Victorian Civil and Administrative Tribunal|1999-06-23|Before: Mr J

Maclaw No 651 Ltd v HIH Casualty and General Insurance Ltd [1999] VCAT 24 (23 June 1999)

domestic building work, serviced apartments, jurisdiction, dwelling house, home

APPLICANT: Maclaw No. 651 Pty Ltd (ACN 070 006 487)

1. The building work the subject of the Applicant's claim in this proceeding is within the definition of domestic building work under s3 of the Domestic Building Contracts Act 1995.

2. The costs of the preliminary hearing are reserved.

3. The proceeding is referred to a directions hearing.

For the Applicant: Mr G. Garde QC & Mr J. Hammond of Counsel

For the Respondents: Mr P. Murdoch QC & Mr C. Wren of Counsel

[1] This hearing is limited to the preliminary question of whether the Tribunal has jurisdiction to hear the application which is a claim against the Respondents pursuant to the Domestic Building Contracts Act 1995 ("the Act").

[2] On 27 October 1997 the Applicant entered into a building contract with Dwyer Johnston Constructions Pty Ltd to build a three storey serviced apartments building. The Applicant initially obtained a permit in November 1996 to build 37 medium rise serviced apartments, 36 medium rise residential apartments, a restaurant and ancillary uses with associated car parking. In November 1997 the permit was amended to increase the number of serviced apartments to 49, delete the restaurant and substitute two meeting or function rooms. The serviced apartment block also included a reception/office. The ancillary facilities on the site include tennis courts and a swimming pool. The serviced apartments had available to them open car parking for some 65 cars. The title to each serviced unit had attached to it an accessory title to a car parking space for one vehicle although the car park was not marked so that the respective parking space for each unit was unable to be identified. The development is located on the corner of Epsom Road and Smithfield Road, Flemington and covers an area of in excess of one hectare. Stage two of the development, which was at the time I viewed the site still in the process of construction and is a separate block containing 36 own your own apartments. It was not disputed that the design of the own your own apartments, which were either one, two or three bedroom apartments, was basically the same as the design of the serviced apartments. During the course of construction the builder was placed into administration and was unable to finish the contract. As a consequence the Applicant had to engage another builder and has incurred additional costs. In these proceedings the Applicant alleges that the First, Third and Fourth Respondents ("the Insurers") are each liable to indemnify it pursuant to a domestic building insurance policy entered into by the builder which is in the form prescribed under the Domestic Building Contracts and Tribunal Act 1995 (as it then was) for the loss and damage that it has suffered as a consequence of the builder failing to complete the contract. The Second Respondent is a director of the builder and did not actively participate in this interim application.

[3] Save for one issue and for the purposes of deciding this preliminary question the relevant facts are not in dispute. The facts not in dispute may be set out as follows:-

(a) The building contract is a contract dated 28 October 1997 and has been adapted for compliance with the Act.

(b) Each of the serviced apartments provide self contained living accommodation. In addition to bedrooms and lounge area they include one or two bathrooms, a fully equipped kitchen and laundry.

(c) Each of the serviced apartments have been built so that they could be used as permanent residents. It was said on behalf of the Applicant that one reason for this approach was to ensure an alternative use in the event of the serviced apartments business being unsuccessful. The design of the apartments is not different from the design of the apartments in the second stage of the project which apartments are offered or are to be offered for sale as own your own apartments.

(d) Each of the serviced apartments have been sold to investors and are subject to long term leases to Flemington Quest Pty Ltd which conducts the business of a serviced apartments operator.

(e) Each of the leases of the serviced apartments are for an initial term of five years with three five year options. At this point of time two of the five year options have already been exercised.

(f) Provided the leases remain on foot each of the purchasers of the serviced apartments have no right of occupancy of their apartment for a period of not less than fifteen years.

(g) The average stay for guests at the serviced apartments is around four to six days although some guests may stay for as long as six weeks when they have been transferred from interstate. Compared with motel or hotel accommodation serviced apartments are regarded as generally used for more extended stays.

(h) One of the Applicant's objectives when building these serviced apartments was to enable the apartments to be used not only as serviced apartments but in the event of the serviced apartments being unsuccessful or failing in the future to be used or sold as own your own apartments. I note that the Respondents challenge the Applicant's contention that in the event of the use being changed from serviced apartments to own your own apartments an application would have to be made to the responsible authority to obtain a permit for that use. I will return to this question in due course.

