IBW Empire Pty Ltd v Commissioner for Fair Trading

Issues

1. The tribunal must determine whether the decision by NSW Fair Trading to reprimand IBW Empire and to impose a monetary penalty of $11000 was the correct and preferable decision.
2. In determining this, I will consider the following: 1. What led to the disciplinary action against IBW Empire? 2. Were there grounds for taking disciplinary action against IBW Empire? 3. Was the disciplinary action appropriate?

What led to the disciplinary action against IBW Empire?

1. IBW Empire held a trust account during the financial year 2019/2020. In accordance with s111(1) of the Property and Stock Agents Act 2002, IBW Empire was obliged to provide NSW Fair Trading with a trust account audit before 30 September 2020. Due to the impact of COVID, however, NSW Fair Trading extended the deadline to 31 December 2020, noting the time extension on its website.
2. On 27 February 2021, NSW Fair Trading emailed IBW Empire to advise that the company's trust account audit was outstanding and that a failure to lodge it by 31 March 2021 could result in the suspension of the company's licence.
3. The trust account audit was not received by 31 March 2021 and on 14 July 2021 NSW Fair Trading issued a notice to suspend IBW Empire's licence and a notice inviting IBW Empire to show cause as to why disciplinary action should not be taken against the company, with a response required by 28 July 2021.
4. On 15 July 2021, Ms McGhee sent an email to NSW Fair Trading apologising for the delay and explaining that: I am a one woman show and that has less than 15 transactions in my trust account since 2018 and I have called so many auditors and they have said that I have not enough and would not take on my job. I have sought advice from other agents and they have just said to pay the extremely high fees to get the report which I will be doing to make sure I am making all of my requirements to have the trust account. I am very sorry for this oversight and in the past 12 months I have had three children under 5 at home while working as my husband lost his job last year during COVID as he is in construction. He has since started his own business and the last few months since April it has picked up. Prior to this, I had to be the main income earner while managing the children. To say this has been challenging is an understatement. Regardless, I can see that I am at fault and will rectify my mistake by going back to the last auditor I spoke with who can help me finalise the audit report for my trust account. I am very sorry for this and it will not happen again.
5. The audit was not sent by 28 July 2021 and on 25 August 2021, Ms McGhee wrote to NSW Fair Trading requesting a further two-week extension to enable her to submit the trust account audit for IBW Empire, and providing the following explanation: I am sorry to inform you but I have had my children in hospital and have been away from any communications on my email. This has been a very difficult time and I have hold [sic] off working during this time. If I can please get an extension on sending you this audit report as soon as possible as I will need another two weeks as I know it is already two weeks behind.
6. On 27 August 2021, an officer from NSW Fair Trading refused the requested extension on the basis of telephone records dated 6 August and 9 August 2021 noting Ms McGhee's advice that the audit was complete and that it would be emailed through to NSW Fair Trading.
7. In subsequent correspondence, Ms McGhee clarified that she had been under the impression that the audit had been completed but that this had been incorrect.
8. Having refused the further requested extension, on 27 August 2021, an officer of NSW Fair Trading decided to: 1. reprimand IBW Empire; 2. require IBW Empire to pay a monetary penalty of $11 000; 3. cancel IBW Empire's corporation real estate licence; 4. declare IBW Empire to be a disqualified person until the lodgement of the 2020 audit of its trust account with NSW Fair Trading; and 5. disqualify IBW Empire from being involved in the direction, management or conduct of the business until the 2020 audit of its trust account had been lodged with NSW Fair Trading.
9. In taking this disciplinary action, the officer found there to be no subjective factors with either a mitigating or aggravating effect. On 27 September 2021, the officer's decision was affirmed on internal review.
10. It is not in dispute that the trust account audit for IBW Empire dated 2 September 2021 was submitted to NSW Fair Trading on 7 September 2021 and was found to be complete and to meet the requirements set out in the earlier show cause notice.
11. Following the successful submission of the trust account audit, IBW Empire was no longer a disqualified person and no longer disqualified from being involved in the direction, management or conduct of the business of a licensee. The company's licence remained cancelled, however, requiring a new application to be made. On 13 December 2021, IBW Empire was granted a new corporate real estate licence.

Were there grounds for taking disciplinary action against IBW Empire?

