Gary Morrison Constructions Pty Ltd v Queensland Building Services Authority
[2012] QCATA 77
•14 May 2012
| CITATION: | Gary Morrison Constructions Pty Ltd v Queensland Building Services Authority [2012] QCATA 77 |
| PARTIES: | Gary Morrison Constructions Pty Ltd |
| v | |
| Queensland Building Services Authority |
| APPLICATION NUMBER: | APL320-11 |
| MATTER TYPE: | Appeals |
| HEARING DATE: | On the papers |
| DECISION OF: | Mr Charles Brabazon QC, Member |
| DELIVERED ON: | 14 May 2012 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. Leave to appeal is refused. |
| CATCHWORDS: | PERMITTED INDIVIDUAL – where licensee bankrupt – where licensee had significant personal credit card debt – whether licensee keep proper books of account – whether licensee took appropriate advice – whether licensee took reasonable steps to recover debt Queensland Civil and Administrative Tribunal Act 2009, ss 142(3), 147 Younan v Queensland Building Services Authority [2011] QCA 1 |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Mr G Morrison on behalf of Gary Morrison Constructions Pty Ltd |
| RESPONDENT: | Ms J Stroud, in-house legal officer of Queensland Building Services Authority |
REASONS FOR DECISION
This appeal is probably the final step in a contest between the Queensland Building Services Authority and a builder, Mr Gary Morrison. The company which he controls, Gary Morrison Constructions Pty Ltd, is also a party.
Mr Morrison is an undischarged bankrupt. The QBSA says that he must lose his builder’s licence. If he does lose it, his company will be unable to accept building work.
The QBSA has power to allow a bankrupt builder to continue to hold a licence. In this case, it used its powers to revoke his licence, on 7 September 2010. That decision has been stayed, until this appeal is decided.
The proceedings at first instance were review proceedings, in which Mr Morrison sought a declaration that he be a “permitted individual” for the purposes of holding his builders licence. The Tribunal declined to make that declaration.
That decision was delivered on 9 August 2011. The application for leave to appeal was filed on 6 or 7 September 2011, within the time period allowed in section 143 of the QCAT Act.
The Legal Framework
QCAT is obliged to apply the law, as set out in the QBSA Act. It is well known, that Queensland homeowners, and subcontractors, have suffered serious losses because of the failures and bankruptcies of some builders. It is clear that the QBSA Act now sets out to deal sternly with bankrupt builders. Usually, they lose their licences. There are some exceptions. Mr Morrison says that he should be in that exceptional category. In the words of the QBSA Act, he wants to be a “permitted individual”.
Part 3A of the QBSA Act is entitled “Excluded and permitted individual and excluded companies”, and comprises sections 56AB to 56AH. Section 56AD(8) of the Act says:
“The QBSA may categorise the individual as a permitted individual for the (bankruptcy) 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 (bankruptcy)”.
Section 56AD(8A) of the QBSA Act enacts as follows:
“In deciding whether an individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the (bankruptcy) 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) …
(d) …
(e) Putting in place appropriate verdict management for amounts owing and taking reasonable steps for recovery of the amounts;”
Section 56AD(8B) of the QBSA Act is as follows:
“Nothing in sub-section (8A) prevents the Authoriy 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 result in the happening of (the bankruptcy)”.
[10] The issues for consideration in a similar application were discussed by Judge McGill in the matter of Younan v QBSA [2010][1]. His decision was upheld by the Court of Appeal[2]. He made the following points as to how the above statutory principles should be viewed:
[1] QDC 158.
[2] Younan v Queensland Building Services Authority [2011] QCA 1.
At [24], when having regard to the criteria in section 56AD(8A) that
“It is immediately apparent that these are all concerned with the prudent management of the company as an ongoing business, or even, in the case of (b) something which is to be done before one conducts a business arrangement. In other words, the focus of this subsection is on prevention rather than dealing with problems after they have arisen, except in the case of (c), which is obviously concerned with a situation where a problem has arisen outside the control of the individual in question”.
At [26]
“the test outlined in section 56AD(8A) 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 the 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”.
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, so that if 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 (bankruptcy), then the application will fail”.
