Breaches of Trust Accounting Procedures can be Costly
Case Update – Prestige & Rich Pty Ltd & Anor v Chief Executive, Department of Justice and Attorney General, Office of Fair Trading & Anor
In previous Journals, we considered a decision of the Queensland Civil and Administrative Tribunal (Tribunal) regarding the operation and interpretation of sections 26 and 27 of the Agents Financial Administration Act (Qld) (Act) and an agent’s duties under the Act. The agent involved appealed this decision to the Queensland Civil and Administrative Tribunal (Appeals) (QCAT Appeal Tribunal) which dismissed the appeal. The agent has now made an application in the Queensland Court of Appeal for leave to appeal the decision of the QCAT Appeal Tribunal.
On or around 21 March 2016, Jianjie Li (buyer) entered into a contract to purchase a residential property (the property) from Hetalbin and Milin Patel (sellers). The sellers’ sales agent, Prestige & Rich Pty Ltd (agent), accepted the deposit for the property of $24,500 into its trust account (deposit). The contract of sale contained a ‘subject to finance clause’ in favour of the buyer. On or around 24 March 2016, the buyer’s solicitors advised the sellers’ solicitors that the buyer had been unable to obtain finance and terminated the contract. The buyer’s solicitors requested that the deposit be returned to the buyer. The sellers’ solicitors did not dispute the termination of the contract or claim the deposit.
On or around 31 March 2016, the agent wrote to the parties, advising that it would not return the deposit as the agent considered that the sellers were entitled to the deposit and that it believed the agent was authorised under section 26 of the Act to pay the amount in dispute to the sellers on or after 1 June 2016, unless a proceeding disputing the sellers’ entitlement to the deposit was commenced or the parties authorised payment of the deposit to the sellers before that date.
On or around 13 April 2016, the sellers’ solicitors wrote to the agent and advised that the contract had been terminated according to the finance clause. The sellers’ solicitors instructed the agent to release the deposit to the buyer.
On or around 13 May 2016, the buyer lodged an application in the Supreme Court seeking a declaration that the contract was terminated and that the buyer was entitled to the deposit. On 3 June 2016, the Supreme Court dismissed the application as it was commenced in the wrong court. On the same day, the agent informed the parties that it had released the deposit to the sellers in accordance with the notice it had issued on 31 March 2016.
In fact, the agent had paid the deposit into its general account, retained commission in the sum of $20,000 for the failed sale of the property and remitted only $4,500 to the sellers.
The buyer subsequently submitted a claim to the Chief Executive of the Department of Justice and Attorney General against the Claim Fund established by the Act and a decision was made that the buyer was entitled to the full deposit, and that the agent and its director were liable for the buyer’s financial loss. As a result, the agent and its director were ordered to reimburse the deposit to the buyer. The agent subsequently sought a review of this decision in the Tribunal.
The Tribunal dismissed the agent’s application for review, concluding that the agent and its director were jointly and severally liable to reimburse the Claim Fund $24,500 for payment of the deposit to the buyer.
On the same day that decision was delivered by the Tribunal, the agent was also convicted in the Holland Park Magistrates Court of an offence under s 28(2)(a) of the Act, was fined $5,000 and ordered to pay costs of $2,223.75.
The agent subsequently appealed against its conviction, the penalty and quantum of the costs order in the District Court. However, the appeal was dismissed as the Court concluded that the agent was required to make immediate payment of the deposit to the buyer but had failed to do so.
The agent then sought leave from the Court of Appeal to appeal the decision of the District Court. Leave was refused on the basis that there was no error of law in the decision of the District Court and the agent was ordered to pay the costs of the application.
In December 2020, the agent sought leave from the QCAT Appeal Tribunal to appeal against the Tribunal’s review of the Chief Executive’s decision to accept the buyer’s claim against the Claim Fund.
Ultimately, the agent failed to establish any successful grounds of appeal. Leave to appeal the Tribunal’s decision was therefore refused and the appeal was dismissed.
As noted above, the agent has now made an application in the Queensland Court of Appeal for leave to appeal the decision of the QCAT Appeal Tribunal.
The Court of Appeal considered section 21 of the Act, which provides that amounts paid to the trust account of an agent may only be paid out in a way permitted by the Act. The Court of Appeal held that because the contract had fallen through, the agent was not entitled to commission.
The Court of Appeal also referred to section 82 of the Act, which provides that a person may claim against the Claim Fund if the person suffers financial loss because of a contravention of, among other things, section 21 of the Act. The Court of Appeal noted that a person is also entitled to make a claim if the person suffers financial loss by reason of a misappropriation by a relevant person, including a real estate agent, of property entrusted to that person as agent.
The Court of Appeal considered section 150 of the Act, which provides that an appeal to the Court of Appeal of this kind may only be made on a question of law and only with leave of the Court. The purpose of this requirement is to ensure the principle of finality in litigation is maintained. The Court of Appeal noted that the underlying public interest is that there should be finality in litigation and a litigant should not be repeatedly vexed in the same matter. It reiterated the notion that a second appellate court should not disturb concurrent findings of fact made by a trial judge and an intermediate appellate court, unless there are special reasons to do so such as ‘plain injustice or clear error.’
Following this, the Court of Appeal noted that where concurrent findings of fact have been made, it is in the interests of the administration of justice that there should be an end to the litigation of an issue of fact.
The Court of Appeal stated that leave will not be granted unless there were ‘reasonable prospects of establishing that there has been an error of law’ and mere demonstration of error will, in most circumstances, not be sufficient, and an appeal will only be allowed where it is necessary to correct a substantial miscarriage of justice.
In this matter, the agent has already failed in both the Tribunal and the Appeal Tribunal. This weighed heavily upon the Court of Appeal’s decision, as it considered that in such circumstances, it is rarely necessary to conduct another review. The Court of Appeal concluded that to allow leave would convert the appeal process into an ‘instrument of oppression’.
The Court of Appeal also thought that it was material to take into account that the agent was convicted of an offence against s 28(2)(a) of the Act for the retention of the deposit, which was the subject of the present proceeding and arose out of the same facts. The Court of Appeal noted that an appeal to the District Court was dismissed and an application for leave to appeal to the Court of Appeal was refused and, consequently, the agent had the benefit of a consideration of the same facts on four different occasions.
The Court of Appeal decided the application for leave to appeal should therefore be refused and the agent was ordered to pay the costs of the application.
As is evident from these decisions, a breach of the trust accounting procedures prescribed by the Act can be costly. Agents should ensure that they are aware of their duties under the Act and ensure that all trust monies are dealt with appropriately and strictly in accordance with the Act. The Act explicitly sets out a mechanism in which to deal with disputed funds, and if not strictly followed, agents may be held liable for the return of deposit monies.
Agents should also take care to act in accordance with the lawful instructions received from its clients. If an agent is in any doubt as to what steps to take in relation to trust monies, they should err on the side of caution and seek legal advice.