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The context was a dispute where the owners had rescinded a contract.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  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
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Longbottom v Boughton (No 2)  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  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  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  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  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  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  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
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.