State Administrative Tribunal (WA)|2007-01-12

ESPANOL HOLDINGS PTY LTD & ANOR and REAL ESTATE & BUSINESS AGENTS SUPERVISORY BOARD [2007] WASAT 5 (12 January 2007)

CITATION : ESPANOL HOLDINGS PTY LTD & ANOR and REAL ESTATE & BUSINESS AGENTS SUPERVISORY BOARD

MEMBER : HON R VIOL (SUPPLEMENTARY DEPUTY PRESIDENT)

Vocational Regulation - Claim against Fidelity Fund pursuant to s 117 of Real Estate and Business Agents Act 1978 (WA) - Review of decision of Board - Whether Board can rely on defences under s 118 of the Act - Whether applicant is denied natural justice by Board relying on adverse findings by previous inquiry

Legal Profession Practice Act 1958 (Vic), s 66(2), s 66(3)

Real Estate & Business Agents Act 1978 (WA), s 23, s 23(1), s 21(2), s 107, s 112, s 116, s 116(1), s 116(2), s 116(2)(a), s 116(2)(b), s 117, s 117(1), s 117(2), s 118, s 119, Pt VIII

The applicants sought a review of the respondent's decision to dismiss a claim by the applicants against the Fidelity Fund pursuant to s 117 of the Real Estate and Business Agents Act 1978 (WA).
In dismissing the applicants' claim, the respondent relied upon defences available under s 118 of the Act and in particular cl 3 and cl 8 of a Deed of Release entered into by the applicants to settle an action in the Supreme Court of Western Australia.
The respondent also relied upon evidence and factual findings made by an Inquiry conducted by the respondent concerning, inter alia, the conduct of the applicants.
The Tribunal found that the respondent erred in applying defence available under s 118 of the Act and relying on the findings of the Inquiry.
The Tribunal ordered that the claim be referred back to the respondent for re-consideration in accordance with the Tribunal's decision.

In 2002 and 2003, Douglas Frank Brewer (Brewer), a licensed real estate and business agent, and Martin Banning (Banning), a licensed business agent/ sales representative, were the subject of an inquiry (the Inquiry) held by the Real Estate & Business Agents Supervisory Board (the Inquiry Board) pursuant to the Real Estate & Business Agents Act 1978 (WA) (the Act). Brewer and Manning faced a number of allegations as to their professional conduct in relation to two real estate transactions (firstly, concerning the sale and purchase of 835 Beaufort Street Perth (Beaufort Street) and secondly the sale and purchase of Units 20 to 29 in the Red Sands development in Newman (the Red Sands Units). Both Brewer and Manning were acting as agents on behalf of a company known as Espanol Holdings Pty Ltd (Espanol) of which at all times Mrs Maria Michelle Ortin (Ortin) was a director and shareholder. The Inquiry took place over a period of some eight days during 2003; a decision was delivered on 29 August 2003 and written reasons were given by the Inquiry Board on 31 December 2004.
During the Inquiry, evidence was heard from a number of witness including, inter alia, Ortin (called on behalf of the applicant by an Inspector employed by the Real Estate & Business Agents Supervisory Board, Michelle Wakka). Ortin was not represented at the Inquiry; neither she nor Espanol was a party to the proceedings. Counsel assisted the Inquiry Board, and Brewer and Banning were represented by counsel. A number of documents relating to the two above transactions were tendered to the Inquiry.
Ultimately the Inquiry Board found two allegations proved against Brewer and Banning and that there was proper cause for disciplinary action. They later received penalties imposed by the Inquiry Board.
The allegations of which both Brewer and Banning were found guilty involved the re-documentation of transactions for the sale and purchase of Beaufort Street and Red Sands Units pursuant to which prices of the properties were increased so as to enhance the prospect of finance being obtained for those transactions.
In the course of its reasons, the Inquiry Board made adverse findings against Ortin and included a finding (par 78 of the Inquiry Board's Reasons) that she "was a willing and knowing party to the redocumenting of the transactions" and that "she knew they were being redocumented and ... why they were being redocumented". The Board commented on Ortin's evidence and her position in the matter on a number of occasions in the course of its reasons.
In 1999, Espanol and Ortin commenced proceedings against Banning and Brewer in the Supreme Court of Western Australia seeking, inter alia, damages in relation to their conduct and the allegations which were the subject of the Inquiry. The matter was listed for hearing for 15 days; however it was settled on the eve of the hearing on 29 June 2005. A Deed of Settlement (the Deed) was entered into between the parties.
In 2003, Espanol and Ortin made a claim against the Land Agents Fidelity Guarantee Fund (the Fidelity Fund) pursuant to s 117 of the Act. The claim sought compensation for losses said to have occurred to Espanol and Ortin arising from defalcations said to have been committed by Brewer and Banner.
The Board (the respondent) which heard the claim against the Fidelity Fund was differently constituted to the Inquiry Board. Counsel was appointed to assist the respondent.
On 18 August 2005 the respondent made certain "programming orders" after hearing submissions from the various parties including counsel for Espanol and Ortin. The orders made by the respondent were in the following terms:

