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Residential Focus

19 June 2019

#Property & Real Estate

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Residential Focus

The draft Security of Payment Regulation: a missed opportunity to protect resident owners?

NSW’s security of payment legislation has been subject to a new tranche of amendments following the Murray Report released on 31 December 2017. The amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), whilst passed on 21 November 2018, have not yet commenced. 

Those amendments will delete the current residential exemption under section 7(2)(b) of the Act, which was presumed to leave the heavy lifting for a residential exemption to a class of contracts prescribed by the Regulation. The amendments also introduced the concept of an owner occupier construction contract, defined in the same terms as the former section 7(2)(b) and broadened the exempt residential construction contract to contracts ‘connected with’ (that is, not just contracts for residential building work) an owner occupier construction contract – likely to be the next source of controversy in this space.

NSW Fair Trading is currently seeking feedback on the proposed amendments to the Regulation which sits alongside the Act and has circulated the Building and Construction Industry Security of Payment Amendment Regulation 2019 (the Draft Regulation). The deadline for submissions is 21 June 2019.

Resident owner exemption

The current exemption under section 7(2)(b) of the Act provides that the Act does not apply to a construction contract for the carrying out of residential building work (within the meaning of the Home Building Act 1989) on such part of any premises as the party for whom the work is carried out resides in or proposes to reside in. 

As is apparent from the disputes ventilated before the courts, that the application of the exemption has been contentious, both in terms of to whom and what it applied and how it is applied. Multi-unit developments have presented a particular difficulty:

In Shorten, a couple had entered into a contract for the construction of 10 residential units. The couple intended to reside in one unit. The couple submitted that the exemption under the Act applied, and as a consequence the payment claim issued by the Builder pursuant to the Act was void.

The Court noted that the “Parliament needed to decide” whether the exemption applied to this type of construction contract however held that because the couple did not intend to reside in the whole of the premises, the contract did not fall within the exemption.

In making its decision, the Court applied a broad approach to the exemption and held that either the contract is within the ambit of the exemption or it is not, irrespective of the fact that the couple intended to reside in arguably ‘part’ of the premises.

In Oppedisano, the property contained four separate single occupancy units. The owner resided in one unit and the members of his family resided in the other units. The owner argued that the exemption applied because he was residing in one of the units.

The Court noted that “Section 7(2)(b) of the Act is not entirely clear in its drafting” and that nothing turned on the Regulations, however nonetheless affirmed the decision of Shorten and held that because there are multiple units on the site, the exemption could not exclude the contract (or part of it) from application of the Act.

Other cases have dealt with the exemption in the situation of holiday houses and owners corporations as principals.

The not so new concept – ‘owner occupier construction contract’

The Draft Regulation confirms that owner occupier construction contracts would be a class of contract exempt from the Act.

It would further exclude a claimant’s rights to make payment withholding requests against a principal contractor under Division 2A of Part 3 of the Act for owner occupier construction contracts. This, as well as the broadening of the exemption to contracts ‘connected with’ an owner occupier construction contract, will be the next area of controversy in this space.

It does seem like a missed opportunity to clarify some of the issues which the Courts have grappled with and flagged for consideration by the legislature, particularly where there is an expressed intention that what is powerful legislation with draconian consequences, not apply to home owners as non industry participants.

Author: Christine Jones & Divya Chaddha 

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In the media

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The University of New South Wales has lodged a new development application for the construction of a new timber building designed by Tzannes and Lendlease, using  engineered mass timber as a construction material  (12 June 2019). More...

Practice and courts

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ABCB Advice: ACT adoption of NCC 2019 deferred to 1 June 2019. Exclusions apply.
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AIBS: Draft Standards Open for Comment
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This page can be accessed by clicking here. Comments direct to Standards Australia is here.

OFSC: Changes to Accredited Contractor reporting requirements 2019
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DR AS/NZS 3000:2018 Amd 1:2019
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Shehata v Department of Fair Trading; Visual Building Constructions Pty Ltd v Department of Fair Trading [2019] NSWCATAD 116
ADMINISTRATIVE Law – administrative review – home building - fit and proper person -– weight of evidence – adverse findings.

Goodwin v Rana [2019] NSWDC 247
BUILDING AND CONSTRUCTION – plaintiff and defendants settle proceedings by deed – plaintiff commences proceedings after defendants default in payment – defence asserts faulty workmanship and foreshadows cross-claim – plaintiff seeks summary judgment for a sum in excess of the amount in the deed – accord and satisfaction – repudiation – whether evidence sufficient for summary judgment – application for summary judgment refused.

Hooper v Coolwater Constructions Pty Ltd [2019] NSWDC 253
PRACTICE AND PROCEDURE – case and trial management in circuit courts - plaintiffs bring application to rely on late-served lay and expert evidence in proceedings set down for trial in next country circuit sittings – parties previously agreed only lay evidence in reply permitted – plaintiff seeks to go behind the agreement noted by the court as the basis for the hearing date allocation – no evidence of “exceptional” circumstances warranting late service of expert report – notice of motion dismissed with costs on an indemnity basis.

South 32 Ltd v Allfab Constructions Pty Ltd [2019] NSWCA 132
NEGLIGENCE – contribution between tortfeasors – plaintiff suffered injury in workplace – plaintiff brought proceedings against occupier and a contractor on site – proceedings between plaintiff and occupier compromised – occupier sought statutory contribution against contractor – whether primary judge failed to deal with way in which occupier had advanced its case – whether primary judge erred in (notional) assessment of contribution – appeal dismissed.

Samimi v Department of Fair Trading [2019] NSWCATOD 86
ADMINISTRATIVE Law – administrative review – home building - fit and proper person - whether conduct constitutes failure to disclose – whether matters required disclosure – meaning of fit and proper having regard to legislative scheme – weight of evidence – unchallenged evidence of conduct.

K & J Vision Pty Ltd v Jows Construction Pty Ltd [2019] NSWCATAP 139
Appeal – delay – dismissal of claim for want of prosecution –discretion under s 55 of the Civil and Administrative Tribunal Act 2013 (NSW) – lack of evidence as to required delay– appeal allowed.

Mansion Building Pty Ltd v Warren [2019] NSWCATAP 141
APPEAL – leave to appeal – substantial miscarriage of justice – decision under appeal not fair or equitable.


Building and Construction Industry Security of Payment Amendment Regulation 2019
Public consultation draft

Christine Jones, Partner - Construction & Infrastructure (Dispute Resolution) 
T: +61 2 8083 0477 

Divya Chaddha, Associate 
T: +61 2 8083 0457

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.

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