The failures to account in the present case
38A failure to account entitles a claimant to payment from the Compensation Fund only if it causes the claimant pecuniary loss (see s 173(1)). Accordingly if a claimant has already suffered that loss by reason of an earlier failure to account, a later failure to account will not give rise to a right to payment from the Fund.
39In the present case, the money for which the respondents claimed that Affluent Properties and Mr Prestia failed to account formed part of the deposit paid by the purchaser of the Rose Bay property pursuant to the contract for sale dated 5 September 2006. That contract provided for the deposit to be held by Affluent Properties as stakeholder. In addition, verbal instructions were given by the parties to Affluent Properties, at the time of exchange of contracts, for the deposit to be invested (Affidavit of Jonathan Caplan sworn 4 May 2011, [4]). Affluent Properties complied with those instructions by paying the deposit into an investment account with the National Australia Bank. The account was in Affluent Properties' business name as trustee for the respondents and the purchaser. This action appears to have conformed with the obligations imposed on licensees by s 86 of the Act in relation to "trust money", which is defined as "money received for or on behalf of any person by a licensee in connection with the licensee's business as a licensee" (see s 85(1)). Section 86 requires such money to be paid into a trust account (whether general or separate) to be held and applied exclusively as directed: s 86(1).
40It has been held that "[i]n the absence of an arrangement or legislation to the contrary, neither vendor nor purchaser has a proprietary interest in a deposit held by a stakeholder" (Commissioner of Taxation v Reliance Carpet Co Pty Limited [2008] HCA 22; 236 CLR 342 at [19], footnote 10). However, there are factors in the present case that indicate that Affluent Properties held the deposit on trust, even prior to settlement. First, that conclusion follows from the Act's provisions referred to in [39] above, the Act being the statute governing the agent's conduct. Secondly, the Sales Agency Agreement as between Affluent Properties and the respondents indicated that the deposit was to be held (as stakeholder) on trust. Thirdly, Affluent Properties placed the deposit in a separate account which acknowledged the existence of a trust in its title.
41Even if Affluent Properties did not hold the deposit monies on trust, those monies had nevertheless been "entrusted" to the company within the meaning of that word as used in the definition of "failure to account" in s 171(1). As demonstrated by Yeldham J's discussion in Francis v Law Society of New South Wales at 199 and following, and the authorities to which his Honour referred, the concept of entrustment is not confined to the transfer of property to be held on trust. It embraces a transfer of property for the purpose of the recipient assuming responsibility for it in a more general sense.
42Prior to settlement, Mr Prestia (acting on behalf of Affluent Properties) withdrew $540,000 from the Affluent Properties NAB Investment Account, without the knowledge or authority of the respondents or the purchaser. This withdrawal constituted a misappropriation of the money, as it was made not for the purpose of complying with their investment instructions given on exchange, or with any other instructions, but for Mr Prestia's own benefit. However, the act was not in my opinion a "failure to account" to the respondents because there was, at that time, no failure to pay the money to or for the benefit of the respondents in accordance with an instruction given by them, this being the essence of the failure to account as indicated by the authorities to which I have referred. In any event, prior to settlement the respondents were not, without the concurrence of the purchaser, entitled to instruct Affluent Properties as to the disposition of the deposit.
43The position was otherwise on settlement, when Affluent Properties failed to comply with the respondents' instructions to pay $600,000 (in fact only $582,973.59 was available) into a second NAB Deposit Account. Although this was not a failure to pay the money to the respondents as such, it was a failure to pay it as they had directed. It was thus a "failure to account" within the meaning of the Act. As it occurred soon after the date of settlement, 17 November 2006, it took place within the two year period prior to the lodgement of the respondents' claims with the Director-General on 5 November 2008 referred to in s 173(2)(b).
44Subsequent failures to account, for example, in response to an express request made by the respondents in December 2007, did not cause the respondents' pecuniary loss as that had resulted from the failure to account immediately following settlement. Those later failures to account did not therefore entitle the respondents to payment from the Fund under s 173 of the Act.
45It cannot in my view be said that because the relevant part of the deposit had already been misappropriated by Affluent Properties, the respondents did not suffer pecuniary loss as a result of the failure to account following settlement. Even if the respondents had had a trust, and therefore proprietary, interest in the deposit monies prior to settlement, their unauthorised use by Affluent Properties in that period did not relieve Affluent Properties of its obligation to account to the respondents for the monies when directed. The respondents suffered loss when Affluent Properties (and Mr Prestia) failed to comply with that obligation.
46The same conclusion follows if the respondents did not have a proprietary interest in that period, but only contractual rights to have the deposit paid as they directed on settlement (see generally Minahan v Sahib Dad (1925) 25 SR (NSW) 613). The respondents did not suffer loss until the company failed to comply with that direction, that is, failed to account.
47The parties were in dispute as to whether a claimant can select, from a number of failures to account, one that enables the claimant to satisfy the time constraints specified in s 173(2). In my view a claimant may so elect, but to entitle it to payment from the Fund, it will have to choose a failure to account which has caused it pecuniary loss. For the reasons given in [43] - [44] above, a failure to account may not satisfy this requirement if there has been an earlier failure to account.
48To identify the failure to account upon which a claimant relies, it is necessary to have recourse to the claim it submits to the Director-General. The claim form should not be construed in a rigid manner: it may, and often will, be prepared by a person without legal training. In the present case the claim form contained a description of the sequence of events as referred to in this judgment. As the respondents' complaints included the failure to follow their instructions given at the time of settlement, their claim of a failure to account at that time was in my view sufficiently made, notwithstanding that other alleged failures to account were also relied upon. It is sufficient to refer in this respect to the opening paragraph of the claim form in which the respondents claimed that they had suffered loss on 17 November 2006, the date of settlement, by reason of a failure of "Rodney Prestia of Affluent Properties Pty Ltd" to account for their money.