DJ Builders & Son Pty Ltd (in liq), in the matter of DJ Builders & Son Pty Ltd (in liq) v Queensland Building and Construction Commission

Federal Court of Australia|2019-11-29|Before: Reeves J

By close of business on 6 December 2019, the parties are to consult, prepare and submit to my chambers a set of draft orders to reflect the contents of these reasons. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 Until 29 March 2016, DJ Builders & Son Pty Ltd (in liquidation) held a builder's licence issued by the Queensland Building and Construction Commission (the QBCC). On that date, the QBCC decided to suspend its licence for failing to meet the "Minimum Financial Requirements" for such a licence. 2 Forward Pack Pty Ltd holds 50% of the share capital in DJ Builders. It wants DJ Builders to pursue a proceeding against the QBCC for negligence and breach of contract connected with the circumstances in which the QBCC suspended its building licence and, so it claims, caused it to be placed in liquidation. Accordingly, it has filed this application, supported by a draft statement of claim, seeking leave nunc pro tunc to continue this proceeding in DJ Builders' name. It has applied for that leave under the Court's "inherent [sic - implied] power". Its reliance on the implied power of the Court was necessary because part 2F1.1A and, therefore s 237, is not available in circumstances where the company is in liquidation (see Chahwan v Euphoric Pty Ltd (2008) 227 FLR 43; [2008] NSWCA 52 at [125] per Tobias JA, with Beazley and Bell JJA agreeing). 3 While Mr Glen Oldham, the liquidator of DJ Builders, does not consent to Forward Pack being granted the leave sought, he also does not oppose it provided that the company's creditors are fully protected against any adverse costs orders or similar consequences that may flow from the proceeding being pursued. 4 The QBCC, the respondent, is, perhaps unsurprisingly, opposed to Forward Pack's application. It contends that the claims Forward Pack wishes to pursue are, at their highest, "only just arguable" and do not meet the "solid foundation" requirement (see below at [6]). It submitted that it would therefore be futile to allow it to continue this proceeding in DJ Builders' name.

THE PRINCIPLES 5 Ordinarily the liquidator should be left to decide whether or not to commence proceedings on behalf of a company in liquidation (see Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1988) 17 FCR 344 at 350 per Gummow J). However, there are certain limited circumstances where an application of this kind can succeed. They are, in very brief summary, if the applicant can show that the proceeding has sufficient prospects of success to warrant it being pursued and the practicalities associated with the proceeding are addressed. The attitude of the liquidator to the proposed proceeding is also a relevant consideration. 6 The requirement that the proceeding should have sufficient prospects of success has been variously expressed as "some arguable foundation" (see Aliprandi v Griffith Vintners Pty Ltd (in liq) (1992) 6 ACSR 250 at 252 per McLelland J); that "the claim [has] a solid foundation" (see Cadima Express Pty Ltd v Deputy Commissioner of Taxation (1999) 157 FLR 424; [1999] NSWSC 1143 at [45] per Austin J, citing Vagrand Pty Limited (In liquidation) v Fielding (1993) 41 FCR 550); "sufficiently arguable" (see Commissioner for Revenue (ACT) v Slaven (2009) 178 FCR 334; [2009] FCA 744 at [46] per Rares J); and the Court should not permit the proceeding to be pursued if it is "a waste of time" (see HFGC Nominees (No 2) Pty Ltd v Hancock As Liquidator of 246 Arabella Investments Pty Ltd (In Liq) (2010) 80 ATR 442; [2010] FCA 1005 at [10] per Perram J). These decisions have dealt with a range of statutory provisions and circumstances which, while similar to the present, are not the same. In that event, noting that I do not consider there is any significant difference in these various approaches, I propose to apply the "sufficiently arguable" test propounded by judges of this Court. 7 The practicalities mentioned above have included, pertinent to this matter, whether the company and liquidator have been properly secured, in respect of any adverse costs order they may sustain as a result of the contemplated proceedings or any other costs, charges and expenses they may incur in the winding up consequent upon the continuation of this proceeding (see Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 577; [2008] NSWSC 551 at [34] per Barrett J and El-Saafin & Anor v Franek & Ors (No 2) [2018] VSC 683 at [167] per Lyons J). It should be noted, however, that satisfaction of these criteria for the exercise of the power does not compel the grant of leave (see Challis v Hoffmann (2017) 121 ACSR 585; [2017] NSWSC 870 at [28] per Gleeson JA).

