Queensland Building Services Authority v Fenwick
[2012] QCATA 20
•16 February 2012
| CITATION: | Queensland Building Services Authority v Fenwick [2012] QCATA 20 |
| PARTIES: | Queensland Building Services Authority (Applicant/Appellant) |
| v | |
| Don Charles Fenwick (Respondent) |
| APPLICATION NUMBER: | APL069-11 |
| MATTER TYPE: | Appeals |
| HEARING DATE: | On the papers |
| HEARD AT: | Brisbane |
| DECISION OF: | Richard Oliver, Senior Member Dr Bridget Cullen, Member |
| DELIVERED ON: | 16 February 2012 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | Leave to appeal is granted for the limited purpose of the $11,000.00 prepayment issue; otherwise, leave to appeal is refused. |
| CATCHWORDS: | Statutory Insurance Fund – date that the reasonable cost to complete for purposes of claim is to be assessed – interpretation of Queensland Building Services Authority Statutory Insurance Policy Conditions, 7th Ed., Clauses 1.4 and 1.6 Queensland Civil and Administrative Tribunal Act2009, s 32 Vetter v Lake Macquarie City Council [2001] 202 CLR 439 at 450-451 |
APPEARANCES and REPRESENTATION (if any):
This matter was heard and determined on the papers pursuant to s 32 of Queensland Civil and Administrative Tribunal Act2009 (QCAT Act).
REASONS FOR DECISION
On 7 February 2011 the Tribunal decided that the Queensland Building Services Authority should pay to Mr Fenwick $176,563.00 from the Queensland Home Warranty Scheme. Mr Fenwick made a claim under the Scheme as a result of the failure of his builder, Space Plus Additions Pty Ltd, to complete building work under its building contract with Mr Fenwick, entered into on 7 November 2007, for extensions and renovations to Mr Fenwick’s house at 5 Diplacus Place, Palm Beach for a total cost of $309,000.00.
The order was made after the Tribunal conducted a hearing on the papers to review the Authority’s decision of 27 June 2008, to refuse to pay Mr Fenwick any money from the Home Warranty Scheme.
In its decision, the Authority acknowledged that the cost to complete the works the subject of the Space Plus contract was $366,500.00 in accordance with a quote from JV Constructions Pty Ltd. However, as a result of underpricing in the original Space Plus contract by $202,000.00, when adjusted under clause 1.4 of the Policy, it concluded that no monies were payable. In coming to this decision, the Authority relied on a costing of the original contract work that it had obtained from Censeo Pty Ltd, in the total sum of $529,856.00.
The Authority has now appealed the Tribunal’s decision. It is conceded by Mr Fenwick that there is an error in the calculations of the learned Member for the reason that a prepayment of $11,000.00 for site preparation and plans, in addition to the money paid for works done by Space Plus after the contract was signed, was not properly taken into account. The adjusted figure to be paid from the fund is $156,413.75 if the Authority is not successful in this appeal.
By agreement between the parties, the learned Member at first instance had three issues to decide. They were:
(a) What is the date at which the reasonable cost of completion is to be assessed?
(b) If the date determined pursuant to paragraph 1 is the date of termination of the contract can the Tribunal accept that $491,362 is the reasonable cost of completion?
(c) What is the appropriate remedy?
Two clauses of the Insurance Policy Conditions, 7th Edition, are relevant to this decision:
Clause 1.4
Amount of Payment Where Works Have CommencedSubject to Parts $, 5 and 6 of this policy, where the contractor has commenced the contracted works, the amount of the payment is limited to the total of:
(a) BSA’s assessment of the reasonable cost of completing the contract less the owner’s remaining liability under the contract (exclusive of any amount by way of liquidated damages or damages fro delay) at the date of termination of the contract; and
(b) …………………………….
Clause1.6
1.6 Limit on Right to Payment(a) Where in the opinion of BSA, the value of the contracted works to be undertaken clearly exceeds the price to be paid, BSA will reduce the amount payable under this Policy by the amount of that excess.
(b) …………..
