Chief Executive, Department of Justice and Attorney General v Smart Real Estate (Qld) Pty Ltd and Anor [2013] QCAT 58

CITATION: Chief Executive, Department of Justice and Attorney General v Smart Real Estate (Qld) Pty Ltd and Anor [2013] QCAT 58 PARTIES: Chief Executive, Department of Justice and Attorney General (Applicant) v Smart Real Estate (Qld) Pty Ltd t/a Smart Real Estate (First Respondent) Bradley James Scott (Second Respondent) APPLICATION NUMBER: OCR062-12 MATTER TYPE: Occupational regulation matters HEARING DATE: 31 January 2013 HEARD AT: Brisbane DECISION OF: Mr David Paratz, Member DELIVERED ON: 7 February 2013 DELIVERED AT: Brisbane ORDERS MADE: 1. Smart Realty (Qld) Pty Ltd and Bradley James Scott are each reprimanded. 2. Smart Realty (Qld) Pty Ltd shall pay a fine of $5,000 to the Chief Executive, Department of Justice and Attorney General, within 90 days. 3. Bradley James Scott shall pay a fine of $5,000 to the Chief Executive, Department of Justice and Attorney General, within 90 days. 4. Smart Real Estate (Qld) Pty Ltd and Bradley James Scott are to pay the amount of $398.55 compensation to the Chief Executive, Department of Justice and Attorney General, within 30 days. 5. Smart Real Estate (Qld) Pty Ltd is disqualified from holding a licence or registration certificate under the Property Agents and Motor Dealers Act -- 1 of 13 -- 2 2000 for a period of five years. 6. The disqualification of Smart Real Estate (Qld) Pty Ltd is suspended on the following conditions: a. The period of suspension is five years from the date of this order. b. If a penalty is imposed against the Company in respect of a disciplinary proceeding under the Act during the suspension period, the suspension is revoked and the disqualification will come into effect from that date. 7. Bradley James Scott is disqualified from holding a licence or registration certificate under the Property Agents and Motor Dealers Act 2000 or from being an Executive Officer of a Corporation which holds a licence or registration certificate under the Act, for a period of five years. 8. The disqualification of Bradley James Scott is suspended on the following conditions: a. The period of suspension is five years from the date of this order. b. If a penalty is imposed against him in respect of a disciplinary proceeding under the Act during the suspension period, the suspension is revoked and the disqualification will come into effect from that date. CATCHWORDS: Real Estate Agent – using funds from trust account – residential tenancy bonds in trust account – obligation to forward bonds to Residential Tenancies Authority – disqualification – sole operator – sophisticated individual – period of disqualification suspended Property Agents and Motor Dealers Act 2000 ss 384, 496(1), 529 Residential Tenancies and Rooming Accommodation Act 2008 s 116 The Chief Executive, Department of Tourism, Fair Trading & Wine Industry Development v John Cornwell [2005] CCT X007-05 The Chief Executive, Department of -- 2 of 13 -- 3 Employment, Economic Development and Innovation v Schellaars [2010] QCAT 477 Chief Executive, Department of Justice and Attorney General v Cameo Property Services Pty Ltd and Anor [2012] QCAT 509 Chief Executive Department of Justice and Attorney General v DJ Stringer Property Services and Anor [2012] QCAT 27 APPEARANCES and REPRESENTATION (if any): APPLICANT: Chief Executive, Department of Justice and Attorney General represented by Richard Danen, Senior Legal Officer, Office of General Counsel RESPONDENTS: Smart Real Estate (Qld) Pty Ltd t/a Smart Real Estate and Bradley James Scott represented by Mr Julian Noud of Counsel instructed by Nyst Solicitors REASONS FOR DECISION [1] These are disciplinary proceedings under the Property Agents and Motor Dealers Act 2000 („the Act‟). [2] Mr Scott is the principal of a Real Estate Agency known as Smart Real Estate („the Agency‟), which has its offices at Chevron Island, Surfers Paradise. He is the sole director of the operating company, Smart Realty (Qld) Pty Ltd („the Company‟). [3] The Chief Executive (Department of Justice and Attorney General) („the Department‟) has brought an application for disciplinary proceedings against Mr Scott and the Company, and sought penalty orders under s 529 of the Act. [4] The Department has also sought payment of $398.55 as interest lost by the Claim Fund under the Act. [5] The Department alleged that during the period between 3 May 2010 and 31 August 2010, Mr Scott improperly made thirteen withdrawals from the trust account of the business totalling $27,800.00. [6] A record of interview was conducted between Mr Scott and Mr Geoffrey Price, an Investigations Officer for the Department, on 4 March 2011. [7] Counsel for Mr Scott and the Company advised that all allegations in the application, the accuracy of the transcript of the record of interview, and the claim for interest were admitted. -- 3 of 13 -- 4 [8] The hearing was therefore concerned only with the