[4] Section 59A of the Act sets out the jurisdiction of the Tribunal in respect of insurance claims as follows:

"The Tribunal has jurisdiction to hear and determine any dispute concerning an insurance claim concerning domestic building work or an insurer's decision on such a claim."

S.60 enables the Tribunal to review and change an insurer's decision where the insurance is required insurance under the Building Act 1993 in relation to domestic building work. It was not in dispute that the insurance had to be in relation to domestic building work in order for the Tribunal to have jurisdiction in relation to the dispute.

[5] Domestic building work is defined in s3 as work referred to in s5 unless excluded from the operation of the Act by s6.

For present purposes the relevant parts of s5 are as follows:

(a) the erection or construction of a home, including-...

(b) the renovation alteration extension, improvement or repair of a home;

(e) any work associated with a construction or erection of a building-

(i) on land that is zoned for residential purposes under a planning scheme under the planning and environment Act 1987;...

(2) a reference to a home in sub-section (1) includes a reference to any part of a home."

[6] The word "home" is defined in s3 of the Act as follows:-

""home" means any residential premises and includes any part of a commercial or industrial premises that is used as a residential premises but does not include--

(a) a caravan within the meaning of the Caravan Parks and Moveable Dwellings Act 1988 or any vehicle used as a residence; or

(b) any residence that is not intended for permanent habitation; or

(c) a rooming house within the meaning of the Rooming Houses Act 1990; or

(d) a motel, residential club, residential hotel or residential part of licensed premises under the Liquor Control Act 1987; or

(e) a nursing home, hospital or accommodation associated with a hospital; or

(f) any residence that the regulations state is not a home for the purposes of this definition;"

S6 is relied on by the Respondents in that it excludes

"(c) any work in relation to a building intended to be used only for business purposes."

[7] It follows from the above that subject to s5(1)(e) the Tribunal in the present circumstances will only have jurisdiction if the serviced apartments are a home within the meaning of the Act.

The main submissions of Mr Garde of Her Majesty's Counsel who appeared with Mr Hammond of Counsel on behalf of the Applicant, the Respondent to this preliminary application, are set out in outline as follows:

(a) Mr Garde contrasted the wide definition of domestic building work in the Act with the much narrower definition of domestic building work which is to be found in the predecessor to this legislation the House Contracts Guarantee Act 1987 which legislation was repealed by the Act. It should be noted that the House Contracts Guarantee Act defines "dwelling house" so as to expressly exclude residences situated in a building containing two or more residences if any part of any such residence is above or below another or if such residence is attached to a shop, office, warehouse or factory. There are no such exclusions in the definition of "home" in the Act.

(b) The work undertaken constitutes the construction of "residential premises" and so falls within the definition of home in s3 of the Act.

(c) Mr. Garde referred to the decision of Port Phillip Council v Domain Hill Properties Pty Ltd (unreported Supreme Court of Victoria Byrne J, ([1998] VSC 35 para 12)) in support of his submission that the words "that is not intended for permanent habitation" in para (b) of the definition of "home" referred not to the subjective intentions of a prospective user but to the nature of the building. At page 5 of his judgment Byrne J said:

"In the Macquarrie Dictionary, the meaning of "residential" is given as "adapted or used for a residence". In common usage the word in conjunction with "building" refers to the physical characteristics and intended use of the bulding rather than its actual use." (See also re Watpac Australia Pty Ltd (1996) 1 Qd R 229 at 232 and the unreported decision of the Queensland Building Tribunal in Habjan v Eclat Painters and Decorators (per Mrs C. Roney Member 4 August 1994).

(d) To the extent that the Respondents are seeking to rely on exceptions in the definition of home the onus is on the Respondents to establish that they come within that exception. (Curry v Dempsey [1967] NSWSR 532)

(e) Mr. Garde further submitted the apartments are not a motel and relied upon Holiday Wise Koala Ltd v Queensland Pty Ltd [1977] VicRp 20; [1977] VR 164 at p166-7 where Gillard J identified two characteristics of a motel. First to provide accommodation for motorists in units or suites of a hotel character and second the provision of parking for the guests' motor vehicles.

