1. Since 29 January 1997, Mr Peter Daly has held estate agent's licence number 045889L. He is a director of, and officer in effective control of, Sedinsi Pty Ltd (Sedinsi). Since 6 September 2002, Sedinsi has held an estate agent's licence number 066684L.
2. At the times relevant to this proceeding, Mr Daly's business activities mainly concerned conducting due diligence concerning business sales. He managed only two small commercial properties. The trust account and record-keeping relevant to this proceeding relate to the management of those properties.
3. Mr Daly made a series of errors, leading to findings against him as an agent and as Sedinsi's Officer in Effective Control (OIEC) and as against Sedinsi; see below.
4. While Mr Daly acknowledges his responsibility for these failings, he emphasises and the Director accepts, there was no element of dishonesty in his conduct and no client suffered any harm due to his failings. It appears the audit firm Mr Daly had engaged over the years played a significant role in the delays.
5. In August 2016, VCAT received from the Director applications for inquiries under s 25 of the Estate Agents Act 1980 (the Act) against Mr Daly [1] and Sedinsi.[2]
6. When these matters came to hearing in May 2017, the parties had produced an agreed statement of facts on which the following findings are based, with reference to substantial affidavit evidence in this proceeding (nine volumes of documents) from Inspector E. Agastra and Inspector G. Patra of Consumer Affairs Victoria (CAV).
7. I set out below my findings dated 2 June 2017, which were published to the parties at the time.
8. On 16 August 2017 I heard submissions concerning determinations and reserved my decision.

1. These findings made in June 2016 are now published.

Ground 1 - Failure to cause trust account to be audited - 2011/2012 to 2014/2015

(1) Within three months after 30 June in each year, every person who carried on business as an estate agent during the whole or any part of the previous financial year shall cause his accounts of trust money for the whole or the part of that financial year to be audited.

1. Mr Daly and Sedinsi operated the relevant trust account identified as Daly Property Group Statutory Trust Account with Westpac.
2. From 2003 until 2011, the trust account audits relevant to this proceeding were lodged on time. There are no previous (to the matters set out below) issues identified by CAV concerning audit reports.
3. Sedinsi contravened s 64(1). It failed to comply with the Act for the 2011/2012, 2012/2013, 2013/2014 and 2014/2015 financial years.
4. The 2011/12 audit report, dated 10 December 2012, was submitted to the Director on 19 December 2012. While neither Mr Daly nor Sedinsi caused the trust account to be audited within the timeframe set down by the Act (30 September 2012), the delay was caused by the implementation of new computer software by his auditor.
5. The 2012/13 audit report, dated 18 December 2012 was submitted to the Director on 17 February 2014. While neither Mr Daly nor Sedinsi caused the trust account to be audited by 30 September 2013, the delay was caused by issues with the same appointed auditor.
6. However, Mr Daly and Sedinsi accept concerning this and the following financial years that as licensees they were responsible for ensuring that the audits were completed and reported on time.
7. The 2013/14 audit report, dated 22 March 2016 was submitted to the Director on 31 March 2016. While neither Mr Daly nor Sedinsi caused the trust account to be audited by 30 September 2014, the delay was again caused by issues with the same appointed auditor.
8. The 2014/15 audit report, dated 22 March 2016, was submitted to the Director on 31 March 2016. While neither Mr Daly nor Sedinsi caused the trust account to be audited by 30 September 2015. The delay was caused by issues with the same appointed auditors. Mr Daly was travelling extensively, had closed his business and had relied on the auditor to complete the final audit.
9. VCAT notes substantial supportive correspondence between Mr. Daly and the appointed auditor detailing the frustrations he experienced with his auditor in relation to their obligations to him.

Ground 2 - Failure to lodge copy of audit report within 10 days - 2012/2013

(2A) Within 10 business days after receiving the report under subsection (2)(b), the agent must lodge a copy of it with the Director.

