Designbuild NSW Pty Ltd v Commissioner for Fair Trading

Background

1. On 9 March 2015 Designbuild New South Wales Pty Ltd (Designbuild) lodged an application with the Department of Fair Trading for a company building contractor licence. The application, signed by James Coote on 5 March 2015, stated that the director of the company would be James Frederick Coote, born 6 January 1992 and the nominated qualified supervisor would be John Alfred Coote, builder licence number 55586S, born 15th of June 1965.
2. The application was refused on 4 May 2015 because Mr John Coote had been nominated as the nominated supervisor for Designbuild. On 4 April 2014, John Coote's application for an individual building contractor licence had been refused as John Coote was deemed not fit and proper person to hold a contractor licence in regards to character, honesty and integrity. In the application form for the contractor licence, Mr Coote had failed to disclose that he was a director of Nationwide Consultants Pty Limited (licence number 39269). On 21 February 2013, CTTT made an order against Nationwide Consultants Pty Limited (Nationwide) that had not been complied with. The proposed nominated supervisor John Coote was a close associate of Designbuild. The decision noted that the Chief Executive must refuse an application for a contractor licence if the Chief Executive considers that a close associate of the Applicant who would not be a fit and proper person to hold an authority exercises a significant influence over the Applicant or the operation and management of the Applicant's business. (See section 20 (1) (d) of the Home Building Act (HBA) 1989.
3. Designbuild NSW Pty Ltd had been registered on the 24th of February 2015 with ASIC. The director and secretary were registered as James Coote. The shareholders were registered as James Coote, one share and John Coote, one share.

Application for internal review

1. On 11 May 2015 Mr James Coote, director of Designbuild, sought internal review of the refusal of the contractor licence for Designbuild.
2. In his internal review application, James Coote stated that Designbuild disagreed that Mr John Coote is not a fit and proper person in regards to character, honesty and integrity. Mr John Coote did apply for a contractor licence and answered all questions on the licence application honestly and to the best of his knowledge and how he deemed the question was asked. Mr Coote in no way tried to deceive the Department of Fair Trading or falsify any documents relating to the application for a contractor licence.
3. Mr John Coote's supervisors licence was not associated with Nationwide Consultants Pty Limited nor was he a director at the time that the project leading to the CTTT award in February 2013 was undertaken.
4. Mr John Coote had been an active member of the building industry since 1980 with his first contractor's licence Gold card being issued after completing his apprenticeship as a carpenter and joiner.
5. Mr Coote has no criminal record, nor has he ever had a single complaint or Orders/action against his name in the 35 years he has worked in the building industry. Mr Coote has always conducted his affairs in an honest and trustworthy manner.
6. James Coote strongly denied that John Coote would exercise any influence over the Applicant or the operation and management of Designbuild's business affairs. Mr John Coote would be employed as a building supervisor only. The nominated supervisor's role is to oversee the construction projects and associated works. The nominated supervisor will have absolutely no input at all into the management or decision-making of this company. Designbuild plans to provide a quality and professional service with Mr John Coote supervising projects with the stringent quality control Mr Coote is renowned for.

Reasons for refusal on internal review

1. The application for a contractor licence by Designbuild was again refused on internal review. The internal review stated that the reasons why the contractor licence was refused to Designbuild were 1. The company had nominated John Coote as qualified supervisor for the company. 2. John Coote was not considered a fit and proper person due to his failure to declare in his application refused on 4 April 2014 that he was a director of Nationwide Consultants Pty Limited which was subject to an unsatisfied CTTT money order for $87,021. 3. John Coote is a close associate of Designbuild.
2. The reviewer did not accept that John Coote would have absolutely no input at all for management and decision-making for the company when John Coote is James Coote's father and holds half of the company shares. John Coote holds a relevant financial interest in the Applicant's business as he holds half the shares in the Applicant company. As a shareholder and nominated supervisor who would be responsible for all on-site supervision of residential building under contracts with the Applicant company, John Coote he would be able to exercise a significant influence over the Applicant company and in the operation and management of the Applicant's business. John Coote had demonstrated a pattern of behaviour that indicates he would be a risk to the community if he was associated with a company that enters into residential building contracts

