Queensland Building Services Authority v Thomas & Coffey Limited
[2013] QCAT 630
| CITATION: | Queensland Building Services Authority v Thomas & Coffey Limited [2013] QCAT 630 |
| PARTIES: | Queensland Building Services Authority (Applicant) |
| v | |
| Thomas & Coffey Limited (Respondent) |
| APPLICATION NUMBER: | OCR154-13 |
| MATTER TYPE: | Occupational regulation matters |
| HEARING DATE: | On the papers |
| HEARD AT: | Brisbane |
| DECISION OF: | Member Gordon |
| DELIVERED ON: | 21 November 2013 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. Thomas & Coffey Limited pay the Queensland Building Services Authority a penalty of $20,500 by 4:00pm on 8 January 2014. 2. Each party pays its own costs of and incidental to the proceedings. |
| CATCHWORDS: | Exceeding Annual Allowable Turnover – falling below required amount of Net Tangible Assets – three breaches spanning several years - substantial company – second offence - appropriate penalty Queensland Building Services Authority Act 1991, ss 89(a) and (k), 91(3) Queensland Building Services Authority v. Built Qld Pty Ltd [2005] QCCTB 152 |
APPEARANCES and REPRESENTATION (if any):
This matter was heard and determined on the papers pursuant to section 32 of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act).
REASONS FOR DECISION
Thomas & Coffey hold licences from the Queensland Building Services Authority in the classes of Builder – Open, General Building, House Building, Plumbing and Drainage, and Gasfitting. These licences are renewable each year.
At the time of renewal of such licences, the QBSA determines the licensee’s turnover limit and the net tangible assets required of the licensee for the year ahead.
The turnover limit is called the Allowable Annual Turnover. It is calculated by the QBSA from the licensee’s net tangible assets. The higher the assets, the greater the turnover is allowed to be. If the licensee exceeds the turnover limit beyond a 10% leeway allowed under the Financial Requirements for Licensing then this is a breach of the licence unless the licensee first provides the QBSA with appropriate financial information. The financial information which would be required is an Independent Review Report or Audit Report. With this information, the QBSA could consider increasing the turnover limit.
It is also a breach of the licence to allow the net tangible assets to decrease too much without taking appropriate action. Under the Financial Requirements for Licensing, licensees must not allow their net tangible assets to decrease by more than 10% for more than one month unless they provide the QBSA with appropriate financial information within 30 days of the end of the one month period.
The aim of this system is to ensure that builders do not over-stretch financially so that they are able to honour their commitments to consumers, contractors and suppliers. This is achieved by ensuring that the licensee has sufficient financial “cushion” should it encounter problems in the year in question.
If there is a breach of the licence conditions, this permits the QBSA to take disciplinary action.[1] Such proceedings fall to be determined by QCAT as part of its original jurisdiction.[2] The maximum penalty for a corporation is an amount equivalent to 1,000 penalty units for each disciplinary offence.[3] The value of a penalty unit is currently $110: therefore the maximum penalty which may be imposed is $110,000.
This is a breach of sections 89(a) and 89(k) of the Queensland Building Services Authority Act 1991.
[2] QBSA Act ss 88 to 91.
[3] QBSA Act s 91(3)(b).
The disciplinary proceedings
There are three breaches which have resulted in these disciplinary proceedings against Thomas & Coffey. They are:-
(a) In the year 2008-2009 exceeding the turnover limit without first providing the QBSA with appropriate financial information.
(b) In the year 2009-2010 exceeding allowable decrease in net tangible assets without providing appropriate financial information to the QBSA in the time allowed.
(c) In the year 2011-2012 exceeding the turnover limit without first providing the QBSA with appropriate financial information.
Thomas & Coffey show that three weeks before the end of the 2008-2009 financial year it notified the QBSA that it would be exceeding the turnover limit. The appropriate financial information was not provided to the QBSA to enable it to consider consenting to this. Thomas & Coffey had a turnover limit of $327.4m and its actual turnover for the year was $398.96m, an excess of nearly 22%.
In the 2009-2010 financial year Thomas & Coffey’s Net Tangible Assets decreased from the required amount of $18.831m to $6.143m being 67.4% too low. It should have provided appropriate financial information about this within 30 days after the 1 month period after the decrease occurs but failed to do so.
In the 2010-2011 there was no contravention.
In the 2011-2012 financial year there was a turnover limit of $197.387m and Thomas & Coffey’s actual turnover for the year was $251.37m, an excess of 27%.
I am satisfied that proper grounds exist for taking these disciplinary proceedings against Thomas & Coffey in the circumstances.
Penalty
Certain matters are listed as relevant to penalty in Queensland Building Services Authority v Built Qld Pty Ltd [2005] CCT L018-05 and I shall consider these in turn.
Duration of business. Thomas & Coffey is a long standing business having held house building and general building licences since 1977. Whilst every licensee should be aware of the turnover and net tangible asset rules it would be an aggravating factor that the business had been operating for such a long time because it would be expected that processes were in place to avoid breaches occurring.
Whether the breach is an isolated incident. It cannot be said that the breach is isolated. The QBSA has previously taken disciplinary action against Thomas & Coffey for four previous breaches. The first was an excessive decrease in net tangible assets in the 2001-2002 financial year. The second and third were exceeding the turnover limit and an excessive decrease in net tangible assets in the 2003-2004 financial year. The fourth was exceeding the turnover limit in the 2004-2005 financial year. For these breaches, Thomas & Coffey was ordered to pay a penalty of $10,000 in 2006[4].
