biiiiii011l8 - austlii.edu.au · biiiiii011l8 the domestic building legislation part 2 tony cahill...

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THE DOMESTIC BUILDINGLEGISLATIONPART 2

Tony Cahill

12 INSURANCEGENERALLY

As mentioned earlier, insurance isnow to be a matter not for a singleGovernment-backed insurancescheme, but a competitive multipleinsurer scheme. The Department ofFair Trading will still be interested ininsurance in that the licence istaken to be cancelled if the holderfails to maintain the insurancerequired by the Act [section 22(1 B)],or if there are two convictions in any12 month period of an offencerelating to insurance [section22(1A)).

The main points to note aboutInsurance are:

• The risks to be covered relate tonon-completion of the work (due toinsolvency, death, or inability to findthe contractor), or breach of astatutorywarranty [section 99).

• Contracting to do residentialbuilding work without insurance isan offence, with a maximum penaltyof 100 penalty units [section 92(1)).

• Failing to attach evidence ofinsurance to the contract to dobuilding work is an offence, with amaximum penalty of 100 penaltyunits [section 92(2)).

• These provisions do not applywhere the contract price (orwherethe contract price is unknown, thereasonable market cost of labourand materials) does not exceed$5,000 [section 92(3)). Splitting theprice across multiple contracts willnot assist in avoiding the Act[section 92(4)).

• Section 93 deals with kit homes,in like terms to section 92.

• A breach of section 92 or section93 will preclude any right ofenforcement by the builder,including a quantum meruit[section 94).

.An ownerbuilderdoes not needto take out insurance in every case.Insurance is required if the ownerbuilder sells within 7 years of the

building work [section 95(1)maximum penalty 100 penaltyunits). The contract for sale by theowner-builder must have acertificate of insurance attached[section 95(2)-maximum penalty100 penalty units). If the vendorbreaches section 95(1) the contractis voidable at the option of thepurchaser [section 95(4)).

• Section 96 deals with 'personswho do residential building workotherwise than under a contract', ordevelopers, and requires insuranceto be in force [section 96(1)] and thecertificate of insurance attached tothe contract [section 96(2)], againsubject to a number of specifiedexemptions [section 96(3)).

• The obligations of developers inrelation to insurance have been thesubject of some fine tuning. Seesection 96[2A) of the principal Act,and the as yet uncommencedsection 96A in the 2000 amendinglegislation.

• The Director-General of theDepartment has powerto exemptan applicant from the requirementsin sections 95 and 96. The criteriafor exemption in the Act are limitedto exceptional circumstances,impossibility of performance, orundue hardship [section 97).

• The amount of cover must be atleast $200,000 per dwelling; theRegulations can prescribe adifferent amount [section 102(3)).

• The insurance contract canprovide for a $500 excess [section102(6)] Any attempt to contract outof part 6 is void [section 1030).

• Despite oft-heard talk about thedesirability of a level playing fieldbetween private and governmententerprises, the New South WalesLand and Housing Corporation isexpressly excluded from theoperation of part 6 [section 103E).

AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #80 OCTOBER/NOVEMBER 2001 5

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13 (SOME) PROBLEMSWITH THE NEWINSURANCE ANDSTATUTORYWARRANTIESPROVISIONS

What follows is a list of some of theproblems with the new regime. Thelist is not exhaustive. I suspect youcould think of others.

1. Many of the warranties areextremelyvague. What is meant by'reasonably fit for occupation as adwelling'? 'Completed with duediligence and ... within a reasonabletime'? Or (my personal favourite)'done in accordance with, and willcomply with, this or any other law... '

2. If the warranties are vague, howwill the insurers interpret them?

3. Howwill someone seeking torely on the warranties test thewarranties? Howwillan incomingpurchaser check whether a six-yearold house was builtwith newmaterials, or on time?

4. If an incoming purchaserdiscovers a breach, what can thepurchaser do about it? On generalinsurance principles, the purchaserwould have to show loss arising outof the breach, and that may bedifficult. Should a purchaser beentitled to do anything aboutobvious dilapidation which wouldhave been factored into thepurchase price?

5. The move from a single insurerto diverse private insurers createsproblems. The insurance details donot have to be disclosed in everycase. Do you phone around theinsurers to find the right one?

6. What about work done byvarious builders overtime, eachpossiblywith a different insurer? Inmy previous life as a partner in afirm with a large personal injurypractice, I am aware that claimswhere there is no doubt thatsomeone should pay, but thedispute is overwho should pay, are

not uncommon. I understand thatthe problem has eventually beenaddressed in the workers'compensation area; the problemremains in this legislation.