Relevant law

1. Section 20(1) (d) of the HBA provides that the Secretary must refuse an application for a contractor licence if the Secretary considers that a close associate of the Applicant who would not be a fit and proper person to hold an authority exercises a significant influence over the Applicant or the operation and management of the Applicant's business.
2. Section 20 (1A) provides that in determining whether an Applicant is a fit and proper person to hold a licence the Secretary is to consider whether the Applicant is of good repute, having regard to character, honesty and integrity.
3. Clause 5 of schedule 1 of the HBA defines the meaning of a close associate: 5 Meaning of "close associate" (1) For the purposes of this Act, a person is a "close associate" of another person if the person: (a) is a business partner of the other person, or (b) is an employee or agent of the other person, or (c) is a corporation, or a member of a corporation, partnership, syndicate or joint venture, in which the other person or a person referred to in paragraph (a), (b) or (d) has a beneficial interest, or (d) bears a relationship to the other person that is a prescribed relationship under subclause (2), or (e) is a corporation that is a subsidiary (within the meaning of the Corporations Act 2001 of the Commonwealth) of the other person, or (f) holds or is entitled to exercise, in respect of the other person or the business of the other person, any other relevant financial interest, relevant position or relevant power. (2) For the purposes of subclause (1) (d), a person bears a "prescribed relationship" to another person if the relationship is that of: (a) a spouse or former spouse, or (b) an existing or former de facto partner, or (c) a child, grandchild, sibling, parent or grandparent, whether derived through paragraph (a) or (b) or otherwise, or (d) a kind prescribed by the regulations for the purposes of this clause. (3) For the purposes of subclause (1) (f): "relevant financial interest" means: (a) any share in the capital of the business, or (b) any entitlement to receive any income derived from the business, whether the entitlement arises at law or in equity or otherwise. "relevant position" means the position of director, manager, and other executive positions and secretary, however those positions are designated. "relevant power" means any power, whether exercisable by voting or otherwise and whether exercisable alone or in association with others: (a) to participate in any directorial, managerial or executive decision, or (b) to elect or appoint any person to any relevant position. (Tribunal's bolding for emphasis)

Fit and proper

1. The issue of fitness and propriety has been considered in numerous matters before this Tribunal. It is well established that the meaning of "fit and proper" is dependent on the nature and purpose of the activities that the person will undertake.
2. In Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321 at 380 Chief Justice Mason said that: "The question whether a person is fit and proper is one of value judgment. In that process the seriousness or otherwise of particular conduct is a matter for evaluation by the decision maker. So too is the weight, if any, to be given to matters favouring the person whose fitness and propriety are under consideration."
3. In Hughes and Vale Pty Ltd v New South Wales (No. 2) [1955] HCA 28; (1955) 93 CLR 127 the High Court discussed the meaning of the term fit and proper' (at 156-7): "The expression fit and proper' is of course familiar enough as traditional words when used with reference to offices and perhaps vocation. But their very purpose is to give the widest scope for judgment and indeed for rejection. Fit' (or idoneus') with respect to an office is said to involve three things, honesty, knowledge and ability ... When the question was whether a man was a fit and proper person to hold a licence for the sale of liquor it was considered that it ought not to be confined to an inquiry into his character and that it would be unwise to attempt any definition of the matters which may legitimately be inquired into; each case must depend upon its own circumstances."
4. In Sobey v Commercial and Private Agents Board (1979) 20 SASR 70 Walters J said: "In my opinion what is meant by that expression is that the Applicant must show not only that he is possessed of a requisite knowledge of the duties and responsibilities evolving upon him as the holder of a particular licence ... but also that he is possessed of sufficient moral integrity and rectitude of character as to permit him to be safely accredited to the public ... as a person to be entrusted with the sort of work which the licence entails."
5. The Tribunal's view of the meaning of fit and proper in this context is that the person needs to demonstrate honesty, knowledge and ability - relevant to the specific role the person is to undertake.

