Building and Construction FAQ

Building and Construction FAQ #1 - Are there any particular requirements for an agreement for a Builder to carry out work at a residential property?

Yes.

The Home Building Act 1989 applies in relation to residential building works undertaken. under the Home Building Act 1989 there are requirements for:

1. A contract must be in writing and comply with Section 7 of the Home Building Act;

2. Notwithstanding the terms of an agreement there are obligations on the Builder as to minimum requirements as part of every arrangement or agreement to carry out work on residential building work. Under Section 18B of the Home Building Act minimum requirements as to the building works include requirements of the quality of the building works even if those requirements are not set out in the agreement.

3. The contract works must be insured if they are for a figure greater than $12,000.00. This is a requirement for a Home Owners Warranty Insurance failing which there are severe consequences.

- Statutory Warranties

Building and Constructions FAQ #2 - What are the consequences if there is no Home Owners Warranty Insurance provided?

The Builder cannot enforce the terms of the Contract, however, the Owners (including the Owners Corporation in relation to a Strata Plan) have the rights as set out in the contract.

at Question 3 and Question 4.

Building and Constructions FAQ #3 - Can the Builder make a claim even though there is no Home Owners Warranty Insurance covering the building works?

Yes, in some circumstances; there are two possibilities for the Builder, namely:

1. The builder could seek to obtain Home Owners Warranty Insurance even after the building works have been completed. Home Owners Warranty Insurance obtained after the building works had been undertaken will cover those works if the Home Owners Warranty relates to those works.

2. The Builder could seek to make a claim based on a quantum meruit basis.

In 2002 the Home Building Act was amended by inserting provisions 94(1A), 94(1B) and 94(1C) to allow the Builder to make a quantum meruit claim in certain circumstances. There are some recent cases which deal with this aspect such as in the case of Sopov & Anor v Kane Constructions Pty Limited in the Victorian Supreme Court in 2009.

Building and Constructions FAQ #4 - What is a claim based on a quantum meruit claim?

1. The expression ‘quantum meruit’ means 'the amount that is reasonable to pay for the benefit obtained”.

2. The quantum meruit claim is founded on that basis that a person is not entitled to benefit from “unjust enrichment”. For unjust enrichment one requires:

(a) One, such as an owner including an Owners Corporation or Strata Plan, must have been enriched by receipt of a “benefit”;

(b) The benefit must have been gained at the Builder’s expense;

(c) It would be unjust in the circumstances to allow an owner including an Owners Corporation or a Strata Plan to retain the benefit.

3. There are also other issues relating to the determination of what would be an appropriate reasonable amount payable to the Builder on the basis of a quantum meruit claim. Section 94(1A), Section 94(1B), and Section 94(1C) of the Home Building Act also are relevant to a claim on a quantum meruit basis. There will be many matters to be considered as to the benefit obtained by the owners (including an Owners Corporation or a Strata Plan) from the building works and the “reasonable” amount that the Builder may be entitled to.

4. For a Builder it would be beneficial to have a building contract and Home Owners Insurance and comply with the Home Building Act rather than to seek to rely upon the fallback position of a quantum meruit claim for work undertaken for an Owner i(ncluding an Owners Corporation or a Strata Plan). Not all work undertaken by the Builder may benefit the Owner (including an Owners Corporation or a Strata Plan).

5. It has previously been considered by most Courts that it is reasonable for the Builder to be entitled to some profit and a payment to cover overheads in a quantum meruit claim. However in 2005 in the decision of Kane v Sopov [2005] VSC the Victorian Supreme Court raised doubts as to whether the Builder should be entitled to profit in a quantum meruit claim.

- Security of Payment Act

Building and Constructions FAQ #5 - Does a Subcontractor to make a claim for moneys due by the Builder or a Builder to make a claim against an Owner have to commence Court proceedings?

No there are many alternative means of resolution of dispute including combining processes some of which are based on the contract and some of which are based on legislation such as the Building and Construction Security of Payment Act.

Many of the methods available for resolution are contractual and in those circumstances those alternatives must be incorporated as terms of the contract. Even if those alternatives are not included as an alternative within the contract binding on the parties it may be for example, that a Court can order mediation or other forms of resolution or determination as part of the Court process. Alternative dispute resolutions or determinations rather than Court litigation includes, but are not limited to, the following which Watson & Watson have been actively involved for many years:

1. Mediation

2. Arbitration

3. Expert determination

4. District Court, or Supreme Court and referring disputes to referees

5. Statutory entitlements and processes such as Applications under the Building and Construction Industry Security of Payment Act.

