Arthurs v Queensland Building and Construction Commission [2014] QCATA 155

CITATION: Arthurs v Queensland Building and Construction Commission [2014] QCATA 155 PARTIES: Michael James Arthurs (Applicant/Appellant) v Queensland Building and Construction Commission (Respondent) APPLICATION NUMBER: APL349-13 MATTER TYPE: Appeals HEARING DATE: 30 April 2014 HEARD AT: Brisbane DECISION OF: Senior Member Oliver, Presiding Member Member Howe DELIVERED ON: 2 June 2014 DELIVERED AT: Brisbane ORDERS MADE: 1. The time for filing the application for leave to appeal or appeal is extended to 16 August 2013 2. The decision of the Tribunal dated 17 May 2013 confirming that the applicant is an excluded individual in relation to the liquidation of MTS Developments Pty Ltd is set aside. 3. The decision of the Commission made on 28 September 2011 that the applicant is an excluded individual for that relevant event is set aside. CATCHWORDS: INFLUENTIAL PERSON – where applicant a 50% shareholder in a company – whether in a position to control or substantially influence the conduct of the company's affairs – where applicant promoter of a company – where no evidence of control or substantial influence Queensland Building and Construction Commission Act 1991 (Qld), s 56AC Queensland Civil and Administrative Tribunal -- 1 of 9 -- 2 Act 2009 (Qld), s 61 APPEARANCES and REPRESENTATION (if any): APPLICANT: Mr Bowden of Counsel instructed by Quinn and Scattini Lawyers RESPONDENT: Ms Heyworth-Smith of Counsel instructed by Robinson Locke, Litigation Lawyers. REASONS FOR DECISION [1] Mr Arthurs is a registered builder. In 2011 he was a 50% share holder in a company, MTS Developments Pty Ltd (‘MTS’). The company was incorporated for the specific purpose of developing two blocks of land it owned by constructing two project homes on them and then their sale. Quite independently of the company, Mr Arthurs was the builder who built the houses for MTS. After the houses were sold, for some inexplicable reason, the company was put into liquidation under a Creditor’s Voluntary Winding-Up, rather than simply deregistered. [2] The appointment of the liquidator triggered s 56AC of the Queensland Building and Construction Commission Act 1991 (Qld) (‘the Act’) which automatically categorises a director or secretary or ‘influential person’, as an excluded individual. The effect of being so categorised is that the individual’s building licence is automatically cancelled. The Commission contends that by virtue of Mr Arthurs’ 50% shareholding in MTS and applying the definition of ‘influential person’ under the Act, he is an excluded individual. [3] Mr Arthurs applied to review the Commission’s decision in the Tribunal essentially on the grounds that in all the circumstances he was not an influential person and did not fall within the definition of ‘influential person’ under the Act. Merely because he held 50% of the shares in MTS did not mean, ipso facto, that he was an influential person. [4] A hearing was conducted on 2 October 2012. The Tribunal delivered its decision on 17 May 2013 and confirmed the Commission’s decision that Mr Arthurs was an excluded individual because he was a person who was in a position to substantially influence the conduct of the company’s affairs. [5] Mr Arthurs then filed an application for leave to appeal or appeal that decision. Unfortunately, he was late in filing his application and it was not filed until 16 August 2013. Because of that, he also filed an application to extend the time for filing the application for leave to appeal pursuant to s 61 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (‘the QCAT Act’). -- 2 of 9 -- 3 [6] The delay in filing the application for leave to appeal was explained to our satisfaction. The delay was occasioned by a wait for the transcript of the hearing so that a proper assessment could be made as to whether or not an appeal would have some prospects. The Commission complained of prejudice because of the public interest aspects of an excluded person continuing to hold a licence. Even though he has been categorised as an excluded individual he also applied to be categorised as a permitted individual, which, if accepted by the Commission, would have allowed him to continue to hold his licence. That application was refused and that decision is also under review. The effect of all of this is that he can continue to hold his licence until the review of that decision is concluded. The prejudice complained of has been overcome to some extent because of the expedition given to the hearing of this appeal. This will then bring forward the hearing of the various review applications reviewing the Commission’s decision not to categorise Mr Arthurs as a permitted individual. [7] The real issue in the extension of time application is whether the applicant has a meritorious case which would warrant the favourable exercise of discretion. For the reasons below, we consider that not only does the application have merit, leave to appeal should be granted, the appeal should be allowed and the decision of the Commission set aside. Therefore, the Tribunal will direct that the time for filing the application for leave to appeal or appeal is extended to 16 August 2013. Appeal [8] This appeal is brought pursuant to s 142 of the QCAT Act. Subsection 3(b) provides that an appeal on a question of mixed law and fact can only be brought with the leave of the Tribunal. Here the applicant is essentially arguing that the conclusion reached by the Tribunal below that he was an influential person was wrong and was not a conclusion that was reasonably open on the evidence. Alternatively, he did not fall within the definition of influential