Free Flight To Misery

[Author – Tim ODwyer]

Eight years ago Robert and Karen Leonforte flew from outback Western Australia for a quick visit to the Gold Coast. They arrived at 7:00 p.m. on Saturday, 16 May 1998. Next day they inspected half a dozen investment properties, then went to the Bundall offices of Lehns Solicitors where they signed up to buy a unit in Hansford Road Coombabah for $139,500.00.

The solicitor, waiting to unlock his office that Sunday afternoon was John Campbell MacCallum. He advised on the contract and happily agreed to look after this couple’s conveyancing.

Inventment opportunity, or free flight to misery?

Many years later the Queensland Law Society released a recent Solicitors Complaints Tribunal decision which found MacCallum guilty of unprofessional conduct when he acted for those trusting clients in what the Society described as “a property marketeering transaction.”

MacCallum, who was admitted to practice in 1974, also acted for Electus Pty Ltd., the seller to Leonfortes. He handled Electus’s $72,500 purchase of the same unit under a contract dated two days earlier than Leonfortes’. The resale markup of more than 90% gave Electus a neat $67,000.00 gross profit. MacCallum settled the buy-in on 10th July 1998. He completed Leonfortes’ purchase a fortnight later.

MacCallum pleaded guilty to the Law Society charge that he breached his fiduciary duty to Leonfortes by acting while their interests conflicted with his duty to an existing client, Electus. Specifically, MacCallum firstly failed to get Leonfortes’ voluntary and informed consent in these circumstances, secondly he failed to give “undivided fidelity” to their interests, thirdly he failed to disclose the nature and implications of the conflict and finally he failed to reveal everything he knew that was relevant to their purchase decision.

Because the Law Society laid only one charge and, apparently investigated no other matters where MacCallum’s clients came from property marketeers’ recommendations, the Tribunal imposed a pitiful penalty of $3,000.00 plus the Society’s costs. While MacCallum was generously allowed six months to pay, the Tribunal rejected the compensation claim of Leonfortes because they had not suffered “a pecuniary loss” from his unprofessional conduct.

It was twelve months after their contract settled, before the Leonfortes discovered with dismay that they had been conned into a grossly overpriced investment. On 7th May 1999 they wrote to then Fair Trading Minister, Judy Spence, seeking compensation, and finally received this on 20th December 2002 following a favourable ruling by the Property Agents and Motor Dealers Tribunal.

After the Office of Fair Trading initially found there was no basis for compensation, this persistent pair lodged a complaint against MacCallum with the Queensland Law Society on 4th August 2001. In its reply the Society asked, among other things, “Why has it taken you so long to make a complaint … when it appears that your purchase was settled on 24 July 1998?”

The Complaints Tribunal claim related to legal costs partially unrecovered in the PAMD Tribunal action. Brisbane solicitor Ken Philp, who successfully represented Leonfortes before the latter Tribunal says he finds it “absolutely astounding” that their Law Society claim was rejected.

The Leonfortes were originally telemarketed by Anthony Williams representing Applied Investment Research (Aust). He then visited them at their home in Kambalda near Kalgoorlie to discuss the advantages of a negatively geared Gold Coast investment. Their return flight and accommodation (at Jupiters) was arranged and paid for by AIRA. AIRA’s Ida Green met them at the airport, and next day shuttled them around properties she had for sale.

As soon as Green convinced these novice out-of-towners to purchase one, she wheeled them into Collison Finance & Investments’ office where financial adviser Gary Collison discussed tax advantages and how their purchase could be funded. Next stop was Lehns Solicitors.

Although Ida Green was not a licensed estate agent the PAMD Tribunal found she carried on the business of a real estate agent through AIRA. Her scheme, which “ran like clockwork”, was designed to give Leonfortes the false impression she was a professional real estate agent selling them a sound and fairly-priced investment property. Although Green, who later debunked to New Zealand, was ordered to reimburse the Claim Fund, no recovery action has been taken against her.

As a result of Leonfortes’ letter to Minister Spence, Fair Trading made some investigations in late 1999 and again in early 2000. Because these revealed no evidence of a breach of the legislation administered by it, Fair Trading closed its file. In December 2000 the Auctioneers and Agents Committee asked Fair Trading to reinvestigate Leonfortes’ complaint “as the Committee perceived that they had a claim.”

A consequent Claim Inquiry Report dated 15th June 2001 concluded that Green had made “misleading representations to the claimants” in breach of the Auctioneers and Agents Act.

This report recommended not only, $49,500 compensation for the Leonfortes, but also that “Ida Green be ‘flagged’ so that should she apply for licensing in the real estate industry her actions in this matter can be considered.”

On 25 June 2001 Fair Trading’s Acting Principal Investigations Officer added this ill-advised comment to the report: “There is no legislation which prevents a vendor asking any price they may, and it is a matter for the purchaser to satisfy themselves as to the price they are prepared to pay.”

On 11th September 2002 the PAMD Tribunal ordered a payment of $75,273.74 to Robert and Karen Leonforte from what had been the Auctioneers and Agents Fidelity Guarantee Fund. This sum represented their capital loss of $54,500.00, interest of $14,096.78 on their Bank of Melbourne loan account (from July 1998 to June 2002) and legal costs of $6,676.96. Shortly after Leonfortes’ and seven other similar marketeering claims were allowed, the Beattie government back-dated the law to prevent other scammed property investors claiming on the Fund.

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