Queensland Building and Construction Commission v Reay Enterprises Pty Ltd
[2014] QCAT 573
•7 November 2014
| CITATION: | Queensland Building and Construction Commission v Reay Enterprises Pty Ltd [2014] QCAT 573 |
| PARTIES: | Queensland Building and Construction Commission (Applicant) |
| v | |
| Reay Enterprises Pty Ltd (Respondent) |
| APPLICATION NUMBER: | OCR065-14 |
| MATTER TYPE: | Occupational Regulation Matters |
| HEARING DATE: | On the papers |
| HEARD AT: | Brisbane |
| DECISION OF: | Member Howe |
| DELIVERED ON: | 7 November 2014 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. Reay Enterprises Pty Ltd pay to the Queensland Building and Construction Commission a penalty of $8000 by 4 pm on 2 December 2014. 2. Reay Enterprises Pty Ltd pay to the Queensland Building and Construction Commission costs fixed at $1750 by 4 pm on 2 December 2014. |
| CATCHWORDS: | Licensee exceeding Allowable Annual Turnover (AATO) - three breaches - warning letter - failure to adequately monitor – inadequate financial controls - significant breach of financial obligations regardless of precise categorisation of size of company |
APPEARANCES and REPRESENTATION (if any):
This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act).
REASONS FOR DECISION
Background
The corporate respondent (the builder) held a contractor’s licence. On 1 April 2014 the Queensland Building and Construction Commission (the Commission) commenced disciplinary proceedings against the respondent in the Tribunal for exceeding its Allowable Annual Turnover (AATO).
By section 35(3) of the Queensland Building and Construction Commission Act 1991 (Qld) (the QBCC Act) a contractor’s licence is subject to the condition that the licensee’s financial circumstances must at all times satisfy the relevant financial requirements stated in the Queensland Building Services Board’s policies. The Board’s Financial Requirements for Licensing Policy (the policy) sets out financial requirements for licensees undertaking building work in Queensland. Clause 6.2 of the policy imposes a condition that licensees not exceed their last issued AATO by more than 10% without first providing the Commission with appropriate financial information. To adjust an AATO to a higher level a licensee must submit either an independent review report or an audit report which substantiates the licensee has sufficient net tangible assets to support the higher level of annual turnover. Exceeding AATO by more than 10% without first providing the financial information and being issued a new AATO constitutes a breach of the conditions of licence.
At a Tribunal directions hearing on 7 August 2014 the builder accepted there were proper grounds for disciplinary action in respect of the alleged breaches. Accordingly the parties were directed to make submissions on penalty only.
By section 91(3)(b) of the QBCC Act the Tribunal may impose a penalty up to 1000 penalty units, or $113,850, for breach of licence condition.
In the 2007 – 2008 licence year the builder failed to notify the Commission or obtain the Commission’s approval to it’s AATO of $783,702 being exceeded by 10% or more. In that licence year the builder exceeded its AATO by 102.85%. In the 2011 licence year the respondent exceeded its AATO by $2,015,743, or 67.19% without notification to the Commission. Then in the 2012 licence year the builder exceeded its AATO by $945,872 or 15.76% without notification. These facts as accepted by both parties. I conclude that appropriate grounds exist for taking disciplinary action against the builder for breach of licence condition. I might add, regardless of any consent between parties, the Tribunal is required to find that appropriate grounds exist for taking disciplinary action pursuant to section 91(1) of the QBCC Act before addressing penalty.
The intent behind the policy is to monitor and protect against builders suffering financial collapse. Accurate financial accounting to the Commission allows that body some capacity to oversee and guard against the failure of builders, which failure can have significant detrimental effects, not only to consumer owners but also to other dependent licensee contractors, and it also has an effect on the statutory home warranty scheme.
