Bayside Design and Construct Pty Ltd v Kanbur
[2020] VCC 691
•27 May 2020
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-20-01053
| Bayside Design & Construct Pty Ltd | Plaintiff |
| v | |
| Nureddin Kanbur | Defendant |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 April 2020, final submissions dated 4 May 2020 | |
DATE OF RULING: | 27 May 2020 | |
CASE MAY BE CITED AS: | Bayside Design & Construct Pty Ltd v Kanbur | |
MEDIUM NEUTRAL CITATION: | [2020] VCC 691 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS
Catchwords: Building contract – mixed use development comprising single residential unit and two shops – owner to occupy residential unit as home and not in the business of building residence – contract a domestic building contract despite commercial component – application of the Building and Construction Industry Security of Payment Act 2002 (Vic) excluded by s7(2)(b) of that Act
Legislation Cited: Building and Construction Industry Security of Payment Act 2002 (Vic) s7(2)(b), Domestic Building Contract Act 1995 ss3, 5, 6 and 12
Cases Cited:Golets v Southbourne Homes & Anor [2017] VSC 705, Kane Constructions Pty Ltd v Sopov [2005] VSC 237
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | C Jones | Mills Oakley |
| For the defendant | V Ruta | Jack Bock Lawyers |
HIS HONOUR:
Summary and outcome
1 This proceeding began as an application by the plaintiff (“Bayside”) pursuant to section 16(2)(a)(i) of the Building and Construction Industry Security of Payment Act 2002 (Vic) (“SOP Act”). The application relied on a “Medium Works Building Contract” with the defendant (“Mr Kanbur”) dated 20 April 2018 (“Contract”), in relation to the construction of a first-floor residential unit and terrace, and two ground floor shops on an allotment at 303 Beach Road, Black Rock (“Property). The application was supported by the usual evidence by affidavit of the service of payment claims under the Contract and failure by Mr Kanbur to serve payment schedules.
2 However, it soon became apparent that there was a threshold issue affecting the claim, namely, whether the Contract was a domestic building contract within the meaning of the Domestic Building Contract Act 1995 (Vic) (“DBC Act”), with the result that the SOP Act did not apply to the Contract by operation of s7(2)(b) of the SOP Act. Despite the fact that the Contract is for the construction of a mixed-use development, I am satisfied that it is nevertheless a domestic building contract within the meaning of the DBC Act and that the SOP Act does not apply to the Contract. Further, for the reasons below, Bayside’s belated attempt to limit its claims to those purportedly relating exclusively to the commercial premises, does not overcome this obstacle. . Accordingly, I will order that the proceeding is dismissed and that Bayside pay Mr Kanbur’s costs of the proceeding on the standard basis in default of agreement.
Procedural history and evidence
3 The proceeding was commenced by originating motion and summons dated 12 March 2020, supported by an affidavit of Paul Walters, a director of Bayside. This affidavit exhibited and summarised the relevant provisions of the Contract, including that the “Contract Sum” was $1,540,000. It then identified a total of five payment claims, which Mr Walters deposes had been served on Mr Kanbur and not responded to by service of payment schedules. Mr Walters further deposes that the total claimed amount is $395,252.35 (including GST), which remains unpaid.
4 On 16 April 2020, Mr Kanbur filed a notice of appearance to Bayside’s proceeding and his own summons, seeking (relevantly) an order pursuant to s57(2) of the DBC Act that the proceeding be stayed. This summons, like some earlier correspondence and submissions on behalf of Bayside, appeared to reflect a misunderstanding concerning the intersection of the DBC Act with the SOP Act. The issue was not whether a proceeding under the SOP Act is amenable to determination by VCAT under the DBC Act, and thus subject to a stay under s57(2) of the DBC Act. Rather (as later became apparent) it was whether the SOP Act can have any application to a domestic building contract within the meaning of the DBC Act.