7. What difficulties will be faced by\ an owner-builder who did owner

building work with no intention tosell, and subsequently decides tosell? How readily will an insurercover work that is, say, six yearsold? Is it too unkind to suggest thatmost insurers will considerthere isno benefit in the insurer doing so interms of repeat business?

8. What about an executor of adeceased estate, or a mortgageeexercising power of sale? Theformer is clearly a 'successor intitle' and so will be caught by thewarranties (despite often beingunaware of the relevant matters).Will the mortgagee likewise becaught, and, if so, what additionalrequirements will an incomingmortgagee have to preventproblems under this legislationfurther down the track?

9. Howwill intending purchasersknow (or be able to find out) aboutthese matters:

• Has anywork covered by the1996 amendments beenundertaken?

• Who was the builder?

• Was more than one builderinvolved?

• Was the builder/s licensed?

• Who was the insurer or insurers?

• What were the plans andspecifications (important forwarranty (a))? Where can they befound?

• Any breach of warranty?

• Any enforcement of warranty by apredecessor (compare section18D)?

• Is there any chance of the policybeing voided because of, say, amaterial non-disclosure by theinsured?

10. What should the vendor do if itis aware of a breach of warranty?Should the breach be disclosed, soas to avoid any suggestion of'Misleading or deceptive conduct'?On the other hand, would disclosureserve any purpose if the warrantiesare non-excludable? Woulddisclosure itself be construed as anattempt to contract out (compareclause 10.1.9 of the standardcontract)?

11. What is the connection betweenthese warranties and the impliedwarranties contained in theConveyancing (Sale ofLand)Regulation 7995(mix the warrantyof lawful compliance in section18B(c) with Carpenter v McGrathand what do you get?)?

12. What is the connection betweenthese warranties and the passing ofrisk legislation?

13. If you are the fourth successorin title over the past seven years, towhat extent do you need to inquireinto all the preceding transactions?(I suggest you do, at least to someextent, if only to check whetherthere are any claims bypredecessors which might prejudicea future claim byyour client).

14. Does a purchaser make itsenquiries before or after exchange(bearing in mind that not everypiece of building work covered bythe Act has to be disclosed, andeven where disclosure does takeplace the disclosure need be nomore than attaching a certificate ofinsurance)?

15. Can every home-owner beeducated to, among other things:

• Enter into a written, complyingcontract (including plans andspecifications) for any work affectedby the Act, and keep the contractsafe for at least seven years?

• Properly document (for example,obtain a permit) all owner-builderwork ca ught by the Act?

6 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #80 OCTOBER/NOVEMBER 2001

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• Diarise and keep details of theprogress of the building work (forexample, due diligence, delaysetc)?

• Retain all correspondence fromthe builder (particularly 18Fnotices], and any correspondencefrom the insurer?

• For those of us who routi nely getinstructions to reply to req uisitionsin these terms:

There was some work done out theback. I can't remember who thebuilder was but I'm sure he waslicensed and anyway I think he wentbroke shortlyafter doing myjob.

All I can say is 'good luck'.

16. Iwon't begin to comment onthe difficulty in educating buildersabout compliance.

17. If you would like the 'executivesummary' on this area, twoparagraphs of the Law Society'ssubmission as tabled in Parliamentput it rather elegantly:

• Why would a government that haswidened the scope ofwork that canbe performed by licensedconveyancers on the grounds ofmaking conveyancing simpler,quickerand less expensive nowcontemplate legislation that willinevitably make conveyancing ofdwellings less than seven years oldmore complex, take longer andcost more?

• Will the government, havingvacated the BSC scheme forinsuring building work, now expectinsurance to be provided by 'theprivate insurance industry' or by theprofessional indemnity insurers ofsolicitors and licensedconveyancers?And, ifso, at whosecost?

And finally, what is the position ifone of the private insurers goes intoliquidation. Is there to be, or shouldthere be, a safety net forbeneficiaries under the policiesissued by that insurer?

14 DISPUTERESOLUTION

The Department of FairTradingnow has a preliminary disputeresolution role. For example, if aconsumer has a complaint, theDepartment can arrange mediationor assist with lodgment of aninsurance claim or referring thematterto one of the Tribunals. TheDepartment will also have power toinitiate proceedings to show causein the Commercial Tribunal.