Relevant Factors in the Consideration Of Penalty
In Queensland Building Services Authority v Built Qld Pty Ltd[1] the Tribunal conveniently summarised a number of factors that could be relevant in determining appropriate penalty in respect of breach of AATO. One such factor is the length of time a building company has been in business. One might expect greater compliance from a company that has been in business for some time. Here the builder was first granted a contractor’s licence in the class of plumbing, drainage and gas fitting in June 2007. Given that, the Commission submits the builder should be aware of its licensing obligations. I agree.
[1][2005] QCCTB 152 at [45].
There have been three breaches. The first breach occurred during the builder’s first year of licensing when it exceeded its AATO by 102.85%. The second breach occurred in the fourth year of licensing when the AATO was exceeded by 67.19%. The third breach was in the fifth year of licensing when the builder breached its AATO by 15.76%.
On each occasion when the Commission advised the builder of its revised AATO for the future licensing year, the Commission also advised about the requirement not to exceed AATO without the Commission’s approval. On none of the occasions of any of the breaches did the builder notify the Commission of any anticipated excess. It was surely within capacity to do so.
The builder was initially warned by letter dated 11 September 2008 that it had breached its financial requirements by exceeding its AATO. The Commission (or Authority as it then was) decided, having regard to the circumstances, on that occasion not to take action against the company at that time. I take the “circumstances” to be that this was a first breach and that the company had not been trading for long.
Those circumstances cannot apply to the second and third breaches. On the occasion of the third breach the company had been trading for five years and for five years had experienced consistent and fairly rapid growth in its business. Given three offences in three different years the builder cannot reasonably claim inadvertence.
Reasonable Steps
The builder submits steps were taken to monitor and review its compliance with AATO and this is evidenced by the fact that the excess percentage of each breach decreased over time. The builder says after it received the letter of admonition of 11 September 2008 it directed one of its employees to monitor compliance. That employee failed in those monitoring duties. After the builder discovered it was not complying with its financial reporting obligations to the Commission, KPMG accountants were engaged. KPMG found flaws and misconduct in the financial record-keeping. An employee was dismissed. Since that employee’s dismissal a full-time qualified accountant has been employed to maintain the books and records of the company to ensure its records are accurate.
Further, says the builder, the breach of the AATO was not deliberate. The breaches occurred as a result of mistaken belief and lack of understanding about the builder’s financial conditions of licence. The submissions by the builder about mistake do not make clear whether the builders mistaken belief was a belief that work performed by it in the mining industry rather than construction industry was not required to be taken into account in determining allowable turnover, or some other misunderstanding. Reference is made in the submissions to Queensland Building Services Authority v Colorin[2] where a builder held that mistaken belief, but the submissions by the respondent do not go so far, or at least not clearly so to say that that was also the respondent’s misunderstanding.
[2][2011] QCAT 460 at [17].
It is irrelevant that the company’s income has principally been derived from mining work activities. The income derived from those activities was required to be advised the Commission under the policy. The policy clearly defines “annual turnover” as the total revenue derived by the licensee from all sources.[3] That same information is noted in any report provided by the Commission on a search of the licensee register.
[3]See definitions provision in the various policy documents applying – policy effective 1 July 2006 clause 1.3, and clauses 1.6 in respect of policies effective 1 July 2010 and 1 October 2012.
Nor does the builder make clear what position the employee who made the record-keeping mistakes held nor when that person’s position was terminated. I assume the termination occurred after the third breach.
Generally the builder submits none of the breaches were deliberate and were merely inadvertent mistakes that occurred as a result of unprecedented growth in its business.
The Commission submits the builder was responsible for its financial management and compliance with licence conditions. That is correct. AATO requirements were clearly brought to the attention of the builder at the end of its first year of licensing and each year thereafter.
The respondent has cancelled its contractor’s licence with the Commission from 11 August 2014. As such the respondent will not breach its AATO again unless it is further licensed.
The Commission characterises the builder as a mid to large size business. Given the size of its business the Commission suggests, having regard to the number and extent of the breaches over AATO, the imposition of a significant penalty is warranted to deter not only this builder but also other licensees of similar size and standing from disregarding or neglecting their licence obligations.
