Miaolo v Commissioner for Fair Trading [2006] NSWADT 280

CITATION: Miaolo v Commissioner for Fair Trading [2006] NSWADT 280

DIVISION: General Division

APPLICANT PARTIES: Antonio Andrew Maiolo RESPONDENT Commissioner for Fair Trading

FILE NUMBER: 063218

HEARING DATES: 20/09/2006

SUBMISSIONS CLOSED: 09/20/2006

DATE OF DECISION: 09/27/2006

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 LEGISLATION CITED : Home Building Act 1989 Home Building Regulation 2004

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 Fair Trading Corporation v Smith [2001] NSWCA 435 CASES CITED: Gales Holdings Pty Ltd v Tweed Shire Council (No 2) [2006] NSWADT 41 Hughes and Vale Pty Ltd v State of NSW (1955) 93 CLR 127 Obradovic v Commissioner for Fair Trading, Office of Fair Trading [2006] NSWADT 18 Tahiri v Commissioner for Fair Trading [2006] NSWADT 200

APPLICANT E Olsson, Senior Counsel & P Barham, Barrister REPRESENTATION: RESPONDENT V Griswold, Solicitor

ORDERS: The decision of the Commissioner for Fair Trading dated 5 May 2006 is set aside and a decision is substituted that Mr Maiolo be granted a contractor licence