Iwill not discuss in detail thechanges to the jurisdiction of theCommercial Tribunal and theBuilding Disputes Tribunal (in partbecause of time constraints, butmainly because the changesbrought about by the 1998 Acts arelikely to be changed yet again by2001 amendments]'

15 THE REGULATIONSTime will permit only a brief look atthe current Regulation.

The most important changes relateto insurance. The relevantprovisions are in Part 5. The majorfeatures are as follows:

• Clause 39 contains keydefinitions: notably 'beneficiary','contractor', 'owner-builderwork'and 'supplier', which are all fairlyintuitive. One less intuitive definitionis 'run off cover', which 'means anew insurance contract thatprovides equivalent coverto thatprovided under an insurancecontract'.

• Clause 39(2) provides that, in Part5 'work is taken not to becompleted even though it has notcommenced'.

• Clause 40 says that the provisionsof Part 5 are subject to theconditions of any ministerialapproval of a particular insurer,and that nothing in the Part affectsthe relevant Federal legislation.

• Clause 41 provides thatinsurance can be entered into or


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arranged by any of the contractor,the supplier, or a beneficiary.

• Clause 42 sets out classes ofbeneficiary, both mandatory [clause42(1)] and optional [clause 42(2)for example, a developer, a licenceholder or a related corporation].

• Clause 43 states the losses whichmust be indemnified underinsurance contracts. Specifically,the policy must cover loss ordamage arising from faulty designwhere the design was provided bythe contractor or supplier(emphasis addedL non-completion,alternative accommodation, andsimilar incidental costs reasonablyand necessarily incurred, or loss ofdeposit or progress payment. Onthis final point, note carefully

'Regulation 44, which allows theinsurerto limit the amountrecoverable to amounts specified insection 8 of the Act or to an amountof progress payment set out in thecontract.

• The other key limitations are setout in Regulation 45. There are 9such limitations in the clause, andthey are surprisingly broad. Themost important ones are:

• when an owner-builder is takingout insurance, the insurer canobtain a pre-insurance inspectionreport and decline liability for anydefect referred to in that report[clause 45(b)].

• fair wear and tear, and failure ofthe insured to maintain the work[clause 45(c)].

• for mixed use properties, claimsarising out of defects in the nonstructural part of the property canbe restricted [clause 45(d)].

• damage caused by 'normal dryingout of the building work' withincertain specified limits [clause45(e)].

• if damage is 'due to or madeworse by the failure of anybeneficiary to take reasonable andtimely action to minimise the


damage' (emphasis added-notethat the contractor or developer canbe a beneficiary) [clause 45(f)].

• claims outside the warrantyperiod or reasonable lifetime ofwork, materials, orequipment[clause 45(g) and (h)].

• defects due to a faulty designprovided by a beneficiary or aprevious owner [clause 45(i)].

• The maximum cover can bereviewed regularly [clause 47].

• Clause 49 generally removes therig ht of aninsu rer to refuse to pay aclaim or cancel a contract formisrepresentation or nondisclosure by the contractor orsupplier or for non-payment of thepremium.

• Clauses 50 to 52 relate toprofessional indemnity and similarinsurance, and will be of primaryinterest to builders ratherthanconsumers.

• Clause 53 sets out time limits forclaims-12 months for incompletework, in other cases 'six monthsafter the beneficiary first becomesaware, or ought reasonably to beaware, of the fact or circumstanceunderwhich the claim arises'.

• There is a 'deemed refusal'provision [clause 54]-a claim istaken to have been refused if thebeneficiary does not have a writtendecision within 60 days of lodgingthe claim (unless the parties agreeto a longer time).

• If the beneficiarywants to appealthe insurer's decision, it must do sowithin 30 days of written noticebeing given [clause 55].

• Clause 56 prescribes the variousforms of insurance certificate. Theforms of certificates are somewhatscantywhen compared with whatwe may be used to in a 'certificateof currency', for example. There isno provision for inserting the policynumber-fairly important formaking a claim orfurtherenquiries.The certificate requires a 'brief

description of building work' -howbrief is unclear. The certificates alsodo not disclose the period of cover(the only date on the certificate isthe date of the certificate itself).More significantly, the certificatesays cover is ·subject to the Act andthe Home Building Regulation 1997and the conditions of the insurancecontract' (emphasis added).Presumably, this will require abeneficiary (and by implication, thesolicitor for a beneficiary] toexamine the policy, which will varyfrom insurerto insurer (and a singleinsurer may issue a variety ofpolicies).

Apart from the insuranceprovisions, the other main points tonote are:

• The definition of 'insolvent' hasbeen changed, and now defines theterm by reference to theCorporations Law, whetherspeaking of an individual or acorporation [clause 3( 1)].