1. Sedinsi contravened s 64(2A) by failing to lodge with the Director, a copy of the 2012/13 audit report within 10 business days after receiving it.
2. The Director did not receive the 2012/13 audit report dated 18 December 2013 until 17 February 2014.
3. Mr Daly and Sedinsi accept that as licensees, they were responsible for ensuring that a copy of the audit report was lodged with the Director on time.
4. Mr. Daly was not aware that the audit had not been lodged until CAV advised him of that. Mr Daly and Sedinsi accept they should not have assumed that the audit reports had been lodged and should have continued to request confirmation from the appointed auditor.

Ground 3 - Failure to keep full and accurate accounting records

1. Section 63 sets out the duty of every estate agent to keep full and accurate accounting records. Section 59 sets out the duty of every estate agent who receives or holds any money on behalf of any person in respect of any transaction or who as such holds any money so received as a stakeholder or in trust pending the completion of any transaction.
2. From 1 July 2013, Sedinsi failed to comply with the Act, and Mr Daly permitted the failure of Sedinsi to keep full and accurate accounting records required to be dealt with in accordance with s 59 of the Act and any disbursements or disposal of, or dealing with, those moneys, in contravention of s 63 of the Act.
3. On 30 March 2015, during an inspection of Sedinsi's trust accounts and records, Inspector Patras noted:

1. Monthly reconciliations were not fully prepared in accordance with rule 25 of the Estate Agent (General, Accounts and Audit) Regulations 2008 (the Accounting Regulations); 2. Not all the trust account receipts were retained in duplicate in accordance with s 63(3)(b) of the Act; and

1. Not all trust ledger accounts were maintained in accordance with rule 23 of the Accounting Regulations.
2. On 17 February 2016, Inspector Agastra issued a notice to Sedinsi under s 70C of the Act, requiring it to produce, among other things, accounting records.
3. Inspector Patras reviewed the documents and records produced under that notice and noted:

1. Monthly reconciliations were not fully prepared in accordance with rule 25 of the Accounting Regulations; 2. A trust receipt register was not fully mainlined in accordance with rule 12 of the Accounting Regulations;

1. A cheque register was not fully maintained in accordance with rule 17 of the Accounting Regulations; and ·

1. Trust ledger accounts were not fully maintained in accordance with rule 23 of the Accounting Regulations.
2. Further, the 2013/14 and 2014/15 audit reports were both qualified with the auditor's opinion being that, "the trust account has not been maintained and balanced in compliance with s 63 of the Act ... in particular s 63(iv)".
3. Mr Daly and Sedinsi accept that to the extent of the issues identified in paragraphs 29 and 31 above, the identified accounting records were not maintained in accordance with the Act.

Ground 4 - failure to make account and other documents available for inspection

70B Accounts and other documents available for inspection and audit

An estate agent must, at all reasonable times at each office at which that estate agent carries on business as an estate agent, keep all documents (including trust accounts and records) relating to the business carried on at that office available for inspection or audit by an inspector in a form in which they can be readily and expeditiously inspected or audited by an inspector

1. On 30 March 2015, Sedinsi contravened s 70B of the Act. It failed to keep at all reasonable times, at an office at which it carried on business as an estate agent, all documents (including trust accounts and records) relating to the business carried on at that office available for inspection or audit by an inspector in a form in which they can be readily and expeditiously inspected or audited by an inspector.
2. From 3 March 2015, Mr Daly and Sedinsi were on notice, by a letter of that same date, that an inspection of their business records and trust account records would be taking place. That letter made reference to having the trust account ledgers, amongst other things, available for inspection.
3. On or about 24 March 2015, it was agreed than an inspection would take place on 30 March 2015.
4. On 30 March 2015, during the inspection, Inspector Patras asked to inspect the trust account ledgers. Mr Daly responded that he did not have all of the documents and advised that some of the documents were still with the accountant.
5. Mr Daly and Sedinsi accept that some of the business and trust account records, or copies of them, were not kept at the office at this time.

Ground 5 - failure to comply with inspectors requirement

70T Refusal or failure to comply with requirement

A person must not refuse or fail, without reasonable excuse, to comply with a requirement of an inspector under this Division.

