Sham building contracts for finance purposes
In the recent decision of Hutchings v Hope  NSWCATAP 59, the NSW Civil and Administrative Tribunal Appeal Panel (Appeal Panel) set aside the decision of the Tribunal and remitted it for hearing by a differently constituted Tribunal. The Tribunal had found that the building contract was a sham.
The owners and builder entered into:
The builder carried out the work and sought payment which exceeded $300,000. The owners refused to pay the excess over the value of the written contract, arguing that it was a fixed price contract. The builder commenced proceedings against the owners for the amount allegedly owing and the owners commenced proceedings against the builder for overpayment and defective works.
The Tribunal found that the written contract was a sham as it appeared to have been entered into solely for the purpose of obtaining bank finance for the works. Accordingly it was unenforceable. The Tribunal awarded the builder $120,145.14 on a quantum meruit basis, after deducting for the cost of rectifying defects.
Appeal Panel’s reasoning
In setting aside the decision, Appeal Panel reasoned that the Tribunal failed to consider:
The Appeal Panel made it clear that a case involving a sham is rare and requires a careful examination of the subjective intention of both parties. As the builder performed the building works, the Appeal Panel suggested that there was at the least an “inferred contract”, relied upon by the parties.
Parties should be aware that if there is an ulterior mutual purpose to the entering of contract, and the contract is deemed a sham, the contract may be rendered unenforceable. This has particularly onerous consequences for builders in terms of entitlement to payment for the work and exposure to disciplinary action. Owners should also consider how this type of activity would be viewed by their lender.
Author: Christine Jones
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Allen v Wallace  NSWCATAP 58
BUILDING AND CONSTRUCTION – Home Building – cost plus contract – repudiation – misleading and deceptive conduct – adequacy of reasons.
Hutchings v Hope  NSWCATAP 59
CONTRACT LAW – Contract to do residential building work – Sham – Unenforceability of contract under Home Building Act 1989 – “just and equitable” to recover on a quantum meruit basis.
ADMINISTRATIVE LAW – Adequacy of reasons – failure to provide analysis of evidence – failure to make relevant findings.
Long v Antoun’s Concrete Pumping Pty Ltd  NSWCATAP 56
Appeal and leave to appeal from Consumer and Commercial Division-principles on appeal-held no appellable error demonstrated-leave to appeal refused and appeal dismissed – costs reserved.
Civil and Administrative Tribunal Act 2013 (NSW); Australian Consumer Law; Home Building Act; Civil and Administrative Tribunal Rules 2014.
Cincotta v Russo  NSWSC 272
Judgment for the plaintiff against the first defendant for damages to be assessed.
CONTRACTS – Particular parties – principal and agent – undisclosed principal – building contract – where licensed supervisor contracted as agent for builder – identity of contracting parties – agent personally liable in circumstances where reasonable person in position of the parties would conclude agent was contracting party.
Corporations Act 2001 (Cth); Home Building Act 1989 (NSW)
Petropoulos v CPD Holdings Pty Ltd  NSWCATAP 53
COSTS – Appeal from first instance costs decision –where Appeal Panel partially set aside the first instance principal decision after the first instance costs decision had been made – where parties agreed that the issue of costs should be remitted to the Tribunal and re-determined in light of the Appeal Panel’s decision – whether Appeal Panel should address grounds of appeal or whether there was no utility in doing so.
COSTS – Application for costs of the appeal from the first instance costs decision – whether appellant had been ‘successful’ on appeal – whether builder entitled to costs ‘wasted’ because homeowner withdrew ‘stay’ application.
Home Building Act 1989 (NSW); Civil and Administrative Tribunal Act 2013 (NSW)
Petropoulos v CPD Holdings Pty Ltd  NSWCATAP 54
COSTS – Costs on appeal – where homeowner successful on one ground of appeal – whether Tribunal should order that builder pay 100% of the homeowner’s costs – whether homeowner has failed on a separable issue – whether there are factors that militate against awarding 100% of homeowner’s costs.
Civil and Administrative Tribunal Act 2013 (NSW); Home Building Act 1989 (NSW)
Castle Constructions Pty Ltd v N & R Younis Plumbing Pty Ltd  NSWSC 225
BUILDING AND CONSTRUCTION – Construction contracts – Building and Construction Industry Security of Payment Act 1999 (NSW) – challenge to adjudication determination – entitlement to progress payment – whether payment claim supported by valid reference date – whether reference dates may arise following termination of the relevant contract – operation of ss 8(2)(a) and 8(2)(b) – whether existence of a reference date is a jurisdictional fact – whether validity of a termination is a jurisdictional fact – review of adjudication determination.
Icon Co (NSW) Pty Ltd v AMA Glass Facades Pty Ltd  NSWSC 250
BUILDING AND CONSTRUCTION – Security of payment – where successive adjudicators expressed inconsistent findings as to proper construction of the building contract – subcontractor did not challenge second determination and instead resubmitted payment claim – contractor contended third determination void because construction issue determined by unchallenged second determination – subcontractor belatedly sought to challenge second determination by cross-summons.
The Owners - Strata Plan 87265 v Saaib  NSWSC 289
COSTS – Security for costs – relevant factors – impecuniosity – delay – risk of stultification – plaintiff’s impecuniosity attributable to the defendant’s conduct.
COSTS – Security for costs – plaintiff strata corporation – liability of members.
Code for the Tendering and Performance of Building Work Amendment (Exemptions) Instrument 2019
20/03/2019 - This instrument amends the Code for the Tendering and Performance of Building Work 2016 to vary the definition of ‘Commonwealth funded building work’ and to make other consequential amendments.
Building and Construction Industry (Improving Productivity) (Accreditation Scheme) Rules 2019
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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.
Published by Christine Jones