"1. That the following questions be determined by the Board as preliminary issues:

whether the claim should be dismissed on the basis that the Board is entitled to rely on the releases granted by the Claimants to Martin Banning and Douglas Brewer, amongst others, contained in a Deed of Settlement and Release dated 29 June 2005; and
whether the claim should be dismissed, insofar as it concerns losses derived from the purchase of the 10 Units, on the basis that:

(i) the Board has found in Inquiry No 17 of 2003 that the Claimants participated in the re-documenting of the contracts to purchase the 10 Units in order to obtain finance, which finance would not otherwise have been obtained; and

(ii) any loss suffered by the Claimants as a result of the purchase of the 10 units is a loss which flowed from the Claimants' participation in the deception of the provider of finance and not, therefore, by reason of any defalcation by the licensee."

It should be noted that counsel for Espanol and Ortin opposed the hearing of the matter by way of preliminary issues.
With oral and written submissions having been made to it, the respondent heard the preliminary issues on 18 August 2005 and delivered written reasons on 28 July 2006.
The respondent found that both the preliminary questions should be answered in the affirmative and that the claim by Espanol and Ortin should be dismissed.
By s 23(1) of the Act, "any person aggrieved by a reviewable decision of the Board may apply to the State Administrative Tribunal for a review of the decision". Espanol and Ortin were persons "aggrieved" within the meaning of s 23(2) of the Act and the decision of the respondent was "reviewable" within that subsection.
Accordingly, on 26 August 2006, by application filed in the State Administrative Tribunal, Espanol and Ortin sought a review of the respondent's decision pursuant to the provisions of the Act and also Pt 3, Div 3 of the State Administrative Tribunal Act 2004 (the SAT Act).

In relation to the first preliminary issue, the respondent found that the Deed of Settlement and the releases granted to Brewer and Banning therein could be relied upon by the respondent because they involved defences available to Banning and Brewer as defaulting licensees by operation of s 118 of the Act. Thus, the respondent found, the Deed of Settlement entered into between the applicants and Banning and Brewer (among others) prevented any claim by the applicants under Pt VIII of the Act against the Fund.
In relation to the second preliminary issue, the respondent found that in deciding the question it was able to act upon the findings of the Inquiry Board; the respondent referred to and acted on specific findings of fact of the Inquiry Board and also relied upon a factual statements contained in the Statement of Facts filed by Espanol and Ortin in the course of the Inquiry. The respondent concluded that Ortin had (with Banning) undertaken "dishonest conduct to obtain finance from the financier" and concluded that this conduct was "fraudulent" and contrary to s 409 of the Criminal Code (WA). Because, the respondent found, Ortin had voluntarily participated in the fraud, this deception of the financier served to sever the necessary causal connection between the defalcation and any loss suffered by the claimant, thus denying Espanol and Ortin any right to claim against the Fidelity Fund.

In seeking a review of the Board's decision, Espanol and Ortin contended that the two issues before the Board should be dealt with as follows:

"1. The order made by the Real Estate and Business Agents Supervisory Board on 25 July 2006 that:-

1.1 the questions posed in the preliminary issues be answered in the affirmative; and

1.2 the claimants' claim against the Fidelity Guarantee Fund be dismissed,

be set aside and, in lieu thereof, there be orders as follows:-

The questions posed in the preliminary issues ordered to be determined by the Real Estate and Business Agents Supervisory Board (the 'Board') by order made 18 August 2005, be answered as follows:-

1.1 whether the claim should be dismissed on the basis that the Board is entitled to rely on the releases granted by the Claimants to Martin Banning and Douglas Brewer, among others, contained in a Deed of Settlement and Release dated 29 June 2005?

The claim should not be dismissed on this basis. The Board is not entitled to rely on the releases granted by the Claimants to Martin Banning and Douglas Brewer, amongst others, contained in a Deed of Settlement and Release dated 29 June 2005 (the 'Deed') as a basis on which to dismiss the Claimants' claim. The Deed did not in any way affect or limit the claimants' claim against the Fidelity Guarantee Fund established under the Real Estate and Business Agents Act 1978 (WA) (the 'REBA Act'). Section 118 of the REBA Act has no application to the administrative determination of Fidelity Guarantee Fund claims by the Board.

