Younan v Queensland Building Services Authority [2011] QCA 1

SUPREME COURT OF QUEENSLAND

CITATION: Younan v Queensland Building Services Authority [2011] QCA 1

PARTIES: ANTHONY YOUNAN (applicant/appellant/respondent) v QUEENSLAND BUILDING SERVICES AUTHORITY (respondent/respondent/appellant)

FILE NO/S: Appeal No 5229 of 2010 / DC No 1464 of 2009

DIVISION: Court of Appeal

PROCEEDING: Application for Leave s 118 DCA (Civil)

ORIGINATING COURT: District Court at Brisbane

DELIVERED ON: 1 February 2011

DELIVERED AT: Brisbane

HEARING DATE: 14 October 2010

JUDGES: McMurdo P and Fraser JA and Cullinane J / Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS: 1. Grant leave to appeal, allow the appeal, and set aside the order made in the District Court on 22 April 2010 that the case be remitted to the Queensland Civil and Administrative Tribunal for rehearing in accordance with that Court’s reasons. / 2. Order that pursuant to s 56AD(8) of the Queensland Building Services Authority Act 1991 (Qld) the respondent is categorised as a permitted individual for the relevant events of the order to wind up Cavalier Homes (Gold Coast) Pty Ltd and the appointment of liquidators to that company on 18 June 2007. / 3. Otherwise dismiss the appeal. / 4. The applicant pay the respondent’s costs of and incidental to the application for leave to appeal and the appeal, to be assessed on the standard basis.

CATCHWORDS: APPEAL AND NEW TRIAL – APPEAL - PRACTICE AND PROCEDURE – QUEENSLAND – WHEN APPEAL LIES – BY LEAVE OF COURT – GENERALLY – where the respondent was a shareholder in and the sole director of a building company Cavalier Homes (Gold Coast) Pty Ltd – where the major shareholder in Cavalier was T & T Building Pty Ltd of which the respondent was the sole director and building licence nominee – where in June 2007 Cavalier was wound up and a liquidator appointed – where the respondent applied to the applicant Authority to become a “permitted individual” under s 56AD of the Queensland Building Services Authority Act 1991 (Qld) in order to continue to hold a building licence – where the authority refused the application – where the Commercial and Consumer Tribunal affirmed the Authority’s decision – where the respondent appealed the Tribunal’s decision to the District Court – where the primary judge held that the Tribunal had made an error of law, set aside the decision and directed a rehearing – where the Authority applied to this Court for leave to appeal the decision of the primary judge – whether leave should be granted – whether the primary judge erred in deriving from s 56AD(8A) relevant considerations under s 56AD(8) – whether the primary judge misconstrued s 56AD(8) / Corporations Act 2001 (Cth), s 112, s 588FB, s 588FDA, s 588G / Commercial and Consumer Tribunal Act 2003 (Qld) (repealed), s 100 / District Court of Queensland Act 1967 (Qld), s 118 / Queensland Building Services Authority Act 1991 (Qld), s 56AC(2), s 56AC(4), s 56AC(7), s 56AD(8), s 56AD(8A), s 56AD(8B), s 56AE, s 56AF / Queensland Building Services Authority and Other Legislation Amendment Act 2007 (Qld), s 32 / Ace Property Holdings P/L v Australian Postal Corp [2010] QCA 55, cited / Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21, cited / Salomon v A Salomon & Co Ltd [1897] AC 22, applied / Younan v Queensland Building Services Authority [2009] CCT QR 008-08; [2009] QCCTB 91, related / Younan v Queensland Building Services Authority [2010] QDC 158, approved

COUNSEL: P Davis SC, with N Andreatidis, for the applicant/appellant / R Derrington SC, with L Bowden, for the respondent

SOLICITORS: Queensland Building Services Authority, Legal Services, for the applicant / Nicholas Radich Solicitors for the respondent

[1] MARGARET McMURDO P: I agree with Fraser JA’s reasons and proposed orders.

