REDFEARN and MENER GROUP PTY LTD
[2019] WASAT 52
•10 JULY 2019
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: BUILDING SERVICES (COMPLAINT RESOLUTION AND ADMINISTRATION) ACT 2011 (WA)
CITATION: REDFEARN and MENER GROUP PTY LTD [2019] WASAT 52
MEMBER: MS D QUINLAN, MEMBER
MS S CHURN, SESSIONAL MEMBER
HEARD: 2 JULY 2019
DELIVERED : 10 JULY 2019
FILE NO/S: CC 611 of 2019
BETWEEN: ALLEN HAYES REDFEARN
CLASINA INEKE REDFEARN
Applicants
AND
MENER GROUP PTY LTD
Respondent
Catchwords:
Home Building Contracts Act - 6.5% deposit - Variations invoiced and paid before home building work commenced - Breach of s 10(1)(a) - Notice of termination - Adjustment of rights
Legislation:
Building Services (Complaint Resolution and Administration) Act 2011 (WA), s5(2), s 11(1)(d), s 41(2)(c)
Home Building Contracts Act 1991 (WA), s 3, s 9, s 10, s 10(1), s 10(1)(a), s10(1)(b), s 10(1)(a)(ii), s 10(4), s 19, s 20, s 20(a), s 25C(2), Pt 3A
State Administrative Tribunal Act 2004 (WA), s 9, s 32
State Planning Policy 3.1: Residential Design Codes of Western Australia
Result:
Respondent to repay to the applicants the amount of $28,413
Category: B
Representation:
Counsel:
| Applicants | : | In Person |
| Respondent | : | Mr T Buckley (Sole Director) |
Solicitors:
| Applicants | : | N/A |
| Respondent | : | N/A |
Case(s) referred to in decision(s):
Home and Donabray Pty Ltd [2003] WABDT 50
Javier & Anor and Schulze [2013] WASAT 42
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
These proceedings arise in the Tribunal pursuant to a referral by the Building Commissioner on 18 April 2019 under s 11(1)(d) of the Building Services (Complaint Resolution and Administration) Act 2011 (WA) (the Act). The Commissioner had formed the view that the matter is of a complex nature in which the evidence is contested and more appropriately dealt with by the Tribunal.
On 9 October 2017, Allen and Clasina Redfearn (the applicants) and Mener Group Pty Ltd (Mener Group or the respondent) entered into a lump sum building contract (the contract) to build a two storey dwelling at 3 Georgina Street, Bayswater, Western Australia (the dwelling). The fixed price contract was for $433,860 (inclusive of GST).
By early May 2018, the applicants had become dissatisfied with the respondent's lack of progress in relation to the dwelling and sought to terminate their contract with the respondent by letter dated 3 May 2018 (the 'withdrawal' letter).
The proceedings in the Tribunal
On 2 July 2019 the Tribunal heard evidence and submissions from the parties and then reserved its decision. Both parties were unrepresented in the proceedings.
For the reasons which follow, the Tribunal has ultimately determined these proceedings under the provisions of the Home Building Contracts Act 1991 (WA) (HBC Act) which is upon a different basis than both parties presented their respective cases at hearing. The Tribunal does note, however, that it did raise its concerns with the respondent during the course of the hearing regarding the basis upon which variations to the contract were invoiced.
On 3 July 2019, the day after reserving its decision, the Tribunal issued the following direction to the parties:
1.The following issue which was not identified or discussed directly by the parties at the hearing appears to arise for determination in these proceedings:
(a)whether, on the facts and circumstances of this case and the proper interpretation of ss 10, 19 and 20 of the Home Building Contracts Act 1991 (WA), the Tribunal can find that the contract was terminated under s 10(4) on 3 May 2018.
2.On or before 8 July 2019, the parties may file with the Tribunal and provide to the other party any submissions that they may wish to make in relation to the issue identified in order 1(a) above.
On 8 July 2019, both parties availed themselves of the opportunity to file further submissions.
