency industry.
8. The Tribunal being satisfied that there are grounds for taking action the question is then, what orders the Tribunal ought to make under section 28A of the Act.

What are the appropriate orders under section 28A of the Act

1. In disciplinary proceedings such as this, the Tribunal takes into account a number of factors in considering what is required to protect the public, including:
   • The nature and seriousness of the conduct;
   • Specific deterrence - deterring the person from offending again;
   • General deterrence - deterring others in the profession or business from offending in the same way by signalling that to do so will attract consequences;
   • Any insight or remorse shown by the person - relevant to an assessment of whether the person will offend again;
   • Any disciplinary history;
   • The conduct of the person in the time between the offences and the hearing; and
   • Any mitigating circumstances, including any mental or physical health issues.
2. Although the Tribunal's disciplinary function is primarily protective, as Maxwell P observed in Quinn v Law Institute of Victoria Limited:[4]

The available sanctions are, by their nature, punitive, and the

objectives of specific and general deterrence - which serve the

protection of the public - depend on the sanctions having punitive

1. The parties made submissions as to the orders to be made. The essential difference between them related to whether Baycrown's licence should be cancelled. Each also referred to various cases by way of comparison. These are discussed further below.

1. On behalf of Baycrown, Mr Hone submitted in summary as follows:
   • It is clear that a number of breaches have taken place and that there ought to be consequences but it is appropriate for the Tribunal to involve means other than cancellation in order to deal with the breaches;
   • The failure to notify CAV of the opening of the trust account was clearly unacceptable but was a simple oversight, a slip. Similarly the failure to record the date of receipt of the trust payment was inappropriate but arose from the circumstances and timing of the payment. Corrective procedures are now adhered to;
   • The rent in advance is the most serious issue;
   • The lease backs and rental guarantees were a very different set of legal relationships - rent was being paid by the developer and then reimbursed to the landlords. Whether the original advice was right or wrong in the context of those relationships, it was no longer sound advice when the circumstances mutated into a more standard set of relationships;
   • However it started, it is conceded that it was held inappropriately but there is no suggestion it was inappropriately distributed. In the vast majority of cases the money was returned to the tenant. Nevertheless it is conceded that the practice meant the RTBA was 'out of the loop';
   • Once the matter was brought to Baycrown's attention, the account was wound down. Clearly there were other courses of action available including paying the money to the RTBA but Baycrown had sought legal advice, a considered proposal was put to CAV and there was no suggestion by CAV that another course should be taken. In the circumstances there was a tacit acceptance by CAV of the proposal;
   • In relation to the bond claim forms the evidence of Mr Horton and Mr Minute explains but does not excuse what occurred. It was clearly a failure of administrative control but it can often be difficult to stop an individual staff member cutting corners. It is not a breach that warrants suspension or disqualification;
   • Baycrown manages a number of premises across two buildings. The reason for the corporate entity is to act as a property manager. The consequences of cancellation would be serious;
   • In the circumstances, there would be sufficient force in the imposition of a reprimand, conditions, including education and an undertaking to take certain steps, and the imposition of a fine.

