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Mudri v Queensland Building and Construction Commission[2015] QCAT 412

Mudri v Queensland Building and Construction Commission[2015] QCAT 412

CITATION:

Mudri v Queensland Building and Construction Commission [2015] QCAT 412

PARTIES:

Miroslav Mudri

(Applicant)

 

v

 

Queensland Building and Construction Commission

(Respondent)

APPLICATION NUMBER:

OCR229-13

MATTER TYPE:

Occupational regulation matters

HEARING DATE:

On the papers

HEARD AT:

Brisbane

DECISION OF:

Member Gordon

DELIVERED ON:

14 October 2015

DELIVERED AT:

Brisbane

ORDERS MADE:

  1. The decision of the Queensland Building and Construction Commission dated 15 August 2013 that Miroslav Mudri is not a permitted individual is set aside.
  2. Miroslav Mudri is categorised as a permitted individual.

CATCHWORDS:

PERMITTED INDIVIDUAL – influential person for company wound up for insolvency – adjudicators decision entered as a judgment against company – company failed to pay judgment relying on its claim in Supreme Court proceedings – stalemate for four years – then sudden further enforcement proceedings – what circumstances need to be considered – whether all reasonable steps to avoid those circumstances were taken

Queensland Civil and Administrative Tribunal Act 2009 (Qld) s 20

Queensland Building and Construction Commission Act 1991 (Qld) s 56AD

Building and Construction industry Payments Act 2004 (Qld) s 17, 21, 100

Queensland Building and Construction Commission and Other Legislation Amendment Act 2014 (Qld) s 20

Mudri v Queensland Building and Construction Commission [2014] QCAT 222

Queensland Building and Construction Commission v Mudri [2015] QCATA 078

Younan v Queensland Building Services Authority [2010] QDC 158

J Hutchinson Pty Ltd v Galform Pty Ltd & Ors [2008] QSC 205

Intero Hospitality Projects P/L v Empire Interior (Australia)  P/L & Anor [2008] QCA 83

Northbuild Construction P/L v Central Interior Linings P/L & Ors [2011] QCA 22

Unifor Australia Pty Ltd v Katrd Pty Ltd atf Morshan Unit Trust t/as Beyond Completion Projects [2012] QSC 252

David & Gai Spankie & Northern Investment Holdings Pty Ltd v James Trowse Constructions Pty Ltd & Ors (No. 2) [2010] QSC 166

BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd & Ors [2012] QSC 346

APPEARANCES:

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).

REPRESENTATIVES:

APPLICANT:

Glyn James Watson (counsel) instructed by Cranston McEachern Lawyers

RESPONDENT:

Malcolm Robinson of Robinson Locke Litigation Lawyers

REASONS FOR DECISION

  1. [1]
    This application has been remitted back to the Tribunal by the appeal Tribunal for reconsideration. 
  2. [2]
    It concerns a company (Bridgeport Constructions Pty Ltd) which was wound up in insolvency by the Supreme Court.  Mr Mudri, the applicant, was a former director of the company and was an “influential person” for the company.  Therefore, because of the winding up, he became an “excluded individual” with the effect that his building licence stood to be cancelled by the Queensland Building and Construction Commission (QBCC).
  3. [3]
    He applied to the QBCC to be categorised a “permitted individual” in an attempt to retain his building licence.  On 15 August 2013 the QBCC refused this application.  Mr Mudri then applied to the Tribunal to review this decision.  On 21 May 2014 on review, the Tribunal set aside the QBCC’s decision and categorised Mr Mudri as a permitted individual.[1]
  4. [4]
    The QBCC appealed against that decision and on 12 June 2015 the appeal Tribunal set aside the Tribunal’s decision and remitted Mr Mudri’s application back to the Tribunal.[2]
  5. [5]
    By 56AD(8) of the Queensland Building and Construction Commission Act 1991, Mr Mudri can only be categorised as a permitted individual if the QBCC is satisfied on the basis of the application, that he:-

took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event

  1. [6]
    Section 56AD(8A) lists particular things that must be considered when determining whether reasonable steps were taken, and section 56AD(8B) makes it clear that the list in (8A) is not exclusive.
  2. [7]
    If the QBCC is satisfied under section 56AD(8) then there is a further step to take, and that is to decide whether Mr Mudri should be categorised as a permitted individual.[3]
  3. [8]
    Since the Tribunal is reviewing the decision of the QBCC, it needs to hear and decide the application to be categorised as a permitted individual by way of a fresh hearing on the merits.  In this instance, I am deciding this on the papers, assisted by a transcript of the original hearing.  The aim is to produce the correct and preferable decision. 
  4. [9]
    Section 56AD has now been removed from the 1991 Act entirely.[4]  However, transitional provisions were inserted in section 54 of the 1991 Act which require an existing review application (which this is) to be decided as if section 56AD continued to apply.
  5. [10]
    To comply with section 56AD(8) it is necessary to identify the relevant event, then to identify the circumstances which resulted in the happening of the relevant event.  And then to consider whether all reasonable steps were taken to avoid the coming into existence of those circumstances.
  6. [11]
    Before carrying out that process, I need to set out the relevant factual background of this matter.  I shall concentrate on a judgment debt of $609,178 owed by the company to V & ME Constructions Pty Ltd, which formed the basis of V & ME’s application to wind up the company in the Supreme Court on 30 May 2013.  How this judgment debt arose and how it was left unpaid resulting in the company being wound up in insolvency is central to this matter.

