Australia: Residential Focus – 6 June 2018: Part 1 - Subcontractors beware!

Last Updated: 9 June 2018
Article by Christine Jones, Eleanor Grounds and Christopher Yong
Most Read Contributor in Australia, September 2018

Subcontractors beware - s 18D(1A) HBA and the non-contracting owner

In AJ Gouros Investments Pty Ltd trading as Adelaide Concrete Polishing & Grinding Pty Ltd v Pongraz [2018] NSWCATAP 129 the New South Wales Civil and Administrative Tribunal (the Tribunal) Appeal Panel (the Appeal Panel) looked at whether owners could enforce statutory warranties against a party which claimed it was a subcontractor to the builder.

Facts

The owners engaged a builder to build a new home. One of the owners was employed by the builder as a sales assistant. A flooring contractor was engaged to polish exposed concrete floors to a 'mirror finish'.

The owners commenced proceedings in the Tribunal against the flooring contractor claiming that the works were improperly completed since the concrete floor was poorly finished and had pitting.

The owners maintained they had a contract with the flooring contractor for the polishing works and that the flooring contractor owed them the statutory warranties under s 18B of the Home Building Act (the Act).

The flooring contractor argued that the polishing works were carried out properly and that the poor finish and pitting was due to the substandard quality of the concrete slab construction. Furthermore, the flooring contractor claimed that the contract for the works was not with the owners, but with the builder, and therefore challenged the owners' ability to bring a claim against it.

At first instance the Tribunal found that the flooring contractor had breached its statutory warranties as it had not carried out the polishing works with due care and skill. Furthermore, the Tribunal held that s 18D(1A) of the Act extends the statutory warranties to 'non-contracting owners' (i.e. owners of the land who are not party to a contract to undertake residential building works on their land). As such, it was unnecessary to determine with whom the flooring contractor had actually contracted.

The Tribunal ordered the flooring contractor to pay the owners $18,260 in damages to rectify the poorly finished and defective concrete floor.

Appeal

The flooring contractor appealed on two grounds, arguing that:

  • the Tribunal erred in finding that an owner who is not party to a subcontract falls within the definition of a 'non-contracting owner'; and
  • the Tribunal erred in finding that s 18D(1A) entitles a home owner to the benefit of the statutory warranties in s 18 as against a subcontractor.

What is a 'non-contracting owner'?

The Appeal Panel noted that, in coming to the conclusion that the statutory warranties extend to a 'non-contracting owner', the Tribunal had followed the analysis of s 18D(1A) in EK Constructions Pty Ltd v Zhu [2017] NSWCATAP 102 (EK Constructions). In that case, the contractor argued that it did not have a contract with the owner, but rather with his company. The Appeal Panel held that the owner was a non-contracting owner under s 18D(1A) of the Act and was entitled to the benefit of the s 18B statutory warranties.

On appeal, the flooring contractor argued that the matter was distinguishable from the facts of EK Constructions, and that the Tribunal below had failed to consider the decision in The Owners – Strata Plan 74602 v Brookfield Australia Investments Ltd [2015] NSWSC 1916 (Brookfield). In Brookfield it was held that a 'non-contracting owner' must be someone who is the owner of that land, and who is not a party to the contract to do residential building work on that land. As the Appeal Panel noted:

His Honour did not consider that s 18D(1A) was intended to extend, and should not be interpreted as extending, the benefit of the warranties so as to permit an owner that has contracted with a builder (and therefore a successor in title to the owner) to make a claim for breach of statutory warranty against a subcontractor to the builder.

Whilst the Appeal Panel noted that the Tribunal did not consider Brookfield, a further difficulty arose in circumstances where the Tribunal had not determined the identity of the parties to the contract.

Who were the parties to the contract?

The Appeal Panel then sought to identify who the contracting parties were. It first acknowledged that the initial quote for the polishing works was requested by the employee owner using her work email account. The flooring contractor sent its quote to that email address, but addressed the quote to the builder. The quote was then personally signed by the employee owner and returned to the flooring contractor, and the owners paid the flooring contractor directly for the works.

On the other hand, the Appeal Panel also acknowledged that the trade supply agreement, being the terms and conditions for the supply of goods and services, was signed by the builder. The trade supply agreement stated, among other things:

The Company wishes to engage the Contractor to provide the Goods and Services and the Contractor has agreed to provide the Goods and Services on the terms set out in this document...

Despite the fact the employee owner signed the quote in her personal capacity and the owners paid the flooring contractor directly for the works, the Appeal Panel ultimately held there was no concluded contract when the employee owner returned the signed quote. Instead, the Appeal Panel found the builder had entered into a contract with the flooring contractor to carry out the polishing works on the owners' land. However, there was no contract between the owners and the builder for that work, since the items providing for polished concrete works had been deleted from the contract between the owners and the builder via a written variation.

Were the owners non-contracting owners under s 18D(1A)?

As the only contract for the flooring work was between the builder and the flooring subcontractor, the Appeal Panel held that the owners were non-contracting owners for the purpose of s 18D(1A) of the Act and entitled to the benefit of the s 18B statutory warranties. The Appeal Panel held the Tribunal was correct in finding that the owners had the benefit of the statutory warranties, and dismissed the appeal. The Appeal Panel also noted two alternative bases for finding the flooring contractor liable – either on the basis that the builder was the undisclosed agent of the owners or based on a supply of service and corresponding breach of the consumer guarantees under the Australian Consumer Law.

What does this mean?

This case is an important reminder that the Home Building Act creates obligations even in the absence of a contract. Whilst the facts of this case are unusual, concerned sub-contractors could consider seeking assurance from head contractors that their work forms part of the head contract, if sub-contractors are seeking to avoid direct liability to owners under the s 18B statutory warranties.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
Christine Jones
Eleanor Grounds
 
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