What is a Fit and Proper Building Practitioner or Building Company Director?
By Lovegrove & Cotton – Construction and Planning Lawyers
The fit and proper person requirement to practice as a building practitioner or to act as a director of a building practitioner company is a concept of significant legal import, as the ramifications for being knocked-back on the basis of this requirement are severe. But what is a fit and proper building practitioner or director? If one is knocked-back on this requirement, can one have a decision overturned or appealed?
In recent months, the Victorian building industry has been subject to a new paradigm with regards to practitioner registration, namely Corporate Sole Building Practitioner Registration.
This new regime is set out in Schedule 10 of the Building Act 1993, and commenced on 1 July 2018. The process of registering current eligible building companies included an ‘automatic registration process’ and decisions to refuse registration under this regime had to be made prior to 1 July 2018, pursuant to clause 4 of Schedule 10 of the Act.
Justin Cotton, Director, wrote extensively on point in an article circulated in May 2018 about the changes, highlighting their material effects; most notably the prohibition on building companies being listed as “the builder” in building contracts if they do not possess corporate registration as a building practitioner. To read Mr. Cotton’s article, click here.
Fit and Proper & Professional Misconduct – Building Industry ‘Gatekeeper’ Regimes
If registration fails because a view is formed that a building company director or building practitioner is not a fit and proper person, the consequences for the applicant are of course profound. It is in fact very much like being ‘defrocked’ or disbarred for professional misconduct. The latter occurs when the conduct has been heinous or of a nature that attracts the disapprobation of peers of good repute. Furthermore such a finding mindful of the fact that it has a profoundly deleterious impact upon a professional’s livelihood and career prospects, is generally only forthcoming after vigorous jurisprudential scrutiny.
When one has regard to the criteria applied by tribunals, Courts and other judicial bodies with regards to professional misconduct, it appears very similar to criteria deployed in ascertaining whether an individual is fit and proper. Apart from findings of professional misconduct, there are very few instances where a practitioner loses their right to practice their trade or profession as for fear of laboring the point, the gravitas of such a finding is severe.
‘Disciplinary Hearings and Advocacy’ co-authored by Kim Lovegrove RML, FAIB and Criminal Law Barrister Sav Korica, at page 26, highlights some consistent factors considered in determining whether a professional has engaged in professional misconduct:-
“If one looks at conduct that culminates in serious censure (i.e. professional misconduct) vis-à-vis conduct that culminates in lower end disciplinary censure (i.e. unsatisfactory professional conduct) the sorts of threshold ingredients that the tribunals and Courts and, in some instances, Acts of Parliament seem to have come up with include:
- a high degree of objective seriousness conducive to significant harm to the public;
- conduct that is considered to be disgraceful by practitioners of good repute and competency;
- conduct that is heinous or dishonourable;
- conduct that is wilful or reckless;
- conduct that is of a sufficient serious nature to justify suspension;
- grave conduct that poses significant harm to the community.”
When one considers the utility of the above criteria and the material effect of a finding of professional misconduct, namely to bar a professional from practising, it parallels greatly with the utility and material effect of the fit and proper test, which serves to bar a prospective professional from practising at first instance. Both regimes are gatekeepers, if you will.
The Fit and Proper Test for the Victorian Building Industry
The Victorian Building Authority Fact Sheet August 2016 outlines the ‘Fit and Proper Person Requirement’ for building practitioner registration and states that:-
“As part of assessing an application for registration, the VBA will have to satisfy itself that an applicant has sufficient moral integrity, honesty and good character to carry out their work and conduct themselves in a professional and honest manner.”
The Fact Sheet then refers to relevant criteria, or ‘relevant matters’, the VBA would have regard to in determining the above:-
- “any disciplinary or legal action taken against the applicant by the VBA, the Building Practitioners Board, other regulatory body or person”
- “whether the applicant has provided any false and misleading information in support of an application for registration”
- “any requests or information received from the Director of Consumer Affairs Victoria, for example, a request to examine whether building work performed is defective”
- “any notifications received from the applicant’s insurer that the applicant has previously been refused insurance as a building practitioner”
- “any unsatisfactory reference check”
- “any physical or mental infirmity that may affect the applicant’s ability to practise as a building practitioner”
- “any adverse matter disclosed by the applicant, for example, having been convicted or found guilty of an offence involving fraud or dishonesty”
- “a failure to disclose an adverse matter described above that later becomes known to the VBA.”
