Alahakone v Queensland Building Services Authority [2013] QCAT 371

CITATION: Alahakone v Queensland Building Services Authority [2013] QCAT 371 PARTIES: Mr Bruno Thilantha Alahakone (Applicant) V Queensland Building Services Authority (Respondent) APPLICATION NUMBER: GAR235-12 MATTER TYPE: General administrative review matters HEARING DATE: 31 May 2013 HEARD AT: Brisbane DECISION OF: Mr C Brabazon QC, Member DELIVERED ON: 24 July 2013 DELIVERED AT: Brisbane ORDERS MADE: 1. Set aside the Queensland Building Services Authority decision of 1 May 2012, declaring Bruno Alahakone to be an excluded individual in relation to the appointment of liquidators of Capricornia Developments Pty Ltd on 23 April 2012. 2. Order that Mr Alahakone be a permitted individual, in relation to that event. CATCHWORDS: BUILDERS – Licences and registration – Building contractor„s licence – permitted individuals - excluded individual Queensland Building Services Act 1991 – ss 56AD8, 56AD8B Younan v QBSA [2010] QDC 158 -- 1 of 7 -- 2 APPEARANCES and REPRESENTATION (if any): APPLICANT: Self represented RESPONDENT: Ms R.M. DeLuchi, of Robinson Locke, Litigation Lawyers REASONS FOR DECISION The issues [1] Mr Alahakone is an architect and builder. He had worked for Multiplex, a large building company. He had the experience of managing at least six building projects up to $500,000 in value, as the director of Capricornia Developments Pty Ltd - “Capricornia”. Liquidators of that company were appointed on 23 April 2012. It was insolvent. Its trade creditors suffered losses. [2] On 1 June 2012 the Queensland Building Services Authority (QBSA) refused to classify him as a “permitted individual.” He became an “excluded individual” – he cannot be a builder. [3] This is a review of the QBSA‟s decision. QCAT must consider all the evidence and submissions, and exercise the discretion conferred by s56AD(8) of the Queensland Building Services Authority Act 1991 (QBSA Act). [4] He can be a permitted individual only if he “took all reasonable steps to avoid the coming into existence of the circumstances which resulted in the happening of the relevant events.” The reasonableness of his behaviour has to be assessed by reference to what was known by him at the time, without the benefit of hindsight. His steps are to be considered objectively, having regard to his circumstances, after a wide enquiry about how he conducted any business. See Younan v QBSA [2010] QDC 158. [5] In deciding if all reasonable steps were taken the matters set out in section 56AD(8A) must be considered. Other matters might also be considered, when 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 – section 56AD(8B). [6] Capricornia was short of money because of difficulties with two building jobs – the Ceylon Inn and 63 Bertha Street. [7] The QBSA submits that there were two failures in dealing with the Ceylon Inn job – a failure to invoice the work in a timely manner, and a subsequent failure to obtain payment. [8] In relation to the Bertha Street property, it is common ground that the major party in its redevelopment, Mr Macks, failed to complete his part of -- 2 of 7 -- 3 the deal. It is said against Mr Alahakone, that he failed to exercise Capricornia‟s rights against Macks, and preferred his own interests over Capricornia‟s interests by proceeding with and completing the building work. [9] Finally, it is said that Mr Alahakone failed to maintain accurate financial records for Capricornia. [10] Before considering the evidence, it will be helpful to make two observations. First, Ms DeLuchi, who appeared for the QBSA, provided very helpful and concise written submissions about the application of the QBSA Act to the facts. Her opening and closing submissions set out the statutory provisions, and decisions about their application. [11] Secondly, Mr Alahakone appeared on his own behalf. He gave evidence, and was cross examined at length by Ms DeLuchi. There is no reason to doubt the honesty and accuracy of his evidence. The most significant result was considerably more evidence about events, and his role in them, than appeared in his brief handwritten submissions to the QBSA, in the document, “Application to be categorised as a permitted individual.” The Ceylon Inn [12] Mr Alahakone contracted with a company, AUA Pty Ltd. He said that its directors owned the land with an existing building. The contract was for the renovation and enlargement of the building, for use as a restaurant – the Ceylon Inn. [13] Four progress claims were made. The first three were paid promptly. The last was for some $110,000. That figure was negotiated at a meeting on 5 March 2010. There was no complaint about the quality of the work. AUA agreed with Mr Alahakone that the final $110,385 would be paid on 9 March 2010. [14] Capricornia‟s contractors had been paid off by Christmas 2009. AUA got possession of the property, even though the final payment had not been made, when the work was practically completed. Clauses 9 and 14 of the standard contract terms provided that there was no entitlement to possession until after that final payment was made. Mr Alahakone said that it was the practice to give possession after practical completion. AUA