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Residential Focus

20 May 2020

#Property & Real Estate

Christine Jones

Published by Christine Jones, Rebecca Weakley

Residential Focus

Residential building work or not?

We are frequently asked to advise on whether or not particular activity is residential building work. Where it is, there can be significant implications for contracting parties. In this week’s editorial, we revisit a case which has recently gone on appeal and look at what the NSW Court of Appeal has said on the issue.

The context was a dispute where the owners had rescinded a contract. The builder commenced proceedings claiming a one-third interest in the property, or in the alternative, damages. The owners argued that because the contract didn’t comply with the requirements of the Home Building Act 1989 (NSW) (Act) and the builder did not have an unrestricted licence, the builder was not entitled to a claim for damages or to enforce a remedy for breach of contract. To succeed on that argument, the work under the contract must be residential building work within the meaning of the Act and not subject to one of the exceptions under the Act.

The Court below had found for the owners and for a discussion of that decision, see our note here published last year. The appeal was dismissed and we discuss the various grounds below.

Was the agreement between the parties that the appellant would carry out the whole of the development application works by himself or under his supervision, as distinct from providing funds for the project?

The key grounds of appeal (grounds 1-5) dealt with the terms of and construction of the contract, in particular, whether the agreement between the parties was that the appellant would carry out the whole of the development application (DA) works either by himself or under his supervision, as distinct from merely providing funds for the project. Here, if it was found that the appellant was required to carry out the whole of the DA works, then sections 7D and 10 of the Act would deny the appellant any interest in the property and render the contract void.

The appellant submitted that the court erred in finding that a proper construction of the agreement required the appellant to carry out the DA works and in finding that clause 6 of the agreement was ambiguous.

The Court of Appeal looked at the whole of the contractual arrangement between the parties, citing the plurality in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 that proper construction required “consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract”. Taking into account both its context and purpose, the Court of Appeal held that the agreement required the appellant to undertake the subdivision the subject of the DA as distinct from funding a third party builder to undertake it up to an amount of $435,000. The Court of Appeal found that the requirement under clause 6 that expressly required the appellant to carry out the preliminary works supported, rather than detracted, from the proposition that the appellant was required to carry out the whole of the works the subject of the DA.

The surrounding circumstances taken into account in construing the contract further made it clear that it was the parties’ intention that the appellant perform the construction work. The Court of Appeal found that from the outset the appellant held himself out as the person who could complete the work. In particular, he held himself out as a licensed builder. The Court of Appeal found that there was no suggestion that it was ever in the contemplation of the parties that the appellant would act as a funder rather than a builder.

The Court of Appeal held that these grounds of appeal were not made out, and therefore, that the appeal failed. The Builder’s claimed one-third interest in the property and claims for specific performance and damages were unenforceable due to the operation of sections 7D and 10 of the Act.

Did the preparatory work fall within the provisions of the Act?

The appellant submitted (grounds 7 and 8) that the court erred in finding that the agreement was a contract in respect of residential building work for the purposes of the Act to the extent that it required the appellant to carry out the preparatory works, and that the court should have found that upon proper construction of the Act, the preparatory work was not residential building work within the meaning of the Act.

The Court of Appeal distinguished the case of Grygiel v Baine [2005] NSWCA 218 which had focused on the definition of “building goods or services”, to establish whether the former Consumer, Trader and Tenancy Tribunal had jurisdiction. The Court of Appeal instead focused on the expression “work involved in the construction of a dwelling” in the definition of “residential building work”, and found that while the work in question (the establishment of the requirements as to any variations in the manhole and the 150 mm drainpipe) may be said to be work in connection with the proposed subdivision, it was too remote to fall within the definition of “residential building work”.

Although these ground of appeal were made out, the failure of grounds 1-5 meant that the conclusion reached in relation to the preparatory work did not affect the result of the appeal.

Was there variation of the contract?

The appellant submitted (as ground 6) that the court erred in finding that the parties had varied the contract between them so as to require the appellant to carry out the DA works. The Court of Appeal held that while it may theoretically have been possible for the contract to be varied by conduct such that the appellant’s obligation to act as funder was replaced by an obligation to act as builder, there was nothing to suggest that this occurred, as the appellant always had the obligation to act as the builder.

Was there a valid termination of the contract?

Grounds 9-12 of the appeal concerned the respondents’ termination of the contract. The Court of Appeal held that the appellant repudiated the agreement and the respondents were entitled to terminate on that ground. Following this, the appellant was not entitled to an order for specific performance.

Authors: Christine Jones & Rebecca Weakley

In the media

HIA: New Home Building to Contract in Second Half of 2020
Since the introduction on COVID-19 restrictions, the number of cancellations of projects now exceeds 30 per cent -this is more than four times the typical rate of cancellations. HIA’s Chief Economist, Tim Reardon states the COVID-19 related contraction in building work will see a significant reduction in work hours on building sites in the second half of 2020 (14 May 2020).  More...