1. From 22 April 2015, Sedinsi failed to comply with s 70T of the Act. It failed, without reasonable excuse, to comply with a requirement of an inspector.
2. On 30 March 2015, Inspector Patras required Sedinsi, under s 70T of the Act, to produce documents, including the production of the last two monthly reconciliation statements and the trust ledgers.
3. During the inspection, Inspector Patras asked Mr Daly to send to her, by email, the required reconciliation statements and trust ledgers.
4. On 22 April 2015, Inspector Patras received, by post, some trust account documents from Mr Daly and Sedinsi. The documents did not include all the reconciliation statements and trust ledgers which Inspector Patras required to be produced. These were still being completed by the appointed auditor.
5. The reconciliation statements and trust ledgers were not provided to Inspector Patras in accordance with her requirement.
6. Following the VCAT Compulsory Conference in this proceeding on 12 December 2016, Mr Daly forwarded copies of those records to CAV.

Ground 6 concerning Mr Daly - failure to meet requirements on an officer in effective control

1. Section 29B(2) of the Act sets out requirements on an OIEC of the estate agency business of a corporation.
2. On the basis of the above findings concerning Grounds 1 to 5, VCAT finds Mr Daly, in contravention of his duty as Sedinsi's OEIC, contravened s 29B(2) of the Act. He failed to:

1. Properly control and supervise the estate agency business carried on by Sedinsi; and 2. Establish procedures designed to ensure that Sedinsi's business was conducted in accordance with the law and good agency practice; and

1. Monitor the conduct of Sedinsi's business in a manner that ensured that, as far as practicable, those procedures (which are referred to above) were complied with.

Ground 6 concerning Sedinsi and Ground 7 concerning Mr Daly -failure to comply with conduct regulations

1. On the basis of the above findings concerning Grounds 1 to 5 concerning Sedinsi and Grounds 1 to 6 concerning Mr Daly, VCAT finds Mr Daly and Sedinsi failed to comply with the Estate Agent (Professional Conduct) Regulations 2008 (the Conduct Regulations) by:
   1. Failing to exercise all due skill, care and diligence in performing the agent's functions as an estate agent; in contravention of rule 13(1) of the Conduct Regulations; and
   2. Engaging in conduct that was unprofessional or detrimental to the reputation of interests of the estate agency industry; in contravention of rule 13(2) of the Conduct Regulations.

1. The following determinations are now published.
2. The Director submitted Mr Daly and Sedinsi should be reprimanded and their licenses either cancelled (permitting re-application for license after six months) or suspended for six months. The Director submitted this was not submitted as punishment nor to specifically deter Mr Daly from similar future conduct, but to provide a strong message to the estate agent industry concerning the consequences of such conduct.
3. Mr Daly submitted that message could be delivered by not cancelling or suspending the licenses but by reprimanding him, fining him and placing a condition on the licenses that for five years neither he nor Sedinsi may operate a trust account. This would permit Mr Daly and Sedinsi to resume business activities.

1. This edited version of the Director's submissions informs estate agents of the Director's views on the need for strict compliance with obligations concerning trust account keeping; a principle which VCAT endorses in this proceeding and has repeatedly endorsed over the years.

