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Residential Focus

08 May 2019

#Property & Real Estate

Christine Jones

Published by Christine Jones

Residential Focus

A residential building contract by any other name

The recent NSW Supreme Court decision of Lawrence v Ciantar [2019] NSWSC 464 provides guidance on the Court’s interpretation of a joint venture agreement between two registered proprietors (owners) and a builder, and whether it constituted an agreement for the builder to undertake ‘residential building work’ within the meaning of the Home Building Act 1989 NSW (the Act), in which case the Act would apply. To the builder’s detriment, the Court held that the Act applied and because both the agreement between the parties did not comply with the requirements of the Act and the builder did not hold an unrestricted licence, the Court held that the builder’s claim for damages was unenforceable. 

Background

The owners obtained development approval for a three-lot subdivision. The owners proposed a joint venture arrangement for the builder to carry out the demolition and subdivision works (DA works) in exchange for receiving one-third of equitable interest in the property. The scope of work included the installation of drainage pipes, the construction of a retention tank and a driveway and the subdivision.  

Shortly after, the parties decided not to proceed with the joint venture agreement and proposed a written agreement with  terms “similar” to the joint venture arrangement (Agreement). The Agreement contemplated a caveat in favour of the builder to be lodged over the Property. The owners returned the signed caveat to the builder in January 2015 and the parties signed the Agreement in March 2015. The parties also executed a deed of loan, a transfer for a one third share and a mortgage in favour of the builder.

Meanwhile from 15 January 2015, the builder’s licence was under restriction which meant he was unable to enter into contracts where the reasonable market value of the work and materials exceeded $20,000.

Thereafter, the Builder failed to complete the work within the agreed period, sought two extensions of time for 6 months, and failed to complete the works for further 8 months after the extended period. In September 2017, the owners served on the builder a notice of rescission (issued under the Act) on the basis that the Agreement was for the builder to undertake ‘residential building work’ within the meaning of the Act and the Agreement failed to include a cooling off warning as required under the Act. The owners also terminated the deed of loan and claimed the caveat had no further operation.  

The builder commenced proceedings, claiming a one-third interest in the property. The builder submitted the Agreement was for works excluded from the definition of residential building works, meaning the Act did not apply, the rescission notice was invalid and the owners’ conduct was repudiatory. 

The builder also submitted that under the Agreement it was open for him to arrange for someone else to carry out the works under his supervision, with the effect that the Agreement was not caught by the Act, as supervision only is excluded from the definition of residential building work (Supervision Submission). 

Interpretation of the Agreement and whether the Act applied? 

The Court found that the Agreement required the builder to carry out and complete the DA Works in return for a one-third share in the property. The issue then became whether the Agreement was for residential building work and fell within the Act.

If the Act applied, the builder would not be entitled to claim an interest in (or lodge a caveat over) the property and otherwise enforce any other rights in the Agreement, as the Act prohibits a contract or agreement to confer on the builder any legal or equitable interest in a land. Further, given the Agreement  did not have a cooling-off warning and because the builder did not have an unrestricted licence (per section 4 of the Act), the builder would not be entitled to damages or to enforce a remedy for breach of the Agreement. 

The Court found that although part of the DA Works (i.e. demolition) was excluded from the definition of “residential building work”,  other DA Works, including the construction of the driveway and the drainage works were to be constructed for use in conjunction with a dwelling, and therefore satisfied the definition. 

As to the Supervision Submission, the Court affirmed the principles settled in Trend Properties Pty Limited v Casa Maria Pty Limited [1998] NSWCA 53 (Trend), and by comparison to the circumstances in Trend, held in this case that: 

  1. the Agreement contemplated that the  builder would obtain  financial reward for carrying out and completing the DA works
  2. there was a contractual obligation in the Agreement for the Builder to do the work
  3. the Agreement did not expressly provide that the Builder was not to do the works himself or that the works were to be done by a licensed builder under the builder’s supervision
  4. the evidence before the Court showed that the builder accepted responsibility for undertaking performance of the DA works. 

For reasons set out above, the Court held that Agreement was one under which the builder undertook to do residential building works and was caught by s6 of the Act. Given the Agreement did not comply with s7 of the Act, the Court held that the owners’ rescission notice was valid. 

The Court accordingly held that the Builder’s claimed one-third interest in the property and claims for specific performance and damages were unenforceable due to the operation of s7D and 10 of the Act.

Author: Christine Jones, Divya Chaddha and Jeffery Shi.

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In the media

ACT resists new national building standards
The ACT government continues to resist adopting the new national building standards, claiming the building industry needs more time to adjust. Meanwhile, all other states and territories signed up to the 2019 Building Code of Australia on May 1 (03 May 2019). More...

Industry strengthens call for compulsory registration of engineers
Engineers Australia has re-stated the case for compulsory registration in a submission to the Opposition, ahead of the possibility of Victoria’s Parliament considering the Professional Engineers Registration Bill 2019 this week (30 April 2019). More...

