Australia: Can builders be liable for damages for home owners loss of enjoyment of home? - Builders beware, Owners take note

Last Updated: 10 April 2017
Article by Murray Thornhill

What makes a house a home, a place for the kids to play in, to entertain friends and family? A safe and tranquil place where you can relax and truly be yourself? If you instead are faced with the mess and anguish of dealing with defective home building work, can you claim compensation?

Since 1995, the UK's highest court, the House of Lords, has recognised that generally, a home building contract is intended to afford a home owner "pleasure, relaxation, peace of mind or freedom from molestation", so that home owners who miss out on these benefits because of defective home building work are entitled to be compensated for that "loss of amenity". Ruxley Electronics and Construction Limited v Forsyth [1995] UKHL 8 ("Ruxley").

Ruxley has been followed by other Courts in the UK (for example, in Newman v Framewood Manor Management Co Limited [2012] EWCA CIV 159; [2012] ALL ER (D) 144 (Feb)) and by Supreme Courts in Australia (for example, in D Galambos & Son Pty Ltd v McIntyre (1974) ACTR 10 and Carosella v Ginos & Gilbert Pty Ltd (1981) 27 SASR (515)).

What is the position in Australia?

However, in Australia, Ruxley's application is few and far between and there has never been a definitive statement of the availability of damages for loss of amenity, in a home building context. This may seem surprising given the High Court of Australia's recognition that generally, damages are available for loss of amenity or loss of enjoyment of the benefit of a contract in, for example, the context of a spoilt holiday, since the 1993 decision of Baltic Shipping Co v Dillon (1993) 176 CLR 344.

At least one commentator believes that in Australia, as in England, the law should take the step of applying this principle in a home building context (Bates, 'The Assessment of Contractual Damages for Defective Building Work in Australia: is Loss of Amenity an Available Measure?' (1999) 15 BCL 2).

One explanation for why Australia seems to be lagging behind the UK in awarding damages for loss of amenity to owners of defectively built homes may be that in Australia, administrative or technical tribunals rather than courts generally deal with home building defect complaints.

Often, it appears that these tribunals follow their own internal logic and the prior decisions of their own Members, rather than the precedents of Australian and UK courts, even though, by the doctrine of precedent, only superior courts' decisions have the authority to bind future courts and tribunals.

What is the position in WA?

A recent example in Western Australia was the State Administrative Tribunal's ("SAT") decision in Dumbreck & Tangent Nominees Pty Ltd [2016] WASAT 138.

In that case, two SAT Members decided that compensation for loss of amenity was not available to the owner of a defectively built home.

This is surprising because the scope of damages recoverable under paragraph 36(1)(c) of the Building Services (Complaints Resolution and Administration) Act 2011 ('New Act') is wider than it was under the repealed section 12A of the Builders' Registration Act ("Old Act') 1939. The SAT Members themselves acknowledged this when they quoted a passage from the Explanatory Memorandum to the New Act which says that damages under the New Act are sometimes intended to cover more than just the cost of remedying defects.

This is consistent with the law that has developed in the courts independently of the New Act. In the courts, other measures of damages are awarded when it is not appropriate to order either remediation or payment of the cost to engage someone else to remedy the defects. Those are the very kinds of cases where the courts, particularly in the UK, have recognised the availability of damages for loss of amenity.

After considering the Explanatory Memorandum to the New Act, the SAT Members turned to the following factors as further indicating that loss of amenity damages are not available to homeowners:

  1. that third parties who are affected by defective building work can make a claim under the New Act as well as home owners;
  2. that the New Act does not specifically refer to "inconvenience and stress arising from the physical attributes of home building work not carried out in a proper and proficient manner or...faulty or unsatisfactory work";
  3. what the SAT called the 'tenor' of the New Act (which appears to mean something akin to the 'vibe' referred to in the famous Australian film, The Castle);
  4. the following observation:
  5. 'The remedying of the faulty work or the payment of a monetary compensation to an owner to allow the owner to pay a third party to remedy the faulty or unsatisfactory work necessarily includes any costs the owner might incur in moving and storing furniture or in finding alternative accommodation whilst the remedial work is undertaken but only where it can be shown the remedial work cannot be done with the owners and/or their furniture remaining in the property';

  1. the fact that some remediation work needs to be done urgently;
  2. the legislative intention that tribunal proceedings be a 'relatively inexpensive process';
  3. that one ordinarily cannot recover the cost of tribunal proceedings even if one succeeds; and
  4. that according to SAT, the claim or some part of it could have been made in a court.

Our analysis of SAT's reasoning

Respectfully, we see no connection between loss of amenity claims and any of these factors. We consider that to mount a persuasive argument against the award of such damages in all cases under the New Act, SAT would have needed to answers the following questions, at least:

  1. What did the legislature intend to achieve by expanding the defined scope of compensation recoverable under section 36 of the New Act, as compared with section 12A of the Old Act?
  2. How might SAT's reasoning be reconciled with the decisions of the High Court in Baltic Shipping Company v Dillon and the House of Lords in Ruxley?

The Tribunal's assertion that claims for damages can be made at the same time in SAT and in a court for the same defective work, is respectfully, not quite correct. The only court that could hear and determine such claims, where they have a value of less than $75,000 (which in our experience comprise the majority of home building work claims) would be the Magistrates Court. That Court is expressly barred from hearing and determining any such cases, by paragraph 6(5)(e) of the Magistrates Court (Civil Proceedings) Act 2004. Under that provision, such a claim must be made to the Building Commission or, on referral by the Building Commission, to SAT. Owners have no choice of forum in WA.

Even in claims for home building defects in excess of $75,000 (where courts do have jurisdiction), it would usually not make commercial sense for a homeowner to commence separate proceedings in a court alongside related SAT proceedings just to recover some small additional amount of compensation on account of loss of amenity.

Conclusion: findings of law to be left to the Courts

In cases like this, where SAT is being called upon to answer novel legal questions, we respectfully endorse the views expressed by Allanson J in Psaros Builders Pty Ltd v Owners of Strata Plan 52843 [2014] WASC 34. There, his Honour observed that SAT should remember its role as a purely administrative tribunal and leave matters of legal or forensic complexity to the courts to determine. In doing so, SAT should, according to Allanson J, remember, and in appropriate cases, be quick to exercise, its power to refer such matters to the Supreme Court for determination.

Builders and their insurers and industry bodies should watch this space as the law develops. Home owners looking for redress should take appropriate legal advice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Murray Thornhill
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