Queensland Building Services Authority v Alternate Dwellings Pty Ltd
[2011] QCAT 460
•21 September 2011
| CITATION: | Queensland Building Services Authority v Alternate Dwellings Pty Ltd [2011] QCAT 460 | |
| PARTIES: | Queensland Building Services Authority | |
| v | ||
| Alternate Dwellings Pty ltd | ||
| APPLICATION NUMBER: | OCR295-10 |
| MATTER TYPE: | Occupational regulation matters |
| HEARING DATE: | On the papers |
| HEARD AT: | Brisbane |
| DECISION OF: | J Allen, Member |
| DELIVERED ON: | 21 September 2011 |
| DELIVERED AT: | Brisbane |
ORDERS MADE: | Alternate Dwellings Pty Ltd is ordered to pay the Queensland Building Services Authority the sum of $3,000 by way of penalty by 4.00 pm on 18 October 2011. Each party to bear their own costs. |
| CATCHWORDS: | Penalty – Exceeding Annual Allowable Turnover – mitigating factors – breach due to failure to understand policy Queensland Building Services Act 1991, s 91(3)(b) |
APPEARANCES and REPRESENTATION (if any):
The application was heard and determined on the papers in accordance with section 32 of the Queensland Civil and Administrative Tribunal Act 2009.
REASONS FOR DECISION
The Queensland Building Services Authority made an application[1] to the Tribunal to determine if grounds exist for taking disciplinary action[2] against Alternate Dwellings Pty Ltd in respect of a breach of the Allowable Annual Turnover for the company in the 2008-2009 year.
[1] Section 88 of the Queensland Building Services Authority Act 1991.
[2] Section 89 of the Queensland Building Services Authority Act 1991.
The Tribunal made an order with the agreement of the parties that
Proper grounds exist for taking disciplinary action against the Respondent in that it contravened sections 89(a) and/or 89(k) of the Queensland Building Services Authority Act 1991 (‘QBSA Act’) in that, during its 2008-2009 licence year, it exceeded its Allowable Annual Turnover (‘AATO”) by four million, seven hundred and twenty nine thousand eight hundred and thirty-two dollars ($4,729,832.00) or 157.65% without first notifying the Authority or obtaining the Authority’s approval.
Following the finding that grounds exist for disciplinary action it is then for the Tribunal to determine what orders should be made against Alternate Dwellings in regard to penalty and costs[3]. The parties have made written submissions penalty have been considered by the Tribunal.
[3] Section 91 (3) of the QBSA Act.
Authority’s Submissions
The Authority in its submissions set out the purpose of the AATO regulations as follows
The purpose of this method of regulation of licensee’s turnover is to avoid the situations where licensees trade beyond their means, and are unable to honour their obligations to consumers, contractors and suppliers
The authority submits that the public, in its dealings with all licensees, deserve to be assured that they are trading with a substantive entity with proven financial wellbeing.
The Authority submitted that the decision of Queensland Building Services Authority v Built Qld Pty Ltd[4] sets out the relevant factors to be taken into account in determining penalty in matters involving a licensees breach of their AATO as follows:
a)The length of time the licensee has been in business;
b)Whether the breach was an isolated incident or whether there was more than one breach;
c)Whether there is a satisfactory explanation for the occurrence of the breach;
d)Whether the breach is likely to reoccur;
e)The size of the licensee’s business or company, both relative to the size of the breach and generally;
f)The amount by which the AATO was exceeded, both in monetary and percentage terms; and
g)Whether the licensee has been involved in previous events of this nature, or other offences against the statutory obligations and/or failure to comply with statutory standards.
[4] [2005] CCT L018-05 [45].
The Authority noted that the subject of this disciplinary action occurred in Alternate Dwellings first year of holding a licence with the authority. That during the licence application and approval process Alternate Dwellings was specifically referred to the Financial Requirements for Licensing Policy a number of times and that it provides a clear statement in clause 1.3 that “annual turnover” means the total revenue derived by the Licensee from all sources. That any apparent misunderstanding which may be raised by Alternate Dwelling cannot constitute a persuasive mitigating factor, and should not persuade the Tribunal to a more lenient penalty. Particularly so considering Alternate Dwellings contact with accounting advisors (and presumably, legal advisors) in entering into business operation in the new jurisdiction of the State of Queensland.
The Authority submitted that the Tribunal should take into consideration the comments made in Queensland Building Services Authority v Dilizio Painting Pty Ltd[5]
“A licence is a privilege not a right. Accordingly, the most pressing concern of a licensee should be to ensure that, at all times, it meets its obligations under its licence.”