[11] A builder may only be categorised a “permitted individual” if he took all reasonable steps to avoid the coming in existence of the circumstances that resulted in the bankruptcy[3].
[3] Hyde v QBSA [2003] QBT 30 at [58] to [60], Darvill v QBSA [2008] QCCTB 35 at [42], Nation v QBSA [2006] QCCTB 114 at [55], Delonga v QBSA [2004] QCCTB 26 at 33.
[12] What steps are reasonable are to be considered from the position of a reasonable builder in the shoes of the builder[4].
[4] Dellaway v QBSA [2007] QCCTB 181 at [7].
[13] The reasonable steps are those to avoid the coming into existence of the circumstances that resulted in the bankruptcy, not the bankruptcy itself[5].
[5]McPherson, JA in Samin v State of Queensland & Ors [2001] QCA 259 quoting Rich v State of Queensland and Ors.
[14] What amounts to reasonable steps necessarily involves investigation of the nature of the harm, the foreseeability and degree of risk of its happening, and the measures reasonably available for preventing or averting it[6].
[6] QUYD Pty Ltd v Marvass Pty Ltd [2009] 1 Qd R 41.
Leave to Appeal
[15] Mr Morrison now appeals against the order of the Tribunal. Section 142 of the QCAT Act is as follows:
142Party may appeal
(1)A party to a proceeding may appeal to the appeal tribunal against a decision of the tribunal in the proceeding if a judical member did not constitute the tribunal in the proceeding.
…
(2)Also –
…
(b)an appeal under subsection (1) on a question of fact, or a question of mixed law and fact, may be made only if the party has obtained the appeal tribunal’s leave to appeal.
[16] It seems clear enough that the proposed appeal involves questions of fact. Leave is required pursuant to section 142(3)(b) of the QCAT Act. If leave is given, the appeal will be by way of rehearing under section 147, which contains these further rules:
(2)The appeal must be decided by way of rehearing, with or without the hearing of additional evidence as decided by the appeal tribunal.
(3)In deciding the appeal the appeal tribunal may –
i.Confirm or amend the decision, or;
ii.Set aside the decision and substitute its own decision.
[17] The criteria for whether or not leave to appeal should be granted is discussed in Instal-fix v QBSA [2010] QCAT 45 at [14]:
“[14] The question whether or not leave to appeal should be granted is usually addressed accordingly to establish principles: Is there a reasonably arguable case of error in the primary decision?[7] Is there a reasonable prospect that the applicant will obtain substantive relief?[8] Is leave necessary to correct a substantial injustice to the applicant caused by some error?[9] Is there a question of general importance upon which further argument, and a decision of the appellate court or tribunal, would be to the public advantage?”[10]
[7] QUYD Pty Ltd v Marvass Pty Ltd [2009] 1 Qd R 41.
[8] Cachia v Grech [2009] NSWCA 232 at [13].
[9] QUYD Pty Ltd v Marvass Pty Ltd (supra).
[10]Glenwood Properties Pty Ltd v Delmoss Pty Ltd [1986] 2 Qd R 388, at 389; McIver Bulk Liquid Haulage Pty Ltd v Fruehauf Australia Pty Ltd [1989] 2 Qd R 577 at 578, 580.
[18] There is also an issue about further evidence which Mr Morrison now wants to have considered. He has provided:
a)Additional references from others in the building industry.
b)A ‘show cause’ notice, to demonstrate that the warehouse which he built was illegally occupied, before it had a certificate of classification.
c)A statutory declaration, to show the surprising imposition of a substantial headworks charge on Heday Pty Ltd, the owner of the warehouse.
d)His own further submissions.
Because Mr Morrison has been appearing on his own behalf, a generous approach should see the further material admitted. The QBSA has formally objected, but has not sought to introduce any further material.
[19] In this case it will be appropriate to reserve the issue of leave to appeal until the merits of the appeal are considered.
