Jandson Pty Ltd v Syed Ahmad Shoaib Ali Pty Limited As Trustee for Syed Family Trust and Ors

The applicant's submissions

1. On 31 March 2015 Jandson and the homeowner entered into a put and call option with Saint Mary's land Limited (the developer) for various properties including a property situated at lot xxx Avenue, Jordan Springs (the property). Jandson packages the land with one of its designs to sell a combined house and land package. The purchaser enters into a building contract with Jandson, and a contract for the sale of land with the developer. Once the land subdivision has been completed and registered the purchaser will then complete the land purchase and proceed with the construction in accordance with the building contract.
2. On 7 August 2015 Jandson forwarded a contract tender to the homeowner for the construction of a residential dwelling for the sum of $317,150.00 inclusive of GST together with a contract for sale in relation to the property.
3. On 29 August 2015 the homeowner signed the building contract and the contract for the sale of land (the contract date).
4. On 7 January 2016 Jandson received an email from the homeowner purporting to terminate the building contract (the repudiation).
5. On 4 February 2016 Jandson through its solicitors forwarded a letter to the first respondent and second respondent as guarantor in which Jandson advised that the purported termination of the building contract on 7 January 2016 was both wrongful and invalid and the first respondent was in breach of its obligations under the contract; and the first respondent had breached the terms of the building contract; Jandson accepted that contract as repudiated and elected to terminate the building contract claiming damages for expenses incurred up to and including 7 January 2016 as well as a loss of profit ( the termination).
6. In or about February 2016 the respondent entered into a second contract for residential building work with Photon Dynamics Pty Ltd (Photon). Photon constructed the dwelling and the respondent took possession of the dwelling in 2016. Photon obtained Home Owners Warranty Insurance (HOW) for the benefit of the homeowner. The policy is in evidence.
7. At a preliminary hearing in December 2016 the Tribunal decided that the claim against the homeowner (and the guarantor) is a building claim as defined in section 48A of the Home Building Act 1989 (the Act) and that the Tribunal has jurisdiction to hear determine that claim pursuant to section 48K of the Act.
8. It was formally admitted that the homeowner repudiated and that the builder validly elected to terminate the contract. This issue was no longer in dispute.
9. The builder relies on the authority of Commonwealth v Amann Aviation Pty Limited. The High Court summarises the principles from Hadley v Baxendale: The plaintiff is entitled to recover such damages as arise naturally, that is, accordingly to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach.

The deed of guarantee

1. The second respondent guarantees the first respondent's obligations under the contract (emphasis added) pursuant to a guarantee and indemnity contained at page 11 of the contract.
2. Clause 29.1 of the contract allows the builder to claim damages for any losses incurred by reason of the homeowner's breach. The builder claims losses in the sum of $17,930.56 for costs it incurred in preparation of the contract and the site. It includes invoices from structural engineers, conveyancers, preparation of the BASIX report, the s 149 certificate and costs incurred for landscape and architectural services. It also claims lost profits.
3. In support of its claim for damages the applicant relies on the expert report of Graham Field, quantity surveyor, and further and in the alternative, relies on the expert report of Stephan Iskowicz of Axiom Construction Consultants Pty Ltd dated 9 August 2017. The report was tendered and marked exhibit A.
4. Mr Graham Field has been employed by Jandson as their senior estimator for fifteen years. Mr Field has estimated the profit margin that Jandson would have achieved if the contract would have been performed in the sum of $85,104.
5. It is submitted that the homeowner has not provided evidence challenging this estimate and that the Tribunal should make an award in this sum for lost profit in favour of the applicant.
6. In the event that the Tribunal does not accept Mr Field's evidence, it ought to accept Mr Iskowicz's report. He estimates the lost profit by reason of the breach in the sum of $62,318.19 for reasons set out in his report. Mr Iskowicz was not required for cross-examination and his report was admitted without objection. This aspect of the applicant's claim was not factually challenged and the Tribunal ought to make an award for lost profits in this amount.\