(f) The building was not intended for business purposes as it was not designed for those purposes. For that proposition he relied upon the decision of Byrne J in Fletcher Constructions Australia Pty Ltd v Southside Towers Development Pty Ltd (1996) 11 VAR 14.

(g) Finally Mr Garde submitted that the proper test was an objective one and that the subjective intent of an owner or occupier as to the future use of premises was not relevant. If the building is designed to be used as residential premises then unless it falls within one of the specified exclusions it is domestic building work.

[8] Mr.Murdoch of Her Majesty's Counsel who appeared for the First, Second and Fourth Respondents (Insurance Respondents) with Mr. Wren of Counsel submitted that the word "home" in the definition was deliberately used in the singular in s3 of the Act and that the subject matter of the Act was such as to indicate a contrary intention and accordingly s37 of the Interpretation of Legislation Act 1984 did not apply. He noted that in the Fletcher Constructions Case (supra) before Byrne J, the builder conceded that the definition of "home" included a mutli-storey residential building and so that question did not need to be determined by the Judge.

[9] Mr Murdoch submitted that the Act has no application at all to multi storey residential buildings. The Act as its name indicates is concerned with traditional domestic building and with the protection of the family home buyer who engages a builder to construct a conventional single dwelling on their block. The legislation was not passed with the intention of including within the jurisdiction of the Tribunal substantial commercial developments where the apartments are often purchased by investors and have nothing to do with the domestic market. None of the units in the development have been purchased for personal use by the owner but rather as an investment. He submits that the Parliamentary intent is disclosed in the second reading speech. Up until this case the jurisdiction of the Act in relation to multiple dwelling constructions has not been challenged. In the Fletcher Constructions case His Honour after observing that the builder conceded that the Tribunal had jurisdiction went to observe at p4 of the judgment:-

"There are, however some indications in the Act and in the Second Reading Speech which suggest that the definition may not be so wide; that it was the intention of Parliament to provide a legislative framework for contracts and disputes concerning building work of a more modest character and to protect parties to more conventional domestic building projects from the consequences of an inequality of bargaining power rather than to interfere with major commercial transactions."

He continued on to say that he was content to proceed on the accepted basis. That is that the jurisdiction of the Act extended to disputes concerning contracts for the construction of multi storey residential buildings.

[10] As Mr Garde observed in his submissions the question before His Honour involved a question of jurisdiction and accordingly it was not a matter that could be voluntarily conceded by the parties. The view that the expression "home" includes the plural "homes" in accordance with s37 of the Interpretation of Legislation Act 1984 is also supported by the decision of Williams J in re Watpac Australia Pty Ltd [1996] 1 Qd R 229. In that case His Honour had to consider the meaning of "home" in the Queensland Building Services Authority Act 1991 which legislation established a building tribunal to hear domestic building disputes.

(a) the building was not erected on land that was zoned for residential purposes and so s5(1)(e) did not apply.

(b) serviced apartments are not in any event residential premises as they are not going to be used as a permanent residence by the occupiers. He relied upon the decision of the NSW Court of Appeal in North Sydney Municipal Council v Sydney Service Department (1990) LGRA 432 at 437.

(c) In the alternative he submitted that the apartments were excluded by the second exclusion to the definition of "home", as a residence not intended for permanent habitation.

(d) The apartments were also excluded from the definition of "home" because as serviced apartments the building should be regarded as a motel.

(e) He finally submitted that the building was to be used for the business of operating serviced apartments in a multi storey building and so was also excluded by reason of s6(c) which excludes work in relation to a building intended to be used only for business purposes.

[12] The two substantial questions raised in this application are:-

(a) Whether or not serviced apartments are a home as that term has been defined in s3 of the Act; and

(b) If the answer to (a) is no then is the work associated with the construction of the building on land that is zoned for residential use under a planning scheme?

For Mr Murdoch's first submission to succeed I must be satisfied that the context in which the word "home" appears is such to negative the presumption that the word also includes the plural "homes". However there are substantial difficulties to be overcome before this argument could be successful notwithstanding the fact that it was not argued before Byrne J in the Fletcher Constructions Case.

