Ericson v Queensland Building Services Authority [2012] QCAT 206

CITATION: Ericson v Queensland Building Services Authority [2012] QCAT 206 PARTIES: Ian James Ericson (Applicant) v Queensland Building Services Authority (Respondent) APPLICATION NUMBER: GAR378-10 MATTER TYPE: General administrative review matters HEARING DATE: On the papers HEARD AT: Brisbane DECISION OF: Kenneth Barlow SC, Member DELIVERED ON: 22 May 2012 DELIVERED AT: Brisbane ORDERS MADE: 1. The decision of the respondent to cancel the applicant’s licence be set aside. 2. In substitution for that decision, the suspension of the applicant’s licence be terminated. 3. It be a condition of the applicant’s licence, for a period of 15 months from the date of this decision, that he provide to the QBSA an independent review report in accordance with the Financial Requirements for Licensing: a) by no later than 31 July 2012, in respect of the period from now to 30 June 2012; b) by no later than 30 October 2012, in respect of the 12 month period and the 3 month period ending on 30 September 2012; c) by no later than 14 February 2013, in respect of the 12 month period and the 3 month period ending on 31 December 2012; d) by no later than 30 April 2013, in respect of the 12 month period and the 3 month period ending -- 1 of 8 -- 2 on 31 March 2013; and e) by no later than 31 July 2013, in respect of the 12 month period ending on 30 June 2013. CATCHWORDS: Building licence – review of cancellation – non-compliance with Financial Requirements for Licensing Queensland Building Services Authority Act 1991, ss 29, 35, 48 APPEARANCES and REPRESENTATION (if any): The proceeding was determined on the papers under s 32 of the Queensland Civil and Administrative Tribunal Act 2009. REASONS FOR DECISION Introduction [1] Until 11 October 2010 the Applicant, Mr Ericson, held a contractor’s licence to carry out building work, particularly concreting. The licence was issued to him by the respondent (QBSA), pursuant to the Queensland Building Services Authority Act 1991 (QBSA Act). [2] On 25 June 2009, QBSA suspended Mr Ericson’s licence. The ground of suspension was his alleged failure to satisfy the financial requirements under the QBSA’s policy known as “Financial Requirements for Licensing”. [3] On 11 October 2010, QBSA cancelled Mr Ericson’s licence. [4] In this application, Mr Ericson seeks a review of the decision to cancel his licence. The application is made pursuant to s 86(1)(c) and s 87 of the QBSA Act, which give this Tribunal the jurisdiction to review a decision to suspend or cancel a licence. Under ss 19 and 20 of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act), the purpose of the review is to produce the correct and preferable decision and the Tribunal must hear and decide the review by way of a fresh hearing on the merits. Statutory background [5] Section 35 of the QBSA Act relevantly provides that a contractor’s licence is subject to the condition that the licensee’s financial circumstances must at all times satisfy the relevant financial requirements stated in the policies of the Queensland Building Services Board. The Board is established under s 8 of the QBSA Act and among its roles is to make and review policies governing the administration of the Act. Under s 9A, a policy has effect once it is approved by regulation and published in the gazette. [6] From time to time, the Board has made a policy known as “Financial Requirements for Licensing” (FRL). One version of this policy was -- 2 of 8 -- 3 effective from 1 July 2006. A slightly varied version of this policy became effective from 1 July 2010. However, there were no differences between the versions that are material to this application. [7] Each of the versions of the FRL states that its aims are to promote more financially viable businesses and to foster more professional business practices in the building industry. [8] Under section 2.4 of the FRL, a licensee must have sufficient net tangible assets (NTA) required for the level of allowable annual turnover stated in table 1. A licensee must not have a negative NTA. [9] Under section 2.5 of the FRL, licensees must demonstrate that they meet the minimum current ratio of 1:1, calculated as: current assets current liability [10] The FRL also relevantly provides that: a) “assets” includes debtors (if collectable); b) “current assets” means assets which in the ordinary course of business would be realised within 12 months after the end of the reporting period or held primarily for trading purposes, as defined in Australian Accounting Standards AA36; c) “debtors” means only debtors that are collectable; d) “disallowed assets” means an entity’s assets, or portion thereof, which are unable to be relied upon for the purpose of meeting the requirements in the policy (eg uncollectable debts); e) “net tangible assets” (NTA) is calculated using the following formula: NTA = (entity’s assets) – (entity’s liabilities) – (entity’s intangible assets). Factual background [11] A licensee is effectively required to demonstrate to QBSA each year that it meets the minimum prescribed requirements for licensees under the FRL. This is done by providing to the QBSA a report undertaken by a qualified person (in essence, an accountant) setting out the prescribed financial information, including the annual turnover, the current ratio and the net tangible assets of the licensee. [12] In October 2008, the QBSA commenced a compliance audit on Mr Ericson under s 50C of the QBSA Act. In the course of the audit, it noted that two of the assets treated as current assets in the financial statements of Mr Ericson were debts owed to him by companies for whom he had undertaken work but which were disputed by those companies. At the -- 3 of 8 -- 4 time, the total of those two debts was over $7 million. The QBSA determined to disallow those debts on the basis that they were then the subject of litigation, resulting in Mr Ericson having a negative net tangible asset position. As a result, on 25 June 2009 the QBSA suspended Mr Ericson’s licence. [13] Relevantly, Mr Ericson disputed his suspension on the