Relevant factual background

  1. [12]
    Mr Mudri was the sole shareholder and director of the company. 
  2. [13]
    The company engaged V & ME to construct 40 houses at Kingaroy, but after some progress with the work, there was a dispute.  On 25 September 2008 V & ME’s solicitors wrote a letter to the company terminating the contract.  Each side saw the termination differently. V & ME said that the termination was justified because the company had taken over the building site from its employees and sub-contractors.  The company said that V & ME had breached the contract by failing to perform the work competently and diligently, and that it had no right to terminate the contract.
  3. [14]
    Three weeks after the letter terminating the contract, on 15 October 2008, V & ME served on the company a payment claim under section 17 of the Building and Construction industry Payments Act 2004 (Qld).  This is a statutory scheme enabling contractors doing construction work to claim and receive a progress payment without delay.  The company did not respond to, or pay, the payment claim and so V & ME applied for adjudication under section 21 of the 2004 Act.  This is a summary and quick procedure to determine disputes about progress payments.
  4. [15]
    In the adjudication, the company claimed that V & ME were in breach of contract and that damages were payable to the company.  Whilst noting this contract dispute, the adjudicator decided that it was beyond his remit and that he should determine the matter solely by finding the stage to which the work on the various lots had been completed.[5]  On that basis he found that the company should pay V & ME a progress payment in the sum of $613,025 together with interest on any unpaid amount at the Supreme Court judgment rate.
  5. [16]
    The company did not pay the amount determined by the adjudicator and so V & ME applied for an adjudication certificate and on 5 January 2009 filed this with the Supreme Court as a judgment debt.[6]
  6. [17]
    Mr Mudri decided that the company should resist the judgment.  He took the view based on legal advice, that the company had a valid contra claim because of V & ME’s breach of contract and that the value of that claim exceeded the judgment which had been obtained. 
  7. [18]
    V & ME tried to enforce the judgment.  On 8 January 2009 its solicitors served a statutory demand on the company requiring the company to pay the sum of $646,716[7] within 21 days or face winding up proceedings. 
  8. [19]
    The company responded to this by applying to set aside this statutory demand.  The application to set aside the statutory demand is not in evidence so the basis for making the application is unclear.  However it can be seen from a letter written by the solicitors acting for the company that they were highly critical of the way in which the adjudicator handled the issues before him and that they were considering applying to the court to have the decision declared void.[8]  It seems likely that these criticisms, and also the cross claim for damages for breach of contract which the adjudicator had refused to take into account, formed the basis of the challenge to the statutory demand.
  9. [20]
    On 30 January 2009 the company issued a claim in the Supreme Court against V & ME for breach of contract and negligence.  The Statement of Claim[9] shows that there were a number of bases for this claim.  It alleged that V & ME had wrongfully claimed the purchasers’ deposits as part of its progress claim, had failed to pay its subcontractors which the company had done instead, it had failed to build in accordance with the plans and specifications, failed to obtain certification for certain work, and had wrongfully terminated the contract.  The total amount claimed was just short of $1.5m.
  10. [21]
    At that time therefore, two separate proceedings brought by the company were afoot.  The application to set aside the statutory demand, and the company’s Supreme Court proceedings against V & ME for $1.5m.
  11. [22]
    Exactly what happened to the statutory demand is unclear from the paperwork.  The court file summary for these proceedings[10] shows that there was an application for a consent order on 19 March 2009 and that this was granted on 31 March 2009 by the Deputy Registrar.  It is likely that this order set aside the statutory demand.[11] 
  12. [23]
    The most likely reason why V & ME agreed to this is that the litigation over the statutory demand had an uncertain outcome, and it had found another less risky way to enforce the judgment.  This was when, on 19 February 2009, V & ME obtained an enforcement warrant from the Supreme Court for the seizure of 8 lots of land owned by the company, for the purposes of a sale.[12] 
  13. [24]
    It would appear that this land, or some of it, was indeed sold, because after this enforcement action the judgment debt reduced to $424,000 plus interest.  The interest on this net amount is no doubt responsible for the debt being enlarged to the $609,178 when it formed the basis of V & ME’s successful application to wind up the company over 4 years later.
  14. [25]
    However, V & ME did not wait that long.  Relying on the outstanding judgment of $424,000 plus interest, on 6 October 2009 V & ME applied to wind up the company.  What happened to this application can be seen from the solicitors’ correspondence and from the court’s file summary[13].  The hearing was adjourned on a number of occasions and the company filed affidavit evidence whereupon the matter was referred to the judge and listed for trial. Further evidence was then filed on behalf of the company on 24 December 2009.
  15. [26]
    The process which was followed indicates that the company was resisting the winding up application.  The documentation showing the basis for this is not in evidence.  There is limited correspondence from the company’s solicitors and from counsel.  This shows however, that the company was claiming “but for the disputed debt to V & ME” to be solvent.[14]  It seems clear that the winding up application was resisted on the basis that there was a genuine dispute over the money owed to V & ME and that if that debt were ignored, the company was solvent.  It is also clear from the evidence that V & ME did not proceed with the application to wind up.  The most likely reason for this was that V & ME decided that the company had a good chance of resisting the winding up application.
  16. [27]
    Meanwhile the Supreme Court action proceeded.  The pleadings are in evidence.  V & ME filed a Defence and Counterclaim seeking some $2.8m from the company and joining Mr Mudri personally as a defendant to its counterclaim and also joining Mudri Holdings Pty Ltd, a related company.  The action progressed through its interlocutory stages and the last formal pleading was April 2010 when there was an amended Reply and Answer filed.[15]   In July 2010, the company’s litigation solicitors were seeking to prepare the company’s amended Reply and also an amended Answer to V & ME’s amended defence counterclaim.[16]  On 20 August 2010 however, Mr Mudri wrote to his company’s solicitors as follows[17]:-