The biggest ever change to building Green Star ratings
The Green Building Council of Australia (GBCA) is preparing to evolve its Green Star rating system, encouraging the built environment to achieve net zero carbon emissions (30 April 2019). More...

Construction activity cools across Asia Pacific to start 2019
Data from the RICS Construction and Infrastructure Survey indicates a more subdued environment across the Asia Pacific region to start 2019 (30 April 2019). More...

Construction, waste management facing tough time
The construction industry and recycling and waste management operators face surging premiums and challenges obtaining cover, Honan warns in a quarterly market update (29 April 2019). More...

Complexity, safety drive construction management software demand
Increasing project complexity and an ongoing push for safer work sites are driving greater demand for construction management software in Australia; a global industry leader says (29 April 2019). More...

CSIRO opens up new housing portal
The Commonwealth Scientific and Industrial Research Organisation (CSIRO) has launched a new data portal to centralise information relating to Australian homes as part of a program to make them more energy efficient (26 April 2019). More... 

Skilled migration crucial to housing: HIA
Recent proposals to make changes to the ‘457’ skilled working visa will not address the bigger problem of how to fill the shortage of skilled trades people available to build new homes and apartments, according to HIA Managing Director, Graham Wolfe (26 April 2019). More...

Dwelling approvals rise in February
A rise in building approvals for apartments and townhouses has driven a 0.4 per cent increase in the total number of dwellings approved in Australia in February 2019, in trend terms, according to data released by the Australian Bureau of Statistics (ABS) (24 April 2019). More...

NSW electricians sail through licence Tests
Electricians throughout the residential building sector in NSW have largely sailed through checks to ensure that they have valid licences, indicating a high level of compliance with licensing rules in that state (30 April 2019). More...

Newcastle building company found guilty of failing to protect workers from falls
A Newcastle building company has been found guilty of failing to provide adequate fall protection to avoid its workers from falling from heights. The prosecution comes after a SafeWork inspector attended a construction site run by DSD Builders Pty Ltd (DSD Builders) in Speers Point on 27 March 2018 (30 April 2019). More...

Unlicensed contractor fined $67,000 for breaking home building and consumer laws
A Western Sydney man has been fined $67,000 after being found guilty of accepting multiple payments from consumers while unlicensed and then performing unfinished and defective residential work (30 April 2019). More...

Northern Beaches carpenter convicted of repeat offences under Home Building Act
NSW Fair Trading has successfully prosecuted a Northern Beaches repeat offender for multiple breaches of home building laws. Denny Shallis, who traded as Koala Carpentry at Collaroy Plateau, was sentenced and fined $19,600 at Parramatta Local Court on 11 April under the Home Building Act 1989 (29 April 2019). More...

Fair Trading shines a light on electrical workers in building sector
Operation Switch’, an investigation led by NSW Fair Trading officers, identified high levels of compliance across businesses within the NSW residential building sector. It is an offence to perform electrical wiring work without a licence or certificate and workers can be fined $22,000 as an individual or $110,000 as a company (23 April 2019). More...

Published

Australian Bureau of Statistics
3 May 2019 Building Approvals, Australia, Mar 2019 (cat no. 8731.0) 

Practice and courts

ABCB reminder: NCC 2019
NCC 2019 will be adopted from 1 May 2019. If you’d like an overview of the key changes and dates, please check out the latest ABCB Connect article. More...

HIA: National Construction Code (NCC) 2019 starts
HIA has developed a range of member resources and ran a series of seminars to assist members in understanding and applying the changes. You can get access to these resources here. You can download the new editions of the NCC from the ABCB website or if you want a hard copy you can get this from the HIA website here.

GBCA important deadlines - Green Star certification for your project
Many project teams have timelines set around major events. To support this, these guidelines below (based on typical time frames), which specify the deadlines you’ll need to meet in order to have your project certified in time for key milestones in 2019. Deadline is 4 November 2019. More...

City of Sydney: Alternative Housing Idea Challenge
The community will have the opportunity to provide feedback on the short-listed concepts as part of the City’s consultation to shape Sydney 2050. More...

Hoisting and construction activities in public spaces
The City of Sydney is seeking feedback on proposed new approval processes, controls and responsibilities when operating and working in public places. The draft local approvals policy and code of practice: hoisting and construction activities in public places provides information for property owners, builders and contractors. The deadline for submissions is 15 May 2019.

New dates for Environmental Planning & Assessment Act updates
Councils, certifiers and other industry practitioners have more time to implement some of the recent Environment Planning & Assessment Act updates. Changes affect new provisions for building and subdivision certification, local strategic planning statements for councils in the Greater Sydney Region and community participation plans

Cases

K&J Vision Pty Ltd v Jows Construction Pty Ltd [2019] NSWCATAP 112
APPEALS - Home building contract – outstanding progress claims – repudiation of contract – termination of contract – calculation of damages for breach - adequacy of reasons - error of law.
Corporations Act 2001 (Cth), s 1335; Home Building Act 1989 (NSW), ss 92, 96, 99; Home Building Regulation 2004, cl 56. 

