Proprietors of Strata Scheme 3618 v Costin Roe Consulting

Supreme Court of NSW|2010-08-31|Before: Hislop J

Introduction 1 The defendant is a company whose principal business is the provision of consulting engineering services. In 2005/2006 it was engaged by the plaintiff to provide services in relation to a home unit block owned by the plaintiff at Tamarama. The services were in respect of the rectification of a spalled concrete carpark support beam. 2 The work performed pursuant to contract by the defendant was described in memoranda of fees sent by the defendant to the plaintiff and dated 23 March 2006 and 3 August 2006 respectively. 3 The plaintiff refused to pay the defendant's fees. The defendant sued the plaintiff in the Local Court for the fees which totalled $15,643.38. 4 The plaintiff contested the claim. It contended the work, the subject of the defendant's claim, was residential building work within the meaning of s 3 of the Home Building Act 1989 ("the Act") and, accordingly, the Act applied. 5 It was common ground that if the Act applied, the contract which was entered into between the plaintiff and defendant did not comply with the statutory requirements of s 7 of the Act. As a result, s 10(1) applied. 6 Section 10 provided: "(1) A person who contracts to do any residential building work, or any specialist work, and who so contracts: (a) in contravention of section 4 (Unlicensed contracting), or (b) under a contract to which the requirements of section 7 apply that is not in writing or that does not have sufficient description of the work to which it relates (not being a contract entered into in the circumstances described in section 6 (2)), or (c) in contravention of any other provision of this Act or the regulations that is prescribed for the purposes of this paragraph, 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, and the contract is unenforceable by the person who contracted to do the work. However, the person is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person…" 7 It was also common ground that, if the Act applied, no valid contract of home warranty insurance had been entered into as required by s 92(1)(a) of the Act. 8 His Honour, Magistrate Walsh, held the Act did not apply or, if it did, that the defendant was entitled to recover the sum claimed on a quantum meruit basis. 9 The plaintiff, by summons filed on 24 December 2009, has appealed from his Honour's decision. The grounds of appeal are: "1. The Local Court, in proceedings no 8061 of 2007, erred in law in holding that the Home Building Act 1989 did not apply to the residential building work the subject of the Defendant's claim in the court below. 2. Further or other grounds to be set out, with or without leave as required, on receipt of written reasons for the orders of a transcript of the oral reasons given for the orders by the court below." 10 The plaintiff, in its submissions to this Court, identified three issues. These are discussed below. The plaintiff accepted its appeal must fail unless it succeeded on each issue. It accepted that it was bound by his Honour's findings of fact.

The appeal 11 An appeal from the Local Court lies, as of right, only on a question of law - s 39(1) Local Court Act 2007. An appeal, by leave of the court, is available in respect of questions of mixed law and fact and costs- s 40 Local Court Act 2007. 12 The powers of this court are contained in s 41 which provides that the Supreme Court may determine an appeal made under ss 39(1) or 40 "(a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal."

Issue 1 - Was the work which the defendant contracted with the plaintiff to perform work falling within the statutory definition of residential building work in s 3 of the Act? 13 Section 3 of the Act provides: " 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. It includes work declared by the regulations to be roof plumbing work or specialist work done in connection with a dwelling and work concerned in installing a prescribed fixture or apparatus in a dwelling (or in adding to, altering or repairing any such installation). It does not include work that is declared by the regulations to be excluded from this definition."

"Dwelling" includes a home unit block - s 3. 14 His Honour, in his judgment, described the work done by the defendant pursuant to the contract as follows:

(a) For the period 2005 to 23 March 2006: "…the work relates to specified site attendances, measuring up objects, undertaking investigations, corresponding with organisations to determine the feasibility of rectification and providing a report with evaluations and recommendations for rectification works…[Exhibit 1] confirmed that the work was investigative and preliminary to any actual rectification work."

