Agent and agency fined for trust account breaches

In the recent QCAT decision of Office of Fair Trading, Department of Justice and Attorney-General v SJ Pty Ltd & Anor [2021] QCAT 239, the Tribunal imposed fines on an agent and her agency of over $15,000 for trust accounting breaches, as well as disqualification for five years.

Background

HBC was a licensed real estate agent and the sole director of SJ Pty Ltd's residential letting business. The Office of Fair Trading (OFT) brought disciplinary proceedings in respect of the agency's management of residential tenancies, relating to overcharging for cleaning and linen, dishonestly converting car park rent money for the agent's personal use, failing to disburse rent to owners, failing to provide true accounts to clients, and receiving trust money after the expiry of SJ Pty Ltd's licence.

Do proper grounds exist for disciplinary proceedings?

HBC submitted to the Tribunal that she had never been informed that she needed to account to the owners for the car parking income that she had received and kept for her own use. HBC contended that she was not advised by the OFT's auditor to discontinue levying car parking fees, and argued that she believed she was justified in keeping the car parking income because she had been instructed to discontinue "lease backs" of the car parks.

She contended that, if she had been told to deduct the car parking income from the management charges, she would have done so and that she was trying to be compliant with her trust account obligations in the best way she could.

HBC further claimed that she had sought advice to ensure she was complying with all her trust accounting obligations, and that she was unaware that she had committed any breaches.

The OFT filed a voluminous brief of evidence in response, which included witness statements, ledgers, invoices, receipts, booking information, bank statements, spreadsheets, records of interview and other exhibits. The evidence filed by the OFT showed that:

1. The OFT auditor did not warn HBC to discontinue "lease backs", but, in fact, instructed her to desist from putting "lease back" money into the trust account;

2. HBC was not advised that the car park income could be retained where the property to which the car park attached was not leased back; and

3. SJ Pty Ltd had collected $4,862 in car park rent on 110 occasions in September 2016 and $2,490 on 68 occasions in October 2016 and HBC converted that income to her personal use. The OFT submitted that this demonstrated a sustained course of dishonest conduct, rather than mere inadvertence.

The Tribunal was satisfied that the evidence supported a finding that HBC was not authorised to keep car parking income received from units managed by her that were not leased back from the owners.

HBC did not otherwise dispute the OFT's allegations, and the Tribunal was satisfied that proper grounds existed to pursue disciplinary proceedings against HBC and SJ Pty Ltd and to impose penalties on them.

The penalties

The Tribunal stated that "the legislation regulating the conduct of real estate agents is designed to protect the public and maintain high standards of professional practice and procedure", and that HBC's dishonest conduct breached those standards.

The Tribunal considered that HBC's failure to properly receipt trust money undermined the integrity of the industry and the confidence that members of the community ought to have in real estate agents. It was also found that HBC had shown very little insight or remorse, particularly in circumstances where her clients had lost $12,888.60, and she had failed to repay any of that money.

The OFT sought a penalty of permanent disqualification (or disqualification for ten years), and a fine of $10,000 for SJ Pty Ltd and $5,000 for HBC. The Tribunal considered that, while trust accounting breaches usually attract lengthy periods of disqualification and fines between $8,000 and $10,000, the breaches in this instance occurred over a shorter period of time and involved smaller amounts of money.

In previous decisions involving trust accounting breaches, significant mitigating factors needed to be shown for the disqualification time to be reduced. In Sheppard[1] and Lloyd[2], the agents' spouses were suffering from ill health, which was a significant mitigating factor in reducing the disqualification period. In Schellaars,[3] an absence of financial loss and the agent's cooperation throughout the investigation meant the disqualification period was reduced to five years.

In this case, HBC demonstrated that she had been the victim of her ex-partner's coercive control throughout the assessment period, and that his bullying, threatening and manipulative behaviour had been a significant contributing factor to her dishonest conduct. Evidence from HBC's psychologist showed that she had suffered, and continued to suffer, from her ex-partner's actions.

The Tribunal stated that an important factor in disciplinary proceedings is to protect the public and other professional parties. The Tribunal found that the significant contributing factor to the conduct, namely HBC's ex-partner's coercive control and abuse, was no longer present, so an extended period of disqualification was not needed to protect the public.

The Tribunal considered that HBC should not be deprived of the potential to earn income as an agent, so a lesser disqualification period of five years from the expiry of the licences was imposed.

The Tribunal considered that fines were still warranted, due to the need to deter other agents from committing the same type of breaches. HBC's failure to repay any compensation to her "victims", and the need for deterrence, were the main contributing factors in determining the fine amount.

The maximum fine possible is 200 penalty units ($26,990) for a corporation and 100 penalty units ($13,345) for an individual. The Tribunal determined that, given the relatively modest amounts of misappropriated money and lack of previous disciplinary history, a fine of $10,000 would be imposed on SJ Pty Ltd and $5,000 on HBC.

The Tribunal also imposed an order to compensate the owners of the residential properties involved in the offending - as they were innocent victims of the agent's conduct.

SJ Pty Ltd and HBC were ordered to pay $4,534.55 and $1,322.05 to each of the owners respectively. Each party was ordered to bear their own costs.

Conclusion

This decision serves as a timely reminder to agents to ensure that they are complying with trust accounting obligations at all times. Ignorance or misunderstanding of one's actions is not an excuse for breaches of the stringent requirements of the Act when dealing with other people's money. Significant penalties will be imposed for such breaches, regardless of the surrounding circumstances.

Most importantly, agents should immediately seek legal advice if they are ever unsure of the appropriate steps to take in relation to trust money.

References

[1] Chief Executive, Department of Justice and Attorney-General v Sheppard [2012] QCAT 164.

[2] Chief Executive, Department of Justice and Attorney-General v Hiltdeen Pty Ltd (under external administration) and Lloyd [2012] QCAT 430.

[3] Chief Executive, Department of Employment, Economic Development and Innovation v Schellaars [2010] QCAT 477.

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