• As mentioned earlier in the paper,removes some of the formerrequirements relating to the issueof licences [clause 16(1 Ha) and (b)of the 1990 Regulation, nowrepealedJ.

• Deleting the Regulation relatingto complaints regarding structuraldefects [the former clause 29].

16 OFF THE PLANTRANSACTIONS

The insurance disclosurerequirements have causedproblems for developers selling offthe plan. The problem is discussedin an article which appeared in theJuly 1998 LawSocietyJournal. Aresponse by way of Letter to theEditor from the Director General ofthe Department of Fair Tradingappeared in the September 1998issue. Briefly, many developerswere having difficulty in puttinginsurance in place prior toexchanging contracts for sale of thevarious lots, because, at that time,the developer had not entered intoa building contract, and insurers

were reluctant to issue insurancecover where the identity of theeventual builderwas unknown.Between May 1997 and February1998, developers made case-bycase applications to theDepartment of Fair Trading forexemption from the insurancerequirements. Since February 1998,the Home Building Regulation 1997grants an exemption, provideddisclosure of the lack of insuranceis made in the contract for sale, andthe contract provides that evidenceof insurance is served within 14days after the insurance is obtained.The contract for sale of the propertymust give the purchaser a right ofrescission if the developer fails toprovide the certificate within that 14day period (see Regulation 66).

17 BUILDING THEFOUNDATION FORAN APPROPRIATEREQUISITION(AND RESPONSE):DOMESTIC BUILDING

The task is to prepare and deal withmatters arising from domesticbuilding work. For present purposeswe can disregard any questions ofcompliance with the localgovernment laws from time to time.

The IssuesSome of the issues forconsideration by the purchaser'ssolicitor:

• What information does apurchaser need?

• What information would apurchaser like to have?

• What questions should apurchaserask?

• When should a purchaser ask thequestions?

.If the purchaser asks questionsbefore exchange, of what value arethe answers?

.If the purchaser asks questionsafter exchange,.of what value arethe answers?


• What answers are 'satisfactory'?

• What rights does the purchaserhave arising out of 'unsatisfactory'answers?

Some of the issues forconsideration by the vendor'ssolicitor:

• What information does a vendor'ssolicitor need from the vendor?

• When should that information besought?

• Are there any matters whichshould be disclosed in the contract?

• What questions [if asked) mightcause problems to the vendor, andhow should those issues beaddressed by the vendor's solicitor?

Some Tips for Handlingthese Issues1. Work from specifics ratherthanabstract generalities. If you aren'tsure what questions to ask, thinkabout particular problems frompractice. For example, to work outwhat questions you might ask aboutdomestic building work, you mightconsider this scenario:

significant because of the insurancerequirements.

2. Each party needs to considerwhetherthe question/requisition is'proper'. Consideration should begiven to the category of requisitioninto which these issues fall. This isrelevant to consider the'appropriateness' of the questionimportant to both purchaser [am Iallowed to ask this question?) andvendor [do I have to answer this?).

4. Is the requisition of a type wherethe vendor can rely on clause 8 [seediscussion of clause 8 above)? Ifnot, does the vendor have any otherremedy when faced with anunwelcome requisition?

5. Does the purchaserwant toraise a requisition about this sort ofmatter? Is a claim for compensationavailable as a preferredalternative?

6. Know the law.

The dates are important to work outwhich legislation applies [and inwhat form, given the frequentamendments to the domesticbuilding legislation). The nature ofthe work, and the value, is toascertain whetherthe work is withinthe scope of the legislation [forsimplicity's sake, all the above workis within the scope of thelegislation). Who did the work is


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18 THE HOME BUILDINGLEGISLATIONAMENDMENT BILL2001 CONSULTATIONDRAFT

The Consultation Draft (CD for shortin the rest of this paper) wasreleased in early March 2001.Significant changes were flagged ina Department of Fair Tradingdiscussion paper released inNovember 2000 entitled ·HomeBuilding-Proposed Reforms toConsumer Protection and DisputeResolution' .

As mentioned earlier, the possiblechanges are significant. Some atleast are problematic, and somewill impact beyond the buildingindustry, and affect the day-to-dayoperation of conveyancing practice.

The main points of note appear tobe:

• The scope of licensing isproposed to be changed. The 2000amendments proposed thatrefrigeration work and airconditioning work be removed fromthe licensing regime in the interestsof regulatory reduction. The CDproposes that these trades remain(CD and Bill clause 5). It is furtherproposed to limit the currentrequirement that all roof plumbingwork be within the licensingprovisions, so that licensing isrestricted to contractors whoundertake residential work (CD andBill Schedule 1 [1] to [3]).

