Delonga v Queensland Building Services Authority [2012] QCAT 57

CITATION: Delonga v Queensland Building Services Authority [2012] QCAT 57 PARTIES: Mr Jakov Delonga v Queensland Building Services Authority APPLICATION NUMBER: OCR012-11 MATTER TYPE: General administrative review matters HEARING DATE: 9 February 2012 HEARD AT: Brisbane DECISION OF: Peter Walker, Member DELIVERED ON: 14 February 2012 DELIVERED AT: Brisbane ORDERS MADE: 1. The decision of the Respondent to reject the application to categorise the Applicant as a permitted individual is confirmed. CATCHWORDS: Permitted individual – duties of a sole director – prudent management of a company – onus of proof – nature of the hearing Queensland Building Services Authority Act 1991, s 56AD Queensland Civil and Administrative Act 2009, s 20 Younan and Queensland Building Services Authority [2010] QDC 158 APPEARANCES and REPRESENTATION (if any): APPLICANT: Self RESPONDENT: Queensland Building Services Authority represented by Ms Jody Stroud, Solicitor -- 1 of 8 -- 2 REASONS FOR DECISION Background [1] The Applicant was the sole director of a company, Trevend Pty Ltd from December 1996 until 2010. [2] He also held a license issued pursuant to the QBSA Act in the class of Builder – Open, being license number 522. [3] It appears that Trevend was established for the purpose of conducting a single development venture. [4] That venture was carried through to fruition over several years and appears to have been completed by or about 2005. The final financial position of that venture is not known in full but what is clear is that there were outstanding company tax and GST owed by Trevend, at least so far as the current assessments were concerned. [5] As a result of that money owed to the Australian Taxation Office on 19 October 2009 Michael Peldan and Morgan Lane of Worrells Solvency and Forensic Accountants were appointed as liquidators. [6] The sole unrelated creditor was the ATO. [7] As a result of this circumstance the Respondent wrote to Mr Delonga, on or about 5 October 20101 notifying him that it consider him to be an Excluded Individual pursuant to section 56AS of the QBSA Act. [8] On or about 26 October 2010 the Authority received an application on behalf of Mr Delonga made pursuant to section 56AD of the Act for him to be categorised as a Permitted Individual2. [9] That application was ultimately refused by the Authority and the reasons for that decision were dated 2 November 2010. [10] Mr Delonga has sought a review of that decision. The Evidence [11] The evidence of the Applicant was contained in the following: A statement by the Applicant; A statement by his accountant, Mr Greco; A statement by a solicitor, Mr Wallace and; A statement by the Applicant’s daughter, Ms Delonga. 1 See Statement of Natasha Dennis dated 5 May 2011 attachment ND3. 2 Above, attachment 4. -- 2 of 8 -- 3 [12] The first three of those witnesses were subjected to additional questioning. [13] Of central importance to questioning was the issue of the keeping of company accounts. It was certainly the view of Mr Delonga that the accounts prepared by his accountant were incorrectly kept and that it was that incorrect record keeping that led to incorrect assessments of both the taxation and GST position. It is his view that had the accounts been properly prepared then he would have been issued with these assessments. [14] There is some support for this view from two sources. Firstly Mr Greco, acting on what he was told by Mr Delonga, reviewed the company accounts after his appointment in May 2006. He certainly seems to have formed the opinion that what Mr Delonga stated was correct and that, if things had been done correctly there would be neither tax nor GST owing and the relevant event would not have occurred. It should be noted that the accuracy of his assessment was really dependent upon the accuracy of information provided by Mr Delonga. [15] The second, perhaps indirect support for this position comes from the fact that an AAT appeal in respect of the 1999 return led to a reassessment to a nil income position. [16] Unfortunately that was the only return that was ever challenged, so, while I may have a view on the matter I cannot conclude with certainty of what may have been the outcome had further appeals been argued. My uncertainty in this respect is reinforced by the evidence of the lawyer acting in the appeal, Mr Wallace, who, when asked why a costs order was not sought, indicated that this was a negotiated outcome that was preferable to taking the risk of a full hearing. [17] I can say that I was left with the distinct impression that Mr Delonga was not entirely on top of what was happening in a record keeping sense with Trevend. He stated, and I accept, that he meticulously kept all source documents and provided those to his bookkeeper and accountant and then relied upon them to perform their tasks appropriately. [18] While I would not generally be critical of such an approach I was somewhat surprised to know that Mr Delonga was not aware that some four or five years of