CITATION: Cormack v Commissioner for Fair Trading [2006] NSWADT 40 DIVISION: General Division APPLICANT PARTIES: Mark Geoffrey Cormack RESPONDENT Commissioner for Fair Trading FILE NUMBER: 053342 HEARING DATES: 1/02/2006 SUBMISSIONS CLOSED: 02/01/2006 DATE OF DECISION: 02/09/2006 BEFORE: Handley R - Judicial Member CATCHWORDS: Home Builder - issue of contractor licence - Home Building Act - home builder - issue of contractor licence MATTER FOR DECISION: Principal matter Administrative Decisions Tribunal Act 1997 Corporations Act 2001 LEGISLATION CITED : Home Building Act 1989 Home Building Amendment Act 2004 Home Building Regulation 2004 CASES CITED: Alford Building & Construction Pty Ltd [2005] NSWADT 254 Obradovic v Commissioner for Trading, Office of Fair Trading [2005] NSWADT 140 APPLICANT B Spinks, Solicitor REPRESENTATION: RESPONDENT E Aylward-Dyne, Solicitor ORDERS: The decision of the Commissioner for Fair Trading dated 8 September 2005 is set aside and the matter is remitted to the Commissioner for reconsideration in accordance with these reasons REASONS FOR DECISION 1 This matter involves an application by Mr Cormack for review of a decision of the Commissioner for Fair Trading ('the Commissioner') to refuse his application for an individual contractor licence on the grounds that Mr Cormack was a director of a company that was the subject of a winding up order and was not a fit and proper person to hold a contractor licence. The Facts 2 The principal facts are not in dispute. Mr Cormack was born on 19 May 1960 and is aged 45. He has been working in the building industry since 1978. From 11 April 1994, he was a director and the secretary of a building company, Corbet Constructions Pty Ltd ('Corbet'), which held a builder contractor licence. HIH Insurance, Corbet's insurer, went into liquidation about March 2001. On 4 September 2001, the Commissioner cancelled Corbet's licence. On 21 September 2001, a motion for a creditors' voluntary winding up of Corbet was passed, with the appointment of a liquidator. The final meeting of members and creditors took place on 25 November 2005, when the liquidator ceased to act, having delivered final accounts. Corbet is now awaiting de-registration by the Australian Securities and Investment Commission ('ASIC'). Although Mr Cormack remained a Director of the Corbet through the winding up, except in so far as he supplied information to the liquidator when required, he was not otherwise involved in the management of Corbet. 3 On 23 August 2004, Mr Cormack applied to the Commissioner for an individual contractor licence. On 15 February 2005, the Commissioner refused Mr Cormack's application on the following grounds: (1) an unreasonable number of complaints had been made against Corbet, of which Mr Cormack was a director; (2) an unreasonable number of insurance claims had been paid in respect of work undertaken by Corbet; (3) Mr Cormack was a director of a company in liquidation; and (4) Mr Cormack's previous conduct demonstrated that he was not a fit and proper person to hold a contractor's licence. This decision was confirmed on 8 September 2005 following an internal review and, on 4 October 2005, Mr Cormack lodged an application for a further review by the Tribunal. Issues 4 The parties identified two main issues for resolution by the Tribunal: first, whether Regulation 25(1)(a)(xii) of the Home Building Regulation 2004 ('the 2004 Regulation') applied in Mr Cormack's case so that, essentially, he is disqualified from holding a contractor licence, and second, if not, whether he is a fit and proper person to hold a contractor licence. Does Regulation 25(1)(a)(xii) of the Home Building Regulation 2004 apply? 5 Regulation 25 sets out general requirements for obtaining licenses, certificates and permits under the Home Building Act 1989 ('the 1989 Act'). Section 25(1) provides that before a licence can be issued, the Commissioner must be satisfied of certain matters, including (subclause (1)(a)) that each relevant person in relation to an application "(xii) ... is not bankrupt or a director or person concerned in the management of a company that is the subject of a winding up order or for which a controller or administrator has been appointed." 6 Mr Spinks, for Mr Cormack, submitted that this provision does not apply to Mr Cormack because, while he is a director of Corbet, he has not been concerned in its management since the appointment of a liquidator on 25 November 2001. Pursuant to s 477(1) of the Corporations Act 2001 (Cth), the liquidator took over the management and control of Corbet on the date of his appointment and, pursuant to s 477A(1), while Corbet is being wound up, a director "cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company". Mr Spinks submitted that subclause (xii) of Regulation 25(1)(a) only applies to disqualify directors who continue to be concerned in the management of a company. To otherwise interpret the subclause as applying to a director, whether or not the director is concerned in the management of a company, would lead to a capricious and