Defences raised by the respondent - Sections 92 and 94

1. The homeowner claims that because of the absence of a valid home owners warranty (HOW) insurance certificate the builder is precluded from claiming any damages or losses for breach of contract. The homeowner relies on the operation of ss 92 and 94 of the Home Building Act 1989 (the Act) respectively.
2. Jandson submits that s 92 has no effect on its claim for damages. "Sections 92(1) and (2) give power to NSW Fair Trading to prosecute in the event of any alleged breaches to those sections". It is submitted the sections are not intended as a defence to defeat claims by builders for loss of profit.
3. In the second reading speech for the Home Building Amendment Bill introduced to the NSW Parliament on 2 June 1999 John Watkins, who was the Minister for Fair Trading when commenting on the amendments to s 94, stated: While consumers must be protected against uninsured operators, the strict terms of s 94 might operate unfairly when there is an intention to insure, yet the supply of the certificate of insurance cover has not been contemporaneously with the signing of the contract. …. To address the existing consequences of section 94 the bill introduces amendments which provide that a licensee is not entitled to enforce the contract or recover monies for work done, until the licensee obtains insurance covering that work. … the Act will therefore be amended to provide that person who contracts to do any residential building work …. must not commence that work … unless a contract of insurance is in place…
4. The builder claims it has not performed "residential building work" as defined in the Act and was therefore not required to obtain insurance. It merely attended to preliminary matters, such as preparation of plans. There has been no breach of the Act or its statutory intention as expressed in the second reading speech.
5. The builder further submits it advised the homeowner that "a Certificate of insurance will be supplied prior to commencement of work"
6. Jandson claimed it had not performed residential building work as at the date of the purported termination and therefore section 94(1) of the Act does not apply. "Otherwise any homeowner who entered into a building contract could seek to wrongfully terminate that contract before obtaining home owners warranty insurance without attracting any consequences for such breach." (see submissions page 13 paragraph 44.)
7. The second reading speech makes it apparent that the preclusion to the obtaining of damages by the builder relates to "residential building work" that is completed without first obtaining the Home Owners Warranty Insurance certificate. Jandson's claim for damages is limited to losses incurred for expenses that it incurred prior to performing "residential building work", and loss of profit. There is no claim by Jandson for payments for "residential building work", as distinct for payments for preliminary work and loss of profit.
8. In addition or in the alternative it is argued that s 94(3) allows the builder to obtain HOW insurance retrospectively and upon obtaining the insurance, the work is no longer uninsured.
9. On 8 December 2016 the builder applied for HOW insurance retrospectively to cover residential building work that occurred 12 months earlier.
10. The builder submits that it should succeed in its claim for damages and that s 92 is of no effect "as there is no evidence before the Tribunal that as at 8 December 2016 HOW insurance was not in place".
11. It is submitted that the homeowner has not established that there was no valid HOW insurance in place. The homeowner seeks to rely upon a purported cancellation of a HOW insurance by QBE, but has failed to call any person from QBE to confirm that the policy was indeed cancelled and what the force and effect of such a cancellation would be. Jandson did not seek to cancel the policy nor did it consent for the policy to be cancelled. In those circumstances, any purported cancellation or termination of the policy would be void and it is entitled to damages for breach of contract, including lost profits.

