VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
administrative DIVISION
REVIEW AND REGULATION LIST	vcat reference No. Z969/2019
	
CATCHWORDS	
Review and Regulation List – Estate Agents Act 1980 – review of decision to refuse permission to be employed as an agent’s representative – application made under section 31A after defalcation and claim allowed against the Victorian Property Fund established under Part VII – matters to be considered including whether the giving of permission “is not contrary to the public interest” – decision affirmed. 

APPLICANT	Harald Simon Michaelis 	
RESPONDENT	Business Licensing Authority	
WHERE HELD	Melbourne	
BEFORE	J Billings, Senior Member	
HEARING TYPE	Hearing via videoconference	
DATE OF HEARING	30 July 2020	
DATE OF ORDER	11 August 2020 	
CITATION	Michaelis v Business Licensing Authority (Review and Regulation) [2020] VCAT 865	

Order
The decision of the respondent made on 14 November 2019, refusing permission to the applicant to be employed as an agent’s representative, is affirmed.

J Billings
Senior Member 

APPEARANCEs:		
For Applicant 	In person	
For Respondent	Ms A. Mapp, solicitor 	

Reasons
1	This is an application for review of a decision made on 14 November 2019 by the respondent, the Business Licensing Authority (BLA), under section 31A of the Estate Agents Act 1980 (the Act) to refuse permission to the applicant, Mr Michaelis, to be employed as an agent’s representative.
2	Mr Michaelis applied for permission to be employed as an agent’s representative after a claim was allowed against the Victorian Property Fund (VPF) established under Part VII of the Act.  (Among other things, the VPF exists for the purpose of compensating persons who suffer pecuniary loss by reason of a defalcation committed by an estate agent in respect of money entrusted to or received by the agent for or on behalf of another person: s. 79.  “Defalcation” means “any theft embezzlement failure to account fraudulent misappropriation or other act punishable by imprisonment of or in relation to any money or other property: s. 71). 
3	A decision whether to charge Mr Michaelis with offences under the Act is pending.  
4	Mr Michaelis is aged 58 years.  In 2008 he successfully undertook a Course in Property for agents’ representatives and commenced working as an agent’s representative.  Beginning in 2017 Mr Michaelis and the company he established, Boston & Brighton Property Consultants Pty. Ltd. (the company), operated as Licensed Estate Agents.  Mr Michaelis was sole director and Officer in Effective Control.  Mr Michaelis surrendered his licence and the company’s licence in April 2019.
5	Where convenient, I will refer interchangeably to Mr Michaelis and the company as the agent.  Otherwise, I will generally refer to Mr Michaelis rather than the company, for in the scheme of the Act it is his conduct that is relevant to his application for permission.  
6	There is no dispute regarding the essential facts of the matter.  They are set out in the decision under review and the BLA’s statement given under section 49 of the Victorian Civil and Administrative Tribunal Act 1998.  Notably, the s.49 statement includes the record of an interview conducted by Consumer Affairs Victoria (CAV) investigators in April 2019 during which Mr Michaelis made important admissions.     
7	In summary, there were two claims made against the VPF in relation to Mr Michaelis.  Both claims were made by vendor clients.  The first claim was allowed.  The second claim was withdrawn.    
8	In early 2019 CAV received complaints about non-disbursement by the agent of deposit monies after settlement.  In March 2019 an order was made by the responsible Minister to freeze the company’s trust account.  The sum of $3,750 was “swept” from the trust account into the VPF.  
9	The first claim against the VPF was made in March 2019 after the trust account was frozen.  The purchaser had paid a deposit of $100,000.  Initially, the vendors claimed about $85,000 (being $100,000 less the agent’s commission and advertising and marketing fees).  The claim was reduced by $50,000 to about $35,000 after the agent released $50,000 to the vendors.  In May 2019 just over $31,000 of the claim was allowed.  (Interest has accrued on the amount paid out by the VPF.  At the hearing Mr Michaelis and the BLA’s representative were not in agreement as to the current total figure that has to be refunded to the VPF, but there is no dispute that it is more than $30,000).           
10	The second claim was withdrawn by the vendors after the agent paid what was owing to them.    
11	Mr Michaelis has acknowledged that there were deficiencies in the trust account and that he is responsible for them.  There were occasions when money was transferred from the trust account into the agent’s general account to pay staff and other business expenses.  During the hearing he made the remark that there was not any underlying issue such as a drug or gambling problem.  
12	Mr Michaelis has not refunded the VPF.  He has said in effect that he has been suffering financial hardship and that he cannot refund the VPF without being given permission to work as an agent’s representative.  