unjust result. For example, in the case of a company where the winding up was on a resolution passed by members, this would prevent a director from obtaining a licence for the duration of the winding up, which might take some years, despite the director's conduct being exemplary. Such a result could not have been intended by the legislature. Moreover, since the liquidator presented the final accounts on 25 November 2005, Corbet is no longer an operating company, and merely awaits de-registration by ASIC. 7 Mr Spinks also noted that subclause (xiii) of Regulation 25(1)(a) disqualified a person from obtaining a licence where, "within a period of 3 years before the date of the application, [the person was] bankrupt or a director or person concerned in the management of a company when the company was the subject of a winding up order or when a controller or administrator was appointed". This provision had not been relied on by the Commissioner in Mr Cormack's case, presumably because more than three years have passed since Corbet became the subject of a winding up order. 8 However, where subclause (xiii) is relied on, it should be noted that Regulation 26(3) permits the Commissioner to issue a licence, despite the subclause, "if satisfied that the relevant person took all reasonable steps to avoid bankruptcy, liquidation or appointment of a controller or liquidator". If the latter interpretation, not requiring that the director be concerned in the management of the company were to be applied, this would mean that the subclause would not operate until after the final accounts had been lodged and the company de-registered, a period that would, in the present case, mean a period of over four years.Mr Spinks noted that if subclause (xiii) had been relied on, there is evidence to show that Mr Cormack took all reasonable steps to avoid the liquidation. 9 Mr Spinks submitted that the Tribunal decision in Alford Building & Construction Pty Ltd [2005] NSWADT 254 ('Alford') should be distinguished because the argument put to the Tribunal in that case was that subclause (xii) of Regulation 25(1)(a) was ultra vires, and an argument based on the interpretation of the subclause was not put to the Tribunal. 10 Ms Aylward-Dyne, for the Commissioner, submitted that subclause (xii) should be given its ordinary meaning, and that the point at issue had already been decided in Alford where the Tribunal noted that the subclause "may preclude some persons from obtaining a licence where there is no obvious public policy reason for doing so for example in the case of a solvent voluntary winding up of a corporation". 11 Ms Aylward-Dyne referred the Tribunal to Ford's Principles of Corporations Law where, at paragraph 28.100, it is noted that directors do not lose office when a winding up order is made, although "before they can act, even to lodge an appeal against the making of the order, they must have the written approval of the liquidator or the approval of the court". Directors can also be liable to pay compensation to the company if the company incurred debts while it was insolvent and there were reasonable grounds for suspecting it was insolvent. Ms Aylward-Dyne also referred the Tribunal to McPherson The Law of Company Liquidation (Fourth edition), at page 232, where it is noted that voluntary winding does not cause the removal of directors, who remain obliged to assist the liquidator if called upon to do so. 12 In my view, Mr Spinks' submissions are to be preferred. The relevant wording in subclause (xii) and subclause (xiii) refers to "a director or person concerned in the management of a company" and can be interpreted in two ways: the words "concerned in the management of a company" can be read as qualifying either only the word 'person', or both the words 'director' and 'person'. In my view, the latter is to be preferred. I note, in particular, the words used are "a director or person concerned in the management of a company" rather than 'a director or a person concerned in the management of a company', the omission of a second 'a' suggesting that both the words 'director' and 'person' are qualified by the phrase 'concerned in the management of a company'. 13 In the context of this part of the 2004 Regulation, including Regulation 26(3), the latter interpretation also seems to me to make better sense. Otherwise, the utility of subclause (xiii) and Regulation 26(3) is significantly reduced, and the effect would be to unjustly punish directors of companies in voluntary liquidation for no good policy reason and where their conduct is exemplary. In the case of directors whose conduct is deficient in some way, there is power in the 1989 Act for the Commissioner to reject an application for a licence on the ground that the person is not a fit and proper person. 14 The decision in Alford was that subclause (xii) of Regulation 25(1)(a) is not ultra vires. The submission made by Mr Spinks in the present case was not argued there. Nevertheless, the Tribunal recognised that the first interpretation of the phrase could lead to injustice and, while upholding the validity of the subclause, commented (at paragraph 43) that this was "a matter that should be brought to the attention of the legislature". 