THE PRACTICALITIES 8 I will deal with the practicalities matter first. At the outset of this application, Forward Pack offered a limited indemnity secured by a personal undertaking from Mr Lawrence Doré, a director of Forward Pack and DJ Builders. That undertaking was to be supported by Mr Doré keeping the savings in his two personal superannuation funds, of which he is the trustee, available to meet any call on the indemnity concerned. However, during the course of the hearing, the fragility of that form of security became increasingly apparent. As a consequence, in reply submissions, Forward Pack and Mr Doré put forward the following proposal: … $125,000 to be deposited in cash [to be held by the Court] or in a controlled moneys account administered by Mr Scoglio and [myself] within 30 days of the grant of leave[,] if leave is granted, and, thereafter, security for costs to be dealt with on [the] evidence … on a staged basis. Mr Scoglio is the solicitor for the liquidator. 9 The main concern the liquidator and the QBCC had with this proposal was that approximately $150,000 was required to cover the costs already incurred to date. This figure was later reduced by counsel to approximately $100,000. Accepting that figure is accurate, it will obviously be necessary to commence the second stage of this process soon after the proffered amount ($125,000) has been provided under the first stage. Subject to this qualification and to this indemnity and its supporting security being properly expressed in the orders to be made, I consider this proposal is adequate to meet the practicalities matter mentioned above.

THE PROSPECTS IN THE PROCEEDING 10 There remains to consider the first matter mentioned above, namely whether the proceeding has sufficient prospects of success or is sufficiently arguable to warrant it being continued in the name of the company. It is convenient to begin the consideration of that matter with some further details of the factual context to this application. 11 DJ Builders held a licence issued by the QBCC which permitted it to undertake residential home building work in Queensland. This licence was subject to a condition that DJ Builders must, at all times, "comply with the 'minimum financial requirements' … namely, that it [had] net tangible assets greater than $0, as calculated in accordance with the 'Minimum Financial Requirements Guidelines'". 12 In late 2015 and early 2016, the QBCC conducted a Minimum Financial Requirements audit of DJ Builders. That audit began on 5 November 2015 when the QBCC sent a written notice pursuant to s 50C(2) of the Queensland Building and Construction Commission Act 1991 (Qld) (the QBCC Act) to DJ Builders advising it that the QBCC had information which satisfied it that there were reasonable grounds for concern that the company did not satisfy the minimum financial requirements mentioned above and requesting access to its financial records such that the QBCC could undertake a compliance audit. 13 On 2 December 2015, DJ Builders provided a partial answer to the QBCC's notice. In response, on the following day, the QBCC sent DJ Builders a Notice of Reasons for Proposed Cancellation or Suspension of DJ Builders' building licence on the basis of its alleged non-compliance with the QBCC's written notice. 14 On 10 December 2015, DJ Builders' accountants, HW One Accountant, provided the QBCC with further information in response to the QBCC's written notice. 15 On 26 February 2016, the QBCC sent DJ Builders a second Notice of Reasons for Proposed Cancellation or Suspension giving notice of its intention to suspend DJ Builders' licence. This time the notice claimed that DJ Builders did not meet the minimum financial requirements. The reasons provided in that notice focused, in part, on the accountants' further information mentioned above. They included the following: (a) $492,681 of work in progress is in dispute and thus deemed to be uncollectable; (b) $104,498 in trade debtors is deemed to be uncollectable; and (c) as a result of the above, DJ Builders had negative net tangible assets of $566,793. 16 On 18 March 2016, DJ Builders' accountants sent a letter to the QBCC setting out the details of a proposed capital restructuring, a debt restructuring and a cash injection which, they claimed, would mean that DJ Builders would be compliant with the minimum financial requirements. 17 On 21 March 2016, the QBCC responded stating that, for it to consider this proposal, DJ Builders was required to provide certain updated financial information by 24 March 2016. DJ Builders was unable to provide the requested information by that time. 18 As a consequence, on 29 March 2016, DJ Builders' licence was suspended due to a failure to meet the minimum financial requirements. That same day, DJ Builders' accountants provided the QBCC with the updated financial information it had earlier requested. 19 On 6 April 2016, the QBCC advised DJ Builders' clients that DJ Builders' licence had been suspended. 20 On or about 19 April 2016, DJ Builders applied to the Queensland Civil and Administrative Tribunal (the Tribunal) seeking a review of the QBCC's decision to suspend its licence. 21 On 4 May 2016, following the QBCC's consent, the Tribunal stayed DJ Builders' licence suspension pending the determination of its review application. 22 Despite this stay, DJ Builders did not receive a number of progress payments that were due to it under various building contracts to which it was a party. On or about 18 July 2016, the members of DJ Builders passed a special resolution that it be placed into creditors' voluntary winding up pursuant to s 491 of the Corporations Act 2001 (Cth) (the Act) and Mr Oldham be appointed as its liquidator pursuant to s 499 of the Act.