The respondent's submissions

1. The respondents contend that there are three issues to be decided.
2. First, is the applicant's claim for damages barred by reason of operation of ss 92 and 94 of the Act?
3. Secondly, notwithstanding such a bar, is Jandson entitled to recover against Mr Ali under the guarantee and indemnity?
4. Thirdly, wether the builder is entitled to any money because, despite the operation of ss 92 (1) and 92 (2), if a court or tribunal considers it just and equitable, the builder, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis (s94(1A)).
5. The respondent denies liability on the basis that the applicant failed to secure insurance, and that another contractor (Photon) was and remains in possession of valid statutory insurance in respect of the dwelling that was built on site.
6. Sections 92 and 94 provide a complete answer to Jandson's claim. Section 92 (1) provides that a person must not do (emphasis added) residential building work under a contract unless a contract of insurance is in place and a certificate of insurance has been provided to the other party; and must not demand or receive payment (emphasis added) whether as a deposit and whether or not work under the contract has commenced.
7. Section 94(1) provides where there is no HOW insurance, the contractor is not entitled to damages or to enforce any other remedy in respect of a breach.
8. The respondent submits that s 94 should be read literally and the builder is not entitled to recover on a quantum meruit basis.
9. Jandson pleads that it obtained a certificate of insurance on 8 December 2016, but the respondent establishes that the certificate was cancelled by QBE because it was issued in error based on insufficient or erroneous information and that there was not, at any material time, a valid certificate of insurance issued.
10. Jandson only applied for a certificate of insurance on 8 December 2016, more than a year after the contract was entered into, over 12 months after the builder performed any work and 10 months after the contract was terminated.
11. QBE confirmed in writing on 3 January 2017 that the policy was cancelled as it was issued in error.
12. The construction of the Act, and in particular the amendment of 1999, is designed to tighten the compulsory insurance regime to impose upon builders severe economic consequences when insurance had not been obtained.
13. The homeowner is not liable for damages because no valid certificate of insurance had been obtained and the respondent is under no obligation to pay damages or loss of profit. The guarantee is not enforceable because the Guarantor only indemnifies the builder against any claim, loss or damage arising out of the subject matter of the contract caused by or resulting from any non-fulfilment of the owners obligation under the contract. This is not such a case.
14. Neither the guarantee nor the indemnity is enforceable because the building contract expressly provides that the homeowner has no obligation to pay the builder until a valid certificate of insurance has been provided.
15. Because the respondent was under no obligation to make payments under the contract (because there was no valid HOW insurance) there is no loss in respect of which the guarantee or the indemnity could operate (submissions 22.b.).
16. Allowing recovery under the guarantee and indemnity would fall foul of s94(1) of the HBA because the section precludes the enforcement of "any other remedy in respect of the breach of contract" and disentitles the builder to "recover money in respect of [residential building work]" when there is no appropriate insurance in place.
17. Allowing recovery under the guarantee and indemnity would subvert the remedial objects of Part 9 of the HBA because it would remove the incentive for builders to secure the appropriate insurance before commencing work under the contract.

Quantum meruit

1. The homeowners concede that the builder can succeed on a quantum meruit basis but only if the Tribunal considers that it is "just and equitable" to do so s 94(1C).
2. In Eddy Lau Constructions v Transdevelopment Enterprises Pty Ltd [2004] NSWSC 273 Barrett J described the operation of s 94 as follows: The policy is, clearly enough, that the statutory disentitlement under s 94(1) to sue for damages under or otherwise to enforce the contract made in contravention of s 92(10) may be offset by the court's allowing recovery on a quantum meruit basis, provided that it is satisfied , according the "just and equitable" criteria, that the builder is deserving of such recovery" (at [62]).
3. The homeowner submits that by reason of it repudiating the contract and entering into a contract with another builder, it never received any benefit from the preliminary work performed by the first builder. For example, the work performed for the preliminary development and design by Jandson was repeated by the new builder, Photon. The evidence showed that Photon obtained a new construction certificate, a new development application, a new BAL certificate and a new BASIX certificate (see paragraphs 27 and following of the respondent's submission setting out the relevant evidence). The homeowner therefore received no benefit from any of the work performed by Jandson in respect of which damages are now claimed, and therefore, as no benefit was obtained, no award should be made (Pavey v Matthews Pty Ltd).
4. I cannot agree with the analysis. By admission, the homeowner repudiated the contract. It elected to enter into a second contract, engaged a second contractor (Photon), thereby entirely of its own volition duplicating the services provided to it. The fact that the homeowner obtained a benefit pursuant to a second contract, which rendered any benefit obtained under the first contract obsolete to the homeowner, is not relevant. The builder provided construction certificates and council approval for which the homeowner has not paid, thereby deriving a benefit (Eddy Lau). It cannot be that a party who repudiates the contract, and enters into a new contract should, in reliance on its own repudiatory conduct, deny the party aggrieved by the repudiation any benefit of recovery for losses incurred on a "just and equitable" basis.
5. The homeowner submits that the Tribunal, in its discretion, should not find it just and equitable to make an award because the builder, an experienced construction company, was aware of its obligation to obtain HOW insurance, and it simply elected not to comply with a mandatory statutory requirement.
6. On the question of quantum, in the event that the Tribunal should find that it is just and equitable to award compensation, the Tribunal should limit its award $5000 for the deposit paid by the homeowner.
7. The Tribunal should disregard any actual costs incurred by Jandson and instead substitute its own assessment, and award $5000 being the deposit paid by the homeowner as being a reasonable sum under the circumstances.
8. No analysis has been offered why $5000 is reasonable under the circumstances.

