Consumer Affairs Victoria - Lame Response to Corruption Allegation

OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

In my last blog posting I wrote about Consumer Affairs Victoria's failure to address bribe induced corruption in the real estate and conveyancing industry. I concluded that posting by saying that I had written to Consumer Affairs Victoria (CAV) again, drawing attention to my blog posting, and promising that I would publish CAV's response. The response that I received confirms the moribund state of CAV's policy on corruption in the real estate and conveyancing industries it supposedly regulates.

CAV's failure to act on the corrupting effects of bribes

In my blog posting "Why Corruption Flourishes Under Consumer Affairs Victoria" I outlined the problem of bribe payments made by licensed conveyancers to real estate agents, and how this has a detrimental effect on both industries and on the consumers CAV is charged with protecting.

I had made a formal written complaint to CAV, providing full details including the names of two licensed conveyancers who openly advertise the fact that they offer bribe payments to real estate agents, together with the name of a real estate agent who had admitted to receiving bribe payments, and requesting that the problem be investigated. I received an arrogant and dismissive response which stated,

"In order for Consumer Affairs Victoria to determine if any breach of the relevant legislation has occurred, Consumer Affairs Victoria would require evidence that a conveyancer has not disclosed the payment or receipt of a commission in relation to a conveyancing transaction to his or her client."

CAV completely ignored the role of the real estate agent, and the failure of real estate agents to disclose the bribe payment to the party being referred, and the fact that such failure constitutes a serious criminal offence to which the licensed conveyancer becomes a party.

So, before they would even think about an investigation, CAV would "require evidence". CAV "would be happy to receive said material" if I could provide it. Otherwise, CAV would simply turn over and go back to sleep. (To see a copy of CAV's response CLICK HERE)

As I pointed out in "Why Corruption Flourishes Under Consumer Affairs Victoria", CAV have a number of investigative tools available to them, but they refuse to use them. I wrote to CAV again, referred them to the abovementioned blog posting, and requested their response.

Consumer Affairs Victoria's response

Responding on behalf of CAV, the Director of the Market Engagement Division, Mr. Andrew Levens expressed confusion about my gaining the impression that CAV is not interested in taking any action unless someone else investigates the matter, gathers evidence of wrongdoing and delivers it to their office:

"I do not understand how you could have gained that impression from my request. You were not asked to investigate anything, you were simply asked to forward the information you possessed in support of your allegations of 'widespread corruption and bribery'."

Well, having provided a substantial amount of material via the blog postings linked to the posting "Why Corruption Flourishes Under Consumer Affairs Victoria" I expected that CAV would have used a little initiative by actually contacting the parties named in the articles, asking them if the content of the articles was true, and then investigating further.

As a former detective with the Victoria Police Force, and having served in the Internal Investigations Department (as it was called back then), I can imagine the reaction of complainant and the Deputy Ombudsman (Police Complaints) if allegations of corruption involving police had been made, with similar supporting material, and a response similar to CAV's resulted.

Note Mr. Levens' self-contradiction in this sentence:

"You were not asked to investigate anything, you were simply asked to forward the information you possessed in support of your allegations..."

When someone makes an "allegation" a decision must be made as to whether or not the allegation is valid. How is this done? By conducting an investigation! Here's a simple example:

An allegation of theft by shopstealing is made by cashier who sees a woman place an item in her stroller and leave a shop without paying for it. The cashier is unaware that, while he was packing another customer's shopping, the woman had changed her mind and returned the item to the shelf, and the woman's 3 year old child had then taken the item from the shelf and placed it in the stroller.

The store security officer, having received information from the cashier (i.e the allegation), conducts an investigation by approaching the woman and asking her if she has in her possession any items which were not paid for before she left the store. This is standard operational procedure.

When the woman tells the security officer that her toddler must have taken the toy from the shelf a placed it in the stroller after she had returned it to the shelf, the security officer is satisfied with the explanation and the investigation is concluded.

The security officer does not require the cashier to approach the customer, conduct the investigation, and then deliver "evidence" to the security officer. Of course, if the security officer was satisfied that a theft had been committed he would contact the police, and a further investigation would be conducted in a similar manner.

CAV was not interested in talking to anyone about anything. As Mr. Levens states in the second paragraph of his letter:

"In my letter of 26 May, 2011, I requested you to forward any evidence you had concerning the non-disclosure of commission payments by licensed conveyancers."