THE CONTENTIONS 23 With respect to the cause of action in tort, Forward Pack claimed that the QBCC had a duty to DJ Builders to take reasonable care in conducting the Minimum Financial Requirements audit because of the relationship between the QBCC and DJ Builders through the exercise of its statutory power to conduct the audit under the QBCC Act citing Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1; [1999] HCA 59 (Crimmins) per McHugh J at [62]. Forward Pack identified the following key features of the relationship that, it claimed, gave rise of the aforementioned duty: the QBCC's status as the government regulator of the building industry in Queensland; the fact that the QBCC had a high degree of control over DJ Builders as it was able to determine whether DJ Builders was able to continue to hold a building licence and undertake building work; and the vulnerability of DJ Builders to decisions of the QBCC regarding its building licence. Forward Pack argued that, by reason of those features, DJ Builders was an entity that could suffer loss that was reasonably foreseeable in the event that the QBCC did not conduct the Minimum Financial Requirements audit with reasonable care. 24 Forward Pack argued that the QBCC had breached its duty of care by failing to: "consider, or failing to properly consider, the material set out in HW One Accountant's letter dated 18 March 2016"; "obtain an expert opinion from a forensic accountant in relation to the material set out in HW One Accountant's letter dated 18 March 2016, particularly in circumstances where Ms Dennis-Weller did not have the appropriate qualifications or experience to make a determination without the assistance of an expert opinion from a forensic accountant or other appropriately qualified expert"; "provide DJ Builders with 21 days to provide a response to the request for information made by the QBCC on 21 March 2016, as required by [s] 50C of the QBCC Act, instead demanding that DJ Builders provide a response to by 9.00 am on 29 March 2016, which was the first business day after the Easter long weekend in 2016"; "ensure that the information available to the QBCC in undertaking its financial audit was accurate, timely and reliable"; and "consider whether any alternative courses of action, such as imposing a licence condition on the [b]uilding [l]icence, was appropriate to address the QBCC's concerns in relation to DJ Builders' compliance with the [minimum financial requirements] before suspending the [b]uilding [l]icence". 25 With respect to the cause of action in contract, Forward Pack claimed that the terms of the contract were express and implied. The express terms were, it claimed, set out in the QBCC Act and the QBCC's policies and procedures. The implied terms were, it claimed, implied as a matter of law and because they are necessary to give business efficacy to the contract. Further, Forward Pack claimed that the following were express terms of the contract: that it was a condition of the building licence to, at all times, comply with the minimum financial requirements; and that the QBCC had the power to conduct an approved audit program to determine whether DJ Builders continued to satisfy the minimum financial requirements. Forward Pack claimed that it was an implied term of the contract that the QBCC would perform its approved audit program under the Minimum Financial Requirements Policy with due care and skill and in accordance with the principles of natural justice. 26 Forward Pack argued that the QBCC breached that implied term by failing to: "consider, or properly consider, the material set out in HW One Accountant's letter dated 18 March 2016"; "obtain an expert opinion from a forensic accountant in relation to the material set out in HW One Accountant's letter dated 18 March 2016"; "provide DJ Builders with 21 days to provide a response to the request for information made by the QBCC on 21 March 2016, as required by [s] 50C of the QBCC Act"; "ensure that the information available to the QBCC in undertaking its financial audit was accurate, timely and reliable"; and "consider whether any alternative courses of action, such as imposing a licence condition on DJ Builders' building licence, was appropriate to address the QBCC's concerns in relation to DJ Builders' compliance with the [minimum financial requirements] before suspending DJ Builders' building licence". 27 Forward Pack ultimately contended that these proposed claims were sufficiently arguable to justify leave being granted. 28 The QBCC submitted that the starting point for an application such as the present one was that the liquidator has the authority and responsibility for determining whether the company in liquidation should commence proceedings and that therefore an applicant needed to make out "a somewhat special case". As for Forward Pack's proposed claims, as is already noted above, the QBCC submitted that they were, at best, "only just arguable". With respect to the alleged breach of contract, the QBCC denied that the building licence constituted a contract between it and DJ Builders. The QBCC did agree that it was a condition of the building licence that DJ Builders must comply with the minimum financial requirements and that it had the power to conduct an approved audit program to determine whether DJ Builders satisfied the minimum financial requirements. 29 Finally, with respect to the liquidator's attitude, Forward Pack submitted that Mr Oldham had confirmed that he had not undertaken any investigation of the claims it wished to pursue against the QBCC or formed a view as to the merits of those claims as he had not been put into funds to do so.

CONSIDERATION 30 It is well-established that a public authority may be subject to a common law duty of care when it exercises a statutory power or performs a statutory duty: Crimmins at [62]. However, as the QBCC pointed out in its submissions, the instances in which such an authority has been found liable for pure economic loss for a breach of that common law duty are rare. 31 Nonetheless, it cannot be said that the existence of such a liability is unarguable. This fact presumably prompted the QBCC's contention that the claims advanced by Forward Pack are "only just arguable". Whether that liability exists variously depends on factors such as vulnerability, foreseeability of harm, the knowledge of the defendant and the degree and nature of its control of the plaintiff, which in turn depend upon the facts and circumstances of each individual case. 32 It is not appropriate, in determining this application, to conduct a mini trial, or even to undertake a detailed assessment of the competing contentions of fact and law made by Forward Pack and the QBCC on whether this liability arose in this matter. It suffices to say that, having regard to the history of the dealings between DJ Builders and the QBCC with respect to the Minimum Financial Requirements audit as set out above, I consider the negligence claim Forward Pack has advanced is sufficiently arguable to justify leave being granted to allow it to be pursued. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.

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