1. On behalf of the Director, Mr Ventrice submitted, in summary, that:
   • The Director seeks cancellation and disqualification of the licence for a period of time. Permanent disqualification is not sought;
   • The practice engaged in by Baycrown from October 2012 involved deliberate conduct aimed at operating outside the statutory regime: Baycrown contravened the Act, whilst being fully aware of the requirements to do with bonds, and did so because it was convenient;
   • The practice put tenants' money at risk, and created an immediate imbalance of power. That aspect was aggravated by the fact that most of the tenants of 268 Finders St were students including international students, who were a vulnerable class and unlikely to be aware of their rights;
   • The practice unjustly enriched Baycrown to the extent of any interest earned by it, and deprived the public fund of the interest that would have accrued had the monies been held by the RTBA;[5]
   • Baycrown essentially says that it was not its fault. Mr Horton said that it relied on legal advice, and on its auditors. An estate agent cannot abrogate its responsibilities, the agent is responsible for understanding its obligations and complying with its responsibilities;
   • The evidence establishes that Baycrown was warned about the practice in 2010. It only took action after receiving the January 2014 letter from CAV. Even then, it did not immediately transfer the monies in the interest bearing account into trust and lodge them with the RTBA. The attitude expressed by Mr Horton is a highly undesirable attitude - that it would have been inconvenient to do so and CAV did not explicitly tell him that the proposed response was inadequate;
   • The other contraventions are also serious. The fact that the Director is not notified of the opening a trust account is more than just a slip - the trust money in that account was deprived of the protection afforded by knowledge and oversight of the account. The fact that blank bond claims were signed by tenants indicates a failure to have in place proper administrative systems, and deprived the tenants of their rights in the event of a dispute;
   • The evidence overall painted a picture of a company that is reluctant to comply with the law, has a cavalier attitude to compliance with law and does not see the problem in the practice that it adopted;
   • The requirement to be a 'fit and proper' person is a requirement to have honesty, knowledge and ability, as set in Hughes and Vale Pty Ltd v New South Wales (No 2) [6] Where a corporation is involved, the assessment is of its corporate knowledge and ability through its directors, who are the directing mind and will of the corporation;[7]
   • Dishonesty is not alleged but its lack of knowledge and ability, and the cavalier attitude shown lead to a conclusion that it is not fit and proper to hold an estate agent's licence;
   • The Director acknowledges that cancellation will affect the business of Baycrown, however tenants need not be disadvantaged because the rent roll can be transferred to a licensed estate agent.

Discussion and conclusions as to the relevant factors

1. In my view, the practice Baycrown engaged in, of collecting a second month's 'rent in advance', treating it as a bond, but failing either to put it in trust or lodge it with the RTBA is a serious and sustained contravention of its legal obligations.
2. There are two elements to the contravention.
3. The first is the failure to recognise the money as trust money and hold it in trust. This is serious enough. Apart from being a fundamental obligation, holding money in trust achieves a number of essential purposes. It ensures that the funds have the protection of the system of oversight of trust accounts; it ensures any payments in or out are properly recorded; and in simple terms it reminds the account holder that it is not their money.
4. The second element is the circumvention of the statutory requirement that bond monies be paid to the RTBA. Doing so ensures that the landlord or its agent cannot unilaterally deal with the bond, or withhold it at the end of the tenancy. It gives the tenant the protection of the bond being held independently under strict requirements as to its disbursement. The tenant must agree to any proposed allocation to the landlord by signing the bond claim form, and any disputed claim for the bond must be determined by VCAT, applying the principles set out in the Residential Tenancies Act.
5. A number of times Mr Horton said that Baycrown's practice was 'the same as the RTBA'. It was not.
6. The RTBA system protects bond monies against unilateral appropriation by or on behalf of the landlord. Tenants lost that protection under Baycrown's system.
7. When bonds are held by the RTBA, if there is a dispute, tenants do not have to negotiate with the person who has control of the money - neither party has power or control over the funds pending resolution of a dispute. Resolution of any dispute is by an independent tribunal.
8. Under Baycrown's system, according to Mr Horton, if there was a dispute he would be called in to settle it. Tenants were at an obvious disadvantage in any such negotiations. Mr Horton said they never had any claims to VCAT. I was not able to determine whether tenants knew that that they could make a claim to VCAT. In any event, any such claim would not be the usual straightforward bond application process.
9. I found Mr Horton's explanation of the reasons why Baycrown adopted the practice to be contradictory and unsatisfactory. He said they had legal advice that they could do it, but he also said that the legal advice related to whether or not they had to take a bond, not how they held it. Under cross-examination he said the legal advice was from seven or so years ago, which suggests that it was obtained at the time when the lease-backs and rental guarantees were in place, not at the later date in 2012 when Baycrown obtained its current licence, and the relevant accounts were opened. The legal advice was not produced.
10. In any event, it ought not to need legal advice one way or the other for an estate agent managing rental premises to recognise that the money was being held on trust and ought to have been paid into the trust account. Mr Horton clearly knows what trust money is, and knows what constitutes a bond - he agreed that Baycrown held the money for all intents and purposes as a bond. Baycrown had no difficulty recognising the obligation in relation to the De Graves St apartments.
11. Baycrown's conduct was either an extraordinary failure to understand or recognise a fundamental obligation for an estate agent that manages rental property, or a willingness to ignore the statutory requirements and circumvent them. In either case, it is a serious matter.
12. After considering the explanations and responses given by Mr Horton, I have concluded that the conduct was, in fact, deliberate conduct on the part of Baycrown, as submitted by Mr Ventrice. It was not done out of ignorance, but for convenience.
13. No allegation was made that Baycrown misappropriated any monies to its own use. On the evidence, bonds were paid out to the tenant, to the landlord, or to repairers. But there was no oversight of any disputes, and it is impossible to know whether tenants agreed to pay costs out of ignorance of their rights, or because there was no obvious choice. Under Baycrown's practice, tenants had very little bargaining power in practice because Baycrown held the money. It is also impossible to know whether the costs claimed were in every case costs for which a tenant would be liable under the Residential Tenancies Act.
14. It is relevant in my view that, on the evidence, Baycrown had been warned in 2010 about the practice of holding 'rent in advance' in an interest bearing account. Although Mr Horton was vague about whether or not he was present, as Inspector Watson asserted, he said that he could not deny that he was present, and I accept the evidence of Inspector Watson on this matter.
15. The 2010 warning is significant in a number of respects. It supports a conclusion that Baycrown's conduct was deliberate, rather than ignorant. It supports a view that Baycrown has displayed a cavalier attitude to its legal obligations, as submitted by Mr Ventrice. This increases the importance of specific deterrence. It indicates that a more serious sanction may be required to deter Baycrown from re-offending, and so protect the public.
16. In considering Baycrown's conduct since receiving the CAV correspondence in January 2014, I remain concerned that once the matter was brought to its attention, it did not act immediately to transfer the monies then held in the interest bearing account into trust and then to the RTBA. I did not accept the submission that CAV tacitly accepted the proposal put on Baycrown's behalf, for the following reasons.
17. CAV's letter dated 3 January 2014 to Mr Ward as OIEC, which Mr Horton conceded he had seen, set out the matters identified in the earlier inspection, contained a 'show cause' notice, and stated:

I wish to make it clear that the expected payment of bond money held by the Estate Agent together with a payment constituting the total interest accrued to the RTBA is not a bar to CAV's continuing investigation and will not fetter any decision to take any enforcement action at the conclusion of the investigation.

1. In reply, on 15 January 2014 Mr Turnbull of M&K Lawyers on behalf of Baycrown provided information and a response to the allegations, and asked for a face-to-face meeting 'to clear up any other matters that need to be addressed'.
2. CAV replied on 24 January 2014 and, in addition to a request for further information and clarification, stated:

In relation to the Estate Agent's failure to pay $243,000 of bond monies to the RTBA, and as previously stated CAV requests that your client provide evidence that the rent in advance payments have been paid to the RTBA.

1. Mr Turnbull, in his reply dated 29 January 2014, stated that Baycrown no longer collected two month's rent in advance but rather collected one month's rent in advance and one month's rent for the bond, which it paid to the RTBA. He then set out a calculation of how long it would take for the existing leases to expire of eight to nine months, and that his client:

'would be more than happy to advise you, say on a monthly basis, of the reduction in the money held in a separate account.

There does not seem to be any risk to these monies because as aforementioned my client has never had any financial issues with the payment of the second month's rent.

It is my client's intention to comply with all relevant legislation.

If you have any other concerns or any matter needs clarification then please do not hesitate to contact me.