1. The estate agent industry is highly regulated. The public is entitled to be able to rely on the skills, professionalism, honesty and strict statutory compliance of licensed estate agents who must ultimately be fully accountable for all monies held in (or required to be paid into) their trust accounts to minimise any possible risk to those funds.
2. Estate agents who adopt a less than rigorous approach and attitude to complying with regulatory requirements, particularly over an extended period, place their clients at unacceptable risk. That conduct must be viewed seriously, notwithstanding the absence of any subsequent evidence that a client may have suffered loss
3. Estate agents' clients and the community at large are entitled to expect that accurate and complete records are kept in relation to all elements of clients' transactions and that these records are in accessible form at all times in accordance with regulatory requirements to enable regulators and auditors to review them and determine all the elements of transactions. The same requirement applies regardless of the size of the estate agency' business or how frequently they conduct business.
4. Successful regulatory compliance is not just a matter of knowing what the rules are in a technical sense, as important as that is, but also having insight into the importance of those regulatory requirements as the means to meeting client needs at the highest level and conversely, the very real risks to the clients and the industry's reputation as a whole when there is a failure to prioritise compliance as the agent's highest obligation.
5. The legislative scheme recognises the particular importance attached to the responsibilities of licensees who are also OIEC's. Such persons are subject to additional duties under s 29B of the Act including requirements for the establishment of procedures designed to ensure that the business is conducted in accordance with the law and good estate agency practice.
6. Participants in the estate agents industry need to be deterred from adopting anything less than the most stringent approach to such matters. They need to know that serious consequences will follow non-compliance of this nature and that these matters should not be viewed simply as 'administrative' breaches.
7. The test for assessing whether a person should be allowed to continue to operate within the relevant occupation is based on a twofold public interest test involving both the protection of the public and also the necessity to maintain standards in the conduct of the profession. A very high standard of care and compliance is required.
8. VCAT's powers to make disciplinary orders are protective in nature (even though they might appear to be a punishment to the person the subject of orders) (see Mario Inglese and M Inglese Pty Ltd and Estate Agents Board VSC 1989 [p. 17 and 22]. Where there is a choice of sanctions, it is to be expected that VCAT will choose that sanction which maximises the protection of the public (see Quinn v Law Institute of Victoria [2007] VSCA 122 [28] to [31]).
9. Too many cases before VCAT have concerned the conduct of estate agents who have failed to comply with trust accounting requirements and reporting obligations. The Director cited:
   • Director of Consumer Affairs v Marshall [2013] VCAT 1316. Mr Marshall did not cause his trust accounts to be audited for the 2007, 2008, 2009, 2010, 2011 and June 2012 financial years. Despite prior warning, his office was closed during business hours when the CAV inspector visited. Mr Marshall explained his attention had been taken away from the estate agents business by his involvement in an electrical tagging and testing franchise. At the time, he conducted a small rent roll of nine properties; two commercial and seven residential. He failed to maintain a cashbook, monthly reconciliation, or arrange for annual audit of accounts. He had not engaged any person to assist him to comply with the statutory obligations. Despite obtaining extensions of time to lodge audits, none had been lodged by the time the matter came to hearing at VCAT. Mr Marshall was reprimanded, his license was suspended for a year, he was prohibited from receiving trust monies and opening, operating or maintaining trust accounts, he was fined $1,500 and ordered to lodge all outstanding audit reports and accounts failing which his license would be cancelled at the end of the suspension period.
   • Director of Consumer Affairs v Rounds [2013] VCAT 1882. Mr Rounds used trust money to pay significant debts associated with his new real estate business from April 2011 to May 2012. His sales trust account showed a deficiency over that period. In May 2012 the deficiency was rectified and he continued to operate his business. While the funds of a number of clients were impacted during the deficiency, only one client was directly affected. She was deprived of payment of $46,900 due to her for about three weeks. Licenses held by Mr Marshall and his company were cancelled with a 12 month prohibition on reapplying, Mr Rounds was prohibited from applying to be an agent's representative for six months. Reprimands were issued.
   • Acting Director of Consumer Affairs v Moularis [2014] VCAT 474. Mr Mouralis was an agent's representative who stole $14,753 of rent and bond money. He was declared ineligible to be an agent or an agent's representative for seven years.
   • Consumer Affairs Victoria v Shaba [2014] VCAT 815. The trust account was deficient to $50,000 at one point, due to Mr Shaba's fraudulent activity, although there was evidence that Mr Shaba had restored the deficiency. The trust funds were used to pay business expenses. Mr Shaba's license was cancelled and he was declared ineligible for eight years.

