Sigma 3 Pty ltd t/a Integrity New Homes Cairns v Queensland Building and Construction Commission - [2024] QCAT 521

QUEENSLAND CIVIL AND
ADMINISTRATIVE TRIBUNAL

CITATION:

Sigma 3 Pty ltd t/a Integrity New Homes Cairns v Queensland Building and Construction Commission [2024] QCAT 521

PARTIES:

SIGMA 3 PTY LTD T/AS INTEGRITY NEW HOMES CAIRNS

(applicant)

v

QUEENSLAND BUILDNG AND CONSTRUCTION COMMISSION

(respondent)

APPLICATION NO/S:

GAR478-22

MATTER TYPE:

General administrative review matters

DELIVERED ON:

26 October 2024

HEARING DATE:

2 May 2024

HEARD AT:

Cairns

DECISION OF:

Member Pearce

ORDERS:

1. The Tribunal finds that the correct and preferable decision is that the Owner validly terminated the Contract on the default of the Applicant and that, on that basis the Queensland Building and Construction Commission’s decision should be affirmed.

2. Each party shall bear their own costs.

CATCHWORDS:

CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – whether a building contract properly terminated – breach of contract by Owner – breach of contract by Contractor – termination notices

Queensland Building and Construction Commission Act 1991 (Qld)

Queensland Civil and Administrative Tribunal Act 2009 (Qld)

Allan David Miller v Queensland Building and Construction Commission [2022] QCAT 151

Koompahtoo Council v Sanpine Pty Ltd (2007) 233 CLR 115
Murphy Corporation Limited v Acumen Design & Development (Queensland) Pty Limited and Derek Graham Cooper (1995) 11 BCL 274

Yendex Pty Ltd v Prince Constructions Pty Ltd (1988) 5 BCL 74

APPEARANCES & REPRESENTATION:

Applicant:

Kelly, S

Respondent:

Davey LA

REASONS FOR DECISION

INTRODUCTION

This proceeding involves an application made by Sigma 3 Pty Ltd t/as Integrity New Homes (‘Applicant’) pursuant to section 87 of the Queensland Building and Construction Commission Act 1991 (Qld) (‘QBCC Act’) for a review of a decision made on internal review by the Queensland Building and Construction Commission (‘Commission’), that a domestic building contract had been validly terminated having the consequence of allowing a claim under the statutory insurance scheme in respect of a contract entered into between the Applicant and Veerpaul Kaur Grewal (‘Owner’) and Bhupinder Singh Grewal (collectively ‘Owners’).
The issue for determination by the Tribunal is whether the contract between the Applicant and Owners dated 21 January 2021 (‘contract’) was validly terminated by the owners at the default of the Applicant.
Unusually there is no material controversy between the parties as to the factual matters relevant to the application.
In addition, there is no controversy between the parties regarding compliance with any of the requirements of the QBCC Act and the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (‘QCAT Act’). There are no other matters that impact the Tribunal’s jurisdiction to determine the application for review.

