BGC Residential Pty Ltd and Wilkinson and Anor
[2007] WASAT 326
•28 AUGUST 2007 (Edited reasons delivered extemporaneously)
BGC RESIDENTIAL PTY LTD and WILKINSON & ANOR [2007] WASAT 326
| STATE ADMINISTRATIVE TRIBUNAL | Citation No: | [2007] WASAT 326 | |
| BUILDERS' REGISTRATION ACT 1939 (WA) | |||
| Case No: | CC:367/2007 | 28 AUGUST 2007 | |
| Coram: | MR C RAYMOND (SENIOR MEMBER) MR P McNAB (MEMBER) | 28/08/07 | |
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Application for review allowed and order for repayment made | ||
| B | |||
| PDF Version |
| Parties: | BGC RESIDENTIAL PTY LTD JOE WILKINSON EDITH WILKINSON |
Catchwords: | Building and construction Building contracts Application for review of a decision of the Building Disputes Tribunal (BDT) Leave granted to review decision Liquidated damages Home building contract Contract providing for deemed date of practical completion Keys handed over and defect subsequently discovered Whether BDT erred in the application of District Court authority on issue of occupation in a free and uninterrupted manner District Court case dealt with liability for defective building work under Builders' Registration Act 1939 (WA) Consideration of building cases generally on the meaning of practical completion Consistency between deemed practical completion under contract and statutory provision Held that BDT conflated practical completion with different liability standard for defective building work Whether appropriate case to award costs Costs refused Review allowed and order to repay made Words and phrases "Practical completion" |
Legislation: | Home Building Contracts Act 1991 (WA), s 11, s 28(1) Builders' Registration Act 1939 (WA), s 12A(1aa) |
Case References: | Content Living Pty Ltd v McIntosh [2005] WADC 173 Emson Eastern Ltd (In receivership) v EME Developments Ltd (1991) 55 BLR 117 J Jarvis & Sons Ltd v Westminster Corporation [1969] 1 WLR 1448 Morgan v S and S Constructions Pty Ltd [1967] VR 149 Westminster City Council v J Jarvis & Sons Ltd [1970] 1 WLR 637 |
Orders | 1. The application for review is allowed for the ex tempore reasons delivered by the Tribunal on 28 August 2007.,2. The order and decision of the Building Disputes Tribunal dated 9 February 2007 is set aside, and the following order is substituted in its place:,"The complaint be dismissed".,3. In consequence of the above orders, the respondent owners shall repay to the applicant builder the sum of $5,940 on or before 28 days from the date of these orders.,4. There is no order as to costs. |
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : BUILDERS' REGISTRATION ACT 1939 (WA) CITATION : BGC RESIDENTIAL PTY LTD and WILKINSON & ANOR [2007] WASAT 326 MEMBER : MR C RAYMOND (SENIOR MEMBER)
- MR P McNAB (MEMBER)
- Applicant
AND
JOE WILKINSON
EDITH WILKINSON
Respondent
Catchwords:
Building and construction - Building contracts - Application for review of a decision of the Building Disputes Tribunal (BDT) - Leave granted to review decision - Liquidated damages - Home building contract - Contract providing for deemed date of practical completion - Keys handed over and defect subsequently discovered - Whether BDT erred in the application of District Court authority on issue of occupation in a free and uninterrupted manner - District Court case dealt with liability for defective building work
(Page 2)
under Builders' Registration Act 1939 (WA) - Consideration of building cases generally on the meaning of practical completion - Consistency between deemed practical completion under contract and statutory provision - Held that BDT conflated practical completion with different liability standard for defective building work - Whether appropriate case to award costs - Costs refused - Review allowed and order to repay made - Words and phrases - "Practical completion"
Legislation:
Home Building Contracts Act 1991 (WA), s 11, s 28(1)
Builders' Registration Act 1939 (WA), s 12A(1aa)
Result:
Application for review allowed and order for repayment made
Category: B
Representation:
Counsel:
Applicant : Mr JT Bishop
Respondent : Self-represented
Solicitors:
Applicant : Hotchkin Hanley
Respondent : Self-represented
Case(s) referred to in decision(s):
Content Living Pty Ltd v McIntosh [2005] WADC 173
Emson Eastern Ltd (In receivership) v EME Developments Ltd (1991) 55 BLR 117
J Jarvis & Sons Ltd v Westminster Corporation [1969] 1 WLR 1448
Morgan v S and S Constructions Pty Ltd [1967] VR 149
Westminster City Council v J Jarvis & Sons Ltd [1970] 1 WLR 637
(Page 4)
Summary of Tribunal's decision
1 This review dealt with an application made by the builder (BGC Residential Pty Ltd) to reverse a decision of the Building Disputes Tribunal whereby the builder was ordered to pay nearly $6,000 to the owners (Mr and Mrs Wilkinson), representing liquidated damages covering a period well after the handover of the keys to the Wilkinsons. The damages period was calculated by the Building Disputes Tribunal by reading the term "practical completion" (which appeared in the building contract and in the Home Building Contracts Act 1991 (WA)) as if it were equivalent to a term referenced to occupation in "a free and uninterrupted manner".