REASONS FOR DECISION 1 This matter involves an application by Antonio Maiolo for the review of a decision of the Commissioner for Fair Trading ('the Commissioner') to refuse Mr Maiolo's application for an individual building contractor licence on the grounds that Mr Maiolo (1) has, in the past, carried out building work in respect of which an unreasonable number of insurance claims have been paid, and (2) is not a fit and proper person to hold such a licence. The Facts 2 Mr Maiolo was born on 21 January 1972 and is aged 34. In December 1991, Mr Maiolo completed an Associate Diploma of Applied Science (Building). In 1994, having worked in the building industry since 1990, he applied for and was granted an individual contractor licence. He states that he voluntarily relinquished that licence in 1999. 3 On 30 September 1994, Bluecrest Holdings Pty Ltd ('Bluecrest') was registered and, on 14 October 2004, Mr Maiolo was appointed a Director and the Principal Executive Officer. 4 In 1995, Bluecrest entered into a contract with Citywide Developments Pty Ltd for Bluecrest to build 14 townhouses at 32-34 Cecil Street, Ashfield. In the course of building the townhouses, Bluecrest subcontracted the required waterproofing work, including in the bathrooms, to Staydry Holdings Pty Ltd ('Staydry'), which held a gold building licence. Staydry used a waterproofing product known as "Superjet" that was stated to offer a 25 year guarantee. The waterproofing subsequently failed causing damage to the townhouses. 5 In about 1996, Bluecrest undertook remedial waterproofing work on two of the townhouses. Mr Maoilo states that around Christmas 1997, as a result of a number of companies associated with Jim Byrnes ceasing payments due on contracts with Bluecrest, and the ensuing litigation, Bluecrest "ran out of funds". On 6 April 1998, an Administrator was appointed. On 3 July 1998, a resolution for the winding up of Bluecrest was passed and a Liquidator was appointed. The Liquidator's final accounts and statement were presented to a final meeting on 17 February 2004 and Bluecrest was deregistered on 17 May 2004. 6 On 6 June 1997, Staydry went into administration. On 8 July 1997, a resolution was passed for the winding up of the company and the appointment of a Liquidator. The Liquidator's final accounts and statement were presented to a final meeting on 4 July 2000 and Staydry was deregistered on 10 October 2000. 7 As a result of its funding shortfall and of it going into administration, Bluecrest was unable to continue with its building operations and was unable to undertake further remedial waterproofing work on the Ashfield townhouses. The owners of the townhouses lodged claims against the Comprehensive/Special Insurance Schemes and a total of $280,000 was paid in respect of remedial work. The Fair Trading Administrative Corporation ('FTAC') commenced proceedings in the District Court of NSW against Mr Maiolo personally to recover the $280,000. These proceedings were settled with Mr Maiolo paying FTAC $75,000, with the Terms of Settlement, dated 19 December 2003, noting disagreement between the parties over whether the work on the Ashfield townhouses was done, contracted to be done, supervised or co-ordinated by Mr Maiolo. 8 In late 1996 or early 1997, Bluecrest had also commenced construction of 16 townhouses at Playfair Road, Mount Colah for a developer that, according to Mr Maiolo, was a subsidiary of one of the Jim Byrnes group of companies. Bluecrest ceased work on this site around early 1998 as a result of its going into administration. The Commissioner states that Bluecrest's home warranty insurer accepted eight of the 11 claims made in respect of this development, and a total of $181,869 was paid. 9 Mr Maiolo is presently the Managing Director of the Citadel Group, a group of companies that develop, sell and manage residential and commercial properties. 10 On 27 September 2004, Mr Maiolo completed an application for an individual contractor licence. By letter dated 15 February 2005, the Office of Fair Trading ('OFT') informed Mr Maiolo that his application was incomplete. On 30 March 2005, the OFT received a new application from Mr Maiolo. That application was refused on 22 November 2005. The reasons for the refusal of a licence were stated to be: "The complaints and insurance claims history against your previous Licence No 61687C has been taken into consideration. There are 2 complaints, 1 internal and 5 external insurance claims are recorded against your previous licence." 11 Mr Maiolo applied for an internal review of this decision. By letter dated 5 May 2006, a delegate of the Commissioner informed Mr Maiolo that the original decision had been confirmed. The accompanying Statement of Reasons stated that Mr Maiolo's application for a licence had been correctly refused because an unreasonable number of insurance claims had been paid between 1994 and 1999 in respect of building work carried out by him. 12 On 2 June 2006, Mr Maiolo appealed against this decision to the Tribunal. In the course of the pre-hearing exchange of documents, the Commissioner stated Mr Maiolo that he would also be relying on a further ground for refusing Mr Maiolo's licence – that he is not a fit and proper person to hold such a licence. The Relevant Law 13 Regulation 25(1)(a)(x) of the Home Building Regulation 2004 ('the 2004 Regulation') provides relevantly that before an authority is issued, the Commissioner must be satisfied that each relevant person in relation to the application "(x) has not carried out work in respect of which the Director-General considers an unreasonable number of insurance claims have been paid". 