Younan v Commissioner for Fair Trading, NSW Office of Fair Trading [2007] NSWADT 170

CITATION: Younan v Commissioner for Fair Trading, NSW Office of Fair Trading [2007] NSWADT 170

DIVISION: General Division

APPLICANT PARTIES: Tony Younan RESPONDENT Commissioner for Fair Trading, NSW Office of Fair Trading

FILE NUMBER: 063283

HEARING DATES: 23 July 2007

SUBMISSIONS CLOSED: 23 July 2007

DATE OF DECISION: 31 July 2007

BEFORE: Handley R - Acting Deputy President

CATCHWORDS: Home Building Act - home builder - improper conduct - Home Builder - improper conduct

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Home Building Act 1989

CASES CITED: Building Services Corporation v McIlveen (Commercial Tribunal of NSW, unreported, 18 February 1997) Director-General, Department of Fair Trading v Cohen [2000] NSWFTT 3

APPLICANT S Koppel, agent REPRESENTATION: RESPONDENT V Griswold, solicitor

ORDERS: The decision of the Commissioner imposing a penalty of $10,500 on Mr Younan is varied by reducing the amount of the penalty to $5,500.

REASONS FOR DECISION 1 This matter involves an application by Tony Younan for a review of the decision of the Commissioner for Fair Trading ('the Commissioner') to impose a penalty of $10,500 on Mr Younan for improper conduct in respect of defective residential building work carried out at Skennars Head, NSW. Background 2 Mr Younan has held an endorsed contractor licence (no 46949C) since 29 April 1994, authorising him to carry out and supervise residential building work in the category "general building work". At the relevant time, Mr Younan was a director of Cavalier Homes (Gold Coast) Pty Ltd ('Cavalier Homes'), which, on 28 November 2002, was issued with a contractor licence (no 143042C), also authorising it to carry out such building work. 3 On 18 September 2002, a separate company, Cavalier Homes Pty Ltd, entered into a contract with Robert Siebert to construct a dwelling at Skennars Head for the amount of $211,440. In February 2003, the contract was assigned to Cavalier Homes. 4 On 16 September 2003, Mr Siebert complained to the Office of Fair Trading ('the OFT') about the work performed by Cavalier Homes in building the Skennars Head house. On 27 October 2003, a Building Inspector employed by the OFT attended a meeting at the site with Mr Siebert and representatives of Cavalier Homes for the purpose of investigating the matters complained of and attempting a resolution of the dispute between the parties. The Inspector found the timber strip flooring, the sub-floor brickwork and the concrete slab to be defective, and prepared an Advice detailing the rectification work required. Cavalier Homes agreed to undertake this work, with the work to be finalised by 15 December 2003. As a result, it appears, of a further dispute between the parties, the rectification work was not undertaken. 5 In a Building Inspection Report dated 19 April 2004, the Inspector detailed the defects identified in his inspection, which he concluded were as a result of the work not being carried out in a proper and workmanlike manner in accordance with the plans and specifications in the contract and the relevant standards. 6 In June 2004, both Mr Siebert and Cavalier Homes commenced proceedings against the other in the Consumer Trader and Tenancy Tribunal ('CTTT'). 7 On 19 October 2004, a delegate of the Commissioner issued Mr Younan with a 'Notice to Show Cause' inviting him to show cause why disciplinary action should not be taken against him on the ground that he was guilty of improper conduct. At Mr Younan's request, as a result of the proceedings in the CTTT, the time for him to make submissions was extended until 9 June 2006. Mr Younan's solicitors lodged submissions dated 2 June 2006. 8 On 30 June 2006, a delegate of the Commissioner determined that Mr Younan was guilty of improper conduct and that there were grounds for taking disciplinary action against him. The delegate determined that a penalty of $12,500 should be imposed on Mr Younan, comprising $4,500 in respect of his responsibility as a director of Cavalier Homes and $8,000 in respect of his responsibility as a supervisor for Cavalier Homes. 9 On 26 July 2006, Mr Younan filed an application for a review of this decision by the Tribunal and an application for a stay of the decision. On 2 August 2006, a stay was granted until the determination of the application for review. A hearing organised for 13 November 2006 was vacated at the request of the parties and the matter was remitted to the Commissioner for reconsideration pursuant to s 65(1) of the Administrative Decisions Tribunal Act 1997. 