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Queensland Building and Construction Commission v Ward[2014] QSC 138

Queensland Building and Construction Commission v Ward[2014] QSC 138

 

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO:

Trial Division

PROCEEDING:

Application for summary judgment

DELIVERED ON:

27 June 2014

DELIVERED AT:

Brisbane 

HEARING DATE:

13 June 2014

JUDGE:

Mullins J

ORDER:

Judgment for the plaintiff against the first and second defendants for payment of the claim of $1,338,388.

CATCHWORDS:

PROFESSIONS AND TRADES – BUILDERS – STATUTORY INSURANCE SCHEME – where the statutory insurer paid claims in respect of building work carried out by the company which was the building contractor – where the statutory insurer commenced the same proceeding against the building contractor and its director to recover those amounts as a debt pursuant to s 71 and s 111C Queensland Building Services Authority Act 1991 (Qld) – whether the statutory insurer established its claim in debt against the director without first proceeding against the building contractor

Queensland Building Services Authority Act 1991 (Qld), s 71, s 111C

Uniform Civil Procedure Rules 1999 (Qld), r 292

Lange v Queensland Building Services Authority [2012] 2 Qd R 457; [2011] QCA 58, considered

Mahony v Queensland Building Services Authority [2013] QCA 323, followed

Namour v Queensland Building Services Authority [2014] QCA 72, followed

Neumann Contractors Pty Ltd v Traspunt No 5 Pty Ltd [2011] 2 Qd R 114; [2010] QCA 119, considered

COUNSEL:

B E Codd for the plaintiff

P W Telford for the defendants

SOLICITORS:

Rostron Carlyle Solicitors for the plaintiff

ClarkeKann Lawyers for the defendants

[1] The plaintiff is the statutory insurer of residential construction work under the Queensland Building Services Authority Act 1991 (Qld) (the Act), as the Act was known at all times relevant prior to the commencement of this proceeding.  The second defendant was a licensed builder.  The first defendant, Mr Ward, was a director of the second defendant between 12 January 2004 and 24 February 2009.  Mr Ward was also a director of another company, Stanglade Properties Pty Ltd (Properties) between 20 March 2003 and 10 November 2010.  Properties owned real property at Rogoona Street, Morningside which it developed into 12 townhouses for resale in 2004 to 2005.  The second defendant contracted with Properties to carry out the building work for this development.  It is not in dispute that the relevant statutory policy of insurance applied to the building work undertaken by the second defendant for the development. 

[2] The townhouses were sold by Properties.  The owners of most of the townhouses and the body corporate made claims on the insurance policy in respect of the building work and the plaintiff made payments in respect of the claims.  The total amount paid between July 2011 and July 2012 was $1,416,566.50.  The plaintiff seeks to recover that amount from the second defendant under s 71 of the Act and from Mr Ward under s 111C of the Act.  Ultimately there was no real dispute from the defendants that the plaintiff was entitled to judgment against the second defendant for the amount claimed less the sum of $78,178.50.  The real issue to be determined on the application is that raised by paragraph 40(a) of the amended defence as to whether the plaintiff’s claim against Mr Ward is premature, because prior to commencing the proceeding against Mr Ward it had not been determined by a court that the debt was owing to the plaintiff by the second defendant. 

Relevant legislation

[3] Section 71(1) of the Act provides:

“If the authority makes any payment on a claim under the insurance scheme, the authority may recover the amount of the payment, as a debt, from the building contractor by whom the relevant residential construction work was, or was to be, carried out or any other person through whose fault the claim arose.”

[4] Section 71(2) specifies other persons who are each deemed to be a building contractor by whom the relevant residential construction work was, or was to be, carried out for the purpose of s 71(1) and identifies who is deemed to be a person through whose fault the claim arose for the purpose of s 71(1).

[5] Section 71(3) of the Act is the statutory expression of the plaintiff’s right of subrogation to the rights of a person to whom, or for whose benefit, the payment on a claim under the insurance scheme has been made.

[6] The policy of insurance that came into force was the statutory policy published in the Queensland Government Gazette No 90, 15 August 2003, commencing at p 1297.  Clause 6.4 of the statutory policy reflects the right of subrogation set out in s 71(3) of the Act.

[7] Subsections (4), (5) and (6) of s 71 of the Act set out statutory defences for a licensed contractor where there has been fraud in the use of a licensed contractor’s licence card, name, licence number or PIN.     