[5] [2009] CCT QD021-09 at [6].
The Authority relied on the following comments in the decision of Queensland Building Services Authority v Janda Commercial Pty Ltd[6]
“Licensees need to realise that they are required to regularly monitor turnover throughout their licence year towards ensuring compliance and identifying the need to advise the Authority and seek adjustments to an allowance. Failure to do so means that they are open to disciplinary proceedings in the event they exceed their allowable annual turnover in any licence year.”
[6] [2009] QD015-09 [6].
The Authority submitted that Alternate Dwellings system for monitoring turnover was clearly inadequate in light of its failure to meet its statutory obligations and licence conditions. And that Alternate Dwellings should demonstrate it has implemented ongoing accounting and business forecasting measure to ensure that this type of breach does not occur again in the future. That a significant penalty will serve the purposes of these proceedings by encouraging compliance with the regulatory scheme and thus protect members of the public.
[10] The Authority characterised Alternate Dwellings as a large-sized type business. It was noted that following the occurrence of the breach, Alternate Dwellings AATO has increased. It currently set at $12,000,000.00 on the basis of Net Tangible Assets provided as $484,551.00. It was submitted though that this should not result in a more lenient penalty.
[11] The Authority submitted that a deterrent effect is unlikely to occur should the penalty ordered be insignificant compared to the benefit gained by Alternate Dwellings. That the penalty ordered must deter breaches, both by Alternate Dwellings and by licensees generally. It must also encourage:
“Licences to be fully aware of their requirements of their licences and their obligations to the authority.”[7]
[7] Queensland Building Services Authority v McLucas Pty Ltd [2005] CCT L014-05 [17].
[12] The Authority submitted that the most analogous case to the present one is Queensland Building Services authority v Janda Commercial Pty supra. The breach in that case was almost identical in percentage terms at 157.7%, but only a quarter of the size in dollar terms $1,220,678.00. It was submitted that the breach occurred in the Respondent’s first year of holding a licence. The penalty ordered was in the amount of $4,700.00.
[13] The Authority submitted that a similar or higher penalty is appropriate in the present case. It was submitted that matters involving single disciplinary actions, without further significant features of aggravation or mitigation, have resulted in a monetary penalty being ordered of between $4,000.00 and $5,000.00. In this case the range should be $4,500 to $5,000, in light of the significant amount of the breach in percentage and monetary terms, and the need for general and specific deterrence from similar breaches.
[14] The Authority also submitted that as it had been wholly successful in the disciplinary application that it be awarded costs fixed in the amount of $250 pursuant to section 102 of the Queensland Civil and Administrative Tribunal Act 2009.
Alternate Dwellings submissions
[15] Alternate Dwellings emphasised that it did not contest the charge and made an early admission in response to the charge and agreed that the Authority’s material filed in support of the charge and the factual and legal content are fair and balanced.
[16] It was stated that Alternate Dwelling is a Victorian based company, which was formed in 1984 and operates primarily in the Gippsland District supplying kit homes. That neither Alternate Dwellings or its director, Mr Glenn Brooks, who has been a registered builder since 1984, had been disciplined or charged by the Victorian Building Commission, or the regulators in other jurisdictions since 1984. Alternate Dwellings has been a member of the Housing Industry Association for 25 years and the Master Builder’s Association of Victoria for 10 years.
[17] The charge stems from a misunderstanding regarding the meaning and import of the expression “Allowable Annual Turnover (AATO) within the Queensland Building Services Act 1991. That Alternate Dwellings holds a different view to the Authority view that an apparent misunderstanding cannot constitute a persuasive mitigating factor. It was submitted with reference to the sentencing factors in QBSA v Built Qld Pty Ltd, which were accepted, that a clear distinction should be made between:
. a deliberate or wilful breach of the legislation
as opposed to
. a mistaken (albeit negligent) breach of the legislation.
And that this should be reflected in the Tribunal’s penalty.
[18] Alternate Dwellings particularised the error as follows:
a)The majority of its business and turnover is generated in Victoria.
b)In recent years, Alternate Dwellings began trading in NSW and Queensland. It sought its first Queensland domestic building licence for the financial year 2007-2008.
c)When filling the requisite paperwork, Alternate Dwellings erroneously formed the view that the expression “AATO” referred to its anticipated turnover in Queensland only.
d)With access to accounting and legal advice, Alternate Dwellings acknowledges it should not have made this error. It does not seek to excuse the error, but simply to explain the mitigating circumstances.
e)The AATO as for the 2008-2009 licence year as authorised by the Authority was $3,000,001.
f)2008-2009 was also a modest year for Alternate Dwelling’s Queensland sales, comprising of six projects totalling $559,555.
g)Alternate Dwelling was under the misunderstanding that it was permitted to receive income up to $3,000,001 in Queensland alone (as opposed to nationwide income). It therefore believed that it was below the Queensland cap (by approximately 2 ½ million dollars), and there was no need to contact the Authority.
h)Upon receipt of the charges, it became of its error which it accepts.