HBC Act
Relevantly to these proceedings, s 10 of the HBC Act imposes strict requirements on a builder and provides for penalties upon prosecution of a builder in relation to deposits and progress payments, as follows:
(1)A builder must not enter into a contract which provides that the builder is entitled to demand or receive from the owner any payment
(a)before the commencement of the home building work to which the contract relates unless the payment is
(i)a deposit of not more than 6.5% of the total amount payable to the builder under the contract for the home building work; or
(ii)of a prescribed kind;
(b)after the commencement of the home building work unless the payment is
(i)a genuine progress payment for work already performed or materials or services already supplied; or
(ii)is of a prescribed kind.
Penalty: $10 000.
…
(3)Where
(a)a contract sets out a schedule of payments due at specified stages of the home building work; and
(b)a payment is demanded or required in accordance with that schedule,
the payment is to be taken to be a genuine progress payment for the purposes of subsection (1)(b)(i) until the contrary is shown.
(4)If a builder enters into a contract in breach of subsection (1), the contract may be terminated by the owner in accordance with section 19.
(5)A builder under a contract must not demand or receive from the owner any payment after the commencement of the home building work unless the payment is a genuine progress payment for the purposes of subsection (1)(b)(i) or of a prescribed kind under subsection (1)(b)(ii).
Penalty: $10 000.
Section 3 of the HBC Act provides a definition of 'prescribed' to mean as prescribed by the regulations and a definition of 'home building work' as follows:
home building work means the whole or part of the work of
(a)constructing or re constructing a dwelling including an existing dwelling and/or strata titled dwelling; or
(b)placing a dwelling on land; or
(c)altering, improving or repairing a dwelling, including a strata titled dwelling; or
(d)constructing or carrying out any associated work in connection with
(i)any work referred to in paragraph (a) or (b); or
(ii)an existing dwelling, including a strata titled dwelling[.]
As to how a contract is terminated in the specific circumstances identified for contravening the HBC Act, s 19 provides:
(1)Where under section 4(5), 10(4) or 14(3) or Schedule 1 a party to a contract may terminate the contract the party may give notice of termination to the other party and the contract is terminated at the time when the notice is given.
(2)A notice given by a party under subsection (1) must be in writing signed by the party and must be given to the other party before the completion of the home building work under the contract.
Finally, relevant to these proceedings, where a contract breaches s 10 of the HBC Act and a notice of termination is provided in accordance with s 19 of the HBC Act, s 20 of the HBC Act provides for an adjustment of rights as follows:
If a contract is terminated under section 4(5), 10(4) or 14(3) or Schedule 1, the owner or builder may make a complaint under the Building Services (Complaint Resolution and Administration) Act 2011 section 5(2) claiming that the owner or builder is entitled to
(a)the return or repayment of the whole or part of any consideration, or the value of any consideration, given by the owner under or in relation to the contract; or
(b)payment to the builder in respect of
(i)any materials supplied by the builder; or
(ii)any home building work or other services performed by the builder; or
(iii)costs, including overhead expenses and loss of profit, incurred by the builder,
under or in relation to the contract.
These provisions of the HBC Act were briefly considered by the Tribunal in Javier & Anor and Schulze [2013] WASAT 42 (Javier and Schulze) with obiter comments at [49]-[52] as follows:
49I turn, finally, to the apparent breach of s 10(1) of the HBC Act, to which I alluded earlier.
50Section 10(1) allows a maximum deposit of 6.5% under a contract to which the HBC Act applies. Although it is unnecessary for me to decide, it appears an inescapable conclusion that the deposit payable under the contract between the Javiers and Mr Schulze exceeded the maximum permitted.
51By s 10(4) HBC Act, a breach of s 10(1) entitles termination of the contract by the owner under s 19 of the HBC Act. Section 19(1) provides, in effect, that such termination occurs when the owner gives a notice of termination to the other party. If this is done, the owner is entitled by s 20 of the HBC Act to make a complaint under s 5(2) of the BS(CRA) Act claiming the return or repayment of the whole or part of any consideration given by the owner under or in relation to the contract.
