The repercussions of mishandling trust monies

Case update - Prestige & Rich Pty Ltd & Anor v Chief Executive, Department of Justice and Attorney General, Office of Fair Trading & Anor [2020] QCATA 165

In the March 2019 and December 2020 Journals, we considered a decision of the Queensland Civil and Administrative Tribunal (the Tribunal) regarding the operation and interpretation of sections 26 and 27 of the Agents Financial Administration Act 2014 (Qld) (the Act). The agent involved later sought to appeal this decision.

Background

On or around 21 March 2016, Jianjie Li (the buyer) entered into a contract to purchase a residential property (the property) from Hetalbin and Milin Patel (the sellers). A deposit of $24,500 was paid by the buyer into the agent's trust account (the deposit). On or around 24 March 2016, the buyer's solicitors advised the seller's 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 did not dispute the termination of the contract or claim for 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.

The sellers' solicitors later instructed the agent to release the deposit to the buyer. In 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.

The agent subsequently informed the parties that it had released the deposit to the sellers in accordance with its notice 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 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. The agent sought a review of the decision in the Tribunal that the buyer was entitled to the full deposit and that the agent and its director were liable for the buyer's financial loss.

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.

The agent was also convicted in the Holland Park Magistrates Court of an offence under section 28(2)(a) of the Act and was fined $5,000 and ordered to pay costs of $2,223.75.

The agent later sought to appeal the decision in the District Court, where it 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 to appeal the decision of the District Court to the Court of Appeal. 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.

The QCAT Appeal

In December 2020, the agent sought leave to appeal against the Tribunal's review of the Chief Executive's decision to accept the buyer's claim against the Claim Fund for the full deposit of $24,500 and that the agent was liable for the buyer's financial loss.

The agent sought leave to appeal on numerous grounds, including questions of law, questions of fact, and questions of mixed law and fact. Accordingly, leave from the Tribunal was required before the appeal could proceed.

Grounds of appeal

The grounds of appeal advanced by the agent can be broadly summarised as follows:

1. The agent asserted that the buyer had no standing to bring a claim against the Claim Fund as he had not executed the contract of sale and he had no legal right to the deposit because the contract was not properly terminated;

2. The agent also asserted that it had correctly followed the procedure set out in section 26 for dealing with disputed trust monies; and

3. In addition, it maintained that it was subject to procedural unfairness and other errors in the original decision.

The agent also sought to rely upon the transcript of the hearing in the Holland Park Magistrates Court on 6 November 2018 as further evidence. However, the agent did not submit an application for leave to rely on further evidence, so the Appeal Tribunal declined to admit the transcript into evidence.

Grounds of appeal relating to the contract

The agent asserted that the buyer had not signed the contract and that it was in fact signed by his son. The Appeal Tribunal found that there was no persuasive evidence adduced by the agent to demonstrate that the contract had been signed by the buyer's son, and even if it was, the contract would be rendered void ab initio and the deposit would be returnable to the buyer anyway.

The agent also attempted to assert that the buyer had failed to make a genuine attempt to obtain finance for the purchase of the property. The Appeal Tribunal found that whether the parties performed their obligations under the contract of sale was not a matter to be determined by the agent. The Appeal Tribunal observed that it was the agent's role to deal with the deposit monies held in trust in accordance with the requirements of the Act. It stated that once the sellers' solicitors wrote to the agent advising that the contract was validly terminated and the deposit monies should be returned to the buyer, the agent should have acted upon those instructions.

In relation to the assertion that the buyer should not be allowed to take advantage of his own "wrongdoing" (allegedly failing to take appropriate steps to obtain finance), the Appeal Tribunal found that it was irrelevant insofar as the sellers accepted the valid termination of the contract and directed the deposit monies to be returned.

The Appeal Tribunal therefore concluded that there was no error by the Tribunal relating to the contract.

Grounds of appeal relating to the Act

An agent must act in accordance with a client's instructions, unless it is contrary to the Property Occupations Regulation 2014 (Qld) or if it is otherwise unlawful to do so. An amount held in an agent's trust account must be retained until it is paid out under the Act and the Act sets out specific circumstances in which the deposit can be paid.

Where an amount held in trust is in dispute, section 26 of the Act allows an agent to make a determination as to the party that is entitled to the amount, and after 60 days, if no proceedings have been commenced in respect of the amount or they have not been instructed otherwise, the amount may be paid to the nominated party.

The agent contended that once the process under section 26 of the Act is engaged, an agent is committed to following the process, regardless of any instructions received by the parties. The Appeal Tribunal found that this was not an accurate interpretation of the section, nor the purpose of the Act. The section does not allow an agent to adjudicate on the rights of the parties.

The Appeal Tribunal commented that the agent knew that there was no dispute about the deposit held in trust and that both parties had authorised the return of the deposit to the buyer. Accordingly, the deposit should have been returned to the buyer.

The Appeal Tribunal noted that the agent also paid itself a significant part of the deposit as commission for the sale (which obviously did not proceed) and that this was entirely inconsistent with the instructions of the sellers.

The Appeal Tribunal considered that any entitlement to commission depended upon the terms of the agent's appointment with the sellers and was completely unrelated to the payment of the deposit money. While the agent may have been entitled to seek commission from the sellers, it did not affect the fact that the agent was required to deal with the deposit monies in accordance with the provisions of the Act.

The Appeal Tribunal therefore held that there was no error on the part of the Tribunal as to the finding that the agent had failed to comply with the Act. This ground of appeal was also dismissed.

Grounds relating to procedural fairness

The agent attempted to argue that there was a breach of the fair hearing rule by the Chief Executive in failing to obtain an inspector's report and there were errors in the findings of fact about the date of the contract and the whereabouts of the deposit monies.

The Appeal Tribunal found that the submissions regarding the inspector's report were without substance and that the errors of fact about the date of the contract and the whereabouts of the deposit monies had no bearing on the outcome of the decision.

Conclusion

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.

This decision once again serves as a timely reminder that agents should take exceptional care when dealing with provisions of the Act and should always 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 seek legal advice.