The applicant's reply submissions 1 February 2018

1. The following does not constitute an extensive repeat of the submissions but merely a summary. The totality of the submissions have been considered. The applicant submits that section 92 does not provide a defence or bar to a claim made by a builder for residential building work undertaken in circumstances where there is no contract of insurance.
2. Section 94(3) has taken away the requirement to obtain HOW insurance prior to (emphasis added) entering into a building contract.
3. The applicant seeks to distinguish Grygiel v Baine from the current facts. The Tribunal is reminded that the Court of Appeal found that that the definition of "building claim" s48A, was extended and arose from a supply of building goods and services for or in connection with the carrying out of residential building work. In particular, it was found that a solicitor's advice gave rise to a sufficient causal nexus for it to be in connection with the carrying out of residential building work. The builder submits that the work carried out in this case, "preparation of architectural and engineering drawings and obtaining of preparatory reports and certificates" should be distinguished and does not fall under the definition of "residential building work".
4. In the alternative, if the builder did carry out residential building work, then it should be found that the work was insured for the purpose of s 92. The Tribunal should afford little weight to the cancellation of the insurance certificate in Exhibit B and find that Jandson has obtained the required contract of insurance. In any event, the respondent failed to comply with the cancellation procedure set out in section 59 of the Insurance Contract Act 1984 (Cth).

Consideration

1. I have previously decided that the Tribunal has jurisdiction to hear and determine the issues between the parties as the action by the builder is a "building claim" within the meaning of s 48A of the Act (see reasons for decision HB 16/51048 dated 13 December 2016.)
2. The Tribunal needs to determine the following matters 1. Did the builder perform residential building work? 2. Was a contract of insurance required by section 92 in force? 3. Is the builder precluded from its claim for damages by reason of the operation of ss 92 and 94? 4. If the answer to (3) above is in the negative, is it just and equitable for the builder to recover on quantum meruit basis?

Did the builder perform residential building work?

1. S 48A defines residential building work as "services supplied for or in connection with the carrying out of residential building work". Residential building work is defined in the Act (1) In this Act, "residential building work" means any work involved in, or involved in co-ordinating or supervising any work involved in: (a) the construction of a dwelling, or (b) the making of alterations or additions to a dwelling, or (c) the repairing, renovation, decoration or protective treatment of a dwelling.
2. The builder claims damages for costs incurred in site and plan preparation. It seeks to recover costs incurred for invoices rendered by structural engineers and costs for conveyancing expenses; preparation of a BASIX certificate; invoice in relation to a BAL certificate; invoice from council for a s149 Certificate; invoice for the CDC application; invoice for architectural and landscape services; and commission payable to Lend Lease Realty Pty Ltd pursuant to an agency agreement for the land and house package.
3. Preparatory work could be said to have a sufficient connection with the carrying out of building work because its purpose was to give rise to residential building work and it had the sufficient causal nexus with such work (Grygiel v Baine & Ors). The preparation of plans and obtaining of certificates, can be defined as "residential building work" within the meaning of the Act. These were services performed for which the builder invoiced the homeowner and for which damages and losses are now claimed, (see applicant's outline of submission at paragraph 29 and the witness statement of Graham Field dated 15 June 2016, detailing the invoices issued at 29(i) to 29(vii)).
4. The issue was recently considered by Senior Member Sarginson at Hawli v NSW Self Insurance Corporation. After considering the relevant authorities, inter alia, Grygiel v Bain & Ors [2005] NSWCA 218, the Senior Member found that the engagement by the builder of a consulting engineer to peg out a site for the purposes of the survey was "residential building work". I am satisfied that the facts in that case are analogous with the facts in this case and that the preparatory work performed by Jandson was "residential building work." I have also had regard to the well-known authority of Grygiel v Bain.
5. The authorities are quite clear that a building claim is not limited to activities such as the laying of foundations and painting a building on site but extends to work of a preparatory nature; as per Basten JA, Grygiel v Baine [2005] NSWCA 218. Preparatory work could be said to have a sufficient connection with the carrying out of building work because its purpose was to give rise to residential building work and it had the sufficient causal nexus with such work. It was further determined that to the extent that the statutory terminology permits, limits placed on the definition of "building claim" should not be arbitrary nor should an unduly restrictive construction be given to the words of the statute. I am satisfied the preliminary work carried out by the builder has a sufficient connection with the carrying out of building work under the contract and within the meaning of s 3 of the Act.