(b) The period 23 March 2006 to 3 August 2006: "…the work for that particular period relates to specified site attendances; liaising with prospective contractors who would actually do the rectification work if successful in the tender process; dealing with payment recommendations for the successful contractor, R M Watson, dealing with budget estimates; preparing [a work specification] and reviewing reports."

(c) Additionally: "…the [defendant] was also involved in generally reviewing the repair procedure throughout the progress of the job. In my view, that is not supervision of the work, nor co-ordinating the work on a day-to-day basis." 15 The plaintiff relied upon the comment in 14 above. It submitted his Honour erred in law in that he misapplied the test in s 3 by stating that s 3 required supervision (sic co-ordination) on a day-to-day basis, and also in ignoring the words "any work involved in…". These were errors of law - see Scicluna v NSW Land and Housing Corporation (2008) 72 NSWLR 674 at [3], [4], [43],[57]-[59], [64]-[69]. 16 The defendant submitted "it is clear that co-ordinating or supervising…must relate to any work involved in [(a), (b) or (c)]…it is the process of building that is caught. It is the process of co-ordinating or supervising any work involved in the actual building or physical construction that is caught." I accept that submission. In my opinion, the words in s 3 are used according to their ordinary meaning. 17 It is implicit in the judgment that his Honour did not erroneously ignore the words "any work involved in" in s 3. It was unnecessary for him to make express reference to those words as the plaintiff's written submissions had emphasised that the important words in s 3 were "involved in co-ordinating or supervising any work which it submitted covered the activities of the defendant the subject of its invoices". 18 It is unclear precisely what his Honour intended by referring to "co-ordinating the work on a day-to-day basis". I am not satisfied that his Honour intended to add a requirement to s 3 that co-ordination should be on a day-to-day basis. However, even if his Honour considered it a pre-requisite, the evidence was so overwhelming (see [14] above) that the defendant was not involved in co-ordination of the actual work that the error, if there be one, would not affect the decision of his Honour and does not have the effect that the appeal should be upheld - Scicluna at [68]-[70].

Issue 2 - Was the work excluded from the statutory definition by reason of reg 9(1)(g)(iii) of the Home Building Regulation 2004? 19 Regulation 9(1)(g)(iii) declares certain work to be excluded from the definition of residential building work. The regulation is in the following terms: "(1) For the purposes of the definition of residential building work in section 3 (1) of the Act, the following is declared to be excluded from that definition: (g) the supervision only of residential building work: (iii) by any other person, if all the residential building work is being done or supervised by the holder of a contractor licence authorising its holder to contract to do that work." 20 In the course of his judgment his Honour said: "The [defendant] argues that all the work was done by a holder of a contractor licence authorising its holder to contract to do the work. In this regard, the actual work which fell within the definition of s 3(1) of residential building work related to the repairing, renovation, decoration or protective treatment of a building. It was rectification work, ultimately done by R.M. Watson, the successful tendering contractor. The work done by the [defendant] was preliminary, investigatory, related to expert specifications, the tendering process and reviewing work at periodic site inspections for the purpose of reporting to the [plaintiff]. Even if this amounted to co-ordinational supervision, the actual rectification work was done by the contract, R.M. Watson. Regulation 9(1)(g)(iii) specifies 'or' as being the important word." 21 His Honour concluded: "There is nothing in the evidence to suggest R M Watson was not an appropriate authorised contractor. Indeed, from Exhibit 1, it's annexures and the oral evidence of Mr Roe, I infer that R M Watson was such a contractor. I find that the [defendant] comes within the exclusion of the definition of residential building work in s 3(1), pursuant to Regulation 9(1)(g)(iii). In those circumstances, the provisions of the Home Building Act do not apply to the contract between the [defendant] and the [plaintiff] concerning the work and services provided by the [defendant] to the [plaintiff] in 2005/2006." 22 The plaintiff submitted his Honour erred in law in that he misapplied the test in reg 9 as:

(a) his Honour erred in referring to "co-ordinational supervision". The regulation related to supervision only and not co-ordination;