• Generally throughout the Act,what are currently described as'licences' are to be described as'contractor licences'. This change isconsequent upon the proposedintroduction of licensing of buildingconsultancy work (CD Schedule3 [4]).

.It is proposed to increase thepower of the Director-General ofthe Department in regard toregulating licences. Cancellationwill be possible if, for instance, the

holder of a licence becomesbankrupt or is made the subject of awinding up order (CD Schedule 1[5]), or a controller or administratoris appointed [CD Schedule 1 [6]).

• Educational requirements fortheholders of owner-builder permits(CD Schedule 1 [8]), and mandatorycontinuing professionaldevelopment forthe industrygenerally (CD Schedule 1 [9]; BillSchedule 1 [13]).

• The introduction of a cooling offperiod to contracts to do residentialbuilding work (CD and BillSchedule 2 [3] and [5]) and kithomes (CD and Bill Schedule 2 [8]and [10]), together with arequirement that the contractcontain a 'conspicuous statementsetting out the cooling off period'(CD proposed section 7(2)(g)). Aconsumer education brochure is tobe provided to the consumer (CDproposed section 7M). The criticalsection in the CD was proposedsection 7BAwhich provided:

7BA Cooling-Off Period:Person May Rescinda Contract forResidential BuildingWork Within Five DaysWithout Penalty

(1)A person who contracts with theholder of a contractor licence forresidential building work to be doneby the holder of the contractorlicence may, by notice in writing,rescind the contract at any timebefore the expiration of five clearbusiness days after the contract issigned.

(2) The notice must state that theperson rescinds the contract andmust be given:

(a) to the holder of thecontractor licence personally, or

(b) by leaving it at the addressshown in the contract as theaddress of the holder of thecontractor licence, or

(c) by serving it on the holder ofthe contractor licence inaccordance with any notice orservice provision in the contract.

(3) If a notice is given in accordancewith th is section:

(a) the contract is taken to berescinded ab initio, but

subject to the rights and obligationsconferred by this section, and

(b) the holder of the contractorlicence may retain out of anymoney already paid to theholder the amount of any outof-pocket expenses the holderincurred before the rescission,and

[c) the holder of the contractorlicence must refund all othermoney paid to him, her or itunder the contract by (or onbehalf of) the person who hasrescinded at or since the timethe contract was made, and

[d) the person who rescinded isnot liable to the holder of thecontractor licence in anyway forrescinding the contract.

(4) A person cannot rescind acontract under this section if theperson received independentadvice from a legal practitionerconcerning the contract beforeentering into the contract.

Some points to note: the CD issilent on what matters are to becovered by the legal advice (theterm 'concerning the contract' israther vague), how the fact thatadvice was given is to evidenced (a66W style certificate? A Rule 45style declaration by the borrower).Will the final form of statute [or theregulations) have some savingprovisions relating to, for instance,work that will be or is expected tobe completed within the cooling offperiod?

Those concerns seem to have beentaken on board in the Bill, whichprovides:


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7BA Cooling-Off Period:Person May Rescinda Contract forResidential BuildingWork Within Five DaysWithout Penalty

[1)A person who contracts with theholder of a contractor licence forresidential building work to be doneby the holder of the contractorlicence may, by notice in writing,rescind the contract at any timebefore the expiration of 5 clearbusiness days afterthe person isgiven a copy of the signed contract[or becomes aware that he or she isentitled to be given a copy of thesig ned contract).

(2) The notice must state that theperson rescinds the contract andmust be given:

[a) to the holder of thecontractor licence personally, or

[b) by leaving it at the addressshown in the contract as theadd ress of the holder of thecontractor licence, or

[c) by serving it on the holder ofthe contractor licence inaccordance with any notice orservice provision in the contract.

(3) If a notice is given in accordancewith this section:

[a) the contract is taken to berescinded from the time it wassigned, but subject to the rightsand obligations conferred by thissection, and

[b) the holder of the contractorlicence may retain out of anymoney already paid to theholder the amount of any outof-pocket expenses the holderincurred before the rescission,and

[c) the holder of the contractorlicence must refund all othermoney paid to the holder underthe contract by [or on behalf of)the party who rescinded thecontract at or

since the time the contract wasmade, and

[d) the party who rescinded thecontract is not liable to theholder of the contractor licencein anyway for rescinding thecontract.