Issues for determination in the appeal
The grounds of appeal raise a number of issues relevant to the matters the learned Member had to decide by agreement. Firstly, the Authority contends that the learned Member did not make an express finding as to the date at which the reasonable cost of completion should be assessed. The Authority contends that the learned Member erred in failing to find that the date for the assessment of the reasonable cost of completion was the date of trial.
Further, the Authority complains that the learned Member erred in finding that the reasonable cost of completion for the purposes of clause 1.4(a) was $491,362.00 in circumstances where it is contended that: there was no express finding as to the date of the assessment of the reasonable cost to complete; there was no evidence that the reasonable cost to complete was $491,362.00 as agreed to by the experts; and the learned Member relied on his own knowledge of the industry in making his decision. This, says the Authority, amounts to an error at law.
Finally, the Authority contends that it was denied procedural fairness in that the learned Member adopted a method of calculating the amount to be paid that was not relied upon by either party. This last point has been conceded by Mr Fenwick’s acknowledgement with respect to the $11,000.00 prepayment with the result that his claim has been reduced to $156,413.75.
Background Facts
On 7 November 2007, Mr Fenwick entered into a residential building contract with Space Plus Additions Pty Ltd for renovations and extensions at his residence. In addition to construction work, the building work also called for some demolition. The contract price for the building work was $309,000.00.
The work commenced about 13 November 2007. As at the end of November 2007, Mr Fenwick had paid Space Plus $46,350.00 for building work carried out by it.
In late November of 2007, Space Plus was placed into liquidation.
Immediately after Space Plus was placed into liquidation, Mr Fenwick lodged a complaint with the Queensland Building Services Authority and made a claim on the statutory insurance fund administered by the Authority.
The Authority acted very quickly in responding to the claim. It was immediately satisfied that Mr Fenwick had lawfully terminated the contract and that the statutory insurance fund would respond to his claim. To assess the claim, the Authority carried out an initial inspection on 15 January 2008 and prepared a report the following day.[1] The recommendation in the report was for the claim to proceed to insurance for assessment, and the report noted an estimated cost to complete of $280,000.00.
[1] Statement of reasons – exhibit 9.
On 31 January 2008, Mr Santer, the Authority’s area building inspector, sent the file to Jenny Burslem of the Authority’s insurance division for assessment. The total amount paid by Mr Fenwick to that stage, including the pre-contractual works of $11,000.00 was $57,350.00.
On 8 February 2008, Ms Burslem wrote to a number of builders, including JV Constructions Pty Ltd, Newnham Constructions Pty Ltd and Mehrtens Holdings Pty Ltd, calling for tenders to complete the project. The tenders had to be submitted by 6 March 2008. Ultimately, the lowest tender received was from JV Constructions Pty Ltd, for $366,500.00. The tenders from Newnham Construction Pty Ltd and Mehrtens Holdings Pty Ltd were $427,879.00 and $491,362.00, respectively.
Therefore, within just over two months following Mr Fenwick’s termination of the contract on 17 December 2007, the Authority had ascertained that the reasonable cost of completing the contract was between $366,500.00 and $491,362.00.
Rather than accept the lowest quote received from JV Constructions, and payout on Mr Fenwick’s claim using the adjustment formula contained in clause 1.4 of the policy, the Authority took the view that the original contract price may have been “under priced” and then had the original contract works costed by Censeo Pty Ltd. Mr David Oke, a licensed builder, provided a costing for the contract work in the sum of $529,856. That sum, less the contract price, resulted in underpricing in the sum of $220,856.00, as referred to in clause 1.6(a) of the policy.
The effect of the underpricing, when applying the various formulae of the policy, resulted in a nil liability for the Authority under the Scheme. Accordingly, on 27 June 2008, the Authority wrote to Mr Fenwick rejecting his claim. We pause here, to observe that in its letter to Mr Fenwick, the Authority adopted the Censeo cost of $529,856, whereas the Authority’s own Resolution and Regulatory Services Manager authored a memo delivered to a Mr Nash in the Authority’s Insurance Division, saying that the
“Censeo valuation is the top end of a market value contract price”
but he would accept a figure of $460,000 as being more realistic.It would appear then that the Authority itself was wary of the Censeo figures.
In any event, it was from this decision by the Authority that Mr Fenwick sought a review in the Tribunal.
