Youssef Nouh v Commissioner for NSW Fair Trading

HIS HONOUR: The Property, Stock and Business Agents Act 2002 (NSW) (the Act) is an Act which provides for the regulation of property, stock and business agents. Division 3 of Part 8 is entitled ‘Freezing of accounts’.

References below to sections are, unless the context indicates otherwise, references to sections of the Act.

Section 118 empowers the Commissioner for Fair Trading (who is referred to as the Secretary) to give a direction that an amount not be drawn from a specified account in a licensee’s name or in which a licensee has an interest with a financial institution other than with the Secretary’s written approval when it appears to the Secretary that a licensee, the person in charge of a licensee’s business at a place, an employee of a licensee or any other person connected or formerly connected with a licensee has, or may have, stolen, misappropriated or misapplied trust money.

The plaintiff, Youssef Nouh (Nouh), is, or was, the director of Prestige Management Pty Ltd (the company) which at all material times was a licensed real estate agent. Nouh is the sole shareholder in the company. The company apparently traded under the names Prestige Strata and Timberland Real Estate. Maree Kylie Lane (Lane) was previously a director of the company, but remained associated with it.

On 14 December 2018, acting pursuant to s 118, the second defendant, David Byrne (Byrne), the Director of the Operations Division of NSW Fair Trading and a delegate of the Secretary, gave a direction (the direction) that ‘any amount must not be drawn from the account with BSB 062-202 and account number 1032 6548 held at Commonwealth Bank of Australia in the name of Youssef Nouh.’ I shall refer to this account as the account.

Nouh seeks an order quashing the direction ‘by virtue of it being infected by jurisdictional error’.

His challenge fails. The proceedings must be dismissed.

The proceedings were brought outside the time limit of three months of the date of the decision prescribed in Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 59.10(1). [1] The proceedings were commenced on 9 May 2019. The period of three months had expired on 14 March 2019. Nouh seeks an order under UCPR r 59.10(2) extending the time for commencing proceedings. [2] I would not grant an extension. Nouh has not satisfactorily explained his delay, particularly given that he was legally represented from as early as 21 December 2018. Nevertheless, I heard full argument and will deal with his claim on its merits as if the extension had been granted.

Section 3(1) defines licensee to mean the holder of a licence under the Act.

Division 3 of Part 8 comprises ss 117 to 122. It is appropriate to set them out in full:

Part 9 is entitled ‘Management and receivership’. It contains provisions for the appointment by the Secretary of a manager for a licensee’s business and for the Court, on the application of the Secretary, to appoint a receiver of all or any of the property of a licensee.

Section 222 provides:

It is not in dispute that the Secretary delegated to Byrne all her functions under the Act to the full extent permitted by s 222.

In mid-December 2018, the Office of NSW Fair Trading (the Office) received a letter dated 11 December 2018 from a firm of solicitors acting on behalf of an owner of two properties which were being developed into town houses. The owner had engaged the company as real estate agent to sell the town houses. The letter asserted that Lane had represented that she had sold approximately 80 town houses for the owner, that contracts of sale had been signed and purchasers had paid a 10% deposit. The owner complained that it was having difficulties getting information from Lane and the company about the transactions and had grave concerns as to the whereabouts of the deposit monies, which it said may be in excess of $3 million. The owner did not claim to have direct evidence of misappropriation or wrongdoing by Lane or the company, but suggested that it may be prudent for the Office to take urgent action to investigate the matter.

Byrne and a Principal Investigator from the Office met Lane on 14 December 2018. Lane told them that the owner required a cash injection and with their agreement she ‘dummied up’ an excel spreadsheet to give the impression a number of properties at the development had been sold off the plan. She said that this was sufficient for the owner to use to try and get more money from private financiers. The notion of fraud springs immediately to mind.

Byrne then caused statutory notices to be served on a number of banks to obtain copies of bank statements relating to the company, Lane and Nouh. [3] Inspection of bank accounts, including the company’s trust accounts, revealed that money had been transferred out of its trust accounts into personal bank accounts of Lane and Nouh. $180,000 was transferred from the company’s trust account to the account (subsequently the subject of the direction) on 21 June 2018. In two other instances, monies totalling more than $450,000 were paid from the company’s trust account to Lane and then transferred by her to Nouh. There was no evidence that the transactions were authorised.

Byrne came to the unsurprising, rational and reasonable conclusion that either or both of Nouh or Lane had, or at least may have, stolen, misappropriated or misapplied trust money.

He formed a view that urgent action was needed to prevent the dissipation of funds and further consumer detriment, and decided to give the direction.

At the time of the direction there was $241,004.66 in the account.

It is not suggested that Byrne did not form the conclusions he says he formed, or that he acted other than in good faith.

Joint managers were appointed over the company, under the Act, on 19 December 2018.

On 13 May 2019, Nouh served a notice under UCPR r 59.9(2) on the defendants requiring them to provide a copy of the decision and a statement of reasons for the decision. [4]

Byrne furnished a Statement of Reasons on 30 May 2019. It is appropriate to set it out in full:

Doing the best I can, I have recounted below what I understood to have been put on behalf of Nouh. Each argument will be dealt with in turn.