• Director of Consumer Affairs v Baycrown Management Pty Ltd [2015] VCAT 380. The company opened a trust account and did not advise the Director of Consumer Affairs. It failed to hold substantial rent paid in advance by multiple tenants of a high rise apartment building in Melbourne CBD, which was effectively a bond first in its trust account and then failed to transfer trust the bond monies to the Residential Tenancies Bond Authority. By the time VCAT was considering these issues, the breaches had been remedied in that bond money was with the Bond Authority. Once in 2012 and once in 2013, Baycorn procured signatures of tenants on RTBA bond claim forms which did not specify the amount of bond to be refunded to the tenants. Baycorn was reprimanded, fined $5000 and disqualified from holding a licence for five years.
• Consumer Affairs Victoria v Hoare (No. 2) [2015] VCAT 1077. VCAT found Mr Hoare had failed to pay monies into a trust account causing a deficiency of $37,490, without satisfactory explanation he used trust monies for his own purposes, noting that while the trust account showed a negative balance in June 2014 it was restored to balance in about early July 2014. Mr Hoare was reprimanded and declared ineligible to hold an estate agent's licence or to be an agent's representative for approximately nine years.
• Director of Consumer Affairs Victoria v Hoban (Amended) [2016] VCAT 1322. Mr Hoban caused the company trust account to be in deficiency between approximately $46,000 and $111,111 from June 2013 to April 2014 without satisfactory explanation, authorised or permitted the company to fail to properly complete the reconciliation's trust account between June 2013 and April 2014 and on two occasions knowingly authorised the company to obtain commission without holding a signed written engagement or appointment from the vendors. Mr Hoban was reprimanded and his license was cancelled with him disqualified from holding an estate agent's licence for three years.
• Director of Consumer Affairs v Murray (No 3) [2016] VCAT 1691. Mr Murray failed to have his trust accounts audited for the 2009 to 2015 financial years inclusive. VCAT required him to notify CAV as to whether he had complied with his obligations concerning the 2015 audit. He failed to do so. A previous three months suspension had not caused him to comply with audit conditions. Mr Murray told VCAT of distressing personal circumstances for him and his wife. VCAT reprimanded Mr Murray and suspended his license for six months.

1. The Director also cited Department of Consumer Affairs Victoria v McDonald [2015] VCAT 1625. However, on appeal the Supreme Court of Victoria set aside that decision (see McDonald v Director of Consumer Affairs Victoria [2016] VSC 703). Back at VCAT, the case resolved with consent of the parties. It appears from the VCAT orders and proceeding file that Mr McDonald no longer practised as a licensed real estate agent. Mr McDonald was reprimanded. He undertook, if he was ever again licensed, not to deal with trust monies and only to work as an agent's representative. The case has little if any precedent value. While I realised this after I had reserved this decision, in the circumstances I saw no need to seek submissions on this case from the parties before making determinations in this case.
2. Concerning this proceeding, the Director submitted:

1. Despite years of experience and apparent knowledge of the requirements relating to trust accounts Mr Daly's and Sedinsi's conduct has occurred over a significant period of time (and including whilst there was engagement with CAV). One of the trust account audit reports (for year ending 30 June 2014) was some 18 months late; 2. While there were difficulties with the auditor, Mr Daly and Sedinsi conceded that they contravened the provisions and that the responsibility for complying with the same rested with them as the licensees and not the auditor;

1. While the trust account audit and record keeping failures by Mr Daly and Sedinsi do not appear to have been preceded by compliance shortcomings before 2011, the fact that, for example, the audits were not completed in time over a consecutive four years indicates that this failure had taken on a 'systemic' character to the extent that the respondents could have, but did not, put in place procedures to ensure that the audit requirements were met -for example they could have retained different auditors to ensure compliance. The requirement to comply cannot be 'outsourced' to third parties but remains at all times the licensed agents' responsibility.

1. The conduct includes the failure to have all trust records readily available for inspection and the failure to comply with a requirement of an inspector in that. These factors could be seen as incompatible with continuing to practise as an estate agent as they are contrary to good agency practise and have impeded the Director in properly undertaking his supervisory role; 2. While Mr Daly accepts he and Sedinsi failed to comply with the Act, the Director noted statements in his submissions which raise concerns about his insight into the risk to clients and the public of the relevant failures to comply. For example, Mr Daly said:

The contraventions are all related to audit and record-keeping obligations, namely the actual audit process. This is a failure of administrative control only ....

The circumstances behind the whole matter remain that property management and trust accounting was not core to [the Respondents'] business" and was done as "a specific favour" for clients on request;

1. References Mr Daly has provided are largely focused on honesty and integrity issues. The Director has not sought to (and does not) allege any dishonest or fraudulent conduct by the Respondents in these proceedings.