Power to review the Respondent's decision

1. The Tribunal has jurisdiction to review the decision pursuant to section 83B of the HBA, section 9 of the Administrative Decisions Review Act 1997 and section 30 of the Civil and Administrative Tribunal Act 2013 (NSW). The review is a hearing "de novo", afresh, on the merits. The Tribunal's role is to make the correct and preferable decision on the basis of all the material before it.
2. The Tribunal can take into account both the material before the original decision maker as well as any new material put before the Tribunal. Drake v Minister of Immigration and Ethnic Affairs (1970) 2 ALD 60 at 77.
3. The standard of proof that applies in these proceedings is set out in section 140 of the Evidence Act 1995 NSW as "on the balance of probabilities." 140 Civil proceedings: standard of proof (1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities. (2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account: (a) the nature of the cause of action or defence, and (b) the nature of the subject-matter of the proceeding, and (c) the gravity of the matters alleged.

The Hearing

1. The hearing was held on 1 April 2016.

Documents before the Tribunal

1. The Tribunal had the following documents before it:

• the application for review with internal review decision attached;
• the Respondent's section 58 documents filed on 2 October 2015;
• the Respondent's additional section 58 documents filed on the 25th of February 2016; and
• a document headed "John Coote chronology" handed up by the Applicant at the hearing.

1. The Applicant had not filed any documents in addition to the application for review.
2. Both Mr John Coote and Mr James Coote gave evidence and was cross examined at the hearing.

Evidence of Mr John Coote

1. In his evidence Mr John Coote told the Tribunal that he was first issued with a Builders Licence in 2008. In 2009 he formed a company AustBuild Pty Ltd and was the sole director and shareholder. He became a Director of Nationwide Consultants Pty Limited, his father Frederick Coote's company, in November 2010, until January 2014 when Nationwide was wound up. The building work the subject of the CTTT award in 2013, had been completed in April 2010 by Nationwide, six months before John Coote became a director. John Coote had not been involved in the work. He had agreed to be appointed as Director of the company as his father had got into difficulty and was retiring. He wasn't aware that the issues would develop as they did, leading to the CTTT award. He had not done any work with Nationwide as a builder.
2. His work with AustBuild was never subject to any claims. In November 2013 he had been severely injured in an assault. He had been unable to undertake physical work since that time. He had wound up his company AustBuild in November 2013 because he was unable to work. He had applied for a contractor licence in January 2014 and this was refused in April 2014. He could however work as a supervisor. He had handed in his personal contractor licence and obtained a supervisor's certificate.
3. His life was in turmoil after his application for the contractor licence was refused in April 2014 and he was unsure whether or not he had appealed. His home was sold. He had been on sickness benefits as a result of his injury. He had not tried to deceive the Department of Fair Trading in submitting his application for a contractor licence.
4. He had answered "no" to question 7(vi) on the application form for a contractor licence he completed in January 2014. He had not attached details as invited on the form.
5. The question asked: 7(vi) Have you, or any partnership or company of which you were/are a member or director, been subject to any order of a Tribunal/Court that has not been complied with?
6. He had thought that the question meant "director at the time of the project." He had read the question as meaning whether there were any orders against him. He thought that because there were no orders against him that he did not need to answer yes. He thought that perhaps now he should read the questions better. He would now writes "yes" to this question. He did not realise that at the time of taking over the directorship of Nationwide Consultants Pty Limited that he had taken over all of its baggage.
7. His son James had completed his carpentry and joinery apprenticeship with him. As the qualified supervisor he would supervise all the jobs for Designbuild. It is his son's company - not his. He resides separately from his son. His son is a very independent young man.
8. Under cross-examination he told the Tribunal he had not gone to the CTTT proceedings because it was pointless as he didn't have any legal representation. He denied that it had been careless of him not to go on the day of the hearing as the director. He confirmed that the $87,000 had never been paid nor had the claimants ever paid Nationwide what was owed. He now understood that he should have declared "yes" on the form and it was a lesson well learned.
9. When it was put to him that he would have a significant influence over the management of Designbuild as he was not only father of James Coote but also a 50% shareholder, John Coote told the Tribunal that James Coote would have to listen to him as the licensed supervisor. However he would not have any influence over the daily running of the company.
10. John Coote denied that as both a nominated supervisor and an employee and shareholder and that this would allow him to have significant influence. His understanding of the role of the director was that the director had responsibility for the daily running of a company, making sure people get paid on time and doing the tax for the company. This would be his son's role - not his.