Statutory Framework

Part 5 of the QBCC Act establishes the statutory insurance scheme, known as the Queensland Home Warranty Scheme (‘Scheme’), and comprises sections 67WA to 71F (inclusive).
Ordinarily, a statutory policy of insurance pursuant to the Scheme will come into force[1] when a consumer enters into a contract for the performance of “residential construction work.” [2]
[1]Section 68H of the QBCC Act sets out all the circumstances in which a policy of insurance will cone into force.
[2]Section 67WA defines “residential construction work” for the purpose of the statutory insurance scheme as “primary insurable work” and “associated insurable work”, which are defined in sections 67WC and 67WD respectively.
“Consumer” and “residential construction work” for the purposes of part 5 of the QBCC Act are defined in section 67WA as follows:
consumer, for residential construction work -
(a)      means a person who contracts with a licensed contractor to carry out the work; and
(b)      includes a person who purchases the work, once completed, if the work is primary insurable work.
residential construction work is
(a)      primary insurable work; or
(b)      associated insurable work.
“Primary insurable work” and “associated insurable work” are defined in sections 67WC and 67WD as follows:
67WCMeaning of primary insurable work
(1)Primary insurable work is any of the following building work if carried out by a licensed contractor and the insurable value of the work is more than the regulated amount-
(a)the erection or construction of a residence or related roofed building;
(b)building work within the building envelope of a residence or related roofed building;
(c)building work for anything attached or connected to a residence or related roofed building that requires building or plumbing approval;
(d)the erection, construction or installation of a swimming pool within the meaning of the Building Act 1975, schedule 2;
(e)other building work prescribed by regulation.
(1)However, the following is not primary insurable work, but may be associated insurable work-
(a)fencing;
(b)landscaping;
(c)electrical work under the Electrical Safety Act 2002;
(d)installation, renovation, repair or replacement of any of the following-
(i)air conditioning;
(ii)driveways or paths;
(iii)units for heating water regardless of the source of energy for heating, and including units for heating swimming pools;
(iv)refrigeration;
(v)roller shades and shutter screens;
(vi)security doors and grills;
(vii)solar power units and associated electrical components;
(viii)water tanks that are not part of a primary water supply for a residence or related roofed building;
(e)other work prescribed by regulation.
(2)In this section-
building envelope, for a residence or related roofed building, means the outermost sides of the aggregation of the components of a building that have the primary function of separating the internal part of the residence or related roofed building from the external environment.
Example of a building envelope-
the slab and footings system, an external wall and a roof
regulated amount means $3300 or the higher amount, if any, prescribed by a regulation.
67WDMeaning of associated insurable work
(1)Associated insurable work is any additional work that may be contracted to be carried out under a contract for primary insurable work if-
(a)for primary insurable work relating to a residence-the work is carried out on the site of the residence or proposed residence and is for residential purposes; or
(b)for primary insurable work relating to a related roofed building-the work is carried out on the site of the building or proposed building and is for residential purposes.
(2)To remove any doubt, it is declared that associated insurable work may include work that is not building work.
Examples for subsection (2)-
electrical work under the Electrical Safety Act 2002, erecting scaffolding, or earthmoving and excavation work.
If a policy of insurance comes into force under section 68H, an insurance premium is payable to the Commission.[3] When the Commission accepts the appropriate insurance premium in respect of the “residential construction work”, the Commission must issue a certificate of insurance. However, if circumstances exist which give rise to a policy of insurance under section 68H, the policy will come into force whether or not an insurance premium has been paid or a certificate of insurance has been issued.[4]
[3]QBCC Act, s 68H(2).
[4]HIA contract.
The Scheme only provides cover to consumers in respect of certain defined events. The events covered by the Scheme are defined within the terms of cover applying to the Scheme (‘Terms’) which are contained in schedule 6 of the Queensland Building and Construction Commission Regulation 2018 (Qld).
Broadly, the events for which cover may be available under the Terms are:
(a)incomplete “residential construction work”;
(b)defective construction; and
(c)acts of vandalism or forcible removal and fire, storm and tempest.
The Terms are divided into a number of parts. Relevantly, part 1 of the Terms deals with cover available for incomplete “residential construction work” (‘Non-Completion Claims’) and is separated into divisions 1 and 2, namely:
(a)division 1 deals with Non-Completion Claims for assistance where the work has not started; and
(b)division 2 deals with Non-Completion Claims for assistance where the work has started.
For a Non-Completion Claim where the work has started, section 7(1) of the Terms enacts as follows:
The consumer is entitled to claim assistance for the reasonable cost of completing the residential construction work.
The Commission’s liability to a “consumer” in respect of a Non-Completion Claim where the work has started will only arise in certain circumstances. Specifically, a consumer will only be entitled to assistance if:[5]
(a)the work is carried out under a “fixed price residential contract”; and
(b)the contract “ends” within two years after the day the work started under the contract; and
(c)the work is “incomplete”.
[5] QBCC Act and terms.
Under the QBCC Act and the Terms:
(a)the term “fixed price residential contract” is defined in section 3 of the Terms as follows:
Meaning of fixed price residential contract
(1)A fixed price residential contract is a contract between a consumer and a licensed contractor for residential construction work for which the price is fixed except for the effect of the following-
(a)prime cost items;
(b)provisional sums;
(c)increases to reflect increased costs of labour or materials or delays in carrying out the work.
(2)However, the following contracts are not included for subsection (1)-
(a)a construction management contract;
(b)a contract for the erection, construction, renovation, alteration, extension, improvement or repair of 3 or more living units.
(b)the term “ends” is defined in section 4 of the Terms as follows:
4When fixed price residential contract ends
(1)A fixed price residential contract ends if-
(a)the contract is validly terminated on the default of the licensed contractor; or
(b)the licensed contractor dies; or
(c)the licensed contractor is a company and the company no longer exists; or
(d)both of the following apply-
i.the licensed contractor is bankrupt or insolvent, or takes advantage of the laws of bankruptcy as a debtor under the Bankruptcy Act 1966 (Cth) or a similar law of a foreign jurisdiction;
ii.the licensed contractor's licence is cancelled.
(2)In this section-
validly terminated, for a fixed price residential contract, does not include mutual abandonment of the contract by the parties to the contract.
(c)the term “licensed contractor” is defined in schedule 2 of the QBCC Act and section 2 of the Terms as follows:
licensed contractor means a person who holds a contractor's licence.
licensed contractor includes a building contractor who, at or before the time a contract for the carrying out of residential construction work is entered into, makes a representation mentioned in section 68H(1)(b) of the [QBCC] Act.
(d)the term “incomplete” is defined in section 67WA of the QBCC Act as follows:
incomplete, in relation to residential construction work-
(a) means work that has not reached practical completion; but
(b) does not include-
(i)work that does not comply with the contract because of a cosmetic difference; or
Example of a cosmetic difference
a different shade of paint
(ii)work that is defective.