1.2 whether the claim should be dismissed, insofar as it concerns losses derived from the purchase of the 10 Units, on the basis that:

1.2.1 the Board has found in Inquiry No. 17 of 2003 that the Claimants participated in the re-documenting of the contracts to purchase the 10 Units in order to obtain finance, which finance would not otherwise have been obtained; and

1.2.2 any loss suffered by the Claimants as a result of the purchase of the 10 units is a loss which flowed from the Claimants' participation in the deception of the provider of finance and not, therefore, by reason of any defalcation by the licensee.

The claim should not be dismissed on either basis. The Claimants' participation in increasing the prices that they would pay for the properties the subject of the transaction for Units 20-29 Red Sands Park, Newman was done as a result of Mr Banning's defalcatory conduct and under his undue influence. The re-documenting of contracts was the very kind of thing which was likely to result from Mr Banning's defalcatory conduct.

Alternatively to para 1 above, the preliminary issues should be dismissed on the ground that the Board could not properly determine the preliminary issues in circumstances where the Board has not conducted an analysis of the relevant facts based on evidence, and therefore the Board was not properly apprised, by probative material, of the facts necessary to determine the preliminary issues.
The Applicants' claim against the Fidelity Guarantee Fund be referred to a directions hearing before the Board to programme it for final determination by the Board, being a Board (both for the directions hearing and final hearing) which is wholly differently constituted from the Board which determined the preliminary issues and dismissed the applicants' claim.
The Respondent do pay forthwith the Applicants' costs, including reserved costs, of and incidental to determination of the preliminary issues and these proceedings."

The grounds upon which the applicants relied were as follows:

The Real Estate and Business Agents Supervisory Board (the 'Board') erred in law in finding that in determining a claim by the Applicants against the Fidelity Guarantee Fund established pursuant to s. 116 Real Estate and Business Agents Act 1978 (WA) (the 'REBA Act'), s.118 REBA Act applied and required the applicants' claim against the Fidelity Guarantee Fund to be dismissed because:-

1.1 the function conferred on the Board by the REBA Act is to act as an administrative tribunal and determine whether to settle or admit or reject the applicants' claim against the Fidelity Guarantee Fund, a function in which s. 118 REBA Act is not engaged: in administratively determining a claim, the Board cannot rely on defences which might be available in an 'action' against the Board;

1.2 the REBA Act does not constitute an 'action against the Board' because jurisdiction is not conferred on any court to determine such an action in that:-

1.2.1 the REBA Act does not confer jurisdiction on any court to hear and determine such an action;

1.2.2 the jurisdiction of the Supreme Court is statutory: ss.16 and 21 Supreme Court Act 1935 (WA). These sections require that jurisdiction of the Supreme Court to determine a new cause of action created by statute must be conferred by statute. The Supreme Court Act 1935 (WA) is to be contrasted in that regard with, for example, s.23 of the Supreme Court Act 1970 (NSW), which provides:-

'The Court shall have jurisdiction which may be necessary for the administration of justice in New South Wales';

1.2.3 the Board's reference to the jurisdiction exercised by the Supreme Court in Re Real Estate and Business Agents Supervisory Board; Ex Parte Cohen [1999] WASCA 47; (1999) 21 WAR 158 ('Ex Parte Cohen') in granting writs of certiorari and mandamus was misplaced: the Supreme Court is conferred that jurisdiction by ss.16 and 21 of the Supreme Court Act;

1.2.4 whilst there is an obvious gap in the REBA Act in not conferring jurisdiction on any court to determine an 'action against the Board', it is impossible to say what the legislature intended: it could have been the Supreme Court or the District Court or the Local Court (now the Magistrates Court) or any of them depending on the monetary amount of the claim. There is nothing to indicate what court(s) was or were intended to have jurisdiction to determine an action against the Board;

1.2.5 once Ex Parte Cohen overruled previous authority and held that an applicant for compensation from the Fidelity Guarantee Fund could appeal from the Board under s.23 REBA Act to the District Court (now a right of review by this Tribunal under the re-enacted s.23), the non-existence of any 'action against the Board' became immaterial and implication into the REBA Act of conferral of jurisdiction not reasonably necessary for the operation of the REBA Act. Accordingly, no conferral of jurisdiction to hear and determine an 'action against the Board' should be made;

1.3 the construction of the REBA Act adopted by the Board should have been avoided unless compelled by very clear language because:-

1.3.1 the provisions conferring a right of compensation from the Fidelity Guarantee Fund are remedial and should be construed liberally so as to provide a remedy to those suffering loss through defalcation of a licensee in the widest possible circumstances;

