Das v Master Builders Fidelity Fund
[2015] ACAT 6
•20 January 2015
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
DAS & ANOR v MASTER BUILDERS FIDELITY FUND
(Civil Dispute) [2015] ACAT 6
XD 14/614
Catchwords: CIVIL DISPUTE – Residential building contract and insurance – insolvent builder – insurer’s liability to rectify patent defects and previous remedial work – statutory warranties – compliance with approved plans – effect of the certificate of occupancy and use
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 (ACT) ss 15, 16, 18
Building Act 1972 (ACT) ss 62, 64
Building Act 2004 (ACT) Parts 6.3, 6.4; ss 6, 29, 37, 42, 68, 69, 85, 88, 90, 91, 93, 96, 99, 136, 142C, 142D, 151; Schedule 4
Building Amendment Act 2002 (ACT)
Competition and Consumer Act 2010 (Cth) Schedule 2 ss 3, 18, 19, 20, 21, 22.
Insurance Contracts Act 1984 (Cth) s 48
Fair Trading Act (Australian Consumer Law) Act 1992
Magistrates Court Act 1930 (ACT) Part 4.2, ss 258, 259
Subordinate
Legislation cited: Building (Approval Criteria) Determination 2002 (ACT) s 4
Building (General) Regulation 2008 (ACT), rr 38, 39, 41, 42
Cases cited:Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Texts/Papers cited: Building Code of Australia
Explanatory Statement, Building (Approval Criteria) Determination 2002 (ACT).
Guide to Standards and Tolerances 2007, developed by Victorian Building Commission et al
Tribunal: Mr A. Anforth – Senior Member
Date of Orders: 20 January 2015
Date of Reasons: 20 January 2015
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) XD 14/614
BETWEEN:
SUMAN DAS &
KOKOLY DUTTA
Applicants
AND:
MASTER BUILDERS FIDELITY FUND
Respondent
Tribunal:Mr A. Anforth – Senior Member
Date: 20 January 2015
ORDER
The Tribunal Orders that:
1.The Respondent is to construct a canopy over the balcony in accordance with the approved plans.
2.The Respondent is to construct a step out feature wall in the front elevation of the house in accordance with the approved plans.
3.The Respondent is to render the upper walls either side of the front elevation in accordance with the approved plans and specifications in the contract.
4.The Respondent is to rectify the malfunctioning toilet flush button.
5.The above work is to be completed in a time frame agreed between the parties in default of which the parties have leave to relist to determine the timing issue.
………………………………..
Ms L. Crebbin – General President
for and on behalf of
Mr A. Anforth – Senior Member
REASONS FOR DECISION
Summary
1.Suman Das and Kakoly Dutta (the Applicants) are the registered owners of a residential property in Franklin, ACT.
2.The Respondent is an approved provider of Fidelity Certificates for home warranty insurance in the ACT.
3.On 1 June 2009, the Applicants entered into a contract with 4th Dimension Pty Ltd (the Builder) to construct a residential building on the property, for which the Respondent issued Fidelity Certificate number 51513.
4.As the owners of the land upon which the house was built, the Applicants had the benefit of the statutory warranties set out in section 88 of the Building Act 2004 (Building Act or BA) which are imported as a term in all residential building contracts in the ACT. These warranties include a warranty that the building work will be carried out in accordance with the Building Act, the approved plans and in a proper and skilful way using good and proper materials.
5.Section 37 of the Building Act provides among other things, that no building commencement notice is to be given to allow construction to commence, unless and until, a home warranty insurance certificate has been produced to the certifier. This certificate may be from a home warranty insurer or from a fidelity fund scheme approved under section 96 of the Building Act. In the present instance, the Respondent is the trustee of an approved fidelity fund scheme which insured the builder.
6.A fidelity fund is required to effect insurance on the terms approved by the Minister set out in its Trust Deed (section 99, BA). In the present case, the Respondent’s Trust Deed is dated 21 June 2002. The coverage provided under the Deed is the same as that provided by home warranty insurance under section 90 of the Building Act (clause 61(c) Deed) which includes coverage for breaches of the statutory warranties of section 88 of the Building Act and other acts of negligence by the insured builder.
7.The coverage under the Deed does not arise unless and until the builder is insolvent, dead or has disappeared (section 90(3), BA).
8.The work reached practical completion or around 30 April 2010 and was certified as such. The Certificate of Occupancy and Use (COU) was issued on 14 May 2010. The Applicants signed the authorisation for the issue of the COU on the basis of legal advice that it was in their interests to do so and to raise outstanding issues with the builder during the Defects Liability Period. The defects period ran from the date of completion, 30 April 2010, for 13 weeks until 30 July 2010.
9.On 16 June 2010 and 1 July 2010, the Applicants issued the Builder with Notices to Complete 25 defective items of works. Some issues were addressed in August and September 2010, but outstanding issues remained.
10.The Applicants lodged complaints with the Office of Fair Trading (5 November 2010) and the Master Builders Association (3 October 2011) to no avail.
11.On 15 November 2011, the Applicants issued the Builder with a Final Notice to Complete the defects. The Builder went into external administration in November 2011. The Applicants then made a claim to the Respondent for the cost of rectification of the outstanding defects.
12.The Applicants made their claim on the Respondent on the basis that the builder had become insolvent.
13.The Respondent admitted liability for some, but not all, items of the Applicants’ claim. The outstanding items form the basis of this application, as well as several items of defective repair work carried out by the Respondent in relation to the accepted claims, which the Applicant seeks to have the Respondent rectify.
14.The Respondent denied liability for some items on the basis that they were not required by the Building Code of Australia (BCA), or by the approved plans. It denied other items on the basis that the Applicants had agreed to variations they now complained of. For the most part, the Respondent’s denial was based on the premise that the Applicants had signed the consent required for the builder to obtain the COU, which the Respondent argued constituted a waiver by the Applicants of any further right to dispute outstanding defects.
15.The Respondent raised issues of the degree of discretion the trustees of the Fund possessed in making decisions about claims.
16.After hearing the evidence the Tribunal determined that the Respondent owed a duty under the Trust Deed to make good some, but not all, of the defects for the reasons given below.
Background
17.The Master Builders Fidelity Fund issues Warranty Insurance Certificates to builders, to provide consumer protection for home owners. The warranty provided covers the owner during construction, should the builder disappear, die or become insolvent. The owner is also provided with a six year statutory warranty which covers defective structural work, or two years for non-structural work, provided that the builder is no longer around to rectify the faulty work.
18.On 1 June 2009, the Applicants entered into a Master Builders Association (MBA) home building contract with the Builder to construct a residential building on 161 Oodgeroo Avenue, Franklin ACT. The contract value was $299,750.00. The estimated construction period was from 11 June 2009 to 31 March 2010.
19.On 11 July 2009, the Respondent issued Fidelity Certificate number 51513 for the construction of a standard double-storey house on the Applicants’ property.
20.On 27 April 2010, the Builder notified the Applicants that work had reached the practical completion stage and issued the final invoice.
21.On 30 April 2010, a certifier, Mr Ken Hopkins, issued an inspection record stating that work had reached the practical completion stage, but noted ‘minor finishings to be completed.’
22.On 3 May 2010, the Applicants authorised the Builder to apply for a Certificate of Occupancy and Use. The letter of authorisation stated:
‘This is to authorise you (the builder) to make the Application for certificate of Occupancy and Use by the owners (i.e. the C5 form), once you are satisfied that the works and related requirements are completed.’
23.On 14 May 2010, the ACT Planning and Land Authority issued the COU. The Certificate number was 093040N1C1.
24.Clause 25 of the building contract defines the defects liability period as being the period of 13 weeks commencing on the date of practical completion i.e. 30 April 2010, and ending on 30 July 2010.
25.On or around 16 June 2010, in accordance with clause 25 of the building contract, the Applicants gave the Builder a written Notice to Complete 25 defects and faults arising out of workmanship or materials not being in accordance with the contract. Key issues included:
(a)water ingress in the kitchen and ensuite (from the balcony), which has stained and warped the timber flooring;
(b)cracks in paving in the patio and in a wall of Bedroom 3;
(c)unsatisfactory paint work on doors and the blueboard outside;
(d)the family room sliding door and multi-fold doors do not open smoothly;
(e)no handrail on the internal staircase;
(f)the upstairs phone and data points have been incorrectly wired;
(g)plumbing and sewerage drainage unsatisfactory;
(h)front elevation feature wall and canopy have not been built (per the working drawings);
(i)walls adjacent to the front elevation feature wall need to be properly rendered (per the Inclusion List attached to the contract).
26.On or around 28 June 2010, the Builder responded. The Builder agreed to investigate and address twelve of the items, claimed four others had already been rectified, and refused responsibility for nine problems. The problems which the Builder refused to address included:
(a)issues arising from other contractors’ work (the kitchen installation and landscaping);
(b)issues where the Builder’s file notes indicate that the condition of the item was agreed to by the Applicants (the door paint, the front elevation and the wall render);
(c)problems with items which had been installed by the Applicants; and
(d)the staircase handrail, which was not on the list of inclusions for the work.
