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Residential Focus: Licensing and insurance no bar to SOPA claim

02 August 2023

12 min read

#Property, Planning & Development

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Residential Focus: Licensing and insurance no bar to SOPA claim

In Sunshine East Pty Ltd v CBEM Holdings Pty Ltd [2023] NSWSC 744, the Supreme Court of NSW held that a progress claim for residential work under contract, which has been completed to an acceptable standard, is payable even if a contractor is unlicensed and uninsured under the Home Building Act 1989 (NSW) (HB Act).

Background

The owner (plaintiff) engaged a construction manager to manage the design and construction of various buildings, including two dwellings (works) under a Head Contract Construction Management agreement (Construction Management Contract) which was “for use in non-residential building projects”. Notwithstanding the choice of contract, “residential building work” is defined in Schedule 2 of the HB Act as work involved in coordinating the construction of a dwelling.

As the construction manager was contracted to oversee the works, rather than to carry out any building work, it obtained a policy of insurance under the HBCF for a contract sum representing its construction management fee only. This did not include the cost of the works.

The defendant provided a quote for civil and stormwater works, from which a trade contract was formed between the plaintiff, the construction manager and the defendant (trade contract). The trade contract was exclusive of a policy of insurance under the HBCF, which was to be taken out and paid for by the plaintiff or the construction manager. This was consistent with the terms of the Construction Management Contract.

Accordingly, the defendant’s work was not insured and the defendant entered the trade contract without holding a licence, in contravention of section 4 of the HB Act.

The defendant served a payment claim under the trade contract in the amount of $420,952.39. The plaintiff failed to pay any part of the claim or provide a payment schedule under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

Summary judgment

The defendant commenced proceedings in the District Court and applied for summary judgment. The Court was satisfied that there was no triable defence to the claim, by force of section 15 of the SOP Act and entered a summary judgment for $420,952.39.

The plaintiff sought leave to appeal in order to challenge the validity of the payment claim on two grounds:

  • insurance: The defendant performed the work without having in force a contract of insurance as required by section 92 of the HB Act, thus was prohibited from demanding or receiving payment by the operation of section 94 of the HB Act
  • licence: The defendant performed the work without a contractor licence as required by section 4 of the HB Act, rendering the trade contract unenforceable such that no remedy was available under section 10 of the HB Act.

Decision on appeal

Insurance

The plaintiff and the construction manager clearly assumed responsibility for securing insurance and the defendant would reasonably have assumed this. In addition, if the plaintiff and the construction manager had taken steps to obtain insurance cover for the defendant, they would have found that the defendant was unlicensed.

The Court considered that the plaintiff was acting disingenuously in seeking to resist an obligation to pay the defendant for works carried out and that there was a very strong case for allowing a quantum merit on grounds of justice and equity. Further, there was no evidence to suggest that the defendant’s work was poorly executed and there was no reason to believe that any part of the summary judgment amount would be repayable to the plaintiff in civil proceedings under the trade contract, having regard to section 32 of the SOP Act.

Licence

The Court could not distinguish Brodyn Pty Ltd v Davenport [2004] NSWCA 394 and found that section 15 of the SOP Act applied, such that a statutory claim could be made for the progress claim, despite the consequences set out in section 10 of the HB Act.

Practical significance

The decision makes it clear that the SOP Act is a powerful tool, not only for enforcing payments in ordinary circumstances, but also to sidestep conduct which would be considered disentitling to payments under the HB Act.

Authors: Christine Jones & Scott Watkinson-Hall

In the media

Strong foundations being laid for Homes NSW
Peak housing and homelessness bodies, advocacy groups, service providers, unions and social housing tenants have joined forces to collaborate on significant reform to the housing sector as the Minns Labor Government works to get more people into homes (20 July 2023).  Read more here.

Apartment rents to rise 13pc as supply shortfall widens
A severe shortage of apartment rental supply could lift rents by another 13 per cent in some inner city districts next year as demand rises further, CBRE analysis shows (25 July 2023).  Read more here.

No penalties dished out yet for Airbnb cap breakers
NSW rules limiting owners from renting out properties on a short-term basis on platforms such as Airbnb to 180 nights a year have not been enforced once in nearly two years of operation, records show (21 July 2023).  Read more here.