14 Section 20(1) of the Home Building Act 1989 ('the 1989 Act') provides relevantly that the Commissioner must reject an application for a contractor licence if "not satisfied that the applicant is a fit and proper person to hold a contractor licence". Section 20(1A) provides that in so determining, the Commissioner "is to consider whether the applicant is of good repute, having regard to character, honesty and integrity". The Evidence 15 The evidence in the appeal comprised two bundles of documents supplied by the Commissioner in relation to Mr Maiolo's licence applications, together with an affidavit provided by Mr Maiolo dated 29 August 2006 with attached documents. Mr Maiolo also gave evidence at the hearing. 16 Mr Maiolo said that he handed in his previous licence before it expired in 1999 because he was concentrating on his court case against Jim Byrnes and "at that time I no longer intended to engage in building as my interests were in property development" (affidavit par 2). 17 Mr Maiolo said that contrary to the Statement of Reasons dated 5 May 2006, he had provided references to support his application for a licence, and he had not been advised that any of those references were insufficient. (The Commissioner did not dispute this.) With regard to the Ashfield townhouses, Mr Maiolo said Bluecrest engaged Staydry to undertake the waterproofing work and did not, itself, undertake any of that work. The waterproofing product, "Superjet", was a commonly used product at that time offering a 25 year guarantee. After the residents moved in and it became apparent that the waterproofing was defective, it was impossible to tell definitively whether the product had been improperly applied or had itself failed. 18 During the construction of the townhouses, Bluecrest had a full-time licensed foreman and a full-time project manager on site. Mr Maiolo also visited at least once a week for an on-site meeting. There was nothing to suggest that the waterproofing had been improperly applied or that the product was unsatisfactory, and he had no reason to expect that the waterproofing would fail. Bluecrest subsequently repaired two bathrooms found to be leaking, but after Bluecrest "ran out of funds" and an Administrator was appointed, it had no capacity to undertake further repairs. Mr Maiolo said that, in his view, the repairs that were ultimately undertaken entailed significantly more work than was necessary, and the sum FTAC sought to recover from him was "grossly inflated". He said his recollection is that only one insurance claim was made in respect of the Ashfield townhouses - that by the proprietors of the strata plan. 19 Mr Maiolo said because Bluecrest was the builder of the Ashfield townhouses and not him personally, he instructed his solicitors to seek to have the proceedings brought against him by FTAC dismissed. In cross-examination, Mr Maiolo acknowledged that he was the only director of Bluecrest with a contractor licence. When asked why Bluecrest did not have a contractor licence, Mr Maiolo said that he had contacted the OFT who advised him that Bluecrest did not need a licence so long as there was a licensed supervisor. He was unaware that the 1989 Act required Bluecrest to have a licence. As noted above, the proceedings brought by FTAC were settled with Mr Maiolo agreeing to pay the sum of $75,000, and with the terms of settlement dated 19 December 2003 noting disagreement between the parties over whether Mr Maiolo contracted for, undertook, supervised or coordinated the construction work on the Ashfield townhouses. 20 With regard to the Mount Colah development, Mr Maiolo said that at the time Bluecrest went into administration, as is evident from the photographs attached to his affidavit, construction work was at an early stage and only two of the townhouses were "above ground": "Bluecrest had nothing further to do with those works, especially in view of the fact that Bluecrest was owed a significant amount of money across a number of jobs done for Jim Byrnes and/or companies associated with him." Work on the site was taken over by the Jim Brynes group of companies. Mr Maiolo stated that neither he nor Bluecrest or any other entity with which he is associated was ever asked to contribute to any damages payout in respect of alleged defective workmanship for this development, nor is he aware of any faulty workmanship in respect of work undertaken by Bluecrest in relation to this development. 