1.3.2 the right of the Board under ss.117(1) and (2) REBA Act to require an applicant to exhaust rights of action before a claim against the Fidelity Guarantee Fund is allowed could not have been intended to enable the Board to reject a claim against the Fidelity Guarantee Fund because the applicant has pursued those rights of action and settled an action (and released the defendants from those rights of action in a Deed of Settlement). Such a construction is inconsistent with the clear intent of s.117(2) that a claim could be made against the Fund for the balance of the losses. By releasing defendants in other causes of action from those causes of action, the applicants have not released them (and could not release them) from any claim which the Board might make, by way of statutory subrogation under s.119, after it pays the applicants from the Fidelity Guarantee Fund;

1.3.3 accordingly, the Board should have held that the release of defendants in actions by the applicants did not result in the defeat of the applicants' claims against the Fidelity Guarantee Fund pursuant to the remedial legislation creating those claims;

1.4 the Board was not entitled to take into account whether it would have any defence to an 'action' as it is an irrelevant consideration to the Board's administrative determination of a claim against the Fidelity Guarantee Fund in circumstances where there is not the slightest chance that the applicants would pursue such an 'action' because of their right of appeal against any adverse administrative decision by the Board, formerly to the District Court and now to this Tribunal enunciated in Ex Parte Cohen; and

1.5 the Deed of Settlement and release between the applicants and, inter alia, the defalcating real estate agents dated 29 June 2005 did not in any way affect or limit or purport to affect or limit the applicants' claim against Fidelity Guarantee Fund under the REBA Act or the Board's statutory right of subrogation under s.119 of the REBA Act.

The Board erred in law in finding that the causal connection between the defalcation and the loss suffered by the applicants had been broken because:-

2.1 the applicants' participation in increasing the prices that the second named applicant would pay for the properties the subject of the transaction involving Units 20-29 Red Sands Park, Newman (the 'Second Transaction') was done as a result of Mr Banning's (one of the defalcating real estate agents) defalcatory conduct and under his undue influence;

2.2 the re-documenting of contracts was the 'very kind of thing' which was likely to result from Mr Banning's defalcatory conduct and accordingly does not break the chain of causation. To deny the applicants recovery, because of exposure to the very type of loss which the Fidelity Guarantee Fund was established to compensate, would be to deprive the REBA Act of all protection it is meant to provide to persons suffering pecuniary loss as a result of a defalcation and make compensation from the Fidelity Guarantee Fund illusory.

The Board erred in fact and law in finding that the causal connection between the defalcation and the loss suffered by the applicants had been broken because causation does not require proof of a single cause and Mr Banning's conduct was a material contributing factor to the losses claimed by the applicants.
The Board erred in fact in finding that the first named applicant voluntarily participated in the fraud in re-documenting contracts and her will was not overborne in that the first named applicant only re-documented the contracts in respect of the Second Transaction under the undue influence of Mr Banning, and accordingly, did not do so under her own free will.
The Board erred in law and fact in pre-judging the basis on which the applicants re-documented the contracts for the Second Transaction, in finding the first named applicant's will was not overborne and in finding the applicants participated in dishonest and criminal conduct without affording the applicants any procedural fairness by hearing evidence from the first named applicant on the Actual circumstances in which the contracts were re-documented (including the precise role of Mr Banning) and determining whether the applicants' participation was innocent, which adverse and serious findings the Board made without evidence, alternatively without cogent evidence.
The Board erred in law in finding that the applicants were bound by, and the Board could rely on, any adverse findings made against the applicants in Inquiry No. 17 of 2003 (the "Inquiry") when the applicants were not parties to the Inquiry.
The Board erred in law in finding that it could determine the preliminary issues in circumstances where, before the preliminary issues could be determined by the Board, the Board was required to conduct an analysis of relevant facts, which facts still had to be the subject of evidence, especially on behalf of the applicants, and because the Board was not in a position to make a decision in respect of either preliminary issue as it had not been properly apprised, by probative material, of the facts necessary to make its decision."
It can be seen in general from the above that in relation to issue (1) and ground (1) the appellants' grounds largely concern the operation of Part VIII of the Act, and the extent to which the Deed of Settlement could, in the light of the provisions of Part VIII, limit the applicants' claim.
In relation to issue (2) and ground (2), the main complaint of Espanol and Ortin is concerned with the factual findings of the respondent and the method by which such findings were arrived at; and in particular, whether the respondent was in breach of natural justice by not hearing evidence on the issue and not affording Espanol and Ortin the opportunity of giving evidence, especially in the light of the respondent making adverse findings against Ortin including those of a criminal nature.

