Andersen v Queensland Building Services Authority
[2010] QCAT 426
•6 September 2010
| CITATION: | Andersen v Queensland Building Services Authority [2010] QCAT 426 |
| PARTIES: | Mr Graham Albert Andersen |
| v | |
| Queensland Building Services Authority |
| APPLICATION NUMBER: | QR100-08 |
| MATTER TYPE: | General administrative review matters |
| HEARING DATE: | 4 March 2010 |
| HEARD AT: | Brisbane |
| DECISION OF: | Kerrie O'Callaghan – Senior Member |
| DELIVERED ON: | 6 September 2010 |
| DELIVERED AT: | Brisbane |
ORDERS MADE: | The reviewable decision is confirmed. |
| CATCHWORDS : | Queensland Building Services Authority Act 1991 Section 56AD permitted individual, whether Applicant took all reasonable steps to avoid coming into existence of the circumstances relating to the relevant event. |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Mr Graham Andersen was self represented |
| RESPONDENT: | Queensland Building Services Authority represented by Ms Mardee Campbell |
REASONS FOR DECISION
Introduction
This was an application to review a decision of the Queensland Building Services Authority (“the Authority”) to refuse to categorise the Applicant as a permitted individual pursuant to section 56AD of the Queensland Building Services Authority Act 1991 (“the QBSA Act”).
The application was heard the day after I heard application QR101-08 which was an application by the Applicant’s son, Mr Yustan Andersen (“YA”) to review a decision of the Authority to refuse to categorise him as a permitted individual. I have delivered a decision in that matter and confirmed the Authority’s decision.
The two applications concern the same “relevant event” as referred to in section 56AD that was the appointment of an administrator to the company Diamond Residential Development Pty Ltd (“DRD”).
The Applicant and his son had both been directors of the company. Although the Applicant was not a director at the time of the appointment of the administrator the Applicant still comes within section 56AC as an “excluded individual” in that he was “an influential person” at the time the administrator was appointed. He had been a director within 1 year of the Administrator being appointed. The Applicant didn’t challenge the decision to classify him as an “excluded person”.
The Applicant has had experience with this provision and process previously.
The Applicant had been a director of another company, Andersen & Roach Pty Ltd (“AR”). In 2001 the Applicant was considered “an excluded individual” as a consequence of the appointment of a receiver to AR. The Authority refused the Applicant’s application to be made a permitted individual for that relevant event. The Applicant subsequently reviewed that decision and the decision was reversed.
The evidence
The Applicant relied on a written statement of evidence and a “statement of review”. He also gave oral evidence at the hearing.
The Authority relied on a statement and oral evidence of Carol Leung and its statement of reasons.
Chronology
As in the case of YA it is useful to consider the chronology of events regarding the Applicant’s history and the demise of DRD.
§ The Applicant was granted a house building (supervisors code) license on 16 April 1994
§ The Applicant was a director of AR which had receivers appointed to it in 2001
§ The Applicant successfully reviewed a decision of the Authority to categorise him as a permitted individual
§ April 2002 the Applicant became bankrupt
§ The Applicant was the nominee and director of DRD
§ The Applicant resigned as a director in November 2007 and withdrew himself as nominee of DRD on 23 November 2007
§ 5 December 2007 DRD was served with a statutory demand under the Corporations Act 2001 demanding payment of an alleged debt of $381,261.93
§ On 14 January 2008 DRD was served with a winding up application as a consequence of non compliance with statutory demand
§ On 21 January 2008 DRD appointed an administrator, Jonathan Paul McLeod, on the basis of a resolution that the company was insolvent, or likely to become insolvent at some future time
§ On 25 January 2008 the Authority sent the Applicant notification that he was considered an “excluded individual”
§ The Applicant applied to be categorised as a permitted individual. The Authority refused his application on 23 April 2008.
The Law
10. The key provision is section 56AD (8) of the QBSA Act which relevantly provides that:
“The authority may categorise the individual as a permitted individual for the relevant event only if the authority is satisfied, on the basis of the application, that the individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event.”
11. Section 56(8)(A) sets out matters that the Authority must have regard to in determining whether a person took all reasonable steps:
“In deciding whether an individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of a relevant event, the authority must have regard to action taken by the individual in relation to the following—
(a) keeping proper books of account and financial records;
(b) seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business;
(c) reporting fraud or theft to the police;
(d) ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantees;
(e) putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts;
(f) making appropriate provision for Commonwealth and State taxation debts.”