27.On or around 1 July 2010, the Applicants emailed the Builder a second Notice to Complete, as the Builder had failed to take any action within the 15 days stipulated by the building contract (clause 25(c)).
28.On 26 – 27 August 2010, and 9 September 2010, the Builder worked on some of the defects.
29.On 30 September 2010, the Builder advised the Applicants that:
‘- except for the replacement of the damaged section of timber flooring as discussed…, we have attended to and completed all the minor defects and maintenance works for the project as required by the building contract.’
30.On 6 October 2010, building consultant Mr Bruce Cohen of Property Works, inspected the property and provided a report which identified a number of outstanding defective works. In terms of the overall condition of the property, the report stated that when compared with properties of a similar age the property was in fair condition; the incidence of minor defects was typical for a building of that age and degree of maintenance, the incidence of major defects was low and their significance was nil. The incidence of safety hazards was typical, the only significant hazard being that the stairs were not constructed in accordance with the Building Code of Australia standards. The incidence of items requiring further investigation was also described as typical, the most significant item being that:
‘It is clear from the working drawings that the detail of the North/Front elevation has not been constructed in accordance with the approved plans.’
31.On 22 October 2010, the Applicants emailed Mr Cohen’s report to the Builder and to Ms Kathy Heydon of the MBA. No response was received.
32.The Applicants lodged complaints with the Office of Fair Trading (5 November 2010) and the MBA (3 October 2011).
33.On 15 November 2011, the Applicants gave the Builder a Final Notice to Complete. The notice advised of the deteriorating condition of the property due to water ingress, and said that failure to make progress on the issues within 7 days ‘may result in legal action against your company’.
34.On or around 18 November 2011, the Builder went into external administration.
35.On 23 December 2011, the Applicants lodged a claim with the Respondent for the rectification of the defective and unfinished works. The $500.00 excess payment was also made at this time.
36.On 10 February 2012, the Respondent advised the Applicant that it accepted liability to undertake remedial work on the following defects:
(a)Juliet balcony and front door (water ingress);
(b)kitchen/family room ceiling (water ingress);
(c)skirtings, trim, bi-fold doors and downstairs bathroom (not fitted properly);
(d)external path (negative fall towards the residence);
(e)external cladding to first floor (defective texture coat and joints);
(f)phone/data points (not connected).
37.The Respondent denied liability for the remaining items on the following bases:
(a)problems with the front elevation had been waived because the Applicants authorised the application for the COU;
(b)downpipes and spreaders were correctly fitted;
(c)water dripping from the pergola was not covered by the Respondent’s policy;
(d)any problem with the TV recess in the family room had been waived when the Applicants authorised the application for the COU;
(e)the staircase handrail was not required by the BCA;
(f)plasterboard joins in stair cupboard were not required by the BCA;
(g)sensor lights in pergola and down lights in living room were not in the approved building plans.
38.The Respondent advised the Applicants that authorising the Builder to apply for the COU constitutes an acknowledgement by them that the work was satisfactory and met the requirements of the contract.
39.On 13 February 2012, the Applicants wrote to the Respondent to advise that they were not aware that signing any document would invalidate the statutory warranties to complete work in accordance with the approved plans under section 88 of the Building Act.
40.On 23 February 2012, the Respondent alleged that the Applicants verbally agreed to variations to the building plans of the front elevations, and, further, that they had not met their contractual obligation to notify the Builder of defects within 5 days of practical completion (clause 23(c)).
41.On 28 February 2012, the Applicants contacted the Respondent to deny verbally authorising variation from the plans, pointed out the absence of a Variation Notice as required by the contract, and stated their reasons for delaying to inform the Builder:
‘Under clause 23(c), the owner was only required to give notice to the builder “of those things (if any) required by the Contract to be done to reach Practical Completion.” The unfinished works in relation to the front elevation did not prevent reaching Practical Completion as these were not the kind of omissions or defects that would make the dwelling unfit for occupation and use which is why it was deemed inappropriate to raise this issue at the time.’
42.On 2 March 2012, the Respondent claimed to have email correspondence between the Applicants and the Builder in which the Applicants agreed to the front elevation variations.
43.On 5 March 2012, the Applicants advised the Respondent that their email records did not confirm the allegation. The Applicants also advised the Respondent of the deteriorating condition of the property, and suggested that rectification work begin on the agreed items while the Respondent completed its reconsideration of the contentious items.
44.On 28 March 2012, the Applicants contacted the Respondent requesting a response. The Respondent then emailed the Applicants to advise that a meeting with the Builder had been re-scheduled for that day (having fallen through the previous week) to clarify some of the contentious issues.
45.Between May 2012 and January 2013, the Respondent engaged contractors to rectify the defective works for which liability was accepted on 10 February 2012. Discussions continued in the meanwhile about the disputed items.
46.On 3 August 2012, the parties met in the Respondent’s office. The Applicants took notes (described as ‘minutes’) at the meeting, and emailed a summary of these to the Respondent on 7 August 2012.
47.On 10 August 2012, the Respondent advised the Applicants that it disagreed with the content of the minutes, but did not specify any details or corrections.
48.On 22 March 2013, the Applicants’ legal representatives (Trinity Law) issued a Letter of Demand to the Respondent stating, among other things, that:
(a)given the Builder has gone into external administration, the Respondent, as the Builder’s insurer, has a duty to rectify the outstanding defects;
(b)the outstanding defects are:
i.The front elevation has not been built in accordance with the approved plans;
ii.the floorboards in the master bedroom damaged by water ingress have been replaced with timber that does not match the existing timber in type or colour;
iii.the television recess described in the building contract has not been built;
iv.the uneven coating on the first floor needs to be fully fixed: the Respondent fixed the cracks but applied an uneven coating;
(c)signing the completion authorisation for the COU does not release the Builder from obligations under the BA;
(d)the Applicants raised non-structural issues with the Builder within two (2) years of the date of completion (3 May 2010), as required by regulation 38(1)(b) of the Building (General) Regulation 2008 (ACT);
(e)the Applicants deny authorising any variation or deviation from the approved plans;
(f) the Applicants acknowledge that the Respondent addressed several issues, but some of this work (specified in (b)) is not of an acceptable quality.
49.On 27 March 2013, Trinity Law received a response from the Respondent’s legal representative (O’Connor Harris) advising that the Respondent ‘declined to exercise their discretion and pay for any further work’. The letter also said that the timber floorboards subject to contention were of the correct kind and the difference between the new and the existing floor boards would ‘diminish over time as the new flooring is exposed to natural light and darkens in colour’ to match the original floorboards.
50.On 18 July 2014, Mr James Hanrahan, licensed builder, prepared a report on the building at the request of the Respondent. The report addressed five issues. The report recommended that the section of Kempas flooring replaced by the Fidelity Fund in the master bedroom, be replaced as it was not installed to satisfactory trade standards. The report recommended that no further action was required by the Fidelity Fund in relation to the textured painting to external walls, the stormwater overflow aperture on the Juliet balcony, the malfunctioning toilet flush button and the difference between the building plans and what was built on the front façade of the building.
51.When discussing the difference between the building plans and what was built on the front façade of the building, the report noted that:
The built front façade does not fully reflect Elevation 1 as shown on the approved drawings. The approved drawings, however, do not provide any notation stating the façade wall finishes or wall structure… The quality of the design drawings is very poor which would lead to confusion doing construction. The Certifier, however, who represents the interest of the owner for compliance, approved the building works...
52.On 27 July 2014, New Age Design Services, which drafted the approved building plans, inspected the site at the Applicants’ request to advise on the building’s compliance with the approved plans. The report, dated 19 August 2014:
(a)states that ‘it is clear from the working drawings that the front elevation of the residence has not been constructed in accordance with the approved plans’;
(b)identifies and particularises 5 differences between the building, as constructed, and the approved plans. The discrepancies are omissions to construct a canopy over the balcony, a step out feature wall in line with the balcony on the front elevation, step out feature walls on the lower level, and omissions to render the step in feature walls either side of the balcony and to complete the front elevation in three different finishes;
(c)discusses what remedial work would be required to comply with the plans; and
(d)states that New Age Design ‘was [sic] not contacted by the builder on this construction work at any time’ to clarify any aspects of the plans.
APPLICATION
53.On 29 April 2014, the Applicants lodged an application with the ACT Civil and Administrative Tribunal (the Tribunal). The Applicants sought orders for the Respondent to:
1. Undertake the work necessary to make the front elevation comply with the approved plans of 20 July 2009; namely,
(a)construct a canopy over the balcony;
(b)construct the step-out feature wall;
(c)render the walls of the front elevation;
(d)replace the Colorbond cladding around the front windows with ‘mini-orb’; and
(e)construct a downpipe from the balcony spout.
2. Construct a recessed wall in the family room in accordance with the contract specifications; and
3. Rectify the defective works performed by the contractors appointed by the Fund:
(a)Replace the section of floorboards installed by the Fund in the Master bedroom so that the colour and finish matches the rest of the floor;
(b)Replace or rectify the malfunctioning toilet flush button; and
(c)Rectify the inadequate or inconsistent coating on the external walls.