[19] Submissions were made in regard to the QBSA v Built Pty Ltd factors as follows:
a)Alternate Dwellings has been in the building industry 27 years and reference was made to the stability and integrity of the company mentioned already.
b)The proceeding relates to a single breach and is an isolated incident.
c)The explanation mentioned above mitigates, (but is not a defence to) the charge and that the explanation is satisfactory insofar as no dishonesty was displayed by Alternate Dwellings or its representatives.
d)Alternate Dwellings respects the QBSA and the principles underlying the Act. It has incurred legal costs in addressing the issue and feels considerable embarrassment that a charge was laid early after its entry into the Queensland market. All issues relating to the breach have been addressed and Alternate Dwelling commits to avoiding an occurrence of this (or any other) forms of statutory breach.
e)Alternate Dwellings size was submitted as not being relevant.
f)Acknowledged that the size of the breach is reasonably high.
g)Alternative Dwellings reiterated it excellent regularity record over the past 27 years.
[20] It was submitted that the charge is at the lower end of the scale and that a significantly lower fine than the sums submitted by the Authority would be fair and just.
[21] Alternate Dwellings did not dispute the order as to costs.
Discussion
[22] Alternative Dwellings had only been approved to have a Building Licence in Queensland for one year at the time of the breach of the AATO rules. Its application for a building licence had been approved by letter from the Authority of 9 October 2008[8]. The letter started that “based on your notified Net Tangible Assets of $156,001.00 your Allowable Annual Turnover for the forthcoming Year will be $3,000,001.00”.
[8] Affidavit of Michelle Ann Lockton sworn 15 November 2010 exhibits page 71.
[23] This calculation of Net Tangible Assets was in accordance with an Independent Review Report prepared by an accountant on behalf of Alternate Dwellings[9]. That Independent Review Report disclosed that the company had a minimum $156,001 in Net Tangible Assets and that its Actual Annual Turnover was $6,663,693. In the calculation sheet which accompanied the report the Net Tangible Assets are disclosed as $706,169. These figures were based on Alternate Dwellings financial statements for the year ended 30 June 2007, which had been provided to the Authority with the application. Alternate Dwellings was advised by letter from the Authority dated 26 August 2008 that the financial information was too old. This is in accordance with the Financial Requirements for Licensing at Table J.
[9] Independent Review Report of Phillip Hii dated 8 August 2008.
[24] The Authority than at the time that it approved Alternative Dwellings building licence with an AATO of $3,000,001 had information from the company which disclosed that it had annual turnover of $6,663,693 in a previous year. There is also no material which indicates why the Net Tangible Assets of Alternative Dwelling were set at $156,001 when at the time they were considerably higher and so could have justified a higher AATO.
[25] The Independent Review Report which was filed on 21 October 2009[10] in support of Alternate Dwellings licence renewal application for the 2009-2010 year disclosed Actual Annual Turnover of $7,617,495 and net Tangible Assets of $463,398. It was as a result of this Independent Review Report that the application for disciplinary action was made.
[10] Affidavit of Michelle Ann Lockton exhibits page 73.
[26] The Authority’s submissions note that following the occurrence of the breach Alternate Dwellings AATO has been increased to $12,000,000.00 based on Net Tangible Assets of $484,551. The financial statements which accompanied the Independent Review Report for the 2009-2010 renewal application disclosed the company’s net assets as at 30 June 2008 as $701,876 and Sales for the year ended 30 June 2008, which would equate to Actual Turnover, of $6,164,084.00.
[27] This is not a case where a company has started up such as in Queensland Building Services Authority v Janda Commercial Pty Ltd and the business has expanded quickly and breached its AATO. Alternate Dwellings was always going to breach its AATO because the company was well established interstate and had sales in excess of twice the AATO at the time of the approval.
