Lange v Queensland Building Services Authority

[1] In May 2007 two persons (whose identities are irrelevant to this decision, and to whom I shall refer as the insured) entered into a contract with Lange Constructions Pty Ltd ("the company") for the construction of three town houses. Those town houses were to be constituted by one free-standing single townhouse and two others sharing a common party dividing wall and roof, that is, a duplex.

[2] Work under the contract was not completed and the insured gave notice in writing of a claim to the respondent ("QBSA") under the insurance policy created pursuant to the terms of the Queensland Building Services Authority Act 1991 ("the Act").

[3] In May 2008 the company was placed into liquidation.

[4] In December 2008 QBSA determined that the residential construction work under the contract was incomplete. Notice in writing of the decision to allow the claim was given to the company and in late December 2008 the respondent paid the sum of $200,000 to the insured in respect of their claim for non-completion of the residential construction work under the contract.

[5] The QBSA has sought to recover from the applicant the sum of $200,000. The applicant seeks an order under the Judicial Review Act 1991 that the decision of the QBSA that the insured were entitled to indemnity be quashed or set aside.

[6] The parties have conducted this litigation in such an efficient manner that only one issue needs to be considered: the proper construction of a clause in the statutory insurance policy.

[7] The relevant version of the Act for the purposes of this application is that contained in reprint No 8E.

(i) to ensure the maintenance of proper standards in the industry; and

(ii) to achieve a reasonable balance between the interests of building contractors and consumers; and

(b) to provide remedies for defective building work; and

(c) to provide support, education and advice for those who undertake building work and consumers."

[9] The QBSA is established under the Act and one of its obligations is to manage the statutory insurance scheme set up under Part 5 of the Act. That part provides for building contractors to pay insurance premiums in respect of residential construction work. When the Authority accepts an insurance premium in respect of residential construction work, it must issue a certificate of insurance in respect of that work. A policy of insurance comes into force in the terms prescribed by regulation if a consumer enters into a contract for the performance of "residential construction work" and the contract is imprinted with the contractor's licence card.

[10] The terms of the insurance policy are provided for under the legislation.

[11] The insured did enter into such a contract and the insurance policy thus necessarily arose. As I have set out above, the QBSA paid $200,000 to the insured in respect of their claim. The QBSA may recover such an amount under s 71(1) of the Act:

(1) If the authority makes any payment on a claim under the insurance scheme, the authority may recover the amount of the payment, as a debt, from the building contractor by whom the relevant residential construction work was, or was to be, carried out or any other person through whose fault the claim arose."

[12] The Act also makes provision for the recovery of that amount from directors of the company. Section 111C attaches a liability to each person who was a director of the company when the building work was carried out. Section 111C(3) and (6) provide:

(3) This section also applies if a company owes the authority an amount because of a payment made by the authority on a claim under the insurance scheme.

(6) If this section applies because of subsection (3), the liability to pay the amount attaches to -

(a) each individual who was a director of the company when building work the subject of the claim was, or was to have been, carried out; and

(b) each individual who was a director of the company when the payment was made by the authority."

[13] The applicant was a director of the company at all material times.

[14] The applicant argues that the payment by the QBSA to the insured was not in accordance with the policy because the QBSA was not liable in light of clause 1.9 of the policy.

(a) in relation to a contract or _contract_s for:

(i) residential construction work involving more than two single detached dwellings between the Insured and the one contractor;

(ii) residential construction work involving more than one duplex between the Insured and the one contractor;

(iii) residential construction work involving more than two residential units within a multiple storey dwelling between the Insured and the one contractor;

(iv) residential construction work to the common property of a multiple storey dwelling other than a duplex between the Insured and the one contractor, unless at least 50% of the units were occupied when the contract was entered into, and when the contract was terminated;

(v) residential construction work involving the construction of a multiple storey dwelling other than a duplex."

[16] In making its decision, the QBSA determined that the residential construction work the subject of the contract did not come within clause 1.9 as it:

"... provided for the construction of one single, detached dwelling and one duplex where by the first townhouse was a single detached dwelling for the purposes of the Insurance Policy and the second and third townhouses were a duplex for the purposes of the Insurance Policy."

[17] In order to properly construe clause 1.9, it is necessary to refer in greater detail to the words used and the definitions applied to them. The policy contains an interpretation provision (cl 9.2) which provides that, unless the contrary intention appears, wherever terms defined by the Act or the Queensland Building Services Authority Regulation 2003 ("the Regulation") appear in the policy, then those terms have the same meaning in the policy as in the Act or the Regulation when the policy comes into force.

[18] The policy also contains a definitions section. It provides that "duplex" means a building which is a detached dwelling comprising two residential units.

[19] In the same clause "residential construction work" is given the same meaning as in reg 10 of the Regulation (Reprint 2E). That regulation (together with the definitions in regulations 11 and 12) provides:

"10 Classification as residential construction work

For the Act, schedule 2, definition residential construction work, the following is classified as residential construction work -

(1) Subject to subsection (3), for section 10(a), building work mentioned in subsection (2) is primary building work if it is -

(a) carried out by a building contractor under a contract; and

(b) for a residence or a related roofed building; and

(2) For subsection (1), the following is the building work -

(a) construction of the residence or related roofed building;

(b) building work that affects the structural performance of the residence or related roofed building;

(c) building work for relocation or replacement of a roof, wall, internal partition, floor or foundation;

(d) building work for replacement or refitting of fixtures or fittings in a bathroom or kitchen in the residence or related roofed building;

(e) building work for an unenclosed, elevated platform or verandah, including a deck, attached to a residence;

(f) building work that increases the covered floor area of the residence or related roofed building;

(g) building work for installation or repair of the primary water supply to, or sewerage or drainage for, the residence or related roofed building.

