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Residential Focus

18 May 2022

#Property, Planning & Development

Published by:

Nicholas Achurch

Residential Focus

Tough lessons in the Tribunal

In the recent Appeal Panel decision of BKB Constructions Pty Ltd v Sawan [2022] NSWCATAP 103, a builder was held to be unable to enforce:

  • its claim due to insufficient insurance, and
  • a claim in the NSW Civil and Administrative Tribunal (Tribunal) due to the operation of section 48K(8) of the Home Building Act (Act).

Tough lessons, in each instance, about the operation of the Act. We break down the decision below.

Background

The facts were as follows:

  • a cost-plus contract was entered into in February 2015 with an estimated contract value of $1 million
  • termination of the contract either occurred in October 2018 (by the owner) or January 2019 (by the builder)
  • a policy of insurance under Part 6 of the Act was arranged at undervalue ($400,000), but the value was increased after termination to extend to the full contract value and variations, but retroactive to November 2018.

The proceedings

The builder initially commenced proceedings in the Local Court in July 2019, seeking to recover the amount of its final invoice dated 17 December 2018. Those proceedings were moved to the Tribunal by consent. The owner commenced proceedings in the Tribunal in September 2019.

In an interlocutory decision in December 2019, the Tribunal queried its jurisdiction to deal with the builder’s claim, which was made more than three years after the date of the contract, having regard to the operation of section 48K(8) of the Act.

That section provides:

“(8) The Tribunal does not have jurisdiction in respect of a building claim relating to--

(a) a contract for the supply of goods or services to which none of subsections (3), (4), (6) and (7) applies, or

(b) a collateral contract,

if the date on which the claim was lodged is more than three years after the date on which the contract was entered into.”

At trial in 2021, the Tribunal considered the jurisdiction issue further, although this had not been addressed in written submissions by either party.

The Tribunal found that:

  • the builder’s payment claim was ‘misconceived’ under clause 13 of the contract, as it had insisted on payment before it returned to undertake any remediation of the clearly defective work
  • the builder had failed to take out sufficient insurance under Part 6 of the Act and the retroactive cover did not cure this breach. Having regard to the breach of section 7(2)(f1) of the Act, and the operation of disentitling sections 10 and 92 of the Act, the builder was not entitled to enforce its contractual rights to payment
  • the builder had not sought to establish an entitlement in quantum meruit on either its pleadings or evidence
  • by reason of its inability to claim either under the terms of the contract or on a quantum meruit basis, the builder’s claim for payment would fail “even if within time” and was dismissed.

The appeal

The builder’s grounds of appeal were:

  • the Tribunal had erred in law by not applying the limitation period in section 48K (3) of the Act to the builder’s claim
  • the Tribunal had erred in law by denying procedural fairness to the builder. The Tribunal should have raised with the parties at the hearing that it believed that the builder’s claim in the Tribunal was out of time under section 48K (8) of the Act. The builder was deprived of the opportunity to make an application that the builder’s proceedings be transferred to a Court of competent jurisdiction under clause 6 of schedule 4 of the NCAT Act
  • the Tribunal erred in law by making a purported “finding” that the retrospectively varied Certificate of Home Warranty Insurance obtained by the builder did not provide adequate cover. There was “no evidence and no submissions” on this issue and the Tribunal should have raised the issue with the parties at the hearing. The Appeal Panel rejected these arguments
  • the Tribunal erred in dismissing the builder’s claim as opposed to transferring the proceedings
  • the Tribunal erred because the decision was “not fair and equitable” under clause 12 of schedule 4 of the NCAT Act because: (a) the builder was not given the opportunity to be heard on an application to transfer the builder’s proceedings to a Court; (b) the dismissal of the proceedings is inconsistent with the guiding principle of the Tribunal to facilitate the just, quick, and cheap resolution of the real issues in the proceedings under section 36 of the NCAT Act; and (c) the dismissal of the builder’s proceedings “has implications in relation to limitation periods”. This ground was not elaborated upon at trial and the Tribunal found that it had the builder’s it had not been established.