Surely, Mr. Levens would have realised, as he typed this sentence, that it would be impossible for anyone but a CAV investigator using the powers conferred upon CAV by the Conveyancers Act 2006 and the Estate Agents Act 1980, to obtain such evidence.

Having satisfied himself that he had addressed that issue sufficiently, Mr. Levens then turned his attention to my reference to Section 33 of the Conveyancers Act 2006, asserting that my suggestion that "Section 33 of the Conveyancers Act 2006 allows the Director of CAV to apply to VCAT to hold an enquiry to determine where there has been a contravention of the Act" is a "significant error" as "the section does not obviate the need for investigators to obtain sufficient evidence before launching prosecutions."

The only significant error is that of Mr. Levens in comprehending what I had written about Section 33. Under the heading "Conduct a comprehensive enquiry through VCAT" I stated, "It is not necessary for CAV inspectors to obtain sufficient evidence on which to base a prosecution." This is quite true in the context of an enquiry through VCAT. VCAT can hold an enquiry for the purposes of determining whether there have been any contraventions of the Act or regulations on an inquisitorial basis. The purpose of this provision to ensure that CAV is not limited to proving certain matters to the criminal standard of "beyond reasonable doubt", allowing instead for a positive finding of fact at the lower standard of "on the balance of probabilities".

As Mr. Levens would (or should) realise, this means that an investigator does not have to obtain evidence to establish a prima facie case of a criminal nature before applying to VCAT for the holding of an enquiry into any of the matters set out in Section 33.

(To read the letter from CAV in full CLICK HERE.)

Consumer Affairs Victoria uses double standards

A complainant of dubious credibility

CAV's response is interesting insofar as it indicates that two sets of standards seem to be applied to the investigation of complaints.

In 2008 I was approached by the vendor of a property which had been put into the hands of a well-known celebrity real estate agent. This particular real estate agent preens himself on TV, offers advice and information to real estate consumers on a popular radio station, and was described by a magistrate some years earlier in the following terms:

"...pulling bids out of the air...in my view, amounts to a fraud...I find that (the real estate agent) in using what on evidence, sadly, is a common practice, was indulging in a deceitful, misleading and fraudulent stratagem to boost bids."

After the tongue-lashing he received from the magistrate, who ultimately found against him, the real estate agent was unrepentant. According to a journalist who reported the matter in a Melbourne newspaper the following day,

"Mr. (the real estate agent), however, said yesterday was a 'sad day for the vendors of Australia'. He said the practice (of dummy bidding) was not deceptive and that he would appeal against the decision."

Thus, one gets this impression that this real estate agent had a very good understanding of the concept of dummy bidding.

Fast-forward to 2008 and an auction conducted by this very same real estate agent. The complaint I received from the vendor was that the real estate agent had deliberately made a false allegation of dummy bidding against the vendor, apparently in an effort to discredit him, and to open the way for the real estate agent to claim a commission on the basis that the vendor had caused his own auction to be aborted.

According to the client, he wanted a private sale, but was eventually brow-beaten into selling by auction. A friend of the vendor's had previously offered to buy the property, but he wanted a long settlement period which the vendor could not accommodate. The vendor had made this quite clear to the real estate agent. However, on the day of the auction, when the property had failed to reach the reserve price, there was some conversation between the auctioneer and the vendor's friend, and the auctioneer accepted his bid. When the vendor was told that the property had been knocked down to his friend he assumed that the long settlement period was no longer required. Upon hearing that the friend still required the long settlement period, the vendor refused to sign the contract.

The real estate agent was furious.

The following Wednesday, the vendor received a letter from the real estate agent's lawyer stating that the agency was discontinuing its relationship with him. The letter stated:

"Our client views this matter most seriously. It jealously guards its reputation as a reputable law-abiding organisation (note that the real estate agent was a self-confessed liar and cheat) which provides its services with a high degree of skill and professionalism and in accordance with all applicable legal requirements.

Having regard to these matters, we give you notice that our client hereby terminates the Authority. It will look to you for recovery of its 'marketing expenses' as defined in the Authority and also reserves its rights to recover any 'loss or damage' which it has suffered.

All other rights of our client are also expressly reserved."

It was obvious to me that the real estate agent was hoping to claim that he was forced to end the Exclusive Auction Authority on the pretence that the vendor had aborted the auction by his behaviour, and to recover a full commission on an otherwise failed auction.