10 On 9 March 2007, the delegate of the Commissioner, having reconsidered all relevant material, made a reconsideration decision. He said he was satisfied that while Mr Younan was a director of Cavalier Homes, Cavalier Homes breached the statutory warranty under s 18B(a) of the Home Building Act 1989 ('the 1989 Act') in respect of residential building work carried out at Skennars Head. Cavalier Homes was therefore guilty of improper conduct pursuant to s 51(1)(c) of the 1989 Act and Mr Younan was therefore guilty of improper conduct by virtue of s 54(1). As nominated supervisor of Cavalier Homes' work on the Skennars Head dwelling, Mr Younan was also guilty of improper conduct by virtue of s 53(1)(b). 11 The delegate reduced the penalty imposed on Mr Younan to an amount of $10,500, there being no attribution to Mr Younan's specific roles with Cavalier Homes. In making his reconsideration decision, the delegate said he "had the benefit of perusing the decision" of the CTTT: "I note that my previous findings of defective work are consistent with the findings of the Tribunal except for one item – the sub-floor brickwork. I further note that the Tribunal's assessment of the costs of rectification of the items that both the Tribunal and I have found to be defective exceeds $50,000.00 which is high when considered as a proportion of the original contract price of $211,440.00." 12 The decision of the CTTT is dated 19 July 2006. The CTTT determined that the cost of rectification of defects was $61,111.00. To this was added an amount of $36,750.00 for liquidated damages for delay in completion of the work under the contract, giving a figure of $97,861.00. From this, an amount of $20,107.40 was deducted in respect of moneys owing to Cavalier Homes, resulting in Cavalier Homes being ordered to pay Mr Siebert the sum of $77,753.60. The Relevant Law 13 Section 18B(a) of the 1989 Act implies the following (statutory) warranty by the holder of a contractor licence in every contract to do residential building work: "a warranty that the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract" 14 Pursuant to s 51(1)C, the holder of a contractor licence who is authorised by the licence to do residential building work "is guilty of improper conduct if the holder ... (c) breaches a statutory warranty". Pursuant to s 53(1)B, the holder of an endorsed contractor licence or a supervisor certificate who has control over the carrying out of residential building work, is guilty of improper conduct if a breach of a statutory warranty occurs in the course of doing that work. Pursuant to s 54(1), an officer of a corporation that is the holder of a contractor licence is guilty of improper conduct if the holder breaches a statutory warranty and, pursuant to s 54(4), disciplinary action for improper conduct may be taken against such an officer. 15 Section 56 provides that the Director-General (defined in s 3 as meaning the Commissioner) may take disciplinary action against the holder of a contractor licence on the ground that "the holder is guilty of improper conduct". Section 62 states that the Director-General may do any one or more of the following: "(a) determine to take no further action against the holder, (b) caution or reprimand the holder, (c) make a determination requiring the holder to pay to the Director-General, as a penalty, an amount not exceeding $11,000 (in the case of an individual) or $50,000 (in the case of a corporation) within a specified time, (d) vary the authority held by the holder, by imposing a condition on the authority, including a condition requiring the holder to undertake a course of training relating to a particular type of work or business practice within a specified time, (e) suspend the authority for a period not exceeding its unexpired term, (f) cancel the authority, (g) disqualify the holder, either temporarily or permanently, from being any one or more of the following: (i) the holder of any authority, or any specified kind of authority, (ii) a member of a partnership, or an officer of a corporation that is a member of a partnership, that is the holder of an authority, (iii) an officer of a corporation that is the holder of an authority." The Issue 16 The issue for the Tribunal to decide is whether the delegate of the Commissioner made the correct and preferable decision in imposing a penalty of $10,500.00 on Mr Younan in respect of his improper conduct. Mr Younan's Submissions 17 Mr Koppel, for Mr Younan, confirmed that the appeal is confined to the penalty imposed. He contended that in making a complaint to the OFT, Mr Siebert was seeking to re-agitate his dispute with Cavalier Homes. Mr Koppel submitted that this was essentially a civil matter involving a dispute where the parties were unable to reach agreement. Mr Siebert refused to allow rectification because he believed that rectification was not possible. Cavalier Homes repeatedly offered to rectify the defects. The CTTT made an award for Mr Siebert despite this. 18 Mr Koppel submitted that in view of the outcome of the CTTT proceedings, no penalty should be imposed on Mr Younan or, alternatively, a greatly reduced penalty should be imposed. He submitted that the penalty imposed by the Commissioner was grossly excessive, being only $500 below the maximum penalty that can be imposed on an individual, and not in accord with the CTTT award. In the CTTT proceedings, Mr Siebert claimed a total of $427,000 and was awarded $61,111 for rectification of defects. The near maximum penalty imposed by the Commissioner is out of proportion with the amount of the CTTT award for rectification relative to the total amount of the claim. 