Why Corruption Flourishes Under Consumer Affairs Victoria

Posted on September 12, 2011 by | 13 Comments

Peter Mericka B.A., LL.B OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

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Consumer Affairs Victoria (CAV) has a sorry history when it comes to regulating Victorian real estate agents and, in more recent times, licensed conveyancers. It is one thing to be powerless to stop corruption, however it is something completely different when the government regulator not only fails to act, but also refuses to investigate. In this article I will explain how CAV has refused to use its statutory powers, and has itself become a part of the problem.

The bribery problem

Bribes paid to real estate agents for conveyancing referrals – a short history

Client trafficking is a particularly grubby part of the real estate industry, and it has a long history. Long before licensed conveyancers came onto the scene, it was common practice for lawyers to schmooze with local real estate agents in order to win conveyancing referrals. Initially the currency used in the trade of conveyancing clients was the occasional free lunch, supplemented by a bottle of Scotch at Christmas time. If a real estate agent ever had trouble with a client, the “pet” lawyer would quickly step in with some free advice, and may even come to the estate agent’s aid with correspondence on the law firm’s letterhead.

The more successful conveyancing legal practices tended be those with close ties with real estate agents, and the staff of these law firms came to understand the need to favourably consider the real estate agent’s position if a dispute should arise between the firm’s client and the real estate agent. It was not uncommon for a client to wonder why his or her lawyer could not see any wrongdoing on the part of the estate agent, even in the most extreme of cases.

These close relationships between lawyers and real estate agents saw real estate agents gain more and more power over real estate transactions. Eventually, real estate agents in the Melbourne metropolitan area gained almost total control over the contract stage of the real estate transaction. Today, real estate agents in Melbourne expect to be permitted to prepare contacts, draft special conditions, and provide legal advice to vendors and purchasers alike. In fact, a real estate agent who is provided with a contract document that is not to his or her liking feels entitled to “switch” the contract without conferring with the vendor’s lawyer or conveyancer…

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13 Comments

  • http:// says:

    While there are laws in Queensland which endeavour to prevent the sort of mischief occurring in Victoria, these two earlier Blog posts illustrate one woeful loss and one lucky win in this area:

    Catch 32 On Solicitors’ Independence

    When Anti-Marekteering Laws Claimed Their First Scalp

  • http:// says:

    Peter, a good article but I think the problem can be solved easily by CAV.

    Section 49 (3) says: “A disclosure under subsection (1) or (2) must be in writing and in the prescribed form (if any).”

    A prescribed form is easily made under regulations by the Governor in Council so no legislation is needed.

    If the prescibed form states WHO is to be paid and HOW much they get in dollars ….I have held a view for a long time that referral payments would disappear quickly.

    No form has yet been prescribed.

    I think you should suggest to CAV to prescibe a form as a quick fix (until legislation can be changed) instead of firing rockets and accuisng them of contributing to the problem. (which I disagree with)

  • Hi Suburban Lawyer, and thank you for your comment.

    Let me tell you about my experience with CAV in having them use their powers effectively.  You may or may not be aware that nearly 10 years ago CAV told me that I should obtain an estate agent’s licence in order to continue representing clients in their real estate sales.

    I saw that 14(1)(c) of the Estate Agents Act provides for the licensing of any person who “has met any other requirements establishing competency set out in the regulations”.  I demonstrated to CAV that, as a qualified lawyer who practises in property law, and who trains lawyers and conveyancers at the Leo Cussen Institute from time to time, that I was such a person.

    CAV informed me that no competencies had been established, and therefore I could not obtain a licence pursuant to this section, and that I would have to work full-time under a licensed real estate agent to qualify for a licence.

    I then asked CAV to establish the required competencies, and to advise as to when this would be done.  CAV gleefully informed me that, not only had the competencies not been established, but also there was no intention that any would be established in the foreseeable future.  Again, they demanded that I obtain an estate agent’s licence, knowing that it was impossible for me to do so in the manner they wanted.

    Since then, CAV have done all they can to thwart and harass me and my firm, culminating in a Supreme Court action, the purpose of which is to shut me down.

    Given CAV’s reluctance to do anything that may hint at an admission that it may be wrong, or that the system it regulates may be in need of change, what are the chances that CAV will accept that there is a need for action in the case of referral bribes?