2 In this regard, the Building Disputes Tribunal purported to follow a decision of the District Court of WA which in fact dealt with liability for defective building under the Builders' Registration Act 1939 (WA). The District Court decision had itself drawn attention to the distinction between practical completion and occupation in a free and uninterrupted manner.
3 After the handover of the keys to the owners, a hidden defect was discovered which required substantial repair work on the bathroom to the house. The builder repaired this defect but it necessitated substantial disruption to the occupation of the home.
4 The State Administrative Tribunal gave leave to review the Building Disputes Tribunal decision. The State Administrative Tribunal concluded that the Building Disputes Tribunal had, in effect, misread the District Court decision and had incorrectly conflated practical completion (which had occurred here) with occupation on a free and uninterrupted basis.
5 The State Administrative Tribunal found that the Building Disputes Tribunal had erred in awarding liquidated damages after the date on which practical completion had actually occurred. This was because the Building Disputes Tribunal wrongly regarded that practical completion was not achieved as the owners' occupation had not been free and uninterrupted until the repairs to the bathroom were completed.
6 The decision of the Building Disputes Tribunal was set aside and an order to repay the compensation paid by the builder to the owners was made.
(Page 5)
7 This Tribunal delivered its reasons for decision shortly after conclusion of the parties' submissions. What follows is an edited version of those reasons taken from the transcript of proceedings.
Introduction
8 In this matter, the builder has lodged an application for review of a decision of the Building Disputes Tribunal (BDT). The application was lodged on 9 March 2007. Pursuant to that application, the builder sought leave to review the decision and an order that order 1 made by the BDT on 9 February 2007 be set aside; secondly, in lieu thereof there be substituted an order that the complaint be dismissed; and thirdly, that the respondents do pay the applicant's costs of the application in any event.
9 The grounds for the application are that it is said that the BDT erred in law in finding that "practical completion" of the residence the subject of the original complaint did not occur until the owners could occupy the building in a free and uninterrupted manner and in so doing the BDT incorrectly applied Content Living Pty Ltd v McIntosh [2005] WADC 173.
10 This, it is submitted, led the Tribunal to err in its further findings that:
(a) cl 11 of the building contract (which is referred to in further detail below) did not apply;
(b) a handing over of the keys "does not automatically mean that practical completion has occurred"; and
(c) the meaning of cl 11(e)(i) of the building contract has to be read as meaning "free and uninterrupted".
11 The order to which reference is made is an order to pay dated 9 February 2007 in terms of which the BDT ordered the builder to pay to the owners the sum of $5,940 within 21 days of the date of the order. That payment has been made by the builder.
Main issue in dispute
12 The application for leave was heard and an order granting leave was made by a single member of the State Administrative Tribunal (Tribunal) on 24 May 2007. In relation to the hearing before the Tribunal on 28 August 2007, it became common cause that there is, in reality, only one issue which is required to be determined and that is the true meaning of "practical completion" under the building contract.
(Page 6)
13 The parties entered into the contract in question on 18 November 2003. The contract is obviously in the standard form of the builder's usual contract.
