Godbolt v Queensland Building Services Authority
[2012] QCAT 313
•19 July 2012
| CITATION: | Godbolt and Anor v Queensland Building Services Authority and Anor [2012] QCAT 313 |
| PARTIES: | Mr Grant Allan Keith Godbolt Mrs Julianne Jennifer Godbolt (Applicants) |
| v | |
| Queensland Building Services Authority (First Respondent) Mr John Camilleri (Second Respondent) |
| APPLICATION NUMBER: | GAR154-11 |
| MATTER TYPE: | General administrative review matters |
| HEARING DATE: | 6 March and 31 May 2012 |
| HEARD AT: | Brisbane |
| DECISION OF: | Peter Walker, Member |
| DELIVERED ON: | 19 July 2012 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. That the decision of the First Respondent dated 10 May 2011 to disallow the Applicants’ claim under the Statutory Home Warranty Insurance Scheme be set aside. 2. That the Applicants’ claim under the Statutory Home Warranty Insurance Scheme be allowed. 3. That the issue of the quantum of the Applicant’s claim be remitted to the First Respondent for determination. Directions: 1. The Applicants have leave to file and serve written submissions on the question of costs by 4pm on 3 August 2012. 2. The Respondents have leave to file and serve submissions in response by 4pm on 17 August 2012. 3. The issue of costs be determined on the papers without any oral submissions. |
| CATCHWORDS: | Statutory Home Warranty Insurance Scheme – proper termination of contract – meaning of insolvent and financially unable to proceed with contract – repudiation – proper order on review Queensland Building Services Authority Act 1997, ss 86, 87 Sandell v Porter (1966)115 CLR 666 |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Greg Richards, Solicitor of Minter Ellison Lawyers |
| FIRST RESPONDENT: | Cheridan Farthing, Lawyer for the First Respondent David Gardiner, Barrister, instructed by Eaton Lawyers for the Second Respondent |
This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act).
REASONS FOR DECISION
This is an application to review a decision of the Queensland Building Services Authority under ss 86 and 87 of the Queensland Building Services Authority Act 1991 under the Statutory Home Warranty Insurance Scheme administered by the Authority.
It appears to be uncontentious that the relevant decision here is reviewable by way of application to this Tribunal within the mechanism provided by those sections.
The decision which is the subject of the application is said to be:
The decision made by the Authority on 10 May 2011 to disallow a claim under the Statutory Insurance Scheme administered by the Authority either wholly or in part.[1]
[1] See Application.
Manner in which Review to be Conducted
In making my decision I am bound by the provisions of section 20 of the Queensland Civil and Administrative Tribunal Act 2009 which states as follows:
Review involves fresh hearing
a) The purpose of the review of a reviewable decision is to produce the correct and preferable decision.
b) The tribunal must hear and decide a review of a reviewable decision by way of a fresh hearing on the merits.
It should be noted, that it is not the reasons of the Authority that are important, but, because of section 20 of the QCAT Act, the information, evidence and matters available to the Tribunal at the hearing.
Background
The Godbolts entered into a fixed price building contract with Mr Camilleri to construct premises at Shailer Park, Queensland, for the sum of $363,446.
It is, in my view, of some significance that the parties were said to be friends prior to the entering into of the business relationship. I do accept, however, that despite this friendship, the parties decided to enter into the written contract.[2]
[2] Exhibit 5, exhibit GAKG-1 at pages 21 to 50.
That contract was a typical one where progress payments became due as certain stages were reached. The point was reached where each but the last 2 progress payments had been made.
It also seems fairly uncontroversial that there were a number of variations to the contract works, though no steps had been taken to identify these in writing in the way required by the contract.[3]
[3] Exhibit 10 at paragraph 98.
[10] The value of these variations has never been agreed by the parties though Mr Camilleri has provided a breakdown of what he sees as claimable in this regard in the total sum of $73,919.82.[4]
[4] Exhibit 11, annexure JC-1.
[11] By way of contrast the Godbolts have provided evidence that the value of variations should be more in the order of one half of that figure. I must say, however, that it seemed to me that they reached their value more by reference to a purported discussion with Mr Camilleri whereby he was said to have indicated that the total price to the point of termination was still within $400,000, which they gave evidence, was a fairly vital budgetary level for them.
