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Alafaci v Queensland Building and Construction Commission[2015] QCATA 23

Alafaci v Queensland Building and Construction Commission[2015] QCATA 23

CITATION:

Alafaci v Queensland Building and Construction Commission [2015] QCATA 23

PARTIES:

Anthony Alafaci

(Applicant/Appellant)

v

Queensland Building and Construction Commission

(Respondent)

APPLICATION NUMBER:

APL469-13

MATTER TYPE:

Appeals

HEARING DATE:

31 October 2014

HEARD AT:

Brisbane

DECISION OF:

Senior Member O'Callaghan

Member Lumb

DELIVERED ON:

11 February 2015

DELIVERED AT:

Brisbane

ORDERS MADE:

  1. Leave to appeal is granted.
  2. The appeal is dismissed.
  3. The Applicant is ordered to pay to the Respondent costs fixed in the sum of $12,571.30 in respect of the orders numbered 8 and 9 of the orders of the Appeal Tribunal dated 27 March 2014.
  4. The Applicant is ordered to pay to the Respondent costs fixed in the sum of $2,697.15 in respect of order number 3 of the orders of the Appeal Tribunal dated 2 September 2014.
  5. Each party shall file and serve, within 14 days of the date of these orders, submissions in relation to the costs of the Application for leave to appeal and the Appeal.

CATCHWORDS:

APPEAL – LEAVE TO APPEAL – adequacy of reasons – question of law – professions and trades – builders – licenses and registration – relevant company event – refusal to categorise applicant as ‘permitted individual’ – interpretation of statutes – meaning of ‘provision’

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

Queensland Civil and Administrative Tribunal Act 2009 (Qld) s 142, s 146, s 147

Attorney-General v Kehoe [2001] 2 Qd R 350

Commissioner for Children and Young People and Child Guardian v FGC [2011] QCATA 291

Jimenez v Sternlight Investments t/a LJ Hooker Alexandra Hills [2010] QCATA 29

Queensland Building and Construction Commission v Vadasz [2014] QCATA 001

Underwood v Queensland Department of Communities (State of Queensland) [2013] 1 Qd R 252

Younan v Queensland Building Services Authority [2010] QDC 158

REPRESENTATIVES:

 

APPLICANT:

Anthony Alafaci represented by Ms C C Heyworth-Smith of Counsel instructed by Keystone Lawyers

RESPONDENT:

Queensland Building and Construction Commission represented by Ms S Moody of Counsel instructed by Ms J Stroud, Lawyer (in-house)

REASONS FOR DECISION

Senior Member O'Callaghan

  1. [1]
    In this matter the Appeal Tribunal consisted of Member Lumb and me. I have had the benefit of reading his reasons in draft. I agree with his reasons, and his conclusions, and the orders he proposes.

Member Lumb

The Application

  1. [2]
    The Applicant seeks leave to appeal, pursuant to s 142 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (‘the QCAT Act’), a decision of the Tribunal dated 19 September 2013 (‘the Decision’).
  2. [3]
    The Tribunal Member below (‘the Member’) reviewed, pursuant to s 86 and s 87 of the Queensland Building Services Authority Act 1991 (Qld) (now the Queensland Building and Construction Commission Act 1991) (‘the QBCC Act’), the following decisions of the Respondent, the Queensland Building and Construction Commission (then the Queensland Building Service Authority) (‘the Commission’):
    1. a)
      the decision (made on 16 April 2012) to refuse to categorise the Applicant as a ‘permitted individual’ in relation to a company Mars West Pty Ltd (‘Mars West’) (the relevant company event being the appointment of an administrator to that company on 21 September 2011);
    2. b)
      the decision (made on 16 April 2012) to refuse to categorise the Applicant as a ‘permitted individual’ in relation to a company Planet Plumbing (Vic) Pty Ltd (‘PPV’) (the relevant company event being the appointment of an administrator to that company on 22 November 2011);
    3. c)
      the decision (made on 16 April 2002) to refuse to categorise the Applicant as a ‘permitted individual’ in relation to a company Planet Plumbing (NSW) Pty Ltd (‘PPNSW’).
  3. [4]
    By the Decision, the Member:
    1. a)
      confirmed the Commission’s decision in respect of Mars West;
    2. b)
      confirmed the Commission’s decision in respect of PPV;
    3. c)
      set aside the Commission’s decision in respect of PPNSW and decided that the Applicant be characterised as a permitted individual pursuant to s 56AD of the QBCC Act, in relation to the insolvency of PPNSW.
  4. [5]
    The Applicant seeks to challenge the first two orders concerning Mars West and PPV respectively.

Preliminary matters

  1. [6]
    First, the Applicant sought leave to amend his Application in accordance with an amended Application for Leave to Appeal and Appeal. This application was not opposed by the Respondent and the Tribunal granted leave to amend at the hearing of the Application.
  2. [7]
    Secondly, the Applicant sought leave to adduce further evidence. This was opposed by the Respondent. This issue is addressed below.
  3. [8]
    Thirdly, at the hearing of the Application, the Appeal Tribunal determined that the application for leave to appeal would be considered in conjunction with a consideration of the merits of the arguments raised by the Applicant in support of the appeal.

Background

  1. [9]
    Under s 56AC of the QBCC Act, an individual is deemed to be an ‘excluded individual’ for, inter alia, a ‘relevant company event’ upon the happening of certain events.
  2. [10]
    There is no dispute that the Applicant was:
    1. a)
      an individual for the purposes of s 56AC;
    2. b)
      an ‘excluded individual’ in respect of Mars West and PPV.
  3. [11]
    If an individual has been advised by the Commission, or has otherwise been made aware, that the Commission considers the individual to be an ‘excluded individual’ for a relevant event, the individual may apply to the Commission to be characterised as a ‘permitted individual’ for the relevant event.[1] If an individual is categorised as a permitted individual for a relevant event, the individual is taken not to be an excluded individual for the relevant event.[2]
  4. [12]
    The Commission may categorise the individual as a permitted individual for the relevant event only if the Commission is satisfied that, on the basis of the application, the individual took ‘all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event’.[3] In deciding that question, the Commission must have regard to action taken by the individual in relation to six specified matters set out in s 56AD(8A). Those matters are not the sole criteria for deciding the question; the Commission may also have regard to ‘other matters’.[4]
  5. [13]
    The six matters specified in s 56AD(8A) are:
  1. (a)
    keeping proper books of account and financial records;
  1. (b)
    seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business;
  1. (c)
    reporting fraud or theft to the police;
  1. (d)
    ensuring guarantees provided are covered by sufficient assets to cover the liability under the guarantees;
  1. (e)
    putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts;
  1. (f)
    making appropriate provision for Commonwealth and State taxation debts.
  1. [14]
    The Commission refused to categorise the Applicant as a permitted individual in respect of Mars West and PPV and the Tribunal confirmed those decisions on review.

Application for leave to appeal or appeal

  1. [15]
    The Applicant raises three grounds of appeal, namely that:
    1. a)
      the Member erred in failing to give ‘sufficient’ reasons for the Decision;
    2. b)
      the Member erred in failing to consider evidence or, alternatively, erred in making findings of fact not open on the evidence, in relation to various findings made by the Member;
    3. c)
      the Member erred in failing to apply the correct test pursuant to ss 56AD(8), (8A) and (8B) of the QBCC Act.
  2. [16]
    The Application was premised on the basis that leave to appeal was required in relation to all three grounds. Section 142(3)(b) provides that an appeal under subsection (1) (against a decision of the Tribunal in a proceeding where a judicial member does not constitute the Tribunal) on a question of fact or a question of mixed law and fact may only be made if the party has obtained the Appeal Tribunal’s leave to appeal. Ground 2 raises, variously, questions of fact or questions of mixed law and fact and leave to appeal is required. Ground 3 was framed in terms which arguably raise a question of law; however, the particulars contained in paragraphs 3(i) and (ii) make it evident that the ground of appeal involved questions of mixed law and fact. Ground 1 involves the sufficiency (or adequacy) of the Reasons. Does this raise a question of law only or a mixed question of law and fact?
  3. [17]
    In Jimenez v Sternlight Investments t/a LJ Hooker Alexandra Hills,[5] Justice Alan Wilson, President said that:[6]

A failure to give full reasons does not necessarily amount to an error of law; the nature and extent of the obligation will vary according to the nature of the case.

  1. [18]
    His Honour cited, inter alia, Attorney-General v Kehoe[7] in which the Queensland Court of Appeal said:[8]

A failure to give reasons does not ipso facto amount to an error of law, and the occasions when a Court of Appeal will identify such a failure as an error of law will vary according to the nature of the case. Generally speaking, an error of law is discerned when the Court draws the inference that the relevant tribunal has failed in some respect to exercise its powers according to law. A lack of transparency, or obfuscation of the true basis of a decision may make it easier for a court to identify such an error.