14 It is stated to be a building contract under the Home Building Contracts Act 1991 (WA) (HBC Act), but without careful comparison, it is not clear to us that it is precisely in the terms of the standard Housing Industry Association contract. It is for that reason that we refer to it simply as the builder's standard form contract. The contract was for the construction of a single storey residence for the owners at Concord Terrace, Atwell, in the State of Western Australia.
15 The review turns largely on the effect of cl 11 of the building contract, read with Schedule item 6. Clause 11 is a lengthy clause and we shall refer only to those portions of it which are directly relevant. It reads as follows:
"11 COMMENCEMENT, COMPLETION AND DELAYS
(a) The builder shall commence the Works by the time specified in item 6(a) of the Schedule and shall complete the Works within the time specified in item 6(b) of the schedule PROVIDED THAT..."
"20 Days from the latest date that all pre-conditions specified in Clause 11 have been satisfied."
17 Sub-item 6(b) states:
"180 Days from the date the Builder has commenced the Works or when item 6(a) of the schedule has elapsed."
18 The next relevant subclause is cl 11(e) which provides:
(Page 7)
- "(e) Practical completion of the Works is deemed to have taken place when:
(i) the Works are completed except for any omissions or defects which do not prevent the Works from being reasonably capable of being used for its intended purpose; or
(ii) the Proprietor has taken possession of the Works without the written consent of the Builder; or
(iii) the Builder has handed the keys of the works to the Proprietor;
whichever the earlier."
"(j) if the Builder breaches sub-clause 11(a), it shall be liable to pay the Proprietor liquidated damages at the rate of THIRTY DOLLARS ($30.00) per day for each day beyond the due date for practical completion until practical completion is deemed to have taken place."
20 The relevant facts are not in dispute. We should mention simply that the parties accepted that practical completion had occurred on 2 May 2005. There are, in any event, a number of documents which support that conclusion, including a report from an independent building consultant engaged by the owners. What the owners did not realise at the time when practical completion was accepted and the keys were handed to them, and they took possession of the dwelling, was that there was in fact a significant defect in relation to the tiling in the en suite bathroom.
21 That work was remedied at a much later date and it is based on the BDT's finding that practical completion was only achieved at that later date that liquidated damages were found still to be payable to the owners encompassing the period up to the completion of the remedial works to the en suite bathroom. It is on that short point, as we have indicated, that the review turns, namely whether practical completion occurred on the date originally accepted or on this later date. If the BDT decision is correct, then it would result in the application being dismissed. If the contentions put forward by the builder are correct, it would mean that the decision must be set aside and the moneys paid would have to be repaid to the builder.
(Page 8)
22 The builder commenced its submissions by referring the Tribunal to s 11 of the HBC Act and to the definition of practical completion which appears there. Section 11(1) provides:
"It is a term of every contract that the builder is liable to make good at the cost of the builder defects in the home building work notified in writing to the builder within the period of 4 months commencing on the day of practical completion."
23 Section 11(2) of the HBC Act sets out definitions in relation to the meaning of "defect" and, relevantly, "practical completion". The definition in respect of "practical completion" reads:
"'Practical completion' means brought to the stage where the home building work is completed except for any omissions or defects which do not prevent the home building work from being reasonably capable of being used for its intended purpose."
24 The builder contends that that definition is consistent with the definition provided in cl 11 of the building contract, more particularly cl 11(e)(i) to which we have referred. A comparison shows that the words are almost identical and in our view are certainly identical in effect. The builder submits that the interpretation in s 11(1) of the HBC Act and the meaning given to "practical completion" expressed in cl 11(e)(i) is an indication of the consistent meaning to be given to the term "practical completion" under the contract, subject to some qualifications to which we will refer below.
25 There is an issue which the Tribunal raised as to what the effect is of cl 11(e)(ii) and cl 11(e)(iii) which deem that practical completion has taken place because either the proprietor has taken possession of the works without the written consent of the builder or the builder has handed the keys of the works to the proprietor, whichever is the earlier.