1. I summarise Mr Daly's submissions on behalf of him and Sedinsi, as they were at the end of the hearing following discussion, understanding he had received legal advice concerning submissions.
2. Mr Daly submits the appropriate determination would involve the following:

1. That the licenses be subject to a condition for 5 years prohibiting me from receiving trust monies or opening, operating or maintaining a trust account.
2. He also submitted:

1. There was no element of dishonesty in his conduct. He understood his obligations as a licensed estate agent. While he is responsible for the conduct in dispute, he trusted the advice of the auditor who had previously audited the trust account for many years without prior issues. 2. At no time was there a deficiency in the trust account and no client suffered any harm;

1. He has been entirely cooperative with the Director in dealing with these issues;

1. He now realises he cannot simply rely on the advice and actions of others and should have taken more affirmative action to ensure compliance with the law; 2. Concerning the two instances where the auditor formed the opinion that there were areas of non-compliance (2013/14 and 2014/15), these were quickly rectified with the auditor's assistance; 3. The events in question are an aberration in his otherwise unblemished career. He has worked in the real estate industry for nearly 40 years and held many senior and executive positions on Industry panels and committees including the Property Council of Australia. Over these years he has been the key property advisor to IBM, Amcor, Australia Post, Fonterra and Pact Group just to mention a handful. He was also the Joint Venture representative for the Grollo Group and St. Martins Properties when they developed Rialto and then moved on to be the Development Manager for Southgate. In recent times he has assisted Wesley Mission on a pro bono basis with their property issues; and 4. While he hopes to re-enter the work force in the coming months, as a sole proprietor again trading as Daly Property Group, he does not intend to operate a trust account.
2. Mr Daly provided five impressive references, one from a solicitor he has worked with concerning real estate transactions, three from colleagues in the industry who have known him for decades and one from a client who has known him for many years. They spoke of his integrity, professionalism and honesty. They all referred to having knowledge of the issues in this proceeding, providing no detail. They supported him continuing in the industry.

1. The determination in this proceeding must be such as to reinforce, as a matter of general deterrence to the estate agent profession the necessity of ensuring that trust account and record-keeping responsibilities are strictly met.
2. That said, the required general deterrence is already established by the body of VCAT decisions which starkly demonstrate to the real estate profession the consequences of failing to meet the regulatory requirements. The decision in this proceeding will complement that body of decisions.
3. In my June 2017 findings in this proceeding, I quoted Mr Daly's view that his failures were at the lower end of the spectrum. Having heard all evidence and submissions I now agree with that assessment.
4. Mr Daly's errors of judgement and action, in the context of his otherwise unblemished career and his apparent contributions to the industry, fall below the level of culpability compared to all of the reported cases above. The closest comparative cases described above are Marshall and Murray (No. 3). Each of those involved more serious failings that are apparent in this proceeding.
5. In my view, neither general deterrence nor maintaining the reputation of the industry requires cancellation or suspension.
6. A reprimand and a fine of $1,000 will achieve those ends. This is in the context that any real estate agent who makes an error similar to that made by Mr Daly can expect the Director of Consumer Affairs to bring action against him or her at VCAT, which at a minimum will risk career, cause great distress and cause expense.
7. I see no need to place a condition on the licenses prohibiting the operation of a trust account. Mr Daly operated a trust account for many years without incident. He has surely learned his lesson concerning meeting deadlines.
8. I view Mr Daly as having insight into his failures. The fact that he perhaps unwisely tends to describe them as administrative failures, as a self-represented party at VCAT, seems to reflect his strong view that the events in question involved no dishonesty and no loss to any person.
9. I have no reason to doubt Mr Daly saying at the 16 August 2017 hearing before me that want to become aware of problems with the auditor, he was unable to engage in alternative auditor because the trust account with very low level of transactions was not commercially attractive to the audit firm/s he approached.
10. At the time of writing neither Mr Daly nor Sedinsi operate an active estate agency business nor continue to operate an estate agent trust account. This is due to personal issues unconnected with this proceeding. Mr Daly hopes to return to his business activities in a few months' time. He says while his planned activities require licensing as an estate agent, there will be no need for him or Sedinsi to operate a trust account.
11. While it appears that probably that will be the case (and I suspect given this experience Mr Daly has no appetite to return to the world trust accounts) there is no reason to bar him from doing so should the need arise.