  1. [19]
    There is a further issue as to whether there is a relevant distinction, for present purposes, between an error of law in the Decision and a ‘question of law’ for the purposes of determining whether leave to appeal is necessary. An error of law will necessarily involve a question of law. The question is whether or not the converse applies.[9] It is unnecessary to determine this issue because, for the reasons explained below, the Member failed to provide adequate reasons and the nature and extent of the inadequacy of the reasons involved an error of law (and, necessarily, a question of law in respect to which the Applicant did not require leave to appeal). The Applicant does not require leave to appeal in relation to Ground 1. Even if the question could have been classified as one of mixed law and fact, I would have been minded to grant leave to appeal in relation to Ground 1 given that the importance of the subject matter in respect of which adequate reasons were not provided.
  2. [20]
    The Applicant’s complaints in relation to the inadequacy of the Reasons overlap a number of the matters complained of in support of Ground 2. Given the interrelationship between inadequacy of the Reasons and the matters the subject of Ground 2, I consider that leave to appeal is warranted in relation to Ground 2. The grant of leave is fortified by the need to address the Applicant’s submissions in relation to the meaning of the term ‘provision’ in s 56AD(8A)(f) of the QBCC Act. These submissions are of sufficient weight and importance to warrant the grant of leave in that context. For these reasons, leave to appeal is granted in relation to Ground 2.[10] The sufficiency or adequacy of the Reasons will be considered in conjunction with a consideration of the various complaints comprising Ground 2. Given the range of complaints made in support of Ground 2, coupled with the fact that Ground 3 raises an issue with Reasons [16] which paragraph is also the subject of attack in relation to Ground 2, I also consider leave to appeal should be granted in relation to Ground 3.
  3. [21]
    In relation to Ground 1, the Appeal Tribunal may exercise the powers set out in s 146 of the QCAT Act. Having granted leave to appeal in respect of Grounds 2 and 3, s 147 comes into play. Subsection 147(2) provides that in appeals against a decision on a question of fact or a question of mixed law and fact, the appeal must be decided by way of rehearing. While the QCAT Act draws a clear distinction between the powers of the Appeal Tribunal pursuant to s 146 (appeal on a question of law only) and s 147 (appeal on a question of fact or mixed law and fact), it has been said that this distinction will lose significance in cases involving both a question of law and also a question of fact or mixed law and fact where leave to appeal is granted.[11]
  4. [22]
    Before considering the merits of the appeal, the application to adduce further evidence will be addressed.

Application to adduce further evidence

  1. [23]
    The Applicant sought to adduce further evidence on the hearing of the application by way of two affidavits; the first sworn by Jolyon Dare and the second sworn by Lou Stojanovski.
  2. [24]
    In Underwood v Queensland Department of Communities (State of Queensland)[12] it was said by Muir JA (Dalton J agreeing):[13]

[38] The Appeal Tribunal, in deciding whether to receive the applicant’s further evidence, applied part of the definition of ‘reopening ground’ in s 137 of the QCAT Act. Under that section and s 138 a party is given a right to apply to QCAT for a proceeding to be reopened if a ‘reopening ground exists’. A reopening ground relevantly exists where:

‘… the party would suffer a substantial injustice if the proceeding was not reopened because significant new evidence has arisen and that evidence was not reasonably available when the proceeding was first heard and decided’.

[39] Under s 139, where a reopening ground exists and where that ground could be ‘effectively or conveniently dealt with by reopening the proceeding’ the Tribunal may grant the application to reopen. Sections 136 to 141 inclusive, however, do not apply to appeals. Section 143 of the QCAT Act which provides for applications for leave to appeal is silent as to the Appeal Tribunal’s ability to receive additional evidence. Section 147, which relates to appeals to the Appeal Tribunal on a question of fact or on a question of mixed fact and law, provides that ‘The appeal must be decided by way of rehearing, with or without the hearing of additional evidence as decided by the appeal tribunal’. The test contained in the definition ‘reopening ground’ in s 137, as a general proposition, is a useful enough guide for the Appeal Tribunal to apply on application for leave, but it would not be correct in law for the Tribunal to fetter its discretion by rigidly applying a test which expressly applies to proceedings at first instance but not to appeals.’ (underlining added)

  1. [25]
    The Tribunal’s power to allow fresh evidence on appeal is not a mechanism by which parties can repair the holes in their original case.[14]
  2. [26]
    For the reasons that follow, leave to adduce the further evidence should be refused.

Affidavit of Mr Dare

  1. [27]
    Mr Dare is a Chartered Accountant. Mr Dare’s evidence was sought to be adduced on the basis that it was expert evidence in relation to the practice of tax accountants (and, by extension, companies) with respect to the making of provision for tax;[15] and that it was relevant to the question of what ‘provision’ means in s 56AD(8A)(f) of the QBCC Act.[16] Mr Dare’s evidence referred to the Australian Accounting Standard AASB 137 and to the Australian business and accounting context.
  2. [28]
    Leave to adduce this further evidence should be refused because:
    1. a)
      it is evidence that could have been obtained with reasonable diligence for use at the hearing before the Member;
    2. b)
      the evidence is irrelevant to a determination of the meaning of the term ‘provision’ in s 56AD(8A)(f) of the QBCC Act; and
    3. c)
      in light of my determination of the meaning of the term ‘provision’ as discussed below, there is no likelihood that the result of the proceeding below would have been different if the evidence had been adduced.

Affidavit of Mr Stojanovski

  1. [29]
    The evidence of Mr Stojanovski related to the deed of company arrangement in relation to PPV and to the subsequent ceasing of that administration.
  2. [30]
    This evidence was submitted to be relevant to the question of the Appeal Tribunal’s discretion in the event that the Tribunal were otherwise satisfied that the Applicant had satisfied the requirements of s 56AD of the QBCC Act.[17]
  3. [31]
    For the reasons set out below, the question of the exercise of any discretion does not arise and the evidence is of no relevance.
  4. [32]
    I will now consider the grounds of appeal in relation to Mars West and PPV respectively.

Mars West

  1. [33]
    By the first ground of appeal, the Applicant challenges the sufficiency of paragraphs 14 to 18 and 21 to 27 respectively of the Reasons. The second ground of appeal challenges various findings at paragraphs 15, 16, 17, 24, 25, 27 and 31 of the Reasons (in relation to Mars West).
  2. [34]
    With respect to the alleged failure to give sufficient reasons, paragraphs 14 to 18 inclusive concern the consideration by the Member of whether the Applicant sought appropriate financial or legal advice before entering into financial or business arrangements or conducting business.[18] Paragraphs 21 to 27 concern whether the Applicant put in place appropriate credit management arrangements and took reasonable steps for recovery of the amounts.[19]
  3. [35]
    In order to assess the adequacy or otherwise of the Reasons, it is necessary to analyse the elements of s 56AD(8) because they provide the framework in respect of which the Reasons should be considered.
  4. [36]
    In Younan v Queensland Building Services Authority[20] McGill DCJ said:[21]

…The test in s 56AD(8) requires first, the identification of the relevant event; second, the identification of the circumstances that resulted in the happening of the relevant event; third, a consideration of whether the relevant individual took all reasonable steps to avoid those circumstances coming into existence; and, if satisfied of that, fourth, a decision whether to categorise the individual as a permitted individual. What were reasonable steps depended on what was reasonable for the individual concerned in the circumstances in which he found himself, with such information as he then had. It is not a question of whether he did everything possible to prevent these circumstances from arising, or whether they would not have arisen if he had acted differently. The reasonableness of his behaviour must be assessed by reference to what was known by him at the time, without the benefit of hindsight.

  1. [37]
    McGill DCJ also said:[22]

Further, subsection (8) authorises the characterisation of an individual as a permitted individual only if the authority is satisfied of the relevant matter on the basis of the application, that is to say on the basis of the case made by the applicant. It follows that if relevant considerations are not addressed by the applicant, so that the applicant fails to show in a relevant respect that he took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event, then the application will fail.