The vendor then received a letter from Consumer Affairs Victoria stating that it had received a complaint from the real estate agent alleging that he had engaged in dummy bidding.

A bullying letter from Consumer Affairs Victoria

With nothing more than the real estate agent's assertion to go on, CAV wrote to the vendor as follows:

"Invitation to attend a Record of Interview

Consumer Affairs Victoria (CAV) has received information which suggests that you breached the Dummy Bidding provisions in the Sale of Land Act 1962 in respect of the auction of (the address of the property) conducted on (the date of the auction).

I have attached an extract of "Division 4 - Public Auctions of the Sale of Land Act 1962" which deals with dummy bidding an particularly draw your attention to sections 38 & 40.

CAV wishes to offer you the opportunity of being formally interviewed by inspectors at CAV offices at Level 19/120 Collins Street, Melbourne. You are under no obligation to attend but any explanation offered in the interview will be used to determine if charges are to be issued against you. The interview will be tape-recorded and you would be entitled to have legal representation present. You will be provided with a copy of the tape at the conclusion of the interview.

As this matter may ultimately result in prosecution proceedings in the Courts, you may wish to obtain legal advice prior to being interviewed.

Should you wish to proceed with an interview, please contact me direct on...so that a mutually convenient time can be arranged.

Alternatively, if there is no response from you within 7 days of this letter, I shall assume that you have declined to attend the interview and CAV reserves the right to commence any proceedings against you without further notice."

Pretty compelling stuff, isn't it. In other words, "Get your butt in here and answer our questions or risk being charged; and if you do come in and answer our questions, we may charge you away." That's how the vendor interpreted it too. To put it mildly, this letter made the vendor very upset, and frightened.

Questionable interview procedures

Police recruits are taught that an interview is the final stage of an investigation. It is not an opportunity for the investigator to bully or to cross-examine. It is the formal process by which the person being interviewed is informed of the evidence collected by the investigator, and is invited to comment on it.

Before an interview is commenced, the interviewer informs the interviewee that he or she is under no obligation to answer questions. Further, a court cannot regard a failure or refusal to answer questions as some form of admission.

If there is insufficient evidence on which to base a prima facie case, then there is little point in conducting a formal interview. The interviewer should be in a position to lay charges in the absence of an exonerating explanation from the interviewee.

Now, as anyone who has participated in a recorded interview will know, the process is humiliating. The person being interviewed feels like a criminal, being interrogated in circumstances where their integrity has been placed in doubt. In these circumstances, the experience alone had the effect of a form of punishment, inflicted upon the vendor by an angry real estate agent who had missed out on a commission and who wanted a basis on which he could base a claim against his own client.

The vendor is exonerated

The vendor provided CAV with a full explanation of the situation by way of a Statutory Declaration. This did not satisfy CAV, and they pressed for a formal tape-recorded interview. In a letter to me, CAV stated:

"CAV has already obtained a number of statements in this matter and has established a prima facie case. In these circumstances it has been deemed appropriate to offer your client an opportunity to explain the conduct or offer any mitigation in relation to the conduct."

What conduct? The vendor and the bidder had explained the situation in full by way of their written statements/statutory declarations, and there was nothing further to add.

I advised the vendor and his friend, the bidder, to participate in an interview and to confirm the contents of the Statutory Declarations, which they did. CAV was still not satisfied, and sought access to the bidder's bank account in order to confirm that he actually held sufficient funds to pay a deposit if he had been the successful purchaser. The purchaser provided the requested bank details (although he was under no obligation to do so).

Eventually, 9 months after the auction, CAV sent me a letter confirming that the investigation had been closed:

"Alleged breach of the dummy bidding provisions of the Sale of Land Act 1962

Consumer Affairs Victoria has recently completed an investigation into the alleged dummy bidding at the auction of (the property address).

All the presently available information has been carefully considered and it has been determined that Consumer Affairs Victoria will not be taking any further action and this matter has been closed.

I thank you and your clients...for their assistance and co-operation with our enquiries..."

And remember, this investigation was based on an allegation made by a person who was a self-confessed dummy bidder - a liar and a cheat. Remember too, dummy bidding has always been a serious criminal offence. It is a breach of Section 82 of the Crimes Act 1958 known as "Obtaining Financial Advantage By Deception". To my knowledge, CAV has never approached the real estate agent about his self-confessed criminal conduct, let alone instigated any action against him.

