Lisimcol Pty Ltd v Commissioner for Fair Trading

Hearing

1. The matter was first listed for hearing on 28 April 2022. The proceedings were adjourned part-heard and completed on 1 June 2022.

The Applicant's submissions

1. The Applicant submits that it ordered the audit from Mr Watson at the appropriate time in or around 22 or 27 November 2020. Despite this, the Applicant concedes that the audit was not lodged on time and that this is not in dispute. The Applicant submits that the surrounding circumstances should be taken into consideration when the Tribunal considers whether a monetary fine is the appropriate disciplinary action in response to its failure to lodge the audit.
2. The Applicant submits that during the Covid-19 period the usual auditing process did not take place. As Mr Bice set out in his evidence, that usual process would involve Mr Watson attending the offices of the Applicant and obtaining information to complete the audit. Due to Covid-19 restrictions that audit process did not take place. The new process involved Mr Watson having a questionnaire completed by the Applicant and completing the audit in his offices without attending the Applicant's premises.
3. Trust accounting staff of the Applicant completed the request for information and sent it to Mr Watson. The Applicant contends that neither the auditor, Mr Watson, nor the trust staff had been diligent and through in any way and failed to include the relevant information to each other so that the audit could be completed. The Applicant's main contention is that the records were sent and caused to be audited but the auditor failed to undertake his duties within the required time period fixed by the Respondent. The Applicant submits that due to a 'glitch' in the Service NSW system, the Applicant was told via the auditor that the audits had to be submitted on time and resubmitted. It is alleged that due to an oversight of Service NSW and there being a glitch in their system, the later February correspondence would have been for only one trust account rather than five trust accounts and easily discovered and remedied.
4. The Applicant submits that it has submitted more than 80 previous audits over a number of years, both manually and through the auditor, without any failure to do so.
5. In relation to the severity of the penalty and disciplinary action, the Applicant submits the following:
6. there is no breach or suggestion of misuse of trust monies, which diminishes public confidence in an unwarranted action against an agent on the back of a Services NSW computer glitch resulting in a Services NSW accusation that four trust audits were not submitted when four of the five were submitted on time and the subsequent confusion it created. Had the computer glitch been corrected there would have been no confusion about the outstanding audit by the Applicant;
7. the Applicant did not fail to cause the audit to be audited, it contends it submitted the audit to the auditor and it was the auditor who failed to lodge the audit on time;
8. there is no evidence that the failure caused the trust accounts not to be audited by a qualified auditor particularly given the Covid-19 requirements that the auditor was to work outside of attending the Applicant's office;
9. the audit did not reveal any inconsistencies with the requirements under the law.

The Respondent's submissions

1. The Respondent acknowledges that the Applicant's 2020 trust account audit was ultimately lodged and that there is no evidence of any misappropriation or other misconduct in relation to the trust account.
2. Nevertheless, the Respondent submits that the exercise of discretion by the Respondent to impose a reprimand and a monetary penalty of $5,500, was warranted in circumstances where:

• failure to lodge the trust account audit had the potential to cause harm to the integrity of the real estate industry as failure to account for money held in trust is a major risk area for the industry, and a major source of consumer detriment. The integrity of trust accounts and trust account audits are vital elements that reinforce consumer confidence in property agents in NSW;
• real estate agents can handle very large sums of money on behalf of their clients and must be accountable and open to scrutiny in the conduct of their affairs as licensees. Requirements of the PSA Act relating to trust accounts and trust account audits are therefore important elements that reinforce consumer confidence in real estate agents;
• failure to lodge the trust account audit had the potential to undermine public confidence in the trust account system under the PSA Act, and moreover confidence on the part of the persons whose money is being held in trust, as a delay in providing trust account audits could give the impression misappropriation or malfeasance may be occurring;
• the failure to lodge the trust account audit report was a clear and ongoing failure on the part of the Applicant over the course of many months. Indeed, the audit remained outstanding up until 12 July 2021;
• the Applicant received at least three reminders to complete its audit on 1 July 2020, 27 November 2020 and 9 February 2021;
• the objective evidence establishes that the licensee did not provide the records and documents for the trust account to the auditor until 12 July 2021, more than six months after the 31 December 2020 deadline;
• there is evidence of admissions on behalf of the Applicant to corroborate the fact that the licensee did not provide the records and documents to the auditor until 12 July 2021 including, on 14 July 2021, when Mr Bice sent an email to the licensee in charge Ms Borstel copying in the Disciplinary Action Unit of the Respondent which stated: It was done intentionally to show you the history of the confusion and oversight on my part with the five audits that were required.
• the auditor declared that he did not receive the records and documents from the Applicant until 12 July 2021;
• there is no evidence to substantiate the Applicant's initial submissions that it paid for the audit for the trust account before 12 July 2021;
• in the Grounds for Application and in evidence the Applicant claimed that by sending a notice about the trust account number, together with other notices for unrelated entities to Mr Watson, he had been properly instructed to carry out the audit for the Applicant, this is not evidence of instructing Mr Watson to complete the audit;
• the objective evidence proves the Applicant did not instruct the auditor in respect of its trust audits at the time of the purported 'glitch';
• the submission that the Applicant has prepared and lodged 80 audits over 20 years should be rejected. The Applicant is an entity and that Mr Bice is not the licensee in charge of the Applicant, who, is the individual responsible for the breach of s 111(1) of the PSA Act; and
• the purported computer 'glitch' did not relate to the Applicant, if anyone, it may have related to and affected Hunter R/E only.