Please stop any work on all files as per telephone conversation and return all files to our Maleny address thanks.

  1. [28]
    There is no evidence of what happened to the Supreme Court action after that, except that it is clear that neither side pressed for it to go to trial.  Mr Mudri says in his application to QBCC to be categorised as a permitted individual that the company “kept these proceedings on foot during the period from January 2009 to May 2013”.  None of the orders made by the court have been put in evidence.  The Supreme Court often makes a case flow order which provides that if no hearing date is applied for then the action is “deemed resolved”.  This expression is explained in the Supreme Court Practice Direction No 17 of 2012 as meaning that “the proceeding is in abeyance and no step can be taken unless and until the matter is reactivated by order of the court”.  So if such a case flow order is made, it means that an action which is not struck out or dismissed but does not go to trial, does not disappear and can be reinstated.
  2. [29]
    There is no evidence to suggest that the action was struck out or dismissed by the Supreme Court.  The financial documents suggest otherwise.[18]  I do not think that when Mr Mudri says that the proceedings were kept on foot in the period January 2009 to May 2013 he is saying that anything happened in May 2013 other than the eventual winding up application.  He was asked at the hearing whether there was any formal agreement to end the proceedings and said that the case was “still open” and that there had been no final judgment in the case.[19]
  3. [30]
    I must take it that the Supreme Court proceedings remained in existence but were unresolved at the time of the winding up proceedings.
  4. [31]
    It is difficult for the Tribunal to judge the merits of the Supreme Court action, but a partner in the litigation solicitors who were then acting for the company gave evidence at the hearing of this matter about this.  He said that in his opinion the company had an arguable case for breach of contract against V & ME for $1.5m, that the action had a reasonable chance of success, and he had advised the company at the time accordingly.[20]
  5. [32]
    At the time of the 2009 application to wind up, the company was actively trading.  However, in October 2009 it ceased to trade.[21]  Debtors were cleared from the books. In particular, Mr Mudri forgave a large debt owed by a related entity.  By October 2010, all creditors of the company except V & ME had been paid.  In effect, Mr Mudri set about reorganising things so that, apart from the accrued position of the previous dealings with V & ME, the company became a “shell”.  The only asset which remained was the potential proceeds of the Supreme Court action against V & ME and its only liability was the judgment obtained by V & ME.
  6. [33]
    On 1 April 2012 Mr Mudri ceased to be a director of the company, but he remained as its sole shareholder, and this meant that he came within the definition of “influential person” in Schedule 2 of the 1991 Act.  As such, he stood to be an excluded individual should the company be wound up in insolvency.
  7. [34]
    On 28 February 2013 V & ME obtained from the court another enforcement warrant but this was returned wholly unexecuted.  This provided grounds for another application to wind up the company which was made on 30 May 2013.  A winding up order was made on 21 June 2013 and liquidators were appointed on that day.

What was the relevant event?

  1. [35]
    There is no dispute that the relevant event is the order of 21 June 2013 winding up the company in insolvency and the appointment of the liquidator in the same order. 

What were the circumstances which resulted in the happening of the relevant event?