5 In his affidavit in support of his summons (also dated 16 April 2020), Mr Kanbur relevantly deposed that:
· he is the owner of the land at 303 Beach Road, Black Rock (the “Property”) and in about 2017 he applied for a town planning permit to build an apartment for himself and two shops on the Property;
· he is not in the business of building residences and had intended to occupy the apartment to be built on the Property as his principal place of residence;
· the Contract related to all the building works on the Property, including the two shops on the ground floor, the residential apartment on the first floor, a lift shaft to the residential apartment and a roof terrace associated with the residential apartment;
· building permits issued in relation to the building works identified Bayside as “the domestic builder”, and the certificate of insurance for the construction works was titled “Domestic Building Insurance Certificate of Insurance issued under section 135 of the Building Act 1993”;
· of the total construction area of 856.8 m², the residential component comprises 620.1 m², equating to 72% of the total building works;
· Mr Kanbur had obtained a letter from a quantity surveyor who he engaged, which attached a draft estimate showing the breakup of the cost of the building works was $1,363,650 for the residential component and $286,800 for the two shops;
· Mr Kanbur had paid $1,491,055.79 to Bayside pursuant to the Contract, but has since become aware of variousdefects and has issued an application for dispute resolution through Domestic Building Dispute Resolution Victoria; and
· Bayside had agreed to participate in a mediation, but conciliation of the dispute has since been adjourned.
6 On 21 April 2020, Mr Walters swore a further affidavit on behalf of Bayside, responding to the first Kanbur affidavit. In that affidavit, Mr Walters relevantly deposes that:
· during the construction of the building works at the Property, Mr Kanbur said to Mr Walters (in substance) that he purchased the property for the investment income associated with the mixed-use nature of the Property and that he intended to build further apartments on the top, if zoning overlays are changed so that this is permitted in the future;
· Mr Kanbur had variously engaged a contract manager, quality inspectors and a quantity surveyor on the project and, in Mr Walters’ experience, only parties undertaking commercial developments engage these professionals;
· the planning permit for the Property allowed for the reduction of the number of car parks associated with a medical practice with six practitioners in a Commercial 1 Zone; and
· Mr Kanbur said to him that he had leased the shops to a medical provider and, according to the plan stamped by the local council, the project is described as “Black Rock Beach Medical”.
7 On 22 April 2020, Mr Kanbur swore a further short affidavit (“second Kanbur affidavit”) in which he deposes that he is a technical officer in the full-time employment of Citipower and that he sold his property at 54/1 Sandilands Street, South Melbourne to assist with the construction at the Property. Also on 22 April 2020, Mr Kanbur issued a second summons, apparently in substitution for the first, seeking an additional order for a declaration that the Contract is a domestic building contract within the meaning of the DBC Act.
8 Counsel for the parties exchanged and filed written submissions on 23 April 2020 and the proceeding came on for hearing on 24 April 2020. It was apparent to me from reviewing the submissions overnight that there was a significant disconnect between each party’s approach to the application. Counsel for the plaintiff traversed at length the matters relevant to Bayside’s substantive application under the SOP Act, and dealt only briefly with the DBC Act issues. Perhaps distracted by Mr Kanbur’s first summons, these latter submissions were limited to arguing that, because VCAT has no jurisdiction to hear an application under the SOP Act, s57(2) of the DBC Act did not apply to a proceeding brought under the SOP Act.
9 In contrast, Mr Kanbur’s submissions focused almost entirely on s7(2)(b) of the SOP Act and whether the Contract was a domestic building contract within the meaning of the DBC Act. Somewhat confusingly, however, the submissions sought a stay of the proceeding (not dismissal) and also made reference to s57A of the DBC Act. Despite this, it was clear that the application of s7(2)(b) of the SOP Act loomed as a fundamental preliminary question in the proceeding. Indeed, it seemed to me that if the section applied, the proceeding was a nullity regardless of the form of the orders sought by Mr Kanbur in his summonses. I therefore invited counsel for the plaintiff to begin by addressing me on this issue.
10 In the course of oral submissions, a question arose about whether it might be open to Bayside to argue that claims for building works relating only to the commercial part of the development could be severed from the balance of the claims and pursued under the SOP Act. Counsel for Bayside sought time to obtain further instructions on this, as well as on aspects of the application of s7(2)(b) of the SOP Act to mixed use developments more generally. Accordingly, after exhausting the matters that counsel were able to deal with during the hearing, I adjourned the further hearing of the proceeding and set a timetable for supplementary written submissions, indicating that unless a resumption of the hearing seemed desirable, I would thereafter determine the proceeding on the papers. This is what has occurred.
11 In addition to filing supplementary submissions as ordered, Bayside also filed a third affidavit sworn by Mr Walters on 30 April 2020, deposing that particular items referred to and costed in each of the payment claims related solely to works undertaken in the commercial component of the development. These totalled $36,255.36 (GST inclusive). I should also mention that each of the parties emailed additional documents to my associates to which they referred in submissions, but these added nothing of substance to the affidavit evidence discussed above.
