Redundancy and welfare funds linked to a construction union were spent on striking workers, as non-union members missed out, an inquiry has heard.

Funds set aside to pay off redundant construction staff were instead spent on striking workers, to try to set a “disastrous precedent” for the building industry, an inquiry has been told.

A construction boss also raised a “moral objection” about benefit payments being denied to non-union contributors.

Several redundancy and welfare funds linked to the Construction, Forestry, Mining and Energy Union (CFMEU) have been scrutinised by the Royal Commission into Union Governance and Corruption, sitting in Brisbane this week.

John Crittal, a Master Builders Association-appointed director of the Construction Income Protection (CIP) fund, had expressed concerns about redundancy money being used to pay striking workers.

But he said Bill Wallace, the general manager of the Building Employees Redundancy Trust (BERT), a fund linked to the CIP, ignored his advice that doing so would “create a world of pain” for the industry.

“We said, ‘They’re not redundant. You cannot pay these striking workers. Don’t do it’,” Mr Crittal told the inquiry.

“It was a shot across the bow about him setting a precedent that would be disastrous for employers in the building industry.”

The CIP fund has previously paid a $512,000 management fee to BERT.

They are among the $4.5 million in funds the CFMEU and the merged Builders Labourers Federation of Queensland received from employers in the past financial year.

BERT board member Tony Hackett, who is also chairman of the Queensland Major Contractors Association, says he expressed a “moral objection” during board meetings in 2013 about non-union members missing out of benefits.

“I asked questions, ‘What about non-members?’,” he told the inquiry.

The association also thought discriminating against non-union workers might be illegal under the Fair Work Act and sought its own legal advice, which it sent to the BERT board.

Senior counsel assisting the inquiry, Jeremy Stoljar, said the BERT fund was more concerned about advancing the interests of its union shareholders instead of members who contributed. A related fund pays out hardship, funeral, childcare and travel insurance support.

“Some members of BERT, despite the fact that they’re contributing monies … are shut out from the benefits that BERT offers,” Mr Stoljar said.

The CFMEU’s national secretary Dave Noonan told reporters Mr Stoljar was making inflammatory allegations as part of a political speech.

“We’re very proud of the fact that we work in a tough industry,” he said before Tuesday’s session.

Meanwhile, the inquiry also heard how a water leak in the lunchroom of an inner Brisbane apartment building site on March 28 this year led to a 12-day unauthorised industrial stoppage by the CFMEU.

The royal commission was shown video footage of workers protesting outside the Hindmarsh construction site on April 7.

“The sound was so loud that it echoed around the ground level and the concrete,” the company’s Queensland construction manager Ian Busch said in a witness statement.

The hearing before retired High Court judge Dyson Heydon resumes on Wednesday.