Australia: New consumer protection reforms for the Victorian building industry

Sefton Warner (Special Counsel), Norton Rose Fulbright Australia¹

Overview

The Victorian Government has taken up the challenge to continue to reform the Victorian building industry in 2016, by passing the Building Legislation Amendment (Consumer Protection) Act 2016 (Vic). The reforms were first introduced into Parliament in late 2015, and received assent on 19 April 2016. The reforms are expected to come into force on 1 July 2017. In this briefing note, we summarise the impact of key anticipated reforms on developers and major contractors in the industry.

There are four relevant key topics of these reforms:

• Revision to the requirements for registration, with time-limited registrations and renewals dependent on continuing professional development;
• Increased powers for the Victorian Building Authority;
• Additional requirements for Major Domestic Building Contracts; and
• Overhaul of the dispute resolution process for domestic building work.

As these reforms are consumer protection driven, many of the reforms focus on domestic building work and increase the differences in the regulatory framework between domestic and commercial building work. Some of the reforms will apply across the board to commercial and domestic building work.

Registration: The new requirement to renew

Registration as a building practitioner will no longer be indefinite, but will instead be limited to a period of up to 5 years. This will apply to all categories of registered building practitioners (eg commercial and domestic builders, building surveyors and other relevant consultants). Renewal applications will in part be determined by an individual's compliance with continuing professional development requirements. Now the Act has passed, Victorian practitioners will need to implement or improve the means of achieving and recording such learning, especially for companies whose staff members are registered building practitioners.

These reforms do not create any new categories of registered building practitioners. This means that Victoria will remain the only State or Territory of Australia in which a corporation is not entitled to be registered in its own name as a building practitioner. Such differences in the approach to building regulation across Australia increase the cost of compliance to builders with a national business, requiring the appointment of a registered building practitioner to the board of the relevant company in order to meet this Victorian requirement.² While registration of corporations in their own name has been a previously proposed reform, it is not included in the current package.

Powers of the Victorian Building Authority

The Building Practitioners Board (BPB) will be abolished and the Victorian Building Authority (VBA) will take over the BPB's functions, including registration and discipline of building practitioners.

The VBA will take disciplinary action against building practitioners using a quicker "show cause" process. The grounds for disciplinary action will be expanded, in line with other reforms in the Act.

The expanded grounds for disciplinary action against a registered building practitioner include the nonpayment of an adjudicated amount under the Building and Construction Industry Security of Payment Act 2002 (Vic) where an adjudication review application has not been made. This is particularly relevant to building companies who carry out domestic or commercial building work in Victoria, as the conduct of the company is attributed back to the individual registered building practitioner. As a result, the relevant individual (who will likely be a board member) will need to be aware of the compliance program for the building company, including from the perspective of payments of adjudicated amounts and compliance with the requirements of the Domestic Building Contracts Act 1995 (Vic).

There will be a new requirement for building practitioners to comply with any approved code of conduct that applies to the practitioner's category or class of registration. This may be a code prepared by the VBA, or prepared by an organisation representing building practitioners and approved by the VBA. Failure to comply with any such code will be a ground for disciplinary action. At this early stage it is not clear what topics the codes of conduct might address, but we anticipate that the VBA may provide further guidance.

Another new ground for disciplinary action will include failure to comply with orders or directions given to the practitioner by the relevant building surveyor or the VBA (including directions to fix work). This will also require the registered individual to ensure that a compliance program is in place in relation to such orders and directions. The ground ties in with strengthened powers given to relevant building surveyors, the VBA and other authorised persons to direct builders to fix building work. The current system of giving building notices and building orders will become a last resort, with directions to fix becoming the primary method for directing builders to fix building work.

Major Domestic Building Contracts

After the Act commences, there will be a new requirement for builders entering into a Major Domestic Building Contract to give the building owner a 'Contract information statement' about the building contract before the contract is signed. The required contents of this statement will be subsequently prepared and approved by the Director of Consumer Affairs Victoria, but will apply to all Major Domestic Building Contracts (regardless of whether they are for single dwellings or multi-storey apartment projects). It may be possible to include such a statement as part of a Contractor's response to a tender.

The application of the Domestic Building Contracts Act 1995 (Vic) to multi- storey residential projects remains unchanged by these reforms.

Most developers who undertake a major residential project will appoint their own private building surveyor, and that practice will continue following these reforms, as a builder will soon be prohibited from appointing a private building surveyor on behalf of a building owner.

Dispute resolution for domestic building work

There will be a new conciliation framework for domestic building disputes, to be administered by a new body to be known as Domestic Building Disputes Resolution Victoria. Participating in a conciliation process will become the normal first step in the domestic building dispute resolution process. In most cases parties will not be entitled to apply to VCAT or commence action in court in relation to the dispute unless the chief dispute resolution officer has issued a certificate of conciliation. Parties will also need to participate in the conciliation conference in good faith. If they do not, this may be noted in the certificate of conciliation. VCAT will be required to make an award of costs against an unsuccessful party in VCAT proceedings who did not participate, or did not participate in good faith, in the conciliation conference.

The conciliation process will usually commence with a conciliation conference, which may take place at the building site. However, the chief dispute resolution officer will have additional powers in relation to disputes referred for conciliation, including the power:

• to issue a stop work notice requiring the builder to stop work for up to 30 days (with the potential to extend for up to a further 30 days) where appropriate (for example to preserve evidence relevant to the dispute). The period during which the stop work notice is in effect is not to be counted in the period for completion of the work under the domestic building contract;
• to direct an assessor to inquire into a domestic building work dispute and report on whether domestic building work is defective, incomplete or non-compliant;
• to issue a dispute resolution order, which may require the builder to rectify defective work, rectify damage caused, or complete defective work. A dispute resolution order may also require the payment of money by the building owner; and
• where a party has failed to comply with a dispute resolution order, to issue a breach of dispute resolution order notice.

Builders and building owners will be entitled to end their domestic building contracts in some circumstances, for example where a builder has failed to comply with a dispute resolution order and a breach of dispute resolution order has been served and not challenged by the builder.

Consistent with the consumer protection focus of the reforms, the conciliation process will be available to subsequent building owners, even though they were not the party who entered into the domestic building contract with the builder.

The changes to the dispute resolution process, together with other changes such as the strengthened powers of relevant building surveyors and the VBA to direct builders to fix building work, and the potential disciplinary consequences if builders fail to comply, all aim to enable the regulatory authorities to intervene on behalf of consumers and ensure that defective building work is fixed.

Footnotes

¹ Sefton Warner acknowledges the contribution of Kylie Lightman, Knowledge Lawyer, to the preparation of this article.
² Section 176(4) of the Building Act 1993 (Vic).