Cash rate continues to impede housing supply
“Sales of new homes across Australia fell by 4.8 per cent in June, to remain at rock bottom levels. This poor result in June leaves sales in the 2022/23 financial year down by 33.2 per cent compared to the previous year,” stated HIA Chief Economist Tim Reardon (20 July 2023).  Read more here.

ACA: How to get your project built
New analysis from the Australian Constructors Association (ACA) shows that building firms are entering administration at more than twice the rate of other industries. In the year to March 2023, builders failed at a rate of 619 per 100,000 firms. The rate for the rest of economy was 270 (19 July 2023).  Read more here.

In practice

Decisions reserved as at 28 July 2023
The Court of Appeal maintains a list of matters before the Court for which judgement is reserved (28 July 2023). Read more here.

Published

Australian Constructors Association: All Risk No Reward – Fixing the building industry’s profitless boom
The Australian Constructors Association (ACA) has released a report shining a spotlight on the poor health of the building industry and the need for urgent action. ACA CEO Jon Davies said the message is clear – the industry is in deep trouble, and government must act now to stop the contagion and create a more sustainable industry able to build the housing and infrastructure the nation requires (19 July 2023). Read more here.

Cases

Akcome Power Pty Ltd v Eid [2023] NSWCATCD 53
CONSUMER CLAIM – whether consumer claim – jurisdiction.
BUILDING CLAIM – whether building claim – whether building goods or services – whether residential building work – jurisdiction.
Civil and Administrative Tribunal Act 2013 (NSW); Fair Trading Act 1987 (NSW); Home Building Act (NSW).

Anderson v Gold Emporium Pty Ltd t/a Cordony Constructions (No 2) [2023] NSWCATCD 43
BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) s 48O – order that the respondent carry out work to rectify building defects – application for substitution with an order for the payment of money – Tribunal has no jurisdiction to revisit orders once made except in the narrow circumstances provided by s 63 of the Civil and Administrative Tribunal Act 2013 (NSW).
ADMINISTRATIVE LAW – Civil and Administrative Tribunal – application to substitute an order for the payment of money instead of an order for the carrying out of work – Tribunal has no jurisdiction to vary orders once made except for obvious errors in the text of a notice of a decision or a statement of reasons (pursuant to s 63 of the Civil and Administrative Tribunal Act).
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Home Building Act 1989 (NSW).

Fabemu (No 2) Pty Ltd v Kiama Municipal Council [2023] NSWLEC 79
DEVELOPMENT CONSENT – declaration sought that consent had commenced by virtue of s 4.53(4) of the Environmental Planning and Assessment Act 1979 (the EPA Act) – works relied upon as causing commencement were geotechnical borehole drilling – conditions of consent required preparation of traffic management plan condition required to be effected prior to the carrying out of the works sought to be relied upon as a constituting commencement – satisfaction of the traffic management plan condition required to be effected prior to the carrying out of any work, including the work relied upon for the purposes of s 4.53(4) of the EPA Act – application for declaration that the development consent has commenced dismissed.
Environmental Planning and Assessment Act 1979 (NSW).

Hunter Homes Pty Ltd v Layzell [2023] NSWCATAP 209
APPEALS – Appeal on question of law – scope of question of law
APPEALS – leave to appeal – principles governing
BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) – building dispute – whether the builder was entitled to terminate the contract by reason the failure of the owner to provide information within the specified time.
CONTRACTS – construction – interpretation – standard form contract to which terms have been added – greater weight given to added terms in event of inconsistency.
CONTRACTS – construction – interpretation – where waiver must be in writing
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules (NSW); Home Building Act 1989 (NSW).

Iftikhar v Rockwall Homes Pty Ltd [2023] NSWCATCD 44
BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) – defective building work – work order or money order – assessment of damages.
PRACTICE AND PROCEDURE – transfer of proceedings to Court – extension of time for lodgement of documents.
Civil and Administrative Tribunal Act 2013 (NSW); Home Building Act 1989 (NSW).

Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 3) [2023] NSWSC 881
JUDGMENTS AND ORDERS – interest – award of as damages – Hungerfords interest damages – Where breach of duty under Design and Building Practitioners Act 2020 admitted in relation to two defects – where such breaches caused delay in registration of strata plan and thus delay in sales of units.
CIVIL PROCEDURE – where issue raised by plaintiffs not dealt with in principal judgment.
Design and Building Practitioners Act 2020 (NSW).