person in the Act. [9] As has been stated many times in this Appeal Tribunal, leave to appeal will ordinarily only be granted where there is some question of general importance upon which further argument, and a decision of the Appeal Tribunal, would be to the public advantage; or, there is a reasonably arguable case of error in the primary decision and a reasonable prospect that the applicant would obtain further substantive relief. Another question sometimes asked is, is leave necessary to correct a substantial injustice to the applicant, caused by some error? [10] Section 147 of the QCAT Act provides that the appeal must be decided by way of a rehearing, with or without the hearing of additional evidence and the Appeal Tribunal can confirm or amend the decision, or set aside the decision and substitute its own decision. [11] For the reasons below, we are of the opinion that leave should be granted because the conclusion reached that Mr Arthurs was an influential person -- 3 of 9 -- 4 was not open on the evidence and the mere fact that he was a 50% shareholder in MTS did not, ipso facto, make him an influential person. Background [12] Mr Arthurs and the other shareholder in MTS, Shaun Davison, had worked together for some time on housing development projects. They were involved in a project for the construction of 12 houses at Waterford in 2007, a development in Marsden after that which involved 28 houses and following that, a development of 18 houses at Boronia Heights.1 [13] After the Marsden development, two blocks of land were left over and were undeveloped. There was difficulty in disposing of this land because of the effects of the global financial crisis. Mr Davison and Mr Arthurs decided between them that Mr Arthurs would build two houses on the blocks at cost price plus 5% builders margin. The improved land would then be sold and the profit, presumably less building costs and the 5% margin, would be divided equally between Mr Davison and Mr Arthurs.2 [14] To facilitate this project, Mr Arthurs said they sought advice from an accountant Mr Houston. He advised them to set up a company to hold the land and for Mr Arthurs and Mr Davison to each hold 50% of the shares in the company. Shaun Davison’s wife, Trudy Davison, was to be the sole director of the company. There is no direct evidence as to when this arrangement was discussed and agreed upon between Mr Arthurs and Mr Davison. Mr Arthurs was not specifically questioned about the timing of the general agreement to develop the Marsden land vis-à-vis the incorporation of the development company. There was no finding by the learned Member below about the timing of the arrangement. [15] It seems fairly clear from the evidence given by Mr Arthurs however, that the general agreement about that development concept between him and Mr Davison had been struck by the time they sought financial advice from Mr Houston3. It is unclear what that advice was other than Mr Arthurs was advised to take up a shareholding in the proposed development company. We consider the only probative inference that can be drawn from the evidence adduced is that the agreement had been struck before the incorporation of MTS. [16] The agreement or arrangement then, in its simplest terms, was that the land left over from the Marsden development would be transferred to a suitable holding company; Mr Arthurs would construct two houses on the blocks of land at his own expense at cost price with a 5% margin; the land would be sold and the profits divided equally between Mr Davison and Mr Arthurs. To facilitate this arrangement, MTS was incorporated. It took a transfer of the land and held the land whilst Mr Arthurs went about building the houses. After they were built and the land correspondingly 1 Transcript at page 9 lines 15-25; also Reasons at [8]. 2 Reasons at [8]. 3 Transcript at page 10 lines 45-46. -- 4 of 9 -- 5 improved, they were sold and the profits divided equally in accordance with the shareholding. [17] In respect of Mr Arthurs involvement in MTS, he said in a statement filed in the original proceeding4 that: “3. The shares in MTS were issued to me for the sole reason that I could share in any potential profits of MTS. 4. I never took part in the management of MTS and all decisions with respect to the management of the company were made by the director Trudy Joy Davison.” [18] Ms Davison in a statement provided to the Tribunal said: “5. The shares in MTS were issued to Michael James Arthurs for the sole purpose that he could share in any potential profits of MTS. 6. It was never contemplated that Arthurs would take part in the decision making or management of MTS and all decisions with respect to the management of the company were made by me in my capacity as a director … 8. Accordingly Arthurs was in no position to substantially influence the company’s affairs …” The Cross-examination of Mr Arthurs [19] Mr Arthurs’ involvement in MTS, his relationship with Mrs Davison and her involvement and her husband’s involvement in MTS was explored in cross-examination at the hearing. After Mr Arthurs said Mrs Davison had referred him to an accountant (Mr Houston), he was asked whether Mrs Davison gave him any advice about “business matters… company matters… financial matters… building matters… development strategy… cashflow or capitalisation”, to all of which he answered “no”5. [20] He told the Tribunal that he did all the building work “separate from the development company”6, and that he lent money to Mr Davison to finance the MTS “development”.7 [21] He confirmed that Mrs Davison played no role in the building operation8. Asked “in relation to MTS”, Mr Arthurs said Mrs Davison had no role in the building operation, no role in acquisition of the Marsden land, no role in the sourcing of finance and no role in the agreement about distribution of profit from the development9. All the decisions about the “development plan” were made between Mr Davison and Mr Arthurs. Mr Arthurs was not 4 Exhibit 1. 