[2] FRASER JA: The respondent, Mr Younan, was a shareholder in and the sole director of Cavalier Homes (Gold Coast) Pty Ltd (“Cavalier”), a building company that traded from about December 2002. The major shareholder in Cavalier was T & T Building Pty Ltd (“T & T”), a company of which Mr Younan was the sole director and building licence nominee. On 18 June 2007 it was ordered on the application of a creditor that Cavalier be wound up and liquidators appointed to that company.

[3] The Queensland Building Services Authority Act 1991 (Qld)¹ attached serious consequences to those events for Mr Younan and T & T. Each of the winding up order and the appointment of the liquidator was a “relevant company event” under s 56AC(2) of the Queensland Building Services Authority Act. The effect of ss 56AC(4) and (7) was that Mr Younan became an “excluded individual” for each “relevant company event” and T & T became an “excluded company” for each “relevant event” (a term which was defined in the Act as including a “relevant company event”). Section 56AE precluded the respondent Authority from granting a person a licence if the person was an excluded individual or an excluded company for a relevant event. Under s 56AF the Authority was obliged to give an excluded individual for a relevant event a written notice stating why the Authority considered the individual was an excluded individual for the relevant event and that the individual may apply to the Authority to be categorised as a permitted individual for the relevant event. Section 56AF(3) obliged the Authority to cancel the individual’s licence if the individual did not apply to be categorised as a permitted individual within 28 days after the Authority gave the appropriate notice, or the Authority refused such an application and the individual did not successfully apply for a review of the Authority’s decision.

[4] The critical provision for present purposes is s 56AD(8). It provided:

“The authority may categorise the individual as a permitted individual for the relevant event only if the authority is satisfied, on the basis of the application, that the individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event.”

[5] In effect, Mr Younan and T & T could not continue to hold a building licence unless the Authority was satisfied that Mr Younan had taken all reasonable steps to avoid the coming into existence of the circumstances that resulted in the order to wind up Cavalier and the appointment of the liquidator of that company. (If the Authority was so satisfied, a question might arise whether it was obliged or merely empowered to categorise Mr Younan as a “permitted individual”, but that question is not in issue here.)

[6] Mr Younan applied to the Authority to become a “permitted individual” under s 56AD. The Authority refused that application. Mr Younan applied for review of that decision to the former Commercial and Consumer Tribunal of Queensland. The Tribunal affirmed the Authority’s decision.² Mr Younan then applied for leave to appeal from the Tribunal’s decision under s 100 of the Commercial and Consumer Tribunal Act 2003 (Qld) (repealed). A judge of the District Court held that the Tribunal had made an error of law, set aside the Tribunal’s decision, and directed a rehearing in the Queensland Civil and Administrative Tribunal (which had replaced the former Tribunal).³

[7] The Authority has now applied pursuant to s 118 of the District Court of Queensland Act 1967 (Qld) for leave to appeal against the decision in the District Court. What is in issue is the proper construction and application to the facts of the requirement in s 56AD(8) “that the individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event”. The basis of Mr Younan’s opposition to the grant of leave to appeal was that the primary judge’s decision was undoubtedly correct. In my view the proposed appeal is arguable and the issue has sufficient public importance to justify the grant of leave to appeal.

Factual background

[8] The relevant evidence was largely uncontentious. I will summarise the facts as they were found by the Tribunal. There was no challenge to those findings of fact, although the Court was referred to some of the evidence upon which they were based.

[9] Cavalier was incorporated on 6 July 2001. On 20 December 2002 Cavalier made a franchise agreement with an unrelated company, Cavalier Homes (Aust) Pty Ltd (“the franchisor”). The franchisor assigned 35 contracts to build residential homes to Cavalier. Between January and September 2003 Cavalier entered into an additional 49 contracts. Building costs increased sharply and the prices under the building contracts, which were set by the franchisor, became insufficient to enable Cavalier to build the homes at a profit. Before June 2004 Mr Younan decided that the business had failed and that Cavalier’s operations would be wound down. He made that decision after consulting with the company’s financial controller and general manager, who were respectively an accountant and lawyer. The Tribunal found that up to this point the company’s affairs were conducted on the basis of proper professional advice.⁴