(3) The following is not primary building work, but may be associated building work -

(d) installation, renovation, repair or replacement of any of the following -

(iii) units for heating water regardless of the source of energy for heating, and including units for heating swimming pools;

(vii) solar power units and associated electrical components;

(viii) swimming pools, or spas that are not part of a bathroom;

(ix) water tanks that are not part of a primary water supply for the residence or related roofed building.

(1) For section 10(b), associated building work is the following building work that is not primary building work, but is other building work carried out under a contract that includes primary building work (the other building work) -

(a) if the primary building work under the contract is for a residence, other building work for anything on the site of the residence, but only if the other building work is for residential purposes;

(b) if the primary building work is for a related roofed building, other building work on the site of the residence or proposed residence for which the related roofed building is to be used, but only if the other building work is for residential purposes.

(2) Despite section 5, work mentioned in section 5(1)(b), (q), (r), (w), (z), (zb), (zg) or (zk) is building work that is associated building work if it is other building work."

[20] Residence is defined in r 9 of the Regulation to mean a building or part of a building fixed to land and designed to be used for residential purposes, whether or not it is part of commercial or industrial premises, but does not include other identified matters which are irrelevant to this decision.

[21] The applicant submitted that the reasoning of the QBSA as set out above was wrong as a matter of law because it was an incorrect construction of the policy. The argument for the applicant was along the following lines:

(a) Both the single detached dwelling and the duplex fell within the definition of "residential construction work".

(b) The residential construction work the subject of the contract involved "more than one duplex" because it involved one duplex and a single detached dwelling.

(c) The legislative policy underpinning the statutory insurance scheme is the provision of a home builder's insurance warranty in order to afford protection to consumers. The statutory insurance scheme was not designed to provide protection for property developers or persons undertaking residential construction work for commercial gain beyond two residences (whether they be two single detached dwellings or one duplex).

(d) The plain wording of clause 1.9 of the policy supports the construction contended for and is the construction which most closely conduces to achieving the purpose of the statutory insurance scheme.

[22] The argument against those contentions is in a number of parts.

[23] First, it is contended that the better construction is to be achieved by applying a definition of the word "more" so that it means "a greater number of the class specified". If that is done, then the phrase "more than one duplex" applies to the class of duplexes; and means a greater number of duplexes than one. This, it was submitted, is the preferable construction because it gives meaning to the word "one". To do otherwise would be to read clause 1.9(a)(ii) as referring to 'residential construction work involving more than a duplex'.

[24] Secondly, the respondent submits that the construction proposed by the applicant ignores the meaning of the term "residential construction work" and one of the stated purposes of the Act. As has been referred to above, "residential construction work" has two parts: primary building work and associated building work. Thus, residential construction work would include work such as the construction of a single residence (primary building work) and other work related to that residence such as a swimming pool, a driveway or fences (associated building work). The respondent argues that to apply the applicant's construction to the clause would mean that a contract which provided for the building of a residence and a carport would enliven the exclusion under clause 1.9. That, it is said, would be an extraordinary result given the objects of the Act.

[25] In argument, Ms Armitage (who appeared for the applicant) agreed that her construction would require that a reference to more than one duplex included a reference to a duplex and associated building work. Thus, the building of a duplex and a driveway would be excluded under clause 1.9.

[26] Thirdly, the respondent points to the word "involving" as a word which qualifies "residential construction work". This is a similar argument to the one previously dealt with.

[27] Finally, the respondent dealt with the argument inherent in the applicant's construction, namely, that the statutory insurance scheme was not designed to provide protection to persons undertaking residential construction work: for commercial gain and beyond two residences. The respondent contended that neither of those limitations appears in the Act, the Regulation or the policy and that if it had been the intention of the legislature to have those limitations then it could have easily been designed in that way.

[28] The construction advanced by the applicant would result in a situation where QBSA could escape liability where a contract for the construction of a duplex also contained a requirement that there be a simple concrete path leading to the front door of that duplex as the latter would be "residential construction work" within the meaning of the legislation. As Jordan CJ said in Hall v Jones [1942] NSWStRp 22; (1942) 42 SR (NSW) 203 at 208:

"A court is entitled to pay the legislature the not excessive compliment of assuming that it intended to enact sense and not nonsense."

[29] To adopt the construction advanced by the applicant would allow for nonsensical results and I do not accept that the purpose of the legislation as set out in the Act, the Regulation and the insurance policy was to allow for such a result.

[30] When, in clause 1.9(a)(ii), there is a reference to "more than one duplex", that necessarily involves a consideration of the class of items for which there is more than one. Clause 1.9(a)(i)-(v) contains references to particular types of dwellings and numbers of them. It is internally consistent with that delineation of types of structures that one should adopt the construction that each sub-clause necessarily refers to a type of building; thus, a reference to more than one type of building means no more than that the exclusion will apply if the contract or contracts involves more than the specified number of particular types of construction. Had the legislature intended that the policy could be excluded in the circumstances of this case then it would have been a relatively simple task for that to have been incorporated into clause 1.9.

[31] The QBSA was correct in its appreciation that clause 1.9 did not apply and that the insured were entitled to payment. It follows that the application is dismissed. I will hear the parties on costs.