19 Mr Koppel acknowledged that Cavalier Homes surrendered its licence on 25 May 2005. This was because the business was no longer viable, and he said it had nothing to do with this dispute. In particular, under the legislation, Mr Younan is only able to be the licence holder in respect of one company and it had been decided to pursue a different business model involving another company. If Mr Siebert had allowed rectification of the defects, another company with which Mr Younan is associated could have done the necessary work. However, Mr Siebert has not been prepared to allow rectification. 20 Mr Koppel submitted that a review of the CTTT's decision indicates that there was only one substantial defect – the external brickwork, which did not comply with the required standards. The CTTT was satisfied that the external brickwork should be replaced at an estimated cost of $32,448.00; this was over half the estimated cost of the required rectification work, found by the CTTT to be $61,111.00. Mr Koppel said Mr Younan had offered to render the house but Mr Siebert had refused this. 21 Mr Koppel said that Mr Younan has been a licensed builder for about 15 years, and has never otherwise been found to have infringed the statutory warranty nor ever had any fines imposed on him or been the subject of any insurance claims. The Commissioner's Submissions 22 Ms Griswold, for the Commissioner, noted that Mr Younan asked for the 'Show Cause' proceedings to be delayed pending the outcome of the CTTT proceedings. Nevertheless, the present disciplinary proceedings are separate and independent of those in the CTTT. The CTTT decision, involving an independent examination of the claims made by Mr Siebert, was not taken into account when the delegate of the Commissioner made the original decision. 23 Ms Griswold said the present appeal is limited to penalty only. A consideration of the range of possible sanctions open to the Commissioner under s 62 of the 1989 Act, indicates that the penalty imposed is in the mid-range of available sanctions. Ms Griswold submitted that defective work equivalent to about one quarter of the value of the original contract price ($211,440.00) is towards the serous end of the spectrum. In Mr Younan's case, there are two bases for disciplinary action: as a director of Cavalier Homes and as its nominated supervisor. Accordingly, it is appropriate that the penalty should be at the high end of the spectrum. 24 Ms Griswold acknowledged that Mr Younan has no antecedents, and, although access to the property was refused, he was willing to rectify the defects. She noted that Cavalier Homes has surrendered its licence. Discussion 25 There is no dispute that Mr Younan is guilty of improper conduct in respect of defective building work on a dwelling at Skennars Head. The question for the Tribunal to determine is the appropriate disciplinary action to be imposed. Under s 62 of the 1989 Act a range of disciplinary action is open to the Commissioner, from taking no further action against the licence holder, to cancellation of the holder's licence and disqualification. 26 I note that the object of disciplinary action under the 1989 Act is to protect the consumers of home building services and not to punish. However, as the Commercial Tribunal acknowledged in Building Services Corporation v McIlveen (Commercial Tribunal of NSW, unreported, 18 February 1997) ('McIlveen'), at p 29, "[t]he concept of public protection is wide; it embraces fitness, the maintenance of public standards, public confidence and deterrence both of the particular builder and others in the same occupation". Other relevant factors in considering an appropriate penalty were identified by the Fair Trading Tribunal, comprising Judge KP O'Connor, Chairperson, in Director-General, Department of Fair Trading v Cohen [2000] NSWFTT 3 ('Cohen'), at par 45: "a) the nature, width and extent of the contraventions b) the loss or damage and prejudice in consequence of the contraventions c) the circumstances in which the contraventions took place d) whether the licensee has been found to have engaged in any similar conduct e) the presence of fraudulent or dishonest intent and deliberation on the part of the licensee f) the extent of carelessness or wilfulness of the conduct g) the efforts made to correct the situation and what measures have been taken by the licensee h) what consciousness the licensee (a) had (b) displayed, of its obligations under the relevant statute and to the owners i) the effect upon the licensee j) antecedents k) attitude, building history and future compliance l) the penalty range." 