Following an on the papers hearing by the learned Member, on 7 February 2011, the Tribunal directed the Authority to pay to Mr Fenwick the sum of $176,563.75 under the Statutory Insurance Scheme. It seems that by the time the matter reached hearing, the Authority had conceded that the underpricing had not been properly calculated and its decision of 27 June 2008 was therefore not relied upon insofar as the calculations were concerned.[2]
Was there a finding as to the date for the cost of completion should be assessed?
[2] Reasons paragraph 24.
Clause 1.4 of the Policy itself does not provide any date for determining when the reasonable cost of completion should be assessed. It is clearly not at termination of the contract, as the termination date is only relevant for the purposes of determining the amount of the owner’s remaining liability under the contract. In so far as the learned Member came to that conclusion, we agree.
The amount payable under the Scheme is based firstly on the Authority’s assessment of the reasonable cost to complete; and secondly by deducting the owner’s remaining liability under the contract. It is therefore the Authority’s responsibility, as administrator of the Scheme and during the process of considering the claim, to make the assessment of the cost to complete.
In this instance the Authority did so very soon after termination of the contract by calling for tenders to complete the contract. This occurred within, as found by the learned Member, a competitive market, thereby ensuring that the Authority obtained quotes reflecting a realistic and competitive cost to complete. Leaving aside the underpricing issue, it would have been reasonable for the Authority to then act on the lowest quote to calculate the amount to be paid out on the claim. In fact, it is reasonable to assume this is what happens to most claims administered and assessed under the Scheme.
Once a calculation has been made under clause 1.4, and following deduction of the owner’s remaining liability at the date of termination, the Authority would make its decision and notify the owner of the amount of the payout. If the owner is dissatisfied with the amount, then the owner could exercise the right to review the decision in this Tribunal. In such circumstances, and illustrating the primary difficulty we have with the Authority’s submissions, if the application proceeded to hearing, it is patently unrealistic to expect that the Authority would again undertake the whole process, for the reason that time had elapsed between its initial assessment and the hearing date.
We accept the learned Member’s reasonable assumption that, in the normal course of events, the date of assessment will usually be as soon as possible after the claim is made, or as submitted by the Authority on a date when it may reasonably be in a position to do the assessment.[3] We also agree that Clause 1.4 does not support a conclusion that the date of assessment is the date of termination.
[3] Reasons paragraph 21 and Applicant’s submissions paragraph 33.
Clause 1.4 gives the Authority the latitude and flexibility to make the assessment in a timely fashion, exercising as much expediency as possible, as it did here without restricting it to a specific date for assessment.
The learned Member came to a similar conclusion in finding that the “date of assessment will usually be as soon as is possible after the claim is made.” Clause 1.4 permits of such a construction and is consistent the usual efficacy of processing insurance claims.
The Authority’s contention that the date of assessment should be the date of the hearing is not supported by the wording of Clause 1.4, nor is it consistent with the efficient processing of a claim where an owner is placed in a position of reliance on the Scheme to fund either rectifying defective building work or completing incomplete building work as a result of a builder’s default.
Although the learned Member did not make a finding as to a specific date as requested by the parties, (either the date of termination or the date of hearing), he did make a determination as to the meaning of Clause 1.4 and the conclusions reached by him are not only consistent with the plain meaning of Clause 1.4, they are also consistent with common sense and the claims process itself as it operates under the Scheme.
Is the date of trial the appropriate date for the assessment of the reasonable cost of completion?
To a large extent, the answer to this question has already been discussed by us, above.
The question as posed presupposes that in every case where a claim is made under the insurance Scheme, there will be a review of the decision, and ultimately there will be a hearing of the review application or a “trial”. For the reasons set out above, we consider such a construction untenable and illogical when one has regard to the purpose of the Scheme and the plain meaning of Clause 1.4 of the Policy.
Was the reasonable cost of completion for the purposes of clause 1.4(a) $491,362.00?
The Authority argues that as (a) there was no express finding as to the date of the assessment of the reasonable cost to complete; (b) there was no evidence that the reasonable cost to complete was $491,362.00 as agreed to by the experts; and (c) the learned Member relied on his own knowledge of the industry, that we must find that the basis for adopting figure is flawed.