  1. [36]
    The appeal Tribunal identified the following circumstances as resulting in the happening of the relevant event.  The failure by the company to pay the adjudicated amount.  The failure by the company to respond to the notice of the winding up proceedings and its failure to appear in May 2013 in the winding up proceedings.[22]
  2. [37]
    To my mind there are other things to be added to this list.  I am mindful that I should be careful to do so.  This is because the process of identifying the circumstances resulting in the happening of the relevant event can be performed widely or narrowly, and therefore different decision makers will potentially produce a different list of circumstances.  For example, there are often background circumstances without which the more proximate causes of the relevant event would not have happened at all.  Not all such background circumstances will be relevant.  But there may well be background circumstances which “set the scene” for later events and which therefore could be regarded as circumstances resulting in the happening of the relevant event. 
  3. [38]
    This means that in applications to be categorised as a permitted individual, unless processes are in place to clarify and agree the circumstances which will be considered by the decision maker and to which the evidence will be directed, there is a risk of an unfair hearing.  Whilst it will often be obvious to an excluded individual who seeks to become a permitted individual what circumstances need to be dealt with, sometimes this will not be the case and clarification will be required.  Happily, the obligation of QBCC to provide reasons for the decision to the Tribunal and the Tribunal’s own processes usually result in such clarification.
  4. [39]
    One additional circumstance which may be considered is the existence of the adjudicated amount in the first place.  Without that, there would have been no judgment enabling V & ME to apply to wind up the company.  As will be seen, at one time it was said by QBCC that the company should have done more to avoid this adverse adjudication (although this was not relied on at the hearing).  The appeal Tribunal identified this as a starting point which set in train the circumstances which led to the relevant event.[23]  For the sake of completeness I propose to deal with this as a circumstance which resulted in the happening of the relevant event.
  5. [40]
    I shall also deal with the failure by the company to pursue the Supreme Court proceedings to judgment, which if successful would have offset the amount due on the adjudication judgment by the operation of section 100 of the Building and Construction Industry Payments Act 2004.  It was submitted at the hearing that this failure was a circumstance which resulted in the happening of the relevant event.[24]
  6. [41]
    Finally, I note that the appeal was made on the basis that the senior member who heard the matter “failed to consider the nature of the adjudicated decision that was ‘always a debt’ and could not have been avoided by the Supreme Court proceedings” and that Mr Mudri took steps to ensure that the company could not pay it.[25]
  7. [42]
    There is no doubt that the appeal Tribunal was unimpressed with the steps taken by Mr Mudri to divest the company of its assets, so that the only remaining asset was the cause of action in the Supreme Court proceedings.   It appears that the appeal Tribunal was concerned that Mr Mudri may have taken positive steps in this way to cause the circumstances which resulted in the relevant event.  If this did happen, then clearly the reasonableness of those steps also fall for consideration under section 56AD.  Semantically, positive steps come within the wording of section 56AD if they cause circumstances which result in the relevant event, because by their very nature those positive steps are “not avoided”. 
  8. [43]
    I propose therefore to consider whether causing the company to cease to trade and to divest its assets caused any relevant circumstance or the eventual winding up of the company.  If so, I will need to consider whether it was reasonable to cause the company to cease to trade and to divest its assets.

Were all reasonable steps taken to avoid the coming into existence of those circumstances?

  1. [44]
    I remind myself of the test to apply as approved by the appeal Tribunal remitting this matter back to the Tribunal and as set out by McGill DCJ in Younan v Queensland Building Services Authority [2010] QDC 158 at [26].  It is not a question of whether the applicant did everything possible to prevent the circumstances from arising, or whether they would have arisen if he had acted differently.  What steps were reasonable depend on what was reasonable for the individual concerned in the circumstances in which he found himself, with such information as he then had to hand.  So the reasonableness of his behaviour must be assessed by reference to what was known to him at the time without the benefit of hindsight.
  2. [45]
    The adjudication decision.  This is the first circumstance which falls for consideration.  It was suggested in evidence filed by the QBCC that Mr Mudri had not explained why it was reasonable to have failed to deliver a Payment Schedule.[26]  The implied suggestion was that the company could have done more to resist the adjudication decision.  The Payment Schedule is an initial response to a contractor’s payment claim, and there is a time limit of 10 days (or such earlier time as provided by the contract) after the payment claim in which it can be served.  The Payment Schedule states how much is payable and why the payment claim it is said to be excessive.[27]  Whilst it is true that the company did not serve a Payment Schedule within the time limit, in fact this had no effect on the outcome of the adjudication because when V & ME applied for adjudication, by statute the company had another 5 business days to serve the Payment Schedule[28].  The company did serve it in time.  It can then be seen from the adjudication decision that the company argued its position thoroughly with the assistance of its lawyers.  I find therefore that there were no further steps which the company could reasonably have taken to avoid the adjudication decision or to improve the result for the company.
  3. [46]
    Failure to pay the judgment based on the adjudication decision.   It is of course correct to say that if the company had paid the judgment then it would not have been wound up in the circumstances which later occurred.  And it was submitted at the hearing that all judgments ought to be paid and therefore it was unreasonable not to do so, whatever the circumstances.
  4. [47]
    This submission needs to be considered in the light of section 100 of the Building and Construction Industry Payments Act 2004.  This provides that nothing done under Part 3 of the Act (the adjudication provisions) affects the contractual rights of the parties or any civil proceedings except that payment of an adjudicated amount must be taken into account. Indeed, subsection (3)(b) permits the court in civil proceedings to order restitution of an amount paid for an adjudicated amount if appropriate having regard to its decision in the proceedings.
  5. [48]
    The effect of section 100 has been considered in a number of cases in the Supreme Court.  In J Hutchinson Pty Ltd v Galform Pty Ltd & Ors [2008] QSC 205 Justice Chesterman said that a payment of a judgment entered following an adjudication decision was only a payment on account of a liability that will be finally determined in some other way.  The judgment was however, conclusive final and binding, “unless and until a court pronounces judgment in a proceeding brought by virtue of the contractual rights preserved by s 100, which is inconsistent with the earlier judgment”.  In principle it is the same as a judgment until that judgment is reversed on appeal.[29]
  6. [49]
    As was pointed out by Muir JA in Intero Hospitality Projects P/L v Empire Interior (Australia)  P/L & Anor [2008] QCA 83[30]:-

.. the Act is intended to provide a mechanism by which claims for payment under construction contracts can be decided quickly, on an interim basis and by which payment can be enforced even though a dispute in respect of the right to payment is being litigated or is subject to an alternative dispute resolution process. It is apparent also that in making determinations under the Act adjudicators will often lack the evidence upon which and the time within which to make fully informed considered determinations. That does not matter in the scheme of things, as adjudicators’ determinations do not finally determine parties’ contractual rights. That is left to the courts or to alternative dispute resolution processes agreed upon by the parties.