27 I accept that there have been no prior disciplinary proceedings against Mr Younan over the course of the 13 years he has held a contractor licence, although the delegate of the Commissioner identified two complaints having being made against Mr Younan and against Cavalier Homes, and two orders made by the CTTT which Cavalier Homes has satisfied. I also accept that Mr Younan's work has not been the subject of any insurance claims. 28 In the present case, the disciplinary proceedings relate to one building contract only, and the CTTT decision indicates that the defects identified in relation to that contract can be rectified or, at least, addressed: the CTTT rejected Mr Siebert's claim that the house requires complete demolition and replacement. I accept that Mr Younan was prepared to rectify the defects identified by the CTTT. I note that on 27 October 2003, the Building Inspector completed a Complaint Inspection Advice detailing rectification work that was to be undertaken, and which Cavalier Homes had agreed to undertake and finalise by 15 December 2003. However, due, it appears, to ongoing disagreements between the parties, the rectification work was not carried out. 29 In terms of the nature and extent of the defects, I note the original contract price was $211,440.00, and the CTTT estimated the cost of the required rectification work as $61,111.00. A review of the CTTT decision indicates, as Mr Koppel stated, that the most costly rectification was that of replacing the external brickwork at an estimated cost of $32,448.00. The next most costly item of rectification was the timber floor at $12,435.00. Of the cost of rectification of other defective items, external brickwork lintels were estimated at $2,200.00, shelving at $3,088.00, minor defects at $2,143.40, doors at $968.00, and there were also other less costly rectifications required. 30 While the CTTT found the slab to be defective and not in accordance with the plans, it was not satisfied that the slab was so defective as to require replacement (therefore requiring the demolition of the house as proposed by Mr Siebert). The CTTT accepted that a saw cut could be used to provide a control joint at a cost of $150.00. The CTTT also found what appear to be relatively minor repairs required to the roof and roof framing, and to the windows. I note the CTTT identified a lack of evidence in relation to some items claimed to be defective. 31 I conclude from the above that there were a significant number of defects of varying degrees of seriousness, the most serious found by the CTTT being in relation to the external masonry, requiring the replacement of the external brickwork. In my view, the overall picture is of significant amount of building work under the contract being in breach of the statutory warranty for not being carried out in a proper and workmanlike manner. The estimated cost of rectification exceeds 25% of the original contract price. 32 As stated above, the purpose of disciplinary proceedings under the 1989 Act is the protection of the consumer rather than the punishment of those guilty of improper conduct. The maintenance of appropriate standards and of public confidence in the home building industry, as well as the need to deter the particular licence holder and others from improper conduct, are important considerations. 33 In Mr Younan's case, the issue is whether the disciplinary action taken by the Commissioner was the correct and preferable decision. The penalty of $10,500 imposed is near the maximum penalty of $11,000 that can be imposed on an individual. A monetary penalty is one of a number of forms of disciplinary action that can be taken in cases of improper conduct, which can include cancellation of a licence and disqualification from holding a licence. 34 I note that Mr Younan has had no prior disciplinary action taken against him and his work has not been the subject of insurance claims. Moreover, the present matter relates to one building contract, and Mr Younan was willing to rectify the defects identified but was prevented from doing so by the homeowner. Nevertheless, there were a significant number of defects, some serious and requiring costly rectification, others less serious. As stated, the overall picture is of a significant amount of building work under the contract being in breach of the statutory warranty. 35 In these circumstances, I agree that disciplinary action should be taken against Mr Younan. In my view, a financial penalty is warranted and, having regard to the circumstances discussed above, a penalty of $5,500, in the mid-range of financial penalties, should be imposed. Decision The decision of the Commissioner imposing a financial penalty of $10,500 on Mr Younan is varied by reducing the amount of the penalty to $5,500.