Was a contract of insurance required by section 92 in force?

1. For ease of reference I have set out ss 92 and 94 in full: 92 Contract work must be insured (1) A person must not do residential building work under a contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work in the name under which the person contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract. Maximum penalty: 1,000 penalty units in the case of a corporation and 200 penalty units in any other case. Note : Part 6B (see section 104B) provides that the requirement to obtain insurance under this section may be met by obtaining coverage through an alternative indemnity product. (2) A person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work in the name under which the person contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract. Maximum penalty: 1,000 penalty units in the case of a corporation and 200 penalty units in any other case. (2A) An individual who is convicted of a second or subsequent offence under subsection (1) or (2) is liable to a penalty not exceeding 500 penalty units or imprisonment for a term not exceeding 12 months, or both. (3) This section does not apply if the contract price does not exceed the amount prescribed by the regulations for the purposes of this section or (if the contract price is not known) the reasonable market cost of the labour and materials involved does not exceed that amount. (4) If the same parties enter into two or more contracts to carry out work in stages, the contract price for the purposes of subsection (3) is taken to be the sum of the contract prices under each of the contracts. (5) A contract of insurance that is in force in compliance with this section in relation to residential building work (the "original work" ) done by a person extends to any residential building work done by the person by way of rectification of the original work. Note : Accordingly, this section does not require a separate contract of insurance in relation to the rectification work. (6) To avoid doubt, this section extends to residential building work that is also owner-builder work (when the work is done under a contract between the person who contracts to do the work and the owner-builder).
2. Section 92(2) is clear in its wording and intent: "a person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless a contract of insurance that complies with this Act is in force and a certificate of insurance has been provided to the other party.
3. First, and for the reasons set out I am satisfied that the applicant has provided residential building work. Secondly, even if I have erred and it has not, the effect of s 92 is such that the words "contract for residential building work" is a description of the type of contract to which part 6 of the Act applies. It does not mean that the section only applies when residential building works concerning bricks and mortar commences. The section does not make a temporal division between the time when the contract is signed or entered into and the time when work commences. Work performed under the contract, from the time that the contract is entered, must be covered by insurance. Section 92 applies to all work under the contract and all work under any "contract for residential building work", must be, by definition, residential building work.
4. I have had regard to exhibit A and One tendered on behalf of the parties. The uncontested evidence is that the builder did not have insurance until 8 December 2016.
5. The builder states that this is of little consequence because the requirements of s 94(3) allow retrospective insurance cover. 94 Effect of failure to insure residential building work (1) If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the "uninsured work" ), the contractor who did the work: (a) is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and (b) is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit). (1A) Despite section 92 (2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis. (1B) A contractor who applies to a court or tribunal for a remedy under this section, or who is awarded money under this section, is not guilty of an offence under section 92 (2) by virtue only of that fact. (1C) Without limiting the factors that a court or tribunal may consider in deciding what is just and equitable under subsection (1A): (a) in relation to any contract--the court or tribunal may have regard to the impact on the resale price of the property if no contract of insurance is provided, and (b) in relation only to a contract entered into before 30 July 1999--the court or tribunal is not to be limited by the fact that the required contract of insurance was not obtained until after the date of the contract. (2) However, the contractor remains liable for damages and subject to any other remedy in respect of any breach of the contract committed by the contractor. (3) Residential building work that is uninsured work at the time the work is done ceases to be uninsured work for the purposes of this section if the required