Davidson v Commissioner for Fair Trading [2008] NSWADT 269 (26 September 2008)

Last Updated: 26 September 2008

NEW SOUTH WALES ADMINISTRATIVE DECISIONS TRIBUNAL

CITATION:
Davidson v Commissioner for Fair Trading [2008] NSWADT 269


DIVISION:
GENERAL DIVISION

PARTIES:
APPLICANT
Mark Manning Davidson

RESPONDENT
Commissioner for Fair Trading



FILE NUMBERS:
073212

HEARING DATES:
30-31 October 2007, 15-16 January 2008

SUBMISSIONS CLOSED:
11 April 2008



DATE OF DECISION:
26 September 2008

BEFORE:
Montgomery S - Judicial Member





LEGISLATION CITED:
Administrative Decisions Tribunal Act 1997
Property, Stock and Business Agents Act 2002

CASES CITED:
Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Drake v Minister for Immigration and Ethnic Affairs [1979] AATA 179; (1979) 46 FLR 409
Greyhound Racing Authority (NSW) v Bragg [2003] NSWCA 388
Hughes and Vale Pty Limited v State of New South Wales [1955] HCA 28; (1955) 93 CLR 127

TEXTS CITED:


APPLICATION:
Property, Stock and Business Agents Act - Real Estate Agent - disciplinary determination

MATTER FOR DECISION:
Principal matter


REPRESENTATION:
APPLICANT
P Richardson, solicitor
RESPONDENT
R Henderson, barrister


ORDERS:
The decision under review is varied
The decision that licence number 253481 held by Mr Davidson be cancelled pursuant to section 192(1)(g) of the Act is affirmed
The decision that Mr Davidson is disqualified from holding a licence issued under the Act for a period of five years is set aside. In its place the decision is made that Mr Davidson is disqualified from holding a licence issued under the Act for a period of 18 months
The cancellation and disqualification take effect on and from 15 July 2007.


Reasons for Decision:

REASONS FOR DECISION

1 Mr Davidson is a real estate agent. He was first issued with a real estate agent licence in 1992 and held the licence under the Property Stock and Business Agents Act 2002 ("the Act") until it was cancelled in July 2007.

2 A delegate of the Commissioner for Fair Trading, Mr Wilson, determined to cancel Mr Davidson's licence pursuant to section 192(1)(g) of the Act and disqualified him from holding a licence for five years pursuant to section 192(1)(h) of the Act. Mr Davidson has applied to the Tribunal for review of that decision.

Background

3 From 1998 Mr Davidson was the licensee in charge of Lorraine Murphy First National Real Estate ("Lorraine Murphy Real Estate") in Griffith. Elders Limited ("Elders") purchased the business from Mr Davidson in early 2003 and the business became known as Elders VP Lorraine Murphy ("the agency"). Elders had held a licence under the Act since 1991.

4 Mr Davidson entered into an employment contract with Elders from February 2003 and was appointed licensee in charge of the agency.

5 Various former employees of Lorraine Murphy Real Estate became Elders employees, including Patricia Colla and Teena Borger. At the time of the Elders purchase, Ms Colla was the property manager and Ms Borger was a property officer. Ms Borger had been employed by Mr Davidson in about 2001 as a receptionist and had been promoted to property officer approximately a year later. When Ms Colla left in late 2003, Ms Borger was appointed property manager.

6 The agency operated a trust account, into which moneys received by the property management department were paid. Sales deposits were not paid into that account; they were taken to Elders main branch in Griffith and were paid into a centralized Elders trust system.

7 In March 2005 the Commissioner for Fair Trading ("the Commissioner") was notified that funds had been misappropriated from the trust account operated by the agency. There was a trust account deficiency of $434,253.70. Ms Borger was subsequently charged and convicted in relation to the theft and she was sentenced to imprisonment for a period of 2 years 6 months.

Show Cause Notice

8 The Act provides that when the Commissioner considers that there are grounds for taking disciplinary action the Commissioner may issue a show cause notice requiring the licensee or certificate holder to show cause why disciplinary action should not be taken: section 195(1). The Commissioner is required to consider any submissions made in response to the show cause notice, and has power to investigate matters to which the show cause relates.

9 The Office of Fair Trading ("Fair Trading") undertook an investigation into the misappropriation of funds from the trust account in early July 2005. In August 2006 the investigation report recommended that show cause notices be issued to Elders and to Mr Davidson. A Notice to Show Cause ("the Notice") was issued to Mr Davidson on 22 January 2007. The grounds of belief upon which the Notice was based stated:

"Section 191 of the Act provides:

Disciplinary action under this Part can be taken against a person who is or was the holder of a licence or certificate of registration on any one or more of the following grounds:

(a) the person has contravened a provision of this Act or any other Act administered by the Minister, or the regulations under any such Act, whether or not the person has been prosecuted or convicted of an offence in respect of the contravention,

In July 2005, investigators from Fair Trading conducted an investigation of the trust books and records of Elders Limited trading as Elders VP Lorraine Murphy (the Corporation). The investigation revealed breaches of section 86(1), 111(1)(a) of the Property Stock and Business Agents Act 2002 and section 8(2A) of the Landlord and Tenant (Rental Bonds) Act 1977.

Mr Mark Manning Davidson, the nominated licensee in charge of the Corporation failed under section 32 of the Property Stock und Business Agents Act 2002 to:

Supervise the banking of trust moneys into the Corporation's trust account by the end of the next banking day on behalf of its clients. The Corporation failed to bank trust moneys received on one hundred and twenty four occasions to the value of $434,253.72 on behalf of clients into a trust account pursuant to section 86(1) of the Property Stock and Business Agents Act 2002.

Supervise the end of month reconciliations of the Corporation's trust account which held apparent deficiencies for the period ending 30 April 2004 to 28 February 2005. The deficiency reached $334,863.63 as at 28 February 2005 contrary to section 86(1) of the Property Stock and Business Agents Act 2002.

Supervise the lodgement of the audit report with the Office of Fair Trading for the year ending 30 June 2003 and 30 June 2004 within the prescribed time. The Corporation failed to lodge an audit report for the period ending 30 June 2003 and 30 June 2004 with the Office of Fair Trading for its branch office "Elders VP Lorraine Murphy" pursuant to section 111(1)(a) of the Property Stock and Business Agents Act 2002.

