Holmes v Queensland Building Services Authority

[2010] QCAT 197

CITATION: Holmes v Queensland Building Services Authority [2010] QCAT 197

PARTIES:   Richard Holmes and Barbara Holmes

v

Queensland Building Services Authority

APPLICATION NUMBER:            QR255-08

MATTER TYPE:   General administrative review matters

HEARING DATE:   12 February 2010

HEARD AT:   Brisbane

DECISION OF:   Richard Oliver, Senior Member

DELIVERED ON:   10 May 2010

DELIVERED AT:   Brisbane

ORDERS MADE:   Application allowed; Direction that the

Application to claim against the Insurance Fund be allowed

CATCHWORDS: Statutory Insurance Fund; whether satisfactory explanation for delay; prejudice and consideration of purpose of the Insurance Fund and section 26A of the Queensland Building Services Authority Act.

APPEARANCES and REPRESENTATION

Applicants in person
Ms Jones of the Queensland Building Services Authority.

REASONS FOR DECISION

Background

1. Richard and Barbara Holmes purchased a residential property at 70 Orchard Terrace, St Lucia, on 14 December 2001.  The house was new and had been constructed by a registered builder, Peter Atkins, who at the time, held license no. 705015.

1. Although the Holmes commenced moving into the property upon taking possession after settlement, they did not actually take up occupation of the house until mid-January.

1. It was during the process of moving in that they gradually became aware of a number of building defects in the property, despite obtaining a pre-purchase inspection from Archyicentre Limited.  That Inspection Report identified a number of maintenance issues but not the type of defects particularised in the letter the Holmes sent to Mr Atkins of 1 May 2002.  The defects they have had to attend to are detailed in a comprehensive letter to the respondent on 20 September 2008.[1]

   [1] Statement of Reasons “SOR 9”

1. In January 2002 Mrs Holmes contacted the builder, Mr Atkins, about the defects they had discovered at that time, and to his credit he was willing to return to the property and attend to some of the defects.  That was the commencement of an ongoing relationship between them where, as defects were discovered, Mr Atkins would return to the property, generally at his convenience, to carry out rectification work.

1. In April 2002 the Holmes’ engaged an engineer to inspect the premises and provide a report in particular with respect to the state of the tiling. Mr Hemphill’s report details the causes of tile cracking and notes the extent of the drummy tiles in the living area. He concluded:

“Floor tiles in the Living Space show transverse cracks because of the 11 meter length of tiling without a joint.
Drumminess of tiles in Living Space and Entry Vestibule already affects about 5% to 6% of tiles in the Living Space and 11% in the Entry Vestibule. In a new building yet to be subjected to most of the movement and wear and tear likely in its life, this is unacceptable.
The cause of drumminess cannot be established for reasonably certainty until the tiles come up; however the clustered nature of the drumminess suggests problems with the substrate, such as an excessively smooth steel trowel finish, or remaining curing oil, not removed or prepared properly before tiling.
The only long term practical solution is removal of tiles and replacement. Replaced tiles must exactly match those tiles not requiring replacement , must be laind by competent skilled tradesman, must have at least onel joi9n in the Living Space area, must be laid with a polymer based high quality adhesive and concrete substrate must be properly prepared first.”

1. After this report, the passage of time and the discovery of more and more defective work the Holmes decide to record the defects in correspondence to Mr Atkins, which they did in the letter to him of 1 May 2002. It is evident from the contents of that correspondence that the defects are substantial.

1. Over the next few years some of these defects were attended to by Mr Atkins and others were not.  For instance, Mrs Holmes, during the course of her evidence, said that they replaced the electric door closer and intercom. As a practical measure, although Mr Atkins was slow to attending to the defective work, he would eventually turn up and carry out some work so the Holmes considered it prudent to keep him on side rather than end up in disputation with him.

1. This arrangement continued between January 2002 to the early part of 2005 when Mr Atkins became harder to contact and his attendances at the property became less frequent.  In fact, in a follow-up letter, subsequent to other letters to him, the Holmes said:-

“We refer to our letter of 1 May 2002 enclosing copy of Engineering Report dated 15  April 2002 by RS Hemphill Pty Ltd detailing tiles defects at 70 Orchard Terrace, St Lucia. We also refer to our letter dated 19 November 2004. 