1. Section 111(1) of the Property and Stock Agents Act 2002 relevantly states that a person who is a licensee must provide a trust account audit to NSW Fair Trading within 3 months after the end of the stipulated audit period.
2. There is no dispute that by failing to lodge its trust account audit by the prescribed deadline of 31 March 2021, IBW Empire contravened section 111(1) of the Property and Stock Agents Act.
3. According to section 191 of the Act, disciplinary action can be taken against a person who has contravened a section of the Act. IBW Empire was therefore liable for disciplinary action under s192 of the Act, including a reprimand and a monetary penalty of an amount not exceeding 100 penalty units in the case of an individual or 200 penalty units in the case of a corporation.
4. As a penalty unit is prescribed as $110 in s17 of the Crimes (Sentencing Procedure) Act 1999 this equates to $11000 for an individual and $22000 for a corporation.
5. Where a matter that is the subject of a complaint involves grounds for taking disciplinary attention, the Secretary of NSW Fair Trading may nevertheless decide to take no further action in the matter. Any disciplinary action taken by NSW Fair Trading may be reviewed by this Tribunal. (s193 of the Property and Stock Agents Act).

Was the disciplinary action appropriate?

1. The Tribunal has the power to review any disciplinary action taken by the Secretary of NSW Fair Trading. (s200 of the Property and Stock Agents Act)
2. As noted above, given the restoration of IBW Empire's licence, and given that IBW Empire is no longer a disqualified person or disqualified from conducting a business, the only issues to be considered by the Tribunal are whether the decision by NSW Fair Trading to reprimand IBW Empire and to impose a monetary penalty of $11000 was the correct and preferable decision.
3. The Property and Stock Agents Act 2002 provides for the regulation of property and stock agents. In 2020, the Act was amended to further protect consumers in their dealings with the industry.
4. In his Second Reading Speech for the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill on 21 November 2017 the then Minister for Innovation and Better Regulation, The Hon Matt Kean, referred to the importance of trust accounts and trust account audits: Agents' failure to account for money held in trust is a major risk area for the industry, and a major source of consumer detriment. During the last financial year, the Property Services Compensation Fund paid out more than $500,000 to consumers. As well, there were other significant consumer repayments from businesses where Fair Trading has appointed a manager ... furthermore, if an audit is not lodged it is not clear whether the audit was unqualified and did not have to be lodged or was in fact qualified but the agent had failed to lodge a copy. To minimise any additional administrative burden, an online audit lodgement portal is being developed. This system will be in operation before this requirement comes into effect. Additional trust account requirements will be introduced by regulation. This will include a requirement to hold separate trust accounts for sales and rental payments, and a requirement to clear rental trust accounts at the end of each month. This will help keep landlords aware if there is any shortfall in their rental income that cannot be accounted for.
5. In her application for review lodged by IBW Empire on 2 November 2021, the company's managing director, Ms Lisa McGhee, stated that she would never 'misuse any funds on behalf of my clients as I have a high moral compass and also I would never do anything to jeopardise my licence that I worked so hard to get.' In requesting that her fine be removed, Ms McGhee noted her intention to close down her trust account and instead use the conjunctions with other agents and their respective trust accounts. Ms McGhee has since closed her trust account.
6. There is no dispute that the proper handling of trust accounts by those in the real estate industry is vital to retaining consumer confidence and that trust account audits are important to ensuring that consumer funds are not misused.
7. There is also no dispute that by failing to lodge its trust account audit by the prescribed deadline of 31 March 2021, IBW Empire breached the provisions of the Property and Stock Agents Act 2002 and was therefore liable for disciplinary action under s193 of the Act, including a reprimand and a monetary penalty.
8. For the following reasons, however, I find that the disciplinary action imposed by NSW Fair Trading to be too harsh.
9. It is not in dispute that IBW Empire held a trust account from 2018 and that, prior to its failure to submit its 2020 trust account audit, no compliance issues had been made against the company.
10. The years 2020 and 2021 were extraordinary ones in light of the worldwide COVID pandemic that led to lengthy lockdowns and required enormous changes to work practices, particularly when childcare became unavailable. As a working mother with young children at home instead of at childcare and with no family support available during lockdown periods, I accept that this time was particularly onerous for Ms McGhee. I accept Ms McGhee's statement that trying to manage her parenting responsibilities with her business responsibilities was difficult and provides some explanation for her failure to submit her trust account audit on time.
11. NSW Fair Trading has submitted that the imposition of the reprimand and the monetary penalty on IBW Empire has an important educative function. Whilst I accept this as a general proposition, in light of the extraordinary times during which the late lodgement of the trust account audit occurred - namely in between lockdowns and while Ms McGhee was managing a business while looking after young children in the absence of childcare - I am satisfied that, given the extraordinarily circumstances, the educative function is of less relevance than it would otherwise be.
12. As set out above, on 25 August 2021, Ms McGhee wrote to NSW Fair Trading to advise that her children had been in hospital and that she had been away from any communications on her email. She requested a two-week extension to submit her trust account audit.