13	I will refer to what Mr Michaelis has said about the broader circumstances.  First, I record two particular matters that were raised at the hearing.
14	Mr Michaelis confirmed information in the s.49 statement that in May 2019 he told one of the vendors who made the first claim that the trust account had a maximum transfer amount of $50,000 so there would be a delay in releasing the whole deposit.  (The vendors received $50,000 the next day).  Mr Michaelis commented that banks do sometimes impose such limits, but he acknowledged that there was no such limit in this instance.  Mr Michaelis indicated that he said what he said to the vendor as a means of “stalling”.  
15	The second matter relates to the second claim.  The s.49 statement includes a note made by an officer responsible for VPF claims in January 2019 about a discussion with Mr Michaelis in which he said he had the funds to pay the claimant.  The officer noted that he wanted to be sure that the payment did not come from further trust funds.  Mr Michaelis said: “I am going to be honest a few thousand of that would be from another deposit” (sic).  The officer strongly advised against that course of action, on the basis that it would constitute a further defalcation.  Mr Michaelis acknowledged that and said to the officer that he would contact the claimant and try to resolve the claim without using anyone else’s funds.  At the hearing Mr Michaelis said that he did not have a total recollection of the discussion with the officer, but he did not dispute the accuracy of the record.  
16	Mr Michaelis has made statements to CAV, BLA and to the Tribunal about the circumstances that gave rise to the claims made against the VPF.  In the application he made for permission to be employed as an agent’s representative, he referred to “errors in the handling of” the trust account.  He acknowledged his responsibility for what happened but said that, given his “inabilities in administration”, he had been in contact with four independent trust companies in an effort to engage someone to manage the trust account.  At the hearing Mr Michaelis mentioned that someone employed in his business had proposed assuming that responsibility, but Mr Michaelis preferred to engage a trust company.  By the time he communicated further with the trust company it was too busy to assist him, so he had to look for another trust company.  Mr Michaelis then said that one of the trust companies advised him that he had to have a Client Record Management System.  He “secured” the system, but then he was told he needed to obtain a trust account “module”.  All this took time.  Mr Michaelis said that the next thing to happen was that the trust account was frozen.  
17	Mr Michaelis also stated in his application for permission that, while it was “certainly no excuse”, in September 2018 there was a dramatic downturn in the property market and the resulting lack of business aggravated the situation for him and the company.  He elaborated on the substantial financial losses he suffered and said that if he could now be permitted to work as an agent’s representative, he would be able to service his debts.  
18	In October 2019 BLA wrote to Mr Michaelis raising “serious concerns” about certain matters.  He responded that month.  In particular, Mr Michaelis again acknowledged that it had been his responsibility to manage the trust account, but he said in effect that had any one of the trust companies taken over, things would have been different.  He went on to say that he “wouldn’t be the first company director” who had failed to correctly control cash flow or to operate a trust account.  (He cited the example of a major company that foundered because of cash flow problems.  At the hearing Mr Michaelis remarked on problems that even governments can have balancing their budgets).  In his response to the BLA Mr Michaelis said, further, that “foolishly” he had been trying to protect the business and its staff.
19	During the hearing Mr Michaelis pointed to several matters in his favour.  He said he was cooperative with the regulator.  He described the record he had in the real estate industry before the time he obtained the licences as “unblemished”.  He described his work as an agent’s representative as “flawless” in comparison with the way he managed trust accounts.  Mr Michaelis further referred to his generally good record, his community involvement as a soccer referee, and licences he has been held for purposes not related to the real estate industry.   
20	Mr Michaelis submitted numerous documents to the Tribunal.  They included correspondence from one of the trust companies whose assistance he had sought.  There were also media reports concerning the downturn in the property market in 2018.  Further to that, there were various articles on the subject of trust (that, is the trust that one person has in another): Mr Michaelis’ central points were that public trust in a number of professions and occupations is lacking, and that even if it is lost, trust can be regained.  