We would like this work carried out together with other tiling repairs which were detailed in our letter.

To date, none of this work has been carried out by you.

We therefore give you fourteen days from the date of this letter to carry out the repairs to the building defects, otherwise we will refer the matter to the Building Services Authority.”

1. As it transpired, Mr Atkins had become bankrupt on 7 January 2005 unbeknown to the applicants.

Building Services Authority Complaint

10. As there was no response to that letter, a complaint was lodged with the Building Services Authority on (“the Authority”) on August 2005.  The defects complained of are as follows:-

(a)Kitchen tiling splashback above bench tiles cracked and drummy;

(b)Ensuite bathroom wall tiles cracked and tiles on window ledge not sealed;

(c)Lying area/dining area/kitchen tiles on floor cracked and numerous tiles drummy;

(d)Front entry floors have drummy sound. 

11. The complaint form also notes:-

“Some defects repaired but others not attended to.”

12. Upon the complaint being made to the Authority and investigations undertaken, the Authority made a decision on 3 October 2005, not to issue a direction to rectify to Mr Atkins.  That decision was made by Russell Tait of the Authority. 

13. A further decision was made by the Authority on 27 October 2005 in respect of whether insurance assistance would be available to the applicants and by that decision, and in reference to time limits under the Insurance Policies Condition (ed. 4(a)) the Authority rejected the claims for insurance.

14. The applicants did not pursue the matter further because they considered that having regard to clause 7.2 of the policy that they were out of time.

15. In late 2008 the Holmes became aware that their neighbour at 72 Orchard Terrace, Mr and Mrs Stevens, were having work carried out under the BSA Insurance Scheme as a consequence of defective work by the same builder, Mr Atkins.  As the Authority was involved in that rectification work, the Homes sought a reconsideration of the decision of 27 October 2005.  A fresh complaint form was lodged with the Authority[2] and in that document they say:-

[2] “SOR-10”

“Purchased in December in Dec 2001 – spoke on many occasions about defects – then had to put in writing to get serious.”

16. In addition to the complaint form, the Holmes wrote a letter to the Authority accompanying the complaint and in the first paragraph, they say:-

“We have previously written to you regarding the defects on our home and we now ask you to re-open our file and reconsider our claim of defective floor tiles in our home, which takes up approximately five sixths of the living space.”

17. On 21 October 2008 the authority wrote to the Holmes and said:-

“Peter Alan Atkins entered into liquidation on 31 December 2005, following cancellation of his license on 24 April 2005. The circumstances have again been reviewed by BSA’s insurance division to assess whether insurance assistance is available to you under the Queensland Building Services Authority Act 1991.

It is noted on 27 October 2005 correspondence was sent advising you of BSA’s reasons for which your claim had been disallowed. This was based upon the defects becoming apparent on or about 14 December 2001 and the BSA being notified on 8 August 2005.

Due to a time delay of approximately 4(iv) years assistance under the statutory insurance scheme could not be provided as the below clause was not fulfilled. … Unfortunately, this decision is withheld (sic) and BSA is unable to offer insurance assistance in this matter and you (sic) claim is declined in full.”

18. The reference to “withheld” was conceded by Ms Jones, who appeared on behalf of the Authority should have been upheld. 

Decision under consideration

19. It was conceded by Ms Jones that despite the submissions in writing that one of the grounds for refusing the insurance claim was because the insurance policy had lapsed due to the fluxion of time (15 May 2007), the Holmes’ application was not a new application but a reconsideration and therefore, the application proceeded on the basis that if it was determined by the Tribunal that the Authority ought to have exercised a discretion in favour of the applicants in October 2005, and in 2008, failed to come to that conclusion on the reconsideration, then the review application should be allowed. That is so even though this application is to review the October 2008 decision, but in doing so, focus really turns on the facts and circumstances that pertained to the decision-making process of October 2005. 