[13] Almost contemporaneously with the proclamation of the Act the Domestic Building Contracts and Tribunal (General) Regulations 1996 were introduced. R9 exempts parts of the Act from applying to domestic building contracts which relate to a "multi-storey residential development". A "multi-storey development" is defined as "means a development consisting of 2 or more homes in which one or more homes is above or below any other home in the development." In addition in the second reading speech by the Minister for Planning and Local Government delivered 16 May 1996, when introducing an amending Bill to the Domestic Building Contracts and Tribunal Act 1995, the Minister referred to the effect of the legislation upon the ability of developers of large domestic high rise to sell off the plan. One of the purposes of the amendment was to introduce a regulation making power so as to enable certain contracts concerned with the sale of high rise apartments to be exempted from all or some of the provisions of the Act.

[14] In addition the definition of "home" in the Act is in sharp contrast to the definition of "dwelling house" in the House Contracts Guarantee Act 1997. The former act expressly excludes apartments in multi storey buildings from the definition. In addition although the question was not argued before Byrne J in the Fletcher Constructions case at p6 His Honour noted:

"If I had any doubts about the application of s.5 to contracts for the conversion of a non-residential building into a residential building, which I do not, I should be very much inclined to put them to one side in order to avoid commercial uncertainty and to give effect to what I perceive to be Parliament's intention."

[15] In the decision of in Re Watpac Australia Pty. Ltd. [1996] 1 Qd R 229 Williams J was required to consider whether the definition of "home" in the Queensland Building Services Authority Act 1991 also included the plural "homes". That legislation preceded and appears to have been the genesis of the Victorian Act, although as Byrne J pointed out in the Fletcher Constructions case at p.5 the definition of "domestic building work" in the Queensland Act is in somewhat wider terms. Under that Act it means "related to a home or associated building." In the Watpac case the building was a 27 storey reinforced concrete building with 150 residential apartments_._ One of the arguments before him was that the Queensland Building Tribunal had no jurisdiction as the dispute was not a domestic building dispute. He concluded that "home" included the plural -homes. At p233 he went on to state :

"At first glance the use of the word "domestic" tends to suggest that a building of the size and structure of Admiralty Towers would not be covered by it. But even the dictionary definition (the term is not defined in the Act) indicates that the term in context would mean "of or belonging to a home". In this day and age many homes are units in a highrise building and there is no reason why logically a highrise building containing home units such as Admiralty Towers cannot be a domestic building."

[16] In addition Mr. Murdoch submitted that one of the matters that must be taken into consideration is the owner's intentions as to the use to which the building is to be put. That is if I understand the argument correctly a building that may otherwise be built as a residential apartment building in the sense that it contains a number of homes may not be domestic building work if the proprietor has an intention to use it for the purpose of short term stays as that use would not be a "residential" use.

[17] If that submission is correct it would be possible for the proprietor to change his intended use during the course of construction of the building with potentially serious contractual and insurance implications. In my opinion there is no substance to this submission. It is I believe self evident at the time the building contract is entered into whether or not the building is designed for use as residential premises. The only question then is whether or not at the time the contract is entered into any of the exclusions apply to it. The only exclusion in the definition of "home" that Mr. Murdoch could point to, where he submitted a change in use would have a subjective element to it was in relation to residential premises proposed to be used as a rooming house. However if a building was proposed to be used as a rooming house then it would be required to comply with the Health (Prescribed Accommodation) Regulations 1990 which requires the building conform to certain design requirements. It is important that there is certainty at the time the contract is entered into as to whether or not the contract involves domestic building work or commercial building work. That question both affects insurance and also whether or not the contract is required to conform to the Act. Such certainty can only be achieved if it is possible to be determined at that point of time by the application of objective criteria. The only objective criteria would appear to be the design purpose of the subject building.