21	Mr Michaelis submitted recent references from former employers, and numerous testimonials by former clients.  Many of the testimonials were undated.  Some were evidently given many years ago.  Mr Michaelis highlighted one by a former Human Resources manager who said he had interviewed 20 agents before engaging Mr Michaelis.  That person described Mr Michaelis as a “seasoned professional” who demonstrated “flexibility, compassion and understanding”.  Many other testimonials expressed a high degree of satisfaction with Mr Michaelis’ services.   
22	Finally, Mr Michaelis made the submission that for him to be denied permission to be employed as an agent’s representative would involve a “penalty” and that it would be disproportionate to the punishment a person could be given for some crimes.  He submitted in effect that it would be unfair for him not to be able to work as an agent’s representative when he had shown that he had done that successfully for so many years.  
Section 31A
23	Section 31A of the Act enables a person in relation to whom a claim against the VPF has been allowed to apply the BLA for permission to be employed as an agent’s representative.  Section 31A(3) provides: 
(3) The Authority may give its permission if it is satisfied - 
(a) 	that the person has refunded all amounts paid out of the Fund or the corresponding fund in respect of the claim; and
(b) 	that there were exceptional circumstances which gave rise to the claim against the person; and 
(c) 	that having regard to the conduct of the person before and after the claim, there is no reasonable expectation that the person will not comply with this Act and the regulations in future; and
(d) 	that the giving of the permission is not contrary to the public interest.
Consideration 
24	Under s.31A there is discretion to give permission for a person to be employed as an agent’s representative if the decision-maker is satisfied about all the matters in paragraphs (a)-(d).  
25	The decision under review formally records that permission was refused on the grounds that the BLA was “not satisfied that it is not contrary to the public interest to give permission pursuant to section 31A(3)(d)” of the Act.  It is clear from the BLA’s letter notifying Mr Michaelis of the decision, however, that the BLA was not satisfied about any of the matters in paragraphs (a)-(d) of s.31A(3).
26	I will consider all of the paragraphs (a)-(d), though I point out straight away that Mr Michaelis cannot succeed in his application because he has not refunded the amounts paid out of the VPF.  Paragraph (a) therefore cannot be satisfied.   
Whether Mr Michaelis has refunded all amounts paid out of the Fund or the corresponding fund in respect of the claim
27	I am not satisfied that Mr Michaelis has refunded all amounts paid out of the VPF.  He acknowledges that he has not.    
Whether there were exceptional circumstances which gave rise to the claim against Mr Michaelis  
28	I am not satisfied that there are any exceptional circumstances that gave rise to the claim against Mr Michaelis.  
29	The BLA’s representative suggested that there could have been exceptional circumstances if, say, an employee, rather than Mr Michaelis, had caused the trust account deficiency.  That would really depend on a range of matters, but there was nothing of the kind in the present case.  
30	If the downturn in the property market in 2018 put extra pressure on Mr Michaelis’ business, that was something that affected the industry generally.  But, in any event, it could never excuse defalcation.  
31	Mr Michaelis may have been trying to engage a trust company to manage the trust account.  A trust company would not necessarily have been able to prevent a deficiency occurring in the trust account.  The real problem was that Mr Michaelis consciously misused clients’ funds.  
Whether having regard to Mr Michaelis’ conduct before and after the claim, there is no reasonable expectation that he will not comply with the Act and Regulations in future
32	I am not satisfied that there is no reasonable expectation that Mr Michaelis will not comply with the Act and Regulations in future.  That is because of the nature of his conduct, which was repeated conduct, and also because of the responses he has given to the concerns about his conduct.  
33	Mr Michaelis’ conduct was not limited to causing trust account deficiencies that led to two separate claims being made against the VPF.  There was the related conduct that he acknowledged at the hearing – first, that he misled a client about the reason why the whole deposit was not released straight away; and, secondly, that - until he was cautioned against it - he was intending to use yet other clients’ funds to satisfy one of the claims.  
34	Mr Michaelis has, in a formal sense, acknowledged responsibility for his conduct.  His responses to the concerns about his conduct indicate that he has not completely taken responsibility.  His responses indicate that he lacks insight into the seriousness of his conduct and the impact it is likely to have had on his clients.  Mr Michaelis has not adequately focussed on his own decisions and actions.  Instead, for instance, he has emphasised external factors, and he has said that he would not be the only person to have acted in the way he did as though that would somehow be significant.        
Consideration of the public interest