issue of the appropriate penalty. [9] The Department relied on the following material: a) Affidavit of Geoffrey Price 15 May 2012; b) Affidavit of Geoffrey Price 22 May 2012; c) Written Submissions (attaching the record of interview); and d) Calculations of Interest by Kathleen O‟Keefe. [10] Mr Scott and the Company relied on the following material: a) Affidavit of Scott Allan (Accountant) 5 September 2012; b) Affidavit of Sanji Modi (Solicitor) 5 September 2012; c) Affidavit of Junko Scott (Wife) 5 September 2012; d) Written submissions; e) Letter of Scott Allan (Accountant) 30 January 2013; and f) Letter from Mr Scott to the Department 15 April 2012. [11] In the relevant period, funds were held in the trust account of the Agency which were residential bonds deposited by tenants who rented premises through the Agency. [12] Mr Scott made the withdrawals from the trust account to use for personal expenses in relation to his upcoming wedding, and for marketing expenses for the Agency. [13] The withdrawals were as follows: 3 May 2010 $ 2,500 4 May 2010 $ 1,000 12 May 2010 $ 3,200 26 May 2010 $ 300 27 May 2010 $ 1,000 27 May 2010 $ 1,320 8 June 2010 $ 1,200 9 June 2010 $ 1,200 24 June 2010 $ 500 15 July 2010 $ 3,000 21 July 2010 $ 5,500 13 August 2010 $ 2,000 31 August 2010 $ 5,080 Total $27,800 -- 4 of 13 -- 5 [14] Mr Scott obtained a licence as a Real Estate Agent in 2007. He had completed an REIQ licensing course. The statement of attainment dated 21 November 2007 stated that he had fulfilled the requirements of the subject PRDRE28A „Maintain trust account‟ in partial completion of the qualification PRD40101 „Certificate IV in Property (Real Estate)‟. [15] Mr Scott is now 33 years of age. He is married and has an infant child. [16] Prior to becoming a Real Estate Agent, Mr Scott was a business banker for the National Australia Bank. He has a University Degree in Finance. [17] In his letter of 15 April 2012, Mr Scott says the following: a) He took what he thought was a „personal directors loan‟ for $27,800 from the trust monies. He says he was under the misunderstanding that he could take a personal loan from trust monies as long as he repaid them. b) Approximately $10,000 was used for printing, design and distribution for a leaflet dropping campaign for the business. c) The balance of $17,000 was spent for his wedding as they did not receive a lot of financial assistance from their parents, and the wedding cost $30,000. d) He had repaid $23,000 back into the rental trust account between October 2010 and 18 January 2011 when his accountant conducted a spot audit. e) His accountant, Scott Allan, informed him of the severity of the breach. f) The following day, 19 January 2011, he drove to the Office of Fair Trading in Southport and met with Inspectors Price and McKenzie. g) By the end of January 2011, the remaining amount of $5,000 was repaid. [18] Mr Scott says in that letter that: I did not make this mistake maliciously or consciously knowing I was doing the wrong thing. I honestly thought it was all OK and that it was that big of a deal, to be honest. I try and run a tight ship and always act above board and do things by the book. [19] No clients of the Agency lost money as a result of the actions. The Department has calculated that the Claim Fund lost interest on the funds that should have been placed with the Residential Tenancies Authority. [20] The Department in its submissions sought as penalty against the Company a reprimand, disqualification from holding a licence for 5 years, a fine of $2,000, and compensation of $498.55; and against Mr Scott a reprimand, disqualification from holding a licence or acting as executive officer of a corporation holding a licence for 5 years, completion of a course of study dealing with the management of trust funds and trust accounts, and joint liability as to the compensation of $398.55. -- 5 of 13 -- 6 [21] Counsel for Mr Scott and the Company submitted that the Company should be fined only, and Mr Scott fined and reprimanded. It was submitted that if disqualification were found to be warranted, then a period of the order of 12 to 18 months should be imposed. The Course of Conduct [22] Mr Scott made 13 separate withdrawals. All the amounts were $5,500 or less, and many were relatively small. [23] In the record of interview at page 5 Mr Scott explained the process: BS It was just held in trust GP (unintelligible) held in the trust BS yep GP Umm withdrawn on various occasions BS yep GP And then payments from the following month were used to sort of back pay those ones or ... BS Yeah and then the bonds were umm lodged like we wanted to make sure it was no effect to the consumer GP yeah BS So to our owners and obviously no owners were affected by ... it was just basically there was enough … there be enough bond there to you know cover the difference essentially [24] Mr Scott was therefore drawing out only amounts which he anticipated would be replaced by incoming new