When did the relevant "failure to account" occur?
67The definition of "failure to account" in s 171 is unhelpful in determining when the relevant failure to account occurred and has not, to my knowledge, been the subject of judicial comment in the context of the Property, Stock and Business Agents Act . Notwithstanding, the phrase "failure to account" has previously been considered by this Court in the context of other legislation. Yeldham J in Francis v Law Society of NSW (1982) 2 NSWLR 191 had occasion to consider the phrase as it operated in the Legal Practitioners Act 1898 in respect of a solicitor's failure to account. His Honour stated at 204:
"...I do not think it is desirable to endeavour to attempt any exhaustive definition of what is involved in "failure to account" as part of the defined phrase in s 56(1). But it is certainly sufficient for a person who alleges pecuniary loss of moneys entrusted to a solicitor to establish that the solicitor has dishonestly failed to pay them to or for the benefit of that person, or at that person's direction, at a time when, in the ordinary course of his practice as a solicitor, and in the light of the professional work which he was reasonably required or obliged to do, they should have been so paid or applied . In other words the "failure" which must be shown is a failure to pay or deliver moneys or other valuable property to or on behalf of a person entitled thereto at the time when such payment or delivery should reasonably have been made ..." (Emphasis added.)
68The decision in Francis , and in particular the comments of Yeldham J extracted above, were cited with approval by the Court of Appeal in Law Society of New South Wales v Glenorcy Pty Ltd (2006) 67 NSWLR 169, [2006] NSWCA 250, where Mason P (with whom McColl and Basten JA agreed) stated at [26]:
"The Society submits that Smith failed to account in relation to the subject transactions when, contrary to the mandate on which he had received the moneys, he deposited them in bank accounts under his control, thereby misappropriating them. There may have been subsequent failures to account in each transaction but the Society is correct in this submission as to the nature, timing and (Queensland) location of the initial failures to account in each transaction (see Francis v Law Society of New South Wales [1982] 2 NSWLR 191 at 204-205; Travel Compensation Fund v Tambree (2006) 224 CLR 627 at 632)."
69In Travel Compensation Fund v Tambree (2006) 224 CLR at 632, the High Court discussed a travel compensation fund which, similarly to the Fund, was to be applied to compensate a beneficiary "who has suffered or may suffer pecuniary loss arising directly from a failure to account for money or other valuable consideration". In relation to this scheme Gleeson CJ said at 632:
"In such a context, failure to account includes, and typically involves, failure to apply money for the purpose for which it was entrusted to the agent."
70It was submitted on behalf of the plaintiffs that the interpretation applied to the phrase "failure to account" in Francis , and approved in Glenorcy , is appropriate and should applied to the phrase in the Property, Stock and Business Agents Act such that a failure to account will occur when there is a "failure to pay or deliver money at the time when such payment or delivery should reasonably have been made". They submit that this is so because such an interpretation recognises that the legislature intended to establish a compensation scheme which provides greater protection to the public by permitting them to claim for loss caused by a failure to account, which they submit is a broad concept, and not just in cases of theft or fraudulent misappropriation. They further submit that such a construction pays proper regard to the "underlying common law principles" which have been incorporated in Part 10. In particular they contend that the Property, Stock and Business Agents Act "recognises" the distinction between the duties owed by a real estate agent when holding a deposit as a stakeholder until completion and the duty owed by that agent to account to the vendor on completion. To this end they point to the definition given to the phrase "failure to account" in Part 9 of the Property, Stock and Business Agents Act as indicating that the phrase as it appears in Part 10 does not include a failure by the real estate agent to perform the duties of a stakeholder.
71The plaintiffs contend that Mr Prestia and/or Affluent Properties were under an obligation to account in two respects; first, in respect of the deposit on the Rose Bay property in the amount of $606,494.94; and secondly, in respect of $47,493.34, which the plaintiffs say he overcharged pursuant to the contract of sale for the Rose Bay property. The plaintiffs submit that in so far as the $606,494.94 is concerned the obligation to account arose on completion of the sale of the property, which occurred on 17 November 2006, and that the failure therefore occurred on some date thereafter and that Affluent Properties should "reasonably" (adopting the terminology applied in Francis ) accounted for the deposit by 30 November 2006, the date it falsely represented to Mrs Loh that it had deposited money into the second NAB account. They submit that even if there was a prior breach by way of misappropriation or some other means the decision in Glenorcy establishes that there may be more than one failure to account in a transaction and s 175 of the Property, Stock and Business Agents Act "expressly recognises that there may be "related failures to account" rather than merely one failure to account involved in a claim."