52Although I thought of alerting the parties to the prospect of liability under the HBC Act provisions to which I have just referred in the context of an offer to the Javiers to amend the current application, I ultimately decided against this course because of the substantial differences between the two claims. Although both are by way of complaint under s 5(2) of the BS(CRA) Act, the current application is dependant upon a particular termination scenario, and seeks, essentially, damages on a contractual basis. Any claim under s 20 of the HBC Act would be for a breach of s 10(1) of the HBC Act, seeking the quite different relief provided by that section. Whether such a claim remains open may be a question for debate. Any such claim would require a fresh complaint to the Building Commissioner.
The Tribunal in these proceedings concurs with the obiter comments made in Javier and Schulze in all but one respect. The Tribunal finds that the comment in Javier and Schulze that a determination by the Tribunal of the proceedings under s 10(4) of the HBC Act in Javier and Schulze would require a new complaint to the Building Commissioner can be distinguished from the facts and circumstances of the current proceedings before the Tribunal.
Sections 10, 19 and 20 of the HBC Act were also considered by the former Building Disputes Tribunal in Home and Donabray Pty Ltd [2003] WABDT 50 (5 September 2003) with the findings at pages 21 and 23-25 of particular relevance to these proceedings as follows:
Contraventions of Part 2 of the HBCA
The Complaint is based upon an alleged contravention of Part 2 HBCA, particularly s4 and s10 HBCA. The claims are alternative to the claim made pursuant to s12A BRA. Such a claim is not affected by s12A and an order maybe made independently of s12A for a contravention of Part 2 HBCA. A complainant may seek relief and the relief that may be granted is not limited to that provided by s19 and s20 HBCA. For the reasons referred to the amount of the compensation to paid is the same as in respect of the amount to be paid pursuant to s12A above and as such it is an alternative basis of the order to pay in those amounts. [page 21]
…
-Section 10(1) HBCA: overstatement of progress payments
The complainants also assert that the respondent/builder contravened the provision of s10(1)(b) HBCA in that it entered into the contract with the complainants which provides for the complainants to make payments during the course of construction of the swimming pool and spa which exceed the value of the work performed and/or material supplied. [page 23]
…
The consequences of the respondent/builder's contravention of s10(1)(b) HBCA is that the complainants may terminate the contract pursuant to s10(4) HBCA pursuant to s19 HBCA similarly to the consequences prescribed by the HBCA for a contravention of s4 HBCA and referred to above with the right to make application to the Tribunal to make an order pursuant to s20 as referred to above alternatively s17(4) HBCA or the BRA. The Tribunal holds that the letter dated 20 January 2003 is an effective termination pursuant to s19 HBCA and further it is just that the respondent/builder pay to the complainants the sum of $42,449.83 pursuant to s20 HBCA or alternatively pursuant to s17(4) HBCA and the sum of $4,180 pursuant to s17(4) HBCA, being the monies paid by the complainants for which they have received no value. [pages 24-25]
The contract
The contract entered into by the parties on 9 October 2017 to build the dwelling was for a fixed price of $433,860 (inclusive of GST).
Item 7 of the Schedule of Particulars referenced clause 7 of the contract and provided for deposit and progress payments as follows:
A
B
INITIAL DEPOSIT (ALREADY PAID)
$4,000.00
DEPOSIT (6.5%)
(NOT TO EXCEED 6.5% OF CONTRACT PRICE (CLAUSE 7(A))$24,201.00
SLAB 1 (10%)
$43,386.00
BRICK 1 (10%)
$43,386.00
SLAB 2 (10%)
$43,386.00
BRICK 2 (10%)
$43,386.00
ROOF (20%)
$86,772.00
LOCK UP (20%)
$86,772.00
PRACTICAL COMPLETION (13.5%)
(CLAUSE 19)$58,571.00
TOTAL (including Deposit)
$433,860.00
(See page 174 of the hearing book)
Item 5 of the special conditions to the contract states as follows:
PROGRESS PAYMENTS FOR CASH CLIENTS: MUST BE PAID WITHIN 48HRS FROM INVOICE
(See page 197 of the hearing book)
It was common ground at the hearing that the payment of the variations occurred around 22 November 2017 following an invoice being issued by Mener Group and as listed in the 'withdrawal' letter of 3 May 2018.
