8 January 2020
The consequences of turning a “blind eye” to the requirements under the New South Wales Home Building Act
Residential building work is a significant component of the construction industry in Australia. As such there is extensive regulation of licencing, contracting and schemes for home warranty insurance throughout the jurisdictions.
Relevant legislation which regulates residential building work and specialist work in New South Wales includes the Home Building Act 1989 (NSW) (“Act”) and the Home Building Regulation 2014 (NSW).
What is residential building work and specialist work
Schedule 1 of the Act defines “residential building work”, amongst other things, as any work involved in, or involved in co-ordinating or supervising any work involved in:
- the construction of a dwelling;
- the making of alterations or additions to a dwelling; or
- the repairing, renovation, decoration or protective treatment of a dwelling.
The Act also deals with “specialist work” which is defined in Schedule 1 of the Act as plumbing and drainage work, other than roof plumbing work, gasfitting work and electrical wiring work, whether or not done in connection with a dwelling. Specialist work done in connection with a dwelling is considered residential building work.
Requirements under the Act
The following are some significant requirements under the Act.
Compulsory licence
Section 4 of the Act prohibits a person from contracting to do any residential building work or specialist work unless that person is a holder of a statutory contractor licence which authorises the person to contract to carry out that work. The obligation to hold a licence falls not only on the contractor who contracts with the owner, but also any subcontractor of that contractor.[1]
Contracting requirements
The Act imposes requirements for the content and form of all contracts to do residential building work or specialist work. These contracting requirements differ depending on whether the contract price exceeds $20,000.00 (inclusive of GST) or exceeds $5,000.00 (inclusive of GST) but not more than $20,000.00 (inclusive of GST). These requirements also apply to any contract variations.
Sections 7 and 7AAA of the Act require the contractor to ensure that the contract amongst other things:
- is in writing, signed and dated by both parties;
- includes the names of the parties;
- contains a sufficient description of the work to which the contract relates; and
- states the contract price if known.
Section 7 also requires the contractor to ensure that a contract with price exceeding $20,000.00 (inclusive of GST):
- includes a statement of any applicable statutory warranties; and
- the cost of any required cover under Part 6 or 6B.
Insurance requirements
Section 92(1) of the Act imposes the requirement that a contractor must have taken out “home warranty insurance” in its name which complies with Part 6 and a copy of the certificate of insurance has been provided to the other party to the contract before carrying out residential building work under a contract.
It is important to note:
- Section 92(3) provides that the insurance requirement applies if the contract price or (if the contract price is unknown) the reasonable market cost of the labour and materials involved exceeds the prescribed amount of $20,000.00 (inclusive of GST);[2] and
- Section 92(4) provides that if the same parties entire into two (2) or more contracts to carry out work in stages, the contract price for the purpose of the insurance threshold amount is taken to be the sum of the contract prices under each of the contract.
Subsequently obtained insurance
Section 94(3) of the Act provides that residential building work that is uninsured work at the time the work is done ceases to be uninsured work if a contract of insurance for the work is subsequently obtained. The Act therefore allows a contractor to comply with the Act even if the contractor did not have the required insurance in place at the time the work was carried out.
A contractor should not rely upon this provision however and obtain a policy of insurance where necessary as it may be difficult to arrange for a contract of insurance after carrying out the work as the owner’s consent will most likely be required.
Consequences of non-compliance and contravention
Non-entitlement to damages and contractual remedies
There are consequences for a contractor who does not comply and contravenes the statutory requirements set out above.
Aside from the possibility the contractor may be fined,[3] section 10 of the Act provides that the contractor is not entitled to recover damages or to enforce any other remedy in respect of a breach of the contract committed by an owner and that contract is unenforceable by the person who contracted to do the work.
It is noted that the contractor may still be liable in damages for any breach the contractor has committed, notwithstanding the inability to recover damages or to obtain any other remedy.
Quantum meruit
The contractor may however be entitled to bring an alternative claim for a quantum meruit under the law of restitution. What is quantum meruit? In its simplest terms, it means “only as much as he or she deserved”. The quantification of damages awarded to a contractor under this claim would most likely be the reasonable market costs of the work undertaken, regardless of what the contractor asserts was its actual or agreed costs for the works performed.[4]
Contravention of insurance requirements
There is further consequence for a contractor who does not comply and contravenes the statutory insurance requirements. Section 94(1) of the Act provides if a contract of insurance is not in force at the time the residential building work is done, the contractor is also not entitled to recover money in respect of the work performed including on a quantum meruit basis.
Section 94(1A) of the Act, however, qualifies this exclusion by permitting a court or tribunal, if considered “just and equitable”, to allow the contractor to recover money on a quantum meruit basis even if the required insurance is not in place.
As to the “just and equitable” qualification, the court or tribunal will take into account factors including the following:
- the steps the contractor took (or failed to take) to obtain insurance; [5]
- whether any failure by the contractor to take out insurance was inadvertent, not wilful or deliberate; [6]
- whether the contractor acted with sufficient diligence in attempting to remedy the insurance default;[7]
- whether the residential building work carried out is found to be defective and will need to be demolished, taken away, properly designed and certified and done again, causing the owner to lose the benefit of having work properly done;[8] and
- that the owner may, in effect, receive a benefit for the contractor’s work for nothing.[9]
The contractor may therefore be entitled to recover money on a quantum meruit basis however the process of proving that entitlement, including the “just and equitable” qualification, may be considered more difficult when compared to the recovery of damages in respect of a breach of the contract.
How we can help you
In summary, there are risks to the rights of a contractor to recover money or enforce other remedies against a defaulting owner when a “blind eye” is turned to the various statutory requirements throughout the building and construction process.
If you are a contractor and seeking advice or have any questions please contact us on 02 8239 9600 or email contact@jhklegal.com.au to discuss how we may be able to assist you.
Written by Samuel Bailey, Lawyer