1. Although the above was described at the hearing as a 'proposal', in my view it is more in the nature of a statement of what his client intends to do in respect of the monies in the interest bearing account and the thinking behind that. It invites CAV to contact Mr Turnbull if it has any other concerns or any matter needs clarification but it does not ask for CAV's agreement to the course set out.
2. As Mr Hone submitted, CAV did not expressly object to this course. But nor did it agree. In my view, CAV had made it clear in its letters of 3 and 21 January what it expected - that the rent in advance monies would be paid to the RTBA. CAV also made it clear that this expected conduct would not prevent the investigation proceeding. Further, complying with 'all relevant legislation' required payment of the monies to the RTBA.
3. In cross-examination on this matter, Mr Horton was asked whether he had, in 2014, considered paying the rent in advance money into trust. He said that he thought it was most convenient to leave it where it was, and that lodging the money with the RTBA would have involved quite a lot of work. He thought everyone was happy with him doing it that way.
4. I was left with the impression that, even under a direct warning from CAV about the practice, and a stated expectation about what should happen with the monies, Mr Horton elected to take the administratively easy course, rather than rectify the situation immediately.
5. I take into account the admissions made by Baycrown in the agreed statement of facts. Overall, however, the evidence given by Mr Horton provided no reassurance that, as the undoubted directing mind and will of Baycrown, he has the necessary insight into and understanding of what was wrong with the practice Baycrown engaged in until 2014. Nor does he show any understanding of what was wrong with leaving the monies in the interest bearing account thereafter.
6. Both specific and general deterrence are important in relation to the above conduct.
7. In relation to the other conduct, my conclusions are as follows.
8. Baycrown's failure to notify CAV of the opening of the ANZ trust account is a serious matter. In his affidavit, Mr Horton described it as 'due to an oversight as to the necessity to do so.' Mr Hone characterised it as a simple oversight, a slip. It is more than that, in my view. It indicates a lack of knowledge and awareness of the detail of the trust account requirements in the Act. As Mr Ventrice submitted, for the period in question the trust money in that account was deprived of the oversight of the regulator.
9. In relation to the blank signed bond forms, there was no evidence that this was a widespread practice, or one endorsed or encouraged by management. It appears to have involved only one staff member, and only two bond claim forms. However, as was put to Mr Horton, it happened 'on his watch' and does represent a failure to have in place proper administrative systems, training and supervision. More seriously, it constitutes an offence under the Residential Tenancies Act.
10. Mr Minute's affidavit provided reassurance that he was not disadvantaged, but it does not otherwise assist Baycrown. Even if Mr Minute himself asked to sign a blank form, such a request should never be acceded to - it is an offence under section 412(5A) of the Residential Tenancies Act for a landlord to request or obtain a tenant's signature on a blank bond claim form. General deterrence is an important factor in relation to this conduct.
11. I was satisfied on the evidence that the error in recording the receipt date on one trust account receipt was a 'one-off' occurrence.
12. Both parties referred to previous decisions of the Tribunal in submissions.
13. Mr Hone submitted that comparison should be made with cases where an estate agent had taken money out of trust for his or her own personal use but had not been permanently disqualified, such as Director of Consumer Affairs v Shaba,[8] or where the Tribunal had found very significant breaches of the agent's responsibility but had allowed the agent to work as an agent's representative such as Director of Consumer Affairs v Parsons.[9] Mr Hone referred to other cases such as Director of Consumer Affairs v Marshall [10] where the agent's licence had been suspended, and conditions imposed.
14. Other decisions may provide a useful comparison depending on the particular circumstances but every case is different.
15. This case is unusual. It is an inquiry into the conduct of a corporate licensee, without the usual accompanying inquiry into the conduct of Officer in Effective Control.[11] No explanation was given as to why that was so. The statement of agreed facts records only that Thomas Ward was the OIEC until October 2014, and since then Nicholas Tate. Only Mr Horton gave evidence on behalf of the company.
16. Where an inquiry is into the conduct of an individual licensee, the Tribunal will often have evidence of mitigating circumstances, such as mental health issues or other personal circumstances, which can be of significance in assessing the conduct of the agent and formulating appropriate orders. There is no evidence of that sort in this case. Further, a period of disqualification will usually have a greater impact on an individual licensee than on a corporate licensee.
17. Mr Hone submitted that a comparison could be made with Director of Consumer Affairs v Worldwide Scope Pty Ltd, [12] which concerned a corporate licensee who was permanently disqualified by the Tribunal from holding a licence. Mr Hone submitted that Baycrown's situation was much less serious..
18. I agree that the situation in Worldwide Scope was different to Baycrown's situation and in some respects more grave.
19. Like Baycrown, Worldwide Scope had trust account deficiencies, although the deficiency was $65,000, compared to Baycrown's $243,000.
20. Unlike Baycrown, however, the money held by Worldwide Scope had disappeared; the licensed agent and officer in effective control had departed overseas, outstanding payments were owed to clients, and claims against the Property Fund exceeded $160,000.
21. In this case, the conduct in respect of the trust account is different to those cases where a trust account deficiency has been caused by the appropriation of monies to a licensee's own use. Nevertheless, as discussed above, it is a serious and sustained breach of fundamental obligations.
22. As discussed above, both specific and general deterrence are important in this case.
23. I am not satisfied that conditions or undertakings will necessarily achieve the required protection of the public, in view of the cavalier attitude of Baycrown to its obligations in the past and the lack of reassurance about its current attitude.
24. It is also essential, if the public is to be protected, that those involved in property management know circumvention of the RTBA system and payment of bond monies into a non-trust account will carry serious consequences.
25. As Mr Ventrice submitted, the maintenance of professional standards and protection of the reputation of the industry are also important.