[8] Section 111C(3) of the Act provides that s 111C applies if a company owes the authority an amount because of a claim made by the authority on a claim under the insurance scheme.  Section 111C(6) of the Act provides:

“If this section applies because of subsection (3), the liability to pay the amount attaches to-

(a)each individual who was a director of the company when building work the subject of the claim was, or was to have been, carried out; and

(b)each individual who was a director of the company when the payment was made by the authority.”

[9] Section 111C(7) of the Act provides:

“A liability under subsection (4), (5) or (6) to pay a penalty or an amount applies regardless of the status of the company, including, for example, that the company is being or has been wound up.”

The plaintiff’s claim

[10] The plaintiff’s claim against the second defendant expressly relies on s 71(1) of the Act on the basis that the second defendant carried out the relevant building work on the townhouse development, the existence of the statutory insurance policy in relation to the building work, the claims made by the relevant owners of the townhouses and the body corporate under the statutory insurance policy, and the payment of those claims by the plaintiff.  The plaintiff relies on the approach to the construction of s 71(1) of the Act of Gotterson JA (with whom the other members of the court agreed) in Mahony v Queensland Building Services Authority [2013] QCA 323 at [27] and [34]-[37] who endorsed the observations of Margaret Wilson AJA in Lange v Queensland Building Services Authority [2012] 2 Qd R 457 at [72]:

“Sections 71 and 111C provide for recovery of the amount of a ‘payment on a claim under the insurance scheme’ rather than the recovery of the amount of a ‘payment under the insurance scheme’.  For this reason, I do not accept counsel for the appellant’s submission that the triggering circumstance on which the respondent relies does not apply.” 

[11] In paragraph 154 of the further amended statement of claim, the plaintiff pleads that Mr Ward is liable to the plaintiff under s 111C(3) and (6) of the Act for the amounts that it has paid out on the claims under the statutory insurance policy in respect of the townhouse development on the basis that Mr Ward was a director of the second defendant at the time the building work the subject of the claims was carried out or at the time the payments of the claims were made.  There is no issue that Mr Ward was a director of the second defendant when the second defendant carried out the relevant building work. 

[12] The plaintiff sets up in its further amended statement of claim an alternative basis for holding Mr Ward liable for the payments made on the claims under the statutory insurance policy in respect of the townhouse development.  The plaintiff relies on s 71(2)(a)(ix) of the Act which deems a person who, for profit or reward, carried out the work to be a building contractor for the purpose of s 71(1) and therefore alleges that Properties is a deemed building contractor and Mr Ward in his capacity as a director of Properties at the time the building work the subject of the insurance claims was carried out or at the time of the payment of the claims is liable to the plaintiff for the amount of the claims.  If the plaintiff establishes its claim against Mr Ward, on the basis of his being a director of the second defendant at the time the building work the subject of the claims was undertaken, it is unnecessary to consider the alternative basis on which the plaintiff seeks to establish the liability of Mr Ward as a director of Properties.

[13] In relation to the liability of a director for a company’s liability under s 71(1) of the Act, the plaintiff relies on Namour v Queensland Building Services Authority [2014] QCA 72 at [17]-[19] and submits that liability under s 71(1) accrues when the payment is made by the plaintiff in respect of the insurance claim, whether or not there is a judgment in favour of the plaintiff against the company. 

Mr Ward’s submissions on why the claim against him is premature

[14] The nub of Mr Ward’s argument is that the plaintiff must first sue the second defendant under s 71 of the Act to establish the amount “adjudged by the court to be due” and until that is done s 111C(3) and (6) of the Act cannot apply, because the applicant has not established in terms of s 71(1) of the Act that the “company owes the authority an amount because of a payment made by the authority on a claim under the insurance scheme.”

[15] Mr Ward argues that s 71(1) provides only a procedure for recovery as a debt of moneys paid on a claim under the statutory insurance scheme, but that is not the source of the liability of the second defendant for the payment made by the plaintiff under the statutory policy.  It is therefore argued that until such time as that liability has been established by judicial process, there can be no cause of action based on s 111C against Mr Ward.

[16] Mr Telford of counsel on behalf of the defendants relies on authorities where observations were made about expressions in legislation such as “recovered … as a debt” and “enforced as a debt” to support the argument that s 71(1) of the Act is a procedural provision only, including Nominal Defendant v Butler [1976] 1 NSWLR 546, 556 and Edwards v Bray [2011] 2 Qd R 310 at [42]. 

Does the plaintiff need judgment against the second defendant before suing Mr Ward?