6. Enforcement of judgments including enforcement by way of:

(a) Applications under the Contractors Debt Act,

(b) Appointment of Administrator/Liquidator/Provisional Liquidator or a Corporate Doctor,

(c) Garnishee, including garnishee of bank accounts or wages or any other fund of money, or debts;

(d) Exercise of a Writ including a Writ over land

(e) Examination Summons

Building and Constructions FAQ #6 - Can a Subcontractor or Builder claim from a Builder or Owner (including an Owners Corporation or a Strata Plan) and obtain an enforceable judgment without going to Court?

In most cases the Building and Construction Security of Payment Act provide a process by which a subcontractor who is owed money by the builder or a builder who is owed money by the owner (including the Owners Corporation in relation to a Strata Plan) can make application without the need for going to Court. The process is an administrative process which is time and paper driven. In disputes where the Building and Construction Industry Security of Payment Act applies as long as there is compliance with the process the determination of the Adjudicator will be enforceable. The process is a quick process (compared with any other process) which is on the basis of obtaining a decision which is enforceable even though it may not be the exact amount that would be payable on an exact examination of the rights and wrongs of the claim. The default provision is on the basis that the Owner or Builder pays now and argues later. The Building and Construction Security of Payment Act does allow a right of review, however, the basis of the claim is pay now, argue later.

- Security of Payment Act

Building and Constructions FAQ #7 - What is required for a valid Payment Claim under the Building and Construction Industry Security of Payment Act?

Section 13 of the Building and Construction Industry Security of Payment Act sets out the requirements for a valid Payment Claim. In addition to the formal requirements it is appropriate to set out in the Payment Claim the basis of the claim. The Adjudicator will determine the amount due to the claimant on the basis of what is in the Payment Claim. The greater and clearer the information provided and contained in the Payment Claim, the greater the opportunity of an Adjudicator finding in favour of the Claimant. In the case of Multiplex Constructions Pty Limited v Luikens & Anor [2003] Justice Palmer in the Supreme Court of New South Wales sets out the requirements for a Payment Claim and a Payment Schedule and said:

“A Payment Claim and a Payment Schedule does not need to be as precise or particularised as a pleading in a Supreme Court proceedings, nevertheless precision and particularity must be required to a degree reasonably sufficient to appraise the parties of the real matters in dispute”.

It is our suggestion that the Payment Claim set out in very particular form what is claimed so the Adjudicator is aware of what is claimed. This will give your claim a better chance of success. Similarly, if you receive a Payment Claim; a Payment Schedule is required to respond (and there are strict time limits) and the Payment Schedule should set out in very clear terms what is the basis for asserting that no payment or payment less than the amount claimed is due. There are very particular requirements.

One should always be very careful if you are the Owner (including the Owners Corporation in relation to a Strata Plan) who has received a document from the Builder or Subcontractor or other person claiming payment or a Builder who receives a document claiming payment from a Subcontractor. If the claim is endorsed with words to the effect: “This is a claim under the Building and Construction Industry Security of Payment Act”; Such endorsement should be a warning sign that if the builder or the owner (including the Owners Corporation in relation to a Strata Plan) who receives such an invoice does not respond in the appropriate form and in the appropriate timeframe with a Payment Schedule (with the detail as required by the Building and Construction Industry Security of Payment Act) there will be a default and the payment will have to be made as claimed even though on a proper review of the matter the payment is not otherwise owing under the building contract. If you receive a Payment Claim or invoice with such an endorsement then do not delay. Call Richard Watson or Penny Kioussis immediately so that you can lodge the necessary Payment Schedule as required by the Act. The time in which the Payment Schedule document must be served is the earlier of 10 business days of service of the Payment Claim or the time required in the construction contract to make payment of a claim. If the time for payment of a claim under the contract or agreement is 5 days then a Payment Schedule must be served within that 5 day period to protect the owner (including the Owners Corporation in relation to a Strata Plan) or builder from a requirement to make the payment as claimed without a proper review of the appropriateness of the claim.

- Security of Payment Act

Building and Constructions FAQ #8 - What is required in a Payment Schedule?

If a Owner (including the Owners Corporation in relation to a Strata Plan) or a Builder receives a Payment Claim and does not wish to make the payment or has any basis on which not to make the payment, then that Owner or Builder must serve a Payment Schedule in accordance with the provisions of the Building and Construction Industry Security of Payment Act.