contract of insurance for the work is subsequently obtained. (4) If a person commenced residential building work before 30 July 1999 and entered into a contract of insurance that complies with this Act in relation to that work after the contract for the residential building work was entered into, that contract of insurance is, for the purposes of this section or any previous version of this section, taken to have been in force in relation to the residential building work done under the contract for the residential building work whether that work was done before or after the contract of insurance was entered into. Note : If a contract of insurance is in force in relation to part of the residential building work, this section applies only in relation to the part of the work that is not insured.
6. The builder maintains that he obtained retrospective cover 10 months after the building was finished by another builder, Photon. An insurance application form forwarded by Jandson to QBE on 8 December 2016 informs the insurer that Jandson was the builder in respect of a block of vacant (emphasis added) land for work to be performed in the period between 8 December 2016 to 8 December 2017. The land was not vacant at the time of the application and work was not performed by Jandson in the time specified. S 94(3) does permit the builder to subsequently obtain insurance "for the work". On the facts of this case there was work performed in the planning and preparation of the work, which I have found to be residential building work. But there was no contract of insurance for the work because Jandson never carried out "the work" under the contract as specified in the certificate of insurance. Nor was there a valid certificate issued. The certificate was issued in error and once QBE was notified, it was cancelled.
7. It was not applying for cover in respect of work performed prior to 8 December 2016 when the work was actually performed. At the time of the insurance application the home had been completed not by Jandson but by Photon. On 3 January 2017, Mr Ali made enquiries with QBE and was informed that "the certificate is now cancelled". The email is electronically signed by an officer of QBE.
8. Based on the facts as outlined above, I find that there was no valid HOW insurance at material times. It is not clear to me on what basis a builder could properly apply for cover for building works on a vacant block of land in circumstances where the builder had terminated the contract in February 2016 and was aware that another builder was in possession of the site (emphasis added) and in the process of construction. The contract was terminated on 7 February 2016, litigation commenced on 7 March 2016 and the builder applied for insurance cover on 8 December 2016 for construction that had been completed.
9. I am not persuaded that a certificate issued on 8 December 2016, which was cancelled on or about 3 January 2017, which was either in force for one month or not at all, permits the builder to circumvent the statutory insurance requirements of the Act.
10. The work on risk was, at best, covered for a very short period of time. Insurance cover pursuant to Part 6 Division 2 of the Act must be, and remain in force (emphasis added) in relation to the work undertaken pursuant to the contract between the parties. Even retrospectively, insurance cover must be insurance "for the work" (s 94(3)). By reason of the fact that the insurance cover was issued in error and cancelled on 3 January 2017 there is no insurance cover "for the work", either retrospectively or at all. The work for which the builder sought cover did not exist because the contract ceased to exist, the site was in possession of another builder and the works had been completed and a valid certificate was not issued.
11. I have had regard to Exhibit B. The exhibit was admitted as a business record and states as follows: "The above certificate is now cancelled". Regards xxxx Builder's Warranty Team, Intermediary Distribution QBE Australia. The builder submits that this email is not probative of the fact that the insurance cover was issued in error or is now cancelled. It argues that because the insurer was not called, it is not open to the Tribunal to look behind the certificate and the certificate must be accepted as proof of the fact that the insurance is valid. I disagree. The onus of proof rests at all times with the applicant. The applicant was put on notice long before the hearing that the respondent denied the claim by operation of s 94. It was incumbent upon the applicant to prove, in evidence in chief, that it continues to hold valid insurance cover. This was on one view of the matter an easy task, it merely needed email confirmation from the insurer. I am not satisfied, on the balance of probabilities that the builder holds valid insurance cover for the purpose of Part 6.
12. The residential building work performed by Jandson is uninsured work for the purpose of the Act.

Is the builder entitled to quantum meruit on a just and equitable basis?

