A residential building contract by any other name
The recent NSW Supreme Court decision of Lawrence v Ciantar  NSWSC 464 provides guidance on the Court’s interpretation of a joint venture agreement between two registered proprietors (owners) and a builder, and whether it constituted an agreement for the builder to undertake ‘residential building work’ within the meaning of the Home Building Act 1989 NSW (the Act), in which case the Act would apply. To the builder’s detriment, the Court held that the Act applied and because both the agreement between the parties did not comply with the requirements of the Act and the builder did not hold an unrestricted licence, the Court held that the builder’s claim for damages was unenforceable.
The owners obtained development approval for a three-lot subdivision. The owners proposed a joint venture arrangement for the builder to carry out the demolition and subdivision works (DA works) in exchange for receiving one-third of equitable interest in the property. The scope of work included the installation of drainage pipes, the construction of a retention tank and a driveway and the subdivision.
Shortly after, the parties decided not to proceed with the joint venture agreement and proposed a written agreement with terms “similar” to the joint venture arrangement (Agreement). The Agreement contemplated a caveat in favour of the builder to be lodged over the Property. The owners returned the signed caveat to the builder in January 2015 and the parties signed the Agreement in March 2015. The parties also executed a deed of loan, a transfer for a one third share and a mortgage in favour of the builder.
Meanwhile from 15 January 2015, the builder’s licence was under restriction which meant he was unable to enter into contracts where the reasonable market value of the work and materials exceeded $20,000.
Thereafter, the Builder failed to complete the work within the agreed period, sought two extensions of time for 6 months, and failed to complete the works for further 8 months after the extended period. In September 2017, the owners served on the builder a notice of rescission (issued under the Act) on the basis that the Agreement was for the builder to undertake ‘residential building work’ within the meaning of the Act and the Agreement failed to include a cooling off warning as required under the Act. The owners also terminated the deed of loan and claimed the caveat had no further operation.
The builder commenced proceedings, claiming a one-third interest in the property. The builder submitted the Agreement was for works excluded from the definition of residential building works, meaning the Act did not apply, the rescission notice was invalid and the owners’ conduct was repudiatory.
The builder also submitted that under the Agreement it was open for him to arrange for someone else to carry out the works under his supervision, with the effect that the Agreement was not caught by the Act, as supervision only is excluded from the definition of residential building work (Supervision Submission).
Interpretation of the Agreement and whether the Act applied?
The Court found that the Agreement required the builder to carry out and complete the DA Works in return for a one-third share in the property. The issue then became whether the Agreement was for residential building work and fell within the Act.
If the Act applied, the builder would not be entitled to claim an interest in (or lodge a caveat over) the property and otherwise enforce any other rights in the Agreement, as the Act prohibits a contract or agreement to confer on the builder any legal or equitable interest in a land. Further, given the Agreement did not have a cooling-off warning and because the builder did not have an unrestricted licence (per section 4 of the Act), the builder would not be entitled to damages or to enforce a remedy for breach of the Agreement.
The Court found that although part of the DA Works (i.e. demolition) was excluded from the definition of “residential building work”, other DA Works, including the construction of the driveway and the drainage works were to be constructed for use in conjunction with a dwelling, and therefore satisfied the definition.
As to the Supervision Submission, the Court affirmed the principles settled in Trend Properties Pty Limited v Casa Maria Pty Limited  NSWCA 53 (Trend), and by comparison to the circumstances in Trend, held in this case that:
For reasons set out above, the Court held that Agreement was one under which the builder undertook to do residential building works and was caught by s6 of the Act. Given the Agreement did not comply with s7 of the Act, the Court held that the owners’ rescission notice was valid.
The Court accordingly held that the Builder’s claimed one-third interest in the property and claims for specific performance and damages were unenforceable due to the operation of s7D and 10 of the Act.
Author: Christine Jones, Divya Chaddha and Jeffery Shi.
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K&J Vision Pty Ltd v Jows Construction Pty Ltd  NSWCATAP 112
APPEALS - Home building contract – outstanding progress claims – repudiation of contract – termination of contract – calculation of damages for breach - adequacy of reasons - error of law.