Service Today (NSW) Pty Ltd & Magerovski v Commissioner for Fair Trading [2019] NSWCATAP 113
ADMISTRATIVE LAW – review of decision to cancel licenses under the Home Building Act, 1989 – denial of procedural fairness – review of answers given to show cause notice – use of subsequent evidence to demonstrate answers false or misleading – penalty – reference to cases – parity principle.

Visual Building Construction Pty Ltd v David Armistead [2019] NSWCA 92
PRACTICE – appeal – security for costs – corporate appellant – Corporations Act 2001 s 1335 – where reason to believe appellant unable to pay costs – where no reason not to grant security – no question of principle.

Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd; TWT Property Group Pty Limited v Cenric Group Pty Limited [2019] NSWCA 87
APPEAL – contract – where parties entered into various contractual arrangements to undertake excavation works including harvesting natural sandstone – whether the primary judge erred in finding the parties formed a concluded agreement to vary the terms of the head contract and the sub-contract – where credit findings are challenged – importance of establishing a Fox v Percy type error APPEAL – contract – whether the primary judge erred in finding the cross-appellant’s show cause notice and termination of the head contract were invalid – effect of variation of the head contract – whether the primary judge erred in finding a breach of an implied term of good faith and reasonableness APPEAL – contract – where parties entitled to share in royalties from sale of sandstone – whether the primary judge’s construction of the term capping the contractor’s share of the royalties was wrong. Environmental Planning and Assessment Act 1979 (NSW), s 96.
Uniform Civil Procedure Rules 2005 (NSW), r 42.1, Pt 51.36(2).

Hu v Kim [2019] NSWSC 448
Defendants to pay plaintiffs’ costs; Cross-claim to be dismissed.
COSTS — Party/Party — General rule that costs follow the event — Application of the rule and discretion — Defendants conduct of proceedings unreasonable notwithstanding settlement at hearing.
GUARANTEE AND INDEMNITY — Indemnities — Construction — Whether liability “as a result of” specified contract.
The consent orders which I made as between the plaintiffs and the defendants were: (b) engaging a licensed and qualified builder who meets the requirements of Part 6 of the Home Building Act to carry out building works in accordance with the Building Code of Australia.

Wassef v Panagiotopoulos [2019] NSWCATAP 101
(1) Leave to appeal is refused. APPEAL – Interlocutory decision - Leave to appeal – no issue of principle.
Civil and Administrative Tribunal Act 2013; Civil and Administrative Tribunal Rules 2014; Home Building Act 1989.

Kapeller v BH Australia Constructions Pty Ltd [2019] NSWCATAP 104
COSTS – costs to follow the event. 

G&S Engineering Services Pty Ltd v MACH Energy Australia Pty Ltd (No 2) [2019] NSWSC 463
COSTS – party/party – costs orders in interlocutory proceedings – whether costs should be payable forthwith.

Lawrence v Ciantar; Ciantar v Lawrence [2019] NSWSC 464
CONTRACTS – written terms – oral terms – construction – whether plaintiff contractually obliged to carry out and complete certain works – whether joint venture agreement or contract caught by Home Building Act 1989 (NSW).
CONTRACTS – interpretation – ambiguity – evidence of surrounding circumstances – evidence of prior negotiations – evidence of subsequent conduct.
STATUTORY INTERPRETATION – definitions – Home Building Act 1989 (NSW) – meaning of “residential building work” – contract to do sub-division works including construction of a driveway, retention tank and drainage works – whether preparatory works under contract constituted “residential building works”.
Home Building Act 1989 (NSW) ss 4, 6, 7, 7BA, 7D, 10; sch 1 cls 1, 2, 3.

Menaker v Adambuilt Pty Ltd [2019] NSWCATAP 117
APPEAL – consent orders – whether basis on which to set aside - joinder of additional party – whether denial of procedural fairness – whether significant new evidence not reasonably available.

Indorato v Ottaviano t/as Transbuild Construction [2019] NSWCATAP 115
Leave to appeal – clause 12 of schedule 4 of the Civil and Administrative Tribunal Act 2013.

Legislation

Greenhouse and Energy Minimum Standards (Exemption) Instrument (No. 1) 2019
02/05/2019This instrument exempts the models specified in the Schedule to the instrument from the testing requirements of section 6 of the Greenhouse and Energy Minimum Standards (Air Conditioners and Heat Pumps) Determination 2013. Greenhouse and Energy Minimum Standards (Exemption) Instrument (No. 1) 2019.

Contacts:
Christine Jones, Partner - Construction & Infrastructure (Dispute Resolution) 
T: +61 2 8083 0477 
E: christine.jones@holdingredlich.com

Divya Chaddha, Associate 
T: +61 2 8083 0457
E: Divya.Chaddha@holdingredlich.com

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Christine Jones

Published by Christine Jones

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