Submissions and analysis
12 SOP Act s7(2) relevantly provides that:
“(2)This Act does not apply to—
…
(b)a construction contract which is a domestic building contract within the meaning of the Domestic Building Contracts Act 1995 between a builder and a building owner (within the meaning of that Act), for the carrying out of domestic building work (within the meaning of that Act), other than a contract where the building owner is in the business of building residences and the contract is entered into in the course of, or in connection with, that business; or
…
13 The terms defined by the DBC Act referred to in s7(2)(b) of the SOP Act are as follows:
“builder means a person who, or a partnership which—
(a) carries out domestic building work; or
(b) manages or arranges the carrying out of domestic building work; or
(c) intends to carry out, or to manage or arrange the carrying out of, domestic building work;
building owner means the person for whom domestic building work is being, or is about to be, carried out;
domestic building contract means a contract to carry out, or to arrange or manage the carrying out of, domestic building work other than a contract between a builder and a sub-contractor;
domestic building work means any work referred to in section 5 that is not excluded from the operation of this Act by section 6;
home means any residential premises and includes any part of a commercial or industrial premises that is used as a residential premises;”
14 Sections 5 and 6 of the DBC Act relevantly provide as follows:
“5 Building work to which this Act applies
(1)This Act applies to the following work—
(a)the erection or construction of a home, including—
(i)any associated work including, but not limited to, landscaping, paving and the erection or construction of any building or fixture associated with the home…
(2)A reference to a home in subsection (1) includes a reference to any part of a home.
6 Building work to which this Act does not apply
(1)This Act does not apply to the following work—
…
(c)any work in relation to a building intended to be used only for business purposes;”
15 I also note that s12 of the DBC Act provides as follows:
“12 Contract for more than one sort of work must identify the domestic building work
(1)This section applies to a contract that entitles a builder to be paid both—
(a)for carrying out domestic building work; and
(b)for carrying out other work or for any other reason.
(2)The builder must not enter into such a contract unless the contract clearly identifies and distinguishes—
(a)the domestic building work from the other work or reason; and
(b)the amount of money the builder is to receive under the contract as a result of carrying out the domestic building work from the amount of money the builder is to receive under the contract as a result of carrying out the other work or for the other reason.
Penalty: 20 penalty units.”
16 iI oral submissions, counsel for Bayside advanced essentially two arguments against the application of s7(2)(b) of the SOP Act to the facts of this proceeding. First, that Mr Kanbur fell within the exception in s7(2)(b), namely, that he was in the business of building residences and the Contract was entered into in the course of, or in connection with, that business. Second, that the Contract was not a “domestic building contract” within the meaning of the DBC Act. As I understood it, this second argument relied on both the form of the Contract itself, andthe fact that the development involved a substantial commercial component.
17 In relation to the first argument, counsel argued that I should find that Mr Kanbur was in the business of building residences because:
· of the conversations between Mr Walters and Mr Kanbur, detailed in the second Walters affidavit, during which Mr Kanbur allegedly said that he purchased the Property for the investment income associated with the mixed-use nature of the Property and that he intended to build further apartments on the top level if zoning overlays are changed so that this would be permitted in the future; and
· the fact that the Property was on land zoned Commercial Zone 1, the title of the Contract (“Medium Works Commercial Contract Conditions”), the three building professionals engaged to assist Mr Kanbur in relation to the building works and that Mr Kanbur had recently secured an ABN, all pointed to the building works (including the residential unit) being in the nature of the business being conducted by Mr Kanbur.
18 In Golets v Southbourne Homes & Anor [2017] VSC 705, Vickery J recently considered the question ofwhether a person is “in the business of building residences” for the purposes of s7(2)(b) of the SOP Act.In that case, the property owner Dr Golets was a medical practitioner and his wife was a pharmacist. His Honour inferred from this that they were each engaged in those respective professions. Dr Golets had originally purchased the relevant property as a rental investment. He and his wife needed a larger home and decided to construct two units at the property so that one would be their primary residence and the other could be sold to help pay off the debt. There was some evidence that Dr Golets had been involved in a similar property development five years earlier.
19 His Honour referred to the earlier Victorian Supreme Court decision of Director of Housing v Structx Pty Ltd [2011] VSC 410 at [28]-[31], where it was held that:
“The expression ‘in the business of building residences…’ connotes the construction of dwelling houses as a commercial enterprise on the basis of a going concern, that is, an enterprise engaged in for the purpose of profit on a continuous and repetitive basis.”