The Payment Schedule must specify every argument which the Owner (including the Owners Corporation in relation to a Strata Plan) or Builder has for not making such payment. If the arguments and supporting information is not provided in the Payment Schedule then the Claimant will be able to proceed and there is very limited, if any, objection that can be made in the Adjudication or Court process that will follow for enforcement of the claim by the Claimant. There is a one off opportunity to put in a defence to the claim. If you have any doubt please immediately telephone us and we will advise the builder or owner (including the Owners Corporation in relation to a Strata Plan) who has received a claim as to the necessary response. Failing the necessary response the builder or owner (including the Owners Corporation in relation to a Strata Plan) may be obliged to pay now and argue later.

- Security of Payment Act

Building and Constructions FAQ #9 - Is the finding of the Adjudicator binding or appealable? Is such a finding of the Adjudicator bulletproof?

In the matter of Brojyn Pty Limited v Davenport in 2004 the Court of Appeal in the Supreme Court of New South Wales in effect determined that there was no right to appeal the decision of the Adjudicator even if it be plainly wrong. There are many areas in which a finding by a Court or Adjudicator or other person appointed to determine issues between the parties is wrong, there are questions as to errors of law including errors of jurisdiction, errors of fact and a combination may be errors of fact and of law. Watson & Watson in April 2010 in a case of Chase Oyster Bar v Hamo Industries Pty Limited obtained a determination by a Judge of the Supreme Court that the Adjudicator had made a jurisdictional error in that there had been default in some of the time limits required under the Building and Construction Industry Security of Payment Act which were a pre-requirement for the Adjudicator to determine the Adjudication. In Chase’s case the Adjudicator proceeded until the Adjudication Determination even though the Claimant did not comply with the time limits as set out in the Building and Construction Security of Payment Act. On the basis of the decision in Brojyn referred to above, this was and would be bad luck for Chase and Chase would be required to make the payment as determined by the Adjudicator to be due, and argue later. The difficulty with this is that once the payment is made there is no certainty that any Judgment will be recoverable. There is also a very substantial cost of any such litigation. The Supreme Court in the Chase matter has granted a stay of the enforcement of the Adjudication Determination and accordingly the Adjudicated Amount is not required to be paid to Hamo Industries Pty Limited. The Supreme Court has referred the issue as to the right of the Supreme Court to overturn the Adjudication to the Court of Appeal of the Supreme Court of New South Wales and the case is likely to be heard by the Court of Appeal in the Supreme Court of New South Wales in about August 2010.

Under the decision of the Brojyn case the respondent to a claim who was obliged to make the payment had no alternative but to make the payment. In the Chase case this has been challenged in light of a Court decision in the High Court of Australia determined in February 2010, namely, Kirk v Industrial Relations Commission of New South Wales (2010) 239CLR 531. The Court of Appeal in the Supreme Court of New South Wales in the Chase case will consider whether the decision of Brojyn as to the enforceability of the Adjudicator’s Determination where there is clear error, is still good law.

In those circumstances, even though it is probably considered by most lawyers that the principles in Brojyn’s case will restrict you and the Adjudication Determination is bulletproof; this is not necessarily the case.

We have also had an Adjudication Determination for a substantial sum agreed to be null and void and of no effect and unenforceable due to other errors and, in particular, because of a denial of natural justice.

If you have any queries please do not hesitate to contact Watson & Watson to discuss your options.

- Security of Payment Act

Building and Constructions FAQ #10 - Can a builder always claim against the owner (including Owners Corporation of Strata Plan) under the provision of the Building and Construction Industry Security of Payment Act?

The Builder can only use the provisions of the Building and Construction Industry Security of Payment Act in certain circumstances in relation to a project. A subcontractor can use the provisions of the Building and Construction Industry Security of Payment Act in some circumstances and often in circumstances where the Builder is unable to have the benefit of the Building and Construction Industry Security of Payment Act in relation to the same project.

The Building and Construction Industry Security of Payment Act have various exemptions within Section 7 of the Building and Construction Industry Security of Payment Act. One of those exemptions is that the Act does not apply to “a construction contract for the carrying out of residential building work (within the meaning of the Home Building Act 1989 (NSW)) on such part of any premises as the party for whom the work is carried out resides in or proposes to reside in.

In a recent decision of Cardiacos v Cooper Consulting and Construction Services (Aust) Pty Limited [2009] NSWSC 938 this question arose. The work being carried out was work under the Home Building Act. The Building and Construction Industry Security of Payment Act would not be available to the Builder if Mr Cardiacos intended to reside in the property. The real question was whether Mr Cardiacos intended to reside in the property. If so, the Builder did not have the benefit of Building and Construction Industry Security of Payment Act as it would not apply.