[12] In my view, if it is relevant, the better indication of the value of the variations is that provided by Mr Camilleri.
[13] It seems clear that by late January or early February 2010 Mr Camilleri asked for payment. Mr Camilleri gave evidence that he asked for $74,000 for variations. By way of contrast Mr Godbolt gave evidence that Mr Camilleri was not specific about the value of the variations but asked for money to enable him to proceed with the works. It seems uncontentious that no paperwork to support a further payment at this time was provided by Mr Camilleri.
[14] At this time the 2 stages that needed to be completed were:
a)Fixing – $36,344.60
b)Practical completion – $36,344.60
[15] On or about 25 February 2010 the Godbolts paid 2 amounts, each of $36,344.60 to Mr Camilleri. While these 2 cheques coincide neatly with the final remaining stage payments even Mr Godbolt gave evidence that these cheques were intended to represent, in part, payment for variations that he says he believed approximated $36,500.
[16] The lack of paperwork surrounding these payments makes it hard to understand what the payments in fact represented, though it seems likely that both parties were working under completely different assumptions in that regard.
[17] From this point things seem to have deteriorated even further. It seems that in March Mr Camilleri was absent from the building site for what is really an unspecific period. During that month it appears that there were a number of discussions between the parties culminating in a personal meeting between Mr Godbolt and Mr Camilleri at Alexander Clark Park when Mr Camilleri presented a document entitled “Building Costs Breakdown”[5]. That document gave a projected cost to complete the project of $163,523.03.
[5] Affidavit of Mr Godbolt at paragraph 91 and exhibit GAKG-1 at pages 62 to 66.
[18] The details of the discussion between the parties are the subject of varying evidence. Mr Godbolt gave evidence that Mr Camilleri had referred to costs “blowing out” and him saying “I don’t know where all the money has gone”.
[19] Mr Camilleri’s evidence in cross-examination, was I thought, quite vague in this regard. It seems plain that the price he had now calculated that it would take to finish the project was well outside his initial estimate. He blamed a “computer error” for the problem, though no more detail in this regard was proffered. Despite the written evidence presented,[6] he also did not give oral evidence, on my recollection, that he actually asked Mr Godbolt to provide further funds but rather that he hoped they could work something out. In this respect he plainly accepted, however, that he had no contractual right to funds other than for variations. While he never actually said as much I can only conclude that he was hoping that the friendship between the parties would lead to the Godbolts voluntarily paying further funds.
[6] See affidavit of 20 October 2011 at paragraph 55.
[20] It would seem that his hopes in this regard were in vain as on 27 March 2010[7] the Godbolts purported to terminate the contract in reliance on clause 23 which, among other things, allows an owner to terminate by written notice if a builder:
a) Becomes insolvent or financially unable to proceed with the contract;
b) Commits an act of bankruptcy or is made bankrupt.
[7] Exhibit 15 SOR-5.
[21] Ultimately the owners, the Godbolts, submitted a claim under the Statutory Home Warranty Insurance Scheme.
[22] On 10 May 2011 the Authority disallowed the claim and the Godbolts have sought a review of that decision.
Issue for Determination
[23] In essence the central point that requires my determination is whether the finding by the Authority, in their Statement of Reasons[8], that the owners did not properly terminate the contract, is correct. In short, if it did amount to a proper termination of the contract it would be appropriate for me to find that the application should succeed, but otherwise it should fail. This is in accordance with the submissions of the Authority.[9]
[8] Exhibit 15.
[9] Exhibit 3 at paragraph 13.
Meaning of Clause 23
[24] It seems common ground that my sole consideration should be to the clause 23(a). In that respect Mr Gardiner, for Mr Camilleri, has suggested that the words “...or financially unable to proceed with the contract” do not add anything to the words “becomes insolvent...” and it should only be the question of solvency that I need concern myself with.
[25] By way of contrast Mr Richards, for the Godbolts, has submitted that effectively the phrases should be read completely separately and as alternatives to each other.
[26] Within the context of this matter I do not consider that this is a finding that I need to make, though my inclination is that the phrases should be looked at separately. Unless this was the case there would simply not be any to add the additional words.