ground that the two substantial debts were properly characterised as current assets. Relevantly, he relied upon a debt owed to him by Hansen & Yuncken Pty Ltd (Hansen) which, by 29 May 2009, amounted to $4,803,866.60. Mr Ericson relied in particular upon an adjudication decision made on 2 July 2009, pursuant to part 3 of the Building and Construction Industry Payments Act 2004 (BCIP Act). By that decision, the adjudicator had determined that Hansen owed Mr Ericson that sum and it was due for payment (with interest accruing on it) as a progress payment pursuant to a contract between them. [14] Relevantly, the BCIP Act provides to the effect that a contractor is entitled to a progress payment and, if the progress payment is disputed, the contractor may apply for adjudication of the payment claim. An adjudicator is to decide the amount of the progress payment, the date on which it became payable and the rate of interest payable on the amount due. These matters are to be decided having regard to the provisions of the relevant construction contract and other factors stated in s 26 of that Act. [15] Section 29 of the BCIP Act relevantly provides that, if an adjudicator decides that the respondent is required to pay an adjudicated amount, the respondent must pay the amount to the claimant on or before the relevant date. [16] It appears that, after the adjudication decision in this case, Hansen applied to the Supreme Court to restrain Mr Ericson taking any steps to enforce the adjudication decision. An injunction to that effect was granted by the Supreme Court, on an interlocutory basis, on 23 July 2009. The action (in which Hansen presumably was challenging the adjudicator’s decision) then proceeded slowly toward trial, which had not occurred by late 2010. There is no evidence before me as to whether that trial has proceeded and, if so, whether or not Mr Ericson has been successful. [17] It was on the basis of the injunction that QBSA decided that the debt owed by Hansen should be treated by Mr Ericson and by QBSA as a contingent asset rather than as a current asset comprising a collectable debt, and therefore it should be disallowed (that is, not taken into account) in determining whether Mr Ericson met the relevant financial requirements. [18] Mr Ericson disputed QBSA’s construction, relying in particular on the obligation to pay under s 29 of the BCIP Act. [19] In essence, the dispute between Mr Ericson and the QBSA was as to whether, despite the fact that the relevant debts were the subject of litigation and therefore disputed, they were still “current assets” as defined in the FRL. -- 4 of 8 -- 5 [20] As I have noted, that definition refers to Australian Accounting Standards AA36. It should be noted at this stage that AA36 and all Australian Accounting Standards were in fact superseded many years ago by standards published by the Australian Accounting Standards Board, which are known as AASBs. Nevertheless, the FRL have never been updated to remove the reference to AA36 and to refer instead to the current standard, which does have some material differences. [21] The FRL do require that all work performed by the appropriately qualified person in terms of reporting the financial status of a licensee must be performed in accordance with all applicable Australian Accounting and Auditing Standards and other mandatory reporting requirements and that the appropriately qualified person conducting a review must apply all relevant Australian Accounting Standards and policies where appropriate for the licensee. [22] Notwithstanding these general statements, the relevant reference is to Australian Accounting Standards, not to the more up to date standards. The relevant AAS for the purpose of determining current assets is AAS 36, which relevantly provided (in clause 4.4.1) that current assets include trade receivables that are realised as part of the entity’s normal operating cycle, even when they are not expected to be realised within 12 months of the reporting date. It also provided (in clauses 4.3 and 4.4) that a 12 month period must be used as the basis for identifying current assets and current liabilities when there is no single clearly identifiable operating cycle or, where there is a single clearly identifiable operating cycle that extends over a period greater than 12 months, the longer period must be used as the basis for identifying, as current assets, those assets expected to be realised in the normal course of the entity’s operating cycle. “Current asset” is also defined in the definition section as an asset that is expected to be realised in the normal course of the entity’s operating cycle. [23] In January 2009, Mr Ericson’s accountant (the appropriately qualified person) informed the QBSA that Mr Ericson was represented in his dispute with Hansen by lawyers and had obtained legal advice that he had a high prospect of success in his application for adjudication. The correctness of that advice was demonstrated by the adjudication decision. [24] Following the adjudication decision and the grant of the injunction by the Supreme Court, no indication appears to have been given to the QBSA (nor has it been given to this tribunal) as to the likely time within which the Supreme Court proceedings would be determined, nor the likely prospects of success of Mr Ericson in successfully defending the proceeding. [25] In these circumstances, it does seem to me hard to say that, notwithstanding that an adjudication decision has been made in Mr Ericson’s favour, the asset comprising the debt owed to him was expected to be realised within the relevant operating cycle or 12 months of the reporting date. Therefore it is hard to see that it was a current asset. [26] Nevertheless, the FRL must be construed in accordance with its objects, which include the object of promoting more financially viable businesses. -- 5 of 8 -- 6 It is difficult to see how a failure to acknowledge a debt as a current asset, particularly where that debt has been determined to be owing by an independent person in accordance with a statutory scheme for that purpose, could serve the object