[17] During the hearing of the application, I raised with counsel whether any authorities dealing with coordinate liabilities may be relevant to Mr Ward’s contention.  Both parties helpfully provided supplementary outlines of submissions which allowed me to conclude that this case would be determined by the application of the relevant legislation in the light of its interpretation in Lange, Mahony and Namour

[18] It is patent as a matter of construction of the Act that liability of a director under s 111C(3) and (6) is an independent cause of action given to the plaintiff against the relevant director of the company that carried out the building work the subject of the insurance claim or who was such director when the payment of the insurance claim was made by the plaintiff.

[19] Liability under s 111C(3) is predicated on the company “owing” the plaintiff an amount because of a payment made by the plaintiff on a claim under the insurance scheme.  It is therefore an element of the cause of action against the director under s 111C(6) of the Act that the plaintiff prove that the company owes the plaintiff an amount because of a payment made by the plaintiff on an insurance claim.  Proof in that proceeding of what is owed by the company is all that is required.  Section 111C(6) does not require a prior judgment against the company.  That is consistent with s 111C(7).

[20] The authorities relied on by Mr Ward to submit that s 71(1) of the Act is a procedural, rather than substantive, provision depend on the interpretation of expressions in legislation in different contexts to s 71(1).  In addition, the decisions in Mahony and Namour are authoritative on how s 71(1) and s 111C(3) and (6) should be applied.

[21] Lange concerned an appeal by the director of a building company from the dismissal of an application for judicial review of the authority’s decision that the relevant owners were entitled to indemnity under the statutory policy of insurance.  The issue before the primary judge was the construction of a clause in the policy which the director unsuccessfully argued meant that there was no liability of the authority to pay the owners.  The court unanimously upheld the primary judge’s construction of the policy.  It was not necessary for Margaret Wilson AJA to deal with the argument advanced on the appeal by the authority that its right to seek recovery against the director arose under s 111C(3) of the Act by reason of the payment being made under the policy.  Margaret Wilson AJA noted at [72] the distinction made in s 71 and s 111C in providing for recovery of the “payment on a claim under the insurance scheme” rather than recovery of a payment under the insurance scheme.  The director had argued that on his construction of the policy the payment made by the authority was one for which its liability was excluded and therefore not a payment under the scheme.  Margaret Wilson AJA referred in [73] to the entitlement of the director to seek judicial review of the decision to make the payment to the owners.

[22] In Mahony the authority obtained summary judgment against the appellant who was a licensed builder for payments made for claims under the statutory insurance scheme.  The appellant submitted on appeal that s 71(1) of the Act required the authority to prove as an element of its recovery claim that the claims on which payment was made under the insurance scheme arose through the fault of the appellant.  Gotterson JA stated at [34]:

“Section 71(1) confers a right to recover as a debt from any of the designated persons ‘any payment on a claim under the insurance scheme’.  It is sufficient for recovery under the section that the authority have made a payment on a claim under the insurance scheme.  The statutory right to recover is not conditioned upon the legal quality of a determination by the authority to make the indemnity payment or of any anterior step taken by the authority that had led to the decision to pay.”

[23] Gotterson JA then in [35] referred to the review jurisdiction in respect of decisions by the authority and the availability of judicial review in respect of a decision by the authority to recover an amount under s 71(1) and stated:

“The availability of review of those kinds and at those stages provides a sound rationale for a legislative intention that the types of decisions to which I have referred, not be justiciable in s 71(1) debt recovery proceedings.  Another indicator of such an intention is that s 71 itself specifies certain defences which may be raised in proceedings under the section.”  (Footnote omitted)

[24] After agreeing [36] with Margaret Wilson AJA’s observations in Lange at [72]-[73] Gotterson JA observed at [37] that:

“The language of s 71(1) would leave open scope for a defence that the payment sought to be recovered was not made upon a claim and a defence that the claim was not validly made under the Act.”

[25] The company that was the licensed builder in Namour went into external administration.  After cancelling the company’s licence, the authority made payments on claims under the statutory insurance policy to the relevant owners and obtained summary judgment against the director of the company for the amount of the payments on the basis of s 111C(3) and (6).  The director argued on appeal that summary judgment should not have been given because the director might prove at trial that the authority’s payments on the claims resulted from its wrongful cancellation of the company’s building licence.  Fraser JA (with whom the other members of the court agreed) observed at [17] that s 111C(6) “makes it irresistibly clear that a director of a company which is a building contractor will be liable in the defined circumstances to make a payment which otherwise would be payable only by the company”.  Fraser JA agreed with the views expressed by Gotterson JA in Mahony at [35] about the significance of judicial review and the limited specific defences provided within s 71 of the Act.  Fraser JA stated at [19]:

“The scheme of the Act is that a building contractor or other interested person who wishes to challenge such decisions should make the challenge before the respondent pays under the policy.  A building contractor who does not make such a challenge is liable under s 71(1) whether or not one of those anterior decisions might have been the subject of a challenge.  In the case of a building contractor which is a company, a director caught by s 111C(6) is similarly unable to challenge one of those anterior decisions in a proceeding for recovery of a debt.  This is so because the director’s liability is fixed by reference only to the liability of the building contractor.”