[28] The Authority has submitted that Alternate Dwellings’ system for monitoring turnover was clearly inadequate in light of its failure to meet its statutory obligations. There is no evidence to support this. What is clear is that Alternate Dwelling as it has accepted did not understand the concept of the AATO in that it related to the total Annual Turnover of the company and not only its turnover in Queensland. If Alternate Dwelling had realised this was the case knowing that its annual turnover was sure to be considerably more than $3,000,001.00 it would have ensured that it complied with the requirements. The Tribunal accepts that the company has an unblemished record of operation apart from this present matter.
[29] Acting on its belief that the $3,000,001 AATO only applied to its business in Queensland Alternate Dwellings did not advise the Authority as it should have that it would be in breach of that AATO. There is no doubt that the breach occurred and it was as a result of Alternate Dwellings’ failure to understand the requirements of the policy.
[30] That is the policy is designed to ensure that a company has sufficient assets and liquidity to meet its obligations so as to protect the public. This requires that all of the company’s Annual Turnover wherever it be sourced is considered against its Net Tangible Assets, otherwise it will not be a true picture.
[31] There is no doubt that if Alternate Dwellings had made the appropriate application for an increase in its AATO when its 2007-2008 accounts were available that it would have been allocated an AATO adequate to cover its Annual Turnover. As mentioned above from its 2009 financial statements its net tangible Assets as at 30 June 2008 would have been at least $701,876 and it obtained an AATO of $12,000,000.00 based on Net Tangible Assets of $484,551 in the 2009-2010 year.
[32] The breach by Alternate Dwellings of its AATO did not result in any danger to the public. There is no indication that Alternate Dwellings was trading beyond its means. The breach was caused by a lack of understanding of the policy and what is to be penalised here is the fact that the company did not take the time to ensure that it had such an understanding.
[33] Having regard to the factors in Queensland Building Services v Built Qld Pty Ltd, the Tribunal accepts the explanation by Alternate Dwellings is a satisfactory explanation as to why the breach occurred, in particular as the company was trading interstate with a turnover in excess of the AATO approved in Queensland and if the company realised that its total turnover had to be below the approved AATO it would have taken action. Alternate Dwellings though having a long trading history interstate was in its first trading year in Queensland and this was its first breach and only regulatory breach in Queensland or elsewhere. Alternate Dwellings has ensured that its AATO has been adjusted to an appropriate level and so a breach will not occur again. While the size of the breach was large both in terms of percentage and monetary amounts based on the Alternate Dwellings financial statements it was well able to support turnover at that level.
[34] The Authority has submitted that the deterrent effect requires that the penalty not be insignificant and has suggested a range between $4,500 and $5,000 based on there not being significant features of aggravation or mitigation. The Tribunal has accepted Alternate Dwellings’ explanation for the breach. It occurred as a result of Alternate Dwellings’ failure to familiarise itself with the requirements of the Financial Requirements for Licensing and in particular the concept of Annual Turnover. Alternate Dwelling accepts that the breach has occurred and asked that a significantly lower fine that the sums submitted by the Authority would be fair and just.
[35] The Financial Requirements for Licensing are a very important part of the mechanism which the Authority uses to ensure that both the public and other third party’s are protected from licensees trading beyond their means. It requires that licensees have a good understanding of the policy and how it affects them and that they have appropriate systems to monitor their turnover so that any necessary adjustments to their AATO can be made.
[36] In this case Alternate Dwellings made full disclosure to the Authority of its financial position and was approved with an AATO well below its current interstate annual turnover. There was always going to be a breach of the rules unless Alternate Dwellings had a full understanding of them and had requested an adjustment to its AATO as was available under the policy. The penalty appropriate where there has been a negligent breach of the rules which has not put any stakeholders at risk should be below that where a company has traded beyond its AATO due to expansion and without ensuring that it has the Net Tangible Assets to support that level of trading.
[37] The purpose of the penalty in a case such as this is to emphasise to licensees and prospective licensees that they must take the time to fully understand the requirements of the policy. The range of penalty therefore needs to be discounted as there has been no risk to the public and there was no question that Alternate Dwellings had appropriate mechanisms to monitor its financial position.
[38] The authority has requested that it be awarded costs fixed in the amount of $250 which are not opposed by Alternate Dwellings. The Tribunal notes that the authority did not engage external lawyers in this case and that the regulations[11] to the Justices Act 1886 which has been cited by the Authority require that costs be incurred. The Tribunal does not consider that it is appropriate to order costs where there has not been external lawyers engaged and so costs have not been incurred.
[11] Justices Regulation 2004, schedule 2, part 1, para 3.
Order
[39] Alternate Dwellings pay to the Authority, the sum of $3,000 by way of penalty by 4.00 pm on 21 October 2011. Each party to bear their own costs.
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