Evidence of James Coote

1. James Coote told the Tribunal that he had completed his apprenticeship with his father's company AustBuild as a Carpenter and Joiner. He has seven years' experience as a Carpenter and Joiner and the relevant qualifications. He is completing his certificate in building.
2. He is the captain of his football team. He understands responsibilities of the director to ensure that everything runs smoothly, that the BAS certificate is completed and submitted. His accountant, Ms Susan Drew, had been his father's and grandfather's accountant. His father's influence as an employee would be to supervise the work being carried out.

The Applicant's submissions

1. The Applicant submitted that James Coote is a confident and well-spoken young man with seven years' experience as a Carpenter and Joiner. Building is in his bones and genes. He is a third-generation builder. He is a senior football player and not easily influenced by others. There had been no evidence of undue influence of his father upon him. It would be a shame if his father could not pass on his knowledge to his son as a builder. Mr John Coote's injury prevented him from doing anything other than being in a supervisory role.
2. John Coote was not a fly by night operator. He had been in the industry for 35 years and there had been no claims made against him. Very few builders can say this. The only blot on his copybook is Nationwide Consultants Pty Limited. He had answered the question wrongly on the application form. The questions were poorly worded. John Coote had not intended to give the wrong answer. He had gone to his accountant for advice and had sent two letters back to the Department in response to their enquiry. The Department had not acknowledged that Mr Coote had subsequently provided an explanation and provided a letter from his accountant in relation to his incorrect answer on the application form. The Department had not taken into account his history or the lack of any complaints against him. John Coote had made an error but it was not a fair decision by the Respondent. It was not part of the current application that John Coote be provided with a full contractor licence.

Respondent's submissions

1. The Respondent submitted that John Coote had acted inappropriately in not attending the CTTT hearing in relation to Nationwide as a director. The orders of the CTTT had not been complied with. He had not attached details as requested next to question 7(vi) in the application form in January 2014 and had not sought advice as to the meaning of the question.
2. The Respondent submitted that "the person" applying for the building contractors licence was Designbuild. Mr Coote could not be a parent to a company and therefore was not a close associate under this aspect of the definition of a close associate. However he could be a close associate to Designbuild as an employee or a member of a corporation. In relation to the exercising of significant influence, Mr John Coote was a shareholder of the company. Further, he will be the supervisor of the Company's work. He has a significant influence both as a supervisor and as a shareholder.

The issues for the Tribunal

1. The questions for the Tribunal are set out in section 20(1) (d) of the HBA. They are:

• is Mr John Coote a close associate of the Applicant Designbuild NSW Pty Ltd?
• would Mr John Coote not be a fit and proper person to hold an authority?
• would Mr John Coote exercise a significant influence over Designbuild NSW Pty Ltd?; or
• would Mr John Coote exercise a significant influence over the operation and management of Designbuild NSW Pty Ltd.'s business?

Findings of fact

1. At the time of Designbuild's application for a contractor licence in March 2015, John Coote held an individual qualified supervisor certificate granted in August 2009 and due to expire in August 2015.
2. John Coote applied for a contractor licence on 23 January 2014 which was refused on 4 April 2014 as he was not considered fit and proper. Mr Coote did not seek review of this decision.
3. The Tribunal understands Mr Coote continues to hold a supervisor's licence and could be a supervisor in another company. He could work as an employee for a licensed contractor.

Is Mr John Coote a close associate of the Applicant Designbuild Pty Ltd?

1. Mr Coote is a close associate of Designbuild, the Applicant for a building contractor licence, in terms of Clause 5 (1(b) of schedule 1 of the HBA as he would be an employee of the corporation. As 50% shareholder he also owns a relevant financial interest in the corporation in terms of Clause 5 (1) (f) of schedule 1 of the HBA.

Would Mr John Coote not be a fit and proper person to hold an authority?