These are largely universal criteria, mirrored across the fit and proper standards applied to a variety of other professions and vocations.
On the basis of the aforementioned criteria, any finding where a building practitioner as a director of a building company is considered not fit and proper would have to be accompanied with very definitive and clear supporting evidence.
A July 2018 update to the VBA’s Fit and Proper Person fact sheet appears to somewhat extend the scope of ‘relevant matters’ the regulator can consider in instances of building company practitioner registration. The VBA will have regard to “any licence, approval, certificate or other authorisation as a building practitioner that was suspended or cancelled for any reason other than failure to renew.”
This criterion potentially leaves open a wide net of instances where cancellations or suspensions of ‘licences, approvals, certificates or other authorisation[s]’ may be used as justification for scrutiny as to the ‘fitness’ or ‘properness’ of an individual seeking building practitioner registration or a director of a building company wishing for corporate registration.
As to the status of a ‘fact sheet’ Lovegrove & Cotton have had carriage of a matter that serves as a Supreme Court authority regarding the likes of aide memoirs or guidance instruments like fact sheets, more specifically Practice Notes issued by the former Building Commission (the previous incarnation of the VBA). In the Victorian Supreme Court case, Chen & Anor v Kevin McNamara & Son, at , Hargrave J described Practice Notes addressing the legislation in question as having “no statutory force or effect. They form part of the information providing function of the Building Commission under s196 of the Building Act. They have formed no part in my decision making process.”
The take out in terms of fit and proper is that no related fact sheet, practice note or the like has definitive legal standing, rather they are guidance instruments – useful, but not legally binding.
Fit and Proper – Considering the Case Law
A definition of fit and proper person is not often found in statute. Most law-abiding and rational individuals would have a pretty good idea of that which is considered to be fit and proper. Such ideas however may not be universally relevant as they may be shaped by the history, the chapter or decade of history, the culture and the rule of law that is germane to the jurisdictional context.
The legislature must ensure that a regulated fit and proper criterion is, in itself fit and proper. This point was illustrated in a poignant article, “Time for due diligence on the ‘fit and proper’ test”, by Andrew Hill published in the Financial Times on September 24, 2012. Mr Hill asked the question “is the fit and proper test itself fit for purpose? …the assessment of fitness, propriety and other qualification is a judgemental matter”. Mr Hill added that “US regulators lowered the threshold to disqualify company directors from substantial unfitness to mere unfitness after a rash of corporate scandals over 10 years”. Mr Hill observed that “courts still wrangle over the definition”. Indeed the Courts would, because many definitions of fit and proper have elements of the opaque. Correct, the assessment is based on judgment and judgments are not infallibly correct in every instance, nor are they immune from the shaping of the mores of the time.
Nonetheless, regard to case law is important where a definitional vacuum exists.
Honesty, Integrity and Reputation are key Considerations
In the matter of Australian Broadcasting Tribunal and Bond (1990) HCA 33, Mason CJ found that one must have regard to all of qualities and characteristics of the subject individual that are relevant to the licence, approval, certificate or other authorisation sought by the individual. Mason CJ made particular mention of an individual’s character and reputation. The high court authority stipulated that decision makers would need to consider ‘whether improper conduct has occurred, whether it is likely to occur, when it can be assumed it will not occur, or whether the community will have confidence it will not occur.’ The extract highlights the importance of public perception and the practitioner’s standing as a respected member of the community.
This is largely paralleled in case law governing the legal profession. The importance of a practitioner’s public standing is clearly outlined in the matter of Dixon v. Legal Practice Board of Western Australia  WASC 79 whereby it was stated that “fitness to practice law requires that the practitioner must command the personal confidence of his or her clients, fellow practitioners and judges.”
In terms of the matter’s relevance to the building industry, again it comes down to the essence of the fit and proper person judgement – namely, character and reputation. Moreover, the legal profession, like the building profession, with regards licensing and registration comes under the jurisdiction of a statutory scheme. It follows that if a building practitioner is held in high repute by his colleagues, peers, clients and superiors the argument that said practitioner is indeed fit and proper is compelling.
Prior Convictions or Proceedings against the Subject
In the United Kingdom, the Financial Conduct Authority and Prudential Regulation Authority presides over an “approved persons regime”. The regime serves to regulate individuals that carry out significant management functions within a regulated firm or business, such as directors. Again the assessment of whether an individual may be regarded an ‘approved person’, is contingent upon them meeting the criteria of a fit and proper test.