The Owners – Strata Plan No. 91016 v Upright Builders Pty Ltd (No 2) [2023] NSWSC 867
CIVIL PROCEDURE – separate determination of questions – whether the Encroachment of Buildings Act 1922 (NSW) applies to the encroachment onto public road – where adjacent owner is the relevant road authority
Conveyancing Act 1919 (NSW); Design and Building Practitioners Act 2020 (NSW); Encroachment of Buildings Act 1922 (NSW); Home Building Act 1989 (NSW); Local Government Act 1919 (NSW); Local Government Act 1993 (NSW); Public Roads Act 1902 (NSW); Real Property Act 1900 (NSW); Roads Act 1993 (NSW).

Rehman v F&F Smart Homes Pty Ltd (costs) [2023] NSWCATCD 56
COSTS – Unreasonable refusal of settlement offer – failure to mitigate loss – costs not proportionate
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Home Building Act 1989 (NSW); Uniform Civil Procedure Rules 2005 (NSW).

Legislation

NSW Legislation

Residential Tenancies Amendment (Rental Fairness) Act 2023 No 9 (2023-409) – published LW 28 July 2023.
Statute Law (Miscellaneous Provisions) Act 2023 No 7 – Assented to 03 July 2023

Regulations and other miscellaneous instruments
Fisheries Management Amendment (Threatened Species Conservation) Order 2023 (2023-398) – published LW 19 July 2023.
Education and Care Services National Further Amendment Regulations 2023 (2023-399) – published LW 21 July 2023.
Inclosed Lands Protection Regulation 2023 (2023-400) – published LW 21 July 2023.
Subordinate Legislation (Postponement of Repeal) Order 2023 (2023-410) – published LW 28 July 2023.

Environmental Planning Instruments
Bega Valley Local Environmental Plan 2013 (Amendment No 41) (2023-401) – published LW 21 July 2023.
Bellingen Local Environmental Plan 2010 (Amendment No 17) (2023-411) – published LW 28 July 2023
Canterbury-Bankstown Local Environmental Plan 2023 (Amendment No 1) (2023-412) – published LW 28 July 2023.
Central Coast Local Environmental Plan 2022 (Amendment No 3) (2023-402) – published LW 21 July 2023.
Central Coast Local Environmental Plan 2022 (Map Amendment No 4) (2023-403) – published LW 21 July 2023.
Coolamon Local Environmental Plan 2011 (Amendment No 5) (2023-413) – published LW 28 July 2023.
Fairfield Local Environmental Plan 2013 (Amendment No 47) (2023-414) – published LW 28 July 2023.
Great Lakes Local Environmental Plan 2014 (Map Amendment No 6) (2023-415) – published LW 28 July 2023.
Hawkesbury Local Environmental Plan 2012 (Amendment No 32) (2023-404) – published LW 21 July 2023.
Inner West Local Environmental Plan 2022 (Amendment No 5) (2023-416) – published LW 28 July 2023.
Lake Macquarie Local Environmental Plan 2014 (Amendment No 49) (2023-417) – published LW 28 July 2023.
Lismore Local Environmental Plan 2012 (Amendment No 53) (2023-418) – published LW 28 July 2023.
Nambucca Local Environmental Plan 2010 (Amendment No 31) (2023-419) – published LW 28 July 2023.
Orange Local Environmental Plan 2011 (Map Amendment No 7) (2023-405) – published LW 21 July 2023.
Parramatta Local Environmental Plan 2023 (Map Amendment No 2) (2023-420) – published LW 28 July 2023.
Penrith Local Environmental Plan 2010 (Map Amendment No 2) (2023-406) – published LW 21 July 2023.
Queanbeyan-Palerang Regional Local Environmental Plan 2022 (Map Amendment No 3) (2023-407) – published LW 21 July 2023.
Sydney Local Environmental Plan Amendment (Sustainable Buildings) 2023 (2023-421) – published LW 28 July 2023.
Waverley Local Environmental Plan 2012 (Map Amendment No 2) (2023-422) – published LW 28 July 2023.
Wentworth Local Environmental Plan 2011 (Amendment No 21) (2023-408) – published LW 21 July 2023
Wollondilly Local Environmental Plan 2011 (Map Amendment No 8) (2023-423) – published LW 28 July 2023.
Woollahra Local Environmental Plan 2014 (Amendment No 29) (2023-424) – published LW 28 July 2023.

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.

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