Section 56(8)(B) provides that:
“Nothing in subsection (8A) prevents the authority from having regard to other matters for deciding whether an individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of a relevant event.”
12. The District Court has recently delivered a decision which provided an analysis and guide as to the interpretation of the relevant provision.
13. Judge McGill in Younan v QBSA [2010] QDC158 made the following observations:
§At [24] when having regard to the criteria in section 56AD(8A)
“… the focus of this subsection is on prevention rather than dealing with problems after they have arisen”
§ At [26] “the test outlined in section 56AD(8) requires:
1. the identification of the relevant event,
2. the identification of the circumstances that resulted in the happening of the relevant event,
3. a consideration of whether the relevant individual took all reasonable steps to avoid those circumstances coming into existence, and if satisfied of that
4. a decision whether to categorise as an individual as a permitted individual.”
§At [26]
“the reasonableness of his behaviour must be assessed by reference to what was known by him at the time, without the benefit of hindsight”
§In relation to whether any reference should be made to the explanatory note to the Bill – His Honour said
“This may be the sort of thing which politicians say when playing to a particular audience, but when it comes to interpreting these statutory provisions enacted by the legislature, attention must be focussed on the words actually used by the legislature.
§And at [35] “what has been enacted by the legislature in section 56 AD(8) is not the test described in the explanatory note, or the test described by the Minister. The test enacted is perfectly clear, though its application may be a difficult and complex process. That will depend very much on what, in a particular case, were the circumstances that resulted in the happening of the relevant event”
§At [37] on the issue of onus:
“… subsection (8) authorises the characterisation of an individual as a permitted individual only if the authority was satisfied of the relevant matter on the basis of the application, that is to say on the basis of the case made by the applicant. It follows that if relevant considerations are not addressed by the applicant, so that the applicant fails to show in a relevant respect that he took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event, then the application will fail”
The Issues
14. Applying the test set out in case of Younan, the issues which the Tribunal must consider are the following:
(i) What was the relevant event?
15. The relevant event was the appointment of Jonathan Paul McLeod of McLeod & Partners as administrator of DRD on 21 January 2008.
(ii) What were the circumstances that resulted in the happening of the relevant event?
16. The directors of DRD resolved on 21 January 2008 that DRD was insolvent or was likely to become insolvent and that an administrator should be appointed. As with the YA application it is necessary to examine the circumstances that lead to this resolution. Namely what circumstances lead to the company being insolvent as at 21 January 2008.
17. The Applicant identified the same circumstances as YA as being the cause of the appointment of the administrator.
18. He says the main cause was, “under pricing or unprofitable building contracts” and that other significant contributing causes were, “adverse legal action” and “inability to recover amounts owing”.
19. I accept (as with YA) that these circumstances did result in the insolvency of DRD.
20. In his written statement the Applicant discusses further the causes, in his belief, of the company’s insolvency. I will deal with these in turn:
A. Unprofitable contracts
21. The Applicant gave evidence that the company lost money on a number of unprofitable projects.
22. The evidence was similar to that given by YA.
23. The Applicant conceded that the “company entered a period of rapid growth undertaking several contracts of a different construction type”.
24. He referred to one client in particular, Mr Apelt, who engaged the company to build a house in February 2006. Before that house was completed the company entered into 4 more contracts and each job suffered cost overruns. The Applicant said Mr Apelt indicated verbally that he would meet the costs but never did.
25. The total in cost overruns on 8 projects was $769,287.67. These losses were absorbed by the company.
26. The Applicants evidence was that the overruns were a result of a number of issues
a)Clients taking unfair advantage of the company. He gave as an example a client who refused to pay the final payment until the defects were rectified.
b)The work was done when costs could not be recovered under the contract. The Applicant blamed a lot of the company’s problems on the disadvantages of a fixed priced contract which was used by the company on these projects. He expressed the view that under that form of contract it was impossible to recover the cost overruns.
c)Costs were incurred due to delays caused by trades. He said that in 2007 the company had approximately 10 buildings under construction all requiring metal roofs and their roofing subcontractor delayed the work. He said, “the result of the delays is that the scaffolding here on these buildings was exceeded budgeted costs at a rate of approximately $1,000 per week per building. It was estimated that these delays cost the company somewhere of $100,000”.
B. The adverse legal action and overcharging by trades
27. The Applicant in his written statement makes reference to 2 circumstances he says contributed to the company’s decline.
28. Firstly he claims a subcontractor (Martinez) charged twice the agreed price (there was no written contract) and the company was ordered to pay the monies alleged to be owing pursuant to an adjudication under the Building Construction Industry Payment Act regime (BCIPA).