of promoting more financially viable businesses. It would simply allow a business such as that of Mr Ericson to falter because its licence is suspended on the sole basis that a debtor continues to dispute a debt, where the amount of that debt is substantial having regard to the overall turnover and financial position of the licensee. That should, in my opinion, have a strong bearing upon the decision of the QBSA whether or not to suspend a licence where the sole potential ground of suspension is that a substantial debt is the subject of an ongoing dispute, even though an adjudicator has determined that it is owing. [27] The dispute between Mr Ericson and the QBSA as to the proper characterisation of the Hansen debt became superfluous when, in September 2010, Mr Ericson’s accountant lodged with the QBSA an independent review report that demonstrated that Mr Ericson’s current ratio was below the required ratio of 1:1, as it was 0.93:1. Upon receipt of that report, the QBSA very quickly determined that, as it was now undisputed that Mr Ericson did not meet the requirements under the FRL, his licence should be cancelled. That is the decision which Mr Ericson is now requesting this Tribunal to review. Consideration [28] Section 48 of the QBSA Act provides that the Authority may suspend or cancel a licence if the licensee has contravened a condition to which the licence is subject under s 35. [29] It seems to me that, where a licensee has failed to meet the financial requirements under the FRL because a major debtor disputes the debt, notwithstanding that that debt has been confirmed by an independent adjudicator, there would be good grounds for the QBSA to decide not to suspend the licensee’s licence pending the determination of that dispute. To do otherwise would appear to be somewhat harsh if the business was otherwise apparently viable, and may be said to be inconsistent with the policy of the FRL to promote more financially viable businesses. That is not now the question before me. However, as will be seen, it is indirectly relevant to the question which I have to consider. [30] That question is whether Mr Ericson’s licence should be cancelled having regard to his undisputed failure to meet the current ratio requirement under the FRL in September 2010. [31] In my view, a number of matters are relevant to the determination of that question. [32] First, by October 2011 Mr Ericson’s licence had been suspended, in controversial circumstances, for over 12 months. That suspension inevitably must have had a substantial effect on his financial position. If the suspension ought arguably not to have been imposed, then that ought to be taken into account in determining whether his licence ought be -- 6 of 8 -- 7 further suspended or cancelled having regard to a subsequent failure to meet the current ratio requirement. [33] Secondly, the proportion by which Mr Ericson failed to meet the current ratio requirement was not large. [34] Thirdly, current assets continued to include substantial trade debtors (over $6.1 million), but current liabilities included substantial amounts outstanding to the Australian Taxation Office (over $3.3 million) and for superannuation (approximately $891,000). [35] Fourthly, the accounts attached to the review indicated that Mr Ericson’s turnover from trade had dropped considerably from earlier years to a level of only $313,000 (rather than some millions of dollars) and his income included profits on the sale of property, plant and equipment, while his expenses included substantial amounts of interest owed to the Australian Taxation Office. [36] The first two of these matters, in my view, weigh in favour of not cancelling Mr Ericson’s licence, while the last two matters appear to indicate that his business is no longer viable, whatever the reasons for that position. [37] As I have indicated, it seems to me that the initial decision to suspend Mr Ericson’s licence was harsh having regard to the reasons for it, particularly when the adjudication decision was in favour of Mr Ericson. [38] It seems quite clear that Mr Ericson’s financial position has been substantially detrimentally affected by the suspension of his licence. Nevertheless, his business is now in a very poor financial state. It is hard to see how it is viable. [39] Having regard to the likely contribution to his financial position of the initial decision, and to the fact that his current ratio is not substantially below the required level, it seems to me that the decision to cancel his licence was also harsh. The correct and preferable decision is that it be reinstated, but subject to strict conditions that Mr Ericson report to QBSA on a quarterly basis, for a period of time, by the provision of an independent review report. The intention of such a condition would be to enable Mr Ericson to attempt to re-establish his business under the close financial supervision of the QBSA. If it becomes obvious (whether sooner or later) that it is no longer a viable business, QBSA will be entitled to make a fresh decision whether to suspend or cancel the licence. [40] Therefore I propose to make the following orders: a) the decision of the respondent to cancel the applicant’s licence be set aside; b) in substitution for that decision, the suspension of the applicant’s licence be terminated; -- 7 of 8 -- 8 c) it be a condition of the applicant’s licence, for a period of 15 months from the date of this decision, that he provide to the QBSA an independent review report in accordance with the Financial Requirements for Licensing: i) by no later than 31 July 2012, in respect of the period from now to 30 June 2012; ii) by no later than 30 October 2012, in respect of the 12 month period and the 3 month period ending on 30 September 2012; iii) by no later than 14 February 2013, in respect of the 12 month period and the 3 month period ending on 31 December 2012; iv) by no later than 30 April 2013, in respect of the 12 month period and the 3 month period ending on 31 March 2013; and v) by no later than 31 July 2013, in respect of the 12 month period ending on 30 June 2013. -- 8 of 8 --