[10] Cavalier was then released from the franchise agreement and it did not make any new building contracts. T & T made advances to Cavalier totalling more than $500,000. Much of that was repaid from the proceeds of Cavalier’s building contracts but when Cavalier went into liquidation it still owed $114,278 to T & T. Cavalier had no assets from which to pay that debt. With the assistance of T & T’s advances, all of the work required under Cavalier’s contracts was completed and all of its maintenance commitments were met, with one exception. On 20 July 2004,⁵ after Mr Younan had decided to wind down Cavalier’s business, one of the owners with whom Cavalier had contracted served a claim in the New South Wales Trader and Tenancy Tribunal. The claimant contended that Cavalier constructed his house so badly that it should be demolished and rebuilt from scratch. His claim for $400,000 reflected that contention. Cavalier obtained legal advice and made offers based upon a 2004 valuation of the house property. The claimant rejected the offers. Cavalier defended the claim and counterclaimed for an unpaid part of the contract price.

[11] The New South Wales Tribunal did not accept the argument that the claimant’s house should be demolished. It accepted the evidence of Cavalier’s expert witness as to the cost of rectifying the building. It held that Cavalier was liable to pay the claimant rectification costs of $61,111 and liquidated damages for delay of $36,750, and that $20,107.40 should be deducted as money payable by the claimant to Cavalier under the building contract. On 19 July 2006 the New South Wales Tribunal ordered Cavalier to pay the claimant $77,753.60.

[12] Cavalier had no means of satisfying that order. It had no assets and it owed money to T & T. The claimant issued a statutory demand. Mr Younan offered to buy the claimant’s property but the claimant was not satisfied with the offered price and was not prepared to compromise the ordered amount. Mr Younan was not prepared to pay that amount with his own money or to cause T & T to pay it. On the claimant’s application Cavalier was wound up and a liquidator was appointed on 18 June 2007.

Summary of the Tribunal’s reasons

[13] The Tribunal considered that Mr Younan’s offer to settle after the New South Wales Tribunal’s decision was not a reasonable step because the amount he offered was too small and Cavalier did not appeal against the New South Wales Tribunal’s decision.⁶ The Tribunal noted that the offer to buy the claimant’s property after he issued a statutory demand was not based upon a current opinion as to market value. The Tribunal thought that the offer “effectively ignored” the New South Wales Tribunal’s decision; that it was “neither measured nor appropriate”; and that Mr Younan was willing to withdraw the financial support provided by T & T to the company and thereby let the company fall, without any opportunity for the claimant to realise upon his “legitimate expectation, given the Tribunal’s unchallenged decision in his favour.”⁷

[14] The Tribunal’s rationale for refusing Mr Younan’s application to review the Authority’s decision not to categorise him as a “permitted individual” was encapsulated in paragraph 22 of the Tribunal’s reasons:

“In the above circumstances then, there was not so much the taking of reasonable steps to avoid the relevant circumstances, namely the continuation of an unsatisfied judgment and an unchallenged statutory demand, which gave rise to the liquidation of Cavalier, but moreover, a persistent intent on the part of the applicant, as evidenced by the offers, to avoid the reasonable steps, in terms of section 56AD, which became necessary as a result of the Tribunal’s decision. Those reasonable steps post the Tribunal’s decision were either an appeal against that decision or payment of the amount of the Tribunal’s award to [the claimant]. In my view, the applicant cannot rely upon the offers made subsequent to the Tribunal’s award as being reasonable steps to avoid the relevant circumstances. Further, the applicant’s withdrawal of the financial support of [T & T] was clearly not a reasonable step towards avoiding such circumstances, the corollary being that a reasonable step in terms of the sub-section, would have been to have continued financing Cavalier’s liabilities from other profitable companies within the group, namely [T & T].”