  1. [50]
    A judgment obtained based upon an adjudication decision under the 2004 Act is therefore not the same as a judgment obtained by final court order.  Although it must be paid, it is not conclusive of issues between the parties.
  2. [51]
    Whilst there is no appeal from an adjudication decision, it can be challenged in other ways.  Since it is an administrative decision, it can be the subject of judicial review in the Supreme Court.[31]  In such proceedings the decision can be set aside or declared void for example where the adjudicator reached a conclusion on the wrong evidence[32], or on a basis that neither side had addressed[33], or failed to consider material submitted[34], or failed to consider something required by statute or decided something where there was no power to do so[35] or where the contract was illegal[36].  Upon payment into court, the claimant may be restrained from pursuing a judgment based on an adjudication decision where there is a serious challenge to it and if that challenge were successful the claimant would not be able to repay the money.[37] 
  3. [52]
    As said above, through its solicitors the company was threatening to take action of this sort immediately after the adjudication decision was handed down.  Instead, the company brought the Supreme Court proceedings.  It was advised by its lawyers that these proceedings had a reasonable chance of success.  Because of the terms of section 100, it was clearly open to the company to challenge the findings of the adjudicator in those proceedings.  In addition to this, the adjudicator had expressly said in his decision that he could not deal with the breach of contract claim made by the company.  So this had to be determined in the Supreme Court proceedings.  In these circumstances, the company had good reason not to pay the judgment.
  4. [53]
    There is another point made by Mr Mudri to explain why the company did not pay the judgment.  This was the impecuniosity of V & ME.  Information was gathered by Mr Mudri and his solicitors (described in his application to be categorised as a permitted individual[38]) about this.  Whilst it may be true as submitted on behalf of the QBCC, that the company may have contributed to the impecuniosity of V & ME by its failure to pay the judgment, from the company’s point of view, which on my findings was reasonably held, ultimately the judgment would not be payable anyway.   As Mr Mudri says, there would have been considerable doubt that if the judgment were paid, it could subsequently be recovered from V & ME if the Supreme Court proceedings were successful.  Hence it would not be in the interest of the company to pay the judgment.
  5. [54]
    Causing the company to cease to trade and to divest its assets.  Mr Mudri effectively produced a situation in which the company could not pay the judgment even if its officers had wanted it to.  Its only remaining asset was the potential of a judgment against V & ME in the Supreme Court proceedings which may or may not have been satisfied.
  6. [55]
    Was causing the company to cease to trade and to divest its assets a circumstance which resulted in the relevant event?  These changes happened in late 2009 and in 2010 some three or four years before the eventual winding up application.  Having regard to these timescales it appears unlikely that these changes were a cause of the 2013 winding up application.  There was no evidence from V & ME about what prompted the  application, and it would be wrong to speculate about this because there could be a number of reasons.
  7. [56]
    Further, causing the company to cease to trade and to divest its assets was not a cause of the decision not to pay the judgment (and therefore in turn, a cause of the relevant event).  That decision had already been made and was never reversed.
  8. [57]
    It seems to me that since causing the company to cease to trade and to divest its assets did not cause a circumstance which resulted in the relevant event, therefore the reasonableness of acting in this way does not fall to be considered. However, having regard to the concern expressed by the appeal Tribunal about this, and since it appears the matter was remitted back to the Tribunal to consider it, I need to comment on it further.
  9. [58]
    Consideration of this matter is hindered considerably by the fact that the Tribunal has been provided only with a very limited amount of paperwork dealing with the financial state of the company in 2009 and 2010.
  10. [59]
    The accounts which show the financial position of the company in the year ending 30 June 2009 were signed off on 15 December 2009. 
  11. [60]
    Prior to the signing off of those accounts, in an email of 18 November 2009, counsel instructed to appear on the company’s behalf in the winding up proceedings opined that “there was a real risk that (the company) will be wound up unless we can show that but for the V & ME debt (the company) is solvent”.[39]  It can be seen from correspondence that counsel had been provided with a profit and loss report for the company to 30 June 2009, a balance sheet to that date, and other source documents showing the financial position of the company at that time.[40]
  12. [61]
    Counsel’s view expressed in that email (on the assumption that it was correct) cannot be reconciled with the accounts which were later signed off, which showed that the company had net assets as at 30 June 2009 of $4.4m, unless those accounts do not show the true financial position of the company. 
  13. [62]
    Those accounts show that on paper, the company had an annual profit after tax of $1.2m in the year to 30 June 2008 and $3m in the year to 30 June 2009, and with net assets in those years stated to be $1.4m and $4.4m respectively.  However, it can be seen from the accounts that these figures were affected substantially by “trust distributions” recorded as income of the company in the year to 30 June 2008 of $1.9m and in the year to 30 June 2009 of $3.7m.  In the same years the accounts show that the company provided accommodation to related entities by way of loan.   These loans were in roughly the same amounts as the trust distributions in the same year.
  14. [63]
    It was these loans which were forgiven in the following year (as appears from the following year’s accounts which were prepared after the liquidation of the company)[41].  The forgiveness of these loans caused the appeal Tribunal concern, and is largely what is referred to in the appeal Tribunal’s decision and in this decision as the “divesting of assets” of the company.
  15. [64]
    It is not in evidence where the trust distributions came from, whether they were from a related entity or entities, why they were made or whether any cash actually changed hands.  It is not in evidence whether the loans were made to the same entity or entities which made the trust distributions, the circumstances of the loans, whether any cash actually changed hands to complete the loans, why the loans were made, their terms, or whether the related entities to whom the loans were made were able to repay them.  On paper, whilst the transactions inflated the income of the company and its net asset position, in cash terms they had a nil effect. 
  16. [65]
    It is possible that the transactions were merely an accounting exercise or made for the purposes of tax.  Without them the financial position of the company looks quite different, and much more in accordance with counsel’s expressed view that the company was at risk of being wound up for insolvency. 
  17. [66]