29. Similarly he had issues with a subcontractor, BGS Concrete Constructions. DRD claimed the work was defective but was in any event ordered to pay the full claim as a result of an adjudication.
30. There was also a matter of Mak Property Consultants. On 5 December 2007 Mak served a creditors statutory demand on DRD under the Corporations Act for non payment of a debt of $381,261.93. The Affidavit in support of the claim was to the effect that the claim related to the cost of defective work and overpayment and damages in relation to a proposed townhouse project being constructed by DRD. It was clearly unable to satisfy the statutory demand.
31. I accept that the existence of the demand and the inability to satisfy the demand was the circumstance leading to the appointment of the administrator. The directors knew that if they were unable to meet the demand the company would be put into liquidation (which ultimately occurred). The Directors considered that in these circumstances that the company should go into voluntary administration (the relevant event).
C. Inability to recover amounts owing
32. The Applicant says that although the company was using industry standard contracts, “work was done which costs could not be recovered under the contract”. His oral evidence was the effect that on some jobs (for example “Watkins”) the clients increased the quality of the fittings but would not sign a variation.
33. He says they had legal advice that the monies owing could not be recovered.
34. As I stated in the decision of YA, I consider that this circumstance is not so much “an inability” to recover the money owing but rather a failure to take steps to recover the money owing.
(iii) Did the Applicant take all reasonable steps to avoid the circumstances coming into existence
35. The Authority in its submission submits that the Applicant has failed to discharge his obligation to satisfy the Authority and the Tribunal that he has “taken all reasonable steps”.
36. The Authority relied on the CCT decision of Dyson v QBSA [2009] CCT QR084-07 where Member Lohrish stated:
At 14, “it is to be remembered that the onus rests with the Applicant to prove that the Applicant had taken all (and not some) reasonable steps in terms of section 56AD(8) of the QBSA Act. If the Applicant happens to fall short of discharging that onus because of either or both, lack of documentation or failure of recollection, then simply the Applicant fails in this application.”
At 35, “the Applicant’s recollection of events was not reliable without corroborating documentation. Accordingly, without appropriate evidence, I cannot be satisfied that all reasonable steps be taken in respect of this alleged deficiency.”
37. This sentiment was confirmed by Judge McGill in the Younan case when he said at 37:
“Further, subsection (8) authorises the characterisation of an individual as a permitted individual only if the authority is satisfied of the relevant matter on the basis of the application, that is to say on the basis of the case made by the applicant. It follows that if relevant considerations are not addressed by the applicant, so that the applicant fails to show in a relevant respect that he took all reasonable steps to avoid becoming into existence of the circumstances that resulted in the happening of the relevant event then the application will fail.”
38. I accept that the Applicant must show to the Tribunal that all reasonable steps were taken.
39. I consider that the Applicant has failed in this case. Firstly, with respect to those steps he says were taken, his evidence both oral and written has failed to satisfy the Tribunal that they were taken. In his oral evidence the Applicant confirmed “that the documents were a bit short” but he believed there were sufficient to verify he had taken all reasonable steps.
40. The fact that the Applicant had been through this process before is relevant. In the previous hearing it was discussed that further documentation would have been a benefit in proving that all reasonable steps were taken. Having had that experience and having had it brought to his attention in the statement of reasons that his documentary evidence was lacking the Applicant should have taken steps to correct that if possible.
41. Further, there were reasonable steps in my view that the Applicant did not take to avoid the company’s insolvency.
I will deal with each circumstance in term.
A.Unprofitable contracts
42. On the issue of the cost estimates, the Applicant’s evidence was that he did cost estimates for each job and that these costings were confirmed by independent consultants. The Authority raised in their material filed prior to the hearing that there was a lack of corroborative evidence on this point. The Applicant, neither in his written material or oral evidence, elaborated on the independent advice or provided an adequate explanation as to why the contracts were obviously under priced.
43. On the issue of variations, the Applicant complained of a number of clients who insisted on what he considered to be additional work over and above the scope of the contract and then refused to acknowledge a variation. I accept the Authority’s argument that no attempt was made by the Applicant to show that actual specific variations were sought for additional work or that variations if sought would have equalled the cost overruns.
44. The Applicant blamed the form of contract on each project as to why it was difficult to claim variations and cost overruns however no copy of the contract was provided or any specific examples given. He also did not give any details of the advice obtained other than to say in general terms that the legal advice was that the increased costs could not be recovered.