(4) The cooling-offperiod may beshortened or avoided by a provisionin the contract, but the provisiondoes not take effect unless anduntil the other party to the contractgives the holder of the contractorlicence [or the holder's legalpractitioner) a certificate thatcomplies with subsection (5).

(5) A certificate complies with thissubsection if it:

[a) is in writing, and

[b) is signed by a legalpractitioner, other tha n:

[i) a legal practitioner acting forthe holder of the contractorlicence, or

[ii) any other legal practitioneremployed in the legalpractice of a legalpractitioner acting fortheholder of the contractorlicence, or

[iii) any other legal practitionerwho isa memberoremployee of a firm in whicha legal practitioner acting forthe holder of the contractorlicence is a member oremployee, and

[c) indicates the purpose forwhich the certificate is given, and

[d) contains a statement to theeffect that the legal practitionerexplained to the other party tothe contract the effect of thecontract, the nature of thecertificate and the effect ofgiving the certificate to theholder of the contractor licence.

(6) A contract can be rescindedunder this section even if work hasbeen done under the contract at thetime of rescission.

(7) If a contract is rescinded underthis section, the holder of thecontractor licence is entitled to areasonable price for the workcarried out under the contract to thedate the contract is rescinded.

(8) This section does not apply to acontract of a class specified in theregulations.

If the notice is not given the clientcan rescind, it seems, even afterthework has been completed [contrastthe cooling off rights under theConveyancing Act 1919).

There are to be correspondingprovisions in relation to kit homes.

-It is proposed to licence 'buildingconsultancy work' , to be defined as[CD Schedule 3 [1 l):

Building consultancy work meansany work involved in, or involved incoordinating or supervising:

[a) giving advice, orfurnishingreports, in respect of residentialbuilding work [whether theresidential building work hasalready been performed, is inprogress or is or may berequired in the future), includingcarrying out an inspection of acompleted building, or

[b) giving advice, orfurnishingreports, in respect of specialistwork [for example, electrical,plumbing or air-conditioningwork).

The definition in the CD wasremarkably broad. It clearlyextends to people providing prepurchase building inspections. Whatabout pest reports-is a typicalreport one 'in respect of residentialbuilding work', or in respect of thepresence or absence of activepests? Or, what about smoke tests?Valuation reports? Surveyors?Legal practitioners? It would behelpful if the scope of experts withinthe ambit of the legislation wereclarified [one interesting point is theprovision which will allow forprofessionals regulated as, forinstance, architects, valuers or


accredited certifiers, to not have toundertake continuing professionaldevelopment under the buildingconsultants regime (CD Schedule3[12]). This suggests that thosecategories of professionals willrequire licensing as buildingconsu ltants.

Again, some of these concerns areaddressed in the Bill:

Building consultancywork meansanywork, for fee or reward,involved in, or involved incoordinating orsupervising:

(a) the inspection of dwellingsand reporting on their condition,or

(b) the conduct of inspectionsand the furnishing of reports, inrespect of specialist work [forexample, electrical, plumbing orair-conditioning work), or

[c) any otherwork prescribed bythe regulations,

but does not include any work thatis declared by the regulations to beexcluded from this definition.

• Building consultants will have tocomply with requirements relatingto formal validity of contracts[including a signed contract with thecustomer and a consumerinformation brochure), and servinga copy of the signed copy of thecontract on the other party-see CDand Bill proposed section 18K and180. If this procedure applieduniversally, the practice of clientsor practitioners obtaining buildingreports on a phone call wouldpresumablydisappear. Thiswould, Isuggest, potentially create delayand arguably unnecessarypaperwork in the conveyancingprocess. There is not proposed tobe a cooling off period (or a waiverprovision) for contracts toundertake building consultancywork.

• Compulsory arbitration clauses inbuilding consultancy contracts areto be prohibited, and a buildingconsultant will generally not have a

caveatable interest (mirroring theprovisions regarding contracts to dobuilding work, although thenecessity of such clauses must bedebatable)-see proposed sections18Pand 18Q.

• Building consultants must haveapproved policies of professionalindemnity insurance.

• It is proposed to introduce a newDivision 3A, entitled 'ResolvingBuilding Disputes and BuildingClaims'. The current sections 89A to89C would be repealed. Thejurisdiction of the Fair TradingTribunal in relation to buildingclaims [as defined in proposedsection 48A, and including appealsfrom decisions of insurers) is to beincreased to $500,000, with theincreased jurisdiction to havebroadly retrospective operation[Bill proposed section 48K).Proposed section 48L largelyremoves the 'race to commenceproceedings and choosejurisdiction' in the present regimeby providing that the Fair TradingTribunal is to be chiefly responsiblefor resolving building claims. Thedefendant will have the right tohave court proceedings transferredto the Tribunal. Sections 480 to 48Jas proposed set up a pre-requisiteregime of alternative disputeresolution. There is a power toadjourn proceedings before thetribunal if it becomes apparent thata party has a right to make aninsurance claim (proposed section48P).