The builder disagrees that it is mid to large size in scale. It refers to the matter of QBSA v Mainbrace Constructions (NSW) Pty Ltd[4] where the licensee had an AATO of $141 million and was also classified by the Tribunal as a medium to large size business.
[4][2011] QCAT 93.
Regardless of scale, this builder was of sufficient size and earnings to reasonably expect of it appropriate monitoring and control of its financial affairs. It failed in that endeavour, and given the paucity of information about the responsibility for its problems being attributable to the terminated employee, must accept responsibility for any breaches of the policy conditions.
Builders’ compliance with financial requirements as set out in the policy is important and a mainstay in ensuring the Commission is able to perform its supervision responsibilities in respect of the building trade.
The extent of the breaches here cannot be ignored nor the fact that there were three breaches in three different financial years. Nor that the builder was specifically warned against breaching the financial requirements for licensing after the first breach by letter dated 11 September 2008.
Comparable Penalties
In respect of comparative disciplinary penalties, the Commission refers to QBSA v Dankav Pty Ltd[5] where the licensee exceeded its AATO by $3,497,565 or 16% during the 2007 – 2008 licence year. There a warning letter had also issued to the licensee after the first breach. The licensee committed a second breach in the 2010 – 2011 licence year exceeding AATO by $13,509,983 or 119.1%. A third breach was committed during the 2011 – 2012 licence year of $21,199,613 or 55.02% of AATO. The Tribunal imposed a penalty of $12,500.
[5][2013] QCAT 751.
The Commission submits the present facts are comparable with that of Dankav Pty Ltd. The Commission suggests the size of the breaches in percentage terms are similar; the breaches occurred in both cases during the early years and also several years after obtaining a license; the breaches did not occur in consecutive licence years; both licensees could be classified as mid to large size businesses; warning letters were issued by the Commission prior to further breaches occurring in both cases and the licensee in Dankav as well as the respondent here has made an early admission that proper grounds exist for the commencement of disciplinary proceedings by the Commission.
The builder says Dankav should be distinguished. The builder says, unlike Dankav, here the builder put in place measures to monitor compliance with its licensing conditions though they were not completely effective. But the evidence of measures taken is evidenced by the consecutive reduction in the breaches of AATO. I cannot agree. I conclude it was simply fortuitous that the earnings of the builder was such that the second and third breaches were not as significant as the first percentage wise.
The builder also says the extent of the monetary breaches in Dankav were far more significant than the breaches here. Dankav breached its AATO by $13,509,983. The largest breach here was in the 2011 licence year in an amount of $2,015,743. On that basis, says the builder, Dankav is to be distinguished. But the percentage breach of AATO in both cases, after warnings, is significant. Dankav breached by 119.1% and the builder here by 67.19%. I do not accept the builder’s submission that after the first warning it “decreased its breaches of its AATO to 67.19% then 15.76% in following years.” As stated, any decrease was simply fortuitous without any thought given about breaches of the AATO.
The Commission also refers to the matter of QBCC v Airconstruct H.V.A.C. Pty Ltd [6] which involved a licensee exceeding its AATO by 10.21% followed by a warning letter and then the licensee again exceeding its AATO by a similar amount in the following year. The licensee there also conducted its business within the mining industry. The Tribunal found the licensee had no satisfactory explanation for its breaches and ordered a penalty of $6000 and ordered the builder to pay costs of $1750.
[6][2014] QCAT 072.
I take into account that the builder has not renewed its licence and its earnings have been entirely outside the building sector since 2008. I also take into account however that despite a warning letter, two subsequent breaches still occurred. The deterrent factor to licensees generally must also be taken into account. Licensees must understand that substantial penalties will be imposed for breaches such as this.
In these circumstances, I deem it appropriate to impose a penalty of $8000.
In respect of costs the Commission has succeeded in this application. It has incurred costs though the matter has been conducted through its own inhouse officers. Those officers must be paid however and the time taken to pursue these sorts of matters take into account. It is appropriate that the Commission be awarded a modest amount for its costs. It seeks $1750. Those costs seem reasonable. I allow them.
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