    In this respect, I note that accountants were instructed on both sides to report as to the solvency of the company for the purpose of the 2009 winding up proceedings.  It is likely that the true financial position of the company would have been clear to those accountants, and to the lawyers on both sides at the time.  It is likely that the true financial position of the company would have appeared from the affidavits filed in the winding up proceedings.  Unfortunately none of this material is available to the Tribunal.
  18. [67]
    On the evidence available to the Tribunal, the only conclusion which can be reached is that the true financial position of the company which was then apparent was sufficient to show what counsel said was required - that but for the V & ME debt, the company was solvent (and of course to show that the V & ME debt was heavily in dispute).
  19. [68]
    On the evidence available I am unable to go further than that.  However, on my findings it is unnecessary for me to consider the reasonableness of the decision to cause the company to cease trading and to divest its assets anyway.
  20. [69]
    Failure to prosecute the Supreme Court proceedings.  What is said here is that had the company pursued these proceedings to judgment, then if the company had been successful in its claim, the judgment obtained by V & ME would have been expunged, with the result that the company would no longer have been at risk of winding up.
  21. [70]
    The difficulty with this is that the company was involved in complex legal proceedings against V & ME for which it needed the assistance of lawyers.  The proceedings were extremely expensive to fight.  Although the legal advice given to the company was that its claim had a reasonable chance of success, this could not be guaranteed and there was a chance that the action would fail.  There was a counterclaim against the company in the sum of $2.8m.  There was a risk that the counterclaim would be successful, although it should be noted that this risk was perceived as being so small that it was not even mentioned in the company’s accounts, as explained by the accountant who prepared them.[42]
  22. [71]
    There was also the difficulty that if the claim against V & ME were successful there was considerable doubt, which was reasonably held by Mr Mudri, that it would be able to honour a judgment and pay any costs order in the company’s favour.
  23. [72]
    There was clearly a decision which had to be made whether or not actively to prosecute the proceedings.  The alternative was to regard the position as stalemated, bearing in mind that V & ME had not pursued the 2009 winding up proceedings apparently because the company had a good chance of resisting them.  There was no reason to suppose that V & ME would attempt  again to wind up the company while the Supreme Court proceedings remained in place, because any such attempt would be met with the same resistance.
  24. [73]
    In the circumstances, in my view the decision not actively to prosecute the proceedings was a reasonable one because to do so would serve no purpose and simply waste the company’s money in legal costs.
  25. [74]
    Failure to respond to the winding up application.  On 27 September 2010 the registered office of the company was changed from the address of the company accountants to Mr Mudri’s home address.  Whilst retaining his 100% shareholding in the company, on 1 April 2012 Mr Mudri ceased to be a director of the company and his mother Ljuba Mudri was appointed in his place.  She lived elsewhere.
  26. [75]
    The originating application commencing the winding proceedings would have been served on the company at its registered office.
  27. [76]
    Mr Mudri says he did not see this originating application.  He said in evidence that he often worked away from home.[43]  He says that the application to wind up did not come to his attention before the hearing and so the winding up order was made unchallenged.[44]
  28. [77]
    There is no reason to disbelieve Mr Mudri when he says that he was unaware of the application.  But this means that on 27 September 2010 he had set up arrangements whereby the company might be unable to respond quickly to an application of this type by moving the registered office to his home address where he was only present from time to time.  The registered office acts as the point of contact for a company which the public can discover by making an ASIC search.  It also acts as the correct place of service for court and other official documents.  It would not be prudent for a trading company to place itself in a position of not being able quickly to deal with correspondence received at its registered office.
  29. [78]
    How imprudent this was for the company on 27 September 2010 and later years depends on an assessment of the apparent risk of fresh winding up proceedings by V & ME.  It would not seem to be imprudent for any other reason, bearing in mind the company was not trading.
  30. [79]
    I shall therefore consider again the extent to which it appeared the company was at risk of such proceedings.
  31. [80]
    Immediately following the ending of the 2009 winding up proceedings, Mr Mudri reasonably took the view that the company was not at imminent risk of fresh winding up proceedings by V & ME.  This was because V & ME had already very recently tried this route and had not pursued it, apparently because the company had a good chance of resisting the proceedings.
  32. [81]
    That position did not change.  The Supreme Court proceedings remained in place.  The most likely situation was that they were in abeyance and could be reinstated by order of the court.  This meant that it would reasonably appear to Mr Mudri and to V & ME that any fresh winding up proceedings would be met with the same resistance.
  33. [82]
    There was nothing which would, or should, have suggested to Mr Mudri that any changes to the company since 2009 would increase the risk of fresh winding up proceedings.  In particular, he would reasonably have been of the view that when the final evidence of the company had been filed on 24 December 2009 in the winding up proceedings, the true financial state of the company had then been exposed to V & ME.  The fact that the company ceased to trade in October 2009 would not have changed that true financial position. 
  34. [83]
    It might be said that in the year to 30 June 2010 when Mr Mudri caused the company to forgive the loans made to the related companies, he should have thought that this would increase the risk of fresh winding up proceedings.  But the evidence is not sufficient to support this.  As discussed earlier, the trust distributions and loan backs had nil effect on the company in cash terms.  It is not clear that the loans were real assets of the company.  It is not clear that the loans were known to V & ME, or if they were known, whether V & ME recognised them as real assets.  On the evidence it cannot be said that Mr Mudri’s expressed view that the risk of fresh winding up proceedings was low, was erroneous or unreasonable.
  35. [84]
    In the circumstances therefore, it is my finding that it would reasonably appear to Mr Mudri that the risk of a fresh winding up proceedings by V & ME was low on 27 September 2010 when he changed the registered office of the company and remained low after that date.
  36. [85]
    So, whilst changing the registered office of the company to his home address where Mr Mudri might not get immediate notice of fresh  winding up proceedings was not particularly prudent, I do not regard it as unreasonable bearing in mind the apparent low risk of such proceedings.