Contract and Work

On 21 January 2021, the Applicant and the Owners entered into a fixed priced HIA Queensland New Homes Construction Contract (‘HIA Contract’) for the construction of a freestanding double storey dwelling[6] (‘Works’) at 73 Treetop Drive, Mount Sheridan (‘Property’) in the amount of $410,000.
[6]See HIA Contract Schedule 1 item 9.
The contract was made up of the following documents
(a)HIA Contract; and
(b)A document titled “North QLD New Homes Designer Specification Aug 2020” (‘Specifications’).
(Collectively referred to as the ‘Contract’)
Pursuant to schedule 1 item 14 of the HIA Contract the anticipated start date of the Works was scheduled to be within 60 calendar days of all “Essential Matters being satisfied to the [Applicant’s] absolute satisfaction”.[7]
[7]See HIA Contract.
On or around 9 July 2021, the Applicant requested a “5% price increase”[8] to the Contract price.[9] This was agreed to by the Owner.
[8]See para [9] Mrs Grewal’s Statement.
[9]Page 188 Hearing book.
On or around 18 October 2021, the Applicant requested a variation to the Contract price due to additional work required for the foundation.[10] This was agreed to by the Owner.
[10]See para [10] Mrs Grewal’s Statement.
This resulted in the amended Contract price being $437,485.00 (‘Contract Price’).
On 15 November 2021 a Form 16 Inspection Certificate for the footing and foundation stage was issued marking that the base stage of construction as complete.
On 10 December 2021 the first progress payment was paid in the amount of $60,000.
In total, the Owner paid the Applicant the amount of $107,985.

Dispute

Between the months of February and June 2022 the Applicant and the Owners fell into dispute in relation to the Contract.
On 12 May 2022, the Applicant sent two (2) notices to the Owners stating that:
(a)the Owners were in breach under the Contract (‘Applicant's Breach Notice’); and
(b)that the Applicant could not complete the Work under the Contract for the Contract Price without a further $96,638.00 (‘May Price Increase’).
On 13 May 2022, the Owner’s solicitor sent a notice to remedy breach to the Applicant (‘Owner’s Notice to Remedy’).
On 27 May 2022, the Applicant sought to terminate the Contract (‘Applicant’s Termination Notice’).
On 1 June 2022, the Owner’s solicitor sent a letter to the Applicant validly terminating the Contract (‘Owner’s Termination Notice’).

Claim and Commission’s Decisions

On 9 June 2022, the Commission received the Claim from the Owner.
On 26 July 2022, the Commission made the Original Decision.
On 29 August 2022, the Commission received the internal review application from the Applicant.
On 13 October 2022, the Commission made the Internal Review (‘IR’) Decision, the subject of this proceeding.

