Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Osman v Commissioner for Fair Trading [2015] NSWCATOD 12 Hearing dates: 2 October 2014 and 15 December 2014 Decision date: 04 March 2015 Jurisdiction: Occupational Division Before: J Kelly, Senior Member Decision: 1. The time for applying to the Tribunal is extended until the day the application was lodged. 2. The case is remitted for reconsideration in accordance with the Tribunal's recommendation that the applicant be granted a contractor licence pursuant to whichever of cl 26 or cl 39A of the Home Building Regulation 2004 is determined to be applicable Catchwords: HOME BUILDING – individual contractor licence – fit and proper person Legislation Cited: Home Building Act 1989 ss 19(1), 20(1)(a), 20(1A) Bankruptcy Act (Cth) 1966 s 153 Civil and Administrative Tribunal Act 2013 No. 2, s 41 Home Building Regulation 2004 cll 25(1)(a)(iv), 25(1)(a)(xii), 26, 39A Home Building Amendment (Authorities) Regulation 2007 Cases Cited: Cormack v Commissioner for Fair Trading [2006] NSWADT 4 Category: Principal judgment Parties: Ercan Osman (Applicant) Commissioner for Fair Trading (Respondent) Representation: Solicitors: MCK Lawyers (Applicant) Commissioner for Fair Trading (Respondent) File Number(s): 1420200 reasons for decision 1. The applicant, Ercan Osman, seeks the review of the internal review decision made on 18 March 2014 (the decision), that found that the decision made by the delegate of the respondent, the Commissioner for Fair Trading, was correct in refusing to issue to the applicant an individual contractor licence under the Home Building Act 1989. Background 1. The decision was made in the following factual context which is not contentious. 2. The applicant began work as a bricklayer in about 1986, completed a Diploma in Building in 1991 and first obtained a building licence in that year. He operated as a sole trader successfully. On 14 January 2000 Osman Developments Pty Ltd (the building company) was incorporated and on 26 March 2002, Osman Constructions Pty Ltd (the investment company) was incorporated for the purpose of purchasing and funding development projects. 3. An application to wind up the building company was filed on 15 January 2008 and a liquidator was appointed on 17 March 2008. The building company remains in liquidation. 4. A liquidator was appointed to the investment company on 10 July 2008. The investment company was deregistered on 31 October 2010. 5. The applicant is the sole director of the building company and was the sole director of the investment company from 5 February 2007 until it was deregistered on 31 October 2010. 6. On 8 July 2008 the then Consumer, Trader and Tenancy Tribunal (CTTT) made an order that the applicant pay the owners' corporation of a strata plan the sum of $325,000 immediately. He did not pay. 7. The applicant became bankrupt on 20 November 2009 and was discharged from bankruptcy on 21 November 2012. 8. The applicant has not held a builder's licence since 2009. On 2 October 2013, he applied for an individual contractor licence for building under the Act which was refused by letter dated 31 October 2013. The applicant requested an internal review of that decision. It is the review decision which is the subject of these proceedings. The decision findings 1. The reviewer found that: 1. the delegate was correct in refusing the issue of a contractor licence to the applicant in accordance with clauses 25(1)(a)(vi), 25(1)(a)(xii) and 26(2) of the Home Building Regulation 2004 (the Regulation); and 2. the applicant has not demonstrated that he took reasonable steps to minimise his loss that caused detriment to his creditors; and 3. the applicant has not demonstrated that he took reasonable steps to satisfy the CTTT order; and 4. the applicant is not a fit and proper person to hold a contractor licence because the evidence he provided did not demonstrate that he is a person of good repute, having regard to character, honesty and integrity in accordance with sections 20(1)(a) and 20(1A) of the Act. The issues for determination 1. In addition to considering the issues raised by the findings in the decision, set out above, the question arose whether the applicant had a reasonable explanation for the application to this Tribunal being filed more than 28 days after the decision was notified. 2. It was filed on 26 May 2014, about five weeks late. The law 1. Following is a summary of the relevant law. 1. Section 19(1) of the Act specifies that the Director-General may grant contractor licences for the purpose of the Act. 2. Section 20(1)(a) of the Act specifies that the Director-General 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. 3. Section 20(1A) of the Act specifies that, without limiting subsection (1)(a), in determining whether an applicant is a fit and proper person to hold a licence, the Director-General is to consider whether the applicant is of good repute, having regard to character, honesty and integrity. 