His Honour Justice White in the Supreme Court found that Mr Cardiacos did not cease to reside in the property or intend to reside in the property when he moved out for the renovation works. In this case there was further debate as Mr Cardiacos owned two properties, one other where he lived mostly and the property, the subject of the work where he stayed some time. The Court held that Mr Cardiacos was a resident of each premises and accordingly the Building and Construction Industry Security of Payment Act did not apply. In this case His Honour also clarified the situation that the builder was not required to be informed of the intention of the owner. The Judgment confirms that for the purposes of establishing residency under the Building and Construction Industry Security of Payment Act 1999, a home owner can have more than one residence, the test being whether a person has retained continuity of association with the property. Further, whether a home owner proposes to reside at the property after building works have been completed depends upon the home owner’s intention as to the future use of the property. If the home owner’s intention is to return to the property, even if that intention is provisional on a number of different facts, such intention is sufficient to establish residency in accordance with the provisions of the Building and Construction Industry Security of Payment Act 1999 and in those circumstances the Building and Construction Industry Security of Payment Act will not apply. In those circumstances, the builder cannot make a claim under the Building and Construction Industry Security of Payment Act 1999.

Notwithstanding if you are an owner and receive a Payment Claim or a document purporting to be a Payment Claim no matter how flimsy it looks action must be taken urgently to defend the owner’s position. Failing action to defend the home owner’s position by way of a Payment Schedule and possibly Supreme Court action it is almost inescapable and that the default provision will be that the home owner will have to make the payment as claimed and to argue about it later. It is little comfort to say that the Supreme Court supports the position if the default provision is in favour of the Judgment being entered one way or another in favour of the builder. Inaction will be very expensive and difficult to overcome.

- Security of Payment Act

Building and Constructions FAQ #11 - Can the home owner or builder recover money that has been paid under an Adjudication Determination?

Yes, in certain circumstances, in theory as under the Building and Construction Industry Security of Payment Act a claim can be made for repayment of any money overpaid on the basis of the contractual matters. However, the Building and Construction Industry Security of Payment Act is an Act based on a theory pay up on adjudication and debate later. If on a thorough investigation of the true position as between the owner and the builder or the builder and the subcontract no money was payable, the owner or the builder in those circumstances can make a claim to reclaim the amount paid. There is a real difficultly in that if payment is made by an owner (including Owners Corporation) to a builder (or a builder to a subcontractor) and the builder (or subcontractor) is thereafter unable to repay the debt there is little the owner (including Owners Corporation) (or builder) can do. This is all the more complicated by the possible recovery of claims under the Home Owners Warranty Insurance.

Building and Constructions FAQ #12 - If the builder does not pay the subcontractor a debt due, is there any possibility of recovering that debt from the owner?

Yes, under the Contractor’s Debt Act.

In certain circumstances, an Owner (including the Owners Corporation in relation to a Strata Plan) can become liable to make the payment due to the Sub-Contractor by a Builder through the provisions of the Contractors’ Debts Act 1997. In this regard:

(a) Pursuant to section 5 of the Contractors’ Debts Act 1997 an unpaid person such as a subcontractor can obtain payment from a principal such as the Owner (including the Owners Corporation in relation to a Strata Plan) in certain circumstances even though the money is due by the contractor/builder to the subcontractor.

(b) The Contractors’ Debts Act 1997 sets out the procedure for a subcontractor to obtain payment from a principal in relation to a debt due to the subcontractor by a defaulting contractor/builder.

(c) The Contractors’ Debts Act 1997 provides that the principal/Owner (including the Owners Corporation in relation to a Strata Plan) is only required to pay to a subcontractor a debt that would otherwise be due by the defaulting contractor/builder to the subcontractor if and only if the principal owed money to the defaulting contractor/builder in relation to the work at the site.

(d) Accordingly if the principal or owner (including the Owners Corporation in relation to a Strata Plan) does not owe money to the defaulting contractor/builder such as the builder then upon receipt of a notice from a subcontractor no money would be payable by the principal.

(e) If the principal owes money to the builder who is the defaulting contactor then the principal is not authorized to make the payment to the defaulting contractor/builder after receipt of the appropriate notice from the subcontractor.

(f) The Contractors’ Debts Act 1997 also sets out a procedure under sections 6 and 7 for obtaining payment and the debt certificate and the service of a notice of claim upon the principal.

(g) Upon receipt of that appropriate notice of claim from the subcontractor the principal is able to make payment of any money due to the builder to the subcontractor.

Watson & Watson have made applications on behalf of subcontractors under the Contractors’ Debts Act 1997 and have received payments from the Owner (including the Owners Corporation in relation to a Strata Plan) which would otherwise been paid to the builder. This has achieved payment for the subcontractor on a very economical basis when a builder failed to make the payment which was due under an Adjudication Determination or under Judgment obtained in a Local Court.

- Security of Payment Act