Can NCAT hear a claim against a Guarantor in a building claim?

11/06/2019

The HIA standard form Building Contract for residential dwelling construction work contains a separate Deed of Guarantee.  The Deed of Guarantee is often utilised in a situation where the property is owned by a company and the company is contracting with the Builder for the construction work.  A director of the company may be expected to provide a guarantee on behalf of the owner company.

A dispute over a Building Contract for residential dwelling could come before the NCAT.  Often a Builder who is seeking unpaid Progress Claims against the owner company in proceedings before the Tribunal, would seek to bring a claim against the Guarantor in the same proceedings.

Section 48K of the Home Building Act 1989 (the “HBA”) makes it clear that the Tribunal has jurisdiction to hear a building claim.  A ‘building claim’ is defined in section 48A(1) of the HBA as follows:

48A.  

(1) In this Part: "building claim" means a claim for:

(a) the payment of a specified sum of money, or

(b) the supply of specified services, or

(c) relief from payment of a specified sum of money, or

(d) the delivery, return or replacement of specified goods or goods of a specified description, or

(e) a combination of two or more of the remedies referred to in paragraphs (a)-(d),

that arises from a supply of building goods or services whether under a contract or not, or that arises under a contract that is collateral to a contract for the supply of building goods or services, but does not include a claim that the regulations declare not to be a building claim.

Would a claim in guarantee count as a ‘building claim’? 

In many cases it is taken for granted that a claim based on a guarantee that is contained in a Building Contract is a ‘building claim’. 

It is arguable that a claim against a Guarantor is not a ‘building claim’ as defined in section 48A(1) and accordingly the Tribunal does not have jurisdiction to hear such a case.

There are very few cases that consider or deal with such an issue.

The Court of Appeal decision in Grygiel v Baine [2005] NSWCA 218 (“Grygiel”) is a seminal case on how the Court and Tribunal would approach a question of whether a claim should be regarded as a ‘building claim’ for the purpose of section 48A.

In Grygiel, the Court adopted a two limb test to the question:

1.        Whether there was a causal relationship between the claim sought to be enforced and the supply of building services? and/or

2.        Whether the claim sought to be enforced arises out of a contract that is ‘collateral’ to the Building Contract?

In the first instance the Court considered the nature of the claim and whether it was related to the supply or the terms on which the building services were supplied.  For example a claim by a Builder against his solicitor who failed to conduct a title search to confirm the identity of the true property owner, was said to be unrelated to the supply of building services.

In the second instance, a ‘collateral contract’ is said to exist where there is a ‘causal relationship’ between the said Contract and the Building Contract.  The test of a ‘causal relationship’ or an ‘appropriate connection’ is said to exist where a representation is made, or legal advice provided, in relation to the terms or conditions on which building service are or are to be supplied.

It is arguable that a claim against a Guarantor who is not a party to the Building Contract and but for the guarantee, is unconnected with the terms of the supply of the building services, would lack the ‘causal relationship’ required to qualify as a ‘building claim’.

Alternatively in a case where:

(a)       a Guarantor (who has made no promise or representation to the Builder on behalf of the owner corporation);

(b)       the terms of the guarantee say nothing about the scope of the works to be carried out; and

(c)       the Guarantor played no part in the Builder not receiving the progress claims;

it is arguable that the guarantee should not be regarded as a ‘collateral contract’ for the purposes of the latter part of section 48A(1).

There are many good reasons why it might be important to raise the issue as to the jurisdiction of NCAT in such a case.  It should not necessarily be left until the hearing but could be determined at an early stage in the proceedings. There are different consequences for the Builder and the Owner.

Whether you are a Guarantor being sued by a Builder in NCAT as a Guarantor or a Builder pursuing a Guarantor, do not hesitate to contact Watson & Watson Solicitors. Our experienced Senior Building & Construction Solicitors are available to provide you with the appropriate legal advice on all building matters including whether the Tribunal is the proper forum to hear the claim in guarantee.  Please contact Richard Watson Accredited Specialist Commercial Litigation stream of Building & Construction or his Personal Assistant Shereen Da Gloria to discuss your matter.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.