  1. [38]
    On the hearing of an appeal from McGill DCJ’s decision, brought by the Commission (then the Authority), the Queensland Court of Appeal allowed the appeal for the limited purpose of setting aside McGill DCJ’s order remitting the case for rehearing and instead ordered that the respondent be characterised as a permitted individual for the relevant event. On my reading of the reasons of the Court of Appeal, no issue was taken with the general approach adopted by McGill DCJ. However, it was noted by Fraser JA, with whom McMurdo P and Cullinane J agreed, that if the Commission was satisfied that the respondent had taken all reasonable steps to avoid the coming into existence of the circumstances that resulted in the relevant event, a question might arise as to whether the Authority was obliged or merely empowered to categorise the respondent as a ‘permitted individual’ (although His Honour stated that the question was not in issue on the appeal).[23] In my view, this observation is material to the fourth element identified by McGill DCJ in Younan (see paragraph [36] above) and leaves open the question of whether there is a residual discretion in the Commission as to whether an applicant should be characterised as a ‘permitted individual’ in the event that the first three elements are satisfied. Neither party has raised this issue on the Application and, in those circumstances, we are content to proceed on the basis that all four elements of s 56AD(8) as set out by McGill DCJ are the applicable elements.
  2. [39]
    In the present case, there was no dispute as to the first element, the relevant event involved the appointment of an administrator to Mars West.
  3. [40]
    The second element requires the identification of the circumstances that resulted in the happening of the relevant event, in this case the appointment of the Administrator. It appears to be common ground that the Administrator was appointed as a result of the insolvency of Mars West. The Member recorded the respective position of the parties in relation to the cause of, or reasons for, such insolvency. With respect to Mars West, the Member noted that the Applicant’s contention was that $1,357,127.00 was owing to creditors by Mars West, that he first became aware of the cause of the insolvency in July 2011 and that the ‘main cause’ was the inability of Mars West to recover moneys owing under two contracts.[24] The Member then referred to the Administrator’s report to creditors which cited the reasons for the insolvency as rejection of an adjudication claim, insufficient work, a lack of working capital and poor strategic management of the business.[25] On my reading of the Reasons, the Member did not make a specific concluded finding as to the particular circumstances that resulted in the insolvency of Mars West and, in turn, the appointment of the Administrator (although later in the Reasons the Member said that the inability to recover amounts owing was a ‘significant cause’ of the insolvency).[26]
  4. [41]
    The third element (whether the relevant individual took all reasonable steps to avoid the relevant circumstances coming into existence) is necessarily tied in with the identification of the relevant circumstances.
  5. [42]
    In relation to the third element, at Reason [32], the Member states ‘I am not satisfied that [the Applicant] took all reasonable steps’. This statement appears under the heading ‘Making appropriate provision for Commonwealth and State taxation debts’. However, the following sentence states ‘Therefore it is not necessary to consider whether the discretion ought to be exercised to characterise [the Applicant] as a permitted individual’. Paragraph [33] of the Reasons refers to the Commission’s decision being confirmed. It seems more probable than not that the Member was referring to a failure to take all reasonable steps by reference not only to findings made under that heading but also under the earlier headings. However, there is no identification of the particular matters that the Member was referring to. The Member’s broad reference to not being satisfied that the Applicant took all reasonable steps is brought into sharp focus when regard is had to some of the findings below. For example, at Reasons [13] the Member considered certain evidence of the Applicant in relation to the first of the matters identified in s 56AD(8A) of the QBCC Act. The evidence relates to the employment of a chief financial officer and a number of accounting staff in relation to keeping proper books and financial records and the Applicant’s review of the reports. The evidence referred to by the Member does not, in my view, suggest a failure to keep proper books of account and financial records. If anything, the finding tends to suggest that proper books of account and financial records were kept. The Reasons render uncertain the issue of whether the finding that the Applicant did not take all reasonable steps was intended to encompass the findings at Reasons [13]. A similar observation may be made in relation to the findings at Reasons [18].
  6. [43]
    With respect to the question of the adequacy of reasons, it was said by Justice Alan Wilson, President and Julie Ford, Member that:

The QCAT Act requires the Tribunal to give reasons for its final decision. Those reasons need not be lengthy or elaborate, but they must contain three essential elements: appropriate and sufficient reference to the relevant evidence; the material findings of fact that were made (and the reasons for making those findings); and, the applicable law and the reasons for applying it in the way expressed in the decision. It has also been said, in Queensland, that the crucial requirement is for the Tribunal to give reasons which disclose what has been taken into account in a way that means that any error is revealed.[27] (footnote omitted)

  1. [44]
    In my view, the Reasons failed to adequately identify the circumstances that resulted in the insolvency of Mars West (and the consequential appointment of the Administrator) and also failed to identify each particular matter founding the Member’s conclusion that the Applicant had failed to establish that reasonable steps had been taken to avoid those particular circumstances. These matters were critical to the resolution of the issues for determination by the Member. In my respectful view, the Reasons do not adequately disclose what was taken into account by the Member in a way that enables any error to be revealed; the true basis of the decision has been obscured.
  2. [45]
    The Respondent submitted that the findings made by the Member below were adequate but made an alternative argument that if the Appeal Tribunal should conclude that they were insufficient, the facts were ‘clear’ and that the Tribunal was well placed to come to the same conclusions substituting its own decision and reasons (citing Brown and Anor v Noosa Constructions Pty Ltd).[28]

What were the matters giving rise to the insolvency of Mars West (and the appointment of the Administrator)?

  1. [46]
    The Administrator prepared a second report to creditors dated 19 October 2011 (‘the Mars West report’).[29] The Mars West Report noted that the estimated realisable value of the assets of Mars West was $21,970.00 and the total liabilities were $1,389,390.00 (resulting in a net deficiency of $1,367,420.00). The amount owed to unsecured creditors totalled $1,359,095.00. That amount comprised an amount owing to the Australian Taxation Office of $1,011,056.00; $109,115.00 to DLA Phillips Fox; $75,950.00 to AAPG Pty Ltd; with the balance owing to a variety of creditors. The Report also noted that the net asset position of Mars West had been positive until recent months and the turnaround appeared to be due to, first, the extinguishment of inter-company loans totalling approximately $1 million; secondly, increasing debtor write-offs; and thirdly, rejection and non-payment of progress claims in excess of $900,000.00.[30]
  2. [47]
    From a balance sheet perspective, Mars West was plainly insolvent, its liabilities far exceeded the meagre amount of assets. It is also clear that after April 2011 it had little or no cash flow in order to meet its financial obligations. The evidence of the Applicant was that Mars West had ceased trading in Western Australia as early as April 2011[31] and had started slowing down trading in October 2010.[32] As noted later in these reasons, Mars West settled its claim for variations against John Holland under one contract between them in April 2011. The only apparent potential source of revenue from the business of Mars West from that time onwards was any money that could have been recovered against John Holland under another contract between them.
  3. [48]
    For the reasons set out below, I consider that the relevant circumstances that led to the insolvency of Mars West were, first, the amount of the outstanding liabilities of Mars West, in particular, the taxation liability to the Australian Taxation Office (‘the ATO’) of approximately $1 million; secondly, the write-off by Mars West of approximately $1 million in ‘inter-company’ loans; thirdly, advancing moneys totalling $205,000.00 by way of loans to PPV in May and June 2011; fourthly, failing to recover approximately $900,000.00 from John Holland under a contract for the construction of hydraulic and plumbing works for the New Performing Arts Venue in Perth (‘the NPA contract’);[33] and fifthly, settling, for a reduced amount, a claim for variations under a further contract with John Holland for the construction of plumbing and hydraulic works at the RAAF Base Pearce (‘the RAAF contract’).[34]

Did the Applicant take all reasonable steps to avoid the coming into existence of those circumstances?

  1. [49]
    As McGill DCJ observed in Younan, the test enacted is perfectly clear, though its application may be a difficult and complex process.[35]

The Mars West tax liability and whether appropriate provision was made

  1. [50]
    The tax liability to the ATO was slightly in excess of $1 million. In my view, this was a significant contributing factor to the insolvency of Mars West.
  2. [51]
    The Member said:[36]

I am not satisfied that [the Applicant] made appropriate provision for tax.

Making proper provision for tax requires more than recognising the liability in the balance sheet, it requires active steps to ensure that the tax is paid when due.

  1. [52]
    The Member earlier said:[37]

[The Applicant] gave evidence that:

  1. (a)
    the tax liabilities were provisioned in the balance sheet;
  1. (b)
    various payment arrangements were entered into with the ATO but before that Mars West was not paying its tax as and when it fell due;
  1. (c)
    to an extent Mars West was using monies owing to the ATO as working capital; and
  1. (d)
    when he received a Director’s Penalty Notice he sought advice and entered into a payment arrangement.
  1. [53]
    The Applicant does not challenge the findings by the Member at Reasons [30] but does challenge the finding at Reasons [31].
  2. [54]
    As the Appeal Tribunal apprehends the Applicant’s submissions made by his Counsel at the hearing, the primary argument in relation to this finding is that the Member did not apply the correct test as to whether appropriate provision had been made. Counsel submitted that if a proper entry is made in a balance sheet (that is, one that is not a ‘false entry’ or ‘fraudulent’) for a tax debt or a potential tax liability, that is an appropriate provision for the purposes of s 56AD(8A)(f).[38] Alternatively, it was submitted that, as a matter of fact, all reasonable steps were taken to satisfy that provision.[39] Such reasonable steps comprised, it was submitted, the making of an entry in the balance sheet for taxation liabilities and the making of a payment arrangement with the ATO.
  3. [55]
    Counsel for the Respondent submitted that appropriate provision for tax requires something more than a journal entry; it requires doing active things to achieve compliance with income tax obligations.[40]
  4. [56]
    The term ‘provision’ is not defined in the QBCC Act. Dictionary definitions of the term ‘provision’ include the following:

3. arrangement or preparation beforehand, as for the doing of something, the meeting of needs, the supplying of means, etc. something provided; a measure or other means for meeting a need.[41]

2 The action or an act of providing something; the fact or condition of being provided. Freq. in make provision, make prior arrangement or preparation (for), supply necessary resources (for).[42]