Corporations Act 2001 (Cth), s 1335; Home Building Act 1989 (NSW), ss 92, 96, 99; Home Building Regulation 2004, cl 56.
Service Today (NSW) Pty Ltd & Magerovski v Commissioner for Fair Trading  NSWCATAP 113
ADMISTRATIVE LAW – review of decision to cancel licenses under the Home Building Act, 1989 – denial of procedural fairness – review of answers given to show cause notice – use of subsequent evidence to demonstrate answers false or misleading – penalty – reference to cases – parity principle.
Visual Building Construction Pty Ltd v David Armistead  NSWCA 92
PRACTICE – appeal – security for costs – corporate appellant – Corporations Act 2001 s 1335 – where reason to believe appellant unable to pay costs – where no reason not to grant security – no question of principle.
Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd; TWT Property Group Pty Limited v Cenric Group Pty Limited  NSWCA 87
APPEAL – contract – where parties entered into various contractual arrangements to undertake excavation works including harvesting natural sandstone – whether the primary judge erred in finding the parties formed a concluded agreement to vary the terms of the head contract and the sub-contract – where credit findings are challenged – importance of establishing a Fox v Percy type error APPEAL – contract – whether the primary judge erred in finding the cross-appellant’s show cause notice and termination of the head contract were invalid – effect of variation of the head contract – whether the primary judge erred in finding a breach of an implied term of good faith and reasonableness APPEAL – contract – where parties entitled to share in royalties from sale of sandstone – whether the primary judge’s construction of the term capping the contractor’s share of the royalties was wrong. Environmental Planning and Assessment Act 1979 (NSW), s 96.
Uniform Civil Procedure Rules 2005 (NSW), r 42.1, Pt 51.36(2).
Hu v Kim  NSWSC 448
Defendants to pay plaintiffs’ costs; Cross-claim to be dismissed.
COSTS — Party/Party — General rule that costs follow the event — Application of the rule and discretion — Defendants conduct of proceedings unreasonable notwithstanding settlement at hearing.
GUARANTEE AND INDEMNITY — Indemnities — Construction — Whether liability “as a result of” specified contract.
The consent orders which I made as between the plaintiffs and the defendants were: (b) engaging a licensed and qualified builder who meets the requirements of Part 6 of the Home Building Act to carry out building works in accordance with the Building Code of Australia.
Wassef v Panagiotopoulos  NSWCATAP 101
(1) Leave to appeal is refused. APPEAL – Interlocutory decision - Leave to appeal – no issue of principle.
Civil and Administrative Tribunal Act 2013; Civil and Administrative Tribunal Rules 2014; Home Building Act 1989.
Kapeller v BH Australia Constructions Pty Ltd  NSWCATAP 104
COSTS – costs to follow the event.
G&S Engineering Services Pty Ltd v MACH Energy Australia Pty Ltd (No 2)  NSWSC 463
COSTS – party/party – costs orders in interlocutory proceedings – whether costs should be payable forthwith.
Lawrence v Ciantar; Ciantar v Lawrence  NSWSC 464
CONTRACTS – written terms – oral terms – construction – whether plaintiff contractually obliged to carry out and complete certain works – whether joint venture agreement or contract caught by Home Building Act 1989 (NSW).
CONTRACTS – interpretation – ambiguity – evidence of surrounding circumstances – evidence of prior negotiations – evidence of subsequent conduct.
STATUTORY INTERPRETATION – definitions – Home Building Act 1989 (NSW) – meaning of “residential building work” – contract to do sub-division works including construction of a driveway, retention tank and drainage works – whether preparatory works under contract constituted “residential building works”.
Home Building Act 1989 (NSW) ss 4, 6, 7, 7BA, 7D, 10; sch 1 cls 1, 2, 3.
Menaker v Adambuilt Pty Ltd  NSWCATAP 117
APPEAL – consent orders – whether basis on which to set aside - joinder of additional party – whether denial of procedural fairness – whether significant new evidence not reasonably available.
Indorato v Ottaviano t/as Transbuild Construction  NSWCATAP 115
Leave to appeal – clause 12 of schedule 4 of the Civil and Administrative Tribunal Act 2013.
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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.