bonds. The effect of that process is that it ensures there are funds to meet expected calls, but it also conceals the dealings, as no alarm is raised. [25] The drawing out of separate small amounts, sometimes on the same day, or a day apart, also serves to avoid any large transaction that would attract attention. [26] The overall total of all these withdrawals is still a significant amount. [27] Mr Scott has therefore engaged in a deliberate course of conduct which had the apparent intent and effect of not drawing attention to his actions. [28] There is a further aspect to these dealings with the rental bond money, which is that much of the funds should not have been in the trust account in any event. [29] Section 116 of the Residential Tenancies and Rooming Accommodation Act 2008 provides as follows:- 116 Duty to pay rental bond (1) A person receiving a rental bond must, within 10 days of receiving it – -- 6 of 13 -- 7 (a) pay it to the authority; and (b) give the authority a notice, in the approved form, about the rental bond. Maximum penalty – 40 penalty units. [30] In the record of interview at page 5, Mr Scott described his practice as to retaining bonds in the trust account: BS Na it was basically bonds being withheld GP right BS So we get anywhere from probably 3 to 8 properties a week like new business GP Yep BS So the … the bonds are probably delayed instead of being closed in the first two weeks probably delayed 4 weeks GP So it was a process of taking bonds in instead of paying that to the RTA BS It was just held in trust [31] At page 7 of the record of interview, Mr Scott was asked further about retaining the bonds: GP Do you understand that bonds should be paid to the RTA within 14 days? BS Yeah I … yeah I know there is ... yeah I do yeah GP Something I just wanted to make you aware of ... Just so you don‟t have that balance of money umm sitting in your trust account for ... for too long BS Yeah GP And its there and umm because if he does come and do an audit umm he is obliged to report to us that you may be holding monies for longer than required under the legislation BS Nah well we have since ... we have changed the policies. I think we were sort of doing it every fortnight. [32] The Department advised that they were not pursuing the breach of a failure to pay the bonds on time to the authority, but that this circumstance could be viewed as part of the overall matrix of behaviour. [33] Mr Scott therefore misused the funds which were entrusted to his custody in two ways – by firstly not forwarding them to the authority as required, and then by using the funds for his personal and business use. [34] This application is brought only in relation to the misuse of the trust account. [35] The relevant section is s 384 of the Act which provides as follows: 384 When payments may be made from trust accounts -- 7 of 13 -- 8 (1) An amount paid to a trust account must be kept in the account until it is paid out under this Act. Maximum penalty – 200 penalty units or 3 years imprisonment. (2) An amount may be paid from a trust account only in a way permitted under this Act. Maximum penalty – 200 penalty units or 3 years imprisonment. [36] By making the unauthorised payments which are the subject of the application, Mr Scott and the Company have breached s 384 of the Act. [37] A breach of the Act is a ground for disciplinary action (s 496(1)(b)). [38] Accordingly, grounds exist to take disciplinary action under the Act. Mitigating factors [39] Counsel for Mr Scott and the Company submitted that the actions of Mr Scott should be classed more as a genuine oversight or misunderstanding than a deliberate and nefarious act, and that he was genuinely unaware of the gravity of his actions. [40] Mr Scott did contact the Office of Fair Trading the day after his accountant spoke to him about the matter, and he co-operated with the Investigator and made full admissions. [41] The full amount of the monies have been repaid, and no loss was suffered by any person at any time (apart from the loss of interest by the Claim Fund). [42] In the period of time since the matter came to light, Mr Scott has undertaken a further course of study. A Certificate from Property Training Solutions dated 18 January 2013 was tendered, which showed that he had fulfilled the requirements for CPP40307 Certificate IV in Property Services (Real Estate) which included the subject CPPDSM4006A „Establish and manage trust accounts‟. [43] Mr Scott Allan was the Accountant who performed the audit which revealed the anomalies, and advised Mr Scott as to the seriousness of the matter. He says that he has spent time with Mr Scott since the incident educating him on trust account systems and record keeping, and believes Mr Scott is fully cognizant of his obligations in relation to operating trust accounts. He made the following comments as to Mr Scott‟s character: 14. Having been in Brad‟s offices on a number of occasions I know he is held in high regard by