The 'withdrawal' letter
On 1 May 2018 the applicants emailed client services at Mener Group as follows:
Steph,
Thanks for your personal help.
But please be advised that we have decided to withdraw from the agreement with Mener to build this house.
We expect that the money paid for variations will be refunded as a minimum.
So please cease all activity relating to the work.
Regards,
(See page 61 of the hearing book)
On 3 May 2018 the applicants sent the 'withdrawal' letter to Mener Group (by registered post and email at 7.53 am) as follows:
Attention Mr Todd Buckley
Dear Sir,
RE WITHDRAWL FROM AGREEMENT TO BUILD DWELLINGS ON LOT 30 (No. 3) GEORGINA STREET BAYSWATER
This is to confirm our notification given on Tuesday morning 1st May 2018 that we are withdrawing from the agreement for MENER to build the above works, which was made on the 5th October 2017.
It is almost 7 months since the agreement was made with no clear indication from you on timing for the resolution of issues raised by the City of Bayswater with respect to DA 18-0004, and despite our best efforts to assist and your persistent refusal to meet and cooperate.
Therefore, as the Principals, we have no alternative but to withdraw.
These sums of money have been paid by us to MENER:
•$4000.00 22nd of September 2017 Initial Deposit.
•$24,201.00 9th October 2017 Balance of Deposit.
•$28,317.00 22nd November 2017 Payment for Variations from the original agree[d] value.
•$96.00 24th January 2018 Additional minor Variation.
$56,614.00 paid in Total
We expect to MENER to refund the bulk of this money to us. We estimate that the only reasonable cost you may be entitled to retain is $8,000.00 providing we retain rights to the design.
Therefore we expect a refund of $48,614.00.
Please note that if this money is not refunded within 14 days of this notification, the matter will be put in the hands of a Professional Claims Agent and pursued.
Yours faithfully
(See page 70 of the hearing book)
At 4.19 pm on 3 May 2018, client services at Mener Group confirmed receipt of the 'withdrawal' letter as follows:
Thanks Allen, please take this as receipt of your Termination of Contract letter.
As mentioned, a representative of Mener Group will be in touch shortly.
Kind regards,
Stephanie
Client Services
(See page 68 of the hearing book)
Mr Redfearn gave oral evidence on behalf of the applicants that he sent the 'withdrawal' letter by registered post to the PO Box address as provided in the contract and it was returned to sender. Mr Redfearn then also sent the 'withdrawal' letter to another address he obtained for Mener Group at 60 Farmer Street, North Perth and Mr Buckley, on behalf of Mener Group, confirmed this address at the hearing.
The applicants' case
The applicants did not provide any submissions directly on the issue raised by the Tribunal in its direction order on 3 July 2019.
However, the applicants' claim is that they withdrew, or terminated, the contract on 3 May 2018 and they seek an order for repayment of $48,614 out of the total they have paid to Mener Group of $56,614. The applicants submit that Mener Group should retain $8,000 as a reasonable payment for the work it undertook between October 2017 and May 2018.
The respondent's case
Mener Group submitted that s 10(1)(a)(ii) of the HBC Act provides that Mener Group can seek payment for work before commencement of the home building work 'of a prescribed kind'. Mener Group submits that the 'prescribed kind' of work is as provided for in item 5 of the special conditions to the contract.
Mener Group also submitted that payment for variations prior to construction commencing was an industry standard and attached a copy of a regional/country builder's website which stated that '[a]ll variations made at Prestart that are not included in your loan are required to be paid prior to your home going to site'.
