Espanol Holdings Pty Ltd v Real Estate & Business Agents Supervisory Board [2008] HCATrans 379 (13 November 2008)

Last Updated: 17 November 2008

[2008] HCATrans 379

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Perth No P23 of 2008

B e t w e e n -

ESPANOL HOLDINGS PTY LTD (IN LIQ)

First Applicant

MARIA MICHELLE ORTIN

Second Applicant

and

REAL ESTATE AND BUSINESS AGENTS SUPERVISORY BOARD

Respondent

Application for special leave to appeal

HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

BY VIDEO LINK FROM ADELAIDE TO PERTH

ON THURSDAY, 13 NOVEMBER 2008, AT 12.34 PM

Copyright in the High Court of Australia

MR D.H. SOLOMON: If it please, your Honours, I appear for the applicant. (instructed by Solomon Brothers)

MS F. VERNON: May it please the Court, I appear for the respondent. (instructed by Tottle Partners)

HAYNE J: Yes, Mr Solomon.

MR SOLOMON: Your Honours, this application concerns the proper operation of important remedial legislation that creates a scheme for the victims of defalcation of real estate licensees in Western Australia. The applicants are in the position that they lodged notice of a claim in 1999 on the basis that the scheme covers ultimate residual losses. They pursued proceedings against the licensee and others for some years. They were settled on the eve of a lengthy trial and a standard settlement deed was entered into whereby the licensee was released from the cause of action.

The claim on the Fidelity Fund, since changed its name to Fidelity Account, was then pursued and it was struck out on a preliminary basis. That was reversed on a review application to the State Administrative Tribunal under section 23 of the Act, but then that was in turn reversed by the Court of Appeal. The result is that the applicants, having pursued their civil claim and settled it, have in the process, if the construction of the legislation applied by the Court of Appeal is correct, barred their claim on the Fidelity Account.

HAYNE J: Do you say that result is inconsistent with the legislative approach that claimants must first pursue and exhaust their remedies against the defaulting agent?

MR SOLOMON: Yes, I do. The second major reason what it is against is that there are two streams for an applicant to pursue under the Act. The first stream is what is described in the Act as an action against the Fidelity Fund. That is dealt with in ground 2 of my application. There is no court invested with jurisdiction to deal with it, but it is referred to in a number of sections as an action in relation to the Fidelity Account. Section 120 provides special provisions for the Board to allocate the account in the event that there are judgments which are in excess of the amount available in the account.

The second stream which an applicant may pursue is that provided by section 23 of the Real Estate and Business Agents Act. Section 23 in its current form provides that a person aggrieved by a reviewable decision of the Board may apply to the State Administrative Tribunal for review of the decision. If one looks then at the definitions in section 23(2), paragraph (e), in the definition of “person aggrieved”, is:

a person claiming against, or seeking the leave of the Board to commence an action in relation to, the Fidelity Account -

and a “reviewable decision” in paragraph (e) is:

a decision under section 116 or 117 -

It is important in that regard to note that section 23 was rewritten after the decision of the Full Court of the Supreme Court in the decision of Re Real Estate and Business Agents Supervisory Board; Ex parte Cohen [1999] WASCA 47; (1999) 21 WAR 158, a copy of which I have provided. In that judgment, a judgment written by the former Chief Justice Malcolm, with which the other two judges in the quorum agreed, at paragraph 116 on page 187 of the report, one can see the former section 23. The former section 23, because this was prior to the commencement of operation of the State Administrative Tribunal, provided not for a review but an appeal and an appeal not to the State Administrative Tribunal but to the District Court and it was that a person aggrieved by a decision may appeal to the District Court.

The question in Ex parte Cohen, if one follows down from paragraph 116 to 118, is that the District Court had held in 1988 in Cocks v The Board there referred to, and the second ground – this is in the last two lines of paragraph 118:

that because there was a right to bring an action against the Board –

there was no appeal under section 23. The Court of Appeal in Ex parte Cohen overruled the decision in Cocks. Ex parte Cohen was an application for a prerogative writ for a writ of certiorari on the basis that there was no right of appeal under section 23 because of that decision. Ultimately, the court upheld the error of law argument, but in the course of doing so, overruled Cocks and thereby established for the future that one would have a right of appeal from the Board to the District Court under section 23.

It is now obvious that the legislature has codified that decision by re-enacting section 23 in the form that I took your Honours to with the definitions of “person aggrieved” and “reviewable decision” putting it beyond any argument that an applicant may pursue a right of review to the State Administrative Tribunal. From the State Administrative Tribunal, there is an appeal with leave of the Supreme Court on a question of law under section 105 of the State Administrative Tribunal Act.

So an applicant has two streams if dissatisfied with a decision of the Board. They may apply for review to the State Administrative Tribunal or they may commence an action. We have been barred because - - -

HAYNE J: What is the action for? Is the action for an amount fixed in accordance with section 117 of the 1978 Act?

MR SOLOMON: It must be, yes, your Honour. It must be.

HAYNE J: If that is so, under 117(2) and the limit that is created by 117(2), what is to be the liability of the Fund, the Account, in a case where a claimant has settled proceedings with an allegedly defaulting agent on terms that the amount paid or other consideration provided is in full settlement of the claim the client has against the allegedly defaulting agent? What loss has that client thereafter suffered which has not been fully met?

MR SOLOMON: The loss, in terms of reading section 117(2) – it is the balance of the loss after deducting the amount or value of other benefits received or receivable by him from any source other than the Fidelity Account. Properly construed, section 117(2) requires that the words “all money or other benefits received or receivable by him from any source other than the Fidelity Account in reduction of his loss” would include the amount under those proceedings, that is, the balance. I have conceded in this application that it would be open to the Board, if they wished, to contend that the settlement was not a reasonable settlement; that the applicant should not have settled on those terms, acting reasonably; should have recovered more. If that was so held, then the amount that should reasonably have been recovered would be the amount to be deducted rather than the amount actually recovered.