13. On 7 September 2021 - within the two-week period requested by Ms McGhee as an extension - the trust account audit for IBW Empire dated 2 September 2021 was submitted and found to meet the legislative requirements.
14. In deciding the disciplinary action to be taken for the late submission of the trust account audit, the decision maker from NSW Fair Trading found there to be no subjective factors with a mitigating effect and no subjective factors with an aggravated effect to be taken into consideration.
15. On the evidence before me, I am satisfied that there are subjective factors with a mitigating effect to be taken into consideration in relation to the appropriate disciplinary action to be taken against IBW Empire. They are as follows: 1. The delays in submitting the trust account audit occurred within the extraordinary context of the COVID pandemic, which was particularly difficult for Ms McGhee because her husband was first unemployed as a result of the pandemic and, then, after starting his own business, was working from 5am to 8pm; 2. Over the course of the COVID pandemic in 2020 and 2021, Ms McGhee had the primary care of three children under the age of five years who were unavailable to attend childcare for some fifteen weeks; 3. During to lockdowns in the relevant Local Government Areas, Ms McGhee was unable to get assistance with childcare from her family; 4. Whilst the audit was delayed, it was submitted less than a fortnight after the licence had been cancelled and was found to meet all the relevant legislative requirements;
16. I accept that the disciplinary action imposed on IBW Empire was extremely stressful for Ms McGhee and caused her substantial hardship. I also accept that as a result of the disciplinary action, Ms McGhee has taken the decision to no longer hold a trust account. There is, therefore, no further risk that she will be in breach of the act in relation to her trust account responsibilities.
17. Between the cancellation of her licence on 27 August 2021 and the grant of a new licence on 13 December 2021, Ms McGhee was unable to work as a real estate agent. I accept that this affected her ability to earn an income and, given the background of her husband's unemployment prior to the setting up of his own business, that this increased pressure on Ms McGhee and her family.
18. The monetary penalty imposed on IBW Empire was 110 penalty units, namely $11000. A maximum of 220 penalty units can be imposed on a company, while a maximum of 110 penalty units can be imposed on an individual. While it is not in dispute that IBW Empire is a company, on the evidence before me, I am satisfied that Ms McGhee essentially runs the business alone. This makes the monetary penalty of $11000 particularly onerous.
19. In other cases determined by this Tribunal, the following monetary penalties were imposed: 1. In Amazing T Investment Pty Ltd v Commissioner for Fair Trading [2022] NSWCATOD 6, a monetary penalty of $11000 was initially imposed, before being reduced by 25% to $8250 in mitigation, given that the company had ultimately lodged the audit. 2. In Cumberland Real Estate Pty Ltd v Commissioner for Fair Trading [2022] NSWCATOD 99, Cumberland Real Estate Pty Ltd was reprimanded and fined $5500. On review, the decision was set aside and the decision made to take no further action. This was because the failure to submit the audit was not deliberate (the applicant having not received notification of the audit and then having received the incorrect advice from NSW Fair Trading that no further action was required), immediate steps were taken to remedy the situation and there was no loss of damage to any person resulting from the delay in filing the audit. 3. In Option Realty Pty Ltd v Commissioner for Fair Trading [2022] NSWCATOD 27, a monetary penalty of $8250 was imposed, which included a reduction in recognition of the action taken by Option Realty Pty Ltd in submitting the 2020 audit for the trust account by the date specified in the Notice to Suspend.
20. Having considered these cases and Ms McGhee's circumstances, I find that any monetary penalty should have been reduced to take into account the mitigating circumstances above. Without considering the monetary loss to IBW Empire occasioned during the period of cancellation between 27 August 2021 and 13 December 2021, I find that an appropriate monetary penalty would have been $5500 with a reduction of 25% for the fact that Ms McGhee did submit the audit and that it met the requirements.
21. Given the further subjective circumstances in this case, however, I am satisfied that it would be appropriate to dispense with any monetary penalty and for the disciplinary action to be taken against IBW Empire to be limited to a reprimand.
22. The further subjective circumstances warranting such a mitigation in penalty, as considered above, are as follows: 1. The financial hardship and additional stress occasioned to Ms McGhee when she was unable to work between 27 August 2021, when the license was cancelled, and 13 December 2021, when a new grant was issued; 2. The fact that, in accepting the importance of trust account management, Ms McGhee has taken the decision to no longer hold a trust account.
23. For these reasons, I am satisfied that a reprimand issued to IBW Empire is sufficient to serve as an educative function and is, in all the circumstances, the appropriate penalty.
24. In conclusion, whilst I accept that IBW Empire should be reprimanded for its failure to submit its trust account audit by the required deadline, I am not satisfied that a monetary penalty should also be imposed on IBW Empire.

Order

1. The decision under review is varied.
2. The determination by the Commissioner of Fair Trading dated 27 September 2021 to impose a monetary penalty of 110 penalty units on IBW Empire Pty Ltd is set aside.
3. The determination by the Commissioner of Fair Trading dated 27 September 2021 to reprimand IBW Empire Pty Ltd is affirmed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 May 2023