  1. [57]
    In my view, the dictionary meanings are apposite to construing the term ‘provision’ in s 56AD(8A)(f). The term is not a term of art. The making of ‘provision’ within the meaning of subsection (f) requires the making of arrangements to supply the means for meeting taxation debts. An entry in a balance sheet may constitute the making of appropriate provision in a situation where, for example, a company has a long and stable cash flow history, no overdue taxation debts and an existing pipeline of work likely to generate cash flow sufficient to meet all anticipated taxation liabilities allocated in the books of the company. However, the mere making of an allowance in a balance sheet for such liabilities will not necessarily constitute the making of appropriate provision. The making of appropriate provision is not a static event; as taxation debts become due and payable and fresh taxation liabilities arise, the adequacy of any existing provision for taxation debts and liabilities needs to be addressed. A company facing difficult trading conditions may, in order to make appropriate provision for taxation debts, be required to set aside a fund or, at least, make arrangements for finance to meet taxation liabilities as they fall due.
  2. [58]
    In Queensland Building and Construction Commission v Vadasz[43] Senior Member Oliver said:[44]

… Although a reference to ‘provision’ does not necessarily mean actual payment of any tax liability, it should nevertheless be given its ordinary meaning. This would mean that there should be an existing fund or mechanism in place to ensure that payment of any tax liability could be made when required. To this extent, I agree and adopt what was said in Hyndman v Queensland Building Services Authority:[45]

That some form of priority being given tax debts by an entity, whether that be by setting aside a fund or an appropriate amount in cash flow arrangement, which will enable the settling of Commonwealth and State taxes when same fall due.

  1. [59]
    I construe the statement that there should be ‘an existing fund or mechanism in place to ensure that payment of any tax liability could be made when required’ as providing a practical example of where appropriate provision may be made. This would be consistent with the subsequent statements of Senior Member Oliver in Vadasz in relation to the making of a payment arrangement with the ATO:

[33] Provision within the meaning of the section would also include the entering into an arrangement with the relevant taxation authority to pay outstanding tax by instalments in circumstances where the cash flow of a business has been interrupted as a result of events outside the control of the business. Those events might include, as was the case here, the failure of a debtor to pay money due for work done or an unpredictable event such as the global financial crisis. They could also include the insolvency of debtor/s, illness of a key person or failure of plant and equipment. These examples are obviously not meant to be exhaustive.

[34] Where such an arrangement has been entered into, it would also be reasonable to have regard to the payment plan to ensure that it is reasonable and achievable having regard to the past performance of the business and reasonable future cash flow projections in the particular circumstances of the business. There would be an evidentiary onus on the applicant, in these circumstances, to satisfy the decision maker of these matters.

  1. [60]
    In the present case, the question that arises is whether appropriate arrangements were made to supply the means for meeting the taxation debts of Mars West.
  2. [61]
    In cross-examination, the Applicant stated that on 10 October (seemingly a reference to 2010):

[w]e got to a point where we owed the ATO $1.4 million expecting to be paid all this money from John Holland. We entered into a payment arrangement with them and we were paying that payment arrangement. On – around – on or about June 2011, John Holland, out of the $3 million that they owed us at the RAAF Base Pearce, they paid a million dollars. The first thing we did was went and paid the ATO almost $1 million. I think we paid them about 800,000 to be exact, and that reduced our loan balance …[46]

  1. [62]
    It appears that no evidence in relation to the payment arrangement referred to in that passage was put before the Member.[47] That is a notable omission in light of the evidential burden that was placed on the Applicant.
  2. [63]
    Further, as referred to above, Mars West commenced slowing down trading in October 2010 and ceased trading in April 2011.
  3. [64]
    An amount of (at least) approximately $1.32 million was owing by Mars West to the ATO by February 2011.[48]
  4. [65]
    Subsequent to the payment to the ATO of approximately $800,000.00 from the proceeds of the NPA contract settlement, it appears that the liability to the ATO increased to approximately $1 million at the time of the appointment of the Administrator.
  5. [66]
    Further payment arrangements were entered into in August 2011. Annexure ‘I’ to the first affidavit of the Applicant indicates that on 17 August 2011 two separate payment arrangements were entered into with ATO. The first required a payment of $20,000.00 per month from August 2011 to March 2015 with the final payment of $12,568.31 being due on 30 March 2015. The second required a payment of $10,000 per month from August 2011 to February 2012, with the final payment of $2,507.88 being due on 29 March 2012. It seems clear that as at the date of those payment arrangements, Mars West had no capacity to meet such repayments into the foreseeable future. It had ceased trading, it had compromised the variations claim in respect of the RAAF contract and it had been unsuccessful in the adjudication claim brought in respect of the NPA contract.
  6. [67]
    When cross-examined about the making of provision for tax liabilities, the Applicant’s illuminating response was:

And what happens when you don’t get – say if you do that, what happens when you don’t get paid? So if that was the case, we’d be going broke every five minutes, because at the end of the day, if your [sic] provisioning to pay your ATO debt and then you have to pay wages you have no money to pay wages, what do you do? How do you pay wages? You just fold up and say, oh, I’ll pay the ATO and I am not going to pay our wages. That becomes a preferential payment. You can’t do that.[49]

  1. [68]
    I consider that, having regard to the matters discussed above, the recognising of the taxation liabilities of Mars West in its balance sheet (or other financial statements) did not constitute the taking of reasonable steps to make appropriate provision for the taxation debts and liabilities of Mars West and there is no basis for interfering with the Member’s conclusion that appropriate provision was not made.
  2. [69]
    The issue of whether appropriate provision was made for taxation debts was one of the mandatory considerations that the Member was required to take into account in the circumstances of the present case.[50]

The loan write-offs

  1. [70]
    The Member said:[51]

The Administrator noted that inter-company loans of approximately $1 million had been written off. There is little evidence before the Tribunal in relation to this decision(s). I am not satisfied that such a write off was reasonable in the circumstances in which Mars West found itself. (footnote omitted)

  1. [71]
    The Member also noted that the Applicant conceded that he regarded the business as one enterprise and moved money between entities by way of inter-company loans as necessary.[52] This finding is not challenged by the Applicant.
  2. [72]
    In challenging the Reasons at [27], the Applicant, by his amended application, cites three aspects of the evidence in support of his case.[53] In our view, the first and third aspects of the evidence confirm the findings made by the Member rather than the contrary. The second aspect is not relevant to this particular issue; it concerns moneys not recovered in relation to the respective contracts with John Holland (and minor disputes with other builders). The Applicant’s written submissions do not address this ground.
  3. [73]
    When cross-examined about the inter-company loans, the Applicant said that there were ‘a dozen companies involved’ and that he couldn't remember what the loans were for.[54] The Applicant later said that

… I couldn’t be specific with the loan accounts because there’s a dozen companies that were lending money to each other – whoever had cash available was swinging money around. So, back in the early days, perhaps Mars West had lent money to one of the companies and, you know, there was [sic] always inter-company transactions so that we could pay bills and remain solvent.[55]

  1. [74]
    In my view, the write-off of the inter-company loans had a substantial impact on the solvency of Mars West; the loans totalled approximately $1 million. The Administrator made express reference to this in the context of the turnaround in the net asset position of Mars West in the months leading up to the appointment of the Administrator. However, the Applicant provided no details of the circumstances of the making of the loans let alone the circumstances in which the loans came to be written off.
  2. [75]
    The Member’s findings were made in the context of s 56AD(8A)(e) of the QBCC Act (putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts). As the Member noted, the Applicant regarded the business as one enterprise and moved money between entities by way of inter-company loans as necessary. In my view, the Applicant has failed to demonstrate any error in respect of the findings at Reasons [27]; the Applicant failed to take reasonable steps to avoid the coming into existence of the circumstances concerning the write off of the inter-company loans. The Applicant did not put in place appropriate credit management for amounts owing nor for taking reasonable steps for recovery of the loans the subject of the write-off.