15 I therefore conclude that Regulation 25(1)(a)(xii) of the 2004 Regulation does not apply in Mr Cormack's case to disqualify him from holding a contractor licence, because he ceased to be concerned with the management of Corbet when a liquidator was appointed on 21 September 2001. Is Mr Cormack a 'fit and proper person'? 16 The second issue in dispute is whether Mr Cormack is a 'fit and proper person' to hold a contractor licence. Section 20(1)(a) of the 1989 Act provides that the Commissioner must reject an application if not satisfied "that the applicant is a fit and proper person to hold a contractor licence". Section 20(1A) provides that without limiting subsection (1)(a), in determining whether an applicant is a fit and proper person to hold a licence, the Commissioner "is to consider whether the applicant is of good repute, having regard to character, honesty and integrity". 17 The original decision to reject Mr Cormack's application dated 15 February 2005, and the internal review decision dated 8 September 2005, both listed four grounds on which the application was refused, set out in paragraph 3 above. The Commissioner is not now relying on the first and second grounds, namely that an unreasonable number of complaints had been made against Corbet, and that an unreasonable number of insurance claims had been paid in respect of work undertaken by Corbet, a company of which Mr Cormack was a director. These are relevant grounds in Regulation 25(1)(a) – subclauses (vii) and (x) - on which, in essence, the Commissioner may refuse a licence. However, the Commissioner now acknowledges that these grounds do not apply in Mr Cormack's case because the complaints and claims relate to Corbet and not to him individually (see the definition of 'relevant person' in subclause (2)). 18 The Commissioner's delegates also relied on the 'fit and proper person' ground in the now repealed subclause (iv) of Regulation 25(1)(a). This subclause was repealed with effect from 29 April 2005 when section 20(1) and (1A) of the 1989 Act took effect (inserted by the Home Building Amendment Act 2004, Schedule 2). The Commissioner therefore now relies on the 'fit and proper person' requirement set out in s 20(1) of the 1989 Act, and states that Mr Cormack, being the sole director and the secretary of Corbet, is not a 'fit and proper person' because (Respondent's submissions page 3): "Although there is no evidence of dishonesty the winding up of the company, and the large number of complaints and insurance payouts, go to knowledge and ability, and hence fitness and priority [sic]." 19 While, the Commissioner has made no other mention of Mr Cormack's character, honesty or integrity, Ms Aylward-Dyne submitted the number of complaints and insurance payouts are "substantial issues to be considered by the Commissioner's delegate in relation to the protection of the public in granting a contractor licence". She also noted a computer print out (Respondent's Documents p16) suggests there may be other insurance claims not listed on the spreadsheet of insurance claims. 20 Mr Spinks submits that the number of complaints and insurance claims made in respect of a company can only be considered in the context of Regulation 25(1) - otherwise, these provisions would have no work to do. I reject this submission. In my view, the Commissioner has a broad discretion in considering whether a person is a fit and proper person. However, s 20(1A) requires the Commissioner to consider whether the person is of good repute, having regard to character, honesty and integrity. I am not satisfied that the Commissioner has done this. The Commissioner has merely referred to the number of complaints and insurance payouts in respect of Corbet and does not appear to have considered the broader issue of Mr Cormack's good repute. 21 There is no dispute about the number of complaints and payouts: there were 19 complaints made about Corbet in its 7 years of operation, and there are 54 insurance claims currently listed. Looking first at the complaints, evidence provided by the Commissioner shows that of those complaints, only three are listed as "problems". There is no evidence about the nature of the complaints or why only three are listed as problems. In my view, evidence of the number of complaints without knowing something of the nature of the complaints and why only three are listed as problems, is not helpful. 