[27] It then becomes necessary for me to consider the meaning of the term “insolvent”. While I was referred to several possible accounting approaches to this concept on behalf of the Godbolts I find that the proper approach is that enunciated by the Chief Justice in Sandell v Porter[10] where it was explained as follows:
Insolvency is...an inability to pay debts as and when they fall due... but the debtor’s own monies are not limited to his cash resources immediately available. They extend to monies which he can procure by realisation, by sale or by mortgage or pledge of his assets within a relatively short time relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.
[10] (1966)115 CLR 666 at 670.
[28] Specifically, for the purposes of this decision I do not accept the alternate accounting approaches to this concept contended for by the Applicants.
Mr Camilleri’s Financial Circumstances
[29] It therefore falls to me to consider the objective evidence surrounding Mr Camilleri’s financial circumstances at or around the date of purported termination.
[30] The starting point for this should inevitably be the evidence of Mr Camilleri himself. I must say in this respect I found his evidence to be less than satisfactory. He did, however, provide a sheet detailing the resources available[11] to him which I found to be credible. In this respect it was contended on behalf of the Godbolts that to the extent this consisted of potential borrowings it was not proper to consider them, as such borrowings would have to be repaid. I do not accept that assertion. So far as I am concerned these were clearly a cash resource available to him. It would be wrong of me to assume that the cash flow will not be available to him in future to be able to meet the additional liabilities caused by the drawdown of such funds. They are clearly monies he can procure.
[11] See annexure to exhibit 10.
[31] By way of contrast he readily admitted making statements that can only be interpreted as showing he is in fairly grim financial straits. He admitted making the statements attributed to him from the Authority’s file note dated 06 May 2010[12]. Specifically those comments included, “His cashflow is zero and until the owner agrees to pay him some money, he can’t afford to continue with the job” and “John said he doesn’t understand how as he no money. He has had to refinance his house and there is no equity left” and “John has creditors on his back”. Further, though he denied making the statements attributed to him by Mr Godbolt, he admitted in cross examination to making statements of similar import to other people at about the time he denies making them to Mr Godbolt. These included statements along the line of “there’s no money left in my account and I don’t know where it’s all gone” and “I don’t know where all the money has gone”.
[12] See the Authorities Statement of Reasons SOR-8.
[32] To me it would be stretching credibility to find that Mr Godbolt decided to make these allegations in very similar terms to what Mr Camilleri has admitted using to other people without the benefit of having heard them from Mr Camilleri. Therefore, to the extent their evidence differed in this respect I prefer the evidence of Mr Godbolt and I accept that Mr Camilleri made statements along these lines to Mr Godbolt.
[33] I might say it would also stretch the bounds of common sense to think that the Godbolts would have instructed their solicitors to draft the termination letter as was done unless such statements had been made.
[34] There were a number of other witnesses relevant to Mr Camilleri’s financial circumstances whose evidence I must consider. There is, of course, the evidence of Mr Smith and Mr Paul Camilleri that they would have been prepared to make funds available to Mr Camilleri, either by way of loan, or possibly, in Mr Smith’s case by loan or gift.
[35] It is important to note that the evidence of both of these witnesses was general in nature only. While there was cross examination and responses about the terms that may have been requires there was no specific evidence about loan details, such as whether interest would be payable, if it was the rate, the term of any loan etc.
[36] In the context of this evidence I consider that the words used by the Court in Lewis v Doran are appropriate:[13]
113 On the other hand, where prospective insolvency is in issue the Court, as a general rule, would be sceptical of an assertion that a third party is willing to advance funds unsecured on such terms as would not, in any event, bring about insolvency. Such willingness on the part of a third party would have to be cogently demonstrated, if not as a matter of legal obligation, then as a matter of commercial reality.
[13] [2004] NSWSC 608 at paragraph 113.
[37] On the other hand that decision makes it clear that if a Tribunal is satisfied that, as a matter of commercial reality, funds will become available, even from an unsecured source, that is enough to establish solvency.[14]
.....requires the Court to decide whether the company is able, as at the alleged date of insolvency, to pay all its debts as they become payable by reference to the commercial realities. If the Court is satisfied that as a matter of commercial reality the company has a resource available to pay all its debts as they become payable then it will not matter that the resource is an unsecured borrowing or a voluntary extension of credit by another party.