Leaving aside the specific grounds for review (above), it appears to be common ground that the Tribunal is to determine the following issues in this review:
1. was the respondent entitled to rely upon cl 3 and cl 8 of the Deed to dismiss the claim? (Issue 1)
2. was the respondent entitled to rely upon the factual findings of the Inquiry Board reasons to determine the claim? (Issue 2)
3. if yes to (2), did the conduct of Ortin sever the causal connection required by s 116(1) of the Act; that is, were Espanol and Ortin precluded from being persons who suffered pecuniary loss or loss of property by reason of any defalcation by a licensee within the meaning of s 116(1) of the Act? (Issue 3)
In the event that the applicant is successful in relation to issues (1)-(3), the Tribunal is required to determine whether:
1. the application should be referred back to the respondent for final determination in accordance with the Tribunal's decision, the respondent to hear the matter to be differently constituted from the respondent which dismissed the application; and
2. the respondent should pay the costs of Ortin and Espanol relating to the preliminary issues and the review.

As to Issue (1), Espanol and Ortin noted that s 117 of the Act required, inter alia, a claimant to exhaust "all relevant rights of action and other legal remedies available against the defalcating licensee or any other person in respect of the loss suffered by the claimant noting that they had complied with this requirement by pursuing the remedies open to them against Banning and Brewer. In such action, they entered into a Deed with, inter alia, Banning and Brewer. The Deed, Espanol and Ortin said, was a commercial settlement and thus it did not reflect upon, and was not in its terms based upon their likelihood of success in the Supreme Court action [No. 1172/1999]. Thus, Espanol and Ortin submitted, the Deed could not affect or limit their claim under the Fidelity Fund, or the respondent's right of subrogation under s 119 of the Act.
Espanol and Ortin submitted that the Act does not vest any court, either by implication or expressly, with jurisdiction to entertain any "action" brought against it under the Act, with the result that s 118 had no application to the present case. Further, it was said that s 118 of the Act had no application to the present claims, which were the subject of administrative determination by the respondent and not an action against, or/and defended by the respondent. Espanol and Ortin opposed the respondent's submission that the Act contemplates the Board defending an action against it and adopting a defence to such an action under s 118.
Thus, Espanol and Ortin said, any defences under s 118 of the Act should not have been relied on by the respondent using cl 3 and cl 8 of the Deed to defeat their claim.
As to issue (2), Espanol and Ortin submitted that their participation in increasing the price for the second transaction was done as a result of Banning's defalcatory conduct and under his undue influence. Therefore the causal connection between the defalcation and loss suffered by the applicants had not been broken.
As to issue (3), Espanol and Ortin submitted that procedural fairness required the respondent not to rely on any "adverse" findings of the Inquiry; further they were denied a fair hearing, particularly as they were not parties to such hearing and also were not represented. Any reliance therefore on the evidence of findings of the Inquiry was unfair.
Further, they submitted, much of the evidence relevant to Ortin's state of mind at the Inquiry was ignored by the respondent.
Espanol and Ortin also contended that the respondent should not have decided the matter on preliminary issues without a hearing on its merits.
As to the rights of subrogation to the respondent under s 119 of the Act, Espanol and Ortin submitted that because such rights were created by statute, they must be subject to limits on that right arising under the Act. Thus, the right of subrogation under the Act only arises "on payment of" an amount from the Fidelity Fund by the respondent to the claimant. It was submitted that it would be incorrect to apply the provisions of s 117 against the applicants when considering whether the Board could rely on the right of subrogation under s 119; the Act contemplates parties reaching settlements rather than exhausting all avenues of action against the defaulting licensee, including to an appeal court.

As to Issue (1), the respondent contended that it was entitled to rely on clauses 3 and 8 of the Deed to dismiss the claim. The respondent referred to section 118 of the Act which is in the following terms:

"In any action brought against the Board in relation to the Fidelity Fund, all defences that would have been available to the defaulting licensee are available to the Board."

This section, the respondent contended, should be interpreted to mean the respondent is entitled, when considering to accept or reject a claim, to be able to take into account any defence available to a defalcating licensee.
The respondent contended that section 118 provides a two stage method of dealing with the claim, that is, 1) the respondent may accept the claim, or 2) the respondent may reject the claim, in which case the rejection can be tested by action in a court, in which such a claim action the respondent could rely upon any defence available to the defalcating licensee.
This being so, in making the decision in step (1), the respondent as established is entitled to consider what defences would be available to it, in the event of an action.
The respondent contended that sections 117 and 118 of the Act contemplate an action against the respondent in a court, and that by implication the Supreme Court is the appropriate forum for such action. The respondent also contended that the District Court could, within its statutorily granted power, deal with actions under the Act within its jurisdictional limits. The respondent contended that s 117 of the Act allows an applicant to apply to the respondent to allow a claim against the Fund rather than commencing an action in the Supreme Court.
The respondent referred to s 119 of the Act and submitted that such section does not entitle the respondent to sue a defalcating licensee in its own name. By virtue of the right of subrogation granted to the Board by s 119, the respondent is required to sue in the name of the claimant and, in so doing, asserts the rights of the claimant against the defalcating licensee rather than its own rights. Finally, the respondent submitted that the Board, in determining whether a claim under the Fund should be allowed, was entitled to ignore the applicants' intentions whether or not to pursue an action when considering a claim.
In relation to issue (2), the respondent contended that s 20(5) of the SAT Act entitled it to rely upon the previous findings of the Inquiry (albeit with a different quorum). It was noted that the Inquiry dealt with the same issues which were the subject of the claim. The respondent also noted that the applicants had relied on some of the findings of the Inquiry and that therefore the respondent should also be entitled to rely (at least) on such findings.
In relation to issue (3), the respondent contended that the conduct of Ortin and Espanol severed the causal connection required by s 116(1) of the Act, and therefore entitled the respondent to dismiss the claim. The respondent contended that it was the applicants' participation in the fraud on the lender, rather than Banning's deception of Ortin, which caused the loss.
The respondent stated that there was no evidence that the will of Ortin was overborne and that the finding of the respondent that Ortin had voluntarily participated in the fraud was correct.