OR
4. Pay compensation to the Applicants for the cost of the above remedial works.
54.The value of the remedial works was specified in the application as being $18,485.00, with an additional cost of $2,000.00 to replace the floorboards in the master bedroom, although the Applicant indicated on the form willingness to abandon what was in excess of $10,000.00 to come within the ACAT’s jurisdiction.
55.The Applicants provided a written quote from Sharai Projects Pty Ltd, dated 26 April 2013, as to the value of the remedial works sought.
56.A preliminary conference was held between the Applicants and Mr John Harris and Mr Jason Grieves for the Respondent before the Registrar of the Tribunal on 17 June 2014. The Tribunal made directions for filing submissions, as well as the following orders:
1. James Hanrahan, as expert retained by and at the expense of Fidelity Fund, to inspect and report on: repairs to home; external wall painting; overflow on Juliet balcony; downstairs toilet flush mechanism; and general directions to plan of building structure compliance.
2. The Applicant is to provide access at suitable time to all parties.
57.On 22 July 2014, the Respondent agreed to rectify the mismatched timber flooring.
58.On 19 August 2014, the Respondent filed a response seeking for the Tribunal to order that:
1. The Respondent remove and replace the faulty section of floor in the master bedroom of the subject premises as described in the report by James Hanrahan dated 18th of July 2014;
2. All other elements of the Applicant’s claim be dismissed.
59.The matter was heard on 1 September 2014. The Applicants appeared in person; the Respondent was represented by Mr John Harris, of O’Connor Harris. Mr Jason Grieves, Technical Services Manager of the MBA, also attended.
60.The evidence before the Tribunal consisted of a bundle of documents filed by the Applicant, which the Respondent adopted and accepted. This bundle included:
(a)the Fidelity Certificate;
(b)the Fidelity Fund Trust deed and advisory note;
(c)the building contract and the approved plans;
(d)the Building Act;
(e)the Practical Completion Notice from the Builder,
(f)the Applicant’s authorization to apply for a COU;
(g)the COU;
(h)building Reports by Property Works and Mr James Hanrahan;
(i)an engineer’s opinion concerning the front elevation;
(j)quotes, invoices and schedules for the building works;
(k)photographic evidence of the contentious work;
(l)correspondence between interested parties, and proof of service of this where issued/required;
(m)the report by New Age Design Services (19 August 2014).
61.The Respondent also tendered a bundle of documents to augment the existing bundle, including two missing pages from the Fidelity Certificate and the Trust Deed, other correspondence between interested parties dated between March and July 2014, and other relevant legislation including the Building Amendment Act 2002 (ACT), the Building (Approval Criteria) Determination 2002 (ACT) and its explanatory statement, and the Building (General) Regulation 2008 (ACT).
62.At the hearing, Mr James Hanrahan, building consultant, gave evidence for the Respondent. Although unprepared to do so, the Applicants took the opportunity to cross-examine him on several points. Mr Hanrahan’s evidence related to the contents of his report and the items of the Applicant’s claim, detailed in the Chronology of Facts above.
63.Other than the documentary evidence referred to above and Mr Hanrahan, there was no other evidence led by either party. The matter was reserved for decision at the hearing.
JURISDICTION
64.The Tribunal is a statutory body established by the ACT Civil and Administrative Tribunal Act 2008 (ACAT Act) and has only such jurisdiction and powers as are conferred on it by the legislature.
65.This is not a case in which the Tribunal has jurisdiction to conduct administrative review of the Respondent’s decision to refuse part of the Applicant’s claim. The Building Act grants the Tribunal administrative review jurisdiction in relation to certain decisions of the Constructions Registrar (decisions listed in Schedule 4; see also sections 142C and 142D), but not in relation to decisions of the trustees of fidelity funds
66.Therefore, the Tribunal can only have general jurisdiction over this matter conferred by section 16 of the ACAT Act being disputes in relation to:
16Meaning of civil dispute and civil dispute application—Act
In this Act:
civil dispute means a dispute in relation to which a civil dispute application may be made.
civil dispute application means an application that consists of 1 or more of the following applications:
(a)a contract application;
…
(i)an application for an order under the Australian Consumer Law (ACT);
67.The present application concerns a dispute between the home owner and the insurer. It does not involve the builder directly. The issue is whether such a dispute can be said to fall within the definition of a ‘contract dispute’ under section 16 of the ACAT Act which is unhelpfully defined in section 15 of the ACAT Act to mean “an application in relation to a contract, and includes an application for damages for breach of contract”.
68.There was no privity of contract between the Applicants and the Respondent. The contract that existed was between the builder and the Respondent, but it is a contract that the builder was required by law to take out for the benefit of the Applicant. In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1] the High Court held that where there is insurance for the benefit of a third party (i.e. not a party to the insurance contract itself), the third party is entitled to enforce the contract that is made for his or her benefit. This principle was subsequently given legislative force in Australia via section 48 of the Insurance Contract Act 1984.
[1] (1988) 165 CLR 107
69.The Respondent in the present proceedings does not challenge the jurisdiction of the Tribunal, in fact the Respondent invites that jurisdiction for the obvious good reason that if such disputes cannot be dealt with in the Tribunal, they would need to be dealt with in the more expensive jurisdictions of the Magistrates Court or Supreme Court.
70.The Tribunal is satisfied that insurances disputes of this kind are within its jurisdiction. The effect of the above is that the Respondent’s Deed, read in the context of the Building Act, forms the relevant contract to which attention is to be directed.
71.The Australian Consumer Law (ACL) jurisdiction of the Tribunal permits actions for misleading or deceptive conduct, unconscionable conduct and like actions contained in sections 18-22 of the ACL[2]. These potential actions would not take the present inquiry further than the action in contract. There is also doubt concerning the application of the ACL to the home warranty insurance.
[2] Australian Consumer Law, Schedule 2 to the Competition and Consumer Act 2010 (Cth).
72.Statutory consumer protection provisions are found in the ACL, which commenced in the ACT on 1 January 2011 via the Fair Trading (Australian Consumer Law) Act 1992.
73.Under section 3(a)(i) of the ACL, a person is taken to have acquired services as a consumer if the amount paid for the services did not exceed $40,000.00:
3 Meaning of consumer
...
(3) A person is taken to have acquired particular services as a consumer if, and only if:
(a) the amount paid or payable for the services, as worked out under subsections (4) to (9), did not exceed:
(i)$40,000;…
74.The service in the present case is the home warranty insurance as opposed to the building of the house. The premium paid for the home warranty insurance was less than $40,000.
75.‘Services’ includes the provision, granting or conferral of rights, benefits, privileges or facilities under a contract for, or in relation to, the performance of work, with or without the supply of goods (s 2, ACL). The home warranty insurance would answer the description of a ‘contract for or in relation to the performance of work’.
76.The issue in relation to the application of the ACL is whether the Applicants ‘acquired’ these services from the Respondent. The term is defined in section 2 of the ACL:
2 Definitions
(1) In this Schedule:
…
acquire includes:
(a) in relation to goods—acquire by way of purchase, exchange or taking on lease, on hire or on hire‑purchase; and
(b) in relation to services—accept.
…
77.It is not at all clear that the Applicants ‘accepted’ the services of the Respondent, although it may be that those services were accepted on the Applicant’s behalf by the Builder.
78.Given the uncertainty surrounding the application of the ACL the Tribunal does not propose to rely upon the ACL for the purposes of resolving this dispute.
79.The limit of the Tribunal’s monetary jurisdiction for actions under section 16 is the $10,000.00 limit set out in section 18. This limit is subject to consent from the parties for the Tribunal to exercise jurisdiction over that limit. In the present case the parties have so consented (section 21).[3]
[3] Audio Recording, 02:27:28.
80.The Tribunal has the same jurisdiction and powers as the Magistrates Court has under the Magistrates Court Act 1930 (ACT), part 4.2 (Civil jurisdiction) in relation to this civil dispute (section 23). This means that the Tribunal may grant any relief, redress or remedy that the Supreme Court may grant in a similar action in that court (section 258), and that the rules of equity are to prevail in an instance of conflict with the common law (section 259).
81.In the present case the Respondent’s rights and duties are set out in the Trust Deed and are those of a trustee to be exercised in accordance with the principles of equity that apply to trustees. This matter is discussed further below.
OVERVIEW OF THE LEGISLATION AND DOCUMENTS
Building Act 2004 (ACT) and the Building (General) Regulation 2008 (ACT)
82.The Building Act and the Building (General) Regulation 2008 (ACT), regulate building and construction in the ACT. Section 136 of the Building Act adopts and incorporates the BCA.
83.‘Building work’ is defined by section 6(1) to include work in relation to the erection, alteration or demolition of a building.
84.Section 29(1) sets out approval requirements for building plans. If erected or altered in accordance with the plans, the building will comply with the Building Act[4].
[4] Section 29(1)(b).
85.Section 42 sets out requirements for carrying out building work. The building materials and the manner in which they are used must comply with the standards of the BCA for buildings of that kind, and the building work must be carried out in a proper and skilful way, in accordance with the approved plans.
86.Section 68 states that the giving of a COU in relation to a building does not affect the liability of anyone to comply with the provisions of a Territory law (including the Building Act) in relation to the building.
87.A COU is a certificate issued under section 69.