1. As there was no valid insurance, the builder is unable to enforce the contract.
2. The question remains, is the builder entitled to recover on a quantum meruit basis. In my view, it is not. The builder has incurred actual expenses which have been challenged on a number of bases. The builder claims $17,930.56
3. However, the question remains whether it is just and equitable that the builder's claim any losses considering its conduct. The principles of just and equitable remuneration for a benefit conferred were discussed in the well-known authorities of Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273 Barrett J described the policy of s 94(1) as follows: The policy behind s94(1A) is, clearly enough, that the statutory disentitlement under s 94(1) to sue for damages under or otherwise to enforce the contract made in contravention of s92(1) may be offset by the court's allowing recovery on a quantum meruit basis, provided that it is satisfied, according to the just and equitable criteria, that the builder is deserving of such recovery.
4. The homeowner submits that the builder is not "deserving" of such recovery because 1. the homeowner has received no benefit from work provided by the builder because it entered into a second building contract with Photon who duplicated the services (see submissions paragraphs 27 "none of was of any use to the company or Mr Ali once Photon had been engaged to build a different house"); 2. Jandson, as a large building company was familiar with its statutory mandatory obligation to obtain HOW insurance; 3. Jandson attempted to obtain HOW insurance in circumstances when it knew Photon had already constructed a dwelling on the land to circumvent the legislative requirements; 4. Jandson maintained an untenable position that s92 and 94 of the HBA do not operate to prevent recovery, thereby putting the respondent to the cost of the proceeding.
5. I agree that the conduct of the builder militates against a finding that it be renumerated for expenses and profit. The builder knew it required insurance, and the attempt to obtain retrospective insurance in the midst of litigation to overcome the statutory requirements does not cure the lack of compliance and does not assist its cause.
6. I refer to the analysis of the subsection by Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273 and the analysis by Hall J in Pender v Robwenphi Pty Ltd [2008] NSWSC 1144 are relevant to this case. The existence of the right to relief under s 94(1A) predicated the existence of a breach of the section and referred to the observation of Barrett J at par [53] that "In general contravention through ignorance will be more deserving of favourable treatment in the "just and equitable" inquiry than deliberate contravention would be."
7. In my view the builder's contraventions tended toward the higher, or deliberate, end of such a spectrum. I must weigh against this finding the fact that the homeowner did derive a benefit for the reasons set out in paragraph 70 above. The homeowner clearly derived a benefit from the work performed.
8. I refer to the remarks of Deane J in Pavey & Matthews v Paul (1987) 162 CLR 221 at 262: "The quantum meruit sum itself will, of its nature, reflect a fair remuneration, having regard to the extent of the work actually done. That is of the essence of a quantum meruit."

Profit

1. I am not satisfied that it is just and equitable to allow the builder to recover profit in circumstances where the builder knew or ought to have known of its requirement to obtain insurance cover. Arguably the builder did not act with utmost good faith when, in order to obtain retrospective insurance, it applied for insurance after commencing litigation; it informed the insurer it was building on vacant land when in fact it had terminated the building contract 10 months earlier, and another builder had already taken possession of the site and completed the dwelling. These findings militate against an award for lost profits.

Expenses

1. This leaves me to assess whether the builder is entitled to recover its actual expenses. It is not challenged that the builder incurred costs for the heads of damage set out at paragraphs 29(i) to 29(vii) of the builder's submissions. These are actual invoices for costs of engineers and conveyancers, council costs and building approvals. These expenses add up to $2972.76. For the reasons set out I find that the respondents have derived a benefit, and that these are expenses which, on a just and equitable basis should be awarded to the builder.
2. In addition the builder seeks to recover $14957.80 for commission payable to Lend Lease for the land. I have had regard to the Agency Agreement contained at page 97 of the applicant's bundle. It is clear from the face of the agreement that the "agent shall be entitled to a fee of 2.2%" and that the fee is calculable in accordance with the attached schedule. It is not contested that, at least on the face of the agreement, the agent (the applicant) was liable for a fee $14,957.80 upon the sale of the land to the respondent. The respondent cross-examined the applicant's employee and it was confirmed that the fee was not paid, (or demanded by the principal) at the time of the hearing. Be that as it may, I am satisfied on the documents before me that the agency agreement is evidence that a fee has been incurred and that the applicant is liable to pay the fee. Whether payment has been demanded or not, is irrelevant.
3. I have also had regard to the sale contract. It is a condition of the contract that "the building contract was subject to the owner entering into a land contract with St Marys Land Limited for the property by 21 August 2015. The contract documentation clearly refers to a "package" including the contract for the sale of land as well as the building contract. The land agreements were subject to the building agreement. In other words, but for entering the building agreement, the respondent would not have been entitled to have the rights of the land sale contract. In my view the respondent has derived a benefit from the sale of the land to it upon transfer of title to the respondent. By reason of that transfer, the applicant has incurred a liability in the form of the agency fee. In light of the fact that the respondent repudiated the contract, I find that it "just and equitable" that the builder be paid the fee. I award the $14,957.80 accordingly.