Summary of the primary judge’s reasons

[15] The primary judge held that the offers to settle made after the New South Wales Tribunal’s decision and after the claimant had issued a statutory demand did not cause Cavalier to go into liquidation and were irrelevant to the issue the Tribunal had to decide.⁸ Neither Mr Younan nor T & T, nor anyone else, was under any legal obligation under the legislation regulating companies or under the Queensland Building Services Authority Act to put additional money into Cavalier; the fact that T & T had provided financial support in the past did not mean it was under an obligation to provide further financial support; and there was no evidence that T & T did not meet any obligation it had to provide financial support.⁹

[16] The primary judge considered that the fundamental flaw in the Tribunal’s reasoning was that it assumed that where a company becomes insolvent the shareholders are obliged to pay the company’s debts; that is the antithesis of limited liability, which is the basis of all limited companies. The Queensland Building Services Authority Act did not depart from the principle of limited liability enshrined in the Corporations Act 2001 (Cth) and there was no indication that the legislative intention was to do away with the system of limited liability.¹⁰ The primary judge observed that directors were obliged to act in the interests of the company rather than in their personal interests. If T & T had provided additional financial support to Cavalier in order to preserve Mr Younan’s building licence and if T & T had subsequently gone into liquidation, Mr Younan might have found himself in difficulties because he had acted in a way which was contrary to the interests of T & T by advancing monies to a related company, which had no means of repaying it, in order to protect his personal interest in retaining his licence. Such a payment by T & T would appear to be an uncommercial transaction under s 588FB of the Corporations Act 2001 (Cth), it might be an unreasonable transaction within s 588FDA, and if Cavalier borrowed money when it was insolvent and Mr Younan knew that he would appear to have breached s 588G of the Corporations Act 2001 (Cth). The primary judge considered that the Tribunal had simply ignored the wide range of statutory obligations applicable to Mr Younan in his capacity as a director of T & T.¹¹

[17] The primary judge held that the implication in the Tribunal’s decision - that any failure of directors or others to put in extra money to meet an insolvent company’s obligations was unreasonable, unless the relevant individual or individuals and related companies lacked the financial capacity to do so – would render s 56AD futile.¹² Section 56AD(8) was not directed to such a situation. The primary judge considered that this was shown most clearly by the terms of s 56AD(8A), which required the Authority, in deciding whether an individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of a relevant event, to have regard to action taken by the individual in relation to the following matters:

"(a)keeping proper books of account and financial records;

(b)seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business;

(c)reporting fraud or theft to the police;

(d)ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantees;

(e)putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts;

(f)making appropriate provision for Commonwealth and State taxation debts.”

[18] The primary judge observed that those matters were concerned with the prudent management of a company as an ongoing business or, in the case of (b) something done before the conduct of business or entry or financial business arrangements, so that the focus of the subsection was on prevention rather than dealing with the problems that had arisen (except (c), which was concerned with a problem that had arisen outside the individual’s control).¹³

[19] The primary judge considered that the Tribunal had missed the point in relation to the New South Wales Tribunal’s order: where Cavalier’s business had otherwise been wound up and had no assets, there was nothing it could do; “it was plainly insolvent, it had no control over the matter, and liquidation depended simply on whether the creditor pressed that step”.¹⁴ The Tribunal was mistaken in treating the question as being whether Mr Younan had taken all reasonable steps to deal with the circumstances that resulted in a happening of the relevant event. What s 56AD(8) required was consideration of whether the individual took all reasonable steps to avoid the coming into existence of those circumstances.¹⁵ The relevant event was the appointment of the liquidator and the circumstances which resulted in its happening was the order of the New South Wales Tribunal made in a context where Cavalier’s business had been wound down and the company had no assets to meet the order; the Tribunal did not thoroughly address whether Mr Younan took all reasonable steps to avoid the coming into existence of the order made by the New South Wales Tribunal.¹⁶

[20] Because the Tribunal had misinterpreted s 56AD(8) and failed thoroughly to address a relevant issue, it was appropriate to send the matter back to the Queensland Civil and Administrative Tribunal to hear and determine the review of the Authority’s decision afresh in accordance with the primary judge’s reasons.¹⁷

Consideration

[21] The Authority argued that the primary judge wrongly derived from the terms of s 56AD(8A) that s 56AD was directed only to the prudent management of acompany as an ongoing business or something done before the conduct of business or entry into financial or business arrangements; that the primary judge misconstrued s 56AD(8) by holding that the phrase “took all reasonable steps” was limited to steps that the individual was legally obliged to take; and that the primary judge addressed the wrong question by enquiring whether the relevant circumstances would not have arisen if Mr Younan had acted differently. The Authority also argued that the absence of an obligation in the shareholders to pay a company’s debt was irrelevant, because the question was whether or not Mr Younan took reasonable steps to avoid the circumstance which gave rise to insolvency.