88.If the building work has been completed in accordance with the approved plans and statutory requirements, the Construction Registrar must issue a COU upon application by the owner (section 69(1)). This power is discretionary if the work is not strictly in accordance with these requirements but is substantially so (section 69(2)), or if the work is not in accordance with these requirements (section 69(2B)). However, the statutory warranties in Part 6 concerning residential buildings may not apply to buildings certified under section 69(2B) (section 69(2C)(c)). There is no evidence or suggestion that the COU in the present case was issued under section 69(2B).
89.The completion day for residential building work is the day work is actually completed or the day the contract ends, whichever is later. The latest date which can constitute the completion day is the date on which the COU is issued (section 85).
90.Section 88 sets out statutory warranties for residential building work:
88Statutory warranties
(1)By force of this section, every contract for the sale of a residential building, and every contract to carry out residential building work to which the builder is a party, is taken to contain a warranty under this section.
(2)The builder warrants the following:
(a)that the residential building work has been or will be carried out in accordance with this Act;
(b)that the work has been or will be carried out in a proper and skilful way and—
(i)in accordance with the approved plans; or
(ii)if the work involves or involved handling asbestos or disturbing friable asbestos—in accordance with approved plans that comply with this Act in relation to the asbestos;
(c)that good and proper materials for the work have been or will be used in carrying out the work;
(d)if the work has not been completed, and the contract does not state a date by which, or a period within which, the work is to be completed—that the work will be carried out with reasonable promptness;
(e)if the owner of the land where the work is being or is to be carried out is not the builder, and the owner expressly makes known to the builder, or an employee or agent of the builder, the particular purpose for which the work is required, or the result that the owner desires to be achieved by the work, so as to show that the owner is relying on the builder’s skill and judgment—that the work and any material used in carrying out the work is or will be reasonably fit for the purpose or of such a nature and quality that they might reasonably be expected to achieve the result.
(3)Each of the owner’s successors in title succeeds to the rights of the owner in relation to the statutory warranties.
(4)The warranties end at the end of the period prescribed under the regulations after the completion day for the work.
(5)In subsection (2):
owner means—
(a)for a contract mentioned in subsection (1) for the sale of a residential building—the person to whom title in the land where the building was built is transferred under the contract; or
(b)for a contract mentioned in subsection (1) to carry out residential building work—the owner of the land where the work is to be carried out under the contract.
91.These warranties apply to work concerning structural elements of the building for 6 years after the completion day for the work, and to work concerning non-structural elements for 2 years after the completion day for the work (regulation 38(1)). A ‘structural element’ is a load-bearing component of the building (whether internal or external) that is essential to the stability of the building or part of it, or a component (including weather-proofing) forming part of the external walls or roof of the building (regulation 38(2)).
92.The Act does not limit a builder’s liability other than under the Act (section 89) and hence does not limit any liability in tort.
93.Residential building insurance, also known as home owner’s warranty insurance, is mandatory in the ACT. Insurance cover can be obtained from an insurance company, or an approved fidelity fund.
94.Part 6.3 of the Building Act governs residential building insurance. An insurance policy must comply with section 90. Under subsection (1) a policy will do so if:
90Complying residential building work insurance
(1)An insurance policy issued for residential building work complies with this section if—
(a)it is issued by an authorised insurer; and
(b)it provides for a total amount of insurance cover of at least the amount prescribed under the regulations, or the cost of the work, whichever is less, for each dwelling that forms part of the work; and
(c)if the builder is not the owner of the land where the work is to be carried out—it insures the owner and the owner’s successors in title for the period beginning on the day the certifier for the work issues a building commencement notice under section 37 for the work and ending at the end of the period prescribed under the regulations after the day a certificate of occupancy is issued for the work; and
(d)if the builder is the owner of the land where the work is to be carried out—it insures the builder’s successors in title for the period beginning on the day the title in the land is transferred to someone else and ending at the end of the period prescribed under the regulations after the day a certificate of occupancy is issued for the work; and
(e)the whole of the premium payable for the period has been paid; and
(f)it insures the owner (if the builder is not the owner) and the owner’s successors in title against the risk of being unable to enforce or recover under the contract under which the work has been, is being or is to be carried out because of the insolvency, disappearance or death of the builder; and
(g)it insures the owner (if the builder is not the owner) and the owner’s successors in title against the risk of loss resulting from a breach of a statutory warranty; and
(h)it insures the owner (if the owner is not the builder) and the owner’s successors in title against the risk of loss resulting, because of the builder’s negligence, from subsidence of the land; and
(i)it provides that a claim under it may only be made within the period prescribed under the regulations, or a stated longer period after the claimant becomes aware of the existence of grounds for the claim; and
(j)the form of the policy has been approved in writing by the construction occupations registrar.
95.Section 90(4) provides that a builder is taken to be insolvent if:
(a)for a builder who is an individual—the builder is bankrupt or personally insolvent; or
(b)for a builder who is a corporation—the builder is being wound up, has had a receiver or other controller appointed, has entered into a deed of company arrangement with its creditors or is otherwise under external administration under the Corporations Act, chapter 5.
96.The minimum amount for insurance cover is $85,000.00 (regulation 39) and the insurer is not liable for $500.00 of each claim (section 91(1); regulation 42).
97.A claim concerning residential building work must be made within 90 days (regulation 41).
98.Section 93 provides for situations where the builder (not an owner-builder) fails to complete the building work due to insolvency but has been paid (partially or in full) by the owner, and where the work is properly insured in accordance with section 90. In such situations, the owner is not entitled to recover from the insurer any amount by which the amount paid exceeds the cost of the work done (section 93(2)).
The Fidelity Fund Insurance
99.Part 6.4 of the BA concerns fidelity fund schemes. The Respondent is the only one in the ACT. There is no dispute that the Respondent meets the criteria for fidelity funds set out in the Act, as set out in the Building (Approval Criteria) Determination 2002 (ACT). Sections 4(d)(4) and 4(i) of the instrument require that the trust deed of a fidelity fund:
Fidelity fund trust deed
4. The trust deed must:
(a)provide for the issue of a fidelity certificate by the trustees, including a requirement that each fidelity certificate that the trustees issue:
...
(4)must state that each of the following matters is at the discretion of the trustees when a request is made by an owner:
(i)whether any payment is to be paid to the owner from the assets of the fidelity fund scheme;
(ii)the amount of any such payment to be paid to the owner; and
(iii)the terms and conditions on which any payment to the owner is to be paid by the trustees from the assets of the fidelity fund scheme;
...
(i)state that the types of losses in relation to which a request may be made are only those losses which would be recoverable under an insurance policy under sections 58E(1)(f), (g) and (h) of the Act;...
Certificates of Occupancy and Use
100.Section 151 of the Act provides for approved forms, including that for an Application for Certificate of Occupancy and Use. The form contains advice to owners that ‘it is recommended that owners seek appropriate advice to determine whether the building work and other contract requirements have been completed satisfactorily before signing this form. This form should not be signed before the completion of building work’ (emphasis included).
101.When completing the form, owners are required to declare (in Part C) that
‘I am / we are satisfied that the building work and related requirements have been completed and hereby apply for a Certificate of Occupancy or Use in respect of the above described work to be issued.’
102.The form repeats the advice that it should not be signed before the completion of building work in Part D, which contains the owners’ signatures.
The Building Contract
103.The contract between the Applicant and the Builder was an MBA standard ACT home building contract dated 1 June 2009, for residential building work valued at $299,750.00. The deposit was $10,000.00.
104.Clause 19 requires the building works to be insured.
105.Clause 23 concerns Practical Completion.
(a)Practical Completion is when the Works are completed except for minor omissions and minor defects which do not prevent the Works from being reasonably fit for occupation or use by the Owner. For the purposes of this Clause the Works do not include any labour or materials which are to be supplied or fixed by the Owner.
(b)When in the opinion of the Builder the Works have reached Practical Completion, the Builder will give to the Owner notice in writing.
(c)Within five (5) days of service of that notice the Owner must give to the Builder notice, in writing, of those things (if any) required by this Contract to be done to reach Practical Completion.
The Builder will as soon as possible do all those things necessary for Practical Completion and give to the Owner notice in writing on completing them.
…
(f)The Works at the risk of the Owner on Practical Completion or on the date of possession or use ... The Owner is responsible for insurance of the completed Works in either case.
106.Clause 25 concerns the Defects Liability Period.
(a)The Defects Liability Period commences on Practical Completion and continues for the period in Appendix A Item A14, or if none is stated, for thirteen weeks.
(b)Before the end of the defects liability period the Owner will give the Builder a written list of any defects or faults arising out of workmanship or materials not being in accordance with this Contract.
(c)The Builder will make good defects or faults at its cost within fifteen (15) days of notification unless otherwise agreed.
(d)The Owner will provide access for the Builder to carry out its obligations during normal builder’s working hours between Monday and Saturday.
(e)If the Builder does not comply with its obligations under this Clause, the Owner may engage others to make good such defects or faults and recover the cost from the Builder.
107.The Defects Liability Period for this contract is 13 weeks (Appendix A, item A14).