The loans to PPV

  1. [76]
    The Member said:[56]

[The Applicant] also allowed Mars West to loan money to [PPV] in May and June 2011 in circumstances where that company was winding down its business and had no real prospect of repaying the amount owed at a time when Mars West was experiencing its own cash flow difficulties and he had a few months earlier realised that it was going to be difficult to recover amounts claimed from John Hollands [sic]. (footnote omitted)

  1. [77]
    The Member’s findings were made in the context of s 56AD(8A)(e) of the QBCC Act.
  2. [78]
    The undisputed evidence was that Mars West made advances totalling $205,000 to PPV in May and June 2011 (the dates of the advances being 19 May, 24 May, 25 May, 30 May and 29 June).[57]
  3. [79]
    These advances were made by Mars West in the following context:
    1. a)
      Mars West had ceased trading in April 2011;[58]
    2. b)
      on 18 April 2011 Mars West had compromised a claim of, it appears, (approximately) $4,042,000.00 for variations under the RAAF contract for the sum of (approximately) $2,071,000.00;[59]
    3. c)
      Mars West had commenced an adjudication application, disputed by John Holland, in relation to the sum of approximately $900,000.00 said to be owed under the NPA contract.[60]
  4. [80]
    In my view, there are two aspects to the findings made by the Member. First, that Mars West was experiencing its own cash flow difficulties and had a few months earlier realised it was going to be difficult to recover amounts claim from John Holland. Secondly, that the advances were made in circumstances where PPV was winding down its business and had no real prospect of repaying the amount owed.
  5. [81]
    The Applicant relies upon three transcript references in support of its attack on the Reasons.[61] In my view, none of the references to the evidence relates to the first aspect of the Reasons at [25]. The Applicant has failed to demonstrate any error on the part of the Member in relation to the first aspect of those findings. The evidence cited at [79] above provides sufficient if not ample support for the findings made.
  6. [82]
    As to the second aspect of the findings made by the Member, the transcript references relied upon by the Applicant are as follows.
  7. [83]
    The first reference is to T 1-67 lines 15 – 47. This includes a reference to evidence of the Applicant that he could not identify when the money was lent; it was a number of loans over a period of time.[62] How this is said to demonstrate error on the part of the Member is not identified. In my view, it provides no basis for attacking the finding. There is then a reference to evidence that ‘… we wouldn’t have lent the money if it couldn’t pay it back…[63]. This amounts to nothing more than a bald assertion by the Applicant that the money could have been paid back. The Applicant had earlier said in relation to the inter-company payment of bills, ‘When they got money, they lent it back, and it was just a big circle’[64]. The evidence does not demonstrate that PPV had any real prospect of repaying the Mars West loan advances. There was no evidence as to how the ‘big circle’ of money was flowing, in so far as PPV was concerned, at the dates of the advances from Mars West to PPV.
  8. [84]
    The second transcript reference is to T 1-68 lines 19 – 20. This brief evidence was that the loans were not in writing. Again, how this evidence is said to demonstrate error on the part of the Member is not evident. In my view, it provides no basis for interfering with the findings made.
  9. [85]
    The third transcript reference is to T 2-13 lines 21 – 36. The effect of this evidence was that the loan balances had previously been brought back to ‘zero’ and that the amounts borrowed by PPV in May and June 2011 were to be repaid but when the Administrator called that debt in ‘we’ had to place the company into administration. In my view, the fact that loan advances had previously been repaid provides no support for the assertion that there was a real prospect of PPV repaying the advances at the time they were made between 19 May 2011 and 29 June 2011. The last of the advances was made approximately two days before PPV ceased trading.[65]
  10. [86]
    I find that there is no basis for interfering with the factual findings made by the Member at Reasons [25].
  11. [87]
    In my view, the advances of $205,000.00 made to PPV formed part of the overall financial circumstances which gave rise to the insolvency of Mars West and the consequential appointment of an administrator. The advances depleted the cash reserves of Mars West at a time when it could ill afford to spare such moneys.
  12. [88]
    The Applicant also gave evidence that Mars West did not pursue its variations claims against John Holland because of a lack of funds and that it was ‘borderline trading insolvently [sic]’ in June 2011.[66]
  13. [89]
    In my view, the Applicant failed to take reasonable steps to avoid the coming into existence of the circumstances surrounding the making of, and failure to recover, the advances to PPV. In addition to the matter relied upon by the Member,[67] I also consider that the Applicant failed to seek appropriate financial advice in relation to the making of the advances to PPV. In the circumstances that existed, no competent financial adviser would have advised the Applicant that the advancing of the moneys by Mars West to PPV was a prudent step to take; the advancing of the moneys was plainly imprudent.[68]

Failure to recover moneys under the NPA contract

  1. [90]
    The Member said:[69]

Legal advice was sought in 2010 in relation to an adjudication claim in relation to the New Performing Arts Venue contract but it was not sought in a timely manner. The adjudication was substantially unsuccessful because of the delay in bringing the claim and failure to observe contractual time bars.

  1. [91]
    This was said in the context of addressing the second of the matters set out in s 56AD(8A).
  2. [92]
    The Member also said:[70]

Despite being aware that disputes often arise between head contractors and subcontractors in relation to variation and delay claims [the Applicant] did not ensure that proper systems were in place to ensure that contractual notices were given when required by the contracts to maximise the prospects that claims would be successful. Advice as to recovery of amounts owing was not sought in a timely fashion even though from an early time payments were late and only partial payments were received.

  1. [93]
    This was said in the context of addressing the fifth of the matters set out in s 56AD(8A). These observations appear to be made in relation to both the NPA contract and the RAAF contract.
  2. [94]
    The Applicant’s case in relation to the NPA contract was that one of the circumstances that led to the administration of Mars West was John Holland’s non-payment of amounts claimed to be owing under that contract.
  3. [95]
    With respect to the finding in Reasons [15] as to lack of timely advice, the Member does not identify the specific advice referred to nor does she identify how any such advice sought at an earlier time would have constituted a reasonable step to avoid the relevant circumstances in question. The Respondent’s written submissions do not address these matters. There is a submission that the finding about the lack timeliness of the advice was ‘well supported by the evidence’. No reference is made to the evidence in support of this submission. The Member’s finding may be tied in with the second sentence of Reasons [15], namely that the adjudication was substantially unsuccessful because of the delay in bringing the claim and the failure to observe contractual time bars. However, this is unclear. If the finding in the first sentence was discrete from the finding in the second, I consider that there was no reasonable foundation for finding that some specific advice sought at some earlier time would have been a reasonable step to take in relation to the recoverability of the money as claimed under the NPA contract.
  4. [96]
    That leaves for consideration the finding in the second sentence of Reasons [15].
  5. [97]
    As appears from the adjudication decision, the total claim of Mars West in relation to the NPA contract was $1,017,772.15 with the bulk of the claim being a claim for delay costs of $852,104.00 plus GST. This was a significant amount in the context of the solvency of Mars West.
  6. [98]
    On the face of the adjudication decision, the claim in relation to delay costs failed for two reasons. First, the claim was based on clause 46.1 of the General Conditions and the adjudicator found that that provision was not an appropriate basis for the claim, the proper basis for claiming delay costs being provided by clause 36 of the General Conditions. Secondly, the Adjudicator found that this aspect of the application was out of time because the 28 day period under s 26 of the Construction Contracts Act expired on 8 April 2011, prior to the bringing of the application. The correctness or otherwise of those findings was not challenged on the hearing of the Application for leave to appeal. On the basis of the adjudication decision, the adjudication claim could never have succeeded because it was made out of time. In my view, this provides support for the Member’s finding that the adjudication was substantially unsuccessful because of delay in bringing the claim notwithstanding that the adjudicator also found that the legal basis for the claim for delay costs was misconceived.
  7. [99]
    The Member also referred to a failure to observe contractual time bars in Reasons [15]. At Reasons [24] the Member referred to a failure to put proper systems in place to ensure that contractual notices were given when required by the contracts to maximise the prospects that claims would be successful.
  8. [100]
    Some of the evidence of the Applicant supports these findings. During cross-examination, the Applicant referred to another director not putting in ‘notices[71] and subsequently said that extension of time claims had not been put in on time.[72] The Applicant also gave evidence that:

I might also add that this was our very, very first project with John Holland Group, the very, very first one. So to build our rapport, to get the client on board, we obviously did not want to demonstrate from the onset that we were a litigious company, like, issuing notices and running contractuals [sic] from day one. There were a lot of gentlemen agreements as there are on the first job. And as a result, we did do quite a few projects with John Holland.[73]

  1. [101]
    The Applicant’s case below (and at the hearing of the Application)[74] placed much emphasis on the ‘assurances’ received from John Holland that moneys owing under both contracts would be paid.[75] In my view, the necessary effect of that evidence is that because of the assurances made, steps were not taken in relation to contractual requirements (or enforcement) when such steps could otherwise been taken but for the assurances. The evidence in relation to what steps could and would have been taken but for the assurances made is unclear. In so far as the case was presented to the Appeal Tribunal, it does not appear that the late lodgement of the adjudication claim resulted from the assurances said to have been given by John Holland.
  2. [102]
    The Applicant did not seek to demonstrate before the Member or on the hearing of the Application that John Holland was, in fact and in law, liable for the whole amount of the delay claims. During the course of his evidence below, the Applicant appeared to refer to a view that Mars West had ‘50/50’ prospects in respect of the claim under the NPA contract.[76]
  3. [103]
    The Appeal Tribunal will not usually disturb findings of fact on appeal if it considers the conclusions of the decision maker below were able to be made on the evidence before him or her; however, it may interfere if the conclusion is ‘contrary to compelling inferences’ in the case.[77] On the case as presented to the Appeal Tribunal, I am not satisfied that the Applicant has demonstrated any error by the Member in respect of the findings in the second sentence of Reasons [15] and in Reasons [24].
  4. [104]
    On the face of the adjudication decision, the adjudication claim failed (insofar as the delay costs were concerned) because it was lodged out of time and, further, because the delay claim component was made in reliance on the wrong contractual provision.
  5. [105]
    I cannot be satisfied, and am of the view that the Member could not have been satisfied on the evidence presented by the Applicant, that the Applicant took all reasonable steps to avoid the circumstances in which it was unable to recover moneys under the NPA contract. The Applicant failed to discharge his evidential burden in this respect.[78]

The claim for variations under the RAAF contract

  1. [106]
    There was a dispute between Mars West and John Holland in relation to the RAAF contract concerning the non-payment of variations; the variations occurred throughout the life of the contract but the ‘biggest one’ was incurred towards the end; it was for ‘a couple of million dollars’.[79]
  2. [107]
    The Member said:[80]

There was little evidence before the Tribunal in relation to the amount said to be owing under the RAAF Base Pearce contract and the circumstances surrounding Mars West’s rights although a number of documents were tendered during the hearing. [The Applicant] gave some oral evidence about these matters and that due to the financial circumstances Mars West found itself in it accepted a compromise of approximately 50% of what it claimed and amounts received through that compromise were used to pay down creditors including the ATO.