[22] At the relevant time the Act included s 56AD(8B):¹⁸

“Nothing in subsection (8A) prevents the authority from having regard to other matters for deciding whether an individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of a relevant event.”

[23] Accordingly s 56AD(8A) could not be regarded as a comprehensive statement of the matters which should be taken into account or as justifying an implication that the only relevant considerations under s 56AD(8) concerned the prudent management or establishment of the company’s business, although it seems likely that those will be the relevant considerations in most cases.

[24] I think it quite clear that, in the determination of what are reasonable steps for the purpose of s 56AD(8), it is necessary to take into account the principle of limited liability enshrined in the Corporations Act 2001 (Cth). As the primary judge noted, there is no indication in the Queensland Building Services Authority Act that this fundamental and pervasive principle is to be disregarded. It does not follow that the phrase “took all reasonable steps” refers only to legally mandated steps, and I do not accept that the primary judge held that it was limited in that way. Rather, whether or not an individual is legally obliged to take a step is one of the relevant considerations. However, on the Tribunal’s findings of fact, there was no consideration which indicated that Mr Younan’s omission to do that which he was not obliged to do (to cause T & T to pay Cavalier’s debt) was a failure to take a reasonable step. The relevant considerations, particularly that Cavalier’s insolvency was outside Mr Younan’s control, indicated that it was not a reasonable step.

[25] An error in the Tribunal’s contrary approach was manifested in its statements, quoted earlier in these reasons, that Mr Younan’s offer “effectively ignored” the New South Wales Tribunal’s decision, that Mr Younan let the company fall without any opportunity for the claimant “to realise upon his legitimate expectation, given the Tribunal’s unchallenged decision in his favour”, and that Mr Younan avoided the reasonable steps “which became necessary as a result of the Tribunal’s decision”. Those statements assumed that the New South Wales Tribunal’s order imposed an obligation of some undefined character upon Mr Younan, but the order was made only against Cavalier. In light of the basic legal distinction between a company and the company’s directors and shareholders, a distinction that was emphatically confirmed more than a century ago in Salomon v A Salomon & Co Ltd,¹⁹ the order cannot itself have engendered in the claimant or anyone else a reasonable expectation that his debt would be paid by or out of the assets of any person other than Cavalier.

[26] What circumstance then justified a conclusion that Mr Younan’s failure to cause T & T to lend money to Cavalier was an omission to take a reasonable step to avoid “the continuation of an unsatisfied judgment and an unchallenged statutory demand, which gave rise to the liquidation of Cavalier”?²⁰ As I have indicated, the principle of limited liability required rejection of the view that the mere fact that T & T owned most of the shares in Cavalier itself justified such a conclusion. The circumstance upon which the Authority’s argument focussed was that Mr Younan had earlier caused T & T to lend money to Cavalier. That could not itself make it reasonable for Mr Younan to cause T & T to lend further money to Cavalier once Mr Younan knew that it was irremediably insolvent and the money would never be repaid. I would reach that conclusion even without reference to the possible consequences for Mr Younan in taking such a step in light of the statutory obligations applicable to him in his capacity as a director of T & T, but the primary judge’s discussion of those possible consequences points in the same direction.