Supervise the lodgement of rental bonds with the Rental Bond Services. The Corporation failed to lodge one hundred and fifteen rental bonds with the Rental Bond Services within seven days pursuant to section 8(2A) of the Landlord and Tenant (Rental Bonds) Act 1977."

10 The grounds of belief upon which the Notice was based also referred to subsections 191(c) and 191(e) of the Act and asserted the same failures by Mr Davidson.

The Commissioner’s determination

11 On 29 June 2007 Mr Wilson, as a delegate of the Commissioner, issued a determination in which he cancelled Mr Davidson's licence and disqualified him from holding a licence for 5 years. Mr Wilson concluded that section 191(a) of the Act had been breached because Mr Davidson failed to supervise the business properly, as he was required to do under section 32; section 191(c) had been breached because Mr Davidson acted incompetently in his supervision of the business; and that section 191(e) had been breached because Mr Davidson lacked knowledge and ability in the role of a licensee in charge.

12 Mr Wilson noted that Mr Davidson has an unblemished record as a real estate agent and that there is no reason to doubt his honesty. He considered it appropriate that Mr Davidson be able to hold a certificate of registration during any period of disqualification as a licensee.

Stay and conditions

13 Mr Davidson sought a stay of Mr Wilson’s determination. The stay was granted subject to the following conditions:

(1) The Applicant is not to act as a licensee in charge of any real estate agency.

(2) The Applicant is not to be involved in the day-to-day management of any entity operating as a real estate agency.

(3) The Applicant is not to be signatory on any trust account conducted by any real estate agency.

(4) The Applicant is not to be a director of a real estate company.

(5) The Applicant is to advise the licensee in charge and/or the employer he is responsible to of these conditions immediately or prior to the commencement of any new employment.

(6) The Applicant is to notify Fair Trading immediately in respect to any change of his employment.

(7) The Applicant is not to act in any supervisory capacity.

Review of the decision

14 The Tribunal has jurisdiction to review the Commissioner's decisions. The Tribunal's role is to determine what the correct and preferable decisions are having regard to any relevant factual material and any applicable written or unwritten law: section 63 of the Administrative Decisions Tribunal Act 1997 ("the ADT Act").

15 It is well established that in considering an application for review the Tribunal is not constrained to have regard only to the material that was before the Commissioner, but may have regard to any relevant material before it at the time of the review: Drake v Minister for Immigration and Ethnic Affairs [1979] AATA 179; (1979) 46 FLR 409

16 In considering the evidence before the Tribunal I do not intend to traverse in great detail the extensive evidence given over four days of hearing, and embodied in well over 1,000 pages of statements and material. Rather, I shall endeavour to summarise the pertinent evidence, as I understand it, to focus on the differences between the parties as to that evidence, and my reasons for reaching my conclusion.

Applicable legislation

17 The Act, amongst other things, makes provision for the licensing, professional regulation and discipline of real estate agents. The licensing regime requires individuals and corporations who conduct business as agents to be licensed and for salespersons, who are not licensed, to hold a certificate of registration. The Act contains provisions regulating who will be eligible to hold a licence or certificate, and prescribing necessary qualifications. The Act regulates the conduct of real estate agents.

18 Section 32(2) of the Act provides that a corporate licensee, such as Elders, is to employ at each office from which it operates a licensed person as licensee in charge. Section 32 sets out the duties of a licensee in charge:

32 Duty of licensee and person in charge to properly supervise business

(1) A licensee must properly supervise the business carried on by the licensee.

(2) A licensee employed by another licensee ("the principal licensee") as the person in charge of business at a place of business of the principal licensee must properly supervise the business of the principal licensee carried on at that place.

(3) The requirement to properly supervise the conduct of business includes the following requirements:

(a) a requirement to properly supervise employees engaged in the business,

(b) a requirement to establish procedures designed to ensure that the provisions of this Act and any other laws relevant to the conduct of that business are complied with,

(c) a requirement to monitor the conduct of business in a manner that will ensure as far as practicable that those procedures are complied with.

(4) The Director-General may from time to time issue and notify to licensees guidelines as to what constitutes the proper supervision of the business of a licensee. A failure to comply with the requirements of any such guidelines in connection with the supervision of a business constitutes a failure to properly supervise the business.

19 Part 12 of the Act deals with complaints and disciplinary action. The Commissioner may take disciplinary action against a licensee or certificate holder. Pursuant to section 191 of the Act disciplinary action may be taken on a number of grounds. That section relevantly provides:

191 Grounds for disciplinary action

Disciplinary action under this Part can be taken against a person who is or was the holder of a licence or certificate of registration on any one or more of the following grounds:

(a) the person has contravened a provision of this Act or any other Act administered by the Minister, or the regulations under any such Act, whether or not the person has been prosecuted or convicted of an offence in respect of the contravention,

...

(c) the person has, in the course of carrying on business or exercising functions under the licence or certificate of registration, acted unlawfully, improperly, unfairly or incompetently,

...

(e) the person is not a fit and proper person to be involved in the direction, management or conduct of the business of a licensee, ...

20 The disciplinary action which may be taken under the Act is set out in section 192 which provides:

(1) Each of the following actions is disciplinary action that the Director-General can take against a person under this Act:

(a) caution or reprimand the person,

(b) give a direction to the person requiring the person to give a specified undertaking to the Director-General as to the manner in which the person will conduct business or exercise functions under a licence or certificate of registration held by the person,

(c) give a direction to the person requiring the person to take specified action within a specified time in connection with the conduct of business or the exercise of functions under a licence or certificate of registration,

(d) impose a monetary penalty on the person of an amount not exceeding 100 penalty units in the case of an individual or 200 penalty units in the case of a corporation,

(e) impose a condition on the person’s licence or certificate of registration,

(f) suspend the person’s licence or certificate of registration for a period that does not exceed the unexpired term of the licence or certificate of registration,

(g) cancel the person’s licence or certificate of registration,

(h) declare the person to be a disqualified person for the purposes of this Act, either permanently or for a specified period,

(i) disqualify the person from being involved in the direction, management or conduct of the business of a licensee.

(2) A power conferred by this Act to take disciplinary action against a person is a power to take any one or more of the actions that constitute disciplinary action.