As stated above, to assess the cost to complete, the Authority called for tenders from three builders. It also obtained a cost of the original works from Censeo. In the course of Mr Fenwick’s application proceeding to a final hearing, the Tribunal directed that the various experts participate in an experts’ conclave. The conclave was held on 25 January 2010, resulting in a joint experts’ report filed in early February 2010. One of the questions the experts agreed upon was the cost to complete the Space Plus contract. The experts agreed that the reasonable cost to complete the project in March 2008 was $491,362.00.
This was the evidence before the learned Member.[4] Not only was this evidence before him, he was specifically requested by the Authority to ignore the calculations contained in their decision letter of 27 June 2008, which relied on the JV Construction cost to complete of $366,500.00.
[4] Reasons paragraph 23.
It is difficult to understand the Authority’s submission that there was no evidence that the reasonable cost to complete was $491,362.00 in the face of the various quotes as to the cost to complete by three builders, and furthermore the consensus emanating from the experts’ conclave that the reasonable cost was $491,362.00. Not only was the learned Member entitled to rely on this evidence, he was also bound to do so as this was the only evidence going to this issue. The Authority’s submission on this point lacks substance.
It is further contended that the learned Member failed to afford the Authority natural justice and “somehow disadvantaged the Authority” in commenting that the Tribunal was “using its own knowledge of the industry.[5] The remark was prefaced with a clear acceptance of the joint experts’ opinion as to the cost to complete as being the “most reliable evidence available to the Tribunal” and the knowledge relied upon, reasonably, was that after some two-and-one-half years, the cost is likely to increase. It is difficult to see how the Authority has been disadvantaged by this comment.
[5] Reasons paragraph 35.
Should the $11,000.00 pre-payment form part of the contract price for the purposes of Clause 1.4?
The contract price for the building works was $309,000.00. Prior to signing the contract, Mr Fenwick signed a preliminary agreement accepting the quote for the project for $320,000.00 and agreeing to pay $11,000.00 for the “tasks” identified in the preliminary agreement. These tasks included such things as preparation of plans and specifications, obtain foundation data and making application to the Local Authority for building approvals, etc. The $11,000.00 was included as part of the contract price of $320,000.00.
Once the “tasks” under the Preliminary Agreement had been carried out and Mr Fenwick was content to proceed with the project, he then signed the building contract for $309,000.00. The work done under the preliminary contract was essential for the performance of Space Plus’s obligations under the building contract.
There can be no doubt that the total contract price for the works, having regard to both agreements was $320,000.00. At the date of termination Mr Fenwick’s remaining liability under the contract entered into with Space Plus if the project proceeded was $262,530.00, which takes into account the payment of $11,000.00.
Clause 1.4 does not restrict the amount to that shown on the written contract; here $309,000.00. Rather, it refers to the remaining liability under the contract “entered into between the owner and the builder”.[6] Here, that contract was for $320,000.00.
[6] Emphasis added.
In addition, we accept Mr Fenwick’s contention that when the experts were asked to consider the price that a competent builder would have charged in October-November 2007 for the works referred to in paragraph 3 of the Statement of Sean Connolly, that paragraph included, as it should, the preliminary agreement. It is implicit the experts included the $11,000.00 in coming to their final costings, reflecting a range of $397,650 to $455,000.00.
The correct assessment
Mr Woods, counsel for Mr Fenwick, conceded at the beginning of the hearing of this appeal that the underpricing figure should be $77,650.00 instead of $57,500.00 as adopted by the learned Member. The reason for this is that the learned Member calculated the underpricing by adopting the JV Constructions’ cost to complete of $366,500.00, as opposed to the lowest of the cost to complete as found by the experts. The adjusted figure is calculated as follows:
Original Contract $320,000
Lowest Quote $397,650
Less contract $320,000
Adjusted underpricing $ 77,650
In applying the formulae contained in Clause 1.4, we adopt the figures of Mr Woods’ in his submissions as follows:
Cost of completing the contract $491,362.00
Less Retention $262,650.00
Total $228,712.00
Less underpricing $ 77,650.00
Claim amount $151,062.00
Is the Authority’s appeal on a question of law or mixed fact and law?