1. In April 2014 the Respondent deemed Mr Coote not to be a fit and proper person to hold a building contractor licence. This was because he had marked "no" to question 7(vi) in the application form. He had been a director of Nationwide Consultants which had been subject to a CTTT order to pay an award to previous clients of Nationwide. At the time of the CTTT order Mr Coote was the sole director of Nationwide. Nationwide had not paid the monies to the previous clients. Mr Coote had not sought review of the finding by the Respondent that he was not fit and proper to be granted a building contractors licence. The finding was not subject of this Tribunal's hearing.
2. Mr Coote's explanation of his understanding of the question was not credible to this Tribunal. The question itself was simple : "7(vi) Have you, or any partnership or company of which you were/are a member or director, been subject to any order of a Tribunal/Court that has not been complied with?"
3. Mr Coote added into the question the words "director at the time of the project" and "have you personally been subject…"... These words were not part of the question. The question was clear and did not require the introduction of these terms.
4. Honesty is an aspect of fitness and propriety. Mr Coote conceded before the Tribunal that he should have answered "yes" to the question. The Tribunal is satisfied that Mr Coote now understands he should have answered "yes" to the question.
5. The Respondent also raised Mr Coote's failure to attend the CTTT as a director of Nationwide in 2013. Mr Coote told the Tribunal he did not attend as he had no legal representation. The Tribunal considers that this is a matter which relates to Mr Coote's fitness as a director, rather than as a nominated supervisor.
6. The Respondent also raised the failure of Nationwide - or Mr Coote, to comply with the CTTT order by paying monies to the former clients of Nationwide. Mr Coote explained that Nationwide had no funds. The Tribunal also understood that Mr Coote himself had suffered financially as a result of his injuries in November 2013 leading to the loss of his home. The Tribunal understands that Mr Coote was financially unable to meet this award. It was not put to the Tribunal that Mr Coote had a legal obligation personally to pay these monies. The Tribunal considers that this issue may go to Mr Coote's fitness and propriety as a director of a corporation or as an individual contractor. In these circumstances it does not render Mr Coote as lacking in fitness and propriety as a nominated supervisor.
7. The terms fit and proper have been interpreted to mean fit for the purpose of the licence or authority sought. The purpose in this matter is for Mr Coote to be the nominated supervisor for Designbuild. The Tribunal understands that Mr Coote still holds a license as a nominated supervisor. Such a role would not require Mr Coote to be involved in the business management of a building contractor. The role would be an onsite supervision of work quality. The Tribunal understands that there are no findings against the quality of Mr Coote's hands on work or his work as a nominated supervisor. The Tribunal is not satisfied that Mr John Coote would not be fit and proper to hold a nominated supervisor's authority. In fact he continues to do so.

Would Mr John Coote exercise a significant influence over Designbuild NSW Pty Ltd? Or would Mr John Coote exercise a significant influence over the operation and management of Designbuild Pty Ltd.'s business?

1. Mr John Coote is a 50 % shareholder in Designbuild - but he is not a director. He would be an employee of Designbuild. Neither of these roles entitles Mr John Coote to exercise control over the operation and management of Designbuild's business. James Coote is the sole director of Designbuild. The responsibility for the operation and management of Designbuild's business legally rests with him
2. Further, the evidence of both John and James Coote was that as a matter of practice, John Coote would not be involved in the operation and management of Designbuild's business. This role would be undertaken by James Coote.
3. The Tribunal did not have evidence that Mr John Coote would exercise a significant influence over the operation and management of Designbuild's business.
4. The Applicant's submissions referred to the importance of the Coote family background in the building trade. The Tribunal was not satisfied that this meant there would be influence exercised over the operation and management of Designbuild's business by John Coote in circumstances where it was not his role to do so.
5. It would be expected that as nominated supervisor that John Coote would exercise significant influence over the quality of Designbuild's work.

Conclusion

1. The Respondent refused Mr John Coote a building contractor licence in April 2014 on the grounds that he was not fit and proper to hold that licence because of his failure to answer a declaration in the application form correctly. Further he was a director of Nationwide which failed to comply with a CTTT order. That finding has not been subject of this hearing.
2. In the Tribunal's hearing Mr Coote acknowledged that he had answered the question incorrectly and would now read and answer such a declaration differently.
3. Mr Coote's role with Designbuild would be as nominated supervisor - responsible for ensuring all work was undertaken to required standard. He has had no finding made against the quality of his work in this regard.
4. Mr John Coote is a close associate of Designbuild with a relevant financial interest as a shareholder and potentially as an employee.
5. The Tribunal was not satisfied Mr John Coote would exercise a significant influence over the operation or management of Designbuild.
6. In these circumstances the Tribunal sets aside the Respondent's decision to refuse a company contractor licence to Designbuild NSW Pty Ltd 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: 27 May 2016