21 With regard to a complaint made by Martin Bonnici, Mr Maiolo said that Bluecrest had undertaken some preliminary work for Mr Bonnici, who was the developer of a project at 199 Woronora Road, Engadine. After the Administrator was appointed, Bluecrest ceased work on the project. Mr Maiolo said he explained Bluecrest's financial difficulties to Mr Bonnici at a meeting at Cronulla in early 1998. Mr Maiolo denied ever suggesting that Bluecrest's work on the project could be taken over by another company with which Mr Maiolo was associated, Henkeel Pty Ltd. This company was subsequently struck off the register. Mr Maiolo said that in 1998 he was a director of 11 or 12 companies apart from Bluecrest, none of the other companies being involved in construction work. He did not have the funds to pay the accounting fees in order to keep Henkeel afloat, and was advised by his accountant that the cheapest way forward was to allow the company to be struck off. Henkeel did not have any creditors at the time it was struck off. 22 Amongst the documents tendered by the Commissioner and admitted into evidence are a list of seven companies of which Mr Maiolo is currently a director and the secretary, together with an historical company extract for Bluecrest, and documents relating to Mr Maiolo's applications for contractor licences, computer records of insurance claims made in respect of Bluecrest, and two complaints made against Mr Maiolo. One of the two complaints is in relation to the Ashfield townhouses; the other is by Mr Brynes. Both complaints are stated to have been concluded, but there is no evidence of what the complaints were, nor what the outcome was. 23 The Commissioner's documents include computer file records concerning payments made in respect of claims for repairs following the failure of the waterproofing for the Ashfield townhouses, and a bundle of documents including correspondence on the water leaks and their rectification. The documents confirm one statutory insurance claim was paid in respect of the Ashfield townhouses in the amount of $280,000. Eleven external insurance claims were made in respect of the Mount Colah development, with eight being paid, totalling $181,869. I note the Statement of Reasons on the internal review stated: "At the time the claims were paid Mr & Mrs Maiolo were the sole directors of Bluecrest Holdings Pty Ltd and it was not unusual for contractors such as Mr Maiolo to contract with consumers to carry out building work under an individual contractor licence while obtaining Home Warranty Insurance certificates in the name of a company such as Bluecrest Holdings Pty Ltd." The Applicant's Submissions 24 Ms Olsson, for Mr Maiolo, submitted that he has satisfied the criteria for the issue of a licence. Contrary to the assertion in the Statement of Reasons on the internal review, Mr Maiolo has submitted references, copies of which are included in the documents tendered by the Commissioner. It is not clear what complaints were relied on by the Commissioner. No further action was taken on the complaint by Mr Bonnici because it was out of time. However, Mr Maiolo has provided a satisfactory explanation in relation to his dispute with Mr Bonnici. 25 With regard to the insurance claims, Ms Olsson noted there was one claim in respect of the Ashfield townhouses. Bluecrest had engaged an appropriately licensed waterproofer, and a waterproofing product with a 25 year guarantee was used. At the time the waterproofing failed, Bluecrest struck financial difficulties solely as a result of a debtor – the Byrnes Group - failing to make payments owing to Bluecrest. Once in administration, the Administrator was required to take over the management of Bluecrest. If Mr Maiolo had continued to trade, he would have been liable for penalties under the corporations legislation. There was nothing else he could do. 26 With regard to the FTAC claim, Ms Olsson noted that Mr Maiolo defended this claim but settled the proceedings notwithstanding his contention, pursuant to the decision of the NSW Court of Appeal in Fair Trading Corporation v Smith [2001] NSWCA 435 ('Smith'), that he was not liable. In making this payment when he had no obligation to do so, he was acting honourably. 27 With regard to the external insurance claims, all of these relate to the Mount Colah development, in which Bluecrest ceased to be involved because of its going into administration. This was at a time when relatively little work had been undertaken on the development. The Commissioner has failed to provide any evidence of what the nature of the claims was. Neither Bluecrest nor Mr Maiolo have ever been notified of any defects and there is no evidence of defects. Ms Olsson submitted that the failure of Bluecrest due to the default of a debtor cannot be considered unreasonable. There is nothing to support the allegation that there were an unreasonable number of claims. There is also no evidence as to how many jobs were carried out by Bluecrest over this period. 