tax returns were not lodged until 2005. I would have thought that a reasonably prudent person would have at least noticed that they were not receiving income tax assessments and followed up with their accountant to find out what was happening. I would also have thought that they would consult about their prospective liabilities so that appropriate provision could be made. [19] So far as the issue of GST is concerned it would appear that the final assessments were made as a result of a 2005 audit. I must say I am unclear as to what, if any steps were taken in respect of the outcome of that audit. -- 3 of 8 -- 4 [20] The evidence for the authority was contained in two statements of Natasha Dennis. Ms Dennis was not cross examined. The Legislation [21] It does not appear to be in issue that it was an appropriate use of section 56AC to initially categorise Mr Delonga as an Excluded Individual and the sole question that I need to determine is whether he should be categorised as a permitted individual pursuant to section 56AD, the terms of which are as follows: 56AD Becoming a permitted individual (1) An individual may apply to the authority, in the form approved by the Board, to be categorised as a permitted individual for a relevant event if the individual has been advised by the authority, or has otherwise been made aware, that the authority considers the individual to be an excluded individual for the relevant event. (2) However, if as a result of the application the individual is not categorised as a permitted individual for the relevant event, the individual may not, while the individual is an excluded individual for the relevant event, again apply to be categorised as a permitted individual for the relevant event. (3) If the individual applies, the application must include the reasons why the authority should categorise the individual as a permitted individual for the relevant event. (4) If the individual is a director or secretary of, or influential person for, a company that is a licensee, the company is taken to be a party to the application, and may make submissions to the authority about the application. (5) The authority must give its decision on the categorisation within 28 days, or a longer period agreed between the individual and the authority. (6) If the authority does not give its decision within the time required under subsection (5), the authority is taken, for section 86(1)(j) to have decided not to categorise the individual as a permitted individual for the relevant event. (7) Nothing in subsection (6) stops the authority, after the time required under subsection (5) has elapsed, from confirming the authority's refusal to categorise the individual as a permitted individual for the relevant event. (8) 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. -- 4 of 8 -- 5 (8A) 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, the authority must have regard to action taken by the individual in relation to the following-- (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. (8B) 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. (9) If an individual is categorised as a permitted individual for a relevant event, the individual is taken not to be an excluded individual for the relevant event. Nature of Hearing [22] Pursuant to section 20 of the Queensland Civil and Administration Act 2009 this application must proceed by way of a fresh hearing on the merits. In other words I must make a decision that I consider to be appropriate based on the evidence before me, or indeed in any other manner that is relevant and appropriate. This process does not involve looking for errors in the decision of the Authority, but rather in making a completely fresh decision. [23] Further in making this decision I am obliged to sit in the seat of the decision maker. In this respects, relevantly s 3 of the Queensland Building Services Authority Act 1991 requires the seeking of a reasonable balance between the interests of building contractors and the public at large. The Law [24] There have obviously been a significant number of cases in which this has section has been considered. The decision of His Honour, Judge McGill in Anthony Younan and Queensland Building Services Authority3 would appear to set the approach to this section out clearly4. At paragraph 24 he said, in respect of section 56AD: It is immediately apparent that these are all concerned with the prudent management of a company as an ongoing business, or even, in the case of (b), something which is to be done before one conducts business or 3 [2010] QDC 158. 