20. The relevant insurance policy under which the claim is made is edition 4(a) which was effective 1 July 2000[3].  Clause 7.2 sets out the applicable time limits as follows:-

[3] “SOR – 1”

“All claims under this policy will be made:-

(a)In the case of a failure to complete the contract – within three months of the insured properly terminating the contract;

(b)In the case of a category 1 defect or the subsidence or settlement of the foundations, within three months of that defect or the subsidence or settlement first becoming evident (in the opinion of the BSA);

(c)In the case of a category 2 defect – within seven months of the date of practical completion;

or within such further time as the BSA may allow.”

21. There is no contest that claim on the insurance money was not made within the required time.  The issue here for determination is whether the Authority, in all of the circumstances, ought to have exercised discretion in favour of the applicants when considering the application to access the insurance scheme. 

.

Delay

22. The Authority contends that the applicants’ delay in notifying the Authority of the defective tile work has caused it prejudice. Furthermore there is no reasonable explanation for the delay.

23. Mrs Holmes was required for cross examination. She explained that soon after moving into the house she contacted the builder Mr Atkins, in January 2002, about her complaints. She said, in effect, that Mr Atkins was quiet cooperative and returned to the house to address some of her concerns. She documented her concerns commencing on 14 December 2001, then 10 January 2002 and again on 1 May 2002. This letter sets out a litany of defects which required attention[4].

[4] Annexed to the Application filed 14 November 2008

24. Thereafter, Mr Atkins would regularly call into the house and attend to some of the defects when he was in the area.  When he became a little dilatory, Mrs Holmes would send another letter to keep him on task.  She wrote again on 12 January 2003 and 19 November 2004. This latter letter included an engineering report prepared by R S Hemphill Pty Ltd which also identified necessary rectification work.

25. Mrs Holmes gave evidence that by the early part of 2005 Mr Atkins visits to the property became less frequent and then stopped altogether. Although rectification work had been slow, Mrs Holmes said she preferred to continue to work with Mr Atkins and gradually get the work done rather than take a more aggressive approach.

26. In addition to the correspondence, Mrs Holmes also called Mr Atkins on the telephone regularly to arrange for him to attend the house. So, between the date of taking possession of the property and mid 2005, there was regular contact between the applicants and Mr Atkins and rectification work was being undertaken. In addition to this work the applicants spent significant sums themselves in attending to rectification.

27. The Authority was critical of Mrs Holmes for not documenting the telephone calls to Mr Atkins and advising the Authority of this during their investigation, and sought to impugn her credit on this issue. However, this submission does not sit comfortably at all with the history of it’s investigation through Mr Tait. He made a number of file notes of his investigation and both the notes of the 15 August 2005 and 13 September 2005 raise queries as to the question of delay and ‘what occurred between period 2002 to date of lodgement (sic)of complaint”.[5]

[5] Exhibit 4 Statement of  Reasons 5

28. When one has regard to the file note of 14 September 2005 there is no reference to the question of delay and one can only infer that Mr Tait did not raise this with the Holmes. One could reasonably expect there to be some record of any conversation about delay, firstly because it did seem to be a highly relevant issue for Mr Tait, and secondly it was clearly relevant to the complaint made by the Holmes for insurances purposes.

29. I accept Mrs Holmes’ evidence without reservation that if she had been asked about the delay she would have told Mr Tait about all of her communications with Mr Atkins. She believed, reasonably in my view, that the correspondence she produced was sufficient evidence of the ongoing dialogue. Mrs Holmes’ presented as a credible witness who was keen to get on with the builder and use the good relationship she developed with him to get the rectification work carried out. Her creditability was enhanced when she was cross examined about the pre inspection report prepared by Archicentre. She was taken to the parts of the report where crosses were inserted, she freely admitted that these represented maintenance items that required attention, but she was unsure as to the exact nature of the maintenance required.

30. It was suggested to her that these items represented defects to which clause 6.2 of the policy applied (pre-existing defects). This line of questioning was concerning because it was readily apparent when one had regard to the number beside the cross and the legend on the following page that none of the crosses could possibly be defects of the type complained of by the applicants in their first formal complaint.