  1. [108]
    This was said in the context of addressing the matters set out in s 56AD(8A)(e). The Applicant does not challenge these findings. They preceded the findings at Reasons [24] which have been referred to above.
  2. [109]
    Having regard to the transcript below, there appears to be some inconsistency in respect of the particular amounts of the variations claimed and the payments made; however, it appears that the final amount of the claimed variations was $4,042,000 and the proposed settlement offer which was accepted by Mars West was in the amount of $2,071,000.[81] This was a substantial discount and necessarily impacted on the financial stability of Mars West.
  3. [110]
    The Applicant gave evidence that ‘we’ considered ‘our’ position commercially and that ‘we’ were under ‘duress’ and had bills to pay.[82]
  4. [111]
    This situation differs from the NPA contract issue in that Mars West elected to enter into a compromise of its claim for variations under the RAAF contract. The focus should be on Mars West’s entry into the compromise agreement and whether the Applicant took all reasonable steps to avoid that circumstance arising.
  5. [112]
    On the Applicant’s case, Mars West found itself in a situation in which it chose to accept a discount of approximately 50% of what it claimed it was owed under the RAAF contract because the Applicant felt under ‘duress’. That this situation arose raises a serious question as to financial management Mars West (regardless of the ‘assurances’ that were said to have been made by representatives of John Holland during the course of the RAAF contract). In my view, it was incumbent upon the Applicant to establish that he took all reasonable steps to avoid the coming into existence of those circumstances. I consider that this would have required an examination of the interrelationship between the non-payment (or late payment) of any variation claims that were payable by John Holland and the financial position of Mars West at the date that the compromise was entered into (and why it was reasonable for Mars West to compromise its claim in the circumstances rather than pursue John Holland for payment). The uncontested finding of the Member was that there were was ‘little evidence’ before the Tribunal in relation to the amount said to be owing under the RAAF contract and the circumstances surrounding Mars West’s rights. I also note that Mars West had the capacity to pay to PPV the loan advances totalling $205,000.00 in May and June 2011.
  6. [113]
    I cannot be satisfied, and am of the view that the Member could not have been satisfied, on the evidence presented by the Applicant that the Applicant took all reasonable steps to avoid the circumstances that Mars West accepted an offer of compromise of the claimed variations under the RAAF contract at a discount of approximately 50%. These circumstances are relevant to the factor relied upon by the Member (s 56AD(8A)(e)) and, in my view, would also be a relevant matter under s 56AD(8B)). In any event, regardless of the compromise of the claims pursuant to the RAAF contract, the Applicant failed to take all reasonable steps to avoid the coming into existence of the other circumstances discussed above.

Other challenges to the findings below

  1. [114]
    In light of the above findings, it is unnecessary to consider the other particular findings of the Member challenged by the Applicant, namely Reasons [16] and [17] (although Reasons [16] will be considered in relation to the third ground of appeal). Even if the Member erred in such respects, that would not alter the outcome of the Appeal.

The third ground of appeal

  1. [115]
    The third ground alleges that the Member erred in failing to apply the correct test pursuant to subsections (8), (8A) and (8B) of s 56AD of the QBCC Act.
  2. [116]
    The Applicant challenges paragraphs [9] and [10] of the Decision and asserts that the Member failed to have regard to three matters. First, the Applicant’s experience in successfully operating plumbing businesses. Leaving aside the fact that this was not the case in relation to Mars West and PPV, the Applicant made no attempt to explain why any such experience was material to the task for the Member on review. Secondly, the Applicant alleges that the Member failed to have regard to the consequences of the decision to declare the Applicant as an ‘excluded individual’ in respect of the business of Planet Plumbing (Qld) Pty Ltd. Again, the Applicant made no attempt to explain why this was a material consideration. A similar observation may be made in respect of the third matter relied upon by the Applicant, namely that the Member failed to have regard to the events concerning the Applicant’s business operations outside Queensland. I reject these grounds as a basis for attacking the Member’s decision.
  3. [117]
    The second basis of challenge in relation to third ground of appeal concerns Reasons [16]. The Applicant asserts that the Member found that the Applicant failed to seek ‘specific’ financial advice whereas the legislation requires consideration of whether the Applicant sought ‘appropriate’ financial advice before entering into business arrangements or conducting business.
  4. [118]
    The Member said:[83]

There is no evidence that [the Applicant] sought specific financial advice relating to:

a) the appropriateness of the assumption in the management accounts of full recovery of variation and other claims not yet formally accepted by John Hollands [sic] and the appropriateness of the assumption in the management accounts of full recovery of variation and other claims where there was no agreement as to the amount of such claims although there was a verbal ‘in principle’ agreement; and

b) the financial reports generated and in particular the monthly margin earned report based upon those assumptions.

  1. [119]
    I consider there is no substance in the complaint about the reference to the word ‘specific’. The Member was addressing the issue of whether appropriate financial advice was sought. It seems sufficiently clear that the Member considered that such advice was advice that would have been appropriate for the Applicant to seek. Seeking ‘specific’ advice is not mutually exclusive to seeking ‘appropriate’ advice. The Applicant has not established that the Member failed to apply the correct test in making the findings at Reasons [16]. In any event, as noted above, the Applicant’s challenge to Reasons [16] (and [17]), if established, would not affect the outcome of the appeal.

Conclusion in relation to Mars West

  1. [120]
    For the reasons set out above, I am of the view that the Member was correct to confirm the decision of the Commission to refuse to categorise the Applicant as a ‘permitted individual’ in relation to the insolvency of Mars West. The Member’s decision is confirmed. The appeal should be dismissed insofar as Mars West is concerned.

PPV

  1. [121]
    The first ground of appeal challenges the sufficiency of the reasons in paragraphs 37 to 43 of the Reasons. The second ground of appeal challenges various findings at paragraphs 37, 38, 39, 43 and 50 of the Reasons (relating to PPV).
  2. [122]
    As to the adequacy of the Reasons, the Member stated, at [51], that she was not satisfied that the Applicant ‘took all reasonable steps’. As was the case in relation to the reasons concerning Mars West, the Member does not tie this conclusion to the particular findings she had earlier made. Again, I consider that this aspect of the Reasons was not adequate. At Reasons [36] the Member referred to evidence of the Applicant that he operated his business through a group of companies and that the group employed a chief financial officer and a number of other accounting staff to keep proper books and financial records. This was referred to in the context of s 56AD(8A)(a). On one view, this evidence supported a conclusion that proper books of account and financial records were kept. I consider that, on any view, it does not support a finding that proper books and records were not kept.
  3. [123]
    At Reasons [34] the Member noted that the Applicant contended that in the order of $322,000.00 was owing to creditors by PPV, that he first became aware of the cause of insolvency in September 2011 and the ‘main cause’ was money owed to Mars West (and that the insolvency of Mars West had a flow on effect to the insolvency of PPV).[84]
  4. [124]
    At Reasons [35] the Member refers to the Administrator’s report which cites the reasons for the insolvency as difficulty in generating new work and decreasing revenues, lack of working capital, poor strategic management of the business and the global financial crisis and general economic conditions. The Member then proceeds to address the elements of s 56AD(8A) without making a specific finding as to the circumstances that the Member considered resulted in the happening of the relevant event being the appointment of the Administrator. However, under the heading ‘Seeking appropriate financial and legal advice before entering into financial or business arrangements or conducting business’ the Member found that ‘a circumstance’ that resulted in the insolvency of PPV was borrowing money from Mars West, the company experiencing cash flow difficulties, where PPV had ‘no or little prospect of repaying the amount borrowed’ and that PPV also had other creditors, including the ATO, which it had no or little prospect of paying.[85]
  5. [125]
    The Administrator prepared a second report to creditors dated 13 December 2011.[86] This Report noted that the total assets amounted to $6,354.00 and the total liabilities $322,759.00 (with a net deficiency of $316,405.00). The unsecured creditors were listed as: Mars West $205,000.00; the ATO $98,874.00, Allianz Workers Compensation (NSW) Ltd $14,885.00; and Fast Flow Australia $4,000.00.
  6. [126]
    In my view, the circumstances that resulted in the insolvency of PPV and, in turn, the appointment of the Administrator were a lack of cash flow and assets to meet the liabilities of PPV which liabilities primarily comprised the taxation liability to the ATO and the loan repayment liability to Mars West (pursuant to a demand for payment by the Administrator of Mars West).
  7. [127]
    The question is whether all reasonable steps were taken to avoid those circumstances.