4 Note that this decision was confirmed by the Court of Appeal [2011] QCA 1. -- 5 of 8 -- 6 enters into financial or business arrangements. In other words the focus of this subsection is on prevention rather than dealing with problems after they have arisen..... [25] So far as the issue of onus is concerned this was dealt with by his Honour, Judge McGill at paragraph (37) stated as follows: ....It follows that if relevant considerations are not addressed by the applicant, so the applicant fails to show in a relevant respect that he took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event, then the application will fail. [26] In other words the evidentiary onus of proving the relevant issues to the satisfaction of the authority lies on Mr Delonga. [27] Turning specifically to the details of the subsection there are two matters of relevance: keeping proper books of account and financial records;5 making appropriate provision for Commonwealth and State taxation debts.6 [28] So far as (a) is concerned it is in fact the case of the Applicant that books of account and financial records were incorrect and that was the cause of the whole winding up process. His answer to this has been that he relied upon others more expert than himself to attend to these issues on his behalf. [29] His answer to (f) is that he has in fact paid as much tax as he should in respect of the overall development conducted by Trevend, both in respect of income tax and GST. [30] While both these answers MAY be correct, and I note that there has been no definitive evidence led to show that this was the actual case, there was no real evidence led as to how this whole circumstance actually arose in the sense that it is unclear just what steps Mr Delonga was taking to control the financial aspects of Trevend up until 2005. [31] It is in this respect that I feel the actions of the Applicant, or rather the lack of action, has let the company down. While one can understand leaving the preparation of accounts to those expert in the field it is less understandable that one would firstly not ensure that they were in fact done at all, and secondly, having been done, that they were at least on their face, reasonably accurate. [32] I can only conclude that up until 2005 the Applicant did neither of those things. Certainly when the extent of the assessments of both GST and 5 Section 56AD(a). 6 Section 56AD(f). -- 6 of 8 -- 7 company tax were made known to him it seems to have been apparent to him that these were incorrect and he took steps to lodge an appeal before the Administrative Appeals Tribunal in respect of one year, which was largely successful7. [33] He then engaged Mr Greco to endeavour to sort things out. However Mr Greco readily conceded in evidence that his attempts in this regard were made much more difficult by the period of time that had elapsed between the relevant income year and the lodgement of the income tax return. In some cases he was actually out of time to get the assessments amended. [34] I am still unclear as to what steps were taken to try and remedy the GST position following the 2005 audit. [35] So far as taxation liability is concerned it seems one answer may have been to have lodged appeals in respect of the other allegedly incorrect returns. We can only infer that the reason this was not done was that the cost of pursuing the one appeal had been in excess of $100,000. It may be that it is reasonable for a person not to have taken this step and incur what may be assumed to be fairly substantial additional costs. However this is not a matter that, in my view, it is necessary to decide. I consider that the more important question is whether, had matters been dealt with in a timelier and more prudent manner, the necessity for such a course could perhaps have been avoided entirely. Findings [36] Dealing with the matters specifically required by section 56AD8: a. I find that the relevant event was the appointment of liquidators on 19 October 2009. b. I find that the primary circumstance that resulted in the happening of the event was the failure by Trevend to keep on top of the financial affairs of the company; and to ensure that accounts that reflected the true position of the company were prepared regularly and accurately; that income tax were lodged in a timely manner; and that BAS’s contained and accurate summation of Trevend’s GST position. c. I find that Mr Delonga did not take all reasonable steps to avoid the circumstances that led to the event coming into existence. While it is reasonable for people to rely on external experts as the sole director Mr Delonga had an obligation to ensure that financial records were reviewed regularly and that taxation laws were generally followed. He did not do so. It seems that he was sufficiently knowledgeable about the financial affairs of Trevend to appreciate, by about 2005 that the assessments were at least arguably incorrect. This failure to act in a prudent and timely manner directly led either to incorrect returns being 7 See Statutory Declaration of Salvatore Greco, attachment A-3. 8 See the decision of his Honour Judge McGill in Younan at paragraph 26. -- 7 of 8 -- 8 lodged and incorrect assessments being made, or, if the assessments were correct, then to a failure to make sufficient provision for taxation. d. I therefore find that it is inappropriate to exercise the discretion to categorise Mr Delonga as a permitted individual. [37] Accordingly I am of the view that the application must fail and the decision of the authority must be confirmed. -- 8 of 8 --