45. As I said in the YA decision, it was apparent that the scope of works was not properly defined in some cases. The Applicant complained of one client who insisted on more expensive and better quality fittings but refused to pay any additional cost. This indicates a problem with the specifications in the contract and if properly drafted may not have presented such a problem.
46. The Applicant was questioned as to why it did not come to his attention until December 2007 that the company was in financial difficulties, particularly as he was managing the accounts. His response was that, “these things came down like a avalanche. They all accumulated at the end.” He explained that a lot of the contracts were entered into before previous jobs were completed. They were being run concurrently. He said in evidence that, “the problem became compounded because before the end of 1 contract they had entered into 2 or 3 other contracts and the costs increased on those houses.” In his written statement the Applicant said they used a job costing program which provided comparison information during the job between the estimated cost and the actual cost. One would think that if he, as director and managing the accounts, was keeping a watchful eye on this comparison then there should not have been an avalanche effect.
47. As I stated in the YA case, it would have been a reasonable step to assess the profitability or otherwise of the type of project before entering into a number of contracts concurrently as this was a different type of job then DRD had previously been engaged in.
48. The Applicant acknowledged he did not do any, “due diligence” on Mr Gary Apelt, who was the client for whom they agreed to build 5 houses, all of which had excessive overruns. He said, “He took him at face value”.
49. The Applicant said that they had intended to increase costs on subsequent contracts but by then it was too late.
50. Overall I consider that it is apparent that unprofitable contracts resulted in the main from the company engaging in too many projects at the same time, a failure to properly cost and scope the works and a failure to properly administer the contracts by issuing appropriate variations. The Applicant has failed to produce sufficient evidence, either oral or in writing, to persuade me that he did properly cost, properly scope and properly administer the contracts which would have been reasonable steps to take to avoid the excessive cost overruns on each project.
B.The adverse legal action
51. In his application to the Authority the Applicant makes mention of the same 2 instances of “adverse legal action” as YA did.
Action bought by BGS Concrete Construction
As outlined in the YA decision, BGS was successful in an adjudication under BCIPA.
52. The Applicants submission was the same as YA. He said BGS’s work was defective and that despite the fact that they made representations to the effect to the adjudicator they were ordered to pay the total claim. As with YA, the Authority noted that it received a copy of the Adjudicator’s decision where he had found that there was no written contract which meant that the Applicant could not establish that they have been overcharged. The Authority says that the adjudicator noted that DRD did not provide a payment schedule upon receipt of the invoice (as required by the BCIPA) and had not raised the issue of defective work previously. Both these steps are critical in responding to a BCIPA claim.
53. The Applicant, although aware of the Authority’s submissions on the adjudicator’s findings regarding the deficiency of DRD’s position, made no attempt to dispute the Authority’s version of the findings of the Adjudicator. As such I find that the Applicant did not take all reasonable steps to avoid the adverse finding in the BGS claim.
Mak Claim
54. Whilst the Applicant does not refer to this claim in his written statement of evidence, in his application to become a permitted individual he does refer to the issue as being a contributing cause to the company’s insolvency.
55. After difficulties with the project, the Applicant says he entered into an agreement with Mak that DRD would withdraw from the project on the basis that Mak would not take any action against DRD for damages.
56. The only record of this agreement is an entry in the Applicant’s diary recording the term. The entry is not signed.
57. Mak Properties issued a statutory demand for $381,261.93 in December 2007. The Applicant points out that at this stage the company had ceased trading as such there was no reasonable steps the Applicant could have taken to avoid the consequential liquidation. However, in view of the troubled relationship with the project, a reasonable step to avoid the claim would have been to properly document the agreement to withdraw from the contract.
C.Failure to recover monies owing to DRD
58. The Applicant does not refer to this circumstance in his application to become a permitted individual however on the evidence put forward it is apparent that the company’s failure to recover (or indeed attempt to recover) monies allegedly owing to it on a number of projects was a circumstance leading to the company’s insolvency.
59. The Applicant’s evidence was to the effect that the company did not seek to recover monies owing because his legal advice was that they would be unlikely to be successful because of the form of contract used on the project.
60. He acknowledged that the company absorbed the losses rather than seek to recover the monies owing. He did acknowledge in cross examination that this was in retrospect not an appropriate step for the company to take.
61. The Applicant’s evidence was particularly vague on this issue. He made no attempt to give particular instances of the advice given in relation to each project as to why the monies owing were not recoverable. As I said earlier, no copy of the contract was provided or particular instances were detailed.
62. In circumstances where reasonable steps in my view would have involved proper contract administration through the use of variations and debt recovery procedure, the Applicant has failed to establish that he did all that he reasonably could in the circumstances to recover monies owing.
