A Sunnybank real estate office that paid commission to itself from a trust account deposit it had refused to refund to a buyer was motivated by “self-interest rather than the duty” it professed to the seller, according to a recent QCAT ruling.

real estate agents owe duty as regards refund of buyer's depositAgency Prestige & Rich negotiated the sale of the Patel family’s residence at Sunnybank Hills in March 2016. It received the buyer’s $24.5k deposit into its trust account pending completion of the “subject to finance” sale.

The seller and agent both had misgivings about the genuineness of the buyer’s endeavours to obtain a loan to complete the Jales St buy when just three days after the contract was inked, the buyer’s solicitor terminated due to non-availability of finance.

Mr & Mrs Patel nevertheless accepted the termination and directed the agent to refund the deposit in full.

Notwithstanding those instructions, P&R notified the buyer that “the seller is entitled to the deposit in the dispute on the ground that the buyer has failed to demonstrate it has taken all reasonable steps to obtain finance approval”.

This led to the buyer filing in the Supreme Court for a declaration that the contract had been validly terminated and an order compelling the agent to release the deposit.

The court dismissed the application, ruling in June 2016 that it should have been commenced in the Magistrates Court.

With no proceedings then on foot to adjudicate the dispute, P&R invoked s 26 (3) of the Agents Finance Administration Act which “applies if the agent considers that a party to the transaction is entitled to an amount in dispute”.

The section permits the agent to “give all parties to the transaction a written notice that a stated party is entitled to the amount” and to pay the sum as specified in the notice after 60 days unless, court proceedings are started to resolve the matter or all parties to the transaction authorise payment in a particular manner.

Having given written notice in March that it believed the seller was entitled to the deposit, it decided the only course open to it – once the court proceedings had been dismissed in June – was to pay the $24k to the seller.

Before doing so, it deducted the $20k commission due to it for the failed sale in accordance with the terms of its signed form 6 appointment. It also remitted $4.5k to the seller who promptly paid it into his solicitor’s trust account.

The buyer then looked at other avenues to recoup the un-refunded deposit and its claim against the agents’ fidelity fund was approved in March 2018 by the OFT who promptly demanded immediate re-payment from the agent.

P&R and its principal Stephanie To contested that decision before Dr Alan Collier in QCAT. Having given the 60 day written notice in March, they did nothing more – they argued – than what s 26 permitted.

The problem they faced was that the tribunal did not accept that the agency was ever entitled to declare a dispute over the deposit.

“In the absence of instruction from the seller, they have no right to engage in enforcing the sale of property contract or any part of it,” judge Collier observed.

That “the agency was the agent of the seller and was obliged to act according to the instructions it received,” was fundamental – he noted – in determining the respective rights and obligations of parties to residential real estate transactions.

Payment by the agent to itself of the commission out of the deposit appeared to him as being “founded on a notion of self-interest rather than their duty to the seller. The AFA Act is intended to provide protection for parties to transactions not for an agent to seize a commission or fees”.

P&R contended though that the 2014 amendments to AFA Act s 26 significantly changed agents’ obligations. It drew the tribunal’s attention to other provisions in the section:-

(4) The agent is not liable civilly or under an administrative process in relation to the payment of the amount in dispute to the stated party as provided under this section if it is subsequently found that the stated party was not entitled to the amount.

(5) To remove any doubt, it is declared that this section—

  1. provides a process for the payment of an amount in dispute; and
  2. does not decide legal entitlement to the amount or prevent a person legally entitled to the amount recovering it from the person to whom it was paid.

Dr Collier did not accept that a real estate agency’s fundamental duty as trustee had been altered by the 2014 amendment and rejected any suggestion that s 26 granted the agent “unilateral power to decide on disbursement of the trust funds irrespective of the instructions of the parties”.

This was particularly so – he ruled – given P&R had failed to observe both parties’ directions to make the refund to the buyer at the outset.

The tribunal confirmed the OFT decision requiring P&R pay it the $24.5k it had paid out to the buyer.

Prestige & Rich Pty Ltd & Anor v Chief Executive, Department of Justice and Attorney-General [2018] QCAT 436 (GAR122-18) Member Dr Collier, 18 December 2018

 

    Get in touch