31. On the whole I find that the explanation for the delay is satisfactory and in a sense, by getting on with rectification of the defects with the builder directly, it is worth observing only, that the applicants most certainly have limited any claim they might have had on the insurance fund. This is obviously to the benefit of the Authority.

32. Furthermore I accept Mrs Holmes evidence that she did not receive a copy of the policy until receipt of the Statement of Reasons. Criticism was made of the fact that she did not ask for a copy after receiving the Authority’s letter of the27 October 2005 but, as she says and I accept, the relevant clause of the insurance policy as to the time in which to make the claim, was clearly set out in the letter so there was no need to get a copy of the policy. 

Prejudice

33. The prejudice complained of in the respondents written submission is as follows:

The relevant policy expired on or about 15 may 2007;

The Authority no longer has the ability to issue a Direction to Recify and/or Complete to the builder where the builder’s licence was cancelled on 28 April 2005;
The defects would have worsened since the time they were evident, creating further damage and , therefore, increasing the cost of rectification; and

In the current market , the cost of rectification would have increased since the time the defects became apparent.

34. As the Authority’s decision under review is a reconsideration of its earlier decision the fact that the policy has now lapsed is irrelevant. This is not a ground of prejudice.

35. It is accepted that the Authority would not have been able to issue a direction after the builders licence was cancelled in 2005. Any prejudice could only have been between January 2002 and the early part of 2005, say three years however, during that period Mr Atkins was attending to rectification work and effectively doing some of the work which would have, presumably, been included in any Direction to Rectify.

36. Also, prejudice must be balanced against the purpose for which the Authority’s insurance scheme have been established. The scheme is in place to protect homeowners from defective work undertaken by licencees. This is particularly so where licencees are unable or unwilling to undertake rectification work. True it is as a generality that the Authority will, if possible seek to recover any cost incurred from the licencee, but this is not always the case. Time limits under the policy are also in place to ensure defects are reported early to give the Authority an opportunity to engage the licencee in the rectification. It is, no doubt, for this reason that clause 7.2 of the Insurance Policy confers on the Authority a discretion to allow claims out of time.

37. The application for reconsideration was in respect of the floor tiles only. The Authority did not undertake an inspection of the floor tiles after the receipt of the first complaint. It has led no evidence about further deterioration in the intervening period and given that the complaint is essentially about drumminess, it is difficult to discern any basis upon which it could be said that the defects would have worsened over time. The submission is really based on the assumption that over time one could expect the defect to worsen, however as a matter of common knowledge this is not necessarily the case with floor tiles.

38. Accepting that there may have been some increase in cost of rectification between 2002 and 2005 due to normal inflationary trends, no evidence has been led to establish that these costs are significantly higher to warrant a rejection of the applicant’s claim. I am of the view that this is not a factor that should militate against the exercise of discretion.

39. The Authority has relied on a number of decisions[6] of the former Commercial and Consumer Tribunal. In each of those cases the application was dismissed on the grounds that the Authority would suffer prejudice because it could not recover against the licencee. Quite obviously that is one ground of prejudice; as indeed I have found, but it must be considered in the overall context of the circumstances of the particular case and still have regard to the purpose of the Insurance Scheme.

[6] Murray v Queensland Building Services Authority (2005) QCCTB 33; Reiterer v Queensland Building Services Authority (2007) QCCTB 177

40. Although recovery from a licencee is desirable, the management of the fund pursuant to section 26A of the Queensland Building Services Authority Act is not dependant only upon such recovery it provides:

“The Authority must ensure that the statutory insurance scheme is managed in accordance with actuarially sustainable principles so that the amounts paint into the Insurance Fund under section 26(2) will be sufficient to satisfy the amounts to be paid from the Insurance Fund under sections 26(3).”

Conclusion

41.  In the end I am prepared to find that there has been a sufficient explanation of delay and that the Authority will not suffer such prejudice, that the discretion should not be exercised in favour of the applicants.

42. The Tribunal therefore proposes to allow the application and set aside the decision of the Authority and substitute it with a direction that the applicants claim under the Insurance Fund be allowed.