The statutory arrangement and consideration of the Issues

The Fidelity Fund is established pursuant to s 107 of the Act and is administered by the respondent (see s 112). The purpose of the Fidelity Fund is set out in s 116 of the Act, that is:

"(1) Subject to this Act, the Fidelity Fund shall be held and applied for the purpose of reimbursing persons who may suffer pecuniary loss or loss of property by reason of any defalcation by a licensee during any period when he was the holder of a current triennial certificate, but reimbursing only to the extent of the defalcation of the licensee."

Claims against the Fidelity Fund are made pursuant to s 117. Section 117(1) provides:

"(1) The Board may receive and, subject to section 116(2), settle any claim against the Fidelity Fund at any time after the defalcation in respect of which the claim arose has occurred, but no person is entitled, without the leave of the Board, to commence any action in relation to the Fidelity Fund, unless the Board has disallowed his claim and unless and until the claimant has exhausted all relevant rights of action and other legal remedies available against the defaulting licensee or any other person in respect of the loss suffered by the claimant."

It is clear that s 117(1) contemplates the "commencement of an action" in relation to the fund. Such "action" is also contemplated by s 118 by which "in any action brought against the Board in relation to the Fidelity Fund, all defences that would have been available to the defalcating licensee are available to the Board". The commencement of an action against the respondent in relation to the Fidelity Fund must be made in two circumstances, that is, with the leave of the Board (s 117(2)), or without the leave of the Board providing two prerequisites exist, that is:
1. (when) the Board has disallowed the claim, and
2. unless and until the claimant has exhausted all relevant rights of action and other legal remedies against the defaulting licensee.
It is clear also, that claims against the Fidelity Fund must first be made to the respondent which is empowered to "settle any claim against the Fidelity Fund at any time after the defalcation in respect of which the claim arose has occurred" (s 117(1)) such procedure being subject to s 116(2) which requires a claimant making a claim to the respondent to satisfy certain time limits.
In the event of the respondent not disallowing the claim on the basis of a failure by the claimant to comply with s 116(2)(a) and 116(2)(b), it is required to proceed to consider the claim and if it thinks appropriate, to "settle" it or refuse it, that is, to disallow it.
If the claim is refused, that is, disallowed by the respondent, then, as noted above, it can grant leave for an "action" to be brought against it or if not granted, the claimant can commence an action provided the second prerequisite has been satisfied.
From the above analysis, it is clear that in dealing with a claim under s 117(1), the respondent is acting in an administrative capacity.
Further, it is clear that s 117 and s 118 contemplate two distinct procedures, that is, a "claim" against the fund and an "action" against the Board in relation to the fund.
It was the former procedure which was the subject of the matter before the respondent on 18 August 2005, it is not an "action against the Board in relation to the fund" as contemplated by s 118.
Because of this clear dichotomy, the Tribunal is of the view that on the face of the legislation, the respondent, when acting administratively, cannot rely on the provisions of s 118.
The respondent conceded that the Act does not expressly allow it to rely on s 118 but argued that in order for the legislation to be effective, the ability to rely on s 118 and the defences referred to therein should be implied. In arguing for this proposition, the respondent relied on the decision of the Supreme Court of Victoria in Legge v The Law Institute of Victoria (Unreported, Supreme Court of Victoria Full Court Library No BC9000831).