108.In accordance with section 85 the Tribunal determined that the date of Practical Completion on which the Defects Liability Period commenced was 30 April 2010. Therefore, the Defects Liability Period was from 30 April 2010 to Friday 30 July 2010 which is also the date of Final Completion of the contract.
109.Two special conditions are set out in Appendix A item A22:
1.All works to be undertaken generally in accordance with the drawings and the inclusions list attached.
2.In case of inconsistency between the drawings and the inclusions list, the provisions of the inclusion list will prevail.
110.The Inclusions List attached to the contract specifies certain features, internal and external, which are to be ‘considered in conjunction with the details specified in the drawings provided’. The List includes:
1. General
…
(c) Home Owners Warranty Insurance for structural warranty included.
…
5. External Finishes
(a) External walls to be face bricks –brick allowance $600 per thousand bricks. Some feature walls in front to be a combination of rendered finish and Colorbond corrugated metal cladding.
(b) External blue board cladding (at 1st floor level) to be painted.
…
11. Family Living Area and Meal (downstairs)
…
(e) 1 TV point within recessed wall with support studs for owner to install wall mounted TV.
…
Master Builders Fidelity Fund Scheme Trust Deed
111.The Trust Deed was made on 21 June 2002.
112.Recital B states that ‘it is intended by these presents to establish a trust to be called The Master Builders Fidelity Fund (‘the Fidelity Fund’) which shall be administered for the purposes set out in this document.’
113.Recital C states that ‘the Master Builders Association of the Australian Capital Territory desires to promote the purposes of the Master Builders Fidelity Fund and, to that end, has agreed to lend to the trustees the sum of $500,000.00 for the purpose of establishing the trust in accordance with the laws of the Australian Capital Territory’.
114.Recital D states that ‘This Deed is made with the intent that the benefits and obligations thereof shall ensure to those builders and members of the public who fall subject to the terms of the trust’.
115.Clause 2 sets out the objects of the Trust. The trustees must ensure that the scheme is maintained solely for the following purposes:
(a)the provision of a fidelity certificate to an owner in accordance with the Act and the trust deed;
(b)the making of a discretionary payment of an amount to an owner pursuant to a fidelity certificate in accordance with the Act and the trust deed;
(c)any other purpose that the Minister may in writing determine from time to time.
116.Clause 4 states that the Fidelity Fund scheme is established pursuant to the former Building Act 1972 (ACT), and is to be administered pursuant to the disallowable instruments under Part 6 of that Act.
117.The 1972 Act was repealed and replaced by the Building Act 2004 (ACT); the fidelity fund scheme is now in accordance with the latter.
118.Clause 6 states that ‘this deed and the trust hereof shall be governed by the laws of the Australian Capital Territory’.
119.Clause 7 sets out what monies constitute the Trust funds.
120.Clause 9 states that there must be paid out of the Fidelity Fund in such order as the Board of Trustees deems proper:
(a)the amount of all claims, including costs, allowed by the board or established against the Fidelity Fund;
…
121.Clauses 11 and 12 concern legal claims against the fund. Clause 11 provides that ‘A person may not commence proceedings under this deed against the Fund without leave of the board unless:’
(a)the board has disallowed that person’s claim; and
(b)The certificate holder has exhausted all relevant rights of action and other legal remedies for the recovery of money or other property in respect of which a pecuniary loss has occurred, being rights and remedies that are available against the builder in relation to him the claim arose and all other persons who are liable in respect of the loss suffered by the certificate holder, other than any rights or remedies that the claimants may have under other sections of this deed.
122.Clause 12 provides that ‘A person who has been refused leave by the trustees of the fund under the above subsection [sic] may apply to the Court for leave to commence proceedings against the fund and the Court may make such orders in the matter as they [sic] see fit’.
123.The Trust Deed does not define ‘Court’ (see Definitions, clause 1).
124.Clauses 60 to 63 set out the warranties and losses covered by the fund.
125.Clause 60 states that:
(a)Payments out of the Fidelity Fund will only be made pursuant to a validly issued fidelity certificate and in accordance with sections 62 and 64 of the Act;
(b)For the purposes of assessment of a claim made under a validly issued fidelity certificate, a claim made pursuant to [section] 62 of the Act will be made subject to the premise that section 64(1)(i) of the Act is satisfied.
126.The Tribunal notes that section 62 of the Building Act 1972 set out the statutory warranties now contained in section 88 BA. Section 64 set out the requirements for residential home insurance, which are now contained in section 90 BA, detailed above. Subsection (1)(i) requires the policy to provide that claims must be made within a certain period of time. The 2008 Regulation provides that this period is 90 days (regulation 41).
127.Clause 61 provides that:
The trustees may pay to the owner an amount, up to the maximum amount stated on the owner’s fidelity certificate, out of the assets of the Fidelity Fund scheme for a part or the whole of any loss that the owner has incurred and;
(a)requires that only the amount stated on the fidelity certificate can be requested by the owner;
(b)requires that, if more than one request is made in relation to a fidelity certificate, the total amount that can be paid to an owner must not exceed the amount that is stated on the fidelity certificate;
(c)state that the types of losses in relation to which a request may be made are only those losses which would be recoverable under an insurance policy under sections 64 (1)(f),(g) and (h) of the Act;
(d)require that a request be made within the period that is the prescribed period for the purchase of section 64 (1)(j) of the Act after the owner becomes aware of the existence of the grounds for making the request.
128.The Tribunal notes that the listed provisions of section 64 of the 1972 Act are equivalent to those in section 90 BA.
129.Clause 62 states that ‘The trustees may pay the amount to whomever the trustees think fit to satisfy the claim under this fidelity certificate’.
130.Under Clause 63, ‘The trustees are prohibited from refusing to pay an owner under the fidelity certificate on the grounds that the fidelity certificate was obtained by a misrepresentation or non disclosure by the builder’.
131.Clause 64 provides that a claim by a Fidelity Certificate Holder must be:
(a)made in writing within 90 days of becoming aware of a possible event that may cause a payment from the Fidelity Fund;
(b)in accordance with a Fidelity Fund claim form.
132.The duties of the trustees are set out in clause 70.
Each trustee should:
(a)act honestly in all matters concerning the Fidelity Fund scheme;
(b)exercise, in relation to all matters affecting the Fidelity Fund scheme, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide;
(c)ensure that the trustee’s powers and duties are exercised and performed in the best interests of the owners entitled to make a request and, if there is a conflict between the interests of the owners and the trustee’s own interests, give priority to the owner’s interests;
…
(g)ensure that all payments out of the assets of the Fidelity Fund scheme are made in accordance with the trust deed and the Act;
…
(i)carry out or comply with any other duty not inconsistent with the Act that is conferred on the trustee by the trust deed.
133.The explanatory attachment to the Fidelity Fund Certificate states that the principal purpose of obtaining a Fidelity Fund Certificate is to provide the consumer with protection against financial loss from the result of the builder’s death, insolvency, or disappearance.
134.‘Disappearance’ is distinguished from ‘un-contactable’. The owner must exhaust all relevant rights of action and other legal remedies against the builder for the recovery of money or other property in respect of the loss that occurred prior to requesting a Fidelity Fund claim form.
135.The Fund requires evidence of the builder’s death, insolvency or disappearance before a claim will be processed.
Consideration of issues
136.There are two aspects to the Applicants’ claim. First, the Applicants seek to have the defective or unfinished items of the original building work rectified or completed by the Respondent. These issues were raised with the Builder within the defects liability period, but not solved, and were raised with the Respondent after the Builder became insolvent. The Respondent admitted liability to remedy some, but not all, of these issues. Second, in relation to those items which the Respondent did address, the Applicants seek to have the defective remedial works repaired.
137.The validity of the Applicants’ claim to the Respondent is not disputed; the claim was made in December 2011 in accordance with the Trust Deed, within 90 days of the Builder becoming insolvent, and within two years of the date of completion (14 May 2010). This is consistent with the requirements in regulations 38(1)(b) and 41 of the Building Regulations.[5]
[5] Audio Recording, 01:30:00; 01:43:58.
138.The Tribunal notes that item 3(a) of the application, concerning remedial work on defective floorboards installed by the Respondent, has been settled between the parties and is no longer at issue.
139.However, the Respondent denies liability to address the outstanding items of the claim on the basis that the trustees’ discretion to accept a claim is absolute and has been exercised in accordance with the trust deed in this case.
140.In explanation of the trustees’ position, the Respondent contends that the building as it stands is compliant with statutory and contractual requirements, and that the outstanding items are not required under the contract, approved plans or statute.[6] Further, the Respondent also contends that the Applicants’ signature on the COU signified their satisfaction with the standard of work at the time of signature, and that the Respondent should thus not be liable to remedy defects known to exist at that time.
[6] Audio Recording, 02:32:44.
141.This matter raises four issues for consideration.
142.First, the nature of the Respondent’s discretion will be discussed, as this bears upon the Respondent’s liability to undertake any or all of the work which is the subject of this application.
143.Secondly, the effect of the COU is discussed, as it also bears upon the Respondent’s liability.
144.Thirdly, the Respondent’s liability to remedy the defective and unfinished original building work is considered (items 1(a) - (e) and 2).
145.Fourthly, the Respondent’s liability in relation to the remedial works (items 3(b) and (c)) is discussed.