(3) When a licence or certificate of registration is suspended, it is taken not to be in force except for such provisions of this Act or the regulations as the regulations may prescribe as provisions that remain applicable to a suspended licence or certificate of registration.

21 Section 200 gives persons against whom disciplinary action is taken a right to seek a review of the decision in this Tribunal.

The Regulations and Commissioner’s Guidelines

22 Part 4 of the Property Stock and Business Agent Regulation 2003 ("the Regulations") contains detailed provisions regarding the handling of trust moneys. The relevant provisions are found in clauses 21 to 33 of the Regulations.

23 Section 32(4) of the Act authorises the Commissioner to issue Guidelines from time to time ''as to what constitutes the proper supervision of the business of a licensee." Guidelines issued pursuant to section 32(4) came into force on 1 March 2005. The Guidelines serve to reinforce the statutory duties and obligations of a licensee in charge.

Mr Davidson's case

24 Mr Davidson relied his own evidence and that of several witnesses. Mr Davidson gave evidence and was cross-examined. He gave evidence in regard to the circumstances that surrounded the theft of funds from the trust account operated by the agency. He gave detailed evidence of the relationships between the various staff members within the agency and the relationships between the agency staff and Elders management.

Current awareness

25 Mr Davidson confirmed his understanding of the means by which Ms Borger falsified the bank reconciliations, and the various means by which Ms Borger ‘covered her tracks’. He places much of the blame for the circumstances that prevailed at the time on Elders’ management. The arguments presented in this regard are summarised in the reasons provided by Mr Wilson in regard to his determination. These are set out below and I will not repeat them here.

26 Mr Davidson gave an outline of measures that could be taken to prevent or detect such defalcations. These included implementing a "cash free office" policy (i.e. bonds only to be paid by bank cheque etc and rentals paid by direct deposit or by rent card system etc); segregation of duties particularly ensuring that the trust account operator was not personally involved in the banking of trust moneys; the careful checking by the licensee of external source documents (for example monthly trust account bank statements) when reviewing monthly reconciliations; ensuring that all rental bonds paid to the agency by tenants had been lodged with Fair Trading’s Renting Services by monthly on-line checking of the Fair Trading bond register for the office and comparing this with receipts for bonds paid to the agency by tenants; requiring that all new tenants provide two bank cheques (i.e. the first for the rental bond and the second for advance rental for the first weeks of the lease); to have more than one staff member working as the trust account computer operator (i.e. due to the risk of undetected fraud where only one operator ever is accessing the trust account records and also preparing the reconciliations); insistence that regular holidays are taken by all staff; and implementing guidelines on documenting complaint handling procedures.

27 He also gave evidence in regard to the impact that the events have had on him personally. He outlined the efforts that he has made to educate himself with respect to the legislative regime provided for by the Act and in particular the obligations imposed on a licensee in charge.

28 Mr Davidson gave evidence that he has consulted with his Accountant, Mr Stephen Fisher, and studied procedural manuals to ensure that he has current awareness of the Supervision Guidelines and best practice to detect trust account frauds. He undertook a number of written assignments on trust account procedures and fraud prevention measures prepared by Mr Fisher, accountant and by Mr Richardson. Mr Davidson met with Mr Fisher to further these efforts.

29 He gave the assurances that he now acutely aware and considerably better informed on important and significant measures to prevent defalcations than at any time since he entered the real estate business in 1985. He said that if he is permitted to resume work as a licensed real estate agent, he will take all possible steps in future to prevent himself or any clients of any office where he may be the licensee or a director from being disadvantaged by trust account frauds.

30 Ms Rosalyn Flanagan provided evidence of the arrangements and procedures in place in the agency prior to the theft. This evidence confirmed the various deficiencies that permitted Ms Borger to carry out the deception.

31 Mr Fisher is a partner in the firm of Jemmeson & Fisher, Solicitors and Accountants who are specialist consultants to the real estate industry and Mr Fisher is the principal accountant in the firm. Mr Fisher is also retained by the Real Estate Institute of New South Wales as a course trainer in relation to real estate licensing and trust accounts. In this area, Mr Fisher delivers lectures and marks exam papers. Mr Fisher confirmed Mr Davidson's evidence about the efforts taken to ensure that he has current awareness of the Supervision Guidelines and best practice.

32 Mr Fisher believes Mr Davidson has a very sound understanding of the Act. As a result of all the work he had undertaken with Mr Davidson, Mr Davidson has a very good understanding of the different types of frauds occurring in real estate agents offices. He has a very good understanding of internal controls that licensees in charge should implement in relation to trust account moneys. Mr Fisher said that his professional services were available if in future Mr Davidson might require advice in relation to preventative measures and that Mr Davidson had asked Mr Fisher to be available if and when required for that purpose.

Character references

33 In addition to this evidence Mr Davidson relies on seven written character references provided in support of his application. Mr Richardson gave each of the persons who provided those references a three page letter which contained a summary of the material facts this case; a print out of the Fair Trading ‘Licence Check’ for Mr Davidson as at 18 July 2007; and (c) copies of the Fair Trading ‘Notice to Show Cause’ and ‘Schedule A - Grounds of Belief'. Mr Richardson submitted that this material constituted an entirely sufficient disclosure of material facts to referees. Each is aware of the circumstances leading to Mr Davidson's disqualification.

Testimonials

34 Mr Davidson also relies on a bundle of client testimonials. All of those testimonials were furnished prior to March 2005. They were not prepared for the purpose of these proceedings. These attest to Mr Davidson's integrity and honesty and to his competence and ability as a well-respected Griffith licensee over the past 21 years.

35 Five of Mr Davidson’s referees appeared at the hearing, gave evidence and were subjected to cross-examination. Each of those witnesses clearly holds Mr Davidson in high regard.

36 In his written submissions Mr Richardson provided what I consider to be a reasonable summary of the evidence that each of the witnesses gave.

37 Dr Peter Bortz stated that he has known Mr Davidson for five years and that Mr Davidson was appointed as the selling agent for his house in September 2006. Dr Bortz considered that Mr Davidson had in depth market knowledge; provided a realistic price guide for the area; was always honest and ethical; was excellent in his presentation and communication; is trustworthy, honest and professional. In Dr Bortz’s view is that Mr Davidson is fit to reliably supervise staff and to continue to hold a licence and is an asset to the Griffith community whom he will continue to recommend to his colleagues. Dr Bortz considered that the allegations made against Mr Davidson appear completely out of c1aracter.