35	I am not satisfied that giving permission to Mr Michaelis to be employed as an agent’s representative is not contrary to the public interest.
36	In East Melbourne Group Inc v Minister for Planning [2008] VSCA 217 at [126], citing Sullivan v Farrer (1989) 168 CLR 210, 216, Warren CJ made these remarks about “the public interest”: 
… The expression ‘in the public interest’ in a statute has been interpreted as importing a discretionary value judgment to be made by reference to undefined factual matters, confined only ‘in so far as the subject matter and the scope and purpose of the statutory enactments may enable ... given reasons to be [pronounced] definitely extraneous to any objects the legislature could have had in view’
37	Pausing there, a general point to make, but an important one to make, is that the Act operates to guard the public interest by ensuring that real estate agents and agents’ representatives are fit and proper persons.
38	In its decision, BLA cited a judgment of the Supreme Court of Victoria in Inglese and anor v Estate Agents Board [1989] VicSC 414 (unreported, Murphy J, 31 August 1989).  Inglese concerned disqualification of an agent but the judgment contains an important statement about the public interest.  Murphy J said at p. 22: 
If an estate agent is to be disqualified, the purpose which the Tribunal should have in mind is not the punishment of the individual (though it may appear to be a punishment to him) but the importance of protecting the public and the necessity to maintain standards in the conduct of an estate agent’s business.  
39	BLA also cited Ruscitti v Business Licensing Authority [1999] VCAT 1981.  In that case, in the context of s.31C(3) of the Act, a similar provision to s.31A(3)(d), VCAT made the following remarks:  
The factors to which this Tribunal has to have regard is not the punishment of the individual but the protection of the public … and the maintenance of standards in the conduct of a profession that is being regulated. It is the degree to which the public interest is served by having or not having the applicant as an agent’s representative.
40	There is a further case worthy of mention: Koskal v Business Licensing Authority [2012] VCAT 169.  That case also involved an application under s.31C for permission to hold a licence or to be employed as an agent’s representative.  The applicant had committed serious offences including offences of violence.  VCAT considered that he displayed an on-going disregard for the law.  Although the circumstances of the present case are different, the general remarks VCAT made in that care are pertinent: 
Real estate agents and their representatives carry with them a great requirement that they have the confidence of the public when dealing with them. They go into people’s homes. They are given the keys to those homes and are able to enter those homes when the owners are not present. They represent the owners of the homes in negotiations with prospective purchasers.  It is imperative that the public has confidence in the real estate industry and its members … It is in the public interest for persons employed in the real estate industry to enjoy the confidence of the public … 
41	Especially in a case under s.31A it may be added that public confidence in agents’ representatives is required because clients rely on agents’ representatives to act scrupulously in their dealings with them.  That is because the clients are having to make decisions that will have major financial and personal consequences for them.  
42	There is evidence that Mr Michaelis has worked successfully as an agent’s representative for years and provided valuable service to the community.  Since the claims were made against the VPF he appears to have been cooperative with the regulator and he has frankly acknowledged various matters to the Tribunal.  On the other hand, in the way he managed clients’ funds, Mr Michaelis displayed a serious lack of integrity and a disregard for his legal obligations.  I am not satisfied that the public would now have confidence in him.  I am therefore not satisfied that granting permission to Mr Michaelis to be employed as an agent’s representative is not contrary to the public interest.
CONCLUSION
43	Mr Michaelis rightly says that it is possible for trust to be regained.  There is much that someone who has acted in breach of trust needs to do before trust can be regained, however.  Taking responsibility, demonstrating insight and remorse, and making restitution will usually be important first steps.  There are indications that Mr Michaelis has not completely taken responsibility for his actions.  He  has not demonstrated that he has real insight or genuine remorse.  He has not refunded the VPF.         
44	Mr Michaelis may perceive the refusal of permission to be employed as an agent’s representative to be a punishment, or to be disproportionate or unfair.  The refusal of permission is not to punish him, however.  Ultimately, the refusal of permission is to serve the public interest.  
45	For the above reasons, the decision of the respondent made on 14 November 2019, refusing permission to the applicant to be employed as an agent’s representative, is affirmed.

J Billings
Senior Member