[14] As above at paragraph 116.
[38] I have no doubt, in this case, that the offers of Mr Smith and Mr Paul Camilleri were well intentioned and it must be remembered that loans within a family context may well be made in circumstances where a loan from a more usual commercial source would not.
[39] Nevertheless I am concerned about the paucity of evidence surrounding these loans. It is far from clear to me whether Mr Smith and Mr Paul Camilleri were ever made fully aware of Mr Camilleri’s financial circumstances and perhaps importantly how it came to be that he had managed to get the cost of works so wrong, even on his own evidence. The fact that he also appears not to have known where funds had gone would also send warning bells, even within a family context.
[40] It is also of concern to me that, if these discussions had taken place prior to termination, why Mr Camilleri did not indicate to Mr Godbolt that he had these funds available, even as a last resort, to continue on with the project. Nevertheless, both Mr Camilleri and Mr Godbolt agree that this was never conveyed prior to termination.
[41] It seems an easy, if well-intentioned thing, to say, after it is clear that the funds will not be required, that you would have been prepared to lend them. Nevertheless I am not satisfied that there has been sufficient disclosure of the circumstances or proper investigation for me to conclude, as a matter of commercial reality, that these funds would have actually be made available if required, or that they were actually offered prior to termination.
[42] In addition the evidence of Mr Kiril Kozulin must also be considered. It appears he gave Mr Camilleri an invoice for $6,720 for goods and services.[15] He gave evidence that he received a cheque in payment of this sum which, when presented was dishonoured. Mr Camilleri gave evidence that he drew the cheque from the incorrect account and that after he found that out, he did not simply draw a cheque from the correct account. Rather he then decided that it would be inappropriate to pay it. What I find strange about his evidence in this regard, however, was that he continued to drip feed Mr Kozulin paying him small amounts – sometimes as little as $20 until eventually the tax invoice was mostly paid. If he thought there was good reason not to pay the tax invoice I would have thought he would have clearly stated his reasons for that and not paid anything until his doubts were resolved one way or another.
[15] Exhibit 4 at paragraph 7 and exhibit KK-2 thereto.
[43] On balance it appears to me that the reason he did not pay Mr Kozulin was that explained by Mr Kozulin in his affidavit:[16]
Mr Camilleri explained that he did not have any money at that time. Mr Camilleri promised that he would pay me once he got some money.
[16] See above at paragraph 11.
[44] All this must be considered in the context of the prevailing financial circumstances presented by this contract. If one assumes that the variations were in the order of $74,000 and Mr Camilleri ultimately took the steps available to him to seek reimbursement of these sums, he was still undoubtedly in a very difficult position. If one assumes the 2 cheques drawn by Mr Godbolt represented the approximate cost of variations he still had to complete work on his estimate valued variously at $163,523.03 and $147,000 with only the final 2 payments under the contract available to him as a financial resource. If the 2 payments represented a pre-payment of the final 2 instalments due under the contract really he is in a very similar position, except that the only possible cash available to him would be from a variations claim.
[45] On either version he was facing a shortfall on this project of some $75,000 to $90,000, and that does not take account of the fact that he had substantial outstanding creditors related to this contract.
[46] If, of course, one adopts the figures presented on behalf of the Godbolts his position is significantly worse as his variations are only some $36,000 and the cost to complete is much higher than he estimated.
Clause 20 of the Contract
[47] An important submission on behalf of Mr Camilleri was that the proper approach to contractual problems would have been for the Godbolts to have issued a written notice to remedy an alleged breach pursuant to clause 20 of the contract. A large part of the basis for this submission, it seems to me, was the “indicia” relied on in the letter of termination.[17] The submission goes further and states that the issuing of the letter purporting to terminate the contract was a cynical exercise effectively designed to prevent the builder from taking the appropriate steps to seek written variations under the contract.
[17] See Statement of Reasons exhibit SOR5.
[48] It seems to me, however, that there is absolutely no evidence from which I can conclude that the reason for giving the notice of termination was for any reason other than the obvious one, namely to terminate the contract.