The Member’s Findings
[20] To be successful in his application, Mr Morrison must show that he took all (not some) reasonable steps to avoid the coming into existence of the circumstances that resulted in his bankruptcy. The learned Member found that he did not take reasonable steps with respect to the following:
a. Keep proper books of account and financial records;
b.Seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business; and
c.Putting in place appropriate credit management for amounts owing and, taking reasonable steps for recovery of the amounts.
d.As she put it in her conclusion – “I am satisfied that Mr Morrison did not take reasonable steps to avoid his bankruptcy; that he didn’t keep proper books of accounts or financial records, that he did not seek appropriate financial or legal advice, and that he did not take reasonable steps to recover the debt from Heday”. (“Heday” is a reference to a building contract that he entered into with a company of that name. It was a contract to build a warehouse for a total amount around $740,000. He was on friendly terms with the principal of that company, a Mr Giddings).
[21] Mr Morrison challenges the decision, that he failed to take all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the bankruptcy, on the basis that the Member erred in finding that he failed to keep proper books of account and financial records; and that he failed to take reasonable steps for the recovery of amounts owed to him.
Proper books of account and financial records
[22] The learned Member found that Mr Morrison failed to keep proper books of account and financial records. It was submitted that Mr Morrison’s only basis for challenging such finding was the opinion given by Mr Greening (his accountant) at the hearing that he kept proper books and records.
[23] It is clear from the reasons given by the learned Member at paragraphs 22 to 28 of the decision that, in forming the view that proper books of accounts and financial records were not kept, proper consideration was given to the evidence of the applicant and Mr Greening.
[24] It was predominately Mr Morrison’s own evidence which illustrated the inadequacies of the books and records maintained by the Applicant despite the opinion of Mr Greening. In this regard, the learned Member observed:
“While I accept that Mr Morrison’s accounting methods may have been appropriate for a company with no more than ten clients and contracts to a maximum of $50,000, I do not accept that the accounting methods were appropriate for taking on a project the size and scope of Heday project. Mr Morrison’s own evidence highlights the inadequacy. He:
a)Had no idea how much Heday had paid over the course of the project.
b)Had no idea how much the project had cost GMC.
c)Could not identify which payments were made for the project and which for the refurbishment.
d)Continued to mix personal and business expenses
e)Did not know where, or how, the GMC accounts recorded payments made on his personal credit card.
f)Thought that a regular account balance of $20,000 was sufficient working capital for GMC to undertake the Heday project.
g)Admitted that he was transferring GMC debt to his personal account. That suggests that, if the project had proceeded properly through GMC, the company would not have been able to pay its debts as and when they fell due.”
[25] QBSA submits that the decision of the learned Member, that Mr Morrison did not keep proper books and records was correct, and that he has failed to demonstate this finding is erroneous.
[26] Mr Morrison maintained that he had to do his own accounts, usually dealing with 10-12 invoices each month. His bookwork was similar to that produced by other small builders, he says.
[27] Overall, it can be seen that Mr Morrison did not deny the overall effect of the above findings against him. However, it is necessary to consider if his accounting inefficiency had any connection with his bankruptcy.
[28] He knew that he had a very large credit card debt, compared to his capacity to earn money. He failed to keep good accounts, separating his personal affairs from business expenditure and income, and separating the accounts of the refurbishment job and the warehouse job. He was aware of his poor overall financial position but, as the learned Member found, he had no idea how much Heday had paid over the course of the project, how much the project had cost GMC, and he had mixed personal and business expenses.
[29] Overall, after some hesitation, I have reached the same conclusion as the learned Member – that his accounting methods were inadequate for the work he was doing. They were a cause of his bankruptcy – probably because they did not bring home to him, the true extent of his financial difficulties. She concluded, correctly, that the existence of a large credit card debt was the main reason for his bankruptcy.
The Recovery of Amounts Owing
[30] Mr Morrison appears to challenge the decision of the learned Member, that he failed to take reasonable steps to recover the debt from Heday, on the basis of the cost of taking such action and his inability to meet those costs.
[31] Mr Morrison had credit card debts of around $100,000 when he accepted the Heday warehouse job. He expected a profit of $74,000, after paying for labour and materials. At the time, his usual income was quite low – around $26,000. He had no other assets. He had left a domestic relationship with nothing, for what may well have been honourable reasons. (His partner owned a family house worth some $400,000.)