his staff and I have regularly witnessed cases of the staff approaching him for advice, guidance and help with their jobs. I believe Brad is a hard working, honest and trustworthy person and sincerely believe that this incident is a one-off aberration that will never occur again. [44] Mr Allan notes that Smart Real Estate currently employs eight full time staff and has approximately 220 properties under management. -- 8 of 13 -- 9 [45] Mr Sanju Modi is a Solicitor who has interacted with Mr Scott on a professional level in the course of conveyancing matters. He said that he always found Mr Scott to be courteous, honest and competent, and commented that: 9. Brad has indicated to me that he has been ever vigilant with his trust accounts since this incident and has learnt from his actions. I am of the view that Brad‟s indiscretion is a once off aberration and am confident that he will not ever again jeopardise his livelihood and career within the industry. [46] Mr Scott said in his letter of 15 April 2012 that once he was made aware of the mistake of his actions that he was greatly disappointed in himself. Penalty options [47] Section 529 of the Act provides that the tribunal may make one or more of the named orders against a person in relation to whom the tribunal finds grounds exist to take disciplinary action under the Act. [48] I have been referred to four cases which are submitted as being of particular relevance: a) The Chief Executive, Department of Tourism, Fair Trading & Wine Industry Development v John Cornwell [2005] CCT X007-05 („Cornwell‟) b) The Chief Executive, Department of Employment, Economic Development and Innovation v Schellaars [2010] QCAT 477 („Schellaars‟) c) Chief Executive, Department of Justice and Attorney General v Cameo Property Services Pty Ltd and Anor [2012] QCAT 509 („Cameo‟) d) Chief Executive Department of Justice and Attorney General v DJ Stringer Property Services and Anor [2012] QCAT 27 („Stringer‟) [49] In Cornwell, the agent had made 5 separate withdrawals totalling $36,612.39 over 11 days from the trust account, which were used for business and personal expenses. The moneys were repaid, and no person suffered loss. The Department did not seek disqualification. The learned Member however regarded the offences as „most serious‟ and imposed a period of 10 years disqualification, a fine of $3,000 and awarded costs of $1,335. [50] In Schellaars the agent transferred $42,239.50 in 23 separate transactions over a year from the trust account to other accounts. The funds were repaid and no person suffered loss. The learned Member commented that as the funds were not used in the operations of the business, that she regarded the matter as less serious than Cornwell. As the misuse was more frequent, over a longer period and involved a larger amount, she considered that a larger fine was appropriate. A 5 year disqualification and a fine of $5,000 was imposed. -- 9 of 13 -- 10 [51] In Cameo the agent withdrew $31,759.80 in 5 separate withdrawals over about 4 months, from the trust account to pay business expenses. Only $10,000 had been repaid when the agent was interviewed about a year later. The learned Member commented that „That fact that she has been in the industry for nine years, to me, means that she should have known better.‟ The money was repaid in full and no person suffered loss. The learned Member also commented that the conduct was not as frequent as Schellaars and the period of disqualification should reflect that. A reprimand and 2 year disqualification for both the agent and the company, and compensation of $1,074.37 for lost interest was ordered. [52] In Stringer the office manager for the agent withdrew $283,089.71 on 21 occasions from the trust account over 5 months as pre-drawings of management fees which was used to support the liquidity of the business. The agent had no personal knowledge of the withdrawals. A reprimand was issued to the agent and the company, a fine of $7,000 was imposed on the company and a fine of $2,000 imposed on the agent, and costs of $765 were ordered. [53] In addition to the stated penalty options available to the tribunal in s 529 of the Act, s 529(1)(g) provides for: (g) another order the tribunal considers appropriate to ensure the person complies with this Act. [54] At the hearing I asked for submissions as to my power to impose a „suspended sentence‟ type order. Both parties agreed that I would have that power. Such orders are made by this tribunal in other types of matters such as health professionals or police regulation. Conclusion [55] This matter requires a balancing of considerations. [56] The offences that Mr Scott has committed are serious, and in other comparable cases have resulted in disqualification periods from 2 to 10 years. [57] Mr Scott is not a naïve man. He is a sophisticated individual. He has a tertiary degree in finance and has worked as a business banker for a major bank. He is an astute business-person and has