28 With regard to whether Mr Maiolo is a fit and proper person to hold a licence, Ms Olsson submitted there is no evidence to suggest that he does not have a proper regard for the law, or raising questions as to his honesty (Tahiri v Commissioner for Fair Trading [2006] NSWADT 200). Indeed, he acted honourably in settling the proceedings brought by FTAC. Mr Maiolo contends it was Bluecrest and not him personally that undertook the Ashfield construction work. The mistake he made in not obtaining a license for Bluecrest was as a result of advice from the OFT. Ms Olsson submitted Mr Maiolo should not be penalised for the rest of time because of the Ashfield incident. Ultimately, the consumers involved were covered by insurance. There is no evidence of any complaints being received in relation to the operations of the Citadel Group of companies in which Mr Maiolo is currently involved. The incidents that are the focus of these proceedings were isolated ones and there is no evidence of a course of conduct. The Respondent's Submissions 29 Ms Griswold, for the Commissioner, said in her written submissions that it was reasonably open to Commissioner's delegate to conclude that the 11 private insurance claims in respect of the Mount Colah development, of which eight were paid, and the $280,000 statutory claim in respect of 12 units in the Ashfield development, was an unreasonable number of insurance claims in respect of Mr Maiolo during the currency of the construction work undertaken between 1995 and 1998. Ms Griswold submitted that as the Tribunal's Appeal Panel stated in Obradovic v Commissioner for Fair Trading, Office of Fair Trading [2006] NSWADT 18 ('Obradovic'), at par 43, "Parliament's intention was to allow the Commissioner to focus primarily on the sheer number of complaints or paid claims". At par 37, the Panel said: "A comparison between the number of complaints or paid claims and the number of years over which they would have occurred would, we expect, often be the basis for a conclusion as to what might constitute an 'unreasonable number'." 30 She stated that the number of claims and payouts over such a short period, which left the insurers without reimbursement of $386,000, and as a result of which individuals were disadvantaged, "is quite damning". The public interest in refusing a licence to Mr Maiolo should be given serious consideration. 31 In oral submissions, Ms Griswold contended that although Bluecrest carried out the work, the work was undertaken under Mr Maiolo's licence. She submitted that Mr Maiolo's case should be distinguished from that of Smith, where the building company was itself licensed. Mr Maiolo's contracting in the name of Bluecrest was a violation of the law. She invited the Tribunal to infer that the handing in of his licence in 1999 was to avoid the possibility of disciplinary proceedings. The number of claims and payouts is also a matter to be taken into consideration in determining whether Mr Maiolo is a fit and proper person to hold a licence. Discussion and Findings 32 In law, a proprietary limited company is a separate legal person from its shareholders and officers, and the NSW Court of Appeal decision in Smith makes clear that an individual director who supervises construction work for which a licensed building company is the contractor, is not liable to the FTAC. In Mr Maiolo's case, the factual situation is muddied by the fact that Bluecrest did not itself hold a contractor licence to enable it to undertake construction work in the period 1995 to early 1998, as it should have done. However, I accept Mr Maiolo's evidence that he believed, having spoken to an officer of the OFT, that provided he held a licence, it was not necessary for the company to do so. The question of Mr Maiolo's personal liability is not an issue I need to resolve, although I note FTAC's claim against Mr Maiolo for the $280,000 paid in respect of the statutory claim arising from the failure of the waterproofing for the Ashfield townhouses was settled for $75,000 without admission of liability by Mr Maiolo. Mr Maiolo maintains that he was not liable to the FTAC and his counsel submits that he acted honourably by making a payment when he was not legally obliged to do so. 33 The first ground on which the Commissioner grounds the refusal of a licence to Mr Maiolo is that he has, in the past, carried out building work in respect of which an unreasonable number of insurance claims have been paid. The facts relied on are, first, FTAC paid $280,000 on one 'statutory' claim for 12 of the 14 Ashfield townhouses for repair work undertaken following the failure of the waterproofing. Of this, $75,000 was recovered from Mr Maiolo without admission of liability on his part. I accept Mr Maiolo's evidence that the waterproofing work on the development was subcontracted to Staydry, which used a waterproofing product said to have a 25 year guarantee. When, ultimately, the waterproofing failed, Bluecrest carried out repairs to the bathrooms of two of the townhouses before it went into administration. I also accept that the financial difficulties experienced by Bluecrest were as a result of another company or companies defaulting on the payment of debts due to Bluecrest. 34 In my view, the following can be deduced from these facts. First, the statutory claim relates to one incident – the failure of the waterproofing - albeit a significant one for the Ashfield townhouse development. Second, Bluecrest did take steps to rectify the problem while it was able to do so in the period before it went into administration. 