38 Dr Ashraf Sharif Moursi stated that he has known Mr Davidson professionally as Mr Davidson had sold his house in December 2005 and provided a market appraisal of his present home. Dr Moursi has been the Davidson family GP since 2002 and a family friend for five years. He has always found Mr Davidson to be completely professional and honest; having work ethics of a high standard; to go above and beyond what is required of him as an agent; knowledgeable in all areas concerning real estate; always having high standards of competence as an agent; and having an extremely good reputation in the community.

39 Dr Moursi strongly supports Mr Davidson's application and holds the view that Mr Davidson is definitely fit to continue to hold a real estate licence. He believes that if Mr Davidson were permitted to continue to hold a licence, he could be relied upon to be extremely vigilant in the future to supervise staff to avoid any future irregularities being committed at any agency where he may be the licensee or a director.

40 The Hon. Adrian Piccoli MP, the Member for Murrumbidgee, has known Mr Davidson for over 12 years and first met him when Mr Piccoli was a solicitor in Griffith. He had numerous conveyancing transactions involving Mr Davidson and found him to be extremely professional, diligent and capable. He and Mr Davidson became good friends. He also dealt with Mr Davidson when he purchased his first home in 1995.

41 Mr Piccoli stated that he has always found Mr Davidson to be very effective and reliable; always impeccable in his conduct as an agent when assisting Mr Piccoli over a 12 months period to purchase a suitable home; a totally honest and reliable person who is held in the highest regard in Griffith; to have the very highest personal integrity; considered the most well liked and respected real estate agent in Griffith.

42 Mr Piccoli stated that he knows that Mr Davidson was very upset and shocked by what happened. He is certain that it will never happen again under his watch. He believes that if Mr Davidson were permitted to continue to hold a licence, he can be relied upon to be extremely vigilant in the future in supervising staff to avoid any future irregularities being committed at any agency where he may be a licensee or director. He is absolutely confident of Mr Davidson's fitness to hold a real estate agents licence.

43 Mr Andrew Rowe is a solicitor who stated that he has known Mr Davidson for 15 years, first as a real estate agent and also as his client. Mr Rowe stated that Mr Davidson is of good character and conduct; well respected in the local community; held in high regard by his peers; honest, forthright and fair; and particularly conscious of his responsibilities to both vendors and purchasers.

44 Mr Rowe stated that he is aware that this episode has deeply affected Mr Davidson and that he has learnt from it. In his opinion Mr Davidson was very embarrassed but he learnt his lesson. Previously, he had placed too much trust in his employees. He is confident that if Mr Davidson is permitted to hold a licence he could be relied upon to be extremely vigilant in the future in supervising staff to avoid any future such irregularities being committed.

45 William Ray Gamble has known Mr Davidson for over 25 years both socially and professionally and that Mr Davidson has acted for Mr Gamble and his family in buying and selling real estate. Mr Gamble said that Mr Davidson is thoroughly honest and reliable; sets himself the highest ethical standards; is a very knowledgeable real estate agent; as a director of Lorraine Murphy Real Estate correctly carried out his duties; is held in the highest standing in the community; and that he is probably the most respected and best known agent in Griffith.

46 He considered Mr Davidson to have been ‘a victim of circumstances’. However, he is confident that if Mr Davidson is permitted to hold a licence he will be much more vigilant to see this type of occurrence does not occur again in his office.

47 Simon McKenzie is a solicitor who has practiced at Griffith for over 50 years. He has known Mr Davidson for over 20 years and associated with Mr Davidson in the course of his work as a real estate agent. Mr McKenzie said that Mr Davidson is a highly ethical person in all real estate matters; he has displayed nothing but honesty in all of his dealings; he is very much aware of his fiduciary duties and has always behaved in an extremely professional manner; he has an excellent knowledge of his duties and responsibilities; in respect of sales, purchases or property management he has always displayed professionalism and honesty of the highest order; and he is held in the highest regard and has an excellent reputation not only with his peers but also with community leaders and solicitors.

48 Mr McKenzie stated that he is aware of the effect that the finding has had upon Mr Davidson and feels certain that if he is permitted to retain his licence he will be extremely vigilant in future in supervising staff and this will no doubt ensure that there will be no irregularities committed in any agency that he may be a licensee or a director.

49 Mr McKenzie stated that he has no doubts whatsoever as to Mr Davidson's fitness and suitability to hold a Real Estate Licence. He considers him to be one of the most outstanding Agents that he has had to deal with over many ears in all type of property dealings. He considers that the orders imposed by Fair Trading are too harsh.

50 Councillor Peter Fussell is a Griffith City Councillor and also the principal of Griffith City Motors. He has known Mr Davidson for ten years and had dealings with Mr Davidson as a real estate agent in relation to investment properties since 2001. Mr Fussell has found Mr Davidson to be well informed and well skilled in his duties as an agent; always maintains the highest standards required in the industry; proficient in his work as a director and the licensee; to demonstrate a high standard of personal and professional ethics; trustworthy and adhering to a high level of integrity in his business; held in high esteem in the community; known for his ability and honesty as an agent; and a decent well respected and valuable citizen.

51 Mr Fussell believes that if Mr Davidson is permitted to retain his licence he can be relied upon in the future to be particularly watchful in his management of staff, in order to prevent any misconduct from occurring at an agency where he may be the licensee or director.

52 Mr Fussell stated that he has previously audited trust accounts in the real estate industry. He is aware that from an operational point of view Mr Davidson held responsibilities to ensure the accounts were kept in accordance with the Act. However he said the he considers that the auditors should have picked up the discrepancies. He thinks there has been a severe learning curve for Mr Davidson and he now has a better understanding of what he needs to do.

Detailed submissions

53 Mr Richardson provided detailed submissions in regard to the evidence presented on behalf of each of the parties. He submitted that all orders made by the Commissioner should be set aside and that the conditions imposed on Mr Davidson on the granting of the Stay Orders should also be vacated.

54 It is further submitted that given the history of this matter there is no prospect whatsoever of Mr Davidson at any future time when he may be in charge of any licensee's office failing to implement effective internal controls to prevent defalcations or failing to comply with the Commissioner's Guidelines.