Additional issues raised by the applicant in reply

1. The applicant, in reply, submits the respondent has misconceived the operation of s 92. It is submitted that because breach of the section attracts a penalty, it merely operates as a vehicle for the Department of Fair Trading to prosecute recalcitrant builders and that it cannot be used as a "defence" by aggrieved home owners in a claim for damages. I agree with the submission that s 92 does not provide a "defence". It imposes a requirement on the builder to obtain insurance before "doing residential building work under a contract". As was set out by both parties, section 94 bars a claim for recovery if a contract of insurance required by section 92 is not in force. The Tribunal is not a tribunal of strict pleading. Ss 92 and 94 were raised in the "amended points of defence" in response to the applicant's "amended points of claim". To submit that the respondent has raised s 92 by way of defence is not, in my view a fair summary of the issues raised by the respondent to be determined by the Tribunal and any reference to the fact that s 92 is a penalty section is an unnecessary and irrelevant distraction.
2. The applicant raises the Insurance Contract Act in reply submissions. It submits QBE have failed to comply with the cancellation procedure set out by s 59 of the Insurance Contract Act 1984 (Cth). For the reasons set out above I am not satisfied that contract of insurance that complies with the HBA was in force in relation to the contract works that could reasonably satisfy the requirements of s 92. Even if a policy was ever validly issued it was cancelled on or about 3 January 2017. After that date cover ceased to exist.
3. I am not satisfied that the Insurance Contract Act is relevant to any issue in dispute between the parties. But even if I have erred and a contract of satisfying the requirements of s92 existed after 3 January 2017, the Insurance Contract Act issue was raised in reply, when such an argument should have been raised in the applicant's case in chief, in the amended points of claim filed on 27 January 2017 by leave of the Tribunal. It was incumbent on the applicant to prove it continues to hold insurance. Merely as an aside I would note that s 59 has no application to the circumstances of this case. The Insurer did not "exercise its right to cancel a contract of insurance" it merely informed the homeowner that the policy was issued in error and cancelled. In any event, the homeowner, as the beneficiary is the insured under the policy and the email to Mr Syed arguably is notification in writing to the insured. Be that as it may, although having considered the issue and finding it an unnecessary distraction from the real issues in dispute, I have not taken it into account in coming to my decision. I find it is procedurally unfair to raise these issues in reply, thereby depriving the respondent of a right to respond.
4. Finally I note that the guarantee and indemnity included in the contract hold the second respondent liable against any claim, loss or damage arising out the subject matter of the contract. The builder is awarded damages for restitution on a quantum meruit basis and not damages for breach of contract. Under the circumstances the contractual indemnity and guarantee is not enforceable. For these reasons the orders are made as against the first respondent only, and the claim against the second respondent as guarantor are dismissed. For these reasons I make the orders in paragraphs one and two above.

Orders

1. The Tribunal makes the following orders: 1. The first respondent shall pay $17,930.56 to the applicant immediately.

Costs

1. The applicant was somewhat successful and the respondent was somewhat successful in defeating the applicant's claim for profit. In those circumstances I am of the view that each party should bear its own costs of the proceedings and I make that order accordingly.
2. In the event the parties wish to be heard on the question of costs:
3. The applicant shall file and serve written submissions on the question of costs on or before 2 March 2018.
4. The respondent shall file and serve written submissions on the question of costs in response on or before 16 March 2018.
5. An oral hearing on the question of costs may be dispensed with by consent of the parties. It is the Tribunal's intention to determine the question of costs on the papers in chambers unless the parties request, in writing, an oral hearing on the question of costs. S Thode Senior Member Civil and Administrative Tribunal of New South Wales 26 February 2018

I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal. Registrar I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 July 2018