How I Became An Estate Agent's Hero

OPINION
by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

 

Brisbane conveyancing solicitor Chris Bridge became concerned when he noticed that his buyer client’s contract included a special condition authorising the pre-settlement release of the selling agent’s commission.  Such a “pre-draw” practice may be legal elsewhere if the contracting parties agree, but not in Queensland where Section 385 of the Property Agents and Motor Dealers Act (PAMDA) permits agents to take commissions from their trust accounts only after contracts settle.

So Mr Bridge promptly and bluntly complained to the Office of Fair Trading that the seller’s agent was “stealing the buyer’s money”.  Fair Trading reported back, after this complaint had been investigated, that disciplinary action would be taken in the Commercial & Consumer Tribunal. (See: Early Release (Or Stealing?) Of Commission )

Three charges (arising from four settled sales) were brought, not against the real estate agency, but  against the licensed agent involved (let’s call him “Danny”):

• That, in breach of PAMDA Section 385, he withdrew commissions totalling $48,389 from deposit moneys before settlements occurred;
• That, in breach of PMDA Section 379, he paid deposits totalling $121,855 into an account which was not the agency’s trust account;
• That, in breach of PAMDA Section 496, he acted in a unprofessional way while performing these acts.

No matter that Danny was neither the proprietor of the agency which made the sales, not the salesperson involved.  This recently acquired agency was owned by a couple who, although registered salespersons, had yet to obtain their agents’ licences.  Danny had been engaged in the meantime to act as the agency’s locum principal.  He received a weekly fee but no commissions from agency sales.

Although Danny had opened a trust account for the agency in his name, no buyers’ deposits were ever paid into this account.  This was because the owners told Danny their accountant’s advice was that deposits could be paid to the account of another agency they owned.  Danny did not know this account was not a trust account.  Meanwhile, after expressing early reservations about the appropriateness of the commission release clause being added to sales contract, Danny was told that legal advice had been obtained that the clause was lawful.  When Danny directed the agency manager not to use the clause anyhow, his direction was ignored.

When Fair Trading investigators arrived at the agency, Danny cooperated fully.  After disciplinary action was commenced he took advice from the agency’s solicitors, and admitted the charges.  Because no consumers suffered any loss these solicitors and Fair Trading expected Danny would receive only a modest fine.  Written submissions on penalty were filed so the Tribunal could decide this issue “on the papers” without any appearances or a formal hearing.

The Tribunal took into account that Danny had been a licensed agent (with an unblemished record) for almost 20 years, was currently a real estate trainer, served on a government board and often acted as a locum.

Danny’s conduct nevertheless evidenced a “lack of diligence” because, according to the Tribunal, he failed to inquire into matters he suspected were problematic.  His was a failure to act rather than deliberate misconduct.  Yet, as a principal licensee, he allowed breaches of PAMDA’s trust account provisions to occur.  The Tribunal remarked that these provisions, with the highest penalties for contravention, were designed to protect the public and facilitate Fair Trading monitoring.

The Tribunal acknowledged that, while its function was disciplinary and protective rather than punitive, its orders should deter any repeat of offending conduct, indicate to other licensees when misconduct is unacceptable and ensure the maintenance of public confidence in PAMDA’s regulatory regime.

So Danny was fined $1,500 and had to pay F costs of $670.  Fair enough, but the Tribunal then decided it would not “appropriately protect the public” if it allowed Danny to remain a PAMDA licensee.  Accordingly he copped a 5 year licence disqualification - to be suspended after six months if he completed a trusts account training course.

This 66 year old agent, who had long advocated more professional standards in real estate, was completely shattered.

BUT EVERYONE INVOLVED HAD GOT IT DREADFULLY WRONG …

A devastated Danny soon sought my legal advice on what he could do now.  “You can appeal to the District Court,” I told him.  But first I needed his previous solicitors’ file and copies of Fair Trading’s documents.

Once I had all this material I sat down with my firm’s litigator, Jeffrey Dalrymple, to review Danny’s chances of having the Tribunal’s orders judicially amended.  Jeffrey had previously worked as a solicitor for the Commonwealth Director of Public Prosecutions, the National Crime Authority and the Office of Fair Trading.  Immediately before joining my firm he was consumer advocate Neil Jenman’s in-house counsel.

We e quickly engaged a barrister who had competently represented some other agents in trouble, and even one less-than-renowned solicitor.

The more we looked into the facts, the documents and the law, the more convinced we became that Danny had been done a grave injustice.

Fair Trading did not initially see it quite that way but, after considering our case, joined us in seeking Court orders to significantly vary the Tribunal’s orders.  Our application for leave to appeal was granted, the first and third charges against Danny were dismissed and the Tribunal’s $1,500 fine (in respect of the second charge) was reduced to $1,000.  Best of all, his licence was reinstated and Fair Trading had to pay his legal costs.

The Court recognised that Danny had served “a lengthy and worthy career in the real estate industry”, there was “absolutely no aspect of dishonesty” here and that his guilty pleas were made on advice from the agency’s solicitors.

The judge ruled that the first charge (of unlawfully pre-drawing commissions), which Danny had wrongly admitted, ought never have been brought against him.  Clearly the agency where Danny was a locum principal had unlawfully pre-drawn commissions before contracts settled but, as the judge remarked, Danny himself received no commissions and was remunerated by the agency’s unlicensed owners on a weekly basis.  These disclosures should have been sufficient to inform the parties and the Tribunal that this charge, which erroneously alleged that Danny unlawfully pre-drew “his transaction fee”, was “fundamentally ill-conceived”. 

The judge noted that, contrary to the allegation that Danny pre-drew funds from his “purported” trust account, he did not operate the account from which the commissions were taken.  On the material before the Tribunal, the conduct alleged against Danny in that charge was clearly not established.  Moreover, it was shown not to have occurred at all.  Rather than permitting or encouraging pre-drawing of commissions, the judge pointed out that Danny had “positively discouraged it.”  Danny had been, in the judge’s words, “shouted down” by assertions that adding the clause was usual practice confirmed lawful by legal advice.  There was no suggestion that Danny was involved in what the judge described as the “actual withdrawal of the pre-drawn funds.”

The Tribunal made “a clear error of law” not only in accepting Danny’s admission to this charge, but also in imposing a penalty based on misconduct which did not happen. 

Danny’s conviction on the second charge (regarding where funds were deposited) stood because deposit moneys from sales were not paid, as required by law, into the trust account he had opened for that purpose.  The judge accepted that Danny had relied on the agency’s owners’ advice that their accountant had advised them that trust moneys generated through the agency could be held in the trust account of their other agency.

Once the first charge fell the third charge (of unprofessional conduct) also had to fall.  Under all the circumstances the judge ruled that there was “no evidence” to justify a finding that Danny had acted in an unprofessional way.

And that’s how this little real estate watchdog became one very grateful real estate agent’s hero.

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