4. The Regulation provides that before an authority is issued, the Director-General must be satisfied that each relevant person in relation to the application for an authority: 1. is not subject to an order of the Consumer, Trader and Tenancy Tribunal, that has not been satisfied within the period required by the Tribunal. (Clause 25(1)(a)(vi)) 2. is not an undischarged bankrupt and is not a director of, or a person concerned in the management of, an externally administered body corporate (within the meaning of the Corporations Act 2001 of the Commonwealth) except in case of a voluntary winding up of the body corporate. (Clause 25(1)(a)(xii)). Clause 26(2) provides that a contractor licence may be issued in certain circumstances despite cl 25(1)(a)(xii). Those circumstances include that the licence authorises the holder to do residential building work or certain specialist work, and that there is no evident risk to the public that the applicant will be unable to complete building contracts entered into in the future, and the applicant took all reasonable steps to avoid the bankruptcy, liquidation or appointment of a controller or administrator. A licence issued pursuant to cl 26(2) is subject to a $20,000 limitation as to the contract price or reasonable costs of labour and material. Material before the Tribunal 1. The Tribunal has taken into account the following in making a decision in this matter: the documents filed by the respondent pursuant to s 58 of the Administrative Decisions Review Act 1997, the application and affidavit sworn by the applicant on 30 October 2014, the Presentation of accounts and statement for the building company for the period 17 March 2014 to 16 September 2014, the applicant's oral evidence at the hearing on 15 March 2014, and the submissions made at the hearing by the legal representatives for both the applicant and respondent. Application to extend time in which to file the application 1. In his affidavit sworn 30 October 2014, the applicant set out the reasons why his application to the Tribunal was filed after the 28 day time period had elapsed. The barrister briefed had requested a copy of the constitution of the building company. The applicant had provided all his documents to the liquidator. The applicant's solicitor advised that the liquidator was not responding to requests for the constitution. The solicitor went on holidays. The applicant was unaware the application was filed late. 2. Although the respondent raised the delay in filing the application in the Tribunal at the adjourned hearing on 2 October 2014, his submission on this issue at the resumed hearing was faintly put, after the explanation had been provided. He did not point to any prejudice that the respondent would suffer if the time for the lodging of the application was extended pursuant to s 41 of the Civil and Administrative Tribunal Act 2013 No. 2. Taking into account that the delay in lodging the application was about six weeks, the applicant's explanation for the delay, the adverse consequence for the applicant if the extension of time was not granted, and that there is no identified prejudice to the respondent, I find that this is an appropriate case in which to extend the time for applying to the Tribunal to the day the application was in fact lodged. Is the applicant subject to an order of the former CTTT that has not been satisfied? 1. Mr Maynard, representing the respondent, conceded that the applicant was not subject to an order of the former CTTT because he had been discharged from bankruptcy and had been released from the debt. Therefore the applicant had not answered wrongly the question in the application about having such a debt, which he had denied. 2. The Tribunal agrees that s 153 of the Bankruptcy Act (Cth) 1966 had the effect of releasing the applicant from the debt. Such a debt is not one of the debts specified in that Act from which discharge from bankruptcy does not release the person. 3. Therefore the applicant is not subject to an order of CTTT that has not been satisfied within the period required by the Tribunal (cl 25(1)(a)(vi)). 4. Mr Maynard did rely on the circumstances relating to that order in relation to the question whether the applicant was a fit and proper person, which is addressed later in this decision. Does cl 25(1)(a)(xii) apply to the applicant? 1. Mr Koyuncu represented the applicant. He argued that cl 25(1)(a)(xii) did not apply to the applicant. He relied on the decision in Cormack v Commissioner for Fair Trading [2006] NSWADT 40. At the time of that decision, the provision required that the Commissioner must be satisfied 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". 2. In that case, the Tribunal construed the provision to apply to disqualify a director who continued to be concerned in the management of the company. The Tribunal held that once a liquidator is appointed, the liquidator took over the management and control of the company and a director was therefore not concerned in the management of the company. 3. Mr Koyuncu argued that from the date of appointment of the liquidator of the building company, 17 March 2008, the applicant was not a director concerned in the management of the company. 4. I do not accept Mr Koyuncu's argument. The regulation was amended by the Home Building Amendment (Authorities) Regulation 2007. The Explanatory note stated that the object of the regulation was to amend the Act "to make it clear that ... (b) certain authorities cannot be issued, renewed or restored unless the Commissioner for Fair Trading is satisfied that the applicant ... is not, and was not, with the period of 3 years before the date of the application, an undischarged bankrupt or a director of, or a person concerned in the management of, an externally-administered body corporate ...". 5. Mr Koyuncu argued that the current provision is identical to that considered in Cormack. The amendment does not change the meaning. I disagree. The explanatory memorandum supports that finding. The provision applies to a director of a company that is under external administration. The director does not have to be concerned in the management of the company. Therefore cl 25(a)(xii) does apply to the applicant. 6. The applicant's representative did not address the possible granting of a licence pursuant to cl 26(2) of the Regulation. However, the decision did. I have therefore also considered whether a licence should be granted pursuant to that provision. 