Although the first ground of appeal was not pressed at trial, the Appeal Panel noted that it was clear that the limitation period in section 48K(3) did not apply as that section concerned supply to or for a claimant. That section is set out below for convenience:

“(3) The Tribunal does not have jurisdiction in respect of a building claim relating to building goods or services that have been supplied to or for the claimant if the date on which the claim was lodged is more than 3 years after the date on which the supply was made (or, if made in instalments, the date on which the supply was last made).”

A builder seeking to recover a debt in the Tribunal must meet the time restriction in section 48K(8) of the Act rather than section 48K(3). Given that the builder’s claim had been commenced more than three years after the contract date, the Tribunal did not have jurisdiction to hear it (although a Court may).

In relation to grounds 2 and 4, the Appeal Panel found that the builder had not been denied procedural fairness, as:

  • it is not the duty of the Tribunal, or the owner’s solicitor, to make a legally represented party aware of the limitation period
  • it was a matter for the builder’s solicitor to be aware of the applicable limitation period in the Tribunal under section 48K(8) of the Act, especially where such an issue had been highlighted in the Tribunal’s interlocutory decision in December 2019
  • even if the builder had made an application to transfer the matters back to the Court, the Tribunal would have had strong grounds to refuse such application as:
    • the builder’s claim would have been taken into account when considering damages payable to the owner
    • splitting the proceedings at a late stage would have unfairly prejudiced the owner and transferring both proceedings would have increased costs and delay
    • the builder would have had the opportunity to commence proceedings in the Local Court if a work order had been made, rather than an award of damages in the Tribunal’s decision dated 20 July 2021
    • the owner would likely argue that because issues in the builder’s proceedings were the subject of a dispute in the owner’s Tribunal proceedings, the Court would have no jurisdiction to hear and determine those issues in proceedings by reason of clause 5(3) of schedule 4 of the NCAT Act.

Key takeaways

The decision shows that the Tribunal will look behind the mere existence of a certificate of insurance. It also serves as a reminder that builders face onerous consequences should they fail to adequately insure the works:

  • for the full value of the works
  • for the period in which the works are carried out.

Additionally, proper attention must be paid to limitation periods, given that the Tribunal’s jurisdiction arises only by statute. In some instances, claims can be conducted in the court, but not the Tribunal, and there is no obligation on the Tribunal, or the other parties to a claim, to make legally represented parties aware of this.

Authors: Christine Jones & Nicholas Achurch

In the media

How fast are residential construction costs rising?
Over the March 2022 quarter, housing construction costs increased at their fastest pace in more than 40 years. It was also the largest annual increase since that time (13 May 2022).  More...

More housing market shockwaves predicted as interest hikes hit big property developers
More pain is coming to the Australian housing market, a construction insolvency expert has warned, as the country's biggest developers face broken sales deals, cooling demand and some of the toughest conditions to hit the sector in years (12 May 2022).  More...

Sales of new homes slowed in April
“Despite the fall in April, new home sales in the first few months of 2022 remain exceptionally strong and marginally higher than in the same period last year,” stated Thomas Devitt, Economist at HIA (12 May 2022).  More...

Sunday lie-in could become a thing of the past as NSW government eyes seven-day construction
“We understand the cost of materials, supply chain issues and employee shortages are impacting the construction industry, and they need to be addressed. One way to alleviate these impacts is to facilitate extended construction hours,” stated Anthony Roberts, NSW Planning Minister (5 May 2022).  More...

Building approvals fell 3.1 per cent in March
Building approvals for detached homes declined by 3.1 per cent in March after the strong performance in the previous month (5 May 2022).  More...

New home lending remains strong in first quarter of 2022
Loans for the construction or purchase of new homes fell by 3.4 per cent in the first three months of 2022, compared to the previous quarter (4 May 2022).  More...

