September 2013

How to ruin a friendship ? Ignore the Home Building Act

A judgment of the New South Wales Court of Appeal has highlighted the risks for both an owner and a builder of entering into a building contract which fails to comply with the provisions of the Home Building Act 1989 (NSW).

An agreement between friends

Mr Field, a roofing tradesman, and his wife, proposed to build a home in Lake Macquarie as owner/builders. Mr Field asked Mr Dettman, a friend and carpenter, to assist in the construction on the basis that Mr Dettman would undertake carpentry work on the house, and would coordinate the work of other contractors. It was agreed that Mr Dettman would be paid an hourly rate, and would receive a percentage of the cost of any items he organised and paid for himself.

The problem

The agreement and performance of the work were in breach of the Home Building Act 1989 in that:

  • the agreement was not in writing;

  • Mr Dettman  did not hold an appropriate licence to do the work, including the licence required to enable him to organise all of the other contractors; and

  • Mr Dettman did not enter into a home owners’ warranty insurance contract, required in circumstances where the value of the work exceeded $12,000 ($20,000 since 1 February 2012).

The falling out

Towards the end of the works, Mr and Mrs Field told Mr Dettman that there were no further funds available for the payment of contractors, and that the work would have to stop.  Mr Dettman had been paid $320,971 at the time.

Mr and Mrs Field then made two claims in the Consumer Trader and Tenancy Tribunal.

One of the claims was for a small amount for rectification of defective work, and was resolved between the parties.

The second claim was for repayment of all the money Mr and Mrs Field had paid to Mr Dettman on the basis that the money had been paid under a mistake of fact or law, given the breaches of the Act outlined above (the restitution claim).

No joy in the builder’s discomfort

The Tribunal, and in turn the District Court of NSW on appeal from the Tribunal, dismissed the Fields’ restitution claim, holding:

  • that there was no factual basis for finding that payments had been made to Mr Dettman by mistake in relation to his licence or the failure to insure the building work;

  • that the Home Building Act 1989 does not entitle an owner to reimbursement of money paid under a contract that breaches the Act, and

  • that the Act only provides for adverse consequences for a builder who breaches the Act – it does not deem contracts which are not compliant with the Act as null or void.

Throwing good money after bad

By way of summons filed in the Court of Appeal, the Fields sought to quash the decision of the District Court. The primary submission made by the Fields was that they were entitled to reimbursement by statutory right under s92(2) of the Home Building Act 1989.

Section 92(2) of the Act prohibits a person from receiving or demanding payment under a contract for residential building work where the person has failed to comply with the insurance provisions of the section. A breach of the section is an offence but the Act otherwise does not expressly set out any relief available to those for whom the uninsured work has been performed.

Mr and Mrs Field submitted that if a contractor receives payment in contravention of this section, the payer has a right of action under the Act to recover the monies paid. It was argued that in this way the section serves to provide protection to those affected by uninsured work.

The Court of Appeal disagreed with the Fields, and found that s92(2) is intended to serve only as a caution to contractors contemplating conducting work in contravention of the section. Based on the criminal sanction included in the section, the focus of the section on the contractor, the removal of the contractor’s rights, and the “nature of the peril” of uninsured work, the Court found that the section does not expressly or by necessary implication extend to give those who have paid money in circumstances that amount to a contravention of the section a private right of action.

Lessons

By ignoring the Home Building Act 1989 and relying on their relationship for the sake of a comparatively small saving in expense and inconvenience, the builder and the owners were exposed to significant cost in time, money and (no doubt) emotion.

Builders in particular should remember that failure to comply with the Act may result in a criminal conviction, and can give owners leverage and the right to refuse to make further payment in any dispute in relation to the building work.

For owners, the Act gives no assistance to recover money already paid. In the absence of an adequate contract and home warranty insurance, the rights of the parties are unclear, which promotes disputes, and the owners will have a less saleable property and be left without recourse if the builder becomes insolvent or disappears.

Author: Vivien Botsikas

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