Under s 142 of the QCAT Act, a party seeking to appeal on a question of fact, or a question of mixed fact or law, can only do so if it obtains this Appeal Tribunal’s leave.
The Authority contends that the matters brought forward by way of its appeal are purely matters of law, such that leave to appeal is not required pursuant to s142 of the QCAT Act. Mr Fenwick contends that leave to appeal is required, as the nature of the Authority’s appeal is one of either questions of fact, or of mixed questions of fact and law.
In so far as leave is required to adjust the error made by the learned Member in failing to properly account for the $11,000.00 prepayment by Mr Fenwick for site preparation and plans, we have no difficulty granting leave. It would, in our view, result in considerable injustice to the Authority to allow an error admitted by Mr Fenwick, resulting in financial loss to the Authority, to remain unrectified.
It is apparent to us that the Authority’s application involves mixed questions of law and fact, and as such, it requires leave. Mr Fenwick relies upon[7] Vetter v Lake Macquarie City Council[8], wherein Chief Justice Gleeson, together with Justices Gummow and Callinan, observed that:
"[I]t may happen that the tribunal at first instance is confronted with the task of applying the statutory expression to primary facts in such circumstances that it is reasonably possible to arrive at different conclusions, the question being largely one of degree upon which different minds may take different views. Here, again, it is not possible to conclude that the decision appealed from is erroneous in point of law.
The principle has been enunciated that, if different conclusions are reasonably possible, the determination of which is the correct conclusion is a question of fact."
[7]Respondent’s submissions “Directed to Opposing Leave to Appeal and Appeal Generally”, page 7.
[8][2001] 202 CLR 439 at 450-451, citing Williams v Bill Williams Pty Ltd [1971] 1 NSWLR 547.
Following on from this observation, the Vetter judgement points to an earlier decision by Justice Mason:
In Hope v Bathurst City Council, Mason J pointed out that when it is necessary to engage in a process of construction of the meaning of a word (or phrase) in a statute a question of law will be involved, but that the question may be a mixed one of fact and law.
We accept the reasoning put forward by Mr Fenwick that it was necessary for the learned Member to make a choice between application of three “cost to complete” scenarios:
· The figure as assessed at March 2008;
· Assessment of the matter on the basis that no cost to complete figure was available at the time of hearing; or
· Remitting the matter to the Authority to determine a cost to complete figure when it was in a position to do so.
It is our view that the consideration of which cost to complete scenario should apply (a question of fact) to the interpretation of Clauses 1.4 and 1.6 of the policy (a question of law), involves matters of both fact and law, and therefore leave to appeal is required.
The question whether or not leave to appeal should be granted is usually addressed according to established principles:
· Is there a reasonably arguable case of error in the primary decision?
· Is there a reasonable prospect that the applicant will obtain substantive relief?
· Is leave necessary to correct a substantial injustice to the applicant caused by some error?
· Is there a question of general importance upon which further argument, and a decision of the Appellate Court or Tribunal, would be to the public advantage?
We have already explained that we do not consider that there has been an error by the learned Member, and there are therefore no prospects that the Authority will obtain substantive relief, nor can it be said to have suffered a substantial injustice.
The Authority contends that there are questions of construction relating to insurance policy conditions relating to the statutory scheme for domestic building work, and that resolution of these questions would be to the public’s advantage.[9] We do not agree, for the reason that we agree with the learned Member that his interpretation of the policy is the obvious one, which not only gives it the natural meaning afforded by the language chosen, it also creates business efficacy in the processing of insurance claims. The interpretation desired by the Authority is unnatural, and would have the result of potentially exposing the Authority as well as claimants to multiple review proceedings, arising out of the same factual matrix, if the “cost to complete” was unsatisfactory to them.
[9] The Authority’s Submissions on the Appeal/Application for Leave to Appeal, pages 2-3.
Summary
We are of the opinion the learned Member did properly answer the questions asked of him, and as no error of law has been identified, leave to appeal should be refused, save for the limited purpose of correcting the error identified with respect to the $11,000.00 pre-payment .
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