In the recent decision of Issa v K & K Quality Constructions Pty Ltd [2020] NSWCATAP 74, the NSW Civil and Administrative Tribunal Appeal Panel highlighted the importance of compliance with the Home Building Act 1989 (NSW).

This case reinforced the importance for parties to ensure that, where required, residential building works, even preparatory works, should be documented in writing and to obtain home warranty insurance when works are valued over $20,000.

Morrissey Law & Advisory provide a brief snapshot of the case below.


The Act: Home Building Act 1989 (NSW)

The Case: Issa v K & K Quality Constructions Pty Ltd [2020] NSWCATAP 74

The Tribunal: NSW Civil and Administrative Tribunal (NCAT)


Facts

  • Albert Issa (Owner) engaged K & K Quality Constructions Pty Ltd (Builder) to construct a granny flat in Narellan and had entered into negotiations with the Builder to construct another granny flat in Airds.
  • A copy of the written contract for the works in Airds was provided to the Owner, but neither party had signed it. The Owner had requested that no works commence until the contract was signed.
  • A dispute arose between the parties regarding the terms of the written contract and the Builder demanded payment from the Owner for costs associated with preparing the building plans and DA.
  • On 10 May 2019, the Builder commenced proceedings in the Tribunal against the Owner on the basis that the Owner had provided verbal instructions to provide the services and pre-approved plans for the works.
  • In the first instance, the Tribunal held that as there was no written contract, the Builder had to rely upon expert evidence to show the value of their works. This is a process called a quantum meruit claim.
Quantum meruit means the reasonable value of the works and/or services provided and flows from the principle of unjust enrichment. To establish a claim for quantum meruit you must show that a party had received a benefit at the builder’s expense and that it would be unjust in the circumstances to allow the party to retain the benefit without payment being made to the builder.
  • The Tribunal held that the surrounding circumstances made it clear that the Builder was completing works on behalf of the Owner and that it was not sufficient for the Owner to not say or do anything. The Tribunal allowed the Builder’s claim for costs incurred as supported by evidence.

On 14 November 2019, the Owner appealed submitting that:

  1. Tribunal erred in making a money order where there was no written contract; and

  2. The Tribunal made factual findings which were against the weight of evidence and was not fair and equitable.

Decision

Jurisdiction

The Tribunal held that under section 48K of the Act, the Tribunal had jurisdiction to consider the claim even though no physical works had commenced.

The Tribunal has jurisdiction to hear and determined building claims that arise from a supply of building goods or services. A wide and broad approach of this definition was applied and the Tribunal held that residential building works extends to work of a preparatory nature.

Even though the works had not been completed by the Builder but by third parties, the Tribunal considered that it was sufficient for the services to fall within the definition of ‘building goods and services’.

Insurance requirements

Under the Act, a party is prohibited from doing residential building works unless a complying contact of insurance is in force and the certificate of insurance has been provided to the other party.1 If no insurance has been taken out, the party cannot demand or receive payment for the works.2

If a party has failed to insure the works, they will not be entitled to:3

  1. damages;
  2. enforce any other remedy if the other party had breached the contract; and
  3. receive money for that work or any other right of action, including a quantum meruit.

Furthermore, if the value of the works is over $20,000, there must be a written contract or the contract will be unenforceable by the person who was contracted to do the works.4

It was held by the Appeal Panel that the Tribunal had erred in the first instance in applying the principle of quantum meruit without first considering whether the Builder had an entitlement to payment under the Act where there was no written contract and no home warranty insurance.

The appeal was successful on the grounds that the Tribunal had jurisdiction to hear the matter and there was no need to consider the second ground of the appeal as the matter would be remitted to a differently- constituted Tribunal for re-determination in accordance with the law.

Takeaways

This case reinforces the importance for parties to comply with the Act and sheds some light on the availability for a claim in quantum meruit following the decision in Mann v Paterson.5

Briefly, the decision in Mann v Paterson held that a builder will not be entitled to a claim in quantum meruit if the builder had accrued a right to payment under the contract. The builder is only entitled to a claim in quantum meruit where they have not accrued a right to payment and the claim cannot exceed the contract price for the works. There may be circumstances where the builder may recover an amount greater than the contract price, however that would be in exceptional cases only.

You can read more about Mann v Paterson in our full casenote found here.

 

It is not enough for a builder to simply establish they have undertaken the works and that they are entitled to the reasonable value for the works/services performed. The builder must also have an entitlement to payment under the Act and if applicable, the contract.

In circumstances where the building works are valued over $20,000 the builder must obtain home warranty insurance and ensure that the terms of the contracts are in writing. Failure to do so may affect your rights to enforce payment.

Where the works are preparatory and the works have not yet commenced, you should consider a simple pre-construction contract to protect your rights and ensure payment for any works undertaken.

For more information on how this may affect you, please do not hesitate to contact Morrissey Law + Advisory.

 


[1] Home Building Act 1989 (NSW) s92(1)
[2] Home Building Act 1989 (NSW) s92(2)
[3] Home Building Act 1989 (NSW) s94(1)
[4] Home Building Act 1989 (NSW) s10(1)
[5] [2019] HCA 32

 

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