The ATO liability

  1. [128]
    The Applicant seeks to challenge the following finding of the Member:[87]

I am not satisfied that [the Applicant] made appropriate provision for tax. Making proper provision for tax requires more than recognising the liability in the balance sheet, it requires active steps to ensure that the tax is paid when due.

  1. [129]
    The Applicant did not dispute that the ATO liability was approximately $98,000.00 (as identified by the Administrator).[88]
  2. [130]
    The Applicant also has not sought to challenge the following findings of the Member:[89]

Ms Dennis gave evidence that the debt appears to have arisen from around April/May 2011 and increased from around $3,000 in July 2011 to $98,874 in September 2011.

  1. [131]
    The Member noted that the Applicant gave evidence that tax liabilities were provisioned in the balance sheet and various payment arrangements were entered into with the ATO.[90] The Applicant did not identify the evidence that addressed the payment arrangements with the ATO concerning PPV specifically.
  2. [132]
    The evidence suggests that PPV did not make appropriate provision for its taxation debts or liabilities. PPV had ceased trading on 30 June 2011.[91] As a result, it had no revenue stream from which to meet any such liabilities. An administrator was not appointed to PPV until 22 November 2011.[92] The Administrator’s report indicates that there were very few assets available to meet such liabilities.
  3. [133]
    The Applicant was cross-examined about what was planned for paying the debts of PPV after it ceased trading. The Applicant replied ‘Well, basically we were just going to pay them from the profits of the other entities[93]. There is no evidence detailing any such arrangement that was put in place. The tax obligations were those of PPV.
  4. [134]
    In my view, the evidence fell well short of demonstrating that PPV had made appropriate arrangements to supply the resources for meeting PPV’s taxation debts. There is no basis for interfering with the Member’s conclusion that appropriate provision was not made the payment of the taxation debts of Mars West. The Applicant failed to take all reasonable steps to avoid the circumstances of the outstanding tax liabilities from arising.
  5. [135]
    In my view, this is sufficient to demonstrate that the Applicant failed to satisfy s 56AD(8) of the QBCC Act. However, I will also consider the case in relation to the loan from Mars West.

The loan from Mars West

  1. [136]
    The Member said:[94]

I find that it was not reasonable to allow [PPV] to enter into a loan with Mars West in circumstances where [PPV] was winding down its business due to difficult economic and market conditions and had no real prospect of repaying the amount. In those circumstances [PPV] would be reliant upon Mars West waiving the loan.

  1. [137]
    The Applicant challenges that finding and also the finding that:[95]

There is no evidence that [the Applicant] attempted to negotiate with Mars West’s administrator when the administrator called up the loan.

  1. [138]
    Addressing Reasons [39] first, it is my view that, in the circumstances, it would not have been a reasonable step for the Applicant to take to attempt to negotiate with the administrator of Mars West in relation to the loans to PPV. PPV had no means of meeting the debt to Mars West (or any significant part of it). PPV was, according to the report of the Administrator, insolvent regardless of whether the loan amount was required for repayment by the administrator of Mars West. As the Applicant stated, the company had no money to pay the debt.[96] In my respectful view, any negotiation with the Administrator would appear to have been an exercise in futility in the circumstances.
  2. [139]
    That leaves for consideration the findings at Reason [38]. No evidence was referred to by the Applicant as to the specific use to which the $205,000 advanced by Mars West was put by PPV. The circumstances in which the loan advances were made by Mars West has been considered above. In the context of PPV, the question that arises is whether, as the Member found, it was not reasonable to allow PPV to enter into a loan with Mars West in the circumstances. The Applicant had knowledge of the financial circumstances of both Mars West and PPV by virtue of his involvement in the business activities of both companies.
  3. [140]
    The Applicant, in challenging those findings, relies on the same transcript references as he did in challenging the findings at Reasons [25] in relation to Mars West. While the question in this context is to be viewed from the perspective of PPV rather than Mars West, the matters relied upon by the Applicant do not, in my view, provide any basis for interfering with the findings of the Member for the reasons expressed above.
  4. [141]
    The Applicant did not take all reasonable steps to avoid its liability to Mars West from arising.
  5. [142]
    I also consider that the Applicant failed to seek appropriate financial or legal advice in relation to the incurring of the loan obligations to Mars West. In the circumstances that existed, no competent financial adviser or lawyer would have advised the Applicant that taking advances from a company in a precarious financial situation was a prudent step to take particularly coupled with the circumstances that there was no real prospect that PPV could repay the moneys.[97] I also consider that the circumstances would otherwise fall within the ambit of ‘other matters’ contemplated by s 56AD(8B).

Other grounds of challenge

  1. [143]
    The Member said:[98]

While the insolvency of Mars West factually contributed to the insolvency of Planet Plumbing (VIC) I am not satisfied that the insolvency of Mars West and of Planet Plumbing (VIC) are both consequences flowing from the one set of circumstances. A circumstance that resulted in the insolvency of Planet Plumbing (VIC) was borrowing money from Mars West, a company experiencing cash flow difficulties, where Planet Plumbing (VIC) had no or little prospect of repaying the amount borrowed. Planet Plumbing (VIC) also had other creditors, including the ATO, which it had no or little prospect of paying.

  1. [144]
    Although the Applicant challenges the findings made in Reasons [43], the references to the transcript relied upon in the Application do not provide, in my view, any evidence that would cast doubt on the findings made by the Member. To the contrary, Mars West was plainly experiencing cash flow difficulties at the time the advances were made. The Applicant did not seek to mount a case that PPV had a realistic prospect of repaying the amount borrowed. Further, there is no dispute, as far as I can ascertain from the material, that PPV had other creditors (including the ATO).
  2. [145]
    The Applicant had, before the Member, endeavoured to rely upon s 56AC(6) in relation to PPV. By the amended Application the Applicant contended that the Member erred in finding, at Reasons [43], that the insolvency of PPV was not a consequence flowing from the same set of circumstances as the insolvency of Mars West for the purposes of s 56AC(6) and s 56AD(9) of the QBCC Act.[99] The particular argument put on behalf the Applicant on this particular ground of appeal was not, with respect, entirely clear.[100] The thrust of the submission appears to be that, although s 56AC(6) was not directly relevant to the issue in dispute, the administration of Mars West and the consequential (immediate) requirement to pay back the loan could not be said to result from a failure to take reasonable steps with respect to credit management. I reject that submission for not only for the reasons addressed above but, further, on the basis that the insolvency of PPV was also attributable to the taxation liability owing to the ATO. The Applicant’s submission effectively ignores the significance of the ATO liability in relation to the insolvency of PPV.
  3. [146]
    The Applicant also challenges the findings at Reasons [37] where the Member said:

[The Applicant’s] documentary evidence does not demonstrate that he sought professional advice through the life of [PPV] or when it started experiencing financial difficulties or when the Mars West loan was entered into or called upon.

  1. [147]
    In my view, it is unclear whether the Member was merely noting that no professional advice had been sought in relation to PPV or whether the Member was making a finding that advice was not sought, but should have been sought, in relation to particular matters. If it is the former, there appears to be no basis for challenging such statement. If it is the latter, the Member has failed to identify the advice that should have been sought at a particular point in time and why the failure to seek such advice constituted a failure to take a reasonable step to avoid the particular circumstances in question. However, for the reasons expressed above, the Applicant failed to seek appropriate advice in relation to entering into the Mars West loan. Otherwise, I find that the taking of reasonable steps did not require the seeking of any particular professional advice when the Mars West loan was called upon or in relation to any other particular matter (save, as noted above, in relation to entering into the Mars West loan arrangements).
  2. [148]
    For the reasons set out above in relation to the ATO liability and in relation to entering into the Mars West loan arrangements, I consider that there is no basis for interfering with the Member’s conclusion that the decision to refuse to categorise the Applicant as a ‘permitted individual’ in relation to the insolvency of PPV should be confirmed.

The third ground of appeal

  1. [149]
    This ground concerns both Mars West and PPV. It fails for the reasons expressed in relation to Mars West.

Conclusion in relation to PPV

  1. [150]
    For the reasons set out above, I am of the view that the Member was correct to confirm the decision of the Commission to refuse to categorise the Applicant as a ‘permitted individual’ in relation to the insolvency of PPV. The Member’s decision is confirmed. The appeal should also be dismissed in relation to PPV.

