QBSA v Coastal Interior Linings Pty Ltd

[2010] QCAT 165

CITATION: Queensland Building Services Authority v Coastal Interior Linings Pty Ltd [2010] QCAT 165

PARTIES:	Queensland Building Services Authority
v
Coastal Interior Linings Pty Ltd

APPLICATION NUMBER:   QD016-09     

MATTER TYPE: Occupational regulation matters

HEARING DATE:     6 April 2010

HEARD AT:  Brisbane

DECISION OF: Ms Clare Endicott

DELIVERED ON: 21 April 2010

DELIVERED AT:      Brisbane

ORDERS MADE: Coastal Interior Linings Pty Ltd is ordered to pay to Queensland Building Services Authority the sum of $4,000 by way of penalty by 4.00pm on 10 May 2010

CATCHWORDS :  Penalty – breach of condition on licence – exceeding allowable annual turnover – section 91(3)(b) of the Queensland Building Services Authority Act 1991

APPEARANCES and REPRESENTATION (if any):

APPLICANT:	Queensland Building Services Authority represented by Melanie Hanlon, in-house lawyer of Queensland Building Services Authority
RESPONDENT:	Coastal Interior Linings Pty Ltd represented by Anne Challenger, Cronin Litigation Lawyers

REASONS FOR DECISION

1. Coastal Interior Linings Pty Ltd (CIL) has held a licence issued by the Queensland Building Services Authority (the QBSA) since 1994.  The licence has been renewed annually and is current.
2. At the time of licence renewal for the 2007/2008 year, documentation was submitted to the QBSA by the accountant for CIL which incorrectly represented that CIL’s net tangible assets were $156,001 when the actual amount of CIL’s net tangible assets was $391,033. 
3. Based on the documentation provided by CIL’s accountant, the QBSA renewed the licence for 2007/2008 on 22 November 2007 and calculated CIL’s allowable annual turnover for 2007/2008 at $3,000,001. 
4. CIL was notified by letter from the QBSA dated 22 November 2007 that it was a breach of a licence condition to exceed the allowable annual turnover by more than 10% during a licensing year without reference to the QBSA. 
5. On 27 November 2008 the QBSA received documentation from the accountant of CIL which recorded that the actual annual turnover for 2007/2008 was $9,787,775. 
6. QBSA commenced disciplinary proceedings in May 2009 in the Commercial and Consumer Tribunal against CIL for contravening a requirement imposed by the Queensland Building Services Authority Act 1991 and for contravening a condition of its licence.  CIL was unaware until the commencement of the disciplinary proceedings that it had exceeded the allowable annual turnover under its licence in 2007/2008. 
7. From 1 December 2009 the Queensland Civil and Administrative Tribunal (the Tribunal) has replaced the Commercial and Consumer Tribunal on the commencement of the Queensland Civil and Administrative Tribunal Act 2009.
8. Under section 256 of the Act, a pending proceeding (being a proceeding commenced in one of the Tribunals replaced by the 2009 Act but not heard by the replaced Tribunal prior to 1 December 2009) is taken to be a proceeding before the Queensland Civil and Administrative Tribunal.  Under section 271 of the Act, the Tribunal has the functions of the former Tribunal and can make a decision that the former Tribunal could have made in relation to the proceeding.
9. The former Tribunal had the power under section 107(2) of the now repealed Commercial and Consumer Tribunal Act 2003 to impose a monetary penalty in disciplinary proceedings commenced by the QBSA. Since its commencement on 1 December 2009, the Civil and Administrative Tribunal has been given the same power to impose a monetary penalty in these types of disciplinary proceedings by section 91(3) of the Queensland Building Services Authority Act 1991.  
10. On 8 February 2010 an order was made by consent that proper grounds exist for disciplinary action against CIL for contravention of section 89(a) and/or section 89(k) of the Queensland Building Services Authority Act 1991 in that during the 2007/2008 licence year CIL exceeded the allowable annual turnover by $6,787,774 or 226.3% without first notifying the QBSA or obtaining the QBSA’s approval.  The Tribunal scheduled a hearing to consider what penalty to impose on CIL.

Evidence

11. The QBSA relied on evidence in the following documents:

application for a disciplinary proceeding with attachments A and B filed in the Commercial and Consumer Tribunal on 11 May 2009

affidavit of Cheryl Louise Livingstone sworn on 8 May 2009

amended attachment B filed on 7 July 2009

affidavit of Michelle Ann Lockton sworn on 6 July 2009

application for consent order dated 4 February 2010.

12. CIL relied on evidence in the following documents:

application for a disciplinary proceeding with attachments A and B filed in the Commercial and Consumer Tribunal on 11 May 2009

affidavit of Cheryl Louise Livingstone sworn on 8 May 2009

affidavit of Michelle Ann Lockton sworn on 6 July 2009

affidavit of Leanne Margaret Crane sworn 16 September 2009

application for consent order dated 4 February 2010

affidavit of Leigh Perry sworn 31 March 2010 (filed by leave).