146.Liability will be discussed in relation to each individual item of the Applicants’ claim with particular reference to whether the work is consistent with the approved plans.
Issue 1. Respondent’s Discretion
147.It is the Respondent’s role to ensure that statutory warranties for residential building work it insures are met in circumstances where the Builder is no longer capable of doing so.
148.The Respondent is not placed in exactly the same contractual position as the Builder; its role is to ensure that the statutory warranties are met in the case of insolvency etc of the builder.
149.Under section 88(2)(a) BA, the Builder warrants that work will be in accordance with the Act, section 42 of which requires the work to be consistent with the approved plans (see also section 29(1)(b) which states that the work will comply with the Act if it is accordance with the plans), and which also adopts the BCA.
150.From the date of completion, these warranties cover structural defects for six years and non-structural defects for two years. Importantly, the provisions do not distinguish between patent and latent defects. This means the scheme has sufficient flexibility to protect home owners in situations where defects do not appear immediately, or are apparent but their significance is unrealised for some time, as well as situations such as the present case where the defects are patent but the Builder is uncooperative or incapable of rectifying the defects.
151.The Respondent contends that the trustees’ discretion to accept or reject claims is absolute, so long as it is exercised in accordance with the Trust Deed.
152.Under the Trust Deed, only claims allowed by the board or made out against the Fidelity Fund can be paid out (clause 9(a)).
153.Clauses 2(b) and 61 of the Trust Deed both provide that the trustees may pay to the owner an amount out of the assets of the Fidelity Fund scheme for a part or the whole of any loss that the owner has incurred in accordance with the BA and Trust Deed.
154.Both clauses use the word ‘may’, which signifies a discretionary power.[7]
[7] Legislation Act 2001 (ACT), s 146.
155.However, section 60(1) specifies that the payment must be in accordance with sections 62 and 64 of the Building Act 1974. These sections contained the statutory warranties now found in section 88, and the requirements for insurance policies now found in section 90 BA.
156.Invoking these sections provides the Respondent with its mandate, as the insurance provider of an insurance policy complying with section 64 (1974) / 90 (2004), to ensure that the statutory warranties in section 62 (1974) / 88 (2004) are met.
157.Therefore, if a claim is validly made in accordance with the Trust Deed requirements, the claimant establishes that those warranties have not been met and the Builder is incapable of rectifying the problem due to insolvency, the Respondent is liable to undertake the necessary work to rectify the issue.
158.The Respondent operates as part of the ACT’s mandatory insurance scheme for the protection of consumers. It would be counter intuitive to give the Respondent a complete discretion to honour claims, regardless of validity. This could readily give rise to arbitrary and inequitable results.
159.The trustees certainly have the power to determine whether the claim is valid and whether the statutory warranties have been breached, and if so, the discretion to determine whether the claim is honoured in part or in full according to the circumstances of the case.[8] However, it would be illogical and inequitable if the trustees had the discretion to refuse to honour a valid claim at all.
[8] Trust Deed clauses 2, 58(4), 61. See, e.g., Building (Approval Criteria) Determination 2002 (ACT) section 4(d)(4).
160.As a beneficiary of the insurance policy, the Applicants are entitled to rely on the assumption that the Respondent, as the insurer, will honour validly made claims in accordance with the terms and objectives of the Trust Deed and of the statutory scheme governing residential building and insurance in the ACT.
161.The Applicants were aware of the insurance and were induced to rely upon its existence by the representations of the Respondent contained in its Certificate and other public materials. It would be inconsistent with the principles of equitable estoppel to permit the Respondent to now resile from those representations.[9]
[9] Walton Stores (Interstate) v Maher (1988) 164 CLR 387, see esp. 428-9.
162.In forming this view, the Tribunal has looked to the intent as well as to the form of the Trust Deed, read holistically and in light of the context of the Respondent’s role in the ACT’s mandatory insurance scheme.
163.The issue before the Tribunal therefore becomes whether the Applicants have a valid claim against the Respondent in relation to the items which are the subject of this application.
Issue 2. The Effect of the Certificate of Occupancy and Use
164.The Respondent’s case rests upon two pillars. First, the Respondent contends that the plans are ambiguous and that what has been constructed is an acceptable interpretation in general accordance with the drawings. This assertion is best addressed in the context of each individual item of the claim.
165.Second, the Respondent asserts that the Applicants’ signature on the COU signified acceptance that the work was satisfactory and essentially complete and thus the Respondent should not be liable to rectify defects which were known to exist at the time of signature.
166.The Applicants’ signature on the COU constitutes a declaration of their satisfaction that work was practically complete and that the building was fit for occupation.
167.However, signing the Certificate does not release the Builder from its contractual obligations. The contract is still on foot until Final Completion at the end of the Defects Liability Period, during which the Builder must rectify any defect of which it is notified at its own expense. Nor does signature negate the statutory warranties, which apply to structural defects for six years and to non-structural defects for two years after the date of completion.
168.The Respondent is correct in pointing out that the COU contains multiple warnings to owners not to sign if they are not satisfied with the work. Moreover, the Applicants could have notified the Builder of the defects prior to practical completion, or refused to sign the COU, or withheld final payment until those defects were remedied.
169.However, the contract states that work is deemed to have reached Practical Completion when the works are complete except for minor omissions and minor defects which do not prevent the works from being reasonably fit for occupation (clause 23(a)).
170.The contract does not define ‘minor’, but ‘defect’ includes work that is substantially incomplete (Part 2).
171.The contract also stipulates that the owners are not entitled to withhold money for works which are deemed to be practically complete. According to the certifier, the premises were practically complete on 30 April 2010 with only minor outstanding defects that could be properly corrected or rectified within the defects liability period (clause 24(f)).
172.The defects raised by the Applicants in this matter did not prevent the house being occupied, and the building was certified as being structurally sound and as having reached Practical Completion.
173.The Applicants explained this at the hearing, and elaborated on their concern to abide by their contractual obligations, that withholding payment until the defects has been remedied could impact upon the Builder’s solvency, incur financial penalties in the form of interest on the money owed, and the need to move into the house.[10]
[10] Audio Recording, 02:50:20 – 02:56:00.
174.The Applicants also sought legal advice, which was to sign the Certificate and raise the issues during the Defects Liability Period; the Applicants did so.[11]
[11] Audio Recording, 2:53:30.
175.Thus, although at first glance the Applicants may have failed to mitigate their losses by signing the Certificate, this is not the case. The Applicants signed the Certificate in good faith in the belief that they were in effect contractually obliged to do so, and on the basis of legal advice that any outstanding defects could be raised and remedied in the Defects Liability Period.
176.The Applicants’ signature therefore did not release the Builder from its contractual or statutory obligations, the latter of which the Respondent is bound to honour for the time periods prescribed by the Building Regulations.
Issue 3. Respondent’s Liability to Remedy the Original Work
Item 1(a): The Canopy over the Balcony
177.The Applicants claim that the Builder omitted to construct a canopy over the balcony and that a canopy was depicted on the plans. Instead, the entrance to the balcony has been recessed.
178.The Respondent claims that the plans do not depict a canopy. It was conceded that the plans show something there. The Respondent suggests an eave or light fitting, but contends that it is not a canopy.
179.The Respondent and Mr James Hanrahan, expert witness, criticise the approved plans as sparsely detailed, lacking a legend, and ambiguous – particularly when read in conjunction with the contract and the Inclusions List, which is to prevail over the plans in the event of inconsistency, and which includes some items that do not feature on the plans. The Tribunal agrees with this assessment, however the plans are not so ambiguous that difficulties arising could not have been easily resolved through discussion between the Applicants and the Builder, or between the Builder and the architect, or by using the Inclusions List to flesh out details lacking on the plans.
180.On the approved plans, Elevations 1, 2 and 4 do depict a feature above the door to the balcony. It does not cover the whole balcony in width or depth, merely the area above the door.
181.At the hearing, the Applicants tendered annotated plans of the building, which are an early version of what became the approved plans, which show the feature in more detail. Additionally, the report from New Age Design Services has attached a picture depicting what the front of the house should have looked like, which depicts a slanting canopy over the balcony, covering the entire balcony.
182.While this picture would no doubt have assisted the Builder to interpret the plans had it been made available to it, in terms of the canopy it does not match the plans, which show a smaller feature than that depicted in the picture. The Builder and the Respondent are not bound by an artistic interpretation of the plans, but by the plans themselves.
183.The plans do show a small canopy over the door – which has not been built. This is a non-structural defect that was raised by the Applicants with the Builder during the Defects Liability Period, and was raised in turn with the Respondent within two years of the date of completion when the statutory warranties in relation to the work were still current according to the Building Regulations, regulation 38(1)(b).
184.Under section 88(2)(a) of the BA, the Builder warrants that work will be in accordance with the Act, section 42 of which requires the work to be consistent with the approved plans (see also section 29(1)(b) which states that the work will comply with the Act if it is accordance with the plans).
185.There is no evidence before the Tribunal that the Applicants approved the variation in writing, as required by the contract. In fact, the Applicants expressly denied doing so at the hearing.