[18] Mr Murdoch in support of his submission that the words "residential premises" means a place of permanent residence relied upon the decision of the New South Wales Court of Appeal - North Sydney Municipal Council v Sydney Serviced Apartments Pty Ltd (1990) 21 NSWLR 532. That case concerned a planning appeal. The building permit had been granted under the planning scheme for the erection of a "residential flat building" of 144 units. The Court found that the subsequent use of 37 units as serviced apartments was not a permitted use because they were being let for short term occupancy and were not being used as residential flats. That case was decided in the context of what was a permitted use under a planning scheme. In addition the context in which the word "residential" was being interpreted was a different context to the present. Indeed in the s3 definition of "home" the draftsperson found it necessary to exclude from the definition a "residence" not intended for permanent habitation. That would suggest that the word "residential" was only intended to be descriptive of premises intended to be used for habitation. If the suggested approach were to be adopted in the context of the Act it would be productive of great uncertainty. In addition it would enable a contract to be let as a commercial contract with the express purpose of providing serviced apartments. It would then be open to the developer to change his mind, obtain appropriate planning approval and then sell the units as own your own apartments. Accordingly it is my view that provided the units are designed for long term or permanent occupancy the units are within the definition of residential premises whether or not the actual occupancy is short or longterm. I am reinforced in this view by the observation of Byrne J in Port Phillip Council v Domain Hill Properties Pty Ltd [1998] VSC 35 at paragraph 12:

"In the Macquarie Dictionary, the meaning of "residential" is given as "adapted or used for a residence." In common usage the word in conjunction with "building" refers to the physical characteristics and intended use of the building rather than its actual use."

[19] Where the intended use does not fall within the exceptions to the definition of "home" or within s6 of the Act it must be possible by the application of objective criteria to determine in advance of construction whether or not the contract is a major domestic building contract. The subjective intent of the owner must for that purpose be considered irrelevant. Indeed s9 of the Act provides that warranties run with the building for the benefit of future purchasers. That strongly supports the view that if a building is at the time of entry into the building contract a building to which the Act applies then the rights given to the owners under the Act must continue to exist even though the use of the building may have changed. To permit the categorisation of a contract dependent upon the future intention of owners or third parties would in my view make the legislation unworkable. As Byrne J stated in the Fletcher Constructions case (supra) at p4:-

"...the Domestic Building Contracts and Tribunal Act 1995 imposes on parts 2 and 3 a contractual regime on major domestic building contracts. It is desirable that, as far as possible, business people in the construction industry and those dealing with them should know with some certainty whether this regime is applicable to their project."

[20] Mr. Murdoch has submitted that a number of the definition exclusions apply to this contract. He submitted that the apartments are not intended for permanent habitation. However all the evidence including some evidence from his own witnesses was to the effect that each of the apartments were suitable for permanent habitation. Applying an objective test it is irrelevant whether or not the apartments are actually used for permanent habitation or indeed remain empty. (See Port Phillip Council v Domain Hill Properties Pty Ltd). He also submitted that serviced apartments came within the definition of a motel . However even Mr. Rodda who was called as an expert witness on behalf of the Respondents conceded that serviced apartments did not come within the generally accepted definition of a motel. An obvious distinguishing characteristic of serviced apartments is that they are equipped with proper kitchens and in this case laundries. I find that these serviced apartments having regard to their nature and design do not fall within the definition of a motel.

[21] Section 35 of the Interpretation of Legislation Act 1984 makes it clear that a construction should be adopted which would promote the purpose or object underlying the Act. Dawson J in Mills v Meeking (1991) ALR 16 at 30-31 referred to s35(a) and made the following observation:-

"The requirement that a court looked to the purpose or object of the Act is thus more than an instruction to adopt the traditional mischief or purpose rule preference to the literal rule of construction. The mischief or purpose rule required an ambiguity or inconsistency before a court could have regard to purpose; Miller v Commonwealth [1904] HCA 34; (1904) 1 CLR 668 at 674; Wacal Developments Pty Ltd v Realty Developments Pty Ltd [1978] HCA 30; (1978) 140 CLR 503 at 513. The approach required by s35 needs no ambiguity or inconsistency; it allows the court to consider the purposes of an Act in determining whether there is more than one possible construction. Reference to the purposes may reveal that the draftsman has inadvertently overlooked something which he would have dealt with had his attention been drawn to it and if it is possible as a matter of construction to repair the defect, then this must be done."