built up a substantial business. [58] The actions of Mr Scott were deliberate and methodical. He had completed training in the industry, and in trust account management. Given his education and professional background, it is not believable that he would not have had an apprehension that what he was doing was wrong. [59] In the absence of mitigating factors, I would have no hesitation in imposing an absolute period of disqualification on both Mr Scott and the Company. -- 10 of 13 -- 11 [60] The consequences of a disqualification period have to be considered. Mr Scott is the sole director of the business. If both he and the Company are disqualified, then the possibility arises that he would have to arrange a sale of the business at short notice which might result in a „fire-sale‟ and substantial detriment. [61] The Department submitted that the licence of the business could be transferred to another person, but as Mr Scott is the sole director, this raises the possibility that he may have difficulty recovering control in the future. [62] Counsel for Mr Scott and the Company submitted that a lengthy disqualification would be „crushing‟. Mr Allan described it as „devastating‟ for Mr Scott. [63] Mr Scott was a relatively young man of 31 years at the time of the offences. He had only been a Real Estate Agent for 3 years. He has a wife and infant child who he supports. [64] In his letter to the Department, Mr Scott said: I tell my team when they make mistakes “understand why you have made the mistake, learn from it, and don‟t beat yourself up about it. We are all human and we all make mistakes.” [65] Mr Scott did make full confessions, and has expressed strong remorse. [66] His accountant and a solicitor have given him good character references. [67] He has undergone further training since the offences were committed. [68] In all the circumstances, I am prepared to give Mr Scott a „second- chance‟. [69] The extent of the offences, and the deliberate nature of them, make a disqualification period necessary. I consider that a period of five years is appropriate for each of Mr Scott and the Company, having regard to previous decisions. [70] However, I propose to wholly suspend the imposition of the disqualification period to allow Mr Scott to demonstrate that he has learned from his mistakes, and to continue to work and to build his business in accordance with the Act. [71] The order will hang like the Sword of Damocles over the head of Mr Scott and his company for the next five years. If he, or it, breaches the Act in that period, and a disciplinary order is made, then this disqualification period will come into effect automatically, and in addition to any future penalties. [72] There must be an immediate penalty. A reprimand is clearly in order against Mr Scott and the Company. Whilst Mr Scott and the Company will -- 11 of 13 -- 12 be able to go about their business in compliance with the Act, a substantial financial penalty in addition is required, to reinforce the seriousness of the matter, and I consider a fine of $5,000 against each of Mr Scott and the Company to be appropriate. [73] The Department did not seek costs. [74] I therefore order: 1. Smart Realty (Qld) Pty Ltd and Bradley James Scott are each reprimanded. 2. Smart Realty (Qld) Pty Ltd shall pay a fine of $5,000 to the Chief Executive, Department of Justice and Attorney General, within 90 days. 3. Bradley James Scott shall pay a fine of $5,000 to the Chief Executive, Department of Justice and Attorney General, within 90 days. 4. Smart Real Estate (Qld) Pty Ltd and Bradley James Scott are to pay the amount of $398.55 compensation to the Chief Executive Department of Justice and Attorney General within 30 days. 5. Smart Real Estate (Qld) Pty Ltd is disqualified from holding a licence or registration certificate under the Property Agents and Motor Dealers Act 2000 for a period of five years. 6. The disqualification of Smart Real Estate (Qld) Pty Ltd is suspended on the following conditions: a. The period of suspension is five years from the date of this order. b. If a penalty is imposed against the Company in respect of a disciplinary proceeding under the Act during the suspension period, the suspension is revoked and the disqualification will come into effect from that date. 7. Bradley James Scott is disqualified from holding a licence or registration certificate under the Property Agents and Motor Dealers Act 2000 or from being an Executive Officer of a Corporation which holds a licence or registration certificate under the Act, for a period of five years. 8. The disqualification of Bradley James Scott is suspended on the following conditions: a. The period of suspension is five years from the date of this order. -- 12 of 13 -- 13 b. If a penalty is imposed against him in respect of a disciplinary proceeding under the Act during the suspension period, the suspension is revoked and the disqualification will come into effect from that date. -- 13 of 13 --