First, it was put that Byrne had no power to give the direction because that power is non-delegable under s 118(2). The argument is that s 118(2) gives the Secretary power to give a direction, a power is to be distinguished from a function, and s 222 authorises the Secretary to delegate only the exercise of a function under the Act not to delegate the exercise of a power.

This submission is unsustainable. One of the functions of the Secretary under the Act is to exercise the power given by s 118(2). One of the functions of the Secretary is to exercise the power to delegate. The words of s 222, in particular ‘(other than this power of delegation)’, make this clear. It is this function which the Secretary relevantly delegated to Byrne.

Second, it was put that the direction was invalid because a precondition under s 118(2)(b) for its validity, is that it must specify the particular dollar and cents amount of money which must not be drawn from a specified account, whereas, the direction made no such specification. This requirement is said to arise from the use of the words ‘an amount’ in the subsection.

This submission is unsustainable. The words of the section plainly do not require a dollar and cents amount to be specified, although one no doubt could be. A direction that ‘an amount’ must not be drawn can be one that no amount at all must be drawn. The direction here was precisely that. It was that ‘any amount’ must not be drawn. If the submission is, contrary to my view, correct, the direction would fix on the dollars and cents amount standing in the account as at the date of the direction because this would be ‘any amount’ in the account. The amount standing in a particular account can decrease by drawings and it can increase by, for example, accruing interest. On the construction contended for, there would have to be a new direction to capture any and every increase. The construction contended for would render the process unworkable.

Third, it was put that a precondition to the valid exercise of the power to give a direction is that the giver give each relevant person affected by the direction procedural fairness in the form of notice of the intention to give the direction, provision to that person of the basis upon which the intention to give it had been formed, and affording that person the opportunity to be heard on whether the direction should be given.

This submission is unsustainable. The section plainly does not require procedural fairness to be given. The Secretary must, of course, form the necessary opinion that a relevant person has, or may have, stolen, misappropriated or misapplied trust money. It may be accepted that the Secretary must act in good faith and reasonably. No more is required. If the submission was correct, the very mischief the section aims to avoid would be facilitated. A suspected wrongdoer or thief would be given the opportunity to deplete the account which the direction would be intended to preserve.

Fourth, it was put that if Byrne was not obliged to give advance notice of his intention to give the direction (or, in fact, did not give notice), he was obliged to afford procedural fairness, after giving the direction, by providing ‘the gist’ of why the direction had been given and affording an opportunity to be heard as to why the direction should not have been given. It was argued that a direction under s 118(2) is analogous to the making by a Court, ex parte, of a freezing order where, on the return date, the respondent is entitled to be heard on whether it should continue. It was argued that Byrne was obliged to give Nouh an oral hearing to permit him to vent his submissions.

This submission is unsustainable. A direction takes effect when given. It has no return date. It bears no analogy to the grant of ex parte relief by the Court exercising its judicial function. The Act does not envisage, either expressly or by implication, any revisiting of a power validly exercised. If the preconditions for the giving of a direction are met, it is valid. If they are not met, it is invalid. The exercise of the power is always open to later challenge. There is no room for the suggested unregulated ex post facto procedure.

A direction, however, can be withdrawn. It is to be observed that no submission was put that the Secretary should have, but has not, withdrawn the direction. This was, no doubt, for good reason.

Last, it was argued that the direction is invalid because Byrne had no, or no sufficient, reasonable basis to form the opinion that Nouh had, or may have, stolen, misappropriated or misapplied trust monies. It was argued that the original complaint had raised the possibility that trust money in the form of deposits had been stolen, but that Lane had displaced this possibility by telling Byrne, in effect, that there had been no sales, the explanation for the appearance of sales being that a false Excel spreadsheet had been brought into existence to convey that there had been sales. This explanation, it was put, meant that it was not reasonably open to Byrne to consider that deposits had been misappropriated because there were no deposits. It was argued that it was unreasonable of Byrne, in forming his view, to take into account that trust money had, or may have, been stolen, misappropriated or misapplied because there was no evidence that the transactions whereby trust monies had found their way into the personal account of Nouh were authorised because a lack of evidence of authorisation was not evidence of a lack of authorisation.

This submission is unsustainable. Byrne did not act unreasonably. Indeed, he acted eminently reasonably.

The suggestion that the information imparted by Lane, could, and does, contribute to a conclusion that Byrne acted unreasonably, borders on the eccentric. In effect, Lane told Byrne that the answer to the suggestion that there had been theft was that there was fraud instead. There had, after all, been money in the company’s trust account which was no longer there.

Byrne had evidence of money leaving the trust account of the company and finding its way to the pocket of Nouh, in one case directly and in two other cases indirectly. The absence of documentary evidence of authorisation in the records of the company can sensibly be taken into account as a factor contributing to an opinion as to the possibility of theft, misappropriation or misapplication. If there was no authorisation, there would be no evidence of any. Byrne acted to preserve the position.

The proceedings are dismissed.

I provisionally order that the plaintiff is to pay the defendants’ costs of the proceedings. This order will solidify after seven days unless, within that time, a party has notified my Associate in writing that some other order is sought, specifying briefly the grounds on which it is sought, and in which event I will relist the matter for the determination of any costs issues.