Previous costs orders

  1. [151]
    By its written submissions, the Respondent seeks an order for the following specific amounts of costs in respect to the following orders of the Appeal Tribunal:
    1. a)
      $12,571.30 with respect to order 8 and 9 of the orders dated 27 March 2014;
    2. b)
      $2,697.15 with respect to order 2 and 8 of the orders dated 2 September 2014 (the reference to order number 2 should be to order number 3 and order number 8 refers only to the filing of submissions in relation to costs).
  2. [152]
    The Applicant has not challenged the amounts claimed. Given the Applicant’s position and that the amounts claimed do not, on their face, appear unreasonable, the Appeal Tribunal allows each of those amounts and orders the payment of same by the Applicant.

Costs of the Application and Appeal

  1. [153]
    The Appeal Tribunal will allow the parties 14 days to file written submissions in relation to the question of costs of the Application for leave to appeal and the Appeal.

Orders made

  1. [154]
    The formal orders of the Appeal Tribunal are as follows:
  1. Leave to appeal is granted.
  1. The appeal is dismissed.
  1. The Applicant is ordered to pay to the Respondent costs fixed in the sum of $12,571.30 in respect of the orders numbered 8 and 9 of the orders of the Appeal Tribunal dated 27 March 2014.
  1. The Applicant is ordered to pay to the Respondent costs fixed in the sum of $2,697.15 in respect of the order number 3 of the orders of the Appeal Tribunal dated 2 September 2014.
  1. Each party shall file and serve, within 14 days of these orders, submissions in relation to the costs of the Application for leave to appeal and the Appeal.

Footnotes

[1]  QBCC Act s 56AD(1).

[2]  Ibid s 56AD(9).

[3]  Ibid s 56AD(8).

[4]  Ibid s 56AD(8B).

[5]  [2010] QCATA 29.

[6]  Ibid at [26].

[7]  [2001] 2 Qd R 350.

[8]  Ibid at [23]. Cf Res 1 v Medical Board of Queensland [2008] QCA 152 at [14].

[9]  Cf Civil Aviation Safety Authority v Central Aviation Pty Ltd (2009) 253 QLR 263 at [34] – [35].

[10]  See test for assessing whether leave to appeal should be granted as espoused by Justice Alan Wilson, President in Laing & Anor v Kokkinos & Anor (No 2) [2013] QCATA 249 at [29].

[11]  See Seymour v Racing Queensland Ltd [2013] QCATA 179 at [18] per Horneman-Wren SC DCJ.

[12]  [2013] 1 Qd R 252.

[13]  Ibid, at [38] – [39].

[14] Kerr v Paku and Anor [2011] QCATA 157 at [7], cited with approval in Mannix v Chris Neale Constructions Pty Ltd [2011] QCATA 222 at [9] per Peta Stilgoe, Senior Member, Justice Alan Wilson, President agreeing.

[15]  Application Transcript T 1-7 lines 16 – 19.

[16]  Application Transcript T 1-4 lines 40 – 45.

[17]  Application Transcript T 1-10 lines 35 – 43.

[18]  QBCC Act s 56AD(8A)(b).

[19]  Ibid s 56AD(8A)(e).

[20]  [2010] QDC 158.

[21]  Ibid at [26].

[22]  At [38].

[23]  At [5].

[24]  Reasons at [11].

[25]  Reasons at [12].

[26]  Reasons at [21].

[27] Commissioner for Children and Young People and Child Guardian v FGC [2011] QCATA 291 at [47].

[28]  [2012] QCATA 194 at [27].

[29]  Respondent's Index of Documents at pp 41 ff.

[30]  The Mars West Report at p 47.

[31]  Transcript below T 1-56 lines 24 – 26.

[32]  Transcript below T 1-57 lines 1 – 8.

[33]  First affidavit of the Applicant sworn on 31 December 2012, paragraph 16.

[34]  First affidavit of the Applicant sworn on 31 December 2012, paragraph 16.

[35]  At [35].

[36]  Reasons at [31].

[37]  Ibid at [30].

[38]  Application Transcript T 1-37 lines 32 – 35.

[39]  Application Transcript T 1-37 lines 20 – 24; T 1-39 lines 21 – 33.

[40]  Application Transcript T 1-88 line 35 – T 1-89 line 32.

[41]  Macquarie Dictionary, 5th Edition.

[42]  Shorter Oxford English Dictionary.

[43]  [2014] QCATA 001.

[44]  Ibid, at [32].

[45]  [2009] QCCTB 240.

[46]  Transcript below T 1-51 lines 33-39.

[47]  Transcript below T 1-61 lines 19-23.

[48]  Respondent’s Index of Documents at p 69.

[49]  Transcript below T 1-54 lines 17 – 25.

[50]  QBCC Act s 56AD(8A)(f).

[51]  Reasons at [27].

[52]  Reasons at [26].

[53]  Amended Application, paragraph 2(vii).

[54]  Transcript below T 1-37 lines 3-17.

[55]  Transcript below T 1-61 lines 39-46.

[56]  Reasons at [25].

[57]  Transcript below T 2-13 lines 38-47.

[58]  T 1-56 lines 24-26.

[59]  Transcript below T 2-4 line 38 – T 2-5 line 12. See also Exhibit 9.

[60]  First affidavit of the Applicant, Annexure ‘F’.

[61]  Amended Application, paragraph 2 (vi).

[62]  T 1-67 lines 15-16.

[63]  T 1-67 lines 36-37.

[64]  T 1-67 lines 17 – 20.

[65]  T 1-74 lines 31 – 34.

[66]  T 1-47 lines 36 – 43.

[67]  QBCC Act s 56AD(8A)(e).

[68]  Ibid s 56AD(8A)(b).

[69]  Reasons at [15].

[70]  Reasons at [24].

[71]  T 1-39 line 43 – T 1-40 line 29.

[72]  T 2-7 lines 40 – 47; T 1-38 lines 7 – 11.

[73]  T 2-28 lines 37-43.

[74]  Application Transcript T 1-101 line 43 – T 1-104 line 42.

[75]  T 1-38 line 21 – T 1-39 line 7.

[76]  T 2-28 lines 22 – 29.

[77] Mannix & Anor v Queensland Building Services Authority [2014] QCATA 208 at [29] per Justice Thomas, President, Senior Member O'Callaghan. See also Queensland Building and Construction Commission v Vadasz [2014] QCATA 001 at [18].

[78]  See Younan at [38].

[79]  T 1-41 lines 30 – 34.

[80]  Reasons at [23].

[81]  T 2-4 lines 38 – 45. Contrast T 1-41 lines 36 – 39.

[82]  T 2-4 lines 40 – 45.

[83]  Reasons at [16].

[84]  Reasons below [34].

[85]  Reasons at [43].

[86]  Respondent’s Index of Documents pp 397 ff.

[87]  Reasons at [50].

[88]  Transcript below T 2-13 lines 14 – 21; T 2-16 lines 4 – 5.

[89]  Reasons at [48].

[90]  Reasons [49].

[91]  Transcript below T 1-74 lines 31 – 34.

[92]  Reasons footnote 1.

[93]  Transcript below T 1-74 lines 44 – 46.

[94]  Reasons at [38].

[95]  Reasons at [39].

[96]  T 2-16 lines 14 – 15; see also T 1-68 lines 30 – 31.

[97]  QBCC Act s 56AD(8A)(b).

[98]  Reasons at [43].

[99]  Paragraph 2(xii) of the amended Application. See also paragraph 24 of the Applicant's written submissions.

[100]  See the discourse between the Appeal Tribunal and Counsel for the Applicant at T 1-49 line 1 – T 1-52 line 25.

Close

Editorial Notes

  • Published Case Name:

    Alafaci v Queensland Building and Construction Commission

  • Shortened Case Name:

    Alafaci v Queensland Building and Construction Commission

  • MNC:

    [2015] QCATA 23

  • Court:

    QCATA

  • Judge(s):

    Senior Member O'Callaghan, Member Lumb

  • Date:

    11 Feb 2015

Litigation History

EventCitation or FileDateNotes
Primary JudgmentDecision of the Queensland Building and Construction Commission (No Citation)16 Apr 2012Determination to refuse to categorise the applicant as a permitted individual in relation to the companies Mars West Pty Ltd; Planet Plumbing (Vic) Pty Ltd and Planet Plumbing (NSW) Pty Ltd (with the result that the applicant is an excluded individual).
Primary Judgment[2013] QCAT 49919 Sep 2013Application to have decisions made 16 April 2012 set aside and for the applicant to be characterised as a permitted individual with respect to each event; application granted with respect to company Planet Plumbing (NSW) Pty Ltd; application otherwise dismissed: Member Deane.
Primary Judgment[2015] QCATA 2311 Feb 2015Application for leave to appeal granted; appeal dismissed: Senior Member O'Callaghan and Member Lumb.
Notice of Appeal FiledFile Number: Appeal 2526/1511 Mar 2015-
Appeal Determined (QCA)Appeal 2526/15 (No Citation)17 Aug 2015Application for leave to appeal; application for leave to amend the application for leave to appeal; and application to adduce fresh evidence dismissed: Holmes, Morrison and Philippides JJA.

Appeal Status

Appeal Determined (QCA)

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