This particular case involved two SMSF trustees, Franca and Nicola Piantadosi, who were advised by the Charterhill Group of Companies to set up an SMSF for the purpose of investing in real property.
They planned to purchase an apartment for $540,000, with a cash deposit of $200,000.
On 2 October 2013, they executed an “expression of interest” presented to them by Charterhill for the purchase of the apartment for $545,000, with a specified holding deposit of $54,500.
Soon after, a contract of sale was executed for the purchase of the unit for $545,000, with a holding deposit of $54,500.
The initial $1,000 payment was made on 4 October 2013 into an account with Lending Solutions International, an entity associated with Charterhill, for the purposes of “holding” the Travancore property. The balance of the deposit of $54,500 was paid directly into the same account on the 16th of October 2013. On the Charterhill letterhead, this document noted that the real estate agent for the vendor was Nova Real Estate.
Both Nova Real Estate and Lending Solutions were part of the Charterhill Group.
Acting on further financial advice from Charterhill, the Piantadosi’s transferred a further $200,000 into the same account on 25 October 2013.
This was understood by them to be applied (together with interest of 5.5 per cent), to the purchase price in settlement on the property. On 28 October 2013, they executed the contract for the purchase of the property.
By January 2014, it became clear that settlement could not proceed. The funds transferred to Lending Solutions International were dissipated by the time Nova Real Estate went into administration and Lending Solutions was liquidated.
Franca and Nicola Piantadosi consequently made an application for compensation for the full extent of their losses from the Statutory Indemnity Fund, administered by the Commissioner for Consumer Affairs.
Under the Land Agents Act, those who suffer pecuniary loss as a result of fiduciary default of a registered land agent may make a claim for compensation from this fund.
While the commissioner granted the application in respect of monies received by the agent as a holding deposit, it refused the application in respect of other monies advanced and to be applied to the purchase price on the ground that those monies were held by the agent other than in its capacity as a land agent.
The Piantadosis filed a notice of appeal against the decision with the District Court of South Australia on 9 November 2015.
The District Court determined that the commissioner had made an error in rejecting the claim for the $200,00.
The $200,000 deposit, it stated, was impressed with a trust earmarking it as money to be applied solely to the purchase of the subject property for so long as it remained deposited into the agent’s account.
The judge stated that it was not designated as a loan either for a fixed period or for security purposes.
“On that view of matters the circumstances amount to ‘fiduciary default’ by an agent carrying on business dealing with land, because the $200,000 was applied in part performance of the covenant to purchase and settle contained in the agreement of sale and because that payment is only referable to the contract of sale itself,” stated Judge Tilmouth.
The Commissioner for Consumer Affairs sought to appeal the judgment of the District Court judge to reverse its determination to reject the $200,000 claim. You can access the judgement here.
The Supreme Court of South Australia has now dismissed the appeal made by the commissioner.
Justice Stanley stated that there was only one relevant contractual relationship between the respondents and Nova/LSI, which was the contract concerning the contemplated purchase of an investment property in which Nova was to act as the respondents’ agent.
“LSI received the payment of $200,000 for the purpose of funding that purchase. It did not receive it for any other purpose and that purpose cannot be altered by the fact that interest was to be paid on the trust money,” he explained.
“I am satisfied the judge was correct in concluding that when LSI received the $200,000 it did so as agent for Nova, and Nova, for that purpose, was carrying on a business that consisted of, or involved, the purchase of land on behalf of the respondent, or at the very least, was conducting negotiations for that purpose.”