The reason why we have been put out of our application is section 118. Section 118 does not have anything to say about a right of review through the SAT which would mean that there would never be an action against the Fidelity Fund. Section 118 provides:

In any action brought against the Board . . . all defences that would have been available to the defaulting licensee are available to the Board.

So it is said that the Board may rely on the defence created by the deed of settlement in answer to an action, and that is a reason why acting administratively it is entitled to refuse the claim.

To reach that reasoning at paragraph 28 of the Court of Appeal judgment, the approach that is taken to section 117(1) is the nub of the error. What section 117(1) provides – in the first place, the first three lines are the first section and then, following that, the word “but”. So the first three lines:

The Board may receive and, subject to section 116(2), settle -

then, after the word “but” at the end of the third line:

no person is entitled, without the leave of the Board, to commence any action in relation to the Fidelity Account, unless the Board has disallowed his claim and unless and until the claimant has exhausted all relevant rights of action and other legal remedies -

What the Court of Appeal has held, and we say fundamentally wrongly, is that that gives the Board power without an application for leave, in fact, with no application for leave, to disallow the claim on the basis that the Board requires the applicant to bring an action in relation to the Fidelity Account when there is no application for leave.

Now that, with respect, cannot be correct. One gets leave because one applies for it, not because it is forced on one. When, in fact, the applicant has an alternative stream provided by section 23 to never bring an action against the Board, but if dissatisfied with the Board’s decision to apply for review to the State Administrative Tribunal and if successful there or successful at the Supreme Court at the next level, if there is an appeal on a question of law, that is the end of the matter. There will never be an action in relation to the Fund. It is simply not within power for the Board to refuse the application and grant leave to bring an action against the wishes of the applicant, but that was the reasoning of the Court of Appeal which led to the position that section 118 may necessarily be an answer to a claim for an administrative payment from the Fund because there might be a defence to an action.

As I say in the written submissions, it would certainly be open to the applicant whose application is disallowed on the basis that there is a grant of leave given against their wishes to start proceedings in relation to the Fund to review that decision at the SAT. It is open to the SAT to reverse it and say no, it should not be disallowed with a grant of leave. You should have your payment.

HAYNE J: Well, that stream of argument must, I think at some point, encounter the difficulty presented by identification of the nature of a claim that is brought against the Fidelity Fund. That is a claim in debt, see Mallinson v Scottish Australian Investment Company Limited [1920] HCA 51; 28 CLR 66 and other cases taken up in Commonwealth of Australia v SCI Operations Pty Limited [1998] HCA 20; 192 CLR 285.

Now, if the claim against the Board is a claim in debt that presupposes that the debt is to be identified. In determining the amount of that debt, I think what has been held against you amounts to saying that the amount of debt that would be recoverable, if any, in action brought against the Board is to be determined having regard to, amongst other things, the defences provided by 118. Now, what is the answer to that chain of reasoning?

MR SOLOMON: The answer to it, your Honour, is that the words in section 117(1) in this particular legislation have to be given some proper effect. The words in section 117(1) “unless and until the claimant has exhausted all relevant rights of action” contemplates bringing rights of action, pursuing choses in action either to judgment or settlement, getting the money and that what this debt is, is an ultimate balance that is to be the balance of the loss referred to in 117(2).

Those authorities are well and good, but they do not apply to this particular statutory scheme. Whether at the start this statutory scheme only contemplated an action in relation to the Fidelity Fund when section 118 was first written, that may be the case, but it is not the case now. Section 23 has codified the decision in Ex parte Cohen that there is another stream, and that is the right of review and that means one simply does not face section 118 at any time because there is no action.

To construe the whole part harmoniously and to construe it as remedial legislation to thereby give the greatest possible remedy to these victims of criminal and fraudulent defalcation one has to give proper effect to 117(1) and 117(1) is saying “unless and until the claimant has exhausted all relevant rights of action and other legal remedies available against the defaulting licensee” simply cannot mean that one pursues those other causes of action and legal remedies, is left with a balance, but then you cannot recover it. That is to misconstrue this scheme against the victim and against the centuries old principle that remedial legislation should be construed to give the widest possible ambit to the remedy granted.

There are two possible constructions available. When one comes to section 118, the second argument that I wish to ventilate if we get leave is that the defences that would have been available to the defaulting licensee are not defences that arise from a release under a deed, nor a res judicata as I gave the example and the Court of Appeal tried to distinguish this, but with respect unconvincingly. What if you get judgment against the defaulting licensee and you cannot execute it. They have a defence of res judicata. You have a trial on the merits, there is a final decision. If res judicata applies it is no different in substance from the position that instead of pursuing the matter to judgment and merging the cause of action in the judgment and then not recovering, you do not do that, you get an offer to
settle, you sign a deed; you release it – that is what everybody does to settle. That is exhaustion of legal remedies.

The way the Court of Appeal has construed this legislation people are left in an absolutely hopeless predicament. They are required to pursue legal remedies. When they pursue the legal remedies they bar their claim on the Fund. The Parliament did not set the Fund up so that the Board could act like an insurer dealing with its own personal money. These are public moneys for a public purpose to remediate serious losses of victims of criminal and fraudulent conduct, your Honours. It is an appropriate case to warrant full consideration of this Court, if it please.

HAYNE J: Thank you, Mr Solomon. We will not trouble you, Ms Vernon.

An appeal to this Court would enjoy insufficient prospects of success to warrant a grant of special leave to appeal. Special leave to appeal is refused with costs.

AT 12.52 PM THE MATTER WAS CONCLUDED