186.The Builder’s failure to construct or install a canopy therefore constitutes a breach of the Builder’s statutory warranties which, as the Builder is now insolvent, the Respondent is liable to remedy.
Item 1(b): The Step Out Feature Wall
187.The Applicants claim that the plans depict a step-out feature wall which extends from the lower level to the upper level of the house – described as the front elevation. The Applicant claims that this was only constructed at the lower level, and did not extend past the upper level. Photographic evidence of this forms part of the Tribunal documents.
188.The Respondent claims that the plans admit of several ways of completing the front of the house and that the house was completed generally in accordance with the plans, evidenced by the issue of the COU.[12]
[12] Audio Recording, 02:56:42.
189.Appendix A22(1) of the contract states (1) work is to be generally in accordance with the drawings (the approved plans) and the Inclusions List, (2) unless there is conflict between the drawings and the Inclusions List, in which case the latter prevails. Reading the clause as a whole, the use of the word ‘generally’ in A22(1) signifies the qualification in A22(2). It does mean that work may be less than substantially in accordance with the plans. This interpretation is supported by the fact that variation from the plans requires written authorization (contract clauses 14, 15; Appendix Form F).
190.The Respondent alleges that the Applicants verbally authorized variation from the plans in relation to the upper level of the feature wall, and that the Applicants’ signature on the COU evidences their satisfaction with the work at the time.
191.The Applicants deny verbally authorizing any variation and there is no written evidence of the Applicants authorizing variation.
192.Mr Hanrahan stated that as a builder he had great difficulty interpreting the plans, and felt that what had been constructed was structurally sound and generally in accordance with the plans. He stated that ‘there are some lines drawn which show some set backs and projections’ but that the ‘general interpretation’ was in accordance with the drawings.[13]
[13] Audio Recording, 03:26:20 (‘generally…’), 03:27:29 (structurally sound).
193.Mr Hanrahan observed that the plans show that the walls to the side of the front elevation are to be set back [from the front elevation] – in other words that the front elevation is a ‘step out’ feature. However, he observed that there must be structural support to hold the brickwork [of the step out feature wall] up, it cannot just sit on a timber frame, but there is nothing in the drawings to show steel metal and columns to support the brickwork in that position. Mr Hanrahan states that, rather than constructing the stepped back side walls or step out feature wall on the upper level, what the builder has done is put the brickwork all in line, so it has structural support down to the footings.[14]
[14] Audio Recording, 03:24:40.
194.In the Tribunal’s opinion it is evident from Elevations 2 and 4 of the approved plans that the front elevation was to include a step out feature wall extending from the lower level to the upper level of the house. This is depicted as two vertical lines at the front of the house, from which the portico extends and the side walls (rendered on the upper level) are stepped back. When asked, Mr Hanrahan was able to identify this feature on the plans.
195.The annotated drawing of the front of the house – which is part of the preliminary plans but not part of the approved plans – clearly illustrates that the plans required a step out feature wall of distinct colour and texture to be constructed on both levels of the house.
196.Similar to Item 1(a), the issue is not whether the item is on the plans, as it is, but whether what has been built is in accordance with the plans. As the step out feature wall has only been partially constructed, it cannot be said to be in accordance with the plans, regardless of the fact that what has been constructed is structurally sound.
197.The Tribunal acknowledges the fact that this item may be difficult to remedy. The new brickwork must be attached to the existing wall, which may not contain the internal structures necessary to support the added feature. Given the difficulty the Applicants have had in contacting the Builder in the past, it is likely to be difficult if not impossible to ascertain the composition of the wall.
198.Constructing the feature may therefore entail removing and replacing the existing wall at great expense and inconvenience to both parties. For a non-structural item of purely aesthetic value, the cost and inconvenience may outweigh the value of rectifying the defect. It is therefore more practical to grant the Applicants damages in relation to this item, as was requested in the alternative to repair work.
199.However, while the Applicants have indicated that the value of undertaking all of the work sought is $18,485.00, the value of each of the 8 individual items has not been given (not including the floorboards, item 3(a), which are not longer at issue). On the evidence before it, the Tribunal has no means to accurately determine the value of the upper level of the feature wall.
200.For instance the price of bricks was set by the contract at $600.00 per thousand bricks, however the Tribunal is not in a position to determine how many bricks would have been needed to construct the remaining half of the feature wall.
201.A rudimentary means to determine value would simply be to divide the total sum by 8, meaning each item would be valued at $2,310.63, however this is an inefficient way of determining value as it means that a sticking toilet flush button is deemed to have equal monetary value as, for instance, the balcony canopy and the feature wall.
202.Given the Applicants’ failure to particularise their losses, the Tribunal cannot grant a remedy of damages for this item.
203.The Respondent is therefore liable to remedy this defect by constructing a step out feature wall in accordance with the plans, or to agree an amount of compensation in lieu thereof.
Item 1(c): Render the Upper Walls Beside the Front Elevation
204.The façade of the front of the house is primarily of face bricks. However, the Applicant claims that the upper walls to the side of the front elevation should have been rendered in accordance with the approved plans.
205.The report by New Age Design Services states that on the plans ‘the northern and southern sides of walls around the upper level windows are shown as step in walls with textured coating finish to cladding.’ The report identifies the non-rendered finish of these walls as one of five key discrepancies between the plans and what has been constructed.
206.The report by Property Works also states that ‘it is clear from the working drawings that the detail of the North/Front elevation has not been constructed in accordance with the approved plans.’
207.The Respondent contends that the plans are ambiguous, and what has been constructed is generally in accordance with the plans.
208.A weakness in this argument is that if the plans are ambiguous, the Respondent cannot be sure that what has been built complies with them. Moreover, it is arguable that the plans are not ambiguous in regards to this item.
209.Elevations 2 and 4 on the approved plans (side views), read in conjunction with Elevation 1 (front view), show the walls to each side of the front elevation as being distinct from (in fact stepped back from) the front elevation.
210.On the plans, the upper side walls have a white background scattered with black dots. In contrast, the other walls are plain white, except for two sections around two lower level windows which have horizontal lines. There is no legend on the plans. However, dots are the standard industry symbol for rendering; the horizontal lines depict corrugated iron.
211.Mr Hanrahan stated that looking at the plans he was unsure of what the façade should be, given the lack of a legend. However, Mr Hanrahan acknowledged that dots are the standard industry symbol for a rendered finish, and that it would be a reasonable inference in the absence of a legend for the plans.[15]
[15] Audio Recording, 03:21:53.
212.While there is no legend, this is not necessarily uncommon, and the use of standard industry symbols should have been enough to inform the Builder that the walls in question should have been rendered. This is reinforced by the Inclusions List, which prescribes that ‘external walls are to be face brick… some feature walls in front to be a combination of rendered finish and Colorbond corrugated metal cladding.’
213.From the plans and the Inclusions List, it is clear to the Tribunal that the upper walls either side of the front elevation should have been rendered. This has not occurred, and therefore constitutes a breach of section 88(2)(a) BA. It does not seem an onerous task to render the face bricks of these walls to make them compliant with the plans. The Respondent is therefore liable to remedy this defect by rendering the walls in question in accordance with the plans.
Item 1(d): the Colorbond Cladding
214.The Applicants seek to have the Colorbond corrugated metal cladding around the lower level front windows replaced with Mini-Orb cladding – a profile of Colorbond corrugated metal cladding with small wave corrugations.
215.The Respondent contends that it is not liable to replace the cladding as what has been built is consistent with the plans and the contract.
216.The issue here is not whether the corrugated cladding has been installed, but simply which wavelength or profile should have been used.
217.The Builder installed standard wave Colorbond corrugated metal cladding similar to that used on the roof.
218.Elevation 1 of the plans indicates that the lower level front windows are to be surrounded by corrugated metal cladding. The Inclusions List further specifies that Colorbond corrugated metal cladding is to be used on some external feature walls. Clause 5(e) states that the Colorbond roof is to be of standard colour and profile range, however, there is no mention of which type of cladding is to be used on the walls.
219.The Applicants claim to have selected Mini-orb cladding as the profile of Colorbond cladding to be used. The evidence of this is item 16(2) of the Tribunal Documents, two emails from the Builder to the Applicants stating that:
‘I note your nominated colour for the roof and the front feature wall cladding (Mini-Orb).’ (22 September 2009)
…
‘- you have my word that we will change the front colorbond cladding panels at no extra cost to you. That bit of work is not conditional upon anything. We are not obliged to do that work, but we will do it as a gesture of good will and we will try to do it within three months from now.’ (18 March 2010)
220.The fact remains that the plans and the Inclusions List do not specify that Mini-Orb cladding should have been used, and there is no formal written variation or instruction which would render the Respondent liable to replace the standard profile cladding with Mini-Orb.
221.Accordingly, the Respondent is not liable to replace the Colorbond cladding.
Item 1(e): Downpipe from the Balcony
222.The balcony has been constructed so that storm water drains into a channel, and from that channel off the side of the balcony. There is no downpipe.
223.The Applicant claims that a downpipe should have been constructed from the balcony to the ground.