20 His Honour emphasised that what constitutes being “in the business of building residences” for the purposes of s7(2)(b) of the SOP Act is an issue of fact determined on a case-by-case basis. His Honour also held that the evidentiary onus under the section falls on the party who asserts that the contract is a domestic building contract within the meaning of the DBC Act (being, in this case, Mr Kanbur). He considered that on the facts before him there was no evidence that the purpose of the development was to make a “profit”. Rather, the sale of the second unit was to help pay off the debt that had been generated. Further, there was no evidence of any enterprise on a continuous or repetitive basis. His Honour concluded that the primary purpose of the development was to secure a dwelling house to be occupied by Dr Golets and his family. The sale of one unit was part of his financial plan to achieve this end.
21 The facts in this case have some features also present in Golets but, in my view, the fact in this case are even less suggestive of any business of building residences. Mr Kanbur’s evidence was that he was in the full-time employ of Citipower and that he sold his existing residence to fund the purchase of the Property. Apart from this, there is no evidence of Mr Kanbur being involved in any other property or construction transactions of any kind, let alone those involving residential building. Further, the purchase of the Property itself was primarily to provide Mr Kanbur with a replacement residence. The development also involved the construction of two shops from which Mr Kanbur hoped to generate income but, importantly, these were commercial premises, not residences.
22 Nothing in the matters referred to by counsel for Bayside suggest that Mr Kanbur was involved, or likely to become involved, in any other residential development, beyond a vague reference to an intention to add further apartments to the existing development if zoning permitted. Further, the fact that he secured an ABN is explicable on any number of other grounds, including that he needed it for the purposes of renting the two shops. None of these matters, nor the zoning of the land as Commercial Zone 1, the involvement of building professionals or the title of the Contract is, in my judgment, suggestive of “an enterprise [involving the building of residences] engaged in for the purposes of profit on a continuous and repetitive basis”. In the circumstances, there is no reason to doubt Mr Kanbur’s evidence, including his statement that he was not in the business of building residences.
23 Turning to the second argument, it is clear that Mr Kanbur was undertaking a mixed-use development involving both a residential component (which was to become his home) and a commercial component. Mr Kanbur’s evidence (which was ultimately uncontradicted) was that the residential component comprised a significant majority of the building works, both by floor area and cost. In the brief period between the filing of initial written submissions and the hearing, neither counsel for Bayside nor I was able to locate any authorities that have considered the application of s7(2)(b) of the SOP Act to a mixed-use development. It would appear from the absence of any references in the further written submissions filed since the hearing, that any further searches by either council have also been in vain. I find myself in the same position.
24 Counsel for Bayside referred me to the decision of Warren CJ in Kane Constructions Pty Ltd v Sopov [2005] VSC 237 (“Kane v Sopov”), which she argued I should apply by analogy. In that case, her Honour held at [892] that:
“I have difficulty in accepting that in a project such as the present where it is a combined, mixed use development of residential, office and gallery and restaurant, developed by a developer, it should be subject to the protections enshrined in the Domestic Building Contracts Act. Picking up on the observations of Hansen AJA in Winslow Constructions, it seems to me that the Act was not intended to apply to developers, and for that reason alone the provisions have no bearing on the present case. Even so, the Domestic Building Contracts Act could only have application to those parts of the project intended for domestic residential use. Those parts of the development intended to be used “for business purposes” are expressly excluded from the operation of the Act by virtue of s6(c).”
25 There are a number of things to note about Kane v Sopov, and Winslow Constructions Pty Ltd v Mt. Holden Estates Pty Ltd [2004] VSCA 159 (“Winslow”) to which it refers. First, they did not concern or consider the construction of s7(2)(b) of the SOP Act and its intersection with the definitions in the DBC Act. Rather, those cases involved substantial commercial developments where a question arose about the application of particular provisions of the DBC Act to the developments. Second, in discussing the framework of the DBC Act, including by reference to the second reading speech, Hansen AJA in Winslow emphasised that the intent of the DBC Act is to “protect individual homeowners rather than commercial developers”. Third, it is not in dispute that Mr Kanbur is a “homeowner”, in the sense that a substantial component of the development involved the construction of his home. Conversely, on no view could Mr Kanbur be described as a “developer” in the manner discussed in those authorities.