7. Before doing so, it is necessary to address a submission made by Mr Maynard who appeared for the respondent. 8. Mr Maynard drew attention to cl 39A(1)(c) which applies to renewal or restoration of authorities. He submitted that that was the relevant provision, rather than cl 25(a)(xii). He said that it has different wording but the same practical effect as cl 25(1)(a)(xii). He raised no other factors for refusing the application than those considered by the reviewer in relation to cl 25(1)(a)(xii) and cl 26. The applicant's representative addressed only cl 25(1)(a)(xii). He did not seek to rely on cl 26 or cl 39A. However, as cl 26 was addressed in the decision and cl 39A was raised at the hearing, I address them to the extent I am able in the circumstances where I do not have the factual material before me to determine whether cl 39A applies or whether cl 25 applies and I have not heard legal argument on that question. 9. The reason this issue arose is apparent from the applicant's statement in his application for the contractor licence. He wrote: "As stated in my letter, it was Allianz Insurance that pushed for my suspension of licence. With this decision I did not consider that I should have keeped paying my year membership fee's (sic). Now I am in a position to reinstate my personal licence in my name so as I can start working as a builder again". 10. Clause 39A(1)(c) is relevantly in the same terms as cl 25(a)(xii). My finding is therefore the same in relation to cl 39A(1)(c), that is, the applicant's authority cannot be renewed or restored pursuant to cl 39A(1). 11. The Tribunal notes that cl 39A(1)(e) is in identical terms to cl 25(1)(vi). It would not apply to the applicant for the reasons given above. The applicant is not subject to an order of the former CTTT that has not been satisfied 12. Clauses 39A(1A) and (1B) empower the Director-General to renew or restore a contractor licence despite cl 39(1)(c) and has similar provisions to cl 26 but differs in that the imposition of restrictions on the type of work and value of the work or contract price is discretionary. Those limitations are mandatory in cl 26. I therefore do not agree with Mr Maynard's submission that the two provisions are the same in practice. 13. As there is a possibility of the applicant being granted a licence subject to fewer conditions under cl 39A(1B) and the issue was not argued and material was not put before me which would allow me to decide whether cl 39A is the relevant provision, it is appropriate to remit this case for reconsideration in accordance with the Tribunal's recommendations. The applicant's financial difficulties 1. I make the following findings. I found the applicant a credible witness, but I do not accept uncritically his opinions about the timing or cause of his financial difficulties. 2. The building company was responsible for various building projects that included multi-storey residential developments. 3. The applicant's work as a sole trader had been successful. He was in the position to invest in property development and formed the investment company to purchase and fund development projects. 4. The investment company had invested in a construction project at South Granville which started to experience delay and budget blow outs. 5. The applicant believes the issues at the South Granville project started when the developer borrowed heavily at high cost. The developer was a friend of the applicant and the applicant trusted his judgment. The applicant also believes that his friend owned or controlled the builder of that project. 6. The investment company borrowed money in addition to the initial investment to save the project and the applicant guaranteed the loan. 7. The applicant invested $976,000 of his own money into an 18 unit Narwee joint venture project. He thought he could trust his joint venture partner and despite his lawyer's advice to have the title transferred into his name, did not do so. 8. In 2008 a dispute arose with the joint venture partners. Once the investment company was taken over by the liquidator, the applicant was not able to pursue the return on investment from that development, which he believes ultimately made a profit. 9. The applicant claimed that his failure as a director stemmed from his eagerness to invest in the property market without appreciating the risks, including not foreseeing the global financial crisis, which was also not foreseen by financial institutions including Westpac and Bankwest, with which he banked. He did not appreciate the difficulty of managing the building work, the financing of development, and managing joint ventures at the same time. 10. The applicant ceased carrying out work as a builder before 17 March 2008 when the liquidator was appointed to the building company. Around that time, he was selling the properties he owned in an attempt to pay the debts owed by the investment and development companies. Those properties included his family home. He was living in rented accommodation. He worked on building sites as an employee to support his family but suffered injuries to his shoulder, back and knee, when he fell from a height above 2.5 metres on 17 December 2008. Thereafter, he was unable to work. Bankruptcy eventually followed on 20 November 2009. 11. The applicant was operated on and received compensation in 2014. Having received his payout he can afford to pay for other surgery. He had had a hip replacement four weeks before the Tribunal hearing and was to have shoulder surgery in the future. 12. The CTTT order was made on 7 July 2008 when he was under immense financial and emotional pressure. 