Published – articles, papers, reports

Australian Building and Construction Commission Industry Update May 2022
Welcome to the May edition of Industry Update. Subbies deserve to be paid on time. Their livelihoods depend on it. That’s why we feature information about security of payment in this edition (11 May 2022). Read the May 2022 edition.

Australian Building Codes Board – what’s new about NCC 2022
The first stage of NCC 2022 ‘Preview’ is here. So, what are the main changes? Here’s an overview of some of the main updates to help you get across the content before it comes into effect (9 May 2022). Read more here.

Australian Bureau of Statistics – Building Approvals, Australia
The seasonally adjusted estimate for total dwellings approved fell 18.5 per cent. Private sector houses fell 3.0 per cent, while private sector dwellings excluding houses fell 29.9 per cent (March 2022: released 5 May 2022). Read more here.

Understanding the NCC – gutter and downpipe provisions for housing
This Australian Building Codes Board explainer provides information for selecting and installing gutters and downpipes, including overflow measures for housing (May 2022). Read more here.

Practice

Australian Building Codes Board – liveable housing design
This Australian Building Codes Board Standard provides a set of technical provisions that if complied with will enable dwellings to better meet the needs of the community, including older people and people with mobility limitations (9 May 2022). Read preview here.

Australian Building Codes Board – 2022/1.0 acceptable copper alloys for the manufacture of lead free plumbing products
This notice is to provide direction on the material to be used in the manufacture of plumbing products, which contain copper alloy and are intended for use in contact with drinking water, to achieve compliance with the lead free requirements outlined in the NCC 2022 Volume Three (9 May 2022). Read ABCB Notice of Direction 2022/1.0.

NSW Fair Trading – JKN Hills Pty Ltd Building Work Rectification Order 299–309 Old Northern Road, Castle Hill NSW 2154
JKN Hills Pty Ltd is required to carry out building work to eliminate, minimise, or remediate the serious defects or potential serious defects as set out in Schedule A to this Order. Failure to comply with this Order is a criminal offence (6 May 2022). Read more here.

Cases

Davis v Seachange Living NSW Pty Ltd [2022] NSWCATAP 142
APPEALS – procedural fairness – adequacy of reasons.
LEASES AND TENANCIES – legislation protecting tenants – Residential (Land Lease) Communities Act 2013 (NSW) – whether the Tribunal has jurisdiction to determine a collective application where the application for mediation had not been signed by the required percentage of home owners – whether the increase in site fees notified by the operator was excessive.
Civil and Administrative Tribunal Act 2013 (NSW), ss 41, 80, Sch 4, cl 12.
Civil and Administrative Tribunal Rules 2014 (NSW), r 25; Home Building Act 1989 (NSW), s 48J; Residential (Land Lease) Communities Act 2013 (NSW), ss 69, 71, 73, 74; Residential (Land Lease) Communities Regulation 2015 (NSW), cl 15.

Knobloch v Curtis; Curtis v Knobloch [2022] NSWCATAP 140
BUILDING AND CONSTRUCTION – contract interpretation – question of law – right to suspend for non-payment progress payment – no error of law; appeal – adequacy of reasons.
Civil and Administrative Tribunal Act 2013 (NSW).