1. In all the circumstances, and for the reasons discussed above, it is appropriate that Baycrown's licence be cancelled and it be disqualified from holding a licence for a period of time sufficient to signal that such conduct will bring serious consequences, which I set at five years.
2. The cancellation will take effect from 30 April 2015, to enable Baycrown to make the necessary arrangements to transfer its rent roll.
3. A penalty of $5,000 is also appropriate, particularly in circumstances where the conduct of Baycrown deprived the Fund of more than that amount in interest that would otherwise have accrued.
4. The respondent will also be reprimanded.

Ground 1 - failing to notify the Director of the opening of the trust account

In or about October 2012, the licensee failed to comply with the Act by failing to notify the Director of Consumer Affairs Victoria, in writing, within 14 days of the opening of a trust account, of the existence, name and number of that account, and the address of the branch of the financial institution at which that account is held, in contravention of section 59(7)(a) of the Act.

A trust account held at ANZ, with Account Name: Baycrown Management Pty Ltd BSB: ...... Account Number: ....9471 was and is operated by the licensee. Bank Statements obtained by Inspector Watson indicate that this trust account was operating from on or about 17 October 2012.

A search of the records of Consumer Affairs Victoria revealed that the Director was not notified of the opening of the trust account until on or about 26 August 2013.

Ground 2 - failing to record the date on which trust money was received into trust

In or about December 2012, the Licensee failed to comply with the Estate Agents (General, Accounts and Audit) Regulations 2008 by failing to record the date on which trust money was received into trust, in contravention of Regulation 13(2)(c) of the Estate Agents (General, Accounts and Audit) Regulations 2008.

Following an inspection conducted by Inspector Watson and Inspector Baker, who were assisted by Ms Johnston-Ryan, on 3 September 2013, at which the Licensee was required to make available all accounts and documents for inspection by Inspector Watson and Inspector Baker, it was ascertained that trust receipts issued by the Licensee recorded the date that the receipts were made out but failed to record the date upon which the money was received into trust.

Ground 3 - depositing trust money into an interest bearing account rather than the trust account

From 17 October 2012, the Licensee failed to comply with the Act by:

(i) failing to pay money received in trust into a financial institution to a trust account in the name of the Licensee, in contravention of section 59(1)(a) of the Act; and

(ii) causing a deficiency of money payable into the Licensee's trust account, without having a sufficient and satisfactory explanation for so causing the deficiency, in contravention of section 90(1) of the Act.

Following an inspection conducted by Inspector Watson and Inspector Baker, who were assisted by Ms Johnston-Ryan, on 3 September 2013, at which the Licensee was required to make available all accounts and documents for inspection by Inspector Watson and Inspector Baker, it was ascertained that the Licensee had deposited approximately $243,000 of trust money into an interest-bearing account rather than into the Licensee's trust account.

