Avila v Director-General, Department of Finance & Services, NSW Fair Trading

The hearing 5On 6 January 2014, after some discussion with the parties, I granted leave to Mr Avila to seek further information, by summons if necessary, to support his case. By the time the matter resumed on 27 March 2014 Mr Avila had satisfied the OFT as to their original concerns but a further issue had arisen by then. He was given further time to address that new issue and the matter resumed, once again, on 24 April 2014. After accepting the tender of further documents and taking oral evidence from Mr Avila, I reserved my decision. 6I have decided that Mr Avila's building licence should be renewed. My reasons follow.

The original refusal decision, and the reasons for it 7The OFT's decision to refuse to renew Mr Avila's contractor licence, affirmed on internal review, stemmed from the fact that Mr Avila had been a director of a company, S&W Building Services Pty Ltd (S&W), that was under court-ordered external administration. That caused Mr Avila two problems. 8The first was that clause 39A(1)(c) of the Home Building Regulation 2004 (the Regulation) was triggered, effectively preventing the OFT (subject to some exceptions in clause 39A(1A), set out below in [13]) from renewing his licence. 9The second problem was that Mr Avila had not disclosed the fact in his renewal application. That led the OFT to consider that he was not a fit and proper person to hold a contractor licence because he had made a false statement to the OFT (by failing to disclose the external administration of S&W in response to a specific question on the application form). 10In the Tribunal, the OFT has not pressed the "not fit and proper person" issue.

The applicable legislation and the movement in the OFT's case 11The questions for determination centre on clauses 39A(1) and (1A) of the Regulation. 12Subclause (1) provides relevantly: (1) Before an authority is renewed or restored, the Director-General must be satisfied that each relevant person:... (c) is not an undischarged bankrupt and is not a director of, or a person concerned in the management of, an externally-administered body corporate (within the meaning of the Corporations Act 2001 of the Commonwealth) except in a case of a voluntary winding up of the body corporate, and (d) within the period of 3 years before the date of the application, was not an undischarged bankrupt and was not a director of, or a person concerned in the management of, an externally-administered body corporate (within the meaning of the Corporations Act 2001 of the Commonwealth) except in a case of a voluntary winding up of the body corporate, and ... 13Subclause (1A) says that despite subclauses (1)(c) and (d), the Director-General may renew a licence if of the opinion that: (a) there is no evident risk to the public that the applicant will be unable to complete building contracts entered into in the future for the doing of residential building work or specialist work of that kind, or both, and (b) the relevant person concerned took all reasonable steps to avoid the bankruptcy, liquidation or appointment of a controller or administrator. 14In the Tribunal, the OFT initially focused on paragraph (b). It required Mr Avila to demonstrate that he had taken "all reasonable steps" to avoid having S&W put into administration. The material that Mr Avila provided to the Tribunal on 7 February 2014 was duly considered by the OFT and on 21 February 2014 the OFT's solicitor, Mr Maynard, wrote to Mr Avila's solicitor to notify him that the OFT was now satisfied as to the matters in paragraph (b). 15But by then the OFT had some concerns in relation to paragraph (a). The OFT had become aware that three Home Warranty Insurance claims had been paid in respect of some construction work carried out by S&W. According to the information available to the OFT, these claims were for "work done under contracts between consumers and S&W Building Services Pty Ltd for defective and/or incomplete work with a total amount paid of $680,000". To explain the OFT's concerns, and to deal with Mr Avila's response to them, it is necessary to mention something about the circumstances that led to S&W being placed into administration.

Construction work undertaken by the company; company goes into administration 16Over the years S&W had always undertaken its construction work under standard form contracts approved by the Housing Industry Association (HIA). However, in the period from about 2009 onwards, the company had been engaged on at least three separate occasions to undertake construction work for clients under a contract approved by the OFT. Mr Avila explained that the clients in these cases insisted on using the OFT contract. Disputes arose with the clients in relation to the work S&W was doing, and although Mr Avila tried to resolve the disputes quickly and amicably, the clients remained dissatisfied. Eventually they stopped paying. 17Mr Avila says that if S&W had been engaged under the HIA contract, it would have been entitled to stop work until put into funds. But under the OFT contract, on his version, S&W had to continue working even though it was not getting paid. In each case the client terminated the contract. The company's cash flow dried up. Despite the injection of personal funds from Mr Avila and his wife into the company, it was forced into administration and eventually liquidation. 18Whether Mr Avila's perception of the rights of S&W under the OFT contract is correct is really beside the point. What is important is that he genuinely believed that was the position. He did what he could to remedy the situation with each client - in the hearing he said, and I accept, that he "exhausted all possible avenues of solution" - but each episode turned out poorly. 19Despite these events, Mr Avila also said - and the Respondent did not challenge this - that he remains on good terms with each of these apparently dissatisfied clients of S&W. He said he still talks to all of them. He also told the Tribunal that he takes a lot of pride in the work that he does, and I have no doubt that is so. 20In any event, these are the circumstances that led to the Home Warranty Insurance claims which were notified to the OFT and which are mentioned in [15] above. Mr Avila explained that the claims themselves, and the insurer's decision to pay them, were not something over which he had any control. That seems to be correct. Once the builder against which the claims were made was under external administration, the claims no doubt became a matter between the claimant and the insurer, and, possibly, the administrator.