72On the other hand, the defendants submitted that the phrase "failure to account" lends itself to a number of definitions. In particular they submit that it may include the date a real estate agent: deals with money entrusted to it in a manner contrary to its statutory obligations; fails to transfer money entrusted to it in accordance with an instruction given by a person entitled to give instructions; or fails to deliver money entrusted to it at the time when such delivery should have been made. The defendants submit, despite conceding that there may be more than one failure to account in respect of the same money, that s 173(2) "requires a consideration of when, in respect of an amount of money, a failure to account first occurred" and the plaintiffs cannot rely upon a subsequent failure to account in respect of the same money in order to bring themselves within the time period specified in s 173(2). The defendants submit that on each occasion Mr Prestia transferred money out of the deposit trust account on and from 7 September 2006, there was a failure to account on that day in respect of the amount transferred out of the deposit trust account and, accordingly the relevant date was prior to 5 November 2007. They point to 7 or 19 September 2006.
73The defendants contend that there are two reasons for favouring this interpretation over that advanced by the plaintiffs. First, the defendants submit that the decision in Francis has been "overtaken" by more recent and binding authority and that the comments of Yeldham J were obiter and made in the absence of detailed argument. They point to the decision of Gleeson CJ in Tambree citing that passage cited above. Secondly, the defendants contend that, as a matter of statutory construction the dates other than that contended by them would be contrary to the purpose of the Property, Stock and Business Agents Act . In particular they cite ss 126 and 138 which provide for the appointment of a manager or a receiver to a licensee's business or property if the Director-General or the this Court is of the opinion that, amongst other things, there has been a failure to account by a licensee. They submit that in light of the purpose, as disclosed by those sections, it is "likely" that the Director-General and/or the Supreme Court may appoint a manager or receiver at the date a real estate agent deals with property in an improper manner and that this interpretation should be applied to s 173(2).
74The defendants reject the plaintiffs' submission in so far as they contend that the use of the phrase "failure to account" as distinct from "loss caused by acts of theft or fraudulent misappropriation" on the basis that the purposes of the legislative amendment was "to expand the scope of losses" and not "to change the time at which the wrongful conduct occurred." They also reject the plaintiffs' submission concerning the incorporation by the legislation of the common law principles regarding the obligations of real estate agents holding deposit as stakeholders and their duties to account for the deposits held by vendors. They submit that the submission is reliant upon a line of authority including the decision in Hastingwood Ltd v Saunders Berman Anselm [1990] 3 WLR 623 which they submit indicates uncertainty in the case law as to whether a stakeholder holds a deposit on trust for the vendor and purchaser and the plaintiffs' submissions fail to have regard to s 86 of the Property, Stock and Business Agents Act which states that a deposit is "to be held by the licensee exclusively for" a person and "until so paid is to be paid into and retained in a trust account".
75There are, in my view, several possible definitions of when the relevant failure to account may have occurred in this case but before considering which of those definitions is correct, it is necessary to consider the purpose of the Part 10 of the Property, Stock and Business Agents Act . In the second reading speech of the Property, Stock and Business Agents Bill 2001 (New South Wales Legislative Assembly, Parliamentary Debates , (Hansard), 9 May 2002 at 1964) the Minister for Fair Trading, John Aquilina, said in reference to the Fund:
"Another important facet of consumer protection is the Compensation Fund established under the current Act. The bill continues to provide for the fund, which protects consumers who suffer loss because of an agent's failure to account for money or property received on a consumer's behalf. All licensees will continue to be required to contribute to the Compensation Fund. The bill introduces a very important change to the operation of the Compensation Fund to further improve consumer protection. At present, claims against the fund can only be made if the person responsible for the loss is a licensee or an employee of the licensee. As a result, through no fault of their own consumers can find themselves without compensation. This has occurred in the past when a person continued to trade after their licence lapsed. The new provisions will extend the right to compensation to cases in which a consumer has lost money when dealing with an unlicensed person whom they reasonably believed to be licensed at the time."
76Unhelpfully, the Act does not contain a "purpose" provision however, in my view the purpose of the Act, or at least Part 10, is to protect consumers from loss incurred by the conduct of real estate agents, and other licensees under the Act whether as a result of inappropriate conduct on the part of the latter or not. A purpose which, to my mind is wholly beneficial, despite the limitations which are, for better or worse, placed on seeking compensation. Accordingly, it is necessary to apply a construction of Part 10 in a manner consistent with its beneficial purpose for which it was enacted.
77In I W v City of Perth (1997) 1919 CLR 1, Brennan CJ and McHugh J said at 12:
"...the rule of construction that beneficial and remedial legislation, like the Act, is to be given a liberal construction. It is to be given "a fair, large and liberal" interpretation rather than one which is 'literal or technical'".