26 As is evident in this matter, the builder relies, in effect, on cl 11(e)(i) OF the building contract which contains the reference to what constitutes deemed practical completion, namely, that the works are completed except for any omissions or defects which do not prevent the works from being reasonably capable of being used for its intended purpose and cl 11(e)(iii) inasmuch as the keys were given to the proprietors who took possession on 2 May 2005.
(Page 9)
27 The issue which is raised is whether those two clauses are valid, having regard to the provisions of s 28(1) of the HBC Act which provides that:
"An agreement or arrangement that purports to exclude or restrict the operation of any provision of this Act or to modify any such provision to the disadvantage of an owner is to that extent void."
28 It is not necessary to set out the remaining provisions of that section.
29 We consider that it is useful to have regard to the usual structure of building contracts which provide for liquidated damages and maintenance periods. In this regard, we were referred to Hudson's Building and Engineering Contracts 11th ed (vol 2) Sweet & Maxwell, London, 1995 at 1169-1170. The learned author states, at 1169, par [10-059]:
"Under the scheme of most modern contracts, liquidated damages come to an end on 'practical' or 'substantial' completion of the whole of the project, but a liability to make good defects survives for a limited period.
Probably the most accurate definition to date of the state of completion contemplated by provisions for completion to time in building and engineering contracts, and whether or not expressly described as 'practical' or 'substantial' completion, is that of Lush J, adopted by the Full Court of Victoria in Morgan v S&S Constructions PtyLtd [1967] VR 149: 'The work ... carried out in accordance with the contract ... except for departures from the contract which were either latent or undiscovered or merely trivial, even though that case involved a builder/developer and purchasers and not an ordinary building contract.
This definition may become important when an owner or purchaser enters an apparently satisfactory building on completion, and defects later manifest themselves which, if known at the time, would have justified refusal to enter, or of a certificate of practical or substantial completion by the architect or engineer. In such a case it will usually no longer be possible, it is submitted, for an owner, even where the question of completion is open to dispute on the merits and he is no way bound by any relevant certificate, to seek to recover liquidated damages retrospectively on the ground that the works were not
(Page 10)
- in fact properly completed at the time of re-entry. The scheme of most sophisticated building contracts for the commencement of the defects, liability or maintenance period ... is inconsistent with any such intention (which if correct, would mean that an owner could add a claim for liquidated damages whenever he claimed damages for defective work, and however long after completion the defects were discovered)."
30 That is in effect precisely the position adopted by the owners in this case in that the repair work was not carried out until a much later date. There were also a number of other authorities to which we were referred and which support the principles as explained in Hudson, to which we have referred above. Those authorities were Morgan v S & S Constructions Pty Ltd [1967] VR 149, at 154; J Jarvis & Sons Ltd v Westminster Corporation [1969] 1 WLR 1448, at 1458 (CA); Westminster City Council v J Jarvis & Sons Ltd [1970] 1 WLR 637 at 646 - 647 (HL).
31 We were also referred to Emson Eastern Ltd (In receivership) v EME Developments Ltd (1991) 55 BLR 117 at 122. As we have indicated, the respondents' entitlement to liquidated damages is inconsistent with the principles to which we have referred. Ultimately, the only support which could be offered for that conclusion was the decision of the BDT in the decision under review.
32 In the written reasons for decision, the learned deputy chairperson of the BDT said, at par [3.1]:
"Neither party was legally represented and it now appears that there is a District Court judgement which applies directly to this matter. The case is Content Living Pty Ltd v McIntosh and Anor [2005] WADC 173. In that case the judge [ - which we take to be a reference to the learned Commissioner who decided the matter - ] had drawn attention to the need to look at Section 12A(1aa) [of the Builders' Registration Act 1939 (WA)] and the wording which states 'when the building work was completed; and for the purposes of this subsection building work is completed when the building to which the work relates becomes fit for occupation in a free and uninterrupted manner.'"
33 That, with respect, reflects a misunderstanding of the application of the Content Living decision. That case does not apply directly to this matter at all. This matter is a claim for liquidated damages for breach of a
(Page 11)
- home building works contract under the HBC Act. Section 12A(1aa), to which the learned deputy chairperson referred, is a reference to a section in the Builders'Registration Act 1939 (WA) (BR Act) dealing with defective building work.