In the Tribunal's view, Legge's case cannot be relied upon by the respondent in this case. The relevant section of the former Legal Profession Practice Act 1958 (Vic), namely s 66(2), permitted the Law Institute of Victoria (Institute) to allow and settle claims made against the relevant Fidelity fund. Section 66(3) of that Act only permitted the Law Society of Victoria to rely upon the defences available to the defalcating solicitor if proceedings were brought to establish a claim, which proceedings could only be brought if the Institute had disallowed the claim and the claimant had exhausted all other rights and remedies. Therefore, the case is not authority for the proposition that the respondent can use such defences in its initial administrative determination of a claim and cannot, therefore, be relied on by the respondent.
It is the Tribunal's view that the Board (as respondent), in the absence of express powers to do so, cannot in exercising its administrative function rely upon the provisions of s 118.
It is also clear that the Board has not been vested with judicial powers in the exercise of its administrative functions (see Re Real Estate and Business Agents Supervisory Board, Ex parte Cohen 21 WAR 158 [1999] WASCA 47 at par 8, par 19 and par 23. Also, s 23 of the Act provides a right of review by this Tribunal of a decision of the Board relating to claims against the Fund.
One of the arguments advanced in support of their position regarding Issue (1) by Espanol and Ortin was to the effect that no court has been vested with jurisdiction to hear an "action" contemplated by s 117 and s 118. The Tribunal is unable to agree with this proposition and prefers the submission of the respondent in relation to it. The Tribunal is of the view that the legislature is clear and unambiguous in that s 117 and s 118 contemplate an "action against the Board" in relation to the fund - to suggest that no action can arise would render the provisions of s 117 and s 118 meaningless, and such interpretation should be avoided (see South Sydney Municipal Council v Aitken (1997) 2 NSWLR 71 at 89 - 90).
It is the Tribunal's view that the jurisdiction to hear an action under s 118 is conferred upon the Supreme Court by implication and that such conference of power must be preserved (see Re Totalisator Administration Board of Queensland [1989] 1 Qd R 215 at 217 - 219 and also Board v Board [1919] AC 956).
The Tribunal also prefers the respondent's position as to the right of subrogation under s 119 of the Act. It was the contention of Espanol and Ortin that because s 119 entitles the respondent to sue the defalcating licensees who could not issue the release in the Deed to defend that claim. As the respondent submitted, correctly in the Tribunal's view, when suing under s 119 of the Act, the Board sues in the claimant's name, and rather than asserting its (the Board's) rights, asserts the right of the claimant including the right to rely upon the Deed of release. It is thus the view of the Tribunal that the wording and intention of s 117 and s 118 of the Act do not permit the Board to rely on the Deed of Settlement, and in particular, cl 3 and cl 8 to decide the claim against Ortin and Espanol.
The Tribunal also confirms that the Deed was a commercial settlement and could not be relied upon to determine the likely outcome of the Supreme Court action. As noted by Espanol and Ortin, the Board has previously taken into account payments received under a settlement, to the extent that they relate to the Fidelity Fund claim under consideration as reducing the amount of the award payable to the claimant in reduction of the losses as required by s 117(2) of the Act (ex parte Bowie (Unreported) REBA decision, 17 January 2003 at 52). The Board's decision in this matter is thus contrary to its decision in the previous matter.
This finding by the Tribunal is another reason why, in the Tribunal's view, the Deed could not be relied on to defeat the claim by Espanol and Ortin.
The Tribunal is also of the view that as a matter of public interest, parties should be encouraged to settle claims which would have the potential to limit the liability of the Board in the event that a claim against the Fidelity Fund was made.
Therefore, the Tribunal is of the view that in considering a claim against the Fidelity Fund, the respondent should consider the merits of the claim without regard to any defences said to be available under s 118, and in accordance with the Act generally.
The Tribunal thus answers the issue (1) in the negative.