5 Transcript at page 9, line 5-17. 6 Transcript at page 10, line 9. 7 Transcript at page 10, line 5-10. 8 Transcript at page 12, line 28-29. 9 Transcript at page 12, line 31-43. -- 5 of 9 -- 6 privy to any role she had in that in association with her husband; that was a matter between the Davisons10. [22] All of which evidence fails to address the issue as to Mr Arthurs position to control or substantially influence the conduct of the affairs of MTS. The Decision Below [23] The learned Member concluded that Mr Arthurs made it clear in his oral evidence that all of the “major decisions which would need to be made by the company” were made by him and Mr Davison, not the director, Mrs Davison. Further, the learned member concluded that “on his own evidence he exercised decision making control with Mr Davison in regard to the business of the company”. A critical examination of the evidence given both in statement form and in the course of the hearing simply does not support that conclusion. [24] The term “promoter” is not defined in the Corporations Act 2001 (Cth) but the role is well known to the law and covers the pre-incorporation activities of individuals taking steps to incorporate a company. A promoter owes fiduciary duties to the company they incorporate and one of those duties is to appoint an independent board of directors and make such disclosure as necessary to allow the board to act independently in the interests of the company11. There is no evidence that this duty was not met by Mr Arthurs and Mr Davison with respect to MTS. [25] Most of the evidence relied on as major decisions which would need to be made by the company or constituting the business of the company, can be identified as common steps taken in the promotion of a company. Those steps are to be inferred as chronologically preceding incorporation of MTS. It seems clear on Mr Arthurs’ evidence that the development plan concerning the two Marsden properties (which included the decision that Mr Arthurs do the building work and fund that separately himself) was agreed upon, then the accountant’s advice taken and only then the company incorporated. From the ASIC search it appears the company was not purchased as a shelf company but incorporated directly for this venture. [26] The development plan comprising the construction of houses by Mr Arthurs, the sourcing of the development land, the agreement about distribution of profits on sale of the developed parcels, all of that appears to have been decided between the joint venture parties, Mr Arthurs and Mr Davison prior to the incorporation of MTS. The building work was never any part of the business of MTS, according to Mr Arthurs, and there was no evidence presented to the contrary. [27] It was therefore entirely accurate for Mr Arthurs to say in cross- examination that Mrs Davison had no role in decisions about those 10 Transcript at page 13, line 4-11. 11 Tracy v Mandalay Pty Ltd (1953) 88 CLR 215 at 235. -- 6 of 9 -- 7 matters. Those decisions were not the business of MTS. The business of MTS was limited to the sale of the two house and land packages after construction. Mrs Davison’s role as director was similarly limited to that narrow activity as well. [28] The only decisions that could possibly have been made as business of the company, and this by inference only, is perhaps the execution of documents accepting transfer of land to MTS, the appointment of a real estate agent to sell the house and land packages and then execution of any transfer documentation to purchasers. Also perhaps thereafter the distribution of profits to the shareholders. Those inferences fall out of the known facts that MTS acquired the land, then sold it developed. There is no evidence of any other decision making required as the business of the company other than the decision to appoint the liquidator. [29] The Commission says the liquidation was signed off by Mr Arthurs. Mr Bowden has pointed out however that under s 491(1) of the Corporations Act a special resolution needs to be passed for that to occur, and special resolution required the vote of Mr Davison as a shareholder holding 50% of the shares. [30] Therefore, it is difficult to reconcile the conclusions of fact reached by the learned Member with the evidence that was before him. Furthermore, there is no evidence as to the role or influence Mr Shaun Davison had in any decision making for the company, although Mrs Davison states that she made all decisions in respect of the management of the company. Her evidence is not contested and there appears to be no reason why it should not be accepted.12 Shareholding [31] The Commission’s submission is that, merely by reason of him holding a 50% shareholding in MTS, Mr Arthurs was in a position to substantially influence the company’s affairs. That is, by virtue of such significant shareholding, he was in a position to call a meeting of the company and had a substantial vote in the conduct of the company’s affairs. Accordingly s 51AC(2) is triggered making Mr Arthurs an excluded individual. [32] The expression “influential person” for a company means “an individual, other than a director or secretary of the company, who is in a position to control or substantially influence the conduct of the company's affairs, including, for example, a shareholder with a significant shareholding, a financier or a senior employee."13 12 Precision Plastics Pty Ltd v Demir [1975] 132 CLR 362 at 371; Ellis v Wallsend District Hospital [1989] 17 NSWLR 553 at 587. 