Mener Group submitted further that the applicants did not seek to terminate the contract under s 10 of the HBC Act and that the applicable requirements for termination in these proceedings is clause 15 of the contract and not the HBC Act. Mener Group submits that the applicants terminated for the delays regarding the development approval process with the City of Bayswater (City) and that clause 22 of the contract provides that this was not a basis for termination.
Finally, Mener Group submits that the Tribunal should be limited to the point of contention between the parties as to whether the applicants did terminate, and could terminate, under the contract. Mener Group submits that the Tribunal's identification of other issues is prejudicial to Mener Group.
Consideration
The Tribunal does not agree with the submission from Mener Group that the Tribunal should be limited to the point of contention between the parties as to whether the applicants did terminate and could terminate under the terms of the contract. Pursuant to the objectives of the Tribunal under s 9 of the State Administrative Tribunal Act 2004 (WA) (SAT Act) and the practice and procedure to be followed in the Tribunal under s 32 of the SAT Act, the Tribunal considers it is obliged to attend to legal issues as they arise in proceedings, in particular when parties are unrepresented and the Tribunal comes across such significant issues of non-compliance with the HBC Act by a builder.
The Tribunal is of the view that it afforded both parties the opportunity to provide submissions directly on the issue raised by the Tribunal in its direction on 3 July 2019. The Tribunal also considers that it afforded Mener Group the opportunity to indirectly address this issue during the course of the hearing on 2 July 2019 when concerns were raised and questions asked by the Tribunal regarding payment for variations under the contract.
Contrary to the Tribunal's obiter comment in Javier and Schulze at [52], the Tribunal finds that in these proceedings the applicants' complaint to the Building Commissioner alleging breach of contract, termination of contract and seeking repayment of the majority of the monies paid by the applicants is sufficiently broad to enliven the Tribunal's jurisdiction under s 5(2) of the Act and s 20 of the HBC Act: see page 55 of the hearing book.
Section 10(1)(a) of the HBC Act provides that the builder must not enter into a contract which provides that the builder is entitled to demand or receive from the owner any payment before the commencement of the home building work unless the payment is a deposit of 6.5% of the total amount payable under the contract or of a prescribed kind.
A payment that is a 'prescribed kind' is defined to mean as prescribed under the regulations and not as prescribed by the contract as incorrectly submitted by Mener Group.
The Tribunal finds that between the entering into the contract on 9 October 2017 and 3 May 2018 that Mener Group did not commence any 'home building work' as defined in s 3 of the HBC Act. The Tribunal finds that the lodging of the development application (utilising the original design concept provided by the applicants to Mener Group) and the limited correspondence with the City that occurred also did not constitute 'associated work' which is referred to in the definition of 'home building work' and is itself also defined in s 3 of the HBC Act.
Pursuant to s 10(1)(a) of the HBC Act, Mener Group cannot enter into a contract which provides that it can demand or receive any payment from the applicants before the commencement of home building work unless the payment is a deposit of not more than 6.5% of the total amount payable under the contract. Mener Group, prior to commencing home building work can only seek payment of the 6.5% deposit from the applicants, that being a total of $28,201 (the initial deposit and balance of deposit). Therefore, Mener Group was not entitled to demand payment by invoicing for variations to the contract before commencing the home building work.
The Tribunal also notes that s 10(1)(b) of the HBC Act provides that the builder must not enter into a contract which provides that the builder is entitled to demand or receive from the owner any payment after the commencement of the home building work unless the payment is a genuine progress payment for work already performed or materials or services already supplied or of a prescribed kind. The operation of s 10(1)(b) of the HBC Act would result in item 5 of the special conditions being interpreted to mean that the invoice for variations could only be lawfully issued after the commencement of the home building work to which the variation relates as a genuine progress payment for work already performed or materials or services already supplied.