had promptly paid the earlier progress claims. Its directors said they would make the final payment. He accepted that assurance. [15] However, they made no payment on 9 March 2010. Time passed. There was regular contact with AUA, and assurances that payment would be made. But it did not pay. Then it was agreed that the deadline was 1 September 2010, with interest of 12%. Mr Alahakone, in effect, said that the payment of interest meant that his company could accept that delay. [16] AUA still did not pay. Mr Alahakone got advice from the Master Builders office in September 2010. Further negotiations were recommended. -- 3 of 7 -- 4 Conferences were arranged with AUA, to be held in October and November 2010. Mr Jeff Poultney from Master Builders was to have been the negotiator. On each occasion the AUA representatives did not appear. [17] He made use of the Master Builders scheme, which gave him a free consultation with their solicitors. He asked for their advice. He had put up a fence around the site. He accepted the advice, that the fence should be removed. [18] In December 2010 there was a meeting with the AUA people at the Alahakones‟ home. They agreed to make full payment by March 2011. They agreed to pay 10% of the claim, each week. But that did not happen. [19] January 2011 saw the Brisbane floods. On 2 February 2011 Mr Alahakone collapsed on a work site. It seems that he suffered a mental breakdown. He was admitted to hospital. On 7 February 2011 he was subject to an involuntary treatment order, which was in place until March 2011. That is, he was locked up and restrained from going to work. [20] He made further efforts to recover the $110,000.00. In March 2011 he retained solicitors, Archabald and Brown, and got advice from them. Legal action would be risky and expensive, in relation to the $110,000.00 owed. Costs of $50,000 were mentioned with 50% prospect of success. Those solicitors wrote a letter of demand to AUA. They also advised Mr Alahakone that potential costs, if legal proceedings were started, would be high, compared to the outstanding amount of $110,000.00. Summary proceedings or tactics were not available – such as lodging a caveat, relying on the charging chase in clause 15(f) of the building contract, or relying on the adjudication procedures under the Building and Construction Industry Payment Act 2004. [21] In March he also turned to debt collectors, Building and Construction Payment Solutions. Mr Matthew Giles of that business asked for an upfront payment of $9,000.00, and advised him of the risks of further proceedings. But, as AUA seemed to have no money, and no significant assets, he believed that it would have been a waste of money to proceed further. He was told that AUA had also retained solicitors. For the first time, they alleged that there were defects in the Ceylon work, or that work had not been done. Their solicitors‟ letter of 3 March 2011 set out some complaints. It said that Capricornia owed $146,229.00 to AUA. [22] He turned to more informal ways of trying to recover the debt. He engaged a commercial debt collector, called Garry Tanna, and maintained contract with Mr Grey Ward, of Commercial Mutual Investigators. It seems that they had no success. [23] As time passed, it became apparent to him that it would be a waste of money to proceed further against AUA. As far as he knew, that company had no significant assets. -- 4 of 7 -- 5 Bertha Street [24] Mr Alahakone and a man called Macks had an agreement to improve and sell a house property at Goodna. He had a 25% interest, and Macks 75%. They had a loan facility with the Commonwealth Bank, to $400,000. Mr Alahakone guaranteed the loan, and gave security over his own house. [25] Capricornia commenced work. The existing house had to be renovated, and the land subdivided into two blocks. Mr Alahakone said that he contributed $211,000 of his money to the project. He and his partner expected to make a profit from the sale of the restored house and land, and the vacant block of subdivided land. He was to receive the vacant land – Mr Macks was to get the house and front land. The work proceeded until May 2010, without disruption. [26] Unforseen difficulties upset their plans. First, Mr Macks walked away from the project when it was nearing completion. It seems that he had a matrimonial dispute. In June 2010 Macks told him that he was unable or unwilling to continue with the project. He wanted Capricornia to recover its costs, when the land was sold. [27] Mr Macks made no further monetary contribution. Mr Alahakone reminded him that their agreement meant he had a liability to contribute to the project – particularly if it made a loss. He unsuccessfully tried to recover money because of outstanding invoices that Mr Macks should have paid. Mr Macks did agree to fully cooperate in an effort to sell the land. Mr Alahakone decided not to pursue Mr Macks with legal action. There were several reasons. Mr Macks was involved in the matrimonial dispute. He believed that the prospects of successful litigation and the recovery of legal costs, were not good. [28] In any case, the value of the land and the work being done on it, led him to think but the value