The insurance claims 21During the hearing, Mr Avila expressed some surprise at the quantum of the payment made by the insurer in respect of each of the claims. One of the claim payments (the Balmain project) was for $304,000, one (the Casula project) was for $255,000 and the third (the Cremorne project) was for $125,000. On the face of it, they sound like very serious shortcomings on the part of S&W, either in the quality or in the extent of the work performed. 22But Mr Avila simply could not understand how the first payment amount, for the Balmain project, could possibly be justified. He said, and I accept, that the contract was for about $350,000. (His affidavit sworn on 24 April 2014 nominates, at [14], the contract amount as $363,500.) He also said that S&W had been paid "up to the end" (but his affidavit says that $76,000 was still outstanding). Importantly, his evidence indicates, and I accept, that most, if not all, of the work that S&W had been contracted to perform had in fact been performed. 23Mr Avila also expressed incredulity at the second insurance payment, for $255,000 in respect of the Casula project. On this project there had been a dispute between S&W and the clients, and the dispute was resolved by deed dated 4 October 2010 (Tab 2 to the 24 April 2014 affidavit). Mr Avila explained further in his affidavit, at [12]: At the time of completion, the Owners owed S&W $5,500.00. There was no dispute about any of the building work. There was a dispute about variations which was resolved. I did not request the payment of the $5,500.00 as it was offset for rectification of paint work in the hallway and damage to the garage door. After the Owners moved into the property and prior to December 2010 I frequented the property socially on two (2) occasions. No defect has [been] raised with me since November 2010. I am not aware of what the Owners have claimed under the Home Insurance Scheme. Each time I claimed a progress claim, the progress claim was accessed (sic) by the Owners Bank being the Bank of Queensland. The Bank would check the claim against the work. There was no hold up in progress claims being paid to S&W. As I said above the only issue were variations that were eventually paid by the Owners. 24In respect of the third insurance payment, Mr Avila explained that the Cremorne project was worth $417,000. His affidavit deals with the project and the dispute, at [13]: A problem arose at the time of the external brickwork being constructed. The Owners were not happy with the Brickwork three (3) different crews I retained in an effort to appear to owners (sic). Each time there was a complaint the brickwork was demolished and a new Contractor retained. The Owner provided me with the British Building Code that the Owners wanted me to observe notwithstanding I always advised them that I had to observe the Australian Standard. S&W eventually obtained an English Bricklayer to satisfy the Owners. The brick work was finished and the Owners withheld an amount of $40,000.00. S&W still continued with the work, funding the project myself. S&W completed the first floor steel works (engineering specs). Police and Traffic Control and Cranes were needed. S&W completed the structural work of the first floor and floor boards. The Owner did not pay for this work. S&W got to stage where I had no alternative but to issue a Stop Work Notice as I couldn't proceed without payment. I met numerous times with the Owners. I corresponded regularly to try to resolve the problem. Neither party engaged Lawyers at this time. No complaint was lodged with the Office of Fair Trading. The Owners terminated the contract in November 2011, which was shortly before S&W went into Liquidation. At the time of the termination of the contract the following work had to be done: (i)Completion of timber framing to first floor; (ii)Roof over extension; (iii)Install windows; (iv)Fit out plumbing and electrical; (v)Internal linings and painting; (vi)Tiling, water proofing to two (2) wet areas. At the date of completion the Owners owed S&W the following monies: (i)Brickwork - $40,000.00 (ii)Steel work on first floor - $60,000.00 (iii)Work in progress - $30,000.00 TOTAL: $130,000.00 The Contract balance was sufficient for S&W to complete the work however S&W could not complete the work without being paid. 25Mr Avila repeated that he had no input into, and no control over, the payment of the three insurance claims.