Ground 4 - failing to hold bonds on trust and then pay them to the RTBA

From 17 October 2012, the Licensee failed to comply with the Residential Tenancies Act 1997 by:

(i) failing to hold bonds on trust for the tenants from which the bonds were received, in contravention of section 408 of the Residential Tenancies Act 1997; and

(ii) failing to give bonds received to the Residential Tenancies Bond Authority within 10 days after the bonds were received, in contravention of section 407 of the Residential Tenancies Act 1997.

Following the inspection conducted by Inspector Watson and Inspector Baker, who were assisted by Ms Johnston-Ryan, on 3 September 2013, at which the Licensee was required to make available all accounts and documents for inspection by Inspector Watson and Inspector Baker, it was ascertained the Licensee had deposited bonds totalling approximately $243,000 into an interest-bearing account rather than the Licensee's trust account and had failed to give the bonds to the Residential Tenancies Bond Authority within 10 days after the bonds were received.

Ground 5 - asking tenants to sign blank bond claim forms

In or about March 2012 and June 2013, the Licensee failed to comply with the Residential Tenancies Act 1997 by requesting that tenants sign bond claim applications which did not specify the amount of bond to be refunded, in contravention of section 412(5A) of the Residential Tenancies Act 1997.

Following an inspection conducted by Inspector Watson and Inspector Baker, who were assisted by Ms Johnston-Ryan, on 3 September 2013, at which the Licensee was required to make available all accounts and documents for inspection by Inspector Watson and Inspector Baker, it was ascertained that the Licensee had procured the signatures of tenants on two blank bond applications for tenancies at 406/9 & 510/9 Degraves Street, Melbourne, Victoria in contravention of section 412(5A) of the Residential Tenancies Act 1997.

Since 12 October 2012, the Licensee has failed to comply with the Estate Agents (Professional Conduct) Regulations 2008 ("the Regulations") by;

(i) failing to have a working knowledge of the Act, in contravention of Regulation 6 of the Regulations; and

(ii) failing to act fairly and honestly and to the best of the agent's knowledge and ability in the performance of the agent's functions as an estate agent, in contravention of Regulation 11 of the Regulations; and

(iii) failing to exercise all due skill, care and diligence in performing the agent's functions as an estate agent, in contravention of Regulation 13(1) of the Regulations; and

(iv) engaging conduct that was unprofessional or detrimental to the reputation or interests of the estate agency industry, in contravention of Regulation 13(2) of the Regulations.

The alleged particulars for grounds 1, 2, 5 above, form the alleged particulars for this ground of action.

[1] Re Collins v Estate Agents Board (1994) 7 VAR 394,400

[2] In paragraph 18, Inspector Watson stated that in 2010, he had raised concerns with respect to a similar interest bearing account then held at Suncorp bank and used to collect 'rent in advance', and that he had, in 2010, asked Mr Horton to provide him with any legal advice held by Baycrown, but that none had been provided. According to Inspector Baker's affidavit, Baycrown held an estate agent's licence from 15 November 2005 until 15 December 2011, and was relicensed on 31 July 2012.

[3] Confirmed on re-examination and sighting the relevant records.

[4] [2007] VSCA 1025, at [30]

[5] Estimated by the applicant to be $9.600.

[6] Hughes and Vale Pty Ltd v New South Wales (No 2) (1955) CLR 127 at 156-157, cited in McGrath at 330.

[7] See Tesco Supermarkets v Nattras [1971] UKHL 1; [1972] AC 153 at 170-1, per Lord Reid. See also Hamilton v Whitehead [1988] HCA 65; (1998) 166 CLR 121.

[8] [2014] VCAT 815. I note the licensee in that case was disqualified for a period of 8 years.

[9] [2014]VCAT 1231. The Tribunal accepted an undertaking never to apply for an estate agent's licence

[10] [2013] VCAT 1316, which concerned an agent's failure to have the trust account audited

[11] For example _Director of Consumer Affairs v Round_s [2014]VCAT 1882

[12] [2013] VCAT 702.