13. On 12 August 2008, the building company had no realisable assets and total liabilities of $540,000, according to the liquidator. The causes of the failure were "mismanagement in joint venture agreements, poor strategic management of business". 14. The liquidator's Presentation of accounts and statement dated 24 September 2014 said that there were estimated to be three unsecured creditors with an estimated value of debt of $571,468.10. 15. The termination of the liquidator's appointment was delayed because a bank guarantee was due to expire "mid/late 2015 and expected to be released by mid/late 2015". The liquidator did not expect any dividend to be paid to any class of creditor. The Tribunal accepts the liquidator's assessment and does not accept a submission made for the applicant that funds may become available to pay creditors. 16. The liquidator's report to creditors in relation to the investment company dated 13 November 2009 contained the following information. The winding up application for the investment company was filed by the owners of a strata plan in relation to $50,000 of unpaid levies for commercial properties in which the company had invested. 17. The liquidator did not disagree with the applicant's assessment that the investment company failed because of a number of events outside his control: an unsuccessful joint venture project at Narwee; a strata ruling imposing the $50,000 of levies, and the general downturn in the property market. 18. The investment company had substantial real estate holdings that were encumbered by securities. The total exposure of the secured creditors was $5,556,700. As of 13 November 2009, two financial institutions with secured debts of $2,140,000, had enforced their securities. The liquidator understood that they had recorded significant shortfalls, although a final accounting had not been provided. 19. As of the date of the report to creditors, the liquidator estimated a deficiency of $2,454,736 in relation to unsecured creditors. 20. The liquidator of the investment company wrote on 14 October 2013 that the applicant co-operated with the investigation into the affairs of the Company and complied with his statutory duties. The liquidator also said that he did not commence any action against the Director, the applicant, and nor did the Australian Securities & Investments Commission conduct any further investigation into the Director's conduct or the company's affairs after receiving the liquidator's report. 21. Those remarks have to be put in the context of his remarks in the Report to Creditors. The liquidator observed that it appeared that the company's business model was predicated on a belief that real estate prices would continue to rise and thereby enable the sale of developments at a price in excess of the debts incurred in bringing the project to market. He formed the preliminary view that the investment company could be deemed to have been insolvent from June 2006 for failing to keep financial records as required by statute. That was relevant to considering whether a legal recovery action should be pursued against the director, the applicant. The liquidator considered the applicant's personal asset position and formed the view that it was likely that the applicant would proceed to personal bankruptcy. The liquidator also noted the applicant may have defences under the statute. The liquidator took into account that insolvent trading litigation is expensive to investigate and prosecute, he had not identified significant assets in the applicant's name, and formed the view that whilst having some chance of success, an insolvent trading action was not commercially viable. 22. The Report to Creditors dated 12 December 2013 in relation to the applicant's bankruptcy reported total creditors in the sum of $663,444. I find that the purpose of that report was to include in the bankruptcy the sum of $325,000 in respect of the 2008 CTTT order. 23. I accept that he was unaware of the CTTT order made against him until after he had applied for the licence the subject of these proceedings. Consistently with the applicant's evidence, the internal reviewer stated that the unsatisfied order was brought to the attention of the applicant's solicitors by NSW Fair Trading in its letter of 31 October 2013. At that time the investment company had been deregistered, he had been discharged from bankruptcy and the building company was still in liquidation. 24. I accept that the applicant received no documents about the hearing because he had changed address two or three times around that time and seven times in four years. His personal life and financial circumstances were very difficult around the time the CTTT order was made. He was under great pressure, and he was virtually living on the street. I take into account Mr Maynard's submission that a licensed builder must maintain an up-to-date address. However, the applicant was unable to take any steps to undertake remedial work because he did not know about the order, and on the evidence would have had no financial capacity to address the order before his bankruptcy if he had known about it. 25. In accepting the applicant's claim that he did not know about the CTTT order, I have taken into account explanations provided by his solicitor to the respondent and in the applicant's affidavit provided to the Tribunal which may be understood to suggest that he did know about the order in 2008. However, I prefer his direct evidence at the hearing which I found persuasive and the fact that that debt was not included in his bankruptcy until after the present application to the respondent was lodged. Did the applicant take reasonable steps to avoid the bankruptcy and liquidations? 