[22] A comparison between this Act and its predecessor the House Contracts Guarantee Act 1987 can leave no doubt of the legislative intent to provide a far wider jurisdiction than existed under the earlier act. The near contemporaneous regulations which were promulgated very shortly after the passing of the Domestic Building Contracts and Tribunal Act make express reference to "multi-storey residential development". The Second Reading Speech of the Domestic Contracts and Tribunal (Amendment) Bill 1995 dated 16 May 1996 made express reference to the effect of the Act on the ability of developers of large domestic high rise properties to sell "off the plan". It is plain from the context that Minister Maclellan had no doubts about the application of the legislation to such developments. I note that recourse may be had to assist the interpretation of legislation to regulations particularly when such regulations are contemporaneous with the passing of the legislation (see Moore J in Ward v Commissioner of Police [1998] FCA 9; (1998) 151 ALR 604 at 614).

[23] Accordingly I am satisfied that there is no expression of intention that the word "home" should only be used in the singular and indeed there is a clear legislative intention to include building contracts for multi-storey apartment buildings as major domestic building contracts. I am also of the view that the expression "residential premises" where it appears in the definition of "home" refers only to the design purpose. The question is whether the premises are being built to enable people to reside in it. It matters not whether the subjective intent is for short or long stays.

[24] It follows from the above that it is my opinion unless the contract comes within any express exclusion it is a major domestic building contract and therefore judiciable before this Tribunal.

[25] The only exceptions which are set out in the definition of "home" which were submitted excluded this contract were sub-paragraphs (b) and (d). Sub paragraph (b) excludes any residence that is not intended for permanent habitation. The reference to permanent habitation is not in my view a reference to current use but to future use. The intention is to be derived objectively from the nature of the structure. It is conceded that the premises were built so as to have the potential to be used for permanent habitation. In addition to the above the Respondents have also argued that serviced apartments came within the definition of a motel. There was no evidence which would support the argument that a serviced apartment fitted within the description of a motel. Accordingly I find that none of the exclusions in the definition of "home" apply to the present circumstances.

[26] It follows from the above that subject to s6 of the Act the work is domestic building work and therefore the contract is a major domestic building contract. The only exception that could be said to be relevant is s6(c) which is in the following terms:-

(c) any work in relation to a building intended to be used only for business purposes;"

[27] It was argued by Mr Murdoch that the operation of serviced apartments was a business and accordingly the contract fell within the exclusion. If that argument were correct and an investor who let out houses for rent as a business would also find that the houses at the time they were built was excluded from the definition "home". It is my opinion that (c) does not have such a meaning. It is concerned with the purpose for which the building has been erected. It excludes purpose built structures such as offices, shops and factories. The references to "business purposes" should be given its ordinary meaning and in my opinion it refers to non-residential buildings. It is not concerned with whether or not the ultimate occupants of the premises own, hire or lease the premises provided those premises are residential premises.

[28] Finally because of the view I have taken I do not need to make a determination upon the submission made by Mr Garde that the work was performed on land "zoned for residential purposes". However I make the following observations. The time at which the nature of the zoning is to be assessed is the date of entry into the contract. At that date I am informed the land was within special zone use No. 10 of the Melbourne Planning Scheme. That zoning specified some 30 uses which were permitted subject to a permit and then allowed "any use not in section 1 or 2." Residential use was not one of the specified uses

but a permit could be obtained for residential use. This is similar to a question considered by Byrne J in the Fletcher Constructions case although the zoning he had to consider was somewhat different. Accordingly I would not be persuaded that the then current zoning was such that it could be said the land was zoned for residential use.

[29] In my opinion the work concerned is domestic building work as it concerns the construction of a home and accordingly the contract is a major domestic building contract. I therefore find that the Tribunal has jurisdiction in respect to this dispute. I reserve the question of costs.

Building Contracts Act 1995

Parks and Moveable Dwellings Act 1988

Contracts Guarantee Act 1987

Legislation Act 1984

Queensland Building Services Authority Act 1991

Building Contracts and Tribunal (General) Regulations 1996

Building Contracts and Tribunal Act 1995

Contracts Guarantee Act 1997

Building Services Authority Act 1991

(Prescribed Accommodation) Regulations 1990

Domestic Building Contracts and Tribunal Act 1995

Maclaw No 651 Ltd v HIH Casualty and General Insurance Ltd [1999] VCAT 24

At a glance

Court

Decision date

Before

Source

Judgment (89 paragraphs)

Maclaw No 651 Ltd v HIH Casualty and General Insurance Ltd [1999] VCAT 24 (23 June 1999)

Parties

Legislation Cited (13)

Cases Cited (5)