Section 10(1)(b) of the HBC Act provides context for understanding s 10(1)(a) of the HBC Act and the statutory protection that Parliament intended to be afforded to owners. Section 10(1)(a) of the HBC Act operates so as to limit the extent of the risk to an owner to 6.5% of the contract amount in circumstances where a builder does not commence any home building work. After the commencement of any home building work, s 10(1)(b) of the HBC Act operates so as to limit the extent of the risk to an owner to the stage of the progress payments where the builder has reached which correlates closely with the completed work in circumstances where a builder does not complete all of the home building work (put another way, monies paid correlates with value received).
Section 10(4) of the HBC Act provides that if a builder enters into a contract in breach of s 10(1) of the HBC Act, the contract may be terminated by the owner in accordance with s 19 of the HBC Act.
Section 19 of the HBC Act provides for how a contract may be terminated and only expressly requires the notice of termination to be in writing. Section 19 does not require that the notice of termination identify the relevant provision of the HBC Act. The Tribunal finds that the 'withdrawal' letter of 3 May 2018 satisfied the requirements of s 19 of the HBC Act in that the notice was in writing. The letter was commonly understood to constitute a notice of termination. Therefore, the Tribunal finds that the contract was terminated on 3 May 2018 when the letter was posted to the PO Box address as provided in the contract as well as being emailed which was later that same day acknowledged by Mener Group: see page 68 of the hearing book.
The Tribunal finds that Mener Group has breached s 10(1)(a) of the HBC Act in that the contract entered into by Mener Group has sought to subvert the statutory protection for owners in the HBC Act by including item 5 in the special conditions which meant that Mener Group, prior to the commencement of any home building work, was able to demand and receive payment from the applicants in excess of the 6.5% deposit.
Therefore, the Tribunal finds that, pursuant to s 20(a) of the HBC Act, Mener Group should return payment to the applicants of all monies paid in excess of the 6.5% deposit amount of $28,201. The applicants have paid a total of $56,614. Therefore, Mener Group should return $28,413 to the applicants.
Other matters
The Tribunal notes that the contract provides at clause 2(a) that the contract is, amongst other things, conditional upon a building permit being issued in respect of the works within 45 working days from the date of the contract: see page 181 of the hearing book.
On or about 23 November 2017, it became apparent that the dwelling did not satisfy the deemed to comply provisions of State Planning Policy 3.1: Residential Design Codes of Western Australia (RCodes). This meant if the applicants were unwilling to amend the design of the dwelling, that development approval would be required before a building permit could be issued by the City: see page 245 of the hearing book.
Therefore, clause 2(a) of the contract could not be met by the builder. A building permit was never issued in relation to the dwelling or the site works as this needed to be done after the development approval was issued by the City.
The development approval was not able to be progressed with the City for a number of reasons that the Tribunal considers do not need to be found for or against Mener Group as the Tribunal has determined these proceedings on a different basis. However, it is worth noting that clauses 22(a) and 22(c) of the contract provide that if clause 2(a) is not able to be fulfilled the contract remains in force on the same terms and conditions except as otherwise agreed between the parties.
The parties did not renegotiate the terms of the contract. Mener Group should have renegotiated the terms of the contract if it wished to seek payment for time spent on obtaining development approval. The Tribunal is of the view that this means that Mener Group's claim for time spent between 23 November 2017 and 3 May 2018 in order to progress the application for development approval was not authorised under the contract. Therefore, on that alternative basis, the Tribunal would have in any event made an order under s 41(2)(c) of the Act that Mener Group repay all but the 6.5% deposit amount paid by the applicants.
The Tribunal also notes that Mener Group contrary to Pt 3A, and in particular s 25C(2) of the HBC Act failed to obtain the required insurance as well as furnish the applicants with the certificate of insurance prior to issuing a demand for any payment including the deposit.
Orders
Accordingly, the Tribunal orders as follows:
1.Within 21 days of the date of this order, pursuant to s 20(a) of the Home Building Contracts Act 1991 (WA), the respondent is to pay to the applicants the amount of $28,413.
I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
MS D QUINLAN, MEMBER
10 JULY 2019
0
1
0