1. The Respondent relies on views expressed by Senior Member Isenberg in Amazing T Investment Pty Ltd v Commissioner for Fair Trading [2022] NSWCATOD 6 (Amazing T Investment) in support of these submissions.
2. Mr Morrisey submitted that the Respondent has only imposed a reprimand and a penalty of $5,500 which is much lower than the maximum $22,000.00 penalty that could have been imposed.
3. The Respondent submits that the imposition of a reprimand and a monetary penalty is appropriate in this matter and therefore the Tribunal should affirm the Respondent's decision.

Were there grounds for taking disciplinary action against the Applicant?

1. Section 191 of the PSA Act states the grounds on which disciplinary action can be taken include if the Secretary, and hence the Tribunal on review, is satisfied the licensee has contravened a provision of the PSA Act, whether or not the licensee has been prosecuted or convicted of an offence in respect of the contravention. In this matter, the Respondent determined that the Applicant had contravened section 111(1) of the PSA Act.
2. The Respondent submits that the Applicant contravened section 111(1) of the PSA Act by failing to submit its 2020 audit for the trust account either by the original deadline or by the extended deadline of 31 December 2020. In those circumstances, the Respondent submits it is clear that a ground on which to take disciplinary action exists under section 191(a) of the PSA Act.
3. It is conceded by the Applicant that it failed to lodge the audit when it was due, even when the time for doing so was extended. This failure is contrary to the obligation imposed by section 111(1) of the PSA Act. I am satisfied that there were grounds for taking disciplinary action against the Applicant under section 191(1) of the PSA Act.