(b) his Honour neglected to deal with the word "all" in the regulation. The important word was "all" not "or";

(c) it could not be contended that [the builder] was doing all of the applicable works given that the defendant had a clear and active role which it had contracted to do, that being co-ordination by way of creation of the tender, selection of the tender, and then supervision of the technical aspects of the work. The builder was not doing that and it could not be said the builder was doing all of the works. 23 The references to "co-ordinational supervision" and the "important word" were contained in a paragraph of the judgment which commenced with the words "The [defendant] argues". The better view may be that his Honour, in this paragraph, was recounting a submission put to him by the defendant. 24 However, the reference to "co-ordinational supervision" is incorrect, the regulation, in its terms, refers only to "supervise". Even if this error was attributable to his Honour, it would seem to have no material effect. If the defendant was involved in supervising the work, then the regulation excluded such supervision from the definition in s 3. 25 The reference to the word "or" as being the "important word" is not erroneous. That word stresses the important matter that the application of s 3 may be excluded by the regulation in two situations, namely where all the work referred to in (a), (b) or (c) of the s 3 definition was being

(a) done by the holder of a contractor licence authorising its holder to contract to do that work, or

(b) supervised by the holder of such a licence. 26 His Honour correctly stated the terms of the regulation and there is no reason to believe that he did not have it in mind when considering the application of the regulation. 27 His Honour's finding that the builder R.M. Watson was an appropriate authorised contractor was a finding of fact and not open to challenge. Similarly the finding that the actual building work was being done by the contractor was open to his Honour.

Conclusion 28 His Honour, in my opinion, correctly held that the Act did not apply.

Issue 3 - Was the defendant entitled to recover on a quantum meruit? 29 Section 92(1)(a) of the Act provides: "(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 of the person who contracted to do the work." 30 Section 94(1) provides: "(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)." 31 Section 94(1A) provides: "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." 32 Part 6 of the Act is concerned with home warranty insurance. This Part includes ss 92 and 94 of the Act. The plaintiff submitted those sections did not relieve against non-compliance with ss 7 and 10. The function of s 94(1A) is to remove the prohibition on recovery resulting from an absence of insurance, that prohibition being created by s 94(1). It does not, however, remove the sanction imposed by s 10 in circumstances where, in addition to no insurance, there was no compliance with s 7, with the result s 10 applied. Section 94(1A) only removes the sanction imposed by s 94(1). 33 Each party relied upon the statement by Hodgson JA in Brodyn Pty Limited t/as Time Cost and Quality v Davenport (2004) 61 NSWLR 421 at [82]. There his Honour said: "In my opinion, the civil consequences for an unlicensed contractor for its breach of s 4 are those set out in s 10, and not any wider deprivation of remedies. In my opinion this is confirmed by the different provisions of s 94, which explicitly precludes, in the event of breach of the insurance provisions, the obtaining of a quantum meruit unless a court considers it just and equitable. In my opinion, the remedy given by the Act is not of the nature of damages or any other remedy in respect of breach of contract nor is it enforcement of the contract: it is a statutory remedy, albeit one that in part makes reference to the terms of a contract, and thus it is not affected by s 10 of the Home Building Act ." 34 The defendant submitted the plaintiff's argument was precluded on a proper reading of para [82]. Plaintiff's counsel submitted that para [82] was supportive of his argument and encapsulated the point he was making when it was understood that his Honour, in referring to "the Act", was referring to the Building and Construction Industry Security of Payment Act, 1999 which Hodgson JA had so defined in para [8] of his judgment. 35 His Honour held, in the alternative, that the defendant was entitled to the sum claimed on a quantum meruit basis. It is unnecessary for me, in the light of my findings, to do other than record that I prefer the defendant's construction of para [82] in Brodyn and would uphold his Honour's judgment on this ground also.

The plaintiff is to pay the defendant's costs. **********

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.

CITATION : Proprietors of Strata Scheme 3618 v Costin Roe Consulting [2010] NSWSC 1049

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