[27] On the Tribunal’s findings, Cavalier appears to have been a competently established and run company. A submission made for the Authority that Cavalier could never succeed unless it was propped up by T & T was inconsistent with those findings, which were not challenged in the District Court. There was no suggestion that, for example, Cavalier was insufficiently capitalised, and the Tribunal accepted that its employees and consultants were competent. The effect of the Tribunal’s findings was that Cavalier failed for reasons outside the control of its management. Mr Younan then appropriately organised an orderly winding up of the company’s assets, and T & T contributed a substantial sum of money to Cavalier’s external creditors without having had any legal obligation to do so. The Authority pointed to the circumstance that the decision to wind down the operations of the company was taken before the company ceased to enter into new building contracts in June 2004. That did not render it reasonable for T & T to assume Cavalier’s debt, particularly in the absence of any suggestion that Cavalier made its contract with the claimant after it decided to wind down its operations or that Cavalier acted unreasonably in deciding to enter into any new building contract.

[28] Finally, I should mention the submission for the Authority that the question in the proposed appeal was:

“Where a licensed company is trading at a loss and only remained solvent by virtue of loans made to it, has a director of that company failed to take all reasonable steps to prevent insolvency of the company if he/she fails to take steps to secure continued funding?”

[29] In my opinion that question is not raised by the proposed appeal. The question assumes that T & T’s loans had the effect of rendering Cavalier solvent. That seems unlikely, given that Cavalier’s business had become unprofitable, T & T’s loans were apparently consumed in the fulfilment of Cavalier’s obligations, and Cavalier was unable to repay more than a hundred thousand dollars of the money lent to it. Rather, the apparent effect of T & T’s loans was to improve Cavalier’s short term liquidity so that it could wind up its affairs in an orderly way, presumably to the benefit of most of the building owners with whom Cavalier had contracted.

[30] I would affirm the primary judge’s decision to set aside the decision made by the Tribunal.

Orders

[31] The primary judge ordered a rehearing, but the Authority accepted that, if the Court did not accept the Authority’s challenge to the primary judge’s decision, it would be unnecessary to remit the matter to the Tribunal. The parties agreed that in that event the Court should allow the appeal for the limited purpose of setting aside the primary judge’s order remitting the case for rehearing and instead ordering that the respondent be categorised as a permitted individual for the relevant event. Otherwise the appeal should be dismissed with costs.

[32] Accordingly the appropriate orders are:

1. Grant leave to appeal, allow the appeal, and set aside the order made in the District Court on 22 April 2010 that the case be remitted to the Queensland Civil and Administrative Tribunal for rehearing in accordance with that Court’s reasons.

2. Order that pursuant to s 56AD(8) of the Queensland Building Services Authority Act 1991 (Qld) the respondent is categorised as a permitted individual for the relevant events of the order to wind up Cavalier Homes (Gold Coast) Pty Ltd and the appointment of liquidators to that company on 18 June 2007.

3. Otherwise dismiss the appeal.

4. The applicant pay the respondent’s costs of and incidental to the application for leave to appeal and the appeal, to be assessed on the standard basis.

[33] CULLINANE J: I have had the opportunity to read the reasons of Fraser JA in this matter. I agree with those reasons and the orders proposed.

Footnotes

1. The relevant reprint is reprint 8F. ↩

2. Younan v Queensland Building Services Authority [2009] CCT QR 008-08. ↩

3. Younan v Queensland Building Services Authority [2010] QDC 158. ↩

4. Younan v Queensland Building Services Authority [2009] CCT QR 008-08 at [16]. ↩

5. Younan v Queensland Building Services Authority [2009] CCT QR 008-08 at [11] refers to 20 June 2004 but as was accepted in the District Court that was wrong, see Younan v Queensland Building Services Authority [2010] QDC 158 at [17]. ↩

6. Younan v Queensland Building Services Authority [2009] CCT QR 008-08 at [18]-[20]. ↩

7. Younan v Queensland Building Services Authority [2009] CCT QR 008-08 at [21]. ↩

8. Younan v Queensland Building Services [2010] QDC 158 at [16], [17]. ↩

9. Younan v Queensland Building Services [2010] QDC 158 at [19]. ↩

10. Younan v Queensland Building Services [2010] QDC 158 at [20]. The primary judge referred to s 112 of the Corporations Act 2001 (Cth) and to cases in which the principle of limited liability was found to be significant in other contexts: (2009) 239 CLR 129 at 161, paragraph [88] and [2010] QCA 55 at [87].