CEFC Investment Insight: Clean energy and community housing
The Clean Energy Finance Corporation has released their latest Investment Insight on Clean energy and community housing. The paper provides an update of CEFC-financed initiatives undertaken by community housing providers SGCH and Housing Plus to build sustainable homes for low income households (13 May 2020).  More...

Housing Construction Costs Continue to Outpace Inflation
In its latest report, CoreLogic said its Cordell Housing Index Price (CHIP) rose by 1.0 percent over the March quarter and is up by 3.6 percent over the past year (12 May 2020).  More...

One Third of Australia’s Construction Businesses Could Close
As many as one-third of Australia’s construction businesses could be forced to close over the next twelve months if business conditions do not improve, according to the he latest first findings of How We Build Now – Tracking Technology in Construction 2020 report (11 May 2020).  More...

Green Steel Flagged as End to Climate Wars
In a new report the think-tank says focusing on “green” steel production could create a multi-billion dollar export sector using renewable energy. It could also save the jobs of coal miners and others reliant on emissions intensive industries, whose work is threatened by efforts to fight climate change, the Grattan Institute says (11 May 2020).  More...

MBA: Builders Commend Government On Procurement and Payment Time Changes
Master Builders Australia commends the Federal Government’s move to support business through the economic shock of COVID-19 by amending its procurement and contracting arrangements. This positive initiative that will bolster confidence among building and construction businesses working on federally funded construction projects (11 May 2020).  More...

Trina Solar (Australia) Pty Ltd – Enforceable Undertaking
The CER has accepted an enforceable undertaking offered by Trina Solar (Australia) Pty Ltd (Trina Solar) to address any ineligible solar panel serial numbers that were uploaded by Trina Solar into the Solar Panel Validation (SPV) Service. Ineligible means that the panels were not eligible for Small-scale Technology Certificates (certificates) (11 May 2020).  More... 

COVID-19 highlights Importance of Responsibly Managed Supply Chains
The current COVID-19 crisis has highlighted the human face of supply chains and how it important it is to consider individuals which are more vulnerable and exposed to exploitation, particularly, as economic conditions become more challenging.(07 May 2020).  More...

Volume builders locked in and ready for to pilot Green Star for homes
Metricon, Rawson Homes and Stockland are among the home builders signed up to pilot the Green Building Council of Australia’s new Green Star rating tool for homes, currently out for consultation (07 May 2020).  More...

RICS: How has COVID-19 impacted construction and infrastructure globally
Construction activity has been hit hard by the impact of COVID-19, according our latest International Construction and Infrastructure Surveys. Impact varies depending on severity and timing of pandemic, and government measures, and costs are rising faster than tender prices, suggesting further financial pressures ahead (07 My 2020).  More...

MBA: New Home Building Recovery Halted By Covid-19
The latest ABS data shows that COVID-19 has brought to halt the burgeoning recovery in building approvals (06 May 2020).   More...

NCC doesn’t cover demolition and contaminated lamps in landfill are the result
Around 85 per cent of mercury-containing fluorescent tubes and lamps still go to landfill –poisoning our land and water tables – even though it’s illegal and Australia has signed an international convention. Simple changes to the National Construction Code (NCC) are part of the solution (06 May 2020).  More...

HIA: Finance for New Homes Strong Before COVID-19
The number of loans to owner occupiers for the purchase or construction of a new home rose by 3.1per cent in the March 2020 quarter compared to the December quarter and was 13.2 per cent higher than the same time last year,” commented HIA Chief Economist, Tim Reardon (06 May 2020).  More...

HIA: Support for display homes an important step
Recognition by state and territory governments over the last fortnight allowing new home buyers to visit display homes and villages has been a sensible and important move,” said HIA Managing Director, Graham Wolfe. Access to display homes is equally important in supporting new home builders and the housing industry (06 May 2020).  More...

Blackwattle Bay Precinct Planning commences
The community is being asked to provide feedback on early concept plans that will revitalise Blackwattle Bay, deliver new open space, and return inaccessible parts of Sydney harbour to the public for the first time in decades (11 May 2020).  More...

NSW building inquiry targets cladding in final report
A NSW Upper House inquiry into the state’s troubled building industry has made 22 recommendations in its final report, including 11 that outline how the Government should handle the flammable cladding crisis (11 May 2020).  More...

Published - articles, papers, reports

Australian Bureau of Statistics
04/05/2020 Building Approvals, Australia, Mar 2020 (cat no. 8731.0)

Practice and courts

ABCB: Ensuring the safety of your building water system post COVID-19 restrictions
A new Advisory Note has been released providing guidance on what should be considered prior to re-occupying a building (14 May 2020).  More...

ABCB Public Report: Delivery of the BCR National Framework (May 2020)
The report communicates the progress in developing responses to the BCR Recommendations in accordance with the National Framework (07 May 2020).  More...

HIA Alert: States come on board with display homes changes
Following announcements, the remaining states have moved forward with changes to the rules for display homes and villages, in line with HIA's call to support new home builders at this difficult time. HIA’s Guides for display homes are available to assist explaining the health and hygiene requirements that builders should adopt to ensure the safety of their customers (01 May 2020). 

