A residential building contract by any other name
The recent NSW Supreme Court decision of Lawrence v Ciantar [2019] NSWSC 464 provides guidance on the Court's interpretation of a joint venture agreement between two registered proprietors (owners) and a builder, and whether it constituted an agreement for the builder to undertake 'residential building work' within the meaning of the Home Building Act 1989 NSW (the Act), in which case the Act would apply. To the builder's detriment, the Court held that the Act applied and because both the agreement between the parties did not comply with the requirements of the Act and the builder did not hold an unrestricted licence, the Court held that the builder's claim for damages was unenforceable.
Background
The owners obtained development approval for a three-lot subdivision. The owners proposed a joint venture arrangement for the builder to carry out the demolition and subdivision works (DA works) in exchange for receiving one-third of equitable interest in the property. The scope of work included the installation of drainage pipes, the construction of a retention tank and a driveway and the subdivision.
Shortly after, the parties decided not to proceed with the joint venture agreement and proposed a written agreement with terms "similar" to the joint venture arrangement (Agreement). The Agreement contemplated a caveat in favour of the builder to be lodged over the Property. The owners returned the signed caveat to the builder in January 2015 and the parties signed the Agreement in March 2015. The parties also executed a deed of loan, a transfer for a one third share and a mortgage in favour of the builder.
Meanwhile from 15 January 2015, the builder's licence was under restriction which meant he was unable to enter into contracts where the reasonable market value of the work and materials exceeded $20,000.
Thereafter, the Builder failed to complete the work within the agreed period, sought two extensions of time for 6 months, and failed to complete the works for further 8 months after the extended period. In September 2017, the owners served on the builder a notice of rescission (issued under the Act) on the basis that the Agreement was for the builder to undertake 'residential building work' within the meaning of the Act and the Agreement failed to include a cooling off warning as required under the Act. The owners also terminated the deed of loan and claimed the caveat had no further operation.
The builder commenced proceedings, claiming a one-third interest in the property. The builder submitted the Agreement was for works excluded from the definition of residential building works, meaning the Act did not apply, the rescission notice was invalid and the owners' conduct was repudiatory.
The builder also submitted that under the Agreement it was open for him to arrange for someone else to carry out the works under his supervision, with the effect that the Agreement was not caught by the Act, as supervision only is excluded from the definition of residential building work (Supervision Submission).
Interpretation of the Agreement and whether the Act applied?
The Court found that the Agreement required the builder to carry out and complete the DA Works in return for a one-third share in the property. The issue then became whether the Agreement was for residential building work and fell within the Act.
If the Act applied, the builder would not be entitled to claim an interest in (or lodge a caveat over) the property and otherwise enforce any other rights in the Agreement, as the Act prohibits a contract or agreement to confer on the builder any legal or equitable interest in a land. Further, given the Agreement did not have a cooling-off warning and because the builder did not have an unrestricted licence (per section 4 of the Act), the builder would not be entitled to damages or to enforce a remedy for breach of the Agreement.
The Court found that although part of the DA Works (i.e. demolition) was excluded from the definition of "residential building work", other DA Works, including the construction of the driveway and the drainage works were to be constructed for use in conjunction with a dwelling, and therefore satisfied the definition.
As to the Supervision Submission, the Court affirmed the principles settled in Trend Properties Pty Limited v Casa Maria Pty Limited [1998] NSWCA 53 (Trend), and by comparison to the circumstances in Trend, held in this case that:
- the Agreement contemplated that the builder would obtain financial reward for carrying out and completing the DA works
- there was a contractual obligation in the Agreement for the Builder to do the work
- the Agreement did not expressly provide that the Builder was not to do the works himself or that the works were to be done by a licensed builder under the builder's supervision
- the evidence before the Court showed that the builder accepted responsibility for undertaking performance of the DA works.
For reasons set out above, the Court held that Agreement was one under which the builder undertook to do residential building works and was caught by s6 of the Act. Given the Agreement did not comply with s7 of the Act, the Court held that the owners' rescission notice was valid.
The Court accordingly held that the Builder's claimed one-third interest in the property and claims for specific performance and damages were unenforceable due to the operation of s7D and 10 of the Act.
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