No further action by the vendor or the bidder

By the time this ordeal had ended, both the vendor and his friend were worn out. I suggested to them that they should lodge a complaint against the real estate agent for deliberately making a false complaint in order to punish and intimidate, but they just wanted to put it all behind them. Understandable really.

Conclusion

Consumer Affairs Victoria demonstrated that it could be over-zealous in its pursuit of a hapless vendor whose real estate agent had the ear of CAV. In this case the real estate agent instigated a thorough investigation by simply alleging that his client had procured a dummy bidder. The real estate agent provided no evidence to CAV whatsoever; how could he? The most that the real estate agent could provide was information to the effect that the vendor and the bidder knew each other, that the bidder had submitted a bid, and that the vendor had rejected that bid. The complaint was not evidence, and it certainly did not constitute a prima facie case.

It was not until CAV actually spoke to the real estate agent and obtained written statements from the real estate agent and his employees that the possibility of an offence had been established. In other words, no offence was disclosed until CAV had gone to the trouble of investigating the matter by gathering facts and obtaining written statements.

CAV's investigation did not conclude with the gathering of the statements. Although CAV asserted that they had established a prima facie case, the material they held was certainly not sufficient in the absence of evidence of mens rea (i.e. the "guilty mindset" of the vendor). CAV would have to adduce evidence to prove beyond reasonable doubt that the vendor and the bidder had knowlingly colluded, and that they did so in order to submit a false bid with the intention of tricking other bidders into competing with the false bid. Without a confession from the vendor and/or the bidder, this would be nigh impossible.

Undaunted, CAV falsely stated that they had established a prima facie case (sounds almost like dummy bidding doesn't it) in order to force the vendor and the bidder to submit to formal tape-recorded interviews and to reveal details of the bidder's bank account. After 9 months of investigation, research and deliberation it CAV decided that no offence had been disclosed, and the vendor and the bidder were exonerated.

Compare this with the claim by Mr. Levens that CAV doesn't have enough information on which to base an investigation into bribery and corruption in the real estate/conveyancing industry it regulates.

What will it take to get Consumer Affairs Victoria to do something?

From where I sit, it seems that CAV was prepared to launch a rigorous and protracted investigation into a false allegation made by one of the most disreputable real estate agents in the industry, but when it comes to making compliance enquiries with those who openly admit to their involvement in client trafficking, CAV has no motivation at all.

In the TV miniseries Scales of Justice there is a scene where Constable Borland is offered a bribe by a suspect. The suspect is taken to the police station, where the Sergeant asks Borland, "What's the charge?" Borland replies, with a smile, "Offer Insufficient Bribe!"

One wonders if CAV would be moved to action if that same disreputable real estate agent were to make a complaint against a licensed conveyancer as the result of being offered an insufficient bribe. It would be easy to formulate the complaint if the conveyancer advises real estate agents, as Scott Goodman does (see above), that "All referral payments are disclosed to the client so there is no hidden commissions". A complaint about such a conveyancer could be made in the following terms:

"As a reputable real estate agent I am concerned that my staff are being misinformed and misled by a licensed conveyancer who is offering them what amounts to legal advice. Despite my protests about making referrals in return for cash, and the advice I have received from my lawyer regarding the receiving of secret commissions, my agent representatives dismiss my concerns and refer me to the advice offered by the licensed conveyancer. Here is what the licensed conveyancer is providing in material distributed to my staff:

'All referral payments are disclosed to the client so there is no hidden commissions.'

My lawyer advises that I should bring this to your attention as the regulator of licensed conveyancers, and also to request that you bring the matter to the attention of the Legal Services Commissioner on the basis that it may also constitute an offence against Section 2.2.2. of the Legal Profession Act 2004.

I also request that you provide clear guidelines regarding the handling of referral payments, including tax implications etc. to assist real estate agents representatives who are ignorant of the law relating to secret commissions, and the need to declare referrals payments for tax and GST purposes."

It's inevitable that the greed that feeds bribery and corruption will result in some serious complaints being made, and CAV will no longer be able to keep a lid on the problem. In the meantime, I will keep snapping at the heels of CAV in an effort to force them to act.

I have again written to CAV, requesting their response to this posting. I will publish their response in due course.

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