26 Thus, in my view (with respect), the reasoning in those authorities has limited application to the issue I must decide. Drawing together the language of the relevant definitions in s3 with ss5 and 6 of the DBC Act, that issue is whether the Contract is a contract for the carrying out of the erection or construction of a home, that is not work “in relation to a building intended to be used only for business purposes”. In my view, the conclusion that it is such a contract is unavoidable. As noted above, there is no dispute that a substantial proportion of the work concerned the building of Mr Kanbur’s new home. Nothing about the title given to the Contract or the zoning of the land on which the building is constructed can change that simple fact.
27 Further, there is nothing in the wording or scheme of either the SOP Act or the DBC Act to support a construction that requires that all (or even most) of the work under the Contract is the erection or construction of a home. On the contrary, s6(c) read with s5(a), would suggest that a building must be used only for business purposes before it is disqualified. That view is supported by the definition of “home”, which clearly contemplates that it extends to part of a commercial or industrial premises that is used as a residential premises. Accordingly, in my view, it is not open to doubt that the Contract is a domestic building contract within the meaning of the DBC Act for the carrying out of domestic building work, and thus attracts the operation of s7(2)(b) of the SOP Act.
28 As noted above, I am satisfied that the name given to the Contract and the zoning of the Property does not change the character of work under the Contract. These factors (as well as matters such as the reference in the relevant planning permit to “domestic builder” and the nature of the builder’s insurance) might be relevant to an evidentiary issue about the work. For example, if there was some doubt about how the first-floor unit and terrace were to be used, this may be raised. However, there is no suggestion of any such doubt. At most, a question was raised about whether the residence was in fact the larger component of the development. But there was no evidence of substance to support that position and, even if it were not the larger component, as I have noted, the result would be the same.
29 That brings me finally to the question of whether Bayside can (in part) overcome the difficulty presented by s7(2)(b) of the SOP Act by claiming in this proceeding only those items in its payment claims that relate solely to the commercial component of the development. On that issue, Bayside argues that it ought to be entitled to judgment at least in respect of those amounts in circumstances where:
· the doctrine of severance may be applied to a payment claim where part of the claim is valid and part of the claim is not (citing Gantley Pty Ltd v Phoenix International Group [2010] VSC 106);
· severance in this case would operate to achieve the purpose and objects of the SOP Act; and
· the defendant has not put any material before the court denying that the requirements of s16 of the SOP Act in relation to obtaining judgment for the debt have been satisfied.
30 In reply, Mr Kanbur submits that, by reason of s7(2)(b) of the SOP Act, the court lacks jurisdiction to make the orders sought by Bayside and having no jurisdiction, the court cannot adopt the doctrine of severance to save the payment claims. Mr Kanbur also submits that Bayside has failed to comply with s12 of the DBC Act. From my review of the Contract, this appears to be correct. The specifications in the Contract make some distinction between the areas where the work was to be done, but there is only a single contract price. Mr Kanbur submits that, consequently , Bayside “cannot seek payment of $32,599.42 in this proceeding”.
31 In my view, Mr Kanbur’s submissions must be accepted. Bayside has entered into one contract for both the domestic building work and the commercial work and has failed in that contract to clearly delineate between those two types of work, particularly as to the amount Bayside was to receive. Thus it is impossible to identify any part of the Contract as being other than a domestic building contract. I confess that even if a builder were to comply with s12, it is far from clear that doing so would avoid the operation of s7(2)(b) of the SOP Act for the non-domestic work. For example, I note that unlike s7(3) and (4) of the SOP Act, s7(2) does not use the expression “to the extent to which”, which it could easily have done if the intention had been to apply the section only to a contract “to the extent to which” it related to domestic building work. In the case of mixed use developments with owners that are not in the business of building residences, I am inclined to the view that the consequences of s7(2)(b) could only be avoided by entering into two contracts – one for the domestic work and one for the commercial work. However, it is not necessary for me to decide that question.
32 In this case, I am satisfied that the Contract is a construction contract which is a domestic building contract within the meaning of the DBC Act for the carrying out of domestic building work.. Accordingly, the SOP Act does not apply to the Contract and there is no occasion for severing particular parts of a payment claim in a proceeding brought under that Act.
Certificate
I certify that these 15 pages are a true copy of the judgment of His Honour Judge Woodward delivered on 27 May 2020.
Dated: 27 May 2020
Claire Findlay
Associate to his Honour Judge Woodward
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