22 Michael Cooper, the Director of Insurance Services for the Home Building Service, Office of Fair Trading, who has been with the Office of Fair Trading for eight years, and gave evidence at the hearing, speculated that it might have been that in only three cases, data was entered into the system. However, in cross-examination, he acknowledged that the other 16 complaints could have been resolved. Essentially, he was unable to explain the data, and acknowledged that one would need to know the nature of the complaints to know whether the number of complaints was high or low. 23 The number of complaints must also be considered in the context of the size of Corbet's operations. As Deputy President Hennessy recognised in Obradovic v Commissioner for Trading, Office of Fair Trading [2005] NSWADT 140 ('Obradovic'), at paragraph 10: "It is not possible to determine whether a raw number [of complaints] is reasonable or not. That number must be assessed in relation to the period which it covers, the amount of work the builder was carrying out during that period and the nature of the complaints." 24 Before the collapse of HIH Insurance, Corbet had a turnover of approximately $40 million per annum, of which 80% was residential and 20% was commercial construction. Corbet was building approximately 200 dwellings per annum (Respondent's Documents p 119). As Mr Spinks pointed out, three problems over a period of seven years is, in terms of numbers, relatively insignificant, especially when there is no information about the nature of the problems or complaints. 25 With regard to the number of insurance payouts, a computer printout provided by the Office of Fair Trading shows 54 claims in the seven year period to 12 October 2005 (Exhibit R1). All but three claims relate to the period after HIH Insurance went into liquidation. The other three claims relate to the period immediately before the cancellation of Corbet's licence on 4 September 2001 and before Corbet went into liquidation on 21 September 2001 (claims dated 15 and 20 August 2001). Payouts to date total $3,469,468, including the fees paid to consultants to assess the claims. Mr Cooper acknowledged that a number of claims relate to the same strata plan, indicating problems with a residential units development. For example, on the second page of the printout, 12 claims relate to the same development for which a total of $316,375.24 has been paid out and the matter finalised. Mr Spinks estimated that the overall claim rate was about 3% taking into account the number of buildings constructed over seven years. But, even then, many of the claims are related to the liquidation and not to defective workmanship. 26 Mr Cooper said there are two reasons for a claim being made: defective workmanship or a failure to complete work. The computer printout shows two reasons for payouts: insolvency/bankruptcy or defective workmanship. In all but one claim, the reason listed is insolvency/bankruptcy. If insolvency/bankruptcy is listed, this indicates a need to lodge a proof of debt with the liquidator. Mr Cooper noted that in the case of the first two claims (input date 29 March 2000), no money had been paid, which indicates that Corbett probably fixed the problems. After Corbet went into liquidation, most claims would probably have been in respect of incomplete work. Mr Cooper said he is not aware how many defective workmanship, as opposed to failure to complete work, claims have been made against Corbet. 27 Mr Cooper was also asked to explain a computer print out "Breach Files by Respondent Name" (Respondent's Documents p 13). This shows one breach file in relation to Corbet (receipt date 16 November 2001) in the period to 16 November 2005 and that, on 3 April 2002, it was decided to take no further action because of insufficient evidence. He acknowledged the print out indicates one breach of the 1989 Act in Corbet's seven years of operation. 28 Mr Spinks submitted there was nothing in the evidence to show that Mr Cormack acted otherwise than with honesty and integrity. The character references attached to the application for a licence, including references from business associates, his solicitor and his accountant, attest to that, and there is no evidence to refute the referees' statements. Only one of the insurance claims lists defective workmanship by Corbet as the reason for the claim. All the evidence provided by Mr Cormack to the Office of Fair Trading with his application for a licence, demonstrates he is a person of knowledge, experience, integrity and honesty. Mr Spinks submitted the Commissioner had failed to consider the fit and proper person test. Corbet's insolvency, the three problem complaints and the insurance claims do not indicate a lack of knowledge or ability by Mr Cormack, nor suggest that he cannot carry out his responsibilities as a licensee. They are not, by themselves, conclusive evidence that Mr Cormack is not a fit and proper person. 29 Ms Aylward-Dyne submitted that the cases emphasise that the jurisdiction of the courts or tribunals is not to punish the offender, but to protect the public. Mr Cormack's work as the sole director and the secretary of Corbet must be taken into account in determining whether he is a fit and proper person. Although there is no evidence of dishonesty, "the winding up of the company, and the large number of complaints and insurance payouts, go to knowledge and ability and hence, fitness and priority [sic]". 