Conclusion

  1. [86]
    I have reached the following conclusions:-
    1. (a)
      The relevant event was the order of 21 June 2013 winding up the company in insolvency and the appointment of the liquidator in the same order.
    2. (b)
      The circumstances which resulted in the happening of the relevant event were:-
      1. (i)
        An adjudication against the company under the Building and Construction industry Payments Act 2004 (Qld) requiring it to pay $613,025 which was later entered as a judgment against the company, or
      1. (ii)
        A decision by Mr Mudri that the company would not pay the judgment but would resist it in various ways including starting separate Supreme Court contra proceedings.
      1. (iii)
        A failure by the company to pursue the litigation to its conclusion so that the final position between the company and the judgment creditor could be established.
      1. (iv)
        A failure by the company to arrange its affairs in such a way that it could respond to the application to wind up the company in May 2013 and appear at the hearing of this application.
    3. (c)
      Of the above circumstances, my findings are:-
      1. (i)
        In the light of the dispute which had arisen between the two parties reasonable steps were taken by the company to put its case forward for the adjudication.
      1. (ii)
        The decision taken by Mr Mudri about how to deal with the judgment was reasonable in 2009, and remained reasonable at all times thereafter.
      1. (iii)
        It was reasonable for the company not to try to bring the litigation to a conclusion.
      1. (iv)
        In the circumstances, the company acted reasonably in the arrangements it had in place for receipt of official documents (at its registered office).  Because of these arrangements, however, it did not have notice of the winding up application and so could not respond to it.
    4. (d)
      Other circumstances which fall for consideration but which on my findings did not result in the happening of the relevant event were causing the company to cease to trade and to divest its assets so that its only asset was the claim against the judgment creditor and its only debt was the judgment debt.
  2. [87]
    I have considered the matters set out in section 56AD(8A) to which I must have regard.  Apart from the question of legal advice which I have considered above, I do not think any other matter set out in that subsection is relevant.
  3. [88]
    I consider that Mr Mudri did take all reasonable steps that were available to him to avoid the circumstances resulting in the relevant event.  There is no other reason not to categorise him as a permitted individual.  So I set aside the QBCC’s decision and categorise Mr Mudri as a permitted individual.

Footnotes

[1]Mudri v Queensland Building and Construction Commission [2014] QCAT 222.

[2]Queensland Building and Construction Commission v Mudri [2015] QCATA 078.

[3]  That there is this further step was confirmed by McGill DCJ in Younan v Queensland Building Services Authority [2010] QDC 158 at [26].

[4]  As from 1 July 2015 by section 20 of the Queensland Building and Construction Commission and Other Legislation Amendment Act 2014.

[5]  Page 11 of the Adjudication Decision.

[6]  This was done under section 31 of the 2004 Act which provides a way to enforce the adjudication decision.

[7]  This must have been the original adjudication amount plus interest.

[8]  Page 313.

[9]  Page 71.

[10]  Page 226.