13 QBCC Act Schedule 2. -- 7 of 9 -- 8 [33] Though shareholders are the final beneficiaries of company profits, share ownership and the management or control of a company’s business are not synonymous. “It is idle to suggest that it is the shareholders who ordinarily control the business and the business activities of a company…. Important decisions, whether involving questions of policy or not, are invariably taken by the directors who are ultimately responsible to the company in general meeting for the conduct of the company's business operations.”14 [34] A person with a shareholding of 5% or more in a company is entitled to require directors of the company to call a meeting of members15. There is no greater entitlement where 50% of shares are held. Both shareholders in MTS held 50% of the shares. Where the shareholders were in disagreement Mrs Davison as director had the casting vote. Accordingly the significance of the example of a “significant shareholding” used in the meaning of influential person in the Act surely cannot be the entitlement attached to shareholding to call a meeting of members. The concomitant of any such proposition is that all individuals with a 5% shareholding or more in a company are also therefore, by such 5% holding, to be deemed an influential person for a company. [35] Hence previous decisions pointing out that shareholding entitlement may not by itself establish that a person is in a position to control or substantially influence the conduct of the company’s affairs. “A substantial shareholding must be linked to an ability to influence the affairs of a company.”16 “Each case must be considered on its own facts.”17 [36] By s14D of the Acts Interpretation Act 1954 (Qld) “If an Act includes an example of the operation of a provision – (a) the example is not exhaustive and (b) the example does not limit but may extend the meaning of the provision and (c) the examples in the provision are to be read in the context of each other and the other provisions of the Act, but, if the example in the provisions so read are inconsistent, the provision prevails.” [37] One must not allow examples in legislation to limit the ordinary meaning of words used in the legislation, or the meaning of words used in definitions18. To conclude as suggested that a shareholding of 50% by itself constitutes a person an influential person for a company limits and gives no meaning to the preceding words of the definition “an individual, 14 Federal Commissioner of Taxation v Commonwealth Aluminium Corporation Ltd (1980) 30 ALR 449 per Stephen Mason and Wilson JJ at 460. 15 s249D(1)(a) Corporations Act. 16 Nation v QBSA (2006) QCCTB 114 at [61]. 17 McClintock v QBSA [2011] QCATA 310 at [40]. 18 Curr v Brown [2002] QDC 702 at [22]. -- 8 of 9 -- 9 other than a director or secretary of the company, who is in a position to control or substantially influence the conduct of the company’s affairs….” The focus of issue intended by the definition is control of a company’s affairs, de jure (director or secretary) or de facto (influential person). The examples given in the definition identify, and also limit, the class of individuals having a connection with the company suggestive by that very connection of having the potential to control or influence the affairs of a company. But such individuals must still be shown to be in a position to control or substantially influence the conduct of the company’s affairs. [38] Mr Arthurs 50% shareholding in MTS did not of itself establish him to be a person in a position to control or substantially influence the conduct of the affairs of MTS. Other indicia of control [39] Ms Heyworth-Smith also submitted that Mr Arthurs was in a position to substantially influence the conduct of the company’s affairs, not only because of his 50% shareholding, but because he was in a position to control the development of the land through the construction of the two houses. He was in control of the building costs associated with the construction, the timing of the construction and the profit that might be generated from the sale of the two properties. He was effectively then a financier to MTS. [40] It was not put to Mr Arthurs during his cross-examination that he exercised control, or was in a position to exercise control, in the way suggested by Ms Heyworth-Smith, through the building process, controlling costs and subsequently profit of the project. We are asked to draw these inferences from the simple fact of the building process. There is nothing else. There is no evidence that Mr Arthurs manipulated or was in a position to manipulate costs in this way. One might note, if Mr Arthurs had acted in this way, that would expose him to litigation, not only from the other shareholder, Mr Davison, but also the company liquidators. There is no suggestion that this was ever a consideration or possibility. [41] The only reasonable and appropriate conclusion to be drawn from the evidence is that all relevant decisions as to the operations of the company were made by Mrs Davison and all other decisions about the project, including the cost of construction, were made prior to incorporation of the company and were outside the business of the company. Conclusion [42] This was a one off project and the evidence demonstrates that all of the major decisions suggested to have been needed to be made by the company were made pre-incorporation. [43] We are of the opinion that the conclusions reached were not open on the evidence and therefore leave to appeal must be granted, the appeal allowed and the decision below set aside. -- 9 of 9 --