Submissions by the QBSA

13. In its written submissions, the QBSA submitted that CIL had 15 years of experience in dealing with licence renewals and with the financial requirements of its licence.  The responsibility of monitoring its obligations under the licence was non-delegable and the failure by CIL to recognise the contravention of the licence requirements for the 2007/2008 licence year until disciplinary proceedings had been commenced in May 2009 disclosed a lack of attention to its statutory obligations. 
14. The QBSA submitted that a significant penalty should be imposed in this case where CIL had exceeded the allowable annual turnover by $6,787,774 in order to encourage compliance with the statutory licensing scheme and to protect members of the public.  The QBSA submitted that CIL had demonstrated a pattern of conduct in breaching the conditions of its licence and statutory obligations in that CIL had contravened the allowable annual turnover in the 2006/2007 licence year and had reduced its level of net tangible assets by more than 10% for a period in excess of one month in the 2006/2007 licence year without reference to the QBSA. 
15. Submissions were made that the penalty to be imposed by the Tribunal should have a deterrent effect on CIL and on licensees generally.  The QBSA submitted that the purpose of the Financial Requirements for Licensing Policy is to avoid situations where licensees trade beyond their means and are unable to honour their obligations to consumers, contractors and suppliers.  It was submitted that all parties dealing with licensees should be able to have confidence that they are trading with a substantial entity with proven financial wellbeing. 
16. The QBSA representative at the hearing made submissions, in addition to relying on the written submissions lodged with the Tribunal, that the QBSA was self funded and had limited resources with which to monitor compliance with licence conditions. The QBSA had the Financial Requirements for Licensing Policy in place and expected licensees to provide accurate information under that policy. 
17. It was submitted that the document lodged on behalf of CIL in 2007 in support of the licence renewal did not raise red flags to initiate an investigation by the QBSA and the calculation of the allowable annual turnover of $3,000,001 was based on the net tangible assets disclosed on behalf of CIL. It was submitted that CIL had been sent written notification of the amount set as the allowable annual turnover for 2007/2008 and CIL had the responsibility to correct any apparent error that had been made in setting the allowable annual turnover based on incorrect information provided on its behalf.       
18. The written and oral submissions put forward comparative cases where penalties had been imposed and the Tribunal was urged to impose a monetary penalty between $6,000 and $8,000.[1] 

[1] QBSA v Thomas & Coffey Ltd [2006] CCT QD004-06, QBSA v Peninsula Construction Group (Qld) Pty Ltd [2009] QCAT QD028-09, QBSA v James L Williams Pty Ltd [2004] CCT L010-04, QBSA v Marveldale Pty Ltd [2006] CCT QD001-06, QBSA v Janda Commercial Pty Ltd , QBSA v Dilizio Painting Pty Ltd [2009] CCT QD021-09. 

Submissions by CIL

19. In its written submissions, CIL submitted that it had engaged professional accountants to prepare its financial statements and to attend to compliance with regulatory requirements.  Since October 2008, CIL has engaged an in-house accountant to improve the efficiency in financial reporting and has installed upgraded business systems and software to increase the efficiency with its compliance with statutory and licence requirements.  
20. There were errors in part of the report document lodged with the QBSA which had been taken into account by the QBSA during the licence renewal process for the 2007/2008 licence year.  Correct figures for net tangible assets were in the calculation sheet attached to the report document.  The QBSA should have been put on notice that there were errors in the report document as the amount disclosed as CIL’s net tangible assets was grossly insufficient to support the specified amount of allowable annual turnover of $12,000,000 in the document. 
21. The submissions disputed the QBSA’s submission that there had been a pattern of conduct by CIL in breaching the conditions of its licence and statutory obligations on the basis that the contraventions identified by QBSA effectively form part of the factual matrix of the contravention that is the subject of the present proceeding. 
22. It was submitted that a satisfactory explanation for the contravention for the 2007/2008 licence year had been provided and that no further contravention was likely to occur due to the measures taken by CIL to improve the efficiency of its processes. 
23. It was submitted that CIL is in sound financial shape and pays its contractors and creditors in a timely manner.  The contravention was technical in nature and the submissions disputed QBSA’s submissions that there were aggravated features in the case that should attract a higher level of penalty.   CIL had consented to the imposition of a penalty at an early stage. 
24. The written submissions were augmented by oral submissions at the hearing.  The representative for CIL submitted that the public had not been placed at risk by the contravention by CIL of its licensing requirements and that the contravention had arisen from inadvertent errors by the accountant and not from any inherent problems within CIL.   With the engagement of an in-house accountant and a change of external accountant, better monitoring is in place to avoid such errors.  
25. The written and oral submissions sought to distinguish the comparative cases relied on by the QBSA and the Tribunal was urged to impose a monetary penalty of $500 on the authority of QBSA v Builton Holdings Pty Ltd.[2]  

[2] QBSA v Builton Holdings Pty Ltd [2006] CCT QD030-05

Findings on the evidence

26.CIL has held a licence from the QBSA since 1994.