[49] Of the “indicia” in question really the only one that gives any support for this submission is that in (c), namely that “you have not attended the site or performed works at the site for the past two weeks”. The other two indicia expressed are clearly indicative of concerns about the builder’s ability to continue to fund the project, which I find was the owners’ primary concern. It should also be noted that the indicia are expressed as “including” specified concerns rather than being limited to them. Finally I would note that there would seem to be no actual requirement to include these indicia in the letter of termination at all.
[50] Further in my view, the owners’ concerns were a direct result, at least in part, of statements Mr Camilleri had made to Mr Godbolt.
[51] If one considers the notice issued in the context of the concerns the Godbolts held, it seems that reliance on clause 23 was the correct approach. It is true that a notice could have been issued specifying a failure by the builder to proceed with the works and giving him the opportunity to remedy that. However that was not really the concern in this situation. The concern, and the belief, was that Mr Camilleri was simply not able to afford to continue with the building. The appropriate way to deal with that concern, it seems to me, was to issue a notice of termination pursuant to clause 23, which is, of course, the approach that was taken. Issue of a Notice to Rectify pursuant to clause 20 would have really been a fairly artificial approach.
[52] In those circumstances a duty to act reasonably does not appear to arise. That duty only arises in circumstances where there is a duty to give notice to remedy a breach. Clause 23 has a different application, which is where the builder is unable to continue the contract so remedying a breach ceases to be an issue.
Has Contract Been Properly Terminated?
[53] On the basis of the forgoing I am satisfied that the builder, Mr Camilleri, was unable to pay his debts as and when they fell due. An obvious case in point is Mr Kozulin, though it seems likely that there were other trade creditors that fell into the same category. I am therefore satisfied that as at the date of termination he was insolvent and was financially unable to proceed with the contract.
[54] I am therefore satisfied that it was open to the Godbolts to terminate the contract pursuant to clause 23 of the written contract.
[55] I am further satisfied that the letter of termination was effective for this purpose.
Repudiation
[56] An alternate ground argued on behalf of the Godbolts was that Mr Camilleri, by his conduct, had indicated an intention not to be bound by the contract and that this amounted to a repudiation. This repudiation, it is said, was accepted by the Godbolts and this acceptance was evidenced by the issuing of the letter of termination.
[57] It does not seem to me that it is necessary for me to decide on this point in view of the fact that I have found that the contract has been validly terminated.
[58] Nevertheless I would note, that were it necessary for me to decide this, I would incline to the view that Mr Camilleri’s actions fell short of repudiation. It is certainly the case that he made certain statements that indicated he wished to vary the terms of the contract. Nevertheless I believe all his actions and statements were directed to this, namely seeking a variation. Though they may have amounted to an unusual approach to negotiation I believe that is, in fact, what they were. I don’t believe that his actions can be interpreted, strictly, as evincing an intention not to be bound by the contract.
The Authority’s Decision
[59] Given the aforesaid I find that the Authority’s decision that the contract was not properly terminated is incorrect.
Orders to be Made
[60] It therefore falls to me to decide the proper orders that should be made. The powers of the Tribunal in this respect are set out in section 24 of the QCAT Act, which is in the following terms:
24 Functions for review jurisdiction
1) In a proceeding for a review of a reviewable decision, the tribunal may
(a) confirm or amend the decision; or
(b) set aside the decision and substitute its own decision; or(c) set aside the decision and return the matter for reconsideration to the decision-maker for the decision, with the directions the tribunal considers appropriate.
[61] It seems to me that the best course, in respect of this matter, is to adopt the power available to me pursuant to section 24(1)(b), namely to set aside the decision and to substitute my own.
[62] The case run before me, however, has dealt with the issue of termination only. While there has certainly been evidence led dealing with the issues of quantum this certainly was not the subject of detailed evidence. I therefore feel that this issue is best returned to the decision-maker for a determination of that aspect pursuant to section 24(1)(c).
[63] The parties’ representatives have indicated that they may wish to be heard on the question of costs. It seems to me appropriate to make Directions in that regard and those Directions are contained within the body of the Order itself.
1
2
2