78More recently in AB v State of Western Australia [ 2011] HCA 42 the High Court discussed the interpretation of beneficial legislation. The discussion was in an altogether different context, namely that of l egislation providing for the registration of a change to the official records of a person's gender. However, the Court made important statements endorsing the regard that must be had to policy decisions and the objects of an Act in the construction to be given to its provisions. At [38] the Court said:
"The Act contains no warrant for implying further requirements... The Act reflects the policy decisions taken. The objectives of the Act, and their social and legal consequences, are to be met by reference to its stated requirements. Those requirements... are to be given a fair and liberal interpretation in order that they achieve the Act's beneficial purposes."
79In AB the High Court referred to CIC Insurance Ltd v Bankstown Football Club (1997) 187 CLR 384 where Brennan CJ, Dawson, Toohey and Gummow JJ went further and acknowledged the need to interpret legislation in light of the legislative intent, at 408:
"It is well settled that at common law...the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure. Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy." (citations omitted)
80In Glenorcy Mason P noted at [42], in relation to claims against the legal practitioners' Fidelity Fund, that:
"There is an obvious correlation between requiring a particular group of practitioners to contribute to the Fund and recognising that their misconduct will be the occasion for allowing claims on the Fund. There is no discernible purpose in reading the scheme in the cramped manner proposed by the Society."
81In my view the same approach should be taken in relation to Part 10 of the Property, Stock and Business Agents Act and in particular s 173(2) so that persons who have suffered pecuniary loss due to a failure to account under the Property, Stock and Business Agents Act can be compensated.
82Returning to the issue of when the relevant failure to account occurred, the plaintiff pointed out that the applicant for compensation under the Property, Stock and Business Agents Act is required to make a claim under s 172(2) in writing to the Director-General. Thus, the applicant is required to specify both the claimed "pecuniary loss" and the claimed "failure to account".
83Section 173(2) entitles "a person who claims to have suffered a pecuniary loss because of a failure to account" to make a claim against the Fund. The claim is therefore in respect of a pecuniary loss that is causally connected to a failure to account.
84In relation to the Rose Bay deposit, the claim made by the plaintiffs was a claim to have suffered pecuniary loss because of the failure of Affluent Properties to account for the deposit on completion of the sale of the Rose Bay property. The defendants submitted that Affluent Properties failed to account for the deposit on completion and that this was a failure to account for the purposes of s 173(2). The defendants conceded that the plaintiffs suffered pecuniary loss because of this failure to account.
85The defendants submitted that the limitation period in s 173(2)(a) should be determined by reference to "the date the person first became aware of any failure to account in respect of the money" (emphasis added). However, s 173(2)(a) does not use the expression " any failure to account" but, rather, uses the expression " the failure to account" to refer back to the claimed failure to account.
86Similarly, the defendants submitted that the limitation period in s 173(2)(b) should be determined by reference to "the date a failure to account in respect of the money first occurred ". However s 173(s)(b) does not use the expression "the date a failure to account first occurred" but, rather, uses the expression "the date of the failure to account" to refer back to the failure to account claimed by the person.
87There is no justification for departing from the clear words of the section. Furthermore, the defendant's construction means that the limitation periods in paragraphs (a) and (b) of section 173(2) can be framed by reference to two different failures to account. The defendants suggest that the limitation period in paragraph (a) should be determined by reference to a purported failure to account occurring in October 2007 but that the period in paragraph (b) should be determined by reference to different purported failures to account occurring before November 2006. Neither of these purported failures to account is the failure to account actually claimed by the plaintiffs.
88The plain meaning of s 173(2) is that these periods are to be worked out by reference to the failure to account claimed by the person making the claim. The 'failure to account' referred to in paragraphs (a) and (b) of s 173(2) is clearly the same 'failure to account' identified earlier in the section as forming part of the claim made by the person. Thus, the limitation periods in subsections (a) and (b) of s 173(2) are determined by reference to the failure to account claimed by the person making the claim and not any other failure which may be arbitrarily selected.
89In addition, a significant factor of difference between cases such as Francis v Law Society of NSW and Law Society of New South Wales v Glenorcy Pty Ltd on the one hand and the present case on the other, is that in the former, the claimant had an immediate claim to the funds deposited with the legal practitioner. In this case, the plaintiffs had no immediate claim on the funds held as a deposit, until settlement of the sale, on 17 November 2006.
90In my view that the proper construction of s 173(2) is that the limitation periods in subsections (a) and (b) should be determined by reference to the failure to account claimed by the person making the claim. That failure to account occurred when Mr Prestia failed to account for the deposit when it became due to the plaintiffs, on a date after the completion of the sale of the Rose Bay property on 17 November 2006. Hence, the date of the failure to account is, at the earliest, 17 November 2006 the plaintiffs having made the claim on 5 November 2008 against the Fund under s 173(2(b).