[11]  This was accepted at the hearing by the QBCC compliance officer: transcript P-51-35.

[12]  Exhibit MM1 to Mr Mudri’s statement filed on 9 December 2013.

[13]  Page 227.

[14]  Pages 322 and 324.

[15]  Page 156.

[16]  Email on page 340.

[17]  Page 342.

[18]  The value of the claim appeared in the company’s accounts to 30 June 2013 as it had in previous years, and value of the claim also appears in the statement of affairs signed by Mr Mudri.

[19]  Transcript P-19-5.

[20]  Evidence of Troy Lewis in statement of evidence dated 7 March 2014.

[21]  Evidence of the company accountant Stephen O'Keefe received on 4 December 2013.

[22]  Paragraphs [22] and [36].

[23]  Paragraph [48] of the appeal decision.

[24]  Transcript P-56-5.

[25]  Paragraph [8] of the appeal decision, a submission seemingly accepted by the appeal Tribunal - see paragraphs [43] to [46].

[26]  Paragraph 23 of the statement of Natasha Dennis dated 10 October 2013.

[27]  This is under section 18 of the 2004 Act.

[28]  This is provided by section 24 of the 2004 Act.

[29]  At paragraphs 43 to 45.

[30]  At paragraph 51.

[31]Northbuild Construction P/L v Central Interior Linings P/L & Ors [2011] QCA 22.

[32]Unifor Australia Pty Ltd v Katrd Pty Ltd atf Morshan Unit Trust t/as Beyond Completion Projects [2012] QSC 252.

[33]David & Gai Spankie & Northern Investment Holdings Pty Ltd v James Trowse Constructions Pty Ltd & Ors (No. 2) [2010] QSC 166.

[34]Northbuild Construction at [21].

[35]BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd & Ors [2012] QSC 346 at [9].

[36]Agripower Australia Ltd v Queensland Engineering & Electrical Pty Ltd [2015] QSC 268.

[37]  For example, BRB Modular Pty Ltd v AWX Constructions Pty Ltd & Ors [2015] QSC 222.

[38]  Paragraphs 20 to 23.

[39]  Page 324.

[40]  These are referred to on pages 318 to 321 but regrettably are not in evidence before the Tribunal.

[41]  As Stephen O'Keefe the accountant explains, these were prepared so that a statement of affairs could be provided in the liquidation.

[42]  Paragraph 11 of the statement of Stephen O'Keefe made on 2 December 2013.

[43]  Transcript P-36-15.

[44]  Paragraph 43 of Mr Mudri’s statement of 20 July 2013.

Close

Editorial Notes

  • Published Case Name:

    Miroslav Mudri v Queensland Building and Construction Commission

  • Shortened Case Name:

    Mudri v Queensland Building and Construction Commission

  • MNC:

    [2015] QCAT 412

  • Court:

    QCAT

  • Judge(s):

    Member Gordon

  • Date:

    14 Oct 2015

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Agripower Australia Ltd v Queensland Engineering & Electrical Pty Ltd [2015] QSC 268
1 citation
Jump To
Cite 1 - [2015] QSC 268
BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd [2012] QSC 346
2 citations
Jump To
Cite 1 - [2012] QSC 346
Cite 2 - [2012] QSC 346
BRB Modular Pty Ltd v AWX Constructions Pty Ltd [2015] QSC 222
1 citation
Jump To
Cite 1 - [2015] QSC 222
David Spankie v James Trowse Constructions Pty Ltd (No. 2) [2010] QSC 166
2 citations
Jump To
Cite 1 - [2010] QSC 166
Cite 2 - [2010] QSC 166
Intero Hospitality Projects Pty Ltd v Empire Interior (Australia) Pty Ltd [2008] QCA 83
2 citations
Jump To
Cite 1 - [2008] QCA 83
Cite 2 - [2008] QCA 83
J Hutchinson Pty Ltd v Galform Pty Ltd [2008] QSC 205
2 citations
Jump To
Cite 1 - [2008] QSC 205
Cite 2 - [2008] QSC 205
Mudri v Queensland Building and Construction Commission [2014] QCAT 222
2 citations
Jump To
Cite 1 - [2014] QCAT 222
Cite 2 - [2014] QCAT 222
Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd[2012] 1 Qd R 525; [2011] QCA 22
3 citations
Jump To
Cite 1 - [2011] QCA 22
Cite 2 - [2011] QCA 22
Cite 3 - [2011] QCA 22
Queensland Building and Construction Commission v Mudri [2015] QCATA 78
2 citations
Jump To
Cite 1 - [2015] QCATA 78
Cite 2 - [2015] QCATA 78
Unifor Australia Pty Ltd v Katrd Pty Ltd [2012] QSC 252
2 citations
Jump To
Cite 1 - [2012] QSC 252
Cite 2 - [2012] QSC 252
Younan v Queensland Building Services Authority [2010] QDC 158
3 citations
Jump To
Cite 1 - [2010] QDC 158
Cite 2 - [2010] QDC 158
Cite 3 - [2010] QDC 158

Cases Citing

Case NameFull CitationFrequency
Queensland Building and Construction Commission v Mudri [2016] QCATA 1834 citations
1

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