[26] The approach of the Court of Appeal in Mahony and Namour to the application of s 71(1) and s 111C(3) and (6) of the Act means that the plaintiff did not need to obtain judgment against the second defendant under s 71(1) before commencing proceedings against Mr Ward under s 111C(3) and (6).

Overpayment of body corporate’s claim

[27] The only dispute as to the quantum of the payments made by the plaintiff under the statutory policy is in respect of the total amount paid to the body corporate of $1,078,178.50.  It is common ground that the maximum liability of the plaintiff under the policy for common property is $1m.  That means that the body corporate’s claim under the statutory policy could not seek a payment greater than $1m.  The plaintiff argues, in reliance on Lange at [72]-[73] and Mahony at [36]-[37], that the right of recovery of the plaintiff is the amount of the payment on a claim under the insurance scheme and a payment in excess of the limit of indemnity provided by the scheme is not a matter which can be contested in a proceeding to recover a debt under s 71(1) of the Act.  The defendants argue that, to the extent the payment to the body corporate exceeded the maximum liability of the plaintiff under the policy, it was an ex gratia payment and falls outside the scope of s 71(1) of the Act.

[28] Gotterson JA explained in Mahony at [37] that s 71(1) of the Act did not preclude a defence that the payment was not made on a claim.  That applies here.  The plaintiff cannot use s 71(1) of the Act to recover from the defendants an amount to the extent that it cannot be characterised as a payment on a claim under the statutory policy, because the claim exceeded the limit of liability under the policy.  The overpayment of $78,178.50 to the body corporate cannot be recovered by the plaintiff from the defendants.

Other arguments of the defendants

[29] The defendants put forward other arguments in support of deferring the determination of the plaintiff’s claims until a trial.  They argued that the plaintiff had not established that the second defendant was the building contractor by whom the relevant residential construction work was carried out, because of the alternative allegation made by the plaintiff that Properties carried out the work and was deemed to be the building contractor.  The fact that the plaintiff has included alternative claims in its statement of claim does not prevent the plaintiff seeking judgment on one of the claims that is supported by the evidence relied on by the plaintiff in making the summary judgment application.  The fact that the plaintiff makes alternative allegations does not itself detract from the strength of the claim it makes against Mr Ward based on his role as a director of the second defendant at the time the building work is carried out, where the evidence supports that claim.  The existence of alternative allegations does not detract from the plaintiff’s primary claims against Mr Ward or the second defendant.  

[30] Properties is deregistered and is not a party to the proceeding.  It was therefore argued that as the claim affected Properties, no decision should be made by the court affecting Properties or its directors without giving Properties an opportunity to be heard.  That is a nonsensical argument when Properties has been deregistered.  It is also an argument of no consequence, if the plaintiff succeeds on its claim against Mr Ward in his capacity as a director of the second defendant.

Orders

[31] There was no dispute as to the test to be applied on whether summary judgment should be given under r 292 of the Uniform Civil Procedure Rules 1999 (Qld):  Neumann Contractors Pty Ltd v Traspunt No 5 Pty Ltd [2011] 2 Qd R 114 at [80]-[81].  The argument unsuccessfully urged on behalf of Mr Ward as preventing judgment against him in the same proceeding in which the second defendant is sued could result in no different outcome after a trial.  The plaintiff’s respective claims against the second defendant and Mr Ward do not require a trial.  It follows it is appropriate that the plaintiff should have judgment against the first and second defendants for payment of the claim to the extent of $1,338,388. 

[32] The plaintiff also claims interest at 10 per cent per annum from the date each payment pursuant to s 58 of the Civil Proceedings Act 2011 and its predecessor provision.  On the publication of these reasons, the parties will have an opportunity to make submissions on the amount which should be awarded for interest and the question of costs of the application and the proceeding.      

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Editorial Notes

  • Published Case Name:

    Queensland Building and Construction Commission v Ward & Anor

  • Shortened Case Name:

    Queensland Building and Construction Commission v Ward

  • MNC:

    [2014] QSC 138

  • Court:

    QSC

  • Judge(s):

    Mullins J

  • Date:

    27 Jun 2014

Appeal Status

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

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