27. During the 2007/2008 licence year, CIL contravened the conditions in its licence by exceeding the allowable annual turnover by $6,787,774 without notifying the QBSA.
28. The allowable annual turnover had been based on inaccurate information about the amount of CIL’s net tangible assets provided to the QBSA by CIL’s accountant and compounded by QBSA overlooking more accurate information provided at the same time about the amount of CIL’s net tangible assets and actual annual turnover for the previous licence year when calculating the allowable annual turnover figure for the 2007/2008 licence year.
29. CIL has engaged an in-house accountant and has installed upgraded business systems and software to increase its efficiency in complying with statutory and licence requirements.
30. The contravention of the licence conditions in this case did not give rise to a material risk to consumers, contractors or suppliers as CIL had sufficient net tangible assets during the 2007/2008 licence year to enable CIL to trade within its means and to honour its financial obligations in the industry.   
31. CIL has not previously been the subject of disciplinary proceedings but in 2003 and 2006 its licence was suspended for short periods of time due to failure to provide financial information to the QBSA. In the 2006/2007 licence year CIL exceeded the allowable annual turnover by $3,935,301.

Conclusion

32. It was determined by the Tribunal on 8 February 2010 that proper grounds exist for disciplinary action against CIL for contravention of section 89(a) and/or section 89(k) of the Queensland Building Services Authority Act 1991 in that during the 2007/2008 licence year CIL exceeded the allowable annual turnover by $6,787,774 or 226.3% without first notifying the QBSA or obtaining the QBSA’s approval.  A penalty for that contravention is to be imposed.
33. The purpose of disciplinary proceedings is to protect the public rather than to punish wrongdoing. This purpose can be achieved by maintaining the integrity of a statutory regulation scheme in the building industry which promotes confidence that licensees are substantial entities with proven financial backing. 
34. Although the Tribunal has made a finding that the contravention by CIL of its licence conditions in the 2007/2008 licence year did not give rise to a material risk to consumers, contractors or suppliers, any contravention of licence conditions tends to adversely impact the integrity of an occupational regulatory scheme and to erode public confidence in the regulatory scheme unless a penalty is imposed proportionate to the contravention.  
35. CIL submitted that the QBSA had effectively contributed to the contravention by failing to be astute in the review of the financial information lodged on behalf of CIL in 2006 and 2007 and thereby allowing CIL to continue in the belief that all was in order. It was submitted that as a result of this contribution by the QBSA, the amount of penalty otherwise applicable should be ameliorated.  The Tribunal rejects that submission.
36. It was the responsibility of CIL to comply with the Financial Requirements for Licensing Policy and the conditions of its licence.  CIL was notified by letter dated 22 November 2007 that the allowable annual turnover figure for the 2007/2008 licence year was set at $3,000,001.    CIL had the opportunity at that stage to correct any error in the calculation of the allowable annual turnover figure but did not do so.  CIL had the opportunity to increase the figure for allowable annual income at any time before 30 June 2008 but did not do so. 
37. CIL had notice of the allowable annual turnover figure of $3,000.001 and it had the responsibility to notify the QBSA when the actual annual turnover exceeded that figure during the 2007/2008 licence year.  Any action by the QBSA in calculating the allowable annual turnover on inaccurate information in November 2007 did not cause CIL to fail to notify QBSA of its actual annual turnover figure before the end of the 2007/2008 licence year. 
38. The Tribunal considers that a significant penalty should be imposed to act as a deterrent against contravention by this licensee and by all other licensees, to signal support for the integrity of the regulatory scheme and to reflect the gravity of the extent of the contravention in this case.  The Tribunal has taken into account the comparative cases in which penalties have been imposed for similar contraventions of licence conditions.
39. The Tribunal considers that the cases in Queensland Building Services Authority v Marveldale[3] and Queensland Building Services Authority v Dilizio Painting Pty Ltd[4] involve circumstances of similarity to the present case in that the allowed annual turnover in those cases were exceeded by significant amounts, 474% and 245% respectively.  In both those cases a penalty of $4,000 was imposed.  A penalty in that sum would be proportionate to the contravention after taking into account mitigating factors such as the early acknowledgment of fault, the steps taken to prevent further occurrence of this type of contravention and the lack of a relevant negative disciplinary history by CIL.  

[3] [2006] CCT QD001-06

[4] [2209] CCT QD021-09

40. The Tribunal orders CIL to pay to the QBSA the sum of $4,000 by way of penalty by 4.00pm on 10 May 2010.
41. In its application, the QBSA seeks an order that CIL pay the QBSA’s legal costs of this proceeding. The written and oral submissions did not address the question of costs. While the Tribunal has the power to award costs under section 102 of the Queensland Civil and Administrative Tribunal Act 2009, the Tribunal notes that in this case the QBSA was not represented by external lawyers but was represented by its own legal staff.  In the absence of submissions on costs in those circumstances, the Tribunal is not mindful to consider ordering costs to the QBSA.