30 I have considered the parties' submissions and the evidence before the Tribunal. I note that the objective of the relevant provisions of the 1989 Act and 2004 Regulation is, primarily, the protection of the public. However, where the Commissioner's delegate is exercising the power to refuse a licence, the reasons for so doing must be properly stated and based on reliable evidence. I am not satisfied that this was the case here. 31 Firstly, in relation to the evidence of the number of complaints against Corbet and the number of insurance claims and payouts, the evidence provided to the Tribunal by the Commissioner is of limited utility given the lack of any context to the data (see Obradovic) and the lack of any detail in relation to individual complaints and claims. This is especially so given that most of the insurance claims relate to the period after the collapse of HIH Insurance – a period of turmoil in the building industry – with no information provided as to whether this collapse may have influenced the sequence of events that ultimately led to the liquidation of Corbet later in the same year. 32 The evidence of Corbet's business operations indicates it had a substantial turnover and was building a significant number of dwellings every year. To the extent that it is possible to interpret the evidence provided by the Commissioner as to the number of complaints and insurance claims relating to Corbet, bearing in mind that these are in respect of a period of seven years and may well have been affected by the collapse of HIH Insurance, I am not satisfied that this evidence raises any significant doubt that Mr Cormack is not a fit and proper person to hold a licence. Having heard oral evidence from Mr Cooper, I am also concerned about the reliability of the raw computer-generated evidence provided. 33 Secondly, I am concerned that the Commissioner's delegate seems not to have considered the broader question of whether Mr Cormack is a person of good repute, having regard to character, honesty and integrity. The fact of Mr Cormack's having been the sole director and the secretary of a company that went into liquidation does not, of itself, establish that he is not a fit and proper person to hold an individual contractor licence. In my view, the wording of s 20(1)(a) of the 1989 Act suggests the Commissioner must, in considering whether a person is of good repute, have regard to the person's character, honesty and integrity. In the statement of reasons for his decision on the internal review, the Commissioner's delegate give no indication of having considered this broader question. Indeed, the delegate mistakenly referred to the by then repealed requirement as to 'fit and proper person' in the 2004 Regulation rather than the requirement in the 1989 Act. 34 The Commissioner's evidence includes the applications for a contractor licence made by Mr Cormack to the Office of Fair Trading both in August 2004 and in 2002. These applications contain what appears to be a significant amount of information about Mr Cormack's experience in the building industry and his business operations, including the circumstances leading up to the liquidation of Corbet. There are also character references from his accountant, his solicitor, an architect, engineer and three licensed builders and business associates. In my view, all this material should have been considered by the delegate in making his decision. There is no indication that it was. 35 Section 63(1) of the Administrative Decisions Tribunal Act 1997 requires that I decide what is the correct and preferable decision having regard to the material before me. In my view, the Commissioner's delegates made errors of law and fact in making their decisions. Some of the legislative provisions on which they relied were not relevant, they appear to have placed significant reliance on evidence that appears to be unreliable, and they failed to consider other relevant evidence. Moreover, the statements of reasons for their decisions were inadequate and failed to explain the decision – their findings of fact, the evidence on which those findings were based, the law applied, and their reasoning process - in appropriate detail. 36 In view of the inadequacy of the Commissioner's evidence as to the complaints made against Corbet and the number of insurance claims paid, and the extent to which evidence of these matters is relevant, in the particular circumstances of this case, to the question of whether Mr Cormack is a fit and proper person to hold an individual contractor licence, I am not satisfied that I have sufficient reliable evidence on which to make a finding on this second issue – on whether Mr Cormack is a 'fit and proper person'. Thus, the appropriate decision is that, pursuant to s 63(2)(d) of the Administrative Decisions Tribunal Act 1997, the decision be set aside and the matter remitted to the Commissioner for reconsideration of this second issue in accordance with these reasons. Decision 37 The decision of the Commissioner for Fair Trading dated 8 September 2005 is set aside and the matter is remitted to the Commissioner for reconsideration in accordance with these reasons. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.