55 It is also submitted that, as Mr Davidson will have been stood down as the licensee in charge of the Elders Griffith branch for three years as at 22 March 2008 and has been prohibited since the granting of the Stay Orders from engaging in any duties involving direction, management or supervision of any licensee's office, that sufficient disciplinary action has already been imposed on him. Therefore, no ongoing disqualification orders or conditions should be visited upon Mr Davidson.

56 Mr Richardson argued that the efforts which Mr Davidson has undertaken to improve his knowledge and ability is self evident from the material now available to the Tribunal. He submitted that Mr Davidson has demonstrated his present competence, knowledge and ability on key issues including internal controls and measures to counter trust frauds so as to satisfy the Tribunal of his fitness to continue to hold a real estate agent's licence.

57 However, Mr Richardson said that should the Tribunal have any reservations on this issue then it is proposed that Mr Davidson undertake to the Tribunal and the Commissioner, that he will during the 12 months following the Tribunal's decision, complete at the direction and under the supervision of Mr Fisher, a further six hours of continuing agency education including completing written assignments; and or attending seminars and or consultations with Mr Fisher on the issues of trust accounting obligations of licensees and the Commissioner's Guidelines under section 32 of the Act and Mr Davidson further undertaking to provide to the Commissioner within such 12 month period (1) signed written confirmation from Mr Davidson of his proper performance of these undertakings and (2) signed report from Mr Fisher as to Mr Davidson's satisfactory completion of these undertakings.

The Commissioner’s case

58 The Commissioner relies on several volumes of documents comprising over 1,100 pages. In particular it relies on the evidence of its investigator Mr John Saminaden who provided a written report of his investigation into issues concerning the trust books and records of the Corporation. Mr Saminaden appeared at the hearing and was subjected to cross-examination.

The show cause notice determination

59 The show cause notice issued to Mr Davidson was issued on Mr Saminaden’s recommendation. The Commissioner’s case is essentially that set out in the reasons provided in relation to the determination of the Notice to Show Cause. The Commissioner’s delegate stated:

"Consideration of matters

Section 191(a)

The first ground to consider is whether Mr Davidson has contravened a provision of this Act or any other Act administered by the Minister, or the regulations under any such Act, whether or not the person has been prosecuted or convicted of an offence in respect of the contravention.

It is agreed by Mr Davidson that money was not banked into the Branch's trust account in breach of section 86 of the Act, the trust account from the Branch was not audited as required by section 111 of the Act for the years 2003 - 2004 and 2004 -2005 and rental bonds were not paid within seven day as required by section 8 of the Landlord and Tenant (Rental Bonds) Act 1977.

It is also agreed that Mr Davidson was the licensee in charge of the Branch.

The Notice to Show Cause states that Mr Davidson, the nominated licensee in charge, failed under section 32 of the Act to:

Supervise the banking of trust moneys into the Corporation's trust account by the end of the next banking day on behalf of its clients.

Supervise the end of month reconciliations of the Corporation's trust account which held apparent deficiencies for the period ending 30 April 2004 to 28 February 2005.

Supervise the lodgement of the audit report with the Office of Fair Trading for the year ending 30 June 2003 and 30 June 2004 within the prescribed time.

Supervise the lodgement of rental bonds with the Rental Bond Services. The Corporation failed to lodge one hundred and fifteen rental bonds with the Rental Bond Services within seven days pursuant to section 8(2A) of the Landlord and Tenant (Rental Bonds) Act 1977.

Section 32(2) and (3) of the Act sets out the specific obligations that a licensee in charge must carry out. They include:

1. employees engaged in the business must be properly supervised;

2. compliance procedures must be established in respect of the Act and other relevant laws;

and

3. compliance with those procedures is monitored to ensure their effectiveness.

Properly supervise is not defined in the Act. The Third edition of the Macquarie Dictionary defines supervise to mean:

To oversee (a process, work, workers etc.) during execution or performance; superintend; have the oversight and direction of:

and properly to mean:

in a proper manner; correctly, appropriately, decorously, accurately, justifiably

There is no acknowledgement by Mr Davidson of his obligation to properly supervise the business of the Branch. Nothing is said about Mr Davidson's understanding of these obligations or how he met, nor attempted to meet these obligations.

The licensee in charge of a corporate licensee is the first line of defence against misconduct. The audit process, monitoring and inspection by the Office of Fair Trading, investigation of complaints by the Office of Fair Trading and recourse by affected landlords and tenants or vendors and purchasers to the Compensation Fund, the Courts or Fair Trading all follow after this. These other things are ways of detecting and, one hopes, preventing misconduct but the person with the greatest ability, and the highest onus, to effect compliance by a corporation with its compliance obligations is the licensee in charge. It is her or his responsibility - clearly stated under the Act to ensure that the business complies with the Act.

Written submissions make much of Mr Davidson's employment contract and state there is no provision whatsoever in Mr Davidson's employment contract with Elders requiring him, as part of his duties as the real estate manager of the Griffith branch to verify, check or audit the depositing of monies in to the rental trust account. The submission states when Mr Davidson was asked by investigators if it was part of his duties to check the trust account, Mr Davidson said "it was never specified for me to do that" (referring to his employment contract).

However clause 5(g) of Mr Davidson’s employment contract states Mr Davidson must comply with his statutory obligations. This requires Mr Davidson as the nominated licensee in charge to comply with section 32 of the Act and properly supervise the business of the principal licensee.

The submissions state Mr Davidson travelled to Wagga Wagga and attended a Real Estate Institute NSW seminar re introduction of Office of Fair Trading's supervisory guidelines. On his return to Griffith, Mr Davidson circulated copies of the guidelines to all staff including Miss Borger for signature and return as the due date to implement them is two weeks later on 1 March 2005. From this it can be seen that Mr Davidson as Licensee in Charge felt all staff should know these procedures and shows in this instance he dealt with his responsibility to properly supervise staff including Miss Borger.

The submissions also state Mr Davidson suffered the ignominy of being stood down as the licensee in charge of Elders Griffith office two years ago and his demotion has remained in place pending the conclusion of the OFT enquiries. This also shows Mr Davidson was under no doubt about the fact he was licensee in charge. Mr Davidson as Licensee in Charge was required to oversee the work of Miss Borger.