1. The question of whether the applicant took reasonable steps to avoid bankruptcy and liquidation of the building and investment companies minimise his loss that caused detriment to his creditors is relevant to the issue of a licence pursuant to cl 26(2) and cl 39(1A)(a) of the regulation. 2. I accept that the applicant did take reasonable steps to avoid bankruptcy and liquidation, as set out earlier. He sold his family home, as well as other assets, and worked as an employee until he was injured. He stopped trading as a builder in January 2008. He did not voluntarily liquidate his companies in order to avoid debts. He did not act unscrupulously. He did not act dishonestly. He did not know about the CTTT order because he had moved a number of times, including because he sold the family home. Is there no evident risk to the public? 1. Having found that the applicant took all reasonable steps to avoid bankruptcy and liquidation, it is necessary to consider if there is no evident risk to the public that the applicant will be unable to complete building contracts entered into in the future (cll 26(2)(b)(i) and 39A(1A)(a)). 2. I take into account the continuing liquidation of the building company because of a bank guarantee which is due to end in 2015, the liquidation of the investment company, and the applicant's bankruptcy. 3. In relation to the investment company, which owed creditors, secured and unsecured, more than $7,596,700, I accept the liquidator's assessment that that company failed because of events outside the applicant's control. 4. I accept the assessment of the liquidator of the building company that the causes of the failure of that company were "mismanagement in joint venture agreements, poor strategic management of business". 5. The applicant said that if he receives a licence, he will focus on building, he has no other skills or qualifications. He claimed that he has learned not to trust people and not to prop up people. He grew too big and beyond his capability and control as a developer which affected his construction activity. He said also that his failure as a director "stemmed from my eagerness to invest in the property market without appreciating the risks and I did not foresee the financial crisis. I did not appreciate the difficulty of managing the building work and the financing of the development and managing joint ventures at the same time". The applicant acknowledged that he had made some unwise judgments about people with whom he invested, and, in retrospect, not taking legal advice to transfer title to a property into his name in which he had invested almost $1 million, but deciding to invest a further $100,000 to install kitchens in an attempt to complete the project. 6. The applicant complained about the liquidator's settlement of litigation initiated by the application in relation to this project, which he believed did make a profit. However, such speculation does not assist my consideration of the issues in this case. 7. I take into account that the events having those consequences occurred around 2008, ending with the applicant's bankruptcy in 2009. 8. I find that the applicant's financial difficulties arose from his investment activity rather than his building work. While he emphasised that he wanted to focus on building, he very honestly told the Tribunal that he would love to have another go at investing if he had the opportunity but does not think he will; investing is where you make your big money. I have considered those statements carefully, but find that the applicant has reflected sensibly on his own conduct in the past which contributed to his past financial difficulties and will seek to avoid making the same mistakes in the future. 9. The question posed is about the future. The statutory regime recognises being a director of an externally administered company or a bankrupt do not render someone unfit to hold a licence. 10. I find that there is no evident risk to the public that the applicant will be unable to complete building contracts entered into in the future for the doing of residential building work or specialist work of that kind, or both. Is the applicant a fit and proper person to hold a contractor licence? 1. I find that the applicant is a fit and proper person to hold a contractor licence. I have taken into account his history of financial failure detailed above, but am satisfied that he is of good repute, having regard to character, honesty and integrity. I have found that he did not know about the CTTT order until he made the application for a licence in 2013. Further he was not subject to that order when he lodged his application. I have not found that the applicant has acted dishonestly or unscrupulously in any way or to have lacked integrity or has acted in a way that disqualifies him from being a fit and proper person to hold a contractor licence. 2. As stated above, being a bankrupt or director of an externally administered company does not render a person unfit to hold a licence. Such a person may hold a licence, subject to certain conditions already referred to in this decision. Decision 1. For the reasons given above, I remit this case for reconsideration in accordance with the Tribunal's recommendation that the applicant be granted a contractor licence pursuant to whichever of cl 26 or cl 39A of the Regulation is determined to be applicable. 2. I have not considered whether the applicant should be subject to conditions under cl 39A(1B)(b), if cl 39A is the applicable provision, because the matter has not been argued. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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. Decision last updated: 04 March 2015