63. I find that the Applicant has failed to establish that he took all reasonable steps to avoid the coming into existence of the company’s insolvency.
Other Issues
64. The Applicant put it an identical “statement of review” as in the YA case specifically addressing issues listed in section 56AD(8A) as being matters the Authority (and on review of the Tribunal) must have regard to in deciding whether the Applicant took all reasonable steps.
a) Keeping proper books of account
65. The Applicant’s statement was that the company kept proper and timely records by way of a fully integrated accounting software program. He said the company always had up to date information via the general ledger, accounts payable ledger, accounts reviewable ledger and the job costing ledger.
66. The Applicant did not produce any accounts. The liquidator of the company, Mr Ian Curry, had given evidence in the YA hearing that the Applicant refused to deliver accounts to the liquidator. The Applicant said although he was managing the accounts, it did not come to his attention until December 2007 that $1.2 million was owing to creditors. He said this was because, “it all accumulated at the end”. He also said he believed that until November 2007 the company was able to pay its debts. The liquidator however in the YA case had said that in his view on the information available, the company had been engaging in insolvent trading for possibly up to 1 year prior to his appointment.
67. On the evidence it appears that even if the company did keep proper books of account they were not being accessed appropriately by the directors to assess the company’s financial position.
b) Seeking appropriate financial legal advice before entering into financial or business arrangements in conducting business
68. The Applicant submits the company accountant gave advice to directors as needed.
69. Again the Applicant failed to produce or provide any specific evidence as to when the accountant’s advice was needed and obtained.
70. As I noted in the YA decision, there was no evidence produced that financial or other advice was sought before engaging in what the Applicant concedes was a different type of construction and where a number of contracts were entered into in a short period of time. I confirm it would have been a reasonable step to seek financial and legal advice as to the viability of the structuring and documentation of, and the administration of, such projects.
c) Reporting fraud or theft to the police.
71. This was not a relevant issue in these circumstances.
d) Ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantee.
72. The Applicant makes the point that he met all obligations under guarantees. This is not relevant to a consideration of the circumstances of DRD’s administration.
e) Putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amount.
73. The Applicant makes the comment that “the company collected all funds payable to it as the payments were made directly to the company by banks and other financial institutions”.
74. This relates only to those payments the clients were prepared to pay. As set out above, I’m not satisfied that the Applicant took all reasonable steps to recover monies the company claimed was owing to it on a number of projects.
f) Making appropriate provision for commonwealth and state taxation debt
75. This is not a relevant issue in the circumstances of this case.
Applicant’s general submissions
76. As with YA, the Applicant also made general submissions which should be addressed.
77. The Applicant makes the point that he supported himself from savings rather than taking profits during the time he was associated with the company. This may have improved the company’s cash flow however should not have been necessary had other steps been taken to avoid the circumstances referred to above leading to the company’s insolvency.
78. He points out that he made personal property available to raise equity to support the company. The directors applied for a loan in October 2007 but the loan was refused. As pointed out in the YA case this was not a step taken to avoid the circumstances coming into existence. It was instead action taken to “deal with” for the circumstances once they had arisen.
79. The Applicant also in his written and oral submissions, made much of what he believed to the purpose of the legislation. He felt he did not come within the category of persons the legislation intended to target.
80. He submitted in writing that “the BSA have not correctly applied the intention of the Act as outlined in the Ministers second reading of part 3A of the Act “to prevent the re-emergence of shonks through the device of “phoenix companies”.
81. He submitted that he believed the Ministers intention was to stop dishonest people because of their knowledge of the industry taking advantage of people who did not have the same knowledge of the industry.
82. In oral submissions he made the point that the Tribunal should look at the intention of the Act not the words of the Act.
83. These submissions are not sustainable in light of the District Courts decision in Younan. As discussed above Judge McGill made the point that when it comes to interpreting the statutory provisions attention must be focussed on the words actually used, not what the politicians might have to say about the meaning or intent of the legislation.
84. It is not an issue in this case as to whether the Respondent was a shonk or is dishonest, it is whether he took all reasonable steps to avoid the circumstances coming into existence that resulted in the company’s insolvency.
Findings
85. On the evidence presented I am not satisfied that the Applicant took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the appointment of an administrator to DRD.
86. As the threshold issue has not been determined in the Applicant’s favour, it is not necessary to consider whether the discretion should be exercised to categorise the Applicant as a permitted individual.
Order
87. The reviewable decision is confirmed.
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