• Schedule 6 of the CD and the Billdeal with amendments regardinginsurance. The CD containedproposed new sections 92[ 1A) and(1 B) to allow insurance covertosurvive the technical defect that apolicy is in the name of a director ofa corporation and the contractingparty is the corporation, and viceversa (with correspondingprovisions for kit homes). The Billadopts a slightly different approachin stating that, to quote from theexplanatory note, 'the contract of


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insurance must be in the name ofthe person who contracts to do thework (and not, for instance, in thename of a companywith which theperson is involved)'.

• Proposed new sections 94 (1 A) to(1 C) represent a dramatic shift ofpolicy. The regime introduced from1 May 1997 permitted a quantummeruit recoverywhere a builderhad not complied with what mightbe termed a breach of the formalcontractual requirements under theAct, but prohibiting recovery on anybasis if insurance coverwas not inplace. The proposed new sectionsallow for recovery on a 'just andequitable' basis, which appears tohewiderthan a quantum meruitand includes a contractual right ofrecovery. This seems to open thedoor for a builder to recover foruninsured work, exposing thebeneficiaries of the statutoryinsurance to the risk that there willbe no comeback against an insurer.The inconsistency between the twoprovisions is also potentiallyproblematic.

The proposed sections in the CDprovided as follows:

94 (1A) Despite section 92 (2) andsubsection (1 Lif a court considers itjust and equitable, the contractor,despite the absence of the requiredcontract of insurance:

(a) may receive payment undera contract for residential buildingwork from any other party to thecontract, and

(b) is entitled to damages, or toenforce any other remedy inrespect of a breach of the contractcommitted by any other party to thecontract, in relation to that work, and

(c) is entitled to recover moneyin respect of that work under anyother right of action (including aquantum meruit).

(1 B) A contractorwho applies to acourt for a remedy under thissection, orwho is awarded moneyunder this section, is not guilty of an


offence under section 92 (2) byvirtue only of that fact.

(1 C) Without limiting the factorsthat a court may consider indeciding what is just and equitableunder subsection (1A):

(a) in relation to any contractthe court may have regard to theimpact on the resale price ofproperty if no contract of insuranceis provided, and

(b) in relation only to a contractentered into before 30 July 1999the court is not to be limited by thefact that the required contract ofinsurance was not obtained untilafter the date of the contract.

Again, the approach has beenchanged to what (I suggest) is apreferable approach in the Bill:

94 (1A) Despite section 92 (2) andsubsection (1 Lif a court ortribunalconsiders it just and equitable, thecontractor, despite the absence ofthe required contract of insurance,is entitled to recover money inrespect of that work on a quantummeruit basis.

(1 B) A contractorwho applies to acourt or tribunal for a remedy underthis section, orwho is awardedmoney under this section, is notguilty of an offence under section92 (2) by virtue only of that fact.

(1 C) Without limiting the factorsthat a court or tribunal mayconsider in deciding what is just andequitable undersubsection (1A):

(a) in relation to any contractthe court or tribunal may haveregard to the impact on the resaleprice of the property if no contractof insurance is provided, and

(b) in relation only to a contractentered into before 30 July 1999the court or tribunal is not to belimited by the fact that the requiredcontract of insurance was notobtained until after the date of thecontract.

• A proposed new section 95 (2A)will impose additional obligations

on owner-builders who are selling.The proposed section provides:

95 (2A) A person who is the ownerof land, and to whom a permit wasissued under Division 3 of Part 3after the commencement of thissubsection and not more than 7years previously must not enter intoa contract forthe sale of the land inrelation to which the permit wasissued unless the contract includesa conspicuous note:

(a) that a permit was issuedunder Division 3 of Part 3 to theperson in relation to the land, and

(b) that the work done underthat permit was required to beinsured under this Act.

Maximum penalty: 200 penalty units.

• Developers who do residentialbuilding work otherthan under acontract will have to giveinformation brochures to the otherparty [proposed section 96 [2A)).

• Developers will also beinterested in the changes tosections 96A. They are set outbelow:

Omit section 96A (1).