35 The second group of insurance claims relied on by the Commissioner, in respect of which payments were made by Bluecrest's home warranty insurer, are those related to the Mount Colah townhouse development. There were 11 claims, and payments were made by the insurer in respect of eight for an amount totalling $181,869. There is no evidence as to what the nature of the claims were or the defects alleged. Mr Maiolo stated that Bluecrest ceased work on the site when Bluecrest went into administration and, at that stage, the construction work was barely above ground level. He is not aware of any faulty workmanship by Bluecrest in relation to this development. All that can be deduced from this is that there is no evidence of faulty workmanship by Bluecrest other than that the insurer paid out on eight claims. 36 There is also no evidence of the number of jobs undertaken by Bluecrest in the period 1995 to early 1998, which would permit consideration of the relative number of jobs in respect of which insurance claims were paid. 37 I also note that in Obradovic, the Appeal Panel, while concluding that Parliament's intention was to allow the Commissioner to focus primarily on the sheer number of complaints or paid claims, nevertheless accepted that in reaching a view as to whether there is an unreasonable number, it is appropriate to have regard to the nature and quality of the complaints, albeit as a minor consideration. 38 Having considered the evidence, I am not satisfied that that an unreasonable number of insurance claims have been paid in respect of work carried out by Bluecrest, of which Mr Maiolo was the Principal Executive Officer and who held the contractor licence under which Bluecrest purported to operate. There is no evidence that the claims, in respect of two developments only- albeit sizeable developments, were directly caused by the faulty workmanship or defective conduct of Bluecrest. Indeed, the waterproofing at the Ashfield site, while ultimately the responsibility of Bluecrest, was caused either by the defective workmanship of a subcontractor, or by the failure of the waterproofing product employed. Bluecrest's financial difficulties, which caused it to go into administration, were the result of a third party defaulting on payments due to Bluecrest for other construction work. Thus, I reject the first ground for refusal of Mr Maiolo's licence. 39 The second ground on which Mr Maiolo's licence was refused is that he is not a fit and proper person to hold such a licence. In so determining, section 20(1A) of the 1989 Act requires consideration of whether he is of good repute, having regard to character, honesty and integrity. This is a value judgement by reference to the activities in which the person is engaged: Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321, Chief Justice Mason at par 63; Hughes and Vale Pty Ltd v State of NSW (1955) 93 CLR 127 at 156. 40 I note there is no dispute that Mr Maiolo has the appropriate qualifications and experience for the grant of a licence and has supplied the requisite references. I am not satisfied from the evidence that he has shown a lack of responsibility, dishonesty or a lack of integrity. I note from the Commissioner's documents that complaints were made against Mr Maiolo in relation to the Ashfield townhouses and by Mr Byrnes. There is no evidence as to the nature of the complaints and both complaints were apparently "concluded". With regard to the complaint by Mr Bonnici, this was apparently out of time and was not investigated. All three complaints could be explained by the withdrawal of Bluecrest from its various construction projects when it went into administration and, in my view, it would be unsafe to draw any inferences from the little information that has been provided. 41 As to whether Mr Maiolo has regard for the law, I accept his evidence that it was on the basis of advice from the OFT that he believed it was not necessary for Bluecrest to have a contractor licence and that it was sufficient for him to have such a licence. There is no other evidence of disregard for the law. 42 I am therefore satisfied that Mr Maiolo is a fit and proper person to hold a contractor licence. Costs 43 The Tribunal may only order costs pursuant to s 88 of the Administrative Decisions Tribunal Act 1997 if "satisfied that there are special circumstances warranting an award of costs". The Tribunal has provided guidance to parties on the relevant law and practice in relation to costs in Practice Note No 12, reissued on 11 May 2005. Normally, parties to proceedings before the Tribunal should bear their own costs, and the discretion to award costs is not exercised lightly. The principles governing costs were reviewed recently in Gales Holdings Pty Ltd v Tweed Shire Council (No 2) [2006] NSWADT 41, where the Judicial Member gave examples of special circumstances which may warrant an order for costs. Most of these examples relate to a party's conduct of proceedings, but if a party's claim is untenable in fact or law that may also justify a costs order. However, mere success in tribunal proceedings does not constitute special circumstances. 44 In my view, the Commissioner's claim was clearly not untenable in fact or law, and I am not satisfied that there are other special circumstances that would warrant an order for costs. Decision The decision of the Commissioner for Fair Trading dated 5 May 2006 is set aside and a decision is substituted that Mr Maiolo be granted a contractor licence.