[32] Towards the end of the Heday job, its owner, Mr Giddings, ran into financial difficulty. He stopped paying Mr Morrison, while assuring him that he would soon be paid. Mr Morrison then made a fatal error of judgement. He decided to finish the job at his own expense, no doubt hoping he would indeed be paid. As it happened, he was not paid until some two years passed, and after he was made bankrupt.
[33] In his evidence, he said that he paid over $50,000 to finish the job. Then followed the months when he was not paid. The learned Member found, on the evidence, that he did not take reasonable steps to recover the debt from Heday. There was no issue of a statutory demand. Mr Morrison spoke to his solicitor, but no action was taken. No search of Heday was made – it seems likely that its financial position was not as bad as Mr Giddings implied. Mr Morrison finally instructed his solicitor to send a letter of demand, almost two years after the money was payable to him.
[34] It seems that Mr Morrison’s preparedness to finish the Heday job at his own expense, and then take no effective action against Mr Giddings until it was, too late, was because of his friendly relationship with Mr Giddings. Whatever the reason it is clear that he did not take reasonable steps to stop work, when not paid, then made little effort to recover the money owed to him. He did decide not to sign a certificate of classification for the completed warehouse, hoping Mr Giddings would be forced to pay him. Mr Giddings put a tenant in the building, without the certificate.
[35] Indeed, I would give even greater weight than the learned Member did, to his decision to keep on building, after Mr Giddings stopped paying. That was a failure to take a step towards avoiding bankruptcy.
Financial and Legal Advice
[36] The learned Member had also found that he did not seek appropriate legal and financial advice. There is no reason to doubt that view. The evidence supports her conclusion, that he accepted the Heday job while carrying, for him, a massive credit card debt. That debt was a substantial cause of his eventual bankruptcy. At least, it is certain that the credit card debt greatly reduced his capacity to take on and complete a substantial job when the owners’ capacity to pay – always a risk – became a reality. If he had the benefit of appropriate and informed advice, it is unlikely that he would have found himself in such a dangerous position.
The Infrastructure Charge
[37] It seems that the Gold Coast City Council imposed an infrastructure charge of around $100,000 on the warehouse project. The evidence here is that it was imposed toward the end of construction, and that it was a surprise to Mr Morrison and Mr Giddings. It was a cause of Mr Giddings’ slowness in making the progress payments.
[38] The learned Member found that Mr Morrison ran the Heday job as a project manager, and that he was involved in the planning and construction. She also found that he should have known about the charge and its amount.
[39] The fresh evidence, allowed in this appeal, includes a recent statutory declaration sworn by a Mr J P Corby, a leasing agent who acted for Heday. He said that the Council gave no notification of any infrastructure charges, when the warehouse construction was approved in April 2007. He says that he, Mr Giddings, and Mr Morrison became aware of the full impact of the charges when the work was nearly completed.
[40] There is no reason to disagree with any finding made in the learned Member’s judgement – apart from paragraph 46 which deal with the infrastructure charges. The fresh evidence supports Mr Morrison’s evidence that he was unaware by the Council demands. While he did agree that he was the project manager, he was not responsible for paying any such charges, which was the owner’s responsibility. That would be the usual situation. It should be accepted that he was not at fault, in failing to foresee the charge.
Conclusion
[41] There are numerous references which speak highly of Mr Morrison’s integrity and ability as a tradesman. He has nothing against him in the QBSA records. In this case, all the losses fell on him, as he chose to finish the job, and pay those who worked for him, and supplied materials.
[42] It seems that he is an honest man who is prepared to trust others, who turn out not to deserve that trust. His ability to manage his financial affairs is limited. He is capable of undertaking smaller jobs, which he is used to doing. He could manage jobs to $50,000 for clients, as the learned Member observed (paragraph 27).
[43] The QBSA Act understandably sets out to deal severely with builders who become bankrupt. Some may be permitted to hold a licence, but as this case shows, it is difficult to escape the rigid tests in section 56AD(8).
[44] Perhaps the time has come for Parliament to give the QBSA, this Tribunal, and the Supreme Court, more discretionary powers to impose, say, a shorter period of disqualification in appropriate cases. Some cases may call for conditions on builders’ licence. Section 36 gives the QBSA a general power to impose conditions on a licence.
[45] The order of this Tribunal is that leave to appeal is refused.
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