Insert instead:

(1 )A developer must not enter intoa contract for the sale of land onwhich residential building work hasbeen done, or is to be done, on thedeveloper's behalf unless acertificate of insurance evidencingthe contract of insurance requiredunder section 92 by the person whodid or does the work for thedeveloper, in a form prescribed bythe regulations, is attached to thecontract of sale.

Maximum penalty: 200 penaltyunits.

(1 A) A developer must, beforeentering into a contract, give theother party to the contract abrochure, in a form approved by theDirector-General, containinginformation that explains the

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operation of the contract ofinsurance, and the procedure forthe resolution of disputes under thecontract.

Maximum penalty: 20 penalty units.

Insert after section 96A (2):

(3) If a person contravenessubsection (1) in respect of acontract, the contract is voidable atthe option of the purchaser beforethe completion of the contract.

(4) This section does not apply to asale of the land more than 7 yearsafterthe completion of the work.

• Insurers will under a proposedsection 103A (6) be obliged to keepa written or electronic record of allpolicies of insurance issued and theaddresses of the premises coveredby those insurance policies [I haveadded the emphasis). This should inpart address the concern thatcertificates evidencing insurancewere frequently not connected tothe building site. Hopefully theregulations will require the form ofinsurance certificate to particularisethe site to which the insurancecover relate.

• Proposed sections 103M to103AC will allow the Minister tosuspend, impose a civil penalty on,or censure an insurer. In the light ofHIH one wonders if the range ofremedies may need to beexpanded.

• Proposed section 1038 [2A)allows for the gazettal of classes ofinsurance coverwith a shorterperiod of coverthan the usual cover.This appears to be designed tocover short-term building worksuch as, to take one example,landscaping. This powerwillpotentially make the advising ofpeople about insurance rights moredifficult, and as a matter of trackingany such declarations it may bepreferable to have any suchdecisions contained in theRegulations rather than byGazettal.


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Many property lawyers havetended to treat the builderslicensing provisions assomething that was tackedon to the end of requisitions,and therefore to be takenonly slightly seriously.

19 CONCLUSION-WHERE TOAFTER HIH?

One of the consequences of thecollapse of HIH Insurance isuncertainty about the operation ofhome warranty insurance policiesissued under the privatised buildinginsurance scheme in force in NewSouth Wales since May 1997. Whilethe position is not free from doubt(not least because of the uncertainstate of HI H itself) the followi ngmay be of assistance.

1. Contracts under the homewarranty scheme are contracts ofgeneral insurance within the termsof the Insurance Contracts Act 7984(Cth).

2. The appointment of a provisionalliquidatorto an insurer does notinvalidate contracts-theappointment of a liquidatorauthorises the insurerto cancel acontract if it wishes.

3. The Home Building Act requiresa contract of insurance to be 'inforce' when undertaking mostbuilding work within the meaning ofthe Act, otherwise, among otherthings, a penalty may be imposed.The HIH policieswere byan insureroperating under the Act, andtherefore complied with thatprovision. Contractors should not beexposed to penalties if they dobuilding work under an HIH policy.

4. However, where an ownerbuilder is involved, the requirementis that a contract be in force when acontract for sale of the property isentered into. This distinction is likelyto impact significantly on ownerbuilders who had taken outinsurance coverwith HIH.

5. Having said that, contractors andtheir clients may question whetheran HI H policy is likely to be of anypractical value if a claim has to bemade. Most builders have beenattempting to arrange alternativecover.

6. WhilesomepartsoftheHIHportfolio have been taken over byother insurers, I think it unlikely thatthere will be a rush of 'whiteknights' queueing to take overthehome warranty insurance part ofthe portfolio.

7. HIH had byfarthe largestmarket share in NSW. There weretwo other insurers operating at thetime of the appointment of theprovisional liquidator (a third is dueto start operating in April2001). Theremaining insurers have beenoverwhelmed with proposals forinsurance cover in the light of theHIH collapse, and the processingtime appears to be of the order ofseveral weeks. I understand theinsurers' requirements for providinginsurance cover are quite stringent.

Many property lawyers have tendedto treat the builders licensingprovisions as something that wastacked on to the end of requisitions,and therefore to be taken onlyslightly seriously. The provisionsaffecting insurance (particularlyaffecting owner-builders), and thestatutorywarranties, willincreasingly impact on domesticconveyancing. The legislation willimpact on the community generally,byvirtue of the responsibility forinsurance (and now therefore formanagerial experience andsolvency) passing from aGovernment (responsible to theelectorate) to private insurers(primarily responsible to theirshareholders). Time will tellwhetherthe impact is for goodorforill.


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