These concerns the findings of the respondent (relying on the findings of the Inquiry) that Espanol and Ortin participated in the re-documenting of the contracts to obtain finance, which finance would otherwise have been obtained with the result that any loss suffered by the applicants as a result of the purchase of the ten units is a loss which flowed from the applicants' participation in a fraud upon the provider of the finance, and therefore not a defalcation by the licensee. In other words, the deception of the financier (participated in by the applicants), severed the necessary causal connection between the defalcation and any loss suffered by the claimants.
Espanol and Ortin maintain that this finding by the respondent can be questioned on two bases: firstly, the nature of the act causing the loss was the very act contemplated by the Fidelity Fund, and secondly, the reliance by the respondent on the findings of the enquiry was a denial of natural justice to Espanol and Ortin.
As to the first basis, Espanol and Ortin submitted that to deny the applicants' right to recovery to the type of loss which the Fidelity Fund was established to compensate, would have the effect of depriving the Act of the protection it is meant to provide to people suffering pecuniary loss as a result of defalcation, and to make compensation from the fund "illusory" (see Chomentowski v Red Garter Restaurant (Ltd) (1970) 92 Weekly Notes 1070 at 1075 - 1076). In other words, if as an innocent party a claimant participates with a fraudster, such innocent party should not be denied relief under the Act.
The Tribunal agrees with the submissions of Espanol and Ortin in this regard, and is of the view that this position is consistent with the meaning and intention of the Act.
Secondly, Espanol and Ortin (correctly, in the Tribunal's view) submitted that, in determining what caused an outcome, a series of acts and submissions could be involved and should be considered and taken into account. Further, in tort, a causal link is not broken if the alleged intervening act was the "very kind of thing" which was likely to happen as a result of a defendant's wrongful or careless act, and thus it is irrelevant whether the intervening act was "innocent, tortious or criminal" or "deliberate or not" (see March v Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 at 518 -519).
Thus, the respondent should have, in the Tribunal's view, considered the whole circumstances surrounding the acts of Banning and Brewer and Espanol and Ortin to determine whether it was the participation of the latter which was the sole or major cause of the loss, whether the conduct of Banning was the cause of the loss and whether the conduct of Espanol and Ortin was a result of Banning's defalcatory conduct.
In saying this, the Tribunal has highlighted some of the matters which in its view the respondent was required to consider. In making such a determination, the respondent made some findings which were not adverse to Espanol and Ortin, but also made a number of findings adverse to them. The question is whether the respondent was, in its consideration of the evidence, entitled to rely on adverse findings of the Inquiry, particularly in circumstances where the parties involved were not represented by counsel.
There is authority for the proposition that the respondent should not have relied upon adverse findings against the applicants by the Inquiry (see PE Bakers Pty Ltd v Yahuda (1988) 15 NSWLR 437 at 442 and Cambridge Credit Corp Ltd v Parks Developments Pty Ltd (1974) 2 NSWLR 590 at 615 per Hutley JA).
In making its decision as to Ortin's conduct, the respondent quoted from the findings of the Inquiry Board (that is, par 46, par 47 and par 48 of the findings) and confirmed that Espanol and Ortin had confirmed in its Statement of Fact (at 128) that "[t]he only reason that Espanol and Escon increased the prices for the 10 units in Beaufort Street was so that Espanol might be able to obtain the finance necessary to complete the Second Transaction."
In finding that Ortin had acted contrary to s 409(1) of the Criminal Code, the respondent presumably inferred that Ortin had the requisite intention to defraud notwithstanding that she had not been examined on this point by her own counsel and had not been cross-examined or had been given the opportunity to make submissions in relation to this matter on her behalf. In the Tribunal's view, Ortin was denied, by the respondent in its hearing, the opportunity of putting a case in relation to her conduct, including her position that her involvement was innocent and/or brought about by undue influence on the part of Banning. Similarly, because the respondent relied upon the findings of the Inquiry, Espanol and Ortin were generally denied the same opportunity. Indeed, the respondent made a positive finding that Ortin voluntarily participated in the fraud and that her own will was not "overborne". In the Tribunal's view such a finding could not properly be made without a hearing involving Ortin giving evidence and being represented by counsel.
In all the circumstances, the Tribunal finds that at the hearing, the applicants were denied natural justice and should have been given the opportunity to put their case.
Also, perhaps as importantly, the respondent, in the opinion of the Tribunal, erred in not examining the facts of the matter in full, rather than dealing with the matter on the basis of preliminary issues. It is undesirable for courts to decide questions such as those considered by the respondent in interlocutory proceedings because insufficient will then be known of the relevant facts to "justify a confident answer to the question" (see Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 534). In the Tribunal's opinion, the respondent was not in a position, having relied on limited facts, to properly determine the preliminary issues as it did.
Thus, in relation to issue (2), the Tribunal answers this question in the negative.
Finally, in relation to issue (3), on the basis of the opinion already expressed, the Tribunal finds that there was insufficient evidence before the respondent to properly answer this question and that the respondent erred in finding that the causal connection had been severed. Issue (3) must therefore be answered in the negative.

In the light of these findings, the Tribunal makes the following orders:

(1) The order made by the Real Estate and Business Agents Supervisory Board on 25 July 2006 be set aside.

(2) The matter be referred back to the Board for re-hearing and determination in accordance with the decision of the Tribunal in relation to issues (1), (2) and (3).

(3) The re-hearing take place before a differently constituted Board.

(4) The Tribunal will hear the parties as to the question of costs.

I certify that this and the preceding [80] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

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Estate and Business Agents Act 1978

Profession Practice Act 1958

Administrative Tribunal Act 2004

Business Agents Act 1978

ESPANOL HOLDINGS PTY LTD & ANOR and REAL ESTATE & BUSINESS AGENTS SUPERVISORY BOARD [2007] WASAT 5 (12 January 2007)

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Judgment (68 paragraphs)

ESPANOL HOLDINGS PTY LTD & ANOR and REAL ESTATE & BUSINESS AGENTS SUPERVISORY BOARD [2007] WASAT 5 (12 January 2007)

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