IA: COVID-19: member update
May 01, 2020 - A national Roadmap to a COVID safe Australia.  More...

Gasfitters: Have your say on proposed changes to Parts 1 and 2 of AS/NZS 5601
Standards Australia invites gasfitters to comment on proposed changes to the standards for gas and LP gas installations. The changes affect: AS/NZS 5601.1: 2013 – Gas installations, Part 1: General installations  For further details on the proposed changes, including how to make a submission, visit Standards Australia’s More...

2020 National Housing Research Program commences
Research is underway for the suite of projects funded by AHURI as part of the 2020 National Housing Research Program (NHRP). The research will be undertaken by collaborative teams from AHURI’s eight national university research partners. For more details of the 2020 NHRP projects please click here. (12 May 2020).  More...

RET: Register of solar water heaters (version 39) is now available
The register of solar water heaters (version 39) is now available. The register lists solar water heater and air source heat pump models that are eligible for small-scale technology certificates under the Small-scale Renewable Energy Scheme. The register of solar water heaters (version 39) came into effect on 8 May 2020 (08 May 2020).  More...

ABCB Reminder: Fire Safety Verification Method adopted
From 1 May 2020, the Verification Method can be used to meet the relevant Performance Requirements of NCC 2019.  More...

MBA: Registration is open for the 2020 NCC Seminars
Registrations for the 2020 NCC Seminars are now open. A webcast of the seminar will be available from May 2020.  More...

NABERS Reminder: Auditors, Supervisors, and Trainers Panel Announced
Congratulations to the new Panel Selection for NABERS Auditors, Supervisors, and Trainers, for October 2019-October 2022.  More...

Building Information Modelling (BIM) for WHS management
What is the best practice and implications of using BIM in WHS management?
Timeline of project; Project completion: Mid 2021.  More...

Cases

Longbottom v Boughton (No 2) [2020] NSWCATAP 86
 In respect of appeal AP19/50591, the orders will be:
 (1) The appellants are to pay the respondent’s costs as agreed or assessed.
COSTS – whether the amount in dispute exceeds $30,000 – effect of pre-trial offer of settlement on costs of appeal – whether to award costs in a fixed sum Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2013 (NSW)
 Civil Procedure Act 2005 (NSW); Home Building Act 1989 (NSW)

Ippolito v Cesco [2020] NSWSC 561
BUILDING AND CONSTRUCTION – Breach of statutory warranties in the Home Building Act 1989 (NSW), s 18B – Application s 48MA of the Home Building Act 1989 (NSW) to proceedings brought before the Supreme Court – Whether the Court will order specific performance of a building contract - Whether damages for loss of rent were in the parties’ reasonable contemplation at the time the contract was entered into – Distinction between difficulty of assessing damages and failure to take reasonable steps to prove damages suffered.

Lawrence v Ciantar [2020] NSWCA 89
CONTRACTS – Construction – Interpretation – Principles of construction of commercial contracts.  
CONTRACTS – Breach of contract – Consequences of breach – Right to termination – No specific performance.  
STATUTORY INTERPRETATION – Home Building Act 1989 (NSW) – Definition of “residential building work” – Preliminary works. Home Building Act 1989 (NSW)

Strata Plan 87060 v Loulach Developments Pty Ltd [2020] NSWSC 550
CIVIL PROCEDURE - parties - misnomer or misdescription - application to amend - where owners corporation intended to sue builder for alleged defects but mistakenly named the incorrect entity in summons and list statement - whether builder prejudiced from loss of viable cross-claims - where builder on notice of mistake, defects and proceedings - no delay in making application to amend - prejudice to owners corporation if leave not granted - dictates of justice favour granting leave to amend
That period expired no later than 5 July 2019: Home Building Act 1989 (NSW), sch 4, cl 109. Loulach Steel, the ... the dates of practical completion of the works: Home Building Act 1989 (NSW) ss 3B, 3C

Baserite Constructions Pty Ltd v Tanios [2020] NSWCATAP 77
HOME BUILDING - limitation period - major defects - separate agreement as basis of work order - procedural fairness - material not before Tribunal on no appearance

Issa v K & K Quality Constructions Pty Ltd [2020] NSWCATAP 74
Appeal allowed. APPEAL – Home building; Where no written contract between the parties; Where builder did preliminary work; Where Tribunal awarded builder money on quantum meruit basis; Whether s 94 of the Home Building Act 1989 applied in circumstances that there was no written contract; Where Tribunal did not consider whether it would be unconscionable for the homeowner to retain the benefit of the preliminary work without payment
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Home Building Act 1989 (NSW); Home Building Regulation 2014 (NSW)

Aboukalam v Commissioner for Fair Trading [2020] NSWCATOD 46
(2) The administrative review application made on 14 April 2020 is listed for further directions on a date to be fixed. ADMINISTRATIVE REVIEW – occupational licensing – renewal of contractor licence refused - interim order – power to grant temporary licence – whether temporary licence should be granted
Administrative Decisions Review Act 1997; Home Building Act 1989; Tattoo Parlours Act 2012

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, Rebecca Weakley

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