It was also stated Mr Davidson, the licensee at the time of the fraud, reviewed the bank reconciliations prepared by the property manager and the monthly cashbook balance, trial balance and bank reconciliation balances may all match, however there is a risk that the bank balance on the reconciliation is a false one in order to conceal fraudulent activity.

This submission confirms the licensee in charge needs to ensure what is provided is checked and such work is properly supervised. It must be noted while Mr Davidson does not acknowledge it was his duty to check the rental trust account he did sign off the monthly reconciliations. This only confirms it was his duty to properly supervise or as defined in the Macquarie Dictionary accurately oversee work during performance of the Branch's business.

The lack of proper supervision allowed the property manager to prepare the bank reconciliation and enter false amounts into the reconciliations, which the property manager calculated so the bank reconciliation balanced. The lack of supervision of Miss Borger allowed Miss Borger to remove the segregation of duties between banking/cash handling procedures and the bank reconciliation process created a risk of theft and fraud.

Whilst the submissions state at no time did Mr Davidson have any cause to doubt or question the reconciliations presented to him, Mr Davidson had the responsibility to properly supervise Miss Borger which he did not do.

To properly supervise the banking of trust money and other duties Miss Borger had Mr Davidson needed to oversee and check the Bank statements to ensure the performance of the duty to bank the money. It must be noted that Mr Davidson did not check any of the reconciliations against the bank statements. This simple and quick check would have revealed the money was not being paid into the bank as the reconciliations stated. To state there was no cause to doubt or question the reconciliations cannot stand in light of this failure to check to see if the money was in fact banked that is to properly supervise.

The submissions state Mr Dinsdale did not notice that Miss Borger deliberately failed during this period from April 2004 to February 2005 to enclose any trust account bank statements with the reconciliations, as had she done so, the likelihood of her criminal conduct being detected by Mr Dinsdale was considerably higher. Whilst the solicitors for Mr Davidson state it was Mr Dinsdale's failure to notice the lack of bank statements it was Mr Davidson's failure to properly supervise and ensure the bank statements were checked and included in what was sent to Mr Dinsdale that allowed the money to be stolen.

This failure to properly supervise the business of the principal licensee is a breach of section 32 of the Act and establishes the first ground for disciplinary action.

Section 191 (b)

The next matter for consideration is whether Mr Davidson has in the course of carrying on business or exercising functions under the licence acted unlawfully, improperly, unfairly or incompetently.

It is accepted Mr Davidson did not act unlawfully, improperly or unfairly.

However the continued failure of Mr Davidson as licensee in charge to properly supervise the conduct of the business specifically the actions of Miss Borger as set out above shows Mr Davidson acted incompetently. This establishes the second ground.

Section 191(e)

The third ground to consider is whether Mr Davidson is a fit and proper person to be involved in the direction, management or conduct of the business of a licensee.

Fit and proper has been held to mean honesty, knowledge and ability. There is nothing in this matter to question Mr Davidson's honesty.

However the lack of supervision as licensee in charge of Miss Borger's receipt and banking of trust money and the failure of Mr Davidson to accept this responsibility, shows Mr Davidson lacks the knowledge of the role of the licensee in charge and ability to carry out this role.

The role of the licensee in charge as stated above is extremely important. Mr Davidson's failure to properly supervise the Branch allowed a large sum of trust money and bond money to be stolen. Whilst Mr Davidson did not benefit from the contravention there was a significant loss of other people's money, which required his employer to make good.

Mr Davidson stated he suffered the ignominy of being stood down as the licensee in charge and saw it as a demotion. This in its self shows Mr Davidson knew the position was more than just one of selling. He was responsible for the Branch's proper supervision and his failure to do so properly allowed the stealing to continue over a significant time.

Determination

I am satisfied that the grounds in section 191(1)(a), (c) and (e) of the Act are made out against Mr Davidson. As all grounds of the Notice to Show Cause have been made out, such conduct is deserving of a period of disqualification.

During the investigation Mr Davidson co-operated with Fair Trading and the Police regarding this matter. However, Mr Davidson has shown no contrition, remorse or any rehabilitative process has been undertaken as a result of this incident, which would allow him to retain his licence.

Mr Davidson has an unblemished record as a real estate agent. His conduct in question in this matter relates directly to being Licensee in Charge. As there is no reason to doubt his honesty, it is appropriate that Mr Davidson be able to hold a certificate of registration during any period of disqualification as a licensee.

I have determined that licence number 253481 held by Mark Manning Davidson be cancelled pursuant to section 192(1)(g) of the Act.

I have determined that pursuant to section 192(1)(h) of the Act, Mark Davidson is disqualified from holding a licence issued under the Act for a period of five years.

The cancellation and disqualification take effect on and from 15 July 2007.

Mr Davidson's ability to be issued with and hold a certificate of registration under the Act is not affected by this determination."

General submissions

60 Ms Henderson provided written submissions on behalf of the Commissioner in light of the evidence presented at the hearing. She makes the following general submissions (citations omitted):

The purpose of the Act and the Regulations, including the disciplinary provisions, is to protect consumers. The evidence before the Tribunal shows that the consumers who relied upon the applicant to protect their interests did not receive the service he was legally obliged to give them, and that, for the better protection of consumers, he ought not to be a licensee-in-charge of an estate agency.

The respondent's delegate observed in his determination that the applicant "has shown no contrition, remorse..." Subsequently, in a statement dated 28 September 2007, the applicant has indicated that:

I acknowledge to the Tribunal and accept my share of professional responsibility for failing to detect Ms Borger's frauds after April 2004

There is no question of shares of professional responsibility in this matter. As licensee in charge, the applicant had non-delegable responsibilities in relation to the trust account of the business and the supervision of the employees of the business.

His lack of understanding in this area is a matter of grave concern. It is reflected in the evidence he has given to the Tribunal, the information he gave to his character witnesses, and in the written submissions made on his behalf. The written submissions are replete with accusations and criticisms directed at KPMG, Elders, the respondent's officers and the respondent's internet web site - none of which are matters that fall within the purview of the Tribunal in its review of the respondent's decision about the applicant.

In the course of his evidence the applicant has identified various strategies that he says he would employ in the future if his licence were to be restored: operating a cash free business, segregation of employees' duties, requiring employees to take holidays, managing no rental properties or a minimum of them, avoiding responsibility for sales deposits, and checking external source documents such as bank statements and Rental Bond Board printouts.