The Notice to Show Cause

1. The Show Cause Notice invited the Applicant to show cause as to why disciplinary action should not be taken against it.
2. The NTSC stated at paragraphs [17] - [20] 17. Section 191 (a) of the Act provides: "Disciplinary action under this Part can be taken against a person who is or was the holder of a licence or certificate of registration on any one or more of the following grounds - (a) the person has contravened a provision of this Act or any other Act administered by the Minister (including any provision of the Australian Consumer Law (NSW)), or the regulations under any such Act, whether or not the person has been prosecuted or convicted of an offence in respect of the contravention,..." 18. Section 111(1) of the Act provides: "A person who is a licensee, a former licensee or the personal representative of a licensee must, within 3 months after the end of the audit period applicable to the person, cause the records and documents relating to any money held during that period in a trust account kept by the person in accordance with this Act to be audited by a person qualified to act as an auditor for the purposes of this Division." 19. I refer to paragraphs [6] to [13] above which set out the evidence that the Licence Holder has failed to submit the 2020 trust account audit for the trust account within the period prescribed by section 111(1) of the Act, that is by 30 September 2020. In addition to this, the Licence Holder has failed to submit the 2020 trust account audit by the extension date of 31 December 2020. The Licence Holder has also failed to submit the 2020 trust account audit during the portal reopen period which extended on 31 May 2021. 20. The Licence Holder has therefore breached section 111(1) of the Act. In breaching section 111(1) the Licence Holder has contravened a provision of the Act. In contravening a provision of the Act there is, in my opinion, reasonable cause to believe that there is a ground for taking disciplinary action against the Licence Holder under section 191 (a) of the Act. NEXT STEPS 21. The Licence Holder is invited to show cause, by 5:00pm on 26 July 2021, as to why disciplinary action should not be taken against the Licence Holder. The Licence Holder may make submissions in writing or verbally and provide evidence about the matters outlined above. If the Licence Holder does not respond by the specified time, a decision may be made about disciplinary action, based on the material referred to in this Notice.
3. As noted, the Applicant acknowledged receipt of the NTSC. In an email dated 13 July 2021 Mr Bice's reply included: … As you are all aware the auditor attended our office last year for the purpose of auditing the trust account. I will contact them today, however it appears for whatever reason he only audited the rental trust account. I think this is because this is what he usually did as this was the first year Belmont operated a separate sales trust to the New Lambton, Mayfield and Wallsend offices. I do not know why he overlooked the sales trust, however I believe he was aware of the same and overlooked it for whatever reason, we will never know. …
4. The Applicant was aware of the requirement to lodge an audit of the trust account each year by 30 September (or such other date as may be specified). The Applicant conceded that the trust account audit was late. The primary explanation by the Applicant is that it caused the trust account to be audited by Mr Watson and, therefore, it was in compliance with the PSA Act. The Applicant explains that due to a 'glitch' in Service NSW's system it was sent a requirement to resubmit a number of audits, most of those relating to Hunter R/E which were forwarded to Mr Watson. Due to this glitch it was confusing as to what audits had been submitted and completed. Mr Watson was copied into this material to essentially work it out.
5. The Applicant contends that it instructed Mr Watson to complete the audit by sending the notifications from Service NSW to him. I reject this contention. The objective evidence reveals that Mr Watson was not made aware of the Applicant's trust account until 12 July 2021. I am not satisfied that, if a notice for account ending xxx191 was simply sent to the office of Mr Watson from correspondence received by the Applicant from Service NSW, this constitutes instructing him to undertake an audit. I have placed significant weight on the evidence of Mr Watson that he was not aware that there was a separate trust account to be audited for the Applicant by him. I accept his evidence that he only became aware of this on 12 July 2021.
6. I am of the view that the failure of the Applicant to have the trust account audited was of its own making. While I can appreciate the process in which auditing was to be undertaken in the 2020/2021 year was different to previous years because of Covid-19 arrangements, that in itself does not derogate the responsibility of the Applicant to properly instruct its auditor to complete an audit of trust accounts. Regardless of Mr Bice, Ms Borstel and/or Mr Watson's prior arrangements for auditing trust accounts, the objective evidence is that the Applicant failed to appropriately, or at all, notify Mr Watson that the trust account existed and was required to be audited. This was not by any fault of the apparent 'glitch' in the Service NSW system. Either Ms Borstel or Mr Bice failed to specifically instruct Mr Watson about the existence of the Applicant's new trust account and that it was to be audited. This failure has no connection with the 'glitch' in the Service NSW system.
7. In the circumstances little weight can be given to Mr Bice's evidence in this regard. I am not satisfied that there is sufficient evidence before me on which I could conclude that disciplinary action should not be taken against the Applicant.
8. The circumstances of this matter are similar to those considered by the Tribunal in Amazing T Investment. I agree with the view expressed by the Tribunal in that matter that the failure to account for money held in trust is a major risk area for the real estate industry, and a major source of consumer detriment. The integrity of trust accounts and trust account audits are vital elements that reinforce consumer confidence in real estate agents in NSW.
9. I agree that real estate agents can handle very large sums of money on behalf of their clients and must be accountable and open to scrutiny in the conduct of their affairs as licensees. The requirements of the PSA Act relating to trust accounts and trust account audits are therefore important elements that reinforce consumer confidence in real estate agents.
10. As Senior Member Isenberg noted at paragraph [26] of Amazing T Investment the imposition of an appropriate sanction for breach of statutory obligations has an educative function. It is concerned with the protection of the public, rather than being purely punitive in nature and aims to act as a deterrent with a view to maintaining proper standards of conduct within the industry.
11. In this matter, I agree that the imposition of a monetary penalty is warranted. I consider that the penalty of $5,500 is appropriate. This takes into account the gravity of the contravention and the educative role that imposing such a penalty plays in maintaining proper standards of conduct within the industry. It also serves as a reminder that clear instructions should be given to any advisor such as an auditor, or an accountant, about the particular request that is made of them. Managing other peoples money comes with it great responsibility. Real Estate Agents must ensure they meticulously adhere to the PSA and auditing requirements. In the circumstances of this matter, the Applicant has inadvertently failed to do so, most likely as a result of poor administrative systems and protocols.
12. In the circumstances, I am satisfied that the Respondent has made the correct and preferable decision and therefore it should be affirmed.

Order

1. The decision under review 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: 09 January 2023