224.The Respondent contends that a downpipe from the balcony is not shown on the plans or mentioned in the Inclusions List. Mr Hanrahan concurs, and stated that compliance with the BCA is achieved if water is directed away from the building in a manner which ensures that it does not pool against or enter into the building, and that the overflow channel constructed is acceptable. In light of this, the Respondent denies responsibility to construct a downpipe.
225.Mr Hanrahan believes the water stains which concern the Applicants are typical in such situations and are likely to dissipate over time.
226.The Tribunal finds that the plans do not depict a downpipe from the balcony. There are two vertical lines close together on the right hand side of the front elevation depicted on Elevation 1, however there is nothing to indicate that this is a downpipe. In fact it would be illogical if it were, as the pipe would run from the peak of the building, rather than collecting water from the roof. The lines also commence above the balcony, rather than running down from it.
227.The Inclusions List does mention downpipes in clause 5(d), but none are specifically identified, and the reference is to materials and painting.
228.Therefore, given that there is no mention of the downpipe in the plans or contract, and what has been constructed meets industry standards and the general contractual requirements, the Respondent is not liable to construct a downpipe from the balcony.
Item 2: the Television Recess
229.The Applicant claims that the Respondent is liable to construct a recessed wall in the family room in accordance with the contract specifications, as this was not constructed by the Builder and therefore constitutes a breach of statutory warranty.
230.The Respondent contends that the recess is not depicted on the plans and so, its absence does not constitute a breach of the Builder’s statutory warranties which it is liable to remedy.
231.At the hearing, looking at the plans, Mr Hanrahan stated that ‘on the floor plan there is nothing indicating a recess, there is no elevation to show if there is a recess or if so, its size.’[16]
[16] Audio Recording, 03:32:07.
232.The only reference to a television recess is in the Inclusions List, clause 11(e), which specifies that there be ‘1 TV point within recessed wall with support studs for owner to install wall mounted TV’.
233.The contract does stipulate that in the event of conflict between the plans and the Inclusions List the latter is to prevail. However, while this provision caters for situations where an item is provided for by both sources but the details differ, the provision makes no allowance for situations such as this where the Inclusions List prescribes a feature that is not included on the plans.
234.Without the necessary technical drawings to indicate the location or dimensions of the recess, the Builder cannot realistically be expected or obliged to build one. To do so without written authorization, of which there is none, would constitute variation of the plans and breach contractual and statutory obligations. While further instruction and clarification should undoubtedly have been sought – or given – there is nothing to indicate that this happened.
235.In the absence of any technical drawings and specifications for the recess approved by the ACT Planning and Land Authority, the Respondent is not liable to construct a recess in one of the internal walls of the family room.
Issue 4. Respondent’s Liability to Rectify its Remedial Work
Item 3(b): Malfunctioning Toilet Flush Button
236.The Applicants seek for the Respondent to replace a malfunctioning flush button to the downstairs bathroom WC suite. The Respondent denies responsibility to do so.
237.The button in question is one of two flush buttons mounted on the wall above the toilet (Tribunal Documents section 15, photograph 7). The toilet flushes when the button is pressed but the button stays depressed until pressed again.
238.The issue was raised in the Applicants’ claim to the Respondent; the action taken was to report if servicing is required for the flush button (claim assessment letter, 10 February 2012; Reliance Building Services (Australia) Pty Ltd quote for services, Tribunal Documents, section 16, item 8 page 38).
239.Mr Hanrahan said he tested the button, with the results described above, and suggests spraying the button with WD40 as a temporary (perhaps permanent) fix. However, he did not conduct a detailed inspection, and cannot state with certainty that this method would fix the problem.[17]
[17] Audio Recording, 03:17:39.
240.While the solution may be simple, the fact remains that this is a new house and this problem should not have arisen. If a more technical remedy is necessary the remedial process would be require professional work as the mechanism is mounted in the wall.
241.The Inclusions List specifies that the bathrooms and ensuite are to be fitted with Caroma Profile Link toilet suites with ceramic dual flush cisterns (clauses 13(g), 16(g) and 20(g)), which are marked in the approved plans.
242.As the item is in the plans and was raised within the statutory warranty period, the Respondent is therefore liable to repair and if necessary replace the malfunctioning flush button.
Item 3(c): Textured Coating on External Walls
243.The Applicants claim that the remedial work undertaken by the Respondent on external walls is inadequate, as the textured coating is of inconsistent quality. Specifically, the Applicants state that the joins are clearly visible as a result of unevenly applied coating, as demonstrated in photograph 9 (Tribunal Documents, section 15).
244.The Respondent relies on Mr Hanrahan’s report, which states that the ‘painted finish to the external cladding board appears to be an acceptable standard of finish’ (Item 2).
245.At the hearing, the Respondent argued that the issue concerned purely decorative elements which do not bear upon whether the plans have been complied with and so, do not raise a warranty issue.[18] This is incorrect as the warranties apply to both structural and non-structural defects, and cover remedial work as well as the original work. In either case, if the standard of work or materials is not proper, or not in accordance with the plans or the BCA, the warranty in section 88 will have been breached and liability arises under the Building Act.
[18] Audio Recording, 02:57:05.
246.Mr Hanrahan’s inspection was conducted on an overcast day, from ground level rather than from a scaffold, and he conceded that the alleged defects may be more apparent in glancing or critical light.
247.Mr Hanrahan noticed a slight colour difference at the compound filled joins due to the different surfaces under the paint, but stated that this was common and generally accepted within the industry, and would not be fixed by applying further paintwork.[19]
[19] Audio Recording, 03:09:00.
248.Mr Hanrahan stated that the test he used to ascertain the standard of work was acceptable was that mandated by the Guide to Standards and Tolerances 2007[20], produced in collaboration with the Victorian Building Commission, the NSW Office of Fair Trading, the Tasmanian Government and the ACT Government.[21]
[20] Guide to Standards and Tolerances 2007, developed by Victorian Building Commission et al.
[21] Audio Recording, 03:11:30 – 03:12:12.
249.Photograph 9 depicts a textured wall and part of a window. The underlying join work around the window is evident from the discrepancy in colour. Mr Hanrahan said that the textured coating was blotchy and could be more uniform, but that he would need to know the age of the work at the time the photograph was taken before commenting further.[22]
[22] Audio Recording, 05:14:20.
250.The Applicants have not tendered any expert evidence in relation to this issue. The Property Works report dated October 2010 describes the original building work, not the remedial work undertaken at a later date by the Respondent. The New Age Design Services report concerns the lack of render on the front elevation but does not comment on the standard of the textured wall coating undertaken by the Respondent.
251.The Tribunal notes that the Property Works report details defects in the original building work which were similar to those alleged to exist in the remedial work – namely that the finish is uneven, particularly around the window frame areas.
252.This seems to bear out Mr Hanrahan’s observation that joinery visible under textured coasting is a common industry problem and is difficult to rectify.
253.The Tribunal also notes that Photograph 9 is not dated, and although it is likely to be the Respondent’s work this cannot be presumed as the photographs in section 15 of the Tribunal documents are a mixture of the original work and the existing problems.
254.In the absence of contradictory evidence the Tribunal accepts Mr Hanrahan’s assessment of the textured coating as being of acceptable standard.
255.The Respondent is therefore not liable to rectify this work.
Findings
256.The Respondent is liable to address those items which have not been built in accordance with the approved plans or industry requirements, in breach of the statutory warranties in section 88 of the BA.
257.The Applicants’ signature on the COU does not negate this liability as it did not release the Builder from its contractual or statutory obligations, the latter of which the Respondent is bound to honour for the prescribed time periods.
258.The Respondent must rectify items 1(a), 1(c) and 3(b) of the Applicants’ claim. This involves constructing a canopy over the balcony, rendering the upper walls to the north and south sides of the front elevation in accordance with the approved plans, and fixing or replacing the malfunctioning toilet flush button.
259.The Respondent is also liable to rectify item 1(b), the step out feature wall of the front elevation. The approved plans are of sufficient clarity for the Tribunal to discern that a step out feature wall is depicted on both levels of the house; this feature was only constructed on the lower level of the house. In the interests of cost and time efficiency, and in light of the purely aesthetic rather than structural nature of the feature, it is preferable to award damages for this item rather than ordering the Respondent to construct the feature. However, the Tribunal is unable to do so as the value of this item has not been particularised by either party. Therefore, while the Tribunal orders the Respondent to rectify the item by undertaking the necessary work to construct the feature wall on the upper level, both parties are encouraged to reach a settlement on this item in the interests of time and cost efficiency, and good will.
260.The Respondent is not liable to address items 1(d), 1(e) and 2 of the Applicants’ claim as these items are not on the approved plans, and what has been constructed is in accordance with the plans, the contract and the BCA.
………………………………..
Ms L. Crebbin – General President
for and on behalf of
Mr A. Anforth – Senior Member
HEARING DETAILS
FILE NUMBER:
XD 14/614
PARTIES, APPLICANT:
Suman Das & Kakoly Dutta
PARTIES, RESPONDENT:
Master Builders Fidelity Fund
SOLICITORS FOR APPLICANT
SOLICITORS FOR RESPONDENT
Mr Harris – O’Connor Harris
TRIBUNAL MEMBERS:
Mr A. Anforth – Senior Member
DATES OF HEARING:
1 September 2014
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