The FCA or PRA will have regard to all relevant matters including, but not limited to, a specific list set out in the Handbook. To illustrate the breadth of the test, these include, in simplified form, whether:
- The person has been convicted of any criminal offence.
- The person has been the subject of any adverse finding or settlement.
- The person has been the subject of earlier investigations.
- The person is or has been the subject of disciplinary or criminal proceedings.
- The person has contravened the requirements or standards of the UK regulatory system or other UK regulatory authorities.
- The person has been a director, partner, or concerned in the management, of a business that has gone into insolvency, liquidation or administration.
- The person has been dismissed, or asked to resign and resigned, from employment or from a position of trust, fiduciary appointment or similar.
- The person has ever been disqualified from acting as a director or disqualified from acting in any managerial capacity.
- In the past, the person has been candid and truthful in all his dealings with any regulatory body.
- The person demonstrates a readiness and willingness to comply with the requirements and standards of the regulatory system and with other legal, regulatory and professional requirements and standards.
(Quoted from: Thomson Reuters, article by Giles Peel, Bridget Salaman, and Mathew Rutter, DAC Beachcroft, Directors: are you fit and proper? Trends in fit and proper person requirements and testing, 2015)
However, prior convictions are not always regarded as relevant to the position sought in terms of assessing fit and proper. In determining the fitness or properness of an individual a Court, Tribunal or Authority will adhere to notions of natural justice.
Another statutory definition of fit and proper decision making is found in the New Zealand Electrical Workers Registration Board fact sheet on fit and proper. Section 3.14 of the fact sheet outlines the decision-making process. It is useful to have regard to this fact sheet as, like the VBA, the registration body regulates a category of building practitioner.
3.14 The Board will apply and adhere to the principles of natural justice in coming to its decision as to whether a person meets the fit and proper person requirements of the Act. The Board may also take any of the following into consideration:
- how serious the matter is or was;
- what health and/or safety concerns it may raise;
- how long ago it occurred;
- any consequences for the applicant or any other person;
- whether it was a one off incident;
- how relevant it is to the applicant carrying out or supervising prescribed electrical work;
- the implications of the matter; i.e. what does it show about the applicant;
- the applicants attitude to the matter;
- how a member of the public who engaged the applicant to carry out prescribed electrical work would view the matter
(Quoted from: Electrical Workers Registration Board, L-PO-12 Fit and Proper Persons, 2017)
In conclusion, on the basis of a plethora of different cases and different fact sheets, one can glean the following ‘definition’ of, or ‘criteria’ for, a fit and proper person to practice as a building practitioner.
A fit and proper person to practice as a building practitioner or be a director of a building company is an individual:-
- of strong repute that holds the respect of their peers, colleagues, clients and superiors.
- whose peers, colleagues, clients and superiors, along with the public at large, have confidence will not engage improper conduct as a building practitioner.
- that presents with a record devoid of any adverse findings such as:-
- criminal offences;
- provision of misleading information;
- registration disqualification;
- conditions imposed upon registration;
- improper professional conduct;
- professional misconduct;
- a finding of fraud or dishonesty;
- that has a record of adverse findings that:-
- are not regarded as relevant to exercising duties as a building practitioner;
- Had occurred some time ago;
- Were one-off incidents, and not recidivist;
- Were of low-level severity;
- Culminated in the individual being honest, regretful and remorseful and making progress towards reform.
Should one’s application for building practitioner registration or company registration be rejected on the basis of not being regarded a fit and proper person, despite meeting the above requirements, it is paramount that one considers instructing solicitors to aid in making submissions to review such a decision as, depending on the factual mosaic, there are likely to be sound appeal grounds.
Lovegrove & Cotton: Leaders in building practitioner legal representation
Lovegrove & Cotton are experts in construction law and building practitioner legal representation in Melbourne, Sydney, the ACT and Queensland. The firm also has had carriage of a great many administrative decision appeals. Justin Cotton has represented building practitioners and building surveyors successfully for nearly fifteen years and has established leading precedents in a number of Australian Tribunals. If the reader knows of anybody who needs legal representation in this complex and gravity-laden area, feel free to contact us via our website or by emailing email@example.com.