of the completed project would allow him to pay Capricornia‟s debts. [29] That optimistic view depended on the valuation of the land, by a real estate agent - $515,000 for the renovated house, and $190,000 for the rear land. The properties were put on the market in October 2010. [30] Mr Alahakone believed that Mr Macks would make no further financial contribution. He failed to pay the outstanding invoices. He reasonably thought that his best course would be to finish the job, which was nearing completion, so that the blocks could be sold. He still expected a profit. Then in January 2011, floods affected the land, and the value of their project. He got no profits. Despite the assessed value of $515,000.00 it was sold for a much lower $395,000. Then that contract was not completed, as the buyer defaulted. The Commonwealth Bank commenced recovery action. The project, at first promising, became a disaster. -- 5 of 7 -- 6 [31] It was submitted that he should have walked away from the project. However, he believed that the best course was to finish the job, so that the land could be sold at the best price. It is hard to see that he can now be criticized for taking such a usual course. [32] He had taken advice from a solicitor called Bressington, from James White Lawyers. He paid money into the company on the strength of the $515,000 valuation. He expected a surplus – but the financial impact of the floods stopped that. He tried to lodge a caveat over the land, but an officer of the Commonwealth Bank advised him that it would be ineffective. [33] By 30 June 2011, Capricornia‟s total debt amounted to some $177,000. He thought that he had the resources to cover that debt. He injected $245,000.00 into the company, after selling a property in Victoria. Conclusions [34] First, the Ceylon Inn debt. In substance, it was submitted for the QBSA that the causes of the “relevant event” were Mr Alahakone‟s failure to invoice for the work in a timely manner, and AUA‟s failure to pay, and his subsequent failure to obtain payment. [35] Certainly, AUA‟s failure to pay was the dominant cause. Bearing in mind the Younan approach, his conduct in trying to achieve payment can hardly be criticized. An apparently reliable client was revealed to be determined not to make the final payment. His responses, set out above, were appropriate in all the circumstances as they unfolded. He did take all reasonable steps to avoid the circumstances that led to the company‟s failure. [36] The Bertha Street failure is in the same category – plus the unexpected impact of the nearby flood. He made a decision not to pursue Macks. It is not possible to reach the conclusion that such a decision was wrong or ill advised. It is said that he preferred his own interests, in deciding to finish the building work. That is an unlikely complaint. His decision to complete the job seems to have been a sensible step, calculated to allow the property to be sold for the best price. [37] It is said that he might have done other things. But most of that is speculative. His efforts to complete and sell the project were quite understandable. Also, his time locked up in hospital has to be taken into account. [38] Finally, it is said that he failed to obtain financial advice, to protect the company‟s position, and to keep proper books of account (See 56AD (8A) of the Act. Para 15 of the closing submissions criticized him for failing to maintain accurate financial records, and for confusing company and personal affairs. It was suggested that, “the assistance of a bookkeeper or accountant would be a reasonable step”. -- 6 of 7 -- 7 [39] As it happens, his wife Nisha has a commerce degree, and works fulltime as an accountant. He says that she maintained the accounts and records of the company. That ability is consistent with the accounting records in evidence here. The Ceylon Inn‟s various costs, for example, are set out in a “purchase order register”, together with comments about the payment of costs to CD. Progress claims are made in a “progress claim summary” document. Photographs of the completed job were kept. The GST records were in order. [40] The only contentious item seems to be a liability to repay a housing loan, made by the Commonwealth Bank. Mr Alahakone‟s evidence should be accepted that it was in fact a personal liability, and not a company liability. [41] It is notable that the QBSA‟s solicitors have been able to prepare balance sheets and profit and loss statements for the company. Presumably, that could not have been done without access to extensive financial records. [42] The result here is that the QBSA‟s complaints about lack of accounting and financial records should not be accepted. [43] It should be accepted, that he did take all reasonable steps to avoid the coming into existence of the financial difficulties about the two jobs. [44] The formal order is this: 1. Set aside the Queensland Building Services Authority decision of 1 May 2012, declaring Bruno Alahakone to be an excluded individual in relation to the appointment of liquidators of Capricornia Developments Pty Ltd on 23 April 2012. 2. Order that Mr Alahakone be a permitted individual, in relation to that event. -- 7 of 7 --