However, during the time that Teena Borger was stealing trust moneys, the applicant was licensee in charge of a business that was -as far as he knew -cash free. The employees were -as far as he knew -performing the separate duties that had been assigned to each of them. The theft was perpetrated over an 11-month period, the usual period an employee might work without being expected to take a holiday. The trust account contained no sales deposits. Bank statements were readily available -the applicant had known in the past where they were kept, in the third drawer of the fire-proof filing cabinet in Trish Colla's room, but he was no longer sure where they were. Rental Bond Board documents were not a novelty for the applicant -in the past he used to check them to see if the number of bonds roughly corresponded with the number of properties under management, but he had stopped doing so.

The deficiencies in the business that afforded Teena Borger the opportunity to steal rent and bonds from the trust account were not the lack of a cash free policy, the lack of segregation of duties, and so on. The problem was the applicant's failure to supervise, his failure to monitor the observance of procedures such as the cash-free policy, the segregation of duties, etc., and his indifference to the proper management of the trust account.

The applicant admitted in his oral evidence that his supervision of Teena Borger and Kate consisted of asking them whether the end-of-month had been OK, and that his contact with other property management staff mainly involved saying hello. It is clear from the evidence of both Patricia Flanagan and the applicant that the applicant distanced himself from the only staff in the business who were handling trust moneys on behalf of clients. Ms Flanagan said that she and her colleagues were subjected to regular reminders by Teena Borger that they all owed their jobs to her. The applicant's lack of interest allowed Teena Borger to dominate those employees to such an extent that she could direct them not to speak to the licensee in charge, and be obeyed. As a result, a matter as important as the existence of signed blank trust account cheques was not reported to him, as it should have been.

None of the training hurriedly administered in the days immediately before the Tribunal hearing was directed at making the applicant a better supervisor than he has so far demonstrated himself to be. His oral evidence before the Tribunal was noticeably lacking in any plans or strategies to improve his supervision of employees, or to involve himself in their recruitment and training, or to direct and encourage them to report matters of concern. The applicant expressed surprise that employees did not come to him, and claimed that he is an approachable person, but it is clear that he failed to take the initiative in his dealings with them. It may be that while he is an efficient and honest salesman and sales manager, supervising staff responsible for trust accounts is simply not a task for which the applicant is suited.

The applicant had and still has no understanding of the Clarke's system that he and Lorraine Murphy installed in 1993. His claim that he understood the Commonwealth Bank directly input one of the figures in the end-of -month reconciliation lost all credibility when he was unable to identify that figure on the reconciliation at page 212 of the section 58 documents. The training he has recently undertaken to equip himself to understand bank reconciliations consisted of a single short exercise at a rudimentary level.

The Tribunal might have taken more comfort from the applicant's evidence if he had at least shown that he now has some understanding of the contents of the numerous reconciliations that he signed during the period of Teena Borger's theft. He might, for example, have pointed out to the Tribunal the four current outstanding deposits on page 212 of the section 58 documents, and have said that he would want to know why these deposits had not been banked within the time prescribed by clause 21 of the regulations.

On the evidence before the Tribunal, it is clear that the applicant has no insight into the seriousness of the events that took place in a business that was under his control as licensee in charge, nor into his own culpability in those events:

almost $440K of clients' funds were stolen. Had Elders not made good the deficiency, the theft would have created a very substantial impost on the Compensation Fund;

the applicant, in his evidence and in the submissions made on his behalf, repeatedly attributes blame to others and criticises their performance;

the applicant, in his evidence, repeatedly claimed that he did not discharge his statutory responsibilities because he had not been taught about them, or because he had not been instructed to carry out a particular duty. As licensee in charge of his own business for four years, and the Elders business for two years, the applicant assumed the role of the person in charge, responsible for supervising employees and protecting clients' moneys. He was there to direct, not to be directed. Due to the inadequacy of his performance, trust moneys belonging to clients were at risk for the whole of that period.

For the protection of consumers, the decision under review should be affirmed.

Discussion

The issues

61 The issues to be determined in this matter are: whether Mr Davidson has contravened any relevant legislative provisions; whether Mr Davidson has in the course of carrying on business or exercising functions under the licence acted unlawfully, improperly, unfairly or incompetently; and whether Mr Davidson is a fit and proper person to be involved in the direction, management or conduct of the business of a licensee.

The standard

62 If I am satisfied that a ground for taking disciplinary action is established I must then determine what, if any, disciplinary action should be taken. The applicable standard is the Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 standard. In an appeal from a decision by The Greyhound Racing Appeals Tribunal in Greyhound Racing Authority (NSW) v Bragg [2003] NSWCA 388 at paragraph [35] Santow JA observed in regard to the operation of the Briginshaw standard:

‘how that standard was to operate must be understood in the context of an administrative body operating informally and not as a court of law bound by the law of evidence. The notion of "inexact proof, and indefinite testimony or indirect references" needs to be translated to a comfortable level of satisfaction, fairly and properly arrived at, commensurate with the gravity of the charge, achieved in accordance with fair processes appropriate to and adopted by such a body. ’

63 In determining matters I am required to reach a standard of comfortable satisfaction on the balance of probabilities.

Findings

64 The circumstances that lead to the issue of the Notice to Show Cause to Mr Davidson are not in dispute. The differences between the parties centre on the obligations imposed on Mr Davidson by virtue of the fact that he held the position as licensee in charge of the agency, and whether or not the disciplinary action taken against him is warranted.

65 For the reasons set out by Mr Wilson in the reasons he provided in regard to his determination, I am comfortably satisfied that, as the person in charge of the business at the agency, Mr Davidson failed to properly supervise that business. He failed to establish procedures designed to ensure compliance with the provisions of the Act relevant to the conduct of that business.

66 Mr Davidson adopted procedures that created a risk of theft and fraud. The lack of supervision allowed Ms Borger to prepare bank reconciliation and enter false amounts into the reconciliations. She was able to vary the established procedures that had segregated banking/cash handling processes and the bank reconciliation process. It is clear that Mr Davidson failed to establish appropriate procedures to guard against such conduct and to ensure compliance with the requirements of the Act.