The question in the Regulation - "no evident risk"? 26Against that background, the question is whether I am of the opinion that there is "no evident risk to the public that the applicant will be unable to complete building contracts entered into in the future for the doing of residential building work ...". That is the question posed by clause 39A(1A)(a) of the Regulation. If I am of that opinion, then, standing in the shoes of the OFT, I may, but am not obliged to, decide that Mr Avila's builder's licence should be renewed. Of course, if I am not of that opinion, then the renewal of the licence will remain prohibited by clause 39A(1)(c). 27The question is not whether I am of the opinion that there is no risk at all; it is whether there is no evident risk. In that context Mr Adams submitted, and Mr Maynard agreed, that "evident risk" is equivalent to "obvious risk". I also agree. 28One obvious indicator of risk would be Mr Avila's financial circumstances. It was noted by the ADT in Alford Building and Construction Pty Ltd v Commissioner of Fair Trading [2005] NSWADT 254 at [44] that financial circumstances are a relevant factor in considering the "evident risk" question and I respectfully agree. A person with meagre financial resources, or little or no access to trade credit, or a generally poor credit record, would have difficulty funding a construction business. A person unable to pay for building materials, or to buy or hire the required tools or equipment, unless first put in funds by clients, would present an "evident risk" that building contracts could not be completed. 29Mr Avila is not such a person. He provided letters of support from two individuals, one of whom is prepared to lend him, if necessary, up to $50,000 and the other up to $80,000 to support his business. One of those individuals has known Mr Avila for 40 years and the other for 15. They attest to his integrity, his high skills as a builder, his reputable business practices, his honesty and his ethical behaviour. Mr Avila's wife also says that she can make $25,000 of her own money available to him should he require it. The OFT did not challenge any of this evidence, and I accept it. 30I am satisfied that Mr Avila's financial circumstances present no evident risk that he would be unable to complete building contracts in the future. 31Another obvious indicator of risk would be if Mr Avila had demonstrated an inability, in the past, to complete building contracts he had entered into. But in that regard Mr Avila gave unchallenged evidence, which I accept, that over the years he has completed hundreds of construction projects without issue and without complaint. On the findings I have made, the one possible instance of a failure to complete in the past is the Cremorne project, dealt with above, although it seems that sufficient work was done in that case to enable the owners to move into the property. (If it was a failure at all, it was actually a failure on S&W's part, but for practical purposes it would be regarded as Mr Avila's failure.) Clearly that was an extreme case, coming at a time when the company was under severe cash flow pressure on a number of fronts. It is a circumstance that must go into the mix, but it is not determinative of a finding that there is "evident risk" of inability to complete projects in the future. 32The OFT has expressed concern about the way Mr Avila dealt with his clients in the three "problem" cases, and asserts that he did not express contrition about those events. That concern is a further ground for a contention that I should not form an opinion that there is no evident risk that Mr Avila will be unable to complete future projects. The specific concern focuses on some of the confrontational language Mr Avila used in some of his correspondence, and the generally confrontational approach he adopted in dealing with the dissatisfied clients. If similar disputes were to arise again, then presumably the OFT is concerned that Mr Avila might simply pack up and leave the clients in the lurch. 33This issue requires some appreciation of the way Mr Avila saw the disputes unfolding. Fundamentally, Mr Avila considered the behaviour of the clients unreasonable. He had a view that they were taking advantage of him, and at different times he has referred to them as "gangsters", alleged they were "abusing" their position, that he had been "ripped off" by them. And it should be recalled that he had "exhausted all possible avenues of solution", as I have already found, before his emotions got the better of him. 34During the hearing Mr Avila acknowledged that some of the words he had used were "not a good choice". He had been frustrated. As for the alleged lack of contrition, he said that he is "embarrassed", he feels "uncomfortable", and is "sorry it went that way". I accept the genuineness of those statements. 35In his 24 April affidavit he said at page 6 that he had "learnt numerous lessons by the Liquidation of S&W". I asked him to elaborate on that statement. He said he would go back to using the HIA contract. He would focus on providing the "right outcome" for his clients, because that is the "most important" thing for a builder to do. He would refocus on rectifying mistakes immediately. And he would start off by confining himself to smaller jobs, with less money at stake and less scope for problems. 36If granted his licence, he plans to join the HIA or the Master Builders Association. He says, and I accept, that he will complete mandatory continuing education. That includes training in relation to contractual issues, so that he fully understands his rights and obligations and those of his clients. 37Although Mr Adams, who appeared for Mr Avila, invited me to take into account some of the factors specified by the ADT in Pobjie v Commissioner for Fair Trading (No. 2) [2008] NSWADT 39 to guide my consideration of the "no evident risk" question, I do not find those factors particularly appropriate or helpful. Pobjie was a case about disqualification from holding a builder's licence. The ADT at [145] listed the factors that the Fair Trading Tribunal had considered, in earlier cases, might be relevant to the assessment of an appropriate penalty. I do not think Pobjie provides any assistance in a case such as Mr Avila's. 38On the evidence before me I comfortably form the opinion that there is no evident risk to the public that Mr Avila will be unable to complete building contracts entered into in the future for residential building work. On that basis the discretion to approve the renewal of his licence is enlivened. 39The next question is whether, consistently with the purpose, scope and object of the relevant legislation, the discretion should be exercised. 40The paramount consideration here is the protection of the public. 41If I had doubts about Mr Avila's commitment to serving the public to the high standard expected of a licensed builder, I would not be inclined to exercise the discretion in his favour, despite my having formed the opinion that there is no evident risk that he will be unable to complete building contracts entered into in the future. I have no such doubts. In this I am fortified by his past behaviour. His history of many years of complaint-free activity, his honesty and integrity as attested to by his supporters, his attempts to keep S&W solvent by the injection of very significant amounts of his personal finances, all point to an attitude of placing clients first. That is precisely the kind of attitude members of the public expect. That attitude, and the factors that in combination demonstrate it, far outweigh any negative aspects identified in the conduct of these proceedings. 42The events that led to the external administration of S&W were unfortunate but in my view are not likely to be repeated.

Conclusion 43Mr Avila is entitled to have his licence renewed. The OFT's decision to refuse to renew his licence is set aside. Instead the Tribunal decides to renew his licence.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 May 2014