Reliance Financial Services Pty Ltd v Antalija Developments No 4 Pty Ltd [2022] NSWSC 519
CONTRACTS – misleading conduct under statute – misleading or deceptive conduct – third and fourth defendants operate residential development business through second defendant – second plaintiff through her agent arranges for residential development project with third and fifth defendants – first defendant incorporated to purchase land on unit trust for second plaintiff, third defendant and fifth defendant themselves as trustees of separate discretionary trusts – plaintiffs claim enforcement of contract between unit holders containing clause giving rise to breach of contract by third defendant and liability of first defendant to second plaintiff for loan at substantial interest rate – whether particular clause of contract void for misleading or deceptive conduct by agent of second plaintiff – development arrangements made in quasi-familial context – request by third defendant of agent of second plaintiff whether legal or financial advice required in respect of contract – response by agent of second plaintiff that contract contained ‘standard’ or ‘simple’ terms – failure by agent of second plaintiff to bring third defendant’s attention to unusual term – declaration that particular clause void ab initio.
EQUITY – trusts and trustees – breaches of trust – plaintiffs claim that first defendant as corporate trustee breached its duties by securing loan over trust property to pay other corporate vehicle of third and fourth defendants – plaintiffs claim that first defendant breached its duties by making unauthorised repayment of third and fifth plaintiffs’ contribution to development arrangement – plaintiffs claim that first defendant breached its duties by entering into costs agreement with defendants’ solicitors – plaintiffs seek replacement of first defendant as trustee of unit trust – plaintiffs seek account of unit trust.
AGENCY – liability of principal – relations between principals and third parties – second plaintiff bound by misleading or deceptive conduct of agent in respect of third defendant.
Australian Consumer Law, ss 18, 237, 243; Fair Trading Act 1987 (NSW), s 28; Competition and Consumer Act 2010 (Cth), Sch 2; Trustee Act 1925 (NSW), s 70.

Reid & Robinson Builders Pty Ltd trading as John Robinson Elite Constructions v Cleal [2022] NSWCATAP 137
COSTS – party/party – appeals – where Appellant unsuccessfully challenged interlocutory order transferring proceedings to District Court – whether s 60 of the Civil and Administrative Tribunal Act 2013 or Rule 38A of the Civil and Administrative Tribunal Rules 2014 governed application for costs of the appeal – held that Rule 38A applied – unsuccessful Appellant ordered to pay Respondent’s costs.
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Interpretation Act 1987 (NSW); Limitation Act 1987 (NSW).

Teng v FEV Mono Constructions (No 2) [2022] NSWCATCD 36
COSTS – Civil and Administrative Tribunal Act 2013 (NSW).
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW).

Legislation

NSW

Bills introduced
Environmental Planning and Assessment Amendment (Climate Change Response) Bill 2022 – 12 May 2022

Environmental planning instruments
Blue Mountains Local Environmental Plan 2015 (Amendment No 14) LW 13 May 2022
Gosford Local Environmental Plan 2014 (Map Amendment No 1) LW 13 May 2022
Ku-ring-gai Local Environmental Plan 2015 (Map Amendment No 2)  LW 13 May 2022
Liverpool Local Environmental Plan 2008 (Map Amendment No 3) LW 13 May 2022
Tweed Local Environmental Plan 2014 (Amendment No 35) LW 13 May 2022
Willoughby Local Environmental Plan 2012 (Amendment No 23) LW 13 May 2022
Byron Local Environmental Plan 2014 (Amendment No 33) LW 6 May 2022
Dungog Local Environmental Plan 2014 (Amendment No 10) LW 6 May 2022
Lithgow Local Environmental Plan 2014 (Map Amendment No 1) LW 6 May 2022
Mid-Western Regional Local Environmental Plan 2012 (Amendment No 26)  LW 6 May 2022
Parramatta Local Environmental Plan 2011 (Amendment No 56) LW 6 May 2022
Port Stephens Local Environmental Plan 2013 (Amendment No 38) LW 6 May 2022
Shellharbour Local Environmental Plan 2013 (Amendment No 25) published LW 6 May 2022
State Environmental Planning Policy (Planning Systems) Amendment (State Significant Development–Cemeteries) 2022 LW 6 May 2022
The Hills Local Environmental Plan 2019 (Amendment No 22) LW 6 May 2022
The Hills Local Environmental Plan Amendment (North Kellyville Precinct) 2022 LW 6 May 2022
Willoughby Local Environmental Plan 2012 (Amendment No 22) LW 6 May 2022
Wollondilly Local Environmental Plan Amendment (Precincts–Western Parkland City) 2022 LW 6 May 2022

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 article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Nicholas Achurch

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