67 Mr Davidson failed to properly supervise Ms Borger. It is clear from Ms Flanagan’s evidence that Ms Borger was able to disregard Mr Davidson’s instructions and to vary the procedures within the agency in a way that limited the possibility of her conduct being discovered. Mr Davidson had acted on the misconceived belief that the procedures that had been in place throughout the operation of the previous agency had been maintained.

68 It seems that the explanation for this failure to properly supervise Ms Borger is that Mr Davidson formed the view that he had been relieved of the obligation to supervise the conduct of the business. He formed this view notwithstanding the fact that he held the position as licensee in charge of the agency. While I accept that the evidence shows significant deficiencies in the roles played by others in the chain of command, and in the role played by the auditors, I do not share Mr Davidson view that his employment contract relieved him of the obligations imposed on him by the Act. Mr Davidson cannot be held responsible for the failures of the auditors or the Elders management but he can be held responsible for any failure on his part.

69 The terms of section 32 of the Act are unambiguous. As the person in charge of the business Mr Davidson had an obligation to properly supervise the business. In my view the evidence that he failed to do so is clear and compelling. This failure to properly supervise the business is a breach of section 32 of the Act.

70 The Commissioner does not contend that Mr Davidson acted unlawfully, improperly or unfairly. In my view there is no evidence to suggest that he did so. However, I agree with the Commissioner that Mr Davidson acted incompetently by his failure to properly supervise the conduct of the business.

"fit and proper"

71 There are numerous decisions in which the Tribunal has considered the issues of whether a person is "fit and proper". In Hughes and Vale Pty Limited v State of New South Wales [1955] HCA 28; (1955) 93 CLR 127 the characteristics of "fit and proper" were said to be knowledge, honesty and ability. In Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321 Toohey and Gaudron JJ stated:

"the expression "a fit and proper person" standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of "fit and proper" cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However depending upon the nature of the activities the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur.

72 It is clear from the views from Australian Broadcasting Tribunal v Bond that the determination of whether a person is "fit and proper" is contextual. There should be some 'nexus' between the conduct complained of and the activities to which the licence relates. Thus, whether Mr Davidson is a fit and proper person must be determined in the light of the activities likely to be undertaken by the holder of a real estate licence.

73 Mr Davidson’s honesty is not in question. The evidence presented on his behalf suggests that he is well regarded by others in his community and that those who gave evidence of professional dealings with him spoke highly of his knowledge of the local real estate industry. The real issue between the parties is whether he has the ability to be involved in the direction, management or conduct of a real estate business as a licensee.

The correct and preferable decision

74 On the evidence I am comfortably satisfied that at the time that Mr Wilson made his determination, there were sound reasons to support the conclusions that he reached in regard to Mr Davidson’s ability. It is necessary that I determine whether Mr Wilson’s determination remains the correct and preferable one.

75 The evidence presented on Mr Davidson’s behalf shows that he has taken steps to improve his understanding of the statutory duties and obligations of a licensee in charge. He has obtained expert assistance as part of this process and has been able to reach an understanding of the methods that Ms Borger adopted and the management deficiencies that permitted her to carry out the deception. He was able to provide examples of procedures that could be adopted to ensure that such a situation would not arise in the future.

76 The Commissioner contends that notwithstanding the efforts that Mr Davidson has made, he still does not have sufficient understanding of the seriousness of Ms Borger’s actions or the level of his own responsibility. He also has limited understanding of the Clarke computer software system that is in operation within the agency and this increases the risk of further issues arising in the future. The Commissioner also contends that none of the training that Mr Davidson has undertaken was directed towards improving his supervision skills.

77 I agree with Mr Richardson that the efforts which Mr Davidson has undertaken to improve his knowledge and ability is self-evident. I also agree that Mr Davidson has demonstrated his present competence, knowledge and ability on a number of key issues. However, I share the Commissioner’s concerns in regard to Mr Davidson’s ability to supervise staff responsible for trust accounts. In my view, Mr Davidson would need to undertake further education before the Commissioner could be satisfied that he has sufficient competence, knowledge and ability in this regard.

78 Mr Richardson proposed that Mr Davidson undertake a further six hours of continuing agency education including completing written assignments; and or attending seminars and or consultations with Mr Fisher on the issues of trust accounting obligations of licensees and the Commissioner's Guidelines under section 32 of the Act. In my view, if Mr Davidson were to successfully complete that further education, the Commissioner’s concerns in regard to Mr Davidson’s ability to supervise staff responsible for trust accounts would be met. Until he has achieved that level of further education I could not be satisfied that he has sufficient competence and knowledge.

79 On the evidence I am comfortably satisfied that the ground for taking disciplinary action is established. In my view, the Commissioner’s determination to cancel Mr Davidson's licence was the correct and preferable decision. However, in light of the steps that Mr Davidson has undertaken to improve his knowledge and ability, the decision to disqualify him from holding a licence for five years is excessive. In my opinion, a more appropriate period of disqualification is 18 months.

80 I note that the Commissioner’s determination took effect from 15 July 2007. However, Elders had stood down Mr Davidson as licensee in charge in March 2005. The stay was granted subject to stringent conditions. One of those conditions is that he is not to act as a licensee in charge of any real estate agency. In these circumstances Mr Davidson has been effectively subjected to restrictions on his licence since 22 March 2005. This should be taken into account when determining the appropriate period of suspension.

81 In my view, the protection of consumers requires that Mr Davidson be disqualified from holding a licence. However, in light of the time that has passed since he was stood down as licensee in charge and the efforts he has made to improve his competence, knowledge and ability, a lesser period of disqualification than that proposed by the Commissioner is warranted. In my view, a period of disqualification for 18 months effective from 15 July 2007 is sufficient.

82 It is also my opinion that should Mr Davidson reapply for his licence after the period of disqualification, the imposition of the other conditions that Mr Richardson proposed would be warranted.

Order

The decision under review is varied.

The decision that licence number 253481 held by Mark Manning Davidson be cancelled pursuant to section 192(1)(g) of the Act is affirmed.

The decision that Mark Davidson is disqualified from holding a licence issued under the Act for a period of five years is set aside. In its place the decision is made that Mark Davidson is disqualified from holding a licence issued under the Act for a period of 18 months.
The cancellation and disqualification take effect on and from 15 July 2007.