[4] QBSA v Thomas and Coffey Ltd [2006] QCCTB 66.
Whether there is a satisfactory explanation for the breach. The QBSA say that Thomas & Coffey has not given a satisfactory explanation for the breaches. I agree. In its evidence submitted by Pieter Scholtz the Chief Financial Officer, Thomas & Coffey’s explanation for the excessive turnover and reduction in net tangible assets is said to be “a series of gains, losses and structural changes”. These changes are said to be inevitable because they were “unexpected losses or unavoidable in the sense that they were gains made by (Thomas & Coffey) in the interests of both (Thomas & Coffey) and its shareholders”. There is no other explanation and so it appears from this evidence that the breaches were the foreseeable results of the activity of the business.
Whether the breach is likely to re-occur. In the years in question, Thomas & Coffey had financial systems in place which should have been capable of monitoring and forecasting turnover and producing monthly reports. It is said in Thomas & Coffey’s submissions that the system alone was ineffective in identifying the effect of the “gains, losses and structural changes” referred to by Mr Scholtz upon the company’s licence. I assume that what is meant here is that the Thomas & Coffey had no warning about how those changes would affect turnover and net tangible assets. Why this would be so is unexplained in the evidence from Thomas & Coffey.
It appears that Thomas & Coffey has decided to protect its licence from such effects in the future by forming a fully owned subsidiary company for its Queensland operations which has a separate licence. It is said that this entity is therefore not subject to the type of changes experienced by the larger company and is less likely to be in breach. Exactly why this is so is not explained sufficiently in the evidence and in the submissions.
Size of the business. Thomas & Coffey is a publicly listed company with a turnover of $251m in 2012. This is therefore a significant factor in this case.
The amount by which the turnover limit was exceeded or by which the net tangible assets fell below the limit. This is an important factor in most cases. This is because this percentage will usually reflect the level of risk to which the business has exposed its consumers, contractors and suppliers. And it is the avoidance of this risk to which these rules are aimed.
Other points of mitigation or aggravation. The QBSA have said that it warned Thomas & Coffey about the breach for the financial year ending in June 2009 and for the financial year ending in June 2010 and that these warnings act to aggravate the breach. The first warning letter was dated 2 December 2009 and was in respect of the excessive turnover for the 2008-2009 financial year. It explained that no action would be taken in respect of the breach unless there was a further breach. Thomas & Coffey was required to ensure that no further breaches would occur. The second warning was on 8 December 2011 and issued one day after the renewal of the licence and the new turnover limit was set for the financial year to the end of June 2012. Thomas & Coffey was required to ensure that either its net tangible assets were enlarged or its turnover reduced to avoid another breach. These letters serve to show that Thomas & Coffey was aware at an early stage in that financial year that it was heading for a breach of the licence unless something was done.
It is necessary also to take into account that no breach occurs if the turnover limit is exceeded by no more than 10% or if the net tangible assets fall below the required amount by no more than 10%.
Conclusion as to penalty
Between them, the parties have provided me with a number of comparative cases. The most useful of these are QBSA v Battaglia Industries Pty Ltd [2012] QCAT 3 and QBSA v Uniport Australia Pty Ltd [2011] QCAT 612. Like the instant case, each of these involved breaches spanning more than one year. Unlike the instant case, it was the first time disciplinary action of this type had been taken against those companies. And the amount of the breach in percentage terms was much greater than in the instant case. The penalties were $11,000 and $13,500 respectively.
Queensland Building Services Authority v Megasealed Bathrooms Aust. Pty Ltd [2013] QCAT 512 was published after submissions were made by the parties. In that case a penalty of $15,000 was imposed where there were four breaches in consecutive years and three timely warnings and where the licence had been held for a substantial length of time. However, the breach in percentage terms was much greater than in the instant case.
It is submitted on behalf of Thomas & Coffey that disregarding its previous breaches, the appropriate penalty in the light of Battaglia and Uniport would be between $11,000 and $13,500 and that an uplift of 50% is appropriate bearing in mind the previous breaches and the clear explanation for the ongoing issue and the remedial measures which have been taken.
One difficulty with this submission is that the penalties imposed in of Battaglia and Uniport would be higher if those cases been heard today because on 21 August 2012 the value of a penalty unit was increased by 10% from $100 to $110.[5] And it is right to have regard to this maximum and the value of a penalty unit at the date of assessment of the penalty, not at the date of the breach.
[5]Section 34 of the Penalties and Sentences and Other Legislation Amendment Act 2012 amending section 5 of the Penalties and Sentences Act 1992.
A second difficulty with the argument is that to my mind the explanation for the breaches and the evidence showing that such a breach is unlikely to recur is not at all as clear as is suggested.
Taking into account inflation, the penalty of $10,000 imposed on Thomas & Coffey in 2006 has a value of almost $12,000.
The most important points of aggravation in this case are the length of time the licence had been held, the period over which these breaches occurred, the lack of clear explanation for the breach or of the remedial measures. These things are mitigated by the relatively low level of two out of three of the breaches. Bearing in mind these matters, I think had this been a first offence a penalty of $12,000 would have been imposed. Since this is a second offence of a closely similar type in recent years, I think the appropriate uplift is about 70% to allow for that bearing in mind the same points of aggravation and mitigation. I therefore impose a penalty of $20,500.
The QBSA did apply for costs and so that issue is also before me. However it has not provided any evidence or submissions in support. In the circumstances I shall say no order as to costs.
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