    Had CAV been prepared to at least look at the problem, I would not have been forced to write this article.  The problem is compounded by the CAV’s new bind – if they act in response to this article, it will be an admission that they were wrong.  If they don’t act at all, they will have only me to contend with (note the absence of any complaint or protest from the Law Institute of Victoria, the Real Estate Institute of Victoria or the Legal Services Commissioner).

    It cannot be assumed that having the bleeding obvious pointed out to them, even in the loudest and most aggressive manner possible, that CAV will show the slightest interest.

    My view, that CAV condones and contributes to corruption in the real estate industry is destined to remain long-term.

  • http:// says:

    May I suggest that a complaint to the Ombudsman is warranted.

  • Yes, did that regarding other aspects of corruption associated with CAV, but apparently the extent to which the Ombudsman can investigate matters is severely limited.

    I will make further attempts in future, but without support from the Law Institute of Victoria or the Real Estate Institute of Victoria, I expect that the Ombudsman will have more important matters to deal with.

  • http:// says:

    Have you approached the newspapers?

  • Yes, I have Ron.  But I have found that the newspapers are very reluctant to do or say anything that will upset their real estate masters – The Age is particularly sensitive to anything that may paint real estate agents in a bad light.

    The print media relies on real estate agents to channel huge amounts of money to it.  A recent Media Watch item explains it well.  See: http://abc.com.au/mediawatch/transcripts/s3315985.htm

    I hope that our upcoming Supreme Court stoush with Consumer Affairs Victoria will draw attention to the problems that beset the real estate industry. 

  • http:// says:

    What about the suggestion from suburban lawyer, would that help ?

  • I don’t believe so Ron.  As I’ve explained, Consumer Affairs Victoria has a variety of law and powers at its disposal, but it refuses to use them.

    Suburban Lawyer’s suggestion assumes that CAV are unaware of the legislation under which they operate and the powers available to them.  This suggests incompetence and ignorance on a scale that is unimaginable.

    No, it’s not ignorance of the law that’s the problem, it’s a corrupt refusal to properly fulfill its role that’s the real problem with CAV.

  • http:// says:

    “a corrupt refusal” wow thats pretty strong stuff isnt it?

    how can you be sure its corruption and not just poor enforcemnet due to resouces, costs etc.

    your suggestion of corruption means that they are influenced by third parties who would they be?

  • Ron, it is very strong stuff and I do not resile from my use of the term corruption.  My reference point for describing CAV’s behaviour as corrupt is the the NSW ICAC, which describes corrupt conduct in the following terms on its website at http://www.icac.nsw.gov.au/about-corruption/what-is-corrupt-conduct in the following terms:

    “The NSW community expects public officials to perform their duties with honesty and in the best interests of the public. Corrupt conduct by a public official involves a breach of public trust that can lead to inequality, wasted resources or public money and reputational damage.”

    You seem to sympathise with CAV, suggesting that perhaps they are performing poorly due to a lack of resources etc.  I must say that I regard this type of sympathy as a part of the problem.

    Remember Ron, CAV has found the resources to commence a Supreme Court action against me, the purpose of which is to fight a turf war to prevent my firm from offering consumers an alternative to the corrupt real estate industry CAV regulates.  I regard this as a wast of public funds and certainly a very poor allocation of resources.

    But does incompetence in the handling of its resources excuse CAV?  I don’t think so, as this is a slight on any under-resourced and over-worked government department.  Incompetence may contribute to corruption, but it certainly doesn’t excuse it.  CAV’s letter to me indicated that CAV has no intention of attacking the insidious problem of conveyancing bribery, and that it dismisses complaints about it by reference to legislation.  This is not the way a competent but under-resourced government department behaves.

  • http:// says:

    Seriously look at the legal firms also paying referral fees – do not merely blame conveyancers – it is rife within the legal firms and this will also be disclosed

  • Hi Suburban Lawyer,

    You’re quite right, and the amounts that lawyers have invested in their relationships with real estate agents, not only in terms of cash (although I do admit that the only evidence I have of cash payments is that relating to conveyancers) but also by way of gifts (see my posting regarding Richard Wood Solicitors at http://reic.com.au/blogs/australian_real_estate_blog/archive/2007/08/03/richard-wood-solicitors-free-movie-tickets.aspx) and return favours, such as free advice to real estate agents when clients complain about them, is one of the reasons why the Law Institute of Victoria is loathe to say or do anything about the problem.

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