34 Furthermore, the section does no more, as is apparent from a reading of the Content Living decision, than to set out a time bar by which a claim under the BR Act must be brought. It has, with respect, no application to this matter. That is made patently clear in the Content Living decision itself where at [53] the learned Commissioner said:
"Accordingly, the correct interpretation of s 12A(1aa) is to read the section as if the words 'when the building work was completed; and for the purposes of this subsection, building work is completed' were deleted. These words are superfluous and confusing. This means that the test for when the limitation period starts to run is contained in the words 'when the building to which the work relates becomes fit for occupation in a free and uninterrupted manner.' As indicated earlier, this is not the same test as the requirement for practical completion. The definition of 'practical completion' in the Home Building Contracts Act 1991 specifically allows for omissions or defects to be still present as long as they do not prevent the home building work from being 'reasonably capable of being used for its intended purpose.' A home can be used for its intended purpose, namely as a dwelling, while at the same time it may not provide occupation in a free and uninterrupted manner."
35 That is precisely the issue which is before the Tribunal now. It is whether this home could be used for its intended purpose notwithstanding that it might not be occupied in a free and uninterrupted manner. It is clear that when the repair works were carried out that it would not have been possible to occupy the home in a free and uninterrupted manner, but as the learned Commissioner has pointed out, that is not what the definition under the HBC Act requires.
36 That takes us back to the definition of "practical completion" as set out in s 11(1) of the HBC Act and it is to that definition that we understand the learned Commissioner was referring, there being no other definition in that Act. In our view, that definition must be read consistently with the common law principles to which we have referred to exclude any defects, whether known or not, for the reasons given by Hudson and the authorities to which we have referred. In our view, any
(Page 12)
- other result would be absurd because it would permit liquidated damages claims to be added to every defects liability claim and would result in there being absolutely no purpose for a maintenance or defects liability clause. As we have found, the contractual definition of practical completion is identical in effect.
37 On that basis alone, the builder is entitled to succeed with the application for review based upon the reliance which is placed on cl 11(e)(i) of the building contract.
38 Reliance was also placed by the builder on cl 11(e)(iii) of the building contract. It is not necessary for us to finally determine that issue because of the conclusion that we have come to in relation to cl 11(e)(i). However, we do not consider that cl 11(e)(iii) is necessarily inconsistent with the HBC Act insofar as it limits the period of liability for liquidated damages.
39 The HBC Act does not specifically deal with liquidated damages and as we have already pointed out, s 11(1) of the HBC Act read with subsection (2) has the effect that the definition of "practical completion" applies to subsection (1), the terms of which are set out above.
40 Its application is strictly limited to the triggering of the defects liability period. It does not necessarily mean that the parties cannot agree on a mechanism by which any liability for liquidated damages will come to an end. The provision of liquidated damages is a purely contractual matter between the parties and under this contract the parties have agreed that there will be a deemed practical completion which will have the effect of bringing liquidated damages liability to an end.
41 It may well be that if reliance was placed only on cl 11(e)(iii) of the building contract there could be a different date for the operation of liquidated damages and the commencement of the maintenance period, but as we have said, that is not a matter that we need to resolve.
42 The effect of these reasons is that there must be an order from this Tribunal setting aside the decision under review and substituting new orders, as sought by the builder.
43 The applicant does not seek an order for costs and the respondents have agreed to repay to the builder the sum of $5,940 within 28 days.
Orders
44 The Tribunal made the following orders:
(Page 13)
- 1. The application for review is allowed for the ex tempore reasons delivered by the [State Administrative] Tribunal on 28 August 2007.
2. The order and decision of the Building Disputes Tribunal dated 9 February 2007 is set aside, and the following order is substituted in its place:
"The complaint be dismissed".
3. In consequence of the above orders, the respondent owners shall repay to the applicant builder the sum of $5,940 on or before 28 days from the date of these orders.
4. There is no order as to costs.
I certify that this and the preceding [44] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
___________________________________
MR P McNAB, MEMBER
0
0
2