Issue for Determination

The application for review of a decision in this matter is a review of the Commission’s IR Decision that a contract had been validly terminated at the default of the Applicant.
In deciding whether the IR Decision is the correct and preferable decision the Tribunal must consider the following questions for determination:
(a)was the claimant a “consumer”;
(b)was the relevant work carried out under a “fixed price residential contract”;
(c)was the contract “ended” within two years after work started under that contract;
(d)was the work under the contract “incomplete”; and
(e)has the “consumer” made a Non-Completion Claim to the Commission within 3 months after the contract “ends”.
Point (c) above is the primary contention in these proceedings.
The primary dispute is the validity of the Owner’s and Applicant’s purported termination.
The respondent submits that the Contract was validly terminated by the Owners at the default of the Applicant because it is satisfied that:
(a)Through the following conduct the Applicant evinced an intention not to be bound by the terms of the Contract:
(i) the Applicant’s Termination Notice;
(ii) the Applicant’s increased cost notices;
(b)accordingly, the Owners were entitled to accept the Applicant’s repudiation and terminate the Contract by way of the Owner’s Termination Notice on 1 June 2022.
The Applicant submits that the Applicant validly terminated the Contract as the Owners were in breach of the Contract.
As such the Tribunal must consider:
(a)Firstly, the validity of the Applicant’s purported termination. This contains the following sub-considerations:
(i) Validity under the terms of the Contract, including whether the prescribed termination processes was followed;
(ii) Validity under common law, including whether the Owners were in breach of the Contract; and
(b)Secondly, whether the Owners validly terminated the Contract, including whether the Applicant’s conduct amount to repudiation of the Contract?
For the Applicant to have validly terminated under the Contract clause 28 must be followed.
This requires compliance with the prescribed procedure in clause 28.3 (requirement to issue a notice to remedy) and clause 28.4 (requirement to issue a notice to terminate).
The Applicant has submitted that the Applicant’s Breach Notice was compliant with clause 28.3 of the Contract.
The Commission submitted they disagree with that conclusion, and submits that the Tribunal, hearing this matter afresh, should conclude that the notice issued by the Applicant was not compliant with the provisions of the contract and is not effective at law.
Clause 28.3 of the HIA Contract requires a notice to remedy to:
(a)Specify the substantial breach;
(b)Require that the substantial breach be rectified within 10 ‘working days’; and
(c)State that, if the substantial breach is not rectified, the other party intends to end the Contract.
To be effective at law a notice to remedy “must be unequivocal in order to convey what was amiss so as to identify the default in respect of which cause was to be shown”.[11] Further a notice to remedy must “inform [the recipient] what it had to do, to remedy the alleged breach”.[12]
[11]Yendex Pty Ltd v Prince Constructions Pty Ltd (1988) 5 BCL 74 at 75.
[12]Murphy Corporation Limited v Acumen Design & Development (Queensland) Pty Limited and Derek Graham Cooper (1995) 11 BCL 274, at 293 (per Williams J); accepted and applied by Member Williams in Allan David Miller v Queensland Building and Construction Commission [2022] QCAT 151 [34].
The notice in question states:
We hereby confirm that you have breached the terms and conditions of the Building Contract between yourself and Integrity New Homes Pty Ltd.
You have Breached the following:
Faild [sic] to supply location and the wiring for the cameras.
Failed to supply colour selection in timely manner.
Failed to comply with Quote as per selection by the client.
The requirements and, therefore statutory legislation, seriously compromises the builder ability to run the job, pay its contractors and get paid for the work done.
You have also full indemnified the Integrity New Homes Pty Ltd against claim whatsoever arising from your failure to comply with the terms and conditions of Building Contract may arise termination of the contract Default.
The Applicant’s purported notice to remedy dated 12 May 2023 only specifies the purported breaches and does not require that they be remedied within 10 working days or that the Applicant intended to terminate the Contract if not remedied. This notice does no more than inform the Owners that they have breached the Contract.
Additionally, the further breaches (2) and (3) are not clearly articulated to make the Owners aware of the exact nature of the breach.
As such the Tribunal finds that in circumstances where the purported notice to remedy:
(a)Fails to unequivocally convey the alleged breaches so that the Owner can identify which of their acts or omissions have gone amiss;
(b)Fails to require that the alleged breaches are rectified within 10 days; and
(c)Fails to state the consequences if the alleged breaches are not rectified within 10 days
it cannot be said that the Applicant can now rely on clause 28 to justify his purported termination of the Contract.

The Applicant’s Breach Notice dated 12 May 2022, was invalid and at best, might amount to a notice of intention to terminate at common law. Therefore, a notice to remedy as required by clause 28 of the HIA Contract has not been issued.
Consequently, it cannot be said that Applicant has validly terminated under the terms of the Contract. Thus, the Applicant can only rely on the common law to justify his termination of the Contract.
Lengthy discussions and further written submissions have addressed the questions of termination of the Contract at common law.
At issue were two main items. The first was that the Owners were to supply cameras, wiring and locations for same for the build. The second was a colour selection that the Owners had not fully competed prior to works commencing.
In order to accept that the Applicant terminated the contract at common law we are required to accept the that additional obligations of the cameras and the associated wiring were essential terms of the contract, or went to the root of the contract and the rights then extended to the Applicant in this case.
The alleged breach of the camera obligations, to the extent that any obligations existed, did not go to root of the Contract. When reading the Contract as a whole it is clear that the Contract had expressed provisions to award damages to a builder who is prejudiced by delay caused by an owner. The fact that the Builder in this matter did not avail himself of his own contractual rights to damages is not relevant to whether the alleged breach went to the root of the contract so as to justify termination.
The Applicant also argued that the colour selection was a term implied in the Contract. The Tribunal does not find that the term was implied into the Contract. Even in the case that the Tribunal found the term was implied, the term would not be considered essential and therefore enliven a right to terminate.
On a detailed analysis of the evidence provided the Tribunal finds that the owners were not in breach of the contract.
It therefore flows from this that if the Owners are not found in breach of contract the right of the Applicant to terminate did not exist.

Repuidation of the contract

The Tribunal’s position is that the Owners were justified in terminating the Contract due to the Applicant’s repudiatory conduct.
As was explained by Gleeson CJ, Gummow, Heydon and Grennan JJ in Koompahtoo Council v Sanpine PIL (2007) 233 CLR 115 at 135-136:
The term repudiation is used in different senses. First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations. It may be terms renunciation. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation of the contract as a whole or of a fundamental obligation under it. ... Secondly, it may refer to any breach of contract which justifies termination by the other party.
The Tribunal relies on the following conduct of the Applicant:
(a)a demand for $140,000 to finish the house, on 11 April 2022 (‘April price increase’);
(b)a demand for $96,638 to cover the increased material costs on 12 May 2022 (‘May price increase’).
(c)purported termination of the Contract on 27 May 2022^.
At the time of entering the Contract the contract price was $410,000.
Pursuant to clause 1.2 of the HIA Contract the contract price may be adjusted by any additions required under the Contract for example through a variation.
The Contract was adjusted on two earlier occasions – 9 July 2021 and 18 October 2021 – increasing the contract price to $437,485.00.
Both the April and May Price Increases were on the basis of the increased cost of materials and at least for the May Price Increase, the Applicant purported that the Owner’s delay in finalising the Colour Selection contributed to increased costs.
In relation to the April Price Increase, it is the Owner’s evidence that the Applicant advised her husband that he required a further $140,000 to finish the house as prices, presumably for materials, had increased. The Applicant in cross examination denies that he “requested” $140,000 but that it “ ... was communicated with [the Owner] in terms of its going to cost [the Applicant] that much ...”. Critically the May Price Increase states:
Reason for this situation is delay from your side in finalising the colour selection ...
Now the builder is facing material price rise, which builder need to forward to the client so builder can proceed ahead with site.
Since last year material cost has gone up by up to 25%, as per builder calculations and some has been done on your site, cost raised to complete your site is 18.5% which mean the addition cost of $96,638.00 is required to finish the project.
Please consider this a humble request as time for construction industry is very hard now rising cost is not in favour of anyone, Builder cannot proceed ahead with work which is going to take build in loss.
The Applicant submits that the May Price Increase did not amount to evidence of intention not to be bound by the terms of the Contract. The Applicant has not spoken directly to the April and May Price Increases in his written material and refers to the May Price Increase as a “humble request”.
On 13 May 2022, as contained in the Applicant’s Notice to Remedy, through the Owner’s legal representatives, they requested justification for the May Price Increase. This request was not complied with.
The Tribunal finds that the wording of the May Price Increase speaks for itself and shows that the Applicant was in fact requesting $96,628.00 to continue the works. The Commission submits that this was not a foreshadowing of a variation but rather a request, and that this request had no legal basis. The Applicant was offered an opportunity to explain this true intention but chose not to do so.
As such, in the circumstances, the Tribunal agrees with the respondent that the April and May Price Increases amount to an intention not to be bound by the terms of the Contract.
The Applicant submits that the price increases were in accordance with clause 16.2 of the HIA Contract or Addendum B of the Specifications.
The Commission submits that there is no evidence before the Tribunal to indicate that the April or May Price Increases were communicated pursuant to either of those sections. It would be expected that if the Applicant was actually seeking damages, he would have stated the legal basis for which they are sought and/or the justification for that. But this is not the case. In the circumstances this appears to be merely a retroactive attempt to justify his own conduct.
It is the Applicant’s submission that the Applicant purported to terminate the Contract pursuant to notice dated 27 May 2022 (referred to as the Applicant’s Termination Notice).
For the reasons explained above the Owner was not in substantial breach or otherwise of the Contract nor does the evidence support the conclusion that the Owner had repudiated the Contract.
It follows, and it is rightfully conceded by the Applicant (in circumstances where the Owner was not in breach of the Contract), that through purporting to terminate the Contract without cause, he has evinced an intention to no longer be bound by the Contract or to fulfil it only in a manner substantially inconsistent with the Applicant’s obligations.

Orders

The Tribunal